April 4, 2006
By U.S. mail and facsimile to (803) 359-0897
Richard E. Trewhella
Corporate Controller & Treasurer
Glassmaster Company
P.O. Box 788
Lexington, SC 29071
RE: Glassmaster Company
Form 10-KSB for the fiscal year ended August 31, 2005
Filed November 29, 2005
Form 10-QSB for the period ended December 4, 2005
Schedule 14A filed January 17, 2006
File No. 0-2331
Dear Mr. Trewhella:
We have reviewed your filings and have the following
comments.
Where indicated, we think you should revise your documents in
response to these comments. Also where indicated, we think you
should
revise your disclosures in future filings in response to these
comments. If you disagree, we will consider your explanation as
to
why our comment is inapplicable or a revision is unnecessary.
Please
be as detailed as necessary in your explanation. In some of our
comments, we may ask you to provide us with supplemental
information
so we may better understand your disclosure. After reviewing this
information, we may or may not raise additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
Form 10-KSB for the year ended August 31, 2005
Management`s Discussion and Analysis, page 6
Review of Operations, page 6
1. You state here and in your Form 10-QSB for the quarter ended
December 4, 2005, that your controls and electronics segment sales
decreased due to scheduled completion of contracts. Please tell
us
and disclose, in future filings, the factors explaining why new
contracts are not in place to generate revenue to offset the
completion of the completed contracts.
Liquidity and Capital Resources, page 9
2. You state that you anticipate that your cash requirements will
be
provided by operations and existing and committed credit lines.
You
also disclose, on page 26, that the amounts available under these
credit lines vary with fluctuations in the amount of inventories
and
receivables. Please tell us and disclose, in future filings,
including your future Forms 10-QSB, the amounts available under
each
line of credit at the balance sheet date.
3. We note that the increases in your accounts payable contribute
significantly towards reducing your total cash outflows from
operations. We note this trend continues through the quarter
ended
December 4, 2005. Please tell us, and disclose in future filings,
the reasons for the increase in accounts payable, including:
* Any changes in your cash management policies, such as delayed
payments to vendors.
* Any known trends or uncertainties that are reasonably likely to
have a material effect on your liquidity. For example, if these
increases are due to changes in your cash management policies,
please
clarify how long you expect to be able to sustain this trend
before
requiring cash to pay your outstanding payables.
4. We note you issued convertible debt during the third quarter
of
2005 and have the following comments:
* In note 6, please clearly identify the appropriate debt as
convertible.
* Please tell us and disclose, in future filings, the
circumstances
under which the debt can be converted, including any contingencies
surrounding the conversion feature, put/call features, and
redemption
features.
* Tell us how you are accounting for these various features,
specifically your conversion feature and how you considered the
guidance in SFAS 133, EITF 00-19, EITF 98-5 and EITF 00-27.
* Please also provide us with a copy of your subordinated
convertible
debenture indentures and tell us whether this contract is a
material
contract that should be filed as an exhibit pursuant to Item
601(b)(10) of Regulation S-B. In this regard, it does not appear
to
be filed as an exhibit to your Form 10-KSB or your Form 10-QSB.
* Please tell us how you reflect this convertible debt in your
earnings per share calculations.
Item 14. Controls and Procedures, page 11
5. You state in subpart (a) that your principal executive officer
and principal financial officer, after evaluating the
effectiveness
of your disclosure controls and procedures (as defined in Exchange
Act Rules 13a-14(c) and 15d-14(c)), have concluded that, as of
such
date, your disclosure controls and procedures were adequate to
ensure
that material information relating to the Company and its
consolidated subsidiaries would be made known to them by others
within those entities. You make the same disclosures in your Form
10-QSB for the period ended December 4, 2005. We have the
following
comments:
* We assume the date to which you are referring is as of the end
of
the period covered by each report. Please confirm. If not,
please
evaluate the effectiveness of your disclosure controls and
procedures
as of the end of each period covered by each report. To the
extent
that your conclusions differ from those you have disclosed in your
Form 10-KSB and your Form 10-QSB, please amend these filings. In
addition, in future filings, please specifically state that your
conclusions are as of the end of the period covered by the report.
Refer to Item 307 of Regulation S-B.
* In future filings, please revise your reference to the Exchange
Act
Rules to refer to Rule 13a-15(e) and Rule 15d-15(e).
* In future filings, please revise your definition of disclosure
controls and procedures to conform to the aforementioned Exchange
Act
Rules. That is, if true, state that your disclosure controls and
procedures were effective to ensure that information required to
be
disclosed by you in the reports that you file or submit under the
Exchange Act is recorded, processed, summarized and reported,
within
the time periods specified in the SEC`s rules and forms, and that
your disclosure controls and procedures were also effective to
ensure
that information required to be disclosed by you in the reports
that
you file or submit under the Exchange Act is accumulated and
communicated to your management, including your principal
executive
and principal financial officers, or persons performing similar
functions, as appropriate to allow timely decisions regarding
required disclosure. Otherwise, please simply conclude that your
disclosure controls and procedures are effective or ineffective,
whatever the case may be.
6. You state in subpart (b) that there were no significant
changes
in your internal controls or in other factors that could
significantly affect your disclosure controls and procedures
subsequent to the date of their evaluation, nor were there any
significant deficiencies or material weaknesses in your internal
controls. You make the same disclosures in your Form 10-QSB for
the
period ended December 4, 2005. Please be advised that Item 308(c)
of
Regulation S-B requires that you disclose any change in your
internal
control over financial reporting identified in connection with the
evaluation required by paragraph (d) of Exchange Act Rules 13a-15
or
15d-15 that occurred during the last fiscal quarter that has
materially affected, or is reasonably likely to materially affect,
your internal control over financial reporting. Please confirm to
us
that there were no changes in your internal controls over
financial
reporting during the fourth fiscal quarter of 2005 that has
materially affected, or is reasonably likely to materially affect,
your internal control over financial reporting. In addition,
please
revise your disclosures in future filings to comply with Item
308(c).
Certifications, pages 12-14
7. We note the language contained in each of your officer`s
Section
302 certifications. You make the same disclosures in your Form
10-
QSB for the period ended December 4, 2005. Please amend your Form
10-KSB and your subsequent Form 10-QSB to conform your section 302
certifications exactly to Item 601(b)(31) of Regulation S-B. For
example:
* Please remove "annual" in front of "report" in paragraphs 2, 3,
and
4.
* In the fourth paragraph, please revise your reference to the
Exchange Act Rules to refer to Rule 13a-15(e) and Rule 15d-15(e).
* In subparts (a)-(c) of the fourth paragraph, please revise your
certification to conform exactly to Item 601(b)(31) of Regulation
S-
B. For example, your definition of the Evaluation Date does not
comply with Regulation S-B.
* In the fifth paragraph and each of its subparts (a)-(b), please
revise your certification to conform exactly to Item 601(b)(31) of
Regulation S-B.
* Remove the sixth paragraph you have listed.
Please be advised that the above bullets do not represent a
comprehensive list of all discrepancies. Please refer to
Regulation
S-B for further guidance.
Consolidated Statement of Cash Flows, page 20
8. We note the line item "Payments for deferred charges" under
investing activities. Please tell us the nature of such charges
and
your basis in GAAP for such classification in the statement of
cash
flows.
Note 1 - Summary of Significant Accounting Policies, page 21
Property, plant and equipment, page 22
9. You state that you periodically review your property, plant
and
equipment in accordance with SFAS 121. Please be advised that
SFAS
121 was superseded in its entirety by SFAS 144. Please confirm to
us
that you review your property, plant and equipment in accordance
with
SFAS 144. Revise your reference in future filings.
Start-up costs, page 22
10. You indicate that you have expensed all start-up costs
associated with the Marine segment except for certain costs which
fall outside the scope of SOP 98-5, which have been capitalized.
Please note that pursuant to paragraph .06 of the SOP that costs
falling outside its scope are not necessarily capitalized.
Therefore, please tell us the nature and amount of these costs and
your basis for capitalization.
Note 2 - Concentration of Credit Risk, page 25
11. You indicate that revenues from one customer of the Controls
and
Electronics segment represented approximately 6% of your
consolidated
revenues for the year ended August 31, 2004. Please tell us, and
disclose in future filings in management`s discussion and analysis
as
appropriate, why no revenue was attributed to this one customer
for
the year ended August 31, 2005, and the effect of the loss of this
customer on future revenues and income.
Note 7 - Related Party Transactions, page 27
12. Please revise future filings to comply with the disclosure
requirements of paragraph 2 of SFAS 57, particularly the nature of
the relationship(s) involved.
Note 8 - Income Taxes, page 27
13. Please provide us and disclose, in future filings, a rate
reconciliation of the reported amount of income tax expense
attributable to continuing operations for the year to the amount
of
income tax expense that would result from applying domestic
federal
statutory tax rates to pretax income from continuing operations.
Refer to paragraph 47 of SFAS 109.
14. We note that you maintain a valuation allowance for your
state
net operating loss carryforwards (NOL`s), but not for your federal
NOL`s. Please clarify the following:
* Please tell us how your state NOL`s differ from your federal
NOL`s
such that you have determined to recognize a valuation allowance
for
your state NOL`s, but not your federal NOL`s.
* Please tell us, in detail, your basis for reversing over $30,000
of
your valuation allowance in 2005.
* We note your tax planning strategy of selling assets to realize
your NOL`s. Please confirm to us that your tax planning strategy
will generate income of the appropriate character (i.e. ordinary
vs.
capital) to realize your NOL`s.
15. We note you disclose the latest year of expiration for your
state and federal NOL`s. Given the materiality of your NOL`s and
your history of losses, in order for a reader to better understand
the realizability of your NOL`s, please disclose the amounts and
expiration dates of your NOL`s, segregated by year and
jurisdiction
(i.e. state vs. federal).
Note 13 - Business Segments, page 30
16. We note your Industrial Products segment includes your
monofilament line, your pultruded fiberglass products, and your
composites. Based on your website and your discussion in Item 1
of
your Form 10-KSB, it appears that each of these lines consists of
different products, different manufacturing processes (as we note
that pultruded fiberglass and composite profiles are produced on a
made to order basis), and different sales processes (as we note
that
monofilament products are also sold by commissioned sales
representatives). As such, your basis for aggregating these
products
into your Industrial Products reportable segment is unclear.
Please
explain, in detail, how you have applied paragraphs 10 and 17 of
SFAS
131. As part of your response, please provide us with all of the
financial information your chief operating decision maker receives
on
a regular basis, as of August 31, 2005, as well as a quantitative
analysis demonstrating the economic similarity of the operating
segments you have aggregated, pursuant to paragraph 17 of SFAS
131.
Note 15 - Purchase of Business Assets, page 32
17. We note your acquisition of Penn Craft LLC and have the
following comments:
* Please provide us with your income significance test related to
your acquisition of Penn Craft LLC to support your determination
that
you are not required to file the separate audited financial
statements of Penn Craft LLC on Form 8-K. Please refer to Item
310(c)(2)(iii) of Regulation S-B.
* Please tell us the factors you considered in concluding that no
intangible assets such as trademarks, customer relationships, or
goodwill required recognition under paragraphs 39 and 43 - 45 of
SFAS
141.
Schedule 14A filed January 17, 2006
18. You indicate on page 5 that your Audit Committee currently
includes a financial expert. Tell us and disclose, in future
filings, the name of the audit committee financial expert and
whether
that person is independent, as defined in the Exchange Act. See
Item
401(e)(1)(ii) of Regulation S-B.
Form 10-QSB for the period ended December 4, 2005
Management`s Discussion and Analysis, page 9
Results of Operations, page 9
19. We note your decreasing gross profit margins over fiscals
2004
and 2005, and continuing into the first quarter of 2006, from
16.6%
to 16.0% to 13.6%. Please tell us and disclose, in future
filings,
the specific reasons for the decreases as compared to the prior
period.
20. As previously agreed to in your letter dated March 10, 2003,
please tell us and disclose, in future filings, the nature of the
items classified within other income and expense, net. Your
disclosure should discuss changes in other income and other
expense
on a gross basis.
* * * *
Please respond to these comments by filing an amendment to
your
filing and providing the supplemental information requested within
ten business days or tell us when you will provide us with a
response. Please provide us with a supplemental response that
addresses each of our comments. Please file your supplemental
response on EDGAR as a correspondence file. We may raise
additional
comments after we review your responses.
To expedite our review, you may wish to provide complete
packages to each of the persons named below. Each package should
include a copy of your response letter and any supplemental
information, as well as the amended filing, marked to indicate any
changes.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings reviewed by the staff to
be
certain that they provided all information investors require.
Since
the company and its management are in possession of all facts
relating to a company`s disclosure, they are responsible for the
accuracy and adequacy of the disclosures they have made.
In connection with responding to our comments, please
provide,
in writing, a statement from the company acknowledging that:
* the company is responsible for the adequacy and accuracy of the
disclosure in their filings;
* staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with
respect to the filing; and
* the company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in our review of your filing or in
response to our comments on your filing.
You may contact Jenn Do, Staff Accountant, at (202) 551-
3743,
or me at (202) 551-3255 if you have questions regarding comments
on
the financial statements and related matters.
Sincerely,
Nili Shah
Branch Chief
Mr. Richard E. Trewhella
Glassmaster Company
April 4, 2006
Page 8
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-7010
DIVISION OF
CORPORATION FINANCE