U.S. SECURITIES AND EXCHANGE COMMISSION
FORM 10-QSB
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. | |
| For the quarterly period endedDecember 5, 2004 | ||
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
GLASSMASTER COMPANY
| South Carolina | 0-2331 | 57-0283724 | ||
| (State or other jurisdiction of | (Commission | (IRS Employer | ||
| Incorporation of organization | File Number) | Identification No.) | ||
| PO Box 788, Lexington SC | 29071 | |
| (Address of principal executive offices) | (Zip Code) | |
| Issuer’s Telephone Number, including area code: | 803-359-2594 | |
No Change
Indicate by check mark whether the registrant:
| (1) | Has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months | |
| YESx NOo | ||
| (2) | Has been subject to such filing requirements for the past 90 days | |
| YESx NOo |
| Common shares outstanding December 5, 2004: | 1,643,390 par value $0.03 | |
GLASSMASTER COMPANY
FORM 10-QSB
FOR THE QUARTER ENDED DECEMBER 5, 2004
| PAGE | ||||||
Part I. | FINANCIAL INFORMATION | |||||
| Item 1. | Financial Statements | |||||
| Balance Sheets as of December 5, 2004 (Unaudited) and August 31, 2004 | 3 | |||||
| Statements of Operations for the three months ended December 5, 2004 and November 30, 2003 (Unaudited) | 4 | |||||
| Statements of Cash Flows for the three months ended December 5, 2004 and November 30, 2003 (Unaudited) | 5 | |||||
| Notes to Consolidated Financial Statements (Unaudited) | 6 | |||||
| Item 2. | Management’s Discussion and Analysis | 9 | ||||
| Item 3. | Controls and Procedures | 10 | ||||
Part II. | OTHER INFORMATION | |||||
| Item 5. | Other Information | 10 | ||||
| Item 6. | Exhibits and Reports on Form 8-K | 10 | ||||
| SIGNATURES | 11 | |||||
| CERTIFICATIONS | 12 | |||||
| EXHIBITS | ||||||
| Exhibit 99.1 Certification of Periodic Report | 14 | |||||
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PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
Glassmaster Company, Inc. and Subsidiary
Consolidated Balance Sheets
(In Thousands)
| December 5, 2004 | August 31, 2004 | |||||||
| (Unaudited) | ||||||||
ASSETS | ||||||||
Current Assets: | ||||||||
| Cash and Cash Equivalents | $ | 183 | $ | 131 | ||||
| Accounts Receivable, Trade (Net of Reserve) | 2,716 | 2,372 | ||||||
| Inventories, net | 2,883 | 2,902 | ||||||
| Prepaid Expenses | 271 | 126 | ||||||
| Deferred Income Taxes | 45 | 45 | ||||||
| Total Current Assets | 6,098 | 5,576 | ||||||
Property, Plant, and Equipment, net | 2,721 | 2,829 | ||||||
Deferred Tax Assets | 1,397 | 1,397 | ||||||
Other Assets | 19 | 20 | ||||||
| Total Assets | $ | 10,235 | $ | 9,822 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY | ||||||||
Current Liabilities: | ||||||||
| Revolving Lines of Credit | $ | 2,941 | $ | 2,606 | ||||
| Notes and Debentures payable, current | 4,689 | 1,050 | ||||||
| Accounts Payable | 2,067 | 1,737 | ||||||
| Accrued Expenses | 123 | 209 | ||||||
| Total Current Liabilities | 9,820 | 5,602 | ||||||
Other Liabilities | ||||||||
| Notes and Debentures payable, long term | 410 | 4,137 | ||||||
| Total Liabilities | 10,230 | 9,739 | ||||||
Stockholders’ Equity | ||||||||
| Capital Stock, 5,000,000 shares authorized $0.03 Par, 1,643,390 shares issued and outstanding | $ | 49 | $ | 49 | ||||
| Paid-In Capital | 1,367 | 1,367 | ||||||
| Donated Capital | 124 | 124 | ||||||
| Retained Deficit | (1,535 | ) | (1,457 | ) | ||||
| Total Stockholder’s Equity | 5 | 83 | ||||||
| Total Liabilities and Stockholder’s Equity | $ | 10,235 | $ | 9,822 | ||||
See notes to consolidated financial statements (unaudited) which are an integral part of this statement.
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Glassmaster Company, Inc. and Subsidiary
Consolidated Statements of Operations
(In thousands except per share amounts)(Unaudited)
| Three Months Ended | ||||||||
| December 5, 2004 | November 30, 2003 | |||||||
| Sales | $ | 4,213 | $ | 3,634 | ||||
| Cost of Sales | 3,572 | 3,137 | ||||||
| Gross Profit | 641 | 497 | ||||||
Operating Expenses | ||||||||
| Marketing and Selling | 223 | 159 | ||||||
| General and Administrative | 212 | 162 | ||||||
| Other Income and Expense — Net | 144 | 159 | ||||||
| Total Operating Expenses | 579 | 480 | ||||||
| Income From Operations | 62 | 17 | ||||||
Other Income (Expense), net | ||||||||
| Interest Expense | (140 | ) | (138 | ) | ||||
| Total Other Income (Expense), net | (140 | ) | (138 | ) | ||||
| Loss Before Income Taxes | (78 | ) | (121 | ) | ||||
| Income Taxes | 0 | 0 | ||||||
| Net Loss | $ | (78 | ) | $ | (121 | ) | ||
| Net Loss per common share (Basic and Diluted) | $ | (0.05 | ) | $ | (0.07 | ) | ||
| Weighted Average Shares Outstanding | 1,643,390 | 1,643,390 | ||||||
See notes to consolidated financial statements (unaudited) which are an integral part of this statement.
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Glassmaster Company, Inc. and Subsidiary
Consolidated Statements of Cash Flows
(In Thousands)(Unaudited)
| Three Months Ended | ||||||||
| December 5, 2004 | November 30, 2003 | |||||||
Cash Flows From Operations | ||||||||
| Net Loss | $ | (78 | ) | $ | (121 | ) | ||
| Adjustments to reconcile Net Loss to Net Cash Provided by Operations: | ||||||||
| Depreciation | 108 | 142 | ||||||
| Amortization | 9 | 7 | ||||||
| Changes in Operating Assets & Liabilities: | ||||||||
| Accounts Receivable | (344 | ) | (260 | ) | ||||
| Inventories | 19 | (162 | ) | |||||
| Prepaid Expenses & Other Current Assets | (145 | ) | (149 | ) | ||||
| Accounts Payable | 330 | 634 | ||||||
| Accrued Expenses | (85 | ) | (83 | ) | ||||
Net Cash Provided (Used) By Operating Activities | (186 | ) | 8 | |||||
Cash Flows From Investing Activities | ||||||||
| Cash payments for the purchase of Fixed Assets | 0 | 0 | ||||||
| Cash payments for Deferred Charges | (8 | ) | 0 | |||||
| Cash Proceeds from the sale of Trading Securities | 0 | 11 | ||||||
Net Cash Provided (Used) By Investing Activities | (8 | ) | 11 | |||||
Cash Flows From Financing Activities | ||||||||
| Net Borrowings (Repayments) on Term Debt | (89 | ) | (88 | ) | ||||
| Net Borrowings (Repayments) on Lines of Credit | 335 | 3 | ||||||
Net Cash Provided (Used) by Financing Activities | 246 | (85 | ) | |||||
| Net Increase (Decrease) In Cash | 52 | (66 | ) | |||||
| Cash and Cash Equivalents at beginning of period | 131 | 132 | ||||||
Cash and Cash Equivalents at end of period | $ | 183 | $ | 66 | ||||
| Supplemental Cash Flow Information | ||||||||
| Cash Paid For: | ||||||||
| Interest | $ | 136 | $ | 135 | ||||
See notes to consolidated financial statements (unaudited) which are an integral part of this statement.
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Glassmaster Company, Inc. and Subsidiary
Notes to Consolidated Financial Statements (Unaudited)
NOTE 1 — Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. However, in the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the Company’s financial position, results of operations, and cash flows have been included.
The consolidated financial statements for the quarters ended December 5, 2004 and November 30, 2003 and for the year ended August 31, 2004 include the accounts of Glassmaster Company, Inc. (“Glassmaster” or “the Company”) and its wholly owned subsidiary Glassmaster Controls Company, Inc. (“Controls”). All material intercompany transactions have been eliminated. Operating results for the three-month period ended December 5, 2004 are not necessarily indicative of the results that may be expected for the full fiscal year ended August 31, 2005. For further information, refer to the Consolidated Financial Statements and Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-KSB for the year ended August 31, 2004.
NOTE 2 — Uncertainties
The Company has incurred recurring losses from operations, and as of December 5, 2004, the Company’s current liabilities exceed its current assets by $3,722,790. Its total liabilities of $10,230,855 exceed its total assets of $8,838,174 net of deferred tax assets of $1,396,597 by $1,392,681. Management has continued cost reduction programs and is pursuing opportunities to raise additional equity capital through outside sources. Additionally, the Company’s management is pursuing possible sales of assets and product lines, and pursuing affiliations with other companies to sustain operations until current sales levels of existing products and planned sales of new products, along with expected improved profit margins through cost reductions, can move the Company toward future profitability. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classifications of liabilities that might be necessary in the event that the Company is unable to generate sufficient capital to execute this plan.
NOTE 3 — Revenue Recognition
The Company recognizes revenue from product sales upon shipment to its customers.
NOTE 4 — Accounts Receivable
The Company continually reviews accounts for collectability and establishes an allowance for losses on trade receivables. Accounts receivables have been reduced by an allowance for doubtful accounts in the amount of $129,601 and $129,258 as of December 5, 2004 and August 31, 2004, respectively.
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Glassmaster Company
Notes to Consolidated Financial Statements (Unaudited)
NOTE 5 — Inventories
Inventories as reported on the 2004 balance sheets are classified below:
| December 5 | August 31 | |||||||
| Materials | $ | 2,199,787 | $ | 1,986,690 | ||||
| Work in Process | 373,727 | 348,628 | ||||||
| Finished Products | 455,185 | 712,452 | ||||||
| Reserve for Excess and Obsolete Inventories | (146,049 | ) | (146,049 | ) | ||||
| $ | 2,882,650 | $ | 2,901,721 | |||||
NOTE 6 — Reclassification
Certain prior year amounts may have been reclassified to conform with the current year presentation.
NOTE 7 — Notes and Mortgages Payable
Substantially all property, plant and equipment are pledged as collateral for borrowings. In addition, inventories and customer receivables are pledged as collateral to provide the company and it’s subsidiary with revolving lines of credit for working capital requirements. The amount available for borrowings under these lines of credit varies with fluctuations in the amount of inventories on hand and customer receivables outstanding with maximum available credit lines of $2,500,000 for the Company and $1,150,000 for the Company’s subsidiary. The line of credit for the Company requires monthly interest payments at prime (5% at December 5, 2004) plus 2.5%. The line of credit for the Company’s subsidiary requires monthly interest payments at prime plus 1%. The balances as of December 5, 2004 were $2,231,237 and $709,625 and the balances as of August 31, 2004 were $2,043,192 and $562,930, respectively. These credit agreements are subject to renegotiation and renewal and will expire October 5, 2005 and December 31, 2004 for the Company and its subsidiary, respectively. In December 2004 the company received commitments from the subsidiary’s primary lender to renew the revolving line of credit for an additional one year period. In addition to renewing the revolver, the subsidiary’s term notes on its buildings and equipment will be refinanced. An additional $300,000 in working capital will be available as a result of these refinancings that are scheduled to close during the second quarter.
Special provisions of the loan agreements restrict payment of cash dividends without the consent of the lender
NOTE 8 — Segment Reporting
The Company classifies its business into two segments based on products offered and geographic location; Industrial Products and Controls and Electronics. The Industrial Products segment produces extruded synthetic monofilament line, pultruded fiberglass products, and composites that are sold for use in a variety of industrial applications and markets. The Controls and Electronics segment produces flexible cable controls, mechanical and electronic HVAC controls, molded control panels and electronic testing equipment, that are sold for use in the heavy truck, marine, and agricultural industries and is a contract manufacturer of custom electronic products.
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Glassmaster Company
Notes to Consolidated Financial Statements (Unaudited)
NOTE 8 — Segment Reporting (continued)
The Company evaluates performance based on profit or loss from operations before income taxes not including nonrecurring gains and losses. There are currently no significant intersegment sales and transfers, therefore no eliminations have been made to the information below. Included in the tables below is relevant financial data provided by each reportable segment. The amounts shown in the Other column are generally those expenses and assets which are associated with the Company’s corporate headquarters and other entity wide expenses which have not been included in segment information.
| Three Months Ended December 5, 2004 | ||||||||||||||||
| Industrial | Controls & | |||||||||||||||
| Products | Electronics | Other | Total | |||||||||||||
| Segment Assets | $ | 4,629,944 | $ | 3,380,871 | $ | 2,224,216 | $ | 10,235,031 | ||||||||
| Revenues from External Customers | 2,869,118 | 1,343,874 | 4,212,992 | |||||||||||||
| Segment Profit (Loss) before interest | 235,561 | (19,157 | ) | (154,211 | ) | 62,193 | ||||||||||
| Interest Expense | 123,484 | 16,270 | 139,754 | |||||||||||||
| Income (Loss) Before Income Taxes | (77,561 | ) | ||||||||||||||
| Three Months Ended November 30, 2003 | ||||||||||||||||
| Industrial | Controls & | |||||||||||||||
| Products | Electronics | Other | Total | |||||||||||||
| Segment Assets | $ | 4,523,235 | $ | 3,866,444 | $ | 1,882,679 | $ | 10,272,358 | ||||||||
| Revenues from External Customers | 2,115,793 | 1,518,063 | 3,633,856 | |||||||||||||
| Segment Profit (Loss) before interest | 56,708 | 133,236 | (173,168 | ) | 16,776 | |||||||||||
| Interest Expense | 113,896 | 24,044 | 137,940 | |||||||||||||
| Income (Loss) Before Income Taxes | (121,164 | ) | ||||||||||||||
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Item 2. Management’s Discussion and Analysis
RESULTS OF OPERATIONS
Consolidated net sales for the first quarter ended December 5, 2004 were $4,212,992, an increase of 15.9% when compared with prior year first quarter sales of $3,633,856. The increase in comparative first quarter sales is due to a 36% increase in sales of monofilament products resulting from the improvement in the industrial sector of the U.S. economy during 2004. Sales in the first quarter at Glassmaster Controls decreased 11.5% compared to the same period of the prior year as sales of electronic controls and circuit boards declined 76% due to the scheduled completion of contracts while sales of cable systems and control assemblies used in the heavy truck and bus markets improved 34.6% in tandem with the industry recovery. First quarter sales also benefited approximately 5% from a reporting period that included three additional shipping days when compared to the prior year quarter (65 days versus 62 days).
Gross profit realized during the first quarter increased to $641,436, or 15.2% of sales, from $497,041, or 13.7% of sales in the year ago first quarter. The increase in gross profit is due to a favorable mix of product sales as well as increased sales and related manufacturing activity at Monofilament. The company continues in its efforts to reduce the costs of manufacturing on all of its products. Any significant future increase in gross margins will result from increasing levels of orders and throughput at Monofilament and higher rates of utilization on electronic production equipment at Controls.
Operating expenses increased to $579,244, or 13.7% of sales, in the current year first quarter, compared to $480,265, or 13.2% of sales, in the prior year comparative period. Marketing and selling expenses in this year’s quarter increased due to higher commission generated sales at Monofilament compared to last year. General & administrative expenses increased due to higher employee insurance costs. Other income and expenses, net were lower in the current year quarter due to a decline in general corporate overhead this year versus the prior year period.
Interest expense totaled $139,754 during this year’s first quarter compared with $137,940 last year, an increase of 1.3%. The small increase in interest expense is attributable to higher average interest rates that were mostly offset by lower average borrowings outstanding compared to last year’s quarterly period.
The net loss was $77,561 during the current year first quarter compared with $121,164 in last year’s quarterly period.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided (used) by operating activities was ($185,823) during the first quarter of the 2005 fiscal year compared with $7,654 during the prior year period. The decline in cash flows from operating activities is primarily due to an increase in accounts receivable outstanding at quarter end as a result of the improved sales at Monofilament during the quarter compared to the prior year period.
Cash provided (used) by investing activities during the first quarter was ($8,100) compared to $10,764 in the year ago period.
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Item 2. Management’s Discussion and Analysis (Cont’d)
Net cash provided (used) by financing activities was $246,015 in the current year period versus ($84,625) last year. The increase in cash flows from investing activities is primarily due to an increase in borrowings outstanding under lines of credit compared to last year. The increase of accounts receivable outstanding due to higher sales levels at Monofilament necessitated the additional working capital borrowings. See Note 7, Notes and Mortgages Payable, of the Notes to Consolidated Financial Statements (unaudited) for further information and a current status of the company’s discussions with its lenders.
The company currently anticipates that its cash requirements during the remainder of the 2005 fiscal year will be provided from operations and from borrowings under existing and committed credit lines.
Item 3. Controls and Procedures
(a) Evaluation of disclosure controls and procedures. The Company’s principal executive officer and its principal financial officer, after evaluating the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-14(c) and 15d-14(c)), have concluded that, as of such date, the Company’s disclosure controls and procedures were adequate and effective to ensure that material information relating to the Company and its consolidated subsidiaries would be made known to them by others within those entities.
(b) Changes in internal controls. There were no significant changes in the Company’s internal controls or in other factors that could significantly affect the Company’s disclosure controls and procedures subsequent to the date of their evaluation, nor were there any significant deficiencies or material weaknesses in the Company’s internal controls. As a result, no corrective actions were required or undertaken.
PART II — OTHER INFORMATION
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
| a) | Exhibits | |
| Exhibit 99.1 — Certification of Periodic Report | ||
| b) | Reports on Form 8-K | |
| There were no reports on Form 8-K filed during the quarter ended December 5, 2004 |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| GLASSMASTER COMPANY | ||
| LEXINGTON, SC | ||
| Date: January 18, 2005 | /s/ Raymond M. Trewhella | |
| Raymond M. Trewhella | ||
| (CEO and Chairman of the Board, | ||
| Principal Executive Officer) | ||
| Date: January 18, 2005 | /s/ Richard E. Trewhella | |
| Richard E. Trewhella | ||
| (Corporate Controller & Treasurer, | ||
| Principal Financial Officer) |
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Certifications
I, Raymond M. Trewhella , certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Glassmaster Company;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: January 18, 2005
/s/ Raymond M. Trewhella
Raymond M. Trewhella
CEO and Chairman of the Board
Principal Executive Officer
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Certifications (cont’d)
I, Richard E. Trewhella, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Glassmaster Company;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: January 18, 2005
/s/ Richard E. Trewhella
Richard E. Trewhella
Corporate Controller & Treasurer
Principal Financial Officer
13
