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U.S. SECURITIES AND EXCHANGE COMMISSION

Washington DC 20549


FORM 10-KSB

x
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934


o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the fiscal year ended
    
    August 31, 2003
    
    Commission File Number
    
    0-2331


GLASSMASTER COMPANY




(Exact name of small business issuer as specified in its charter)


South Carolina
    
    57-0283724(State of incorporation)
    
    (IRS Employer ID No.)


PO Box 788, Lexington SC
    
    29071(Address of principal executive offices)
    
    (Zip Code)


Issuers telephone number, including area code:
    
    803-359-2594


Securities registered pursuant to Section 12 (b) of the Exchange Act:
    
    None


Securities registered pursuant to Section 12 (g) of the Exchange Act:Title of Class:
    
    Common Stock, par value $.03 per share


Indicate by an X whether the issuer (1) has filed all reports required to be
filed by Section 13 or 15 (d) of the Securities Exchange Act during the
preceding 12 months, and (2) has been subject to such filing requirements for
the past 90 days. YES x  NO

Indicate by an X if disclosure of delinquent filers in response to Item 405
of regulation S-B is not contained herein, and will not be contained, to the
best of registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. x

State issuers revenues for its most recent fiscal year
    
    $15,490,213   .


The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $364,392 as of October 31, 2003, based on the high
and low sales price of $0.43 per share.

The number of shares outstanding of the registrants common stock, as of
October 31, 2003 was 1,643,390 shares.

DOCUMENTS INCORPORATED BY REFERENCE

The information set forth under items 9, 10, 11, and 12 of Part III of this
report is incorporated by reference from the issuers definitive proxy
statement for the 2004 annual meeting of stockholders that will be filed no
later than December 31, 2003.





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PART I

Item 1. Business

(a)(b) General Development and Narrative Description of Business

Glassmaster Company (the Company) is a diversified manufacturer of
thermoplastic and thermoset plastic materials, industrial controls, and
electronics that produces and sells a broad range of product lines to customers
across multiple industries. The Company classifies its business into two
operating segments: Industrial Products, consisting of extruded synthetic
monofilaments and pultruded fiberglass and composites and; Controls and
Electronics, consisting of mechanical and electronic controls, electronic test
equipment, and circuit boards. For segment and geographic information, see Note
11 of the Notes to Consolidated Financial Statements.

The Company was founded in 1946 and incorporated under the laws of the
State of South Carolina. The Company manufactured fiberglass pleasure boats
until 1982 when, due to the cyclical nature of the pleasure boat business, the
Company began to diversify into industrial-related manufacturing. During 1982
and 1983 the Company developed from within manufacturing facilities to produce
extruded monofilaments and fiberglass antennas. In 1988, the Company purchased
the industrial controls business to further diversify and expand its line of
industrial-related products, and Glassmaster Controls Company, Inc. was formed.
In 1989, the company discontinued the manufacture and sale of fiberglass boats.

In recent years, the Company has expanded its product offerings to include
electronic test equipment. The Amtest line of test equipment was acquired by
Glassmaster Controls Company, Inc. in October, 1997. During the past three
years the company has internally developed the capability to provide contract
manufacturing services that produce customized electronic products, including
circuit boards utilizing surface mount and through-hole technologies. The
addition of electronic capabilities gives the company the ability to provide
its existing customer base with more complete product solutions as well as
entice new customers by offering vertically integrated, mechanical and
electronic contract manufacturing.

During 1998 and 1999 the Company developed and introduced the Glassmaster
Composite Modular Building System, which is a t-slotted framework system used
in a wide variety of industrial applications, including machine frames,
guarding and enclosures, workstations and tables, and shelving for storage.

During the fourth quarter of 1999, the Company announced its decision to
discontinue the manufacture and sale of its marine antennas and other low
margin product lines and in October 1999 completed the sale of certain related
assets.

There have been no bankruptcy, receivership, or similar proceedings
against the company since its inception. During the last three years there has
been no material acquisition or disposition of any significant amount of assets
other than that described above or in the ordinary course of business.

The Companys common stock was first offered to the public in 1959 and
currently has approximately 1,128 stockholders. The Companys common stock is
currently traded on the Over-the-Counter Bulletin Board (symbol: GLMA.OB).

INDUSTRIAL PRODUCTS

The Companys Monofilament Division extrudes monofilaments from nylon,
polyester, polyolefin and other engineered resins for use in a wide array of
markets and applications including textiles (sewing thread), lawn and garden
care (trimmer line), recreational products (fish line), and industrial weaving
and industrial filtration. Monofilament, as produced by the Company, begins
with a thermoplastic resin that is processed through a melting device
(extruder) and subsequently oriented to form single strand fibers of various
diameters, tensile strengths and moduli. Specialized monofilaments for
industrial applications are manufactured for use in other major industries
including paper machine clothing for the paper industry and abrasive bristles
for brushes used in metal and wood

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Item 1. Business (Contd)

finishing. The Company markets its monofilament products primarily on a
private brand basis, which are sold by in house sales efforts and commissioned
sales representatives to original equipment manufacturers and distributors
throughout North America and, to a lesser degree, Europe, South America, and
the Pacific Rim.

The Company manufactures pultruded fiberglass (thermoset) and composite
profiles that are used in the assembly of the Glassmaster Composite Modular
Building System. This product line is sold on a made to order basis by in
house sales efforts to original equipment manufacturers and distributors
throughout North America.

CONTROLS AND ELECTRONICS

The Company, through its wholly-owned subsidiary, Glassmaster Controls
Company, Inc., located in Kalamazoo, Michigan, manufactures and assembles a
wide range of industrial controls, including mechanical cable and wire
assemblies, mechanical and electronic HVAC instrument panels, and circuit
board-based electronic controls and modules. Industrial mechanical controls
are used primarily in medium and large capacity trucks and to a lesser degree,
automobiles, farm equipment, and recreational boats and are sold to original
equipment manufacturers throughout North America by in-house sales efforts and
commissioned manufacturers sales representatives. The Company manufactures and
assembles the Amtest line of vehicle test equipment used by mechanics,
rebuilders, fleets, and garages to analyze and repair automotive and truck
engines and their related electronic devices. Amtest vehicle test equipment is
sold by in-house sales efforts to distributors throughout North America. The
company also offers custom circuit board design and contract assembly services
that are sold by in-house sales efforts and manufacturers sales representatives
primarily to original equipment manufacturers.

The names Glassmaster, CompCore, NYBRAD, and Glassmaster Composite
Modular Building System are registered trademarks of the Company.

The Company believes it is a significant competitor in the United States
market for specialty monofilament products. While firm price competition can
be experienced within some lines of the monofilament and electronic products,
overall, the Company produces products which center on performance, engineering
and customer service and it is these product lines which provide the Company
with a stable revenue base. Sales and profitability growth are dependent to
varying degrees upon favorable economic conditions and penetration into the
industrial textile, and domestic truck manufacturing industries, as well as
acceptance of recently introduced electronics and composites products.
Unfavorable weather conditions can have an impact on monofilament trimmer line
sales.

Sales of the Companys industrial products are somewhat seasonal with
sales to the lawn and garden care markets concentrated in the second and third
quarters of the fiscal year (December  May). While some fluctuations in
inventory levels will occur from time to time, the Company is not required to
carry significant amounts of inventory to meet delivery requirements or to
carry unusually large amounts of materials and supplies to insure itself of a
continuous allotment of goods from suppliers. The Company does not provide
extended payment terms to its customers in excess of those normally offered for
these industries. Other than as described in Note 2 of the Notes to
Consolidated Financial Statements, the dependence upon any one customer or
small group of customers is not considered significant. The Company currently
offers no product or service requiring government approval and the effect of
existing or probable government regulations on the operations of the Company is
considered to be insignificant.

At August 31, 2003, the order backlog was $2,090,205 compared to
$2,113,221 at August 31, 2002.

The Company has no full-time employees engaged in research and development
activities, however, certain employees at each of the Companys manufacturing
locations spend a portion of their time in new product development and process
improvement. Expenditures for research and development were approximately
$265,000 in 2003 and $328,000 in 2002.

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Item 1. Business (Contd)

No material effects have resulted from compliance with federal, state, and
local provisions regulating the discharge of materials into the environment, or
any other regulations protecting the environment. The Company does not expect
to make any material capital expenditures for environmental control facilities
for the current or succeeding
fiscal year.

The Company and its subsidiary furnished employment for approximately 165
persons at August 31, 2003 and 169 persons at August 31, 2002.

Item 2. Properties

General corporate offices, the monofilament manufacturing facilities
(Plant I & II), the Monofilament Division offices, and the composites
manufacturing facilities are located at 126 Glassmaster Road in Lexington,
South Carolina. The total facility is composed of 170,000 square feet, and is
owned by the Company in fee simple.

Glassmaster Controls Co., Inc. operates its industrial controls and
electronics business at 831 Cobb Ave. in Kalamazoo, Michigan. The total
facility is composed of 109,000 square feet and is owned by the Company in fee
simple.

The Company believes that facilities are adequate for the immediate
future, and that the machinery and equipment used in these facilities are well
maintained and in good operating condition. Estimated percentage utilization
capacities during the year ended August 31, 2003 were as follows: Monofilament
Plant  65%; Composites Plant  15%; Controls Plant  40%.

Item 3. Legal Proceedings

There are no known material pending legal proceedings.

Item 4. Submission of Matters to a Vote of Security Holders

There were no matters submitted during the fourth quarter of the fiscal
year covered by this report to a vote of security holders through the
solicitation of proxies or otherwise.

Item 5. Market for Registrants Common Equity and Related Stockholder Matters

(a)(1) The Companys common stock trades on the Over-the-Counter market
Bulletin Board under the symbol GLMA.OB.

(a)(1)(ii)The table below sets forth the high and low sales price per share
during each quarter in the last two years as quoted on the Over-the-Counter
market Bulletin Board.

Quarter Ending
    
    High
    
    LowAugust 31, 2001
    
    
    .510
    
    
    
    .400December 2, 2001
    
    
    .410
    
    
    
    .310March 3, 2002
    
    
    .600
    
    
    
    .210June 2, 2002
    
    
    .200
    
    
    
    .200August 31, 2002
    
    
    .150
    
    
    
    .120December 1, 2002
    
    
    .150
    
    
    
    .120March 2, 2003
    
    
    .400
    
    
    
    .120June 1, 2003
    
    
    .510
    
    
    
    .130August 31, 2003
    
    
    .430
    
    
    
    .350


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Item 5. . Market for Registrants Common Equity and Related Stockholder Matters (Contd)

Since September 1, 2003 and to the date of this report, the high and low sales
price per share was $0.43 and $0.35, respectively.

(b) There were 1,128 shareholders of record at October 31, 2003.

(c)(1) No dividends have been declared or paid in the last three years.

(c)(2) According to the terms of a financing agreement, the Company is
restricted from paying cash dividends unless approved by the lending
institution.

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PART II

Item 6. Managements Discussion and Analysis

Review of Operations

Comparison of 2003 to 2002

Consolidated sales for the fiscal year ended August 31, 2003 were
approximately $15.5 million compared to approximately $17.6 million last year,
a decrease in sales of 12%. The net loss for the year was $321,923, or $0.20
per share, compared to a net loss of $543,332, or $0.33 per share, last year.

Net Sales.Industrial Products segment sales declined 18% to approximately
$9.6 million this year compared to approximately $11.7 million in the prior
year. The decrease in sales was primarily due to the loss of a large domestic
customer on competitive pricing issues. Industrial Products sales are expected
to improve in tandem with the economy and as recently developed products begin
to generate additional revenue in 2004. Several new products have been
approved for production, however release dates from our customers continue to
be delayed due to the uncertain economic climate. The company continues to
search for additional distribution channels and marketing partners to increase
sales of Industrial Products.

Controls and Electronics segment sales were unchanged compared to the
prior year at approximately $5.9 million. Electronic controls products and
contract manufacturing services saw sales increase by 7.0%. That offset the
decline in sales of cable systems and control assemblies used in the heavy
truck and bus industry that has been depressed for the past four years. Sales
of controls and electronics are expected to improve in 2004 due to new
electronic products and related circuit board contract manufacturing revenue.
New product and engineering innovations already approved on new heavy truck
production will also contribute to sales growth and increased market
penetration, particularly as the trucking industry begins to recover from its
prolonged slump.

Gross Profit.Total gross profit decreased 6.5%, to approximately $2.14
million, or 13.8% of sales, compared with approximately $2.29 million, or 13.0%
of sales, during the 2002 fiscal year. The company continues in its efforts to
reduce the cost of manufacturing on all products, but any significant future
increases in gross profit will result from increasing levels of throughput at
Monofilament and higher rates of utilization on electronic production equipment
at Controls.

Expenses.Total expenses for the year decreased 8.3% to approximately
$2.11 million this year versus the prior year total of approximately $2.30
million. The decrease in expenses this year is primarily due to a decline in
corporate overhead resulting from personnel reductions and cost savings
recognized from the reduction in costs associated with certain employee benefit
plans.

Income from Operations.Income from operations for the 2003 fiscal year
was $29,311, an improvement compared to the prior year loss of ($5,805).
Operating profit at the Industrial Products segment decreased to $753,371 this
year compared to $993,775 in the prior year to date period. The Controls and
Electronics segment showed an operating profit of $268,316 compared to $123,266
last year. The improvement in operating earnings is primarily due to cost
reductions implemented at all operating units.

Interest Expense.Interest expenses decreased to $573,469 this year
compared to $665,781 in the prior fiscal year. The decrease in interest
expense is primarily due to reductions in both interest rates and debt.

Provision for Income Taxes.The company has recognized a total benefit
from income taxes in the current year of $184,522, compared with a benefit of
$130,477 last year. The benefit recognized in the current and prior year
relate primarily to deferred tax assets recognized as a result of federal and
state net operating tax loss carry-forwards that are planned to be used to
offset future taxable income. The total deferred tax asset recognized in the
balance sheet as of August 31, 2003 is $1,393,812. Utilization of this tax
asset is dependent upon future taxable profits in

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Item 6. Managements Discussion and Analysis(Contd)

Comparison of 2003 to 2002 (Contd)

excess of existing taxable temporary differences. Although the company has
experienced net losses for the past four years, the asset has been recognized
in its entirety because, if necessary, the Company could sell its assets in
order to generate taxable gains in excess of the net operating loss carryovers
based on the current estimated value of its assets. For further information,
refer to Note 6 of the Notes to Consolidated Financial Statements.

Comparison of 2002 to 2001
(Excerpted from the 2002 Form 10-KSB)

Consolidated sales for the fiscal year ended August 31, 2002 were $17.6
million compared to $18.9 million last year, a decrease in sales of 6.7%. The
net loss for the year was $543,332, or $0.33 per share, compared to a net loss
of $1,271,671, or $0.78 per share, last year.

Net Sales.Industrial Products segment sales declined 7.4% to $11.7
million this year compared to $12.7 million in the prior year. Sales in the
first and second quarters of the 2002 fiscal year declined 12.7% and 28.1%,
respectively, when compared to the prior year periods, reflecting the impact of
the September 11th terrorist attacks on a U.S. manufacturing economy already in
recession. Sales in the third and fourth quarters increased 3.5% and 13.7%,
respectively, compared to the same prior year periods as some gradual
improvement in customer order patterns was seen. Industrial Products sales,
including Specialty Monofilament and The Composite Modular Building System,
are expected to improve in tandem with the economy and as recently developed
products begin to generate additional revenue in 2003. Several new products
have been approved for production, however release dates from our customers
continue to be delayed due to the uncertain economic climate. The company
continues to search for additional distribution channels and marketing partners
to increase sales of Industrial Products.

Controls and Electronics segment sales declined 3.8% for the year to $5.9
million. Electronic controls products and contract manufacturing services saw
increased sales that offset the decline in sales of cable systems and control
assemblies used in the heavy truck and bus industry which has been depressed
for the past three years. Sales of controls and electronics are expected to
improve in 2003 due to new electronic products and related circuit board
contract manufacturing revenue. New product and engineering innovations already
approved on new heavy truck production will also contribute to sales growth and
increased market penetration, particularly as the trucking industry begins to
recover from its prolonged slump.

Gross Profit.Total gross profit increased 35.5%, to $2.29 million,
compared with $1.69 million during the 2001 fiscal year. The increase in gross
profit is due to manufacturing cost reductions implemented throughout the year,
with the significant effect on gross profit occurring during the last six
months of the 2002 fiscal year. The company continues in its efforts to reduce
the cost of manufacturing on all products, but any significant future increases
in gross profit will result from increasing levels of throughput at
Monofilament and higher rates of utilization on electronic production equipment
at Controls.

Expenses.Total expenses for the year decreased 18.1% to $2.30 million
this year versus the prior year total of $2.81 million. The decrease in
expenses this year is primarily due to a decline in corporate overhead
resulting from personnel reductions and cost savings recognized from the
reduction or elimination of employee benefit plans.

Income From Operations.The loss from operations for the 2002 fiscal year
was $8,029, a significant improvement compared to the prior year loss of
$1,114,985. Operating profit at the Industrial Products segment improved to
$462,167 this year compared to $146,043 in the prior year to date period. The
Controls and Electronics segment showed an operating profit of $123,266
compared to a loss of $330,712 last year. The improvement in operating
earnings is primarily due to cost reductions implemented at all operating
units.

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Item 6. Managements Discussion and Analysis(Contd)

Comparison of 2002 to 2001 (Contd)

Interest Expense.Interest expenses decreased to $665,781 this year
compared to $832,110 in the prior fiscal year. The decrease in interest
expense is primarily due to reductions in both interest rates and long term
debt.

Provision for Income Taxes.The company has recognized a total benefit
from income taxes in the current year of $130,477, compared with a benefit of
$675,424 last year. The benefit recognized in the current and prior year
relate primarily to deferred tax assets recognized as a result of federal and
state net operating tax loss carry-forwards that will be used to offset future
taxable income. The total deferred tax asset recognized in the balance sheet
as of August 31, 2002 is $1,252,077. Utilization of this tax asset is
dependent upon future taxable profits in excess of existing taxable temporary
differences. Although the company has experienced net losses for the past
three years, the asset has been recognized in its entirety because the company
estimates the market value of its assets, if realized, would generate taxable
gains in excess of the net operating loss carryovers. For further information,
refer to Note 6 of the Notes to Financial Statements.

Liquidity and Capital Resources

Cash provided by operating activities was $260,818 this fiscal year
compared with $367,942 during the prior year. The decrease in cash provided by
operating activities in the current year was primarily due to a significant
decline in trade accounts payable outstanding, while improved operating
earnings this year compared to the prior year minimized the impact.

Cash provided by investing activities was $308,628 this year versus
$34,815 last year. The increase in net cash provided by investing activities
was due to the sale of the Newberry, South Carolina manufacturing facility in
September 2002 and a reduced investment in fixed assets this year compared with
the prior year.

Cash used for financing activities was $610,246 in the current year
compared to $328,666 in the prior fiscal year. The increase in cash used for
financing activities is due to an increase in net repayments of short-term debt
in the current year.

The Company has incurred recurring losses from operations during the past
four fiscal years and as a result, is in violation of certain financial
covenants contained in its primary lending agreements. These agreements
currently provide for revolving working capital lines of credit and long term
equipment and real estate financing for the companys industrial products
segment in South Carolina and its controls and electronics segment in Michigan
(through its wholly owned subsidiary, Glassmaster Controls Company, Inc.).

In South Carolina, indebtedness outstanding as of August 31, 2003 subject
to the loan agreement includes $1,769,121 under the Revolving Working Capital
Credit Line (total line of $2.5 Million) and $3,960,492 under an Equipment and
Real Estate Term Loan. The working capital credit line is currently scheduled
to mature on January 5, 2004.

In Michigan, indebtedness outstanding as of August 31, 2003 subject to the
applicable loan agreement included $808,323 under the Working Capital Revolver
(total line of $1,150,000) and $790,144 under the Equipment and Real Estate
Term Loan. The amount of indebtedness outstanding under the revolver will vary
with fluctuations in accounts receivable and inventories. The Working Capital
Revolver is scheduled to mature on December 31, 2003.

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Liquidity and Capital Resources (Contd)

Special provisions of the loan agreements restrict payment of cash
dividends without the consent of the lender as well as providing for minimum
working capital, maximum debt to net worth, and other minimum financial ratio
requirements. The Company and its subsidiary are in negotiations with the
primary lenders to renew the financing agreements that are set to expire on the
dates stated above. The Company is also seeking alternate sources of financing
if an acceptable agreement with its current lenders cannot be reached.

Item 7. Financial Statements

Financial Statements of Glassmaster Company and the Notes to Consolidated
Financial Statements for the fiscal years ended August 31, 2003 and 2002 appear
on pages 15 through 31, the Index to the Exhibits and Exhibits appear on page
10, and the Report of Independent Auditors appears on page 32 of this report.

Item 8. Changes in or Disagreements with Accountants on Accounting and Financial Disclosure

There have been no changes in or disagreements with accountants on
accounting financial disclosures.

PART III

Items 9, 10, 11, and 12. Directors, Executive Officers, Promoters and Control Persons; Compliance With Section 16 (a) of the Exchange Act; Executive Compensation; Security Ownership of Certain Beneficial Owners and Management; and Certain Relationships and Related Transactions.

Information for items 9-12 of this report appears in the Proxy Statement
for the 2004 Annual Meeting of Shareholders to be held on January 23, 2004 and
is incorporated herein by reference.

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PART IV

Item 13. Exhibits and Reports on Form 8-K

(a) Exhibits (numbered in accordance with Item 601 of Regulation S-B)

Exhibit No.
    
    Exhibit3.1
    
    Amended and Restated Certificate of Incorporation of the
Company, filed as Exhibit 3.1 to Form 10-K for the year ended
August 31, 1991 and incorporated herein by reference.3.2
    
    Amended and Restated Bylaws of the Company, filed as
exhibit 3.2 to Form 10-K for the year ended August 31, 1991 and
incorporated herein by reference.10
    
    Amended and restated Glassmaster Company 1992 Incentive
Stock Option Plan, filed as exhibit 10 to Form 10-KSB for the year
ended August 31, 1993 and incorporated herein by reference.11
    
    Statement re Computation of Per Share Earnings21
    
    Subsidiaries of the Registrant


(b) Reports on Form 8-K

On June 30, 2003 the Company filed a Current Report on Form 8-K to
disclose the resignation of its independent auditors, Brittingham, Dial
and Jeffcoat, CPAs, P.A. The company has retained Elliott Davis, LLC as
its independent auditors effective August 1, 2003.

Item 14. 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.

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Signatures

Pursuant to the requirements of Section 13 or 15(d) 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

By
    
    /s/ Raymond M. Trewhella
    
    
    
    By
    
    /s/ Richard E. TrewhellaRaymond M. Trewhella, CEO
    
    
    
    
    
    Richard E. Trewhella, Corporate Controller(Principal Executive Officer)
    
    
    
    
    
    (Principal Financial Officer)(Principal Accounting Officer)Date
    
    November 26, 2003
    
    
    
    Date
    
    November 26, 2003


Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant, and in the capacities, and on the dates indicated.

By
    
    /s/ Stephen W. Trewhella
    
    
    
    By
    
    /s/ Raymond M. TrewhellaStephen W. Trewhella, Director
    
    
    
    
    
    Raymond M. Trewhella, DirectorDate
    
    November 26, 2003
    
    
    
    Date
    
    November 26, 2003By
    
    /s/ Stephen W. Trewhella, Jr.
    
    
    
    By
    
    /s/ Melvin L. ChavisStephen W. Trewhella, Jr., Director
    
    
    
    
    
    Melvin L. Chavis, DirectorDate
    
    November 26, 2003
    
    
    
    Date
    
    November 26, 2003


Certifications

I, Raymond M. Trewhella, certify that:

1. I have reviewed this annual report on Form 10-KSB of Glassmaster Company;

2. Based on my knowledge, this annual 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 annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual 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 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 annual report is being prepared;

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Certifications (contd)

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
annual report (the Evaluation Date); and

c) presented in this annual 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
annual 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: November 26, 2003

/s/ Raymond M. Trewhella

Raymond M. Trewhella
CEO and Chairman of the Board of Directors
Principal Executive Officer

I, Richard E. Trewhella, certify that:

1. I have reviewed this annual report on Form 10-KSB of Glassmaster Company;

2. Based on my knowledge, this annual 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 annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual 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 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 annual report is being prepared;

12



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##### 



Certifications (contd)

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
annual report (the Evaluation Date); and

c) presented in this annual 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
annual 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: November 26, 2003

/s/ Richard E. Trewhella

Richard E. Trewhella
Corporate Controller
Principal Financial Officer
Principal Accounting Officer

13



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##### 



GLASSMASTER COMPANY, INC.
AND SUBSIDIARY

REPORT ON CONSOLIDATED FINANCIAL STATEMENTS

FOR THE FISCAL YEARS ENDED AUGUST 31, 2003 AND 2002

CONTENTS

PageConsolidated Balance Sheets
    
    
    15Consolidated Statements of Operations
    
    
    16Consolidated Statements of Changes in Stockholders Equity
    
    
    17Consolidated Statements of Cash Flows
    
    
    18Notes to Consolidated Financial Statements
    
    
    19-29Report of Independent Certified Public Accountants
    
    
    30


14



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##### 



GLASSMASTER COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS

AUGUST 31,2003
    
    2002ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    132,496
    
    
    $
    173,296Marketable equity securities  trading
    
    
    10,764
    
    
    
    8,155Accounts receivableTrade, net of allowance for doubtful
accounts of $123,456 and $136,132, respectively
    
    
    2,115,766
    
    
    
    2,817,928Other
    
    
    
    
    
    
    7,276Inventories, net
    
    
    2,780,945
    
    
    
    2,723,476Prepaid expenses
    
    
    89,851
    
    
    
    48,668Deferred income taxes
    
    
    42,820
    
    
    
    47,526Total current assets
    
    
    5,172,642
    
    
    
    5,826,325PROPERTY, PLANT AND EQUIPMENT, net
    
    
    3,328,918
    
    
    
    4,283,253DEFERRED TAX ASSETS
    
    
    1,393,812
    
    
    
    1,204,551OTHER ASSETS
    
    
    35,805
    
    
    
    120,675Total assets
    
    $
    9,931,177
    
    
    $
    11,434,804LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESNotes, mortgages and debentures payable, current
    
    $
    7,578,080
    
    
    $
    3,732,818Accounts payable
    
    
    1,649,498
    
    
    
    2,248,128Accrued expenses
    
    
    200,728
    
    
    
    173,556Total current liabilities
    
    
    9,428,306
    
    
    
    6,154,502OTHER LIABILITIESNotes, mortgages and debentures payable, long term
    
    
    410,000
    
    
    
    4,865,508Total liabilities
    
    
    9,838,306
    
    
    
    11,020,010COMMITMENTS AND CONTINGENCIES (Notes 1, 7 and 8)
    
    
    
    
    
    
    STOCKHOLDERS EQUITYCapital
stock, 5,000,000 shares authorized;
$.03 par value, 1,643,390 shares issued
and outstanding
    
    
    49,302
    
    
    
    49,302Paid-in capital
    
    
    1,367,459
    
    
    
    1,367,459Donated capital
    
    
    124,210
    
    
    
    124,210Retained deficit
    
    
    (1,448,100
    )
    
    
    (1,126,177
    )Total stockholders equity
    
    
    92,871
    
    
    
    414,794Total liabilities and stockholders equity
    
    $
    9,931,177
    
    
    $
    11,434,804


See notes to consolidated financial statements which are an integral part of
this statement.

15



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##### 



GLASSMASTER COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS

For the years endedAugust 31,2003
    
    2002SALES
    
    $
    15,490,213
    
    
    $
    17,644,613COST OF SALES
    
    
    13,350,299
    
    
    
    15,354,996Gross income
    
    
    2,139,914
    
    
    
    2,289,617OPERATING EXPENSESMarketing and selling
    
    
    695,868
    
    
    
    766,575General and administrative
    
    
    1,414,735
    
    
    
    1,528,847Total operating expenses
    
    
    2,110,603
    
    
    
    2,295,422Income (loss) from operations
    
    
    29,311
    
    
    
    (5,805
    )OTHER INCOME (EXPENSE), netInterest
    
    
    (573,469
    )
    
    
    (665,781
    )Unrealized gain on trading securities
    
    
    2,609
    
    
    
    Gain (loss) on sale of property and assets
    
    
    35,104
    
    
    
    (2,223
    )Total other income (expense), net
    
    
    (535,756
    )
    
    
    (668,004
    )Loss before income tax benefit
    
    
    (506,445
    )
    
    
    (673,809
    )INCOME TAX BENEFIT
    
    
    184,522
    
    
    
    130,477NET LOSS
    
    $
    (321,923
    )
    
    $
    (543,332
    )LOSS PER COMMON SHAREBASIC AND DILUTED
    
    $
    (0.20
    )
    
    $
    (0.33
    )WEIGHTED AVERAGE SHARES OUTSTANDING
    
    
    1,643,390
    
    
    
    1,636,469


See notes to consolidated financial statements which are an integral part of
this statement.

16



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##### 



GLASSMASTER COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY

Capital Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    TotalPaid-in
    
    Donated
    
    Retained
    
    Stockholders'Shares
    
    Amount
    
    capital
    
    capital
    
    deficit
    
    equityBALANCE, SEPTEMBER 1, 2001
    
    
    1,630,696
    
    
    $
    48,921
    
    
    $
    1,357,840
    
    
    $
    124,210
    
    
    $
    (582,845
    )
    
    $
    948,126Proceeds from sale of shares under
stock option plan
    
    
    12,694
    
    
    
    381
    
    
    
    9,619
    
    
    
    
    
    
    
    
    
    
    
    10,000Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (543,332
    )
    
    
    (543,332
    )BALANCE, AUGUST 31, 2002
    
    
    1,643,390
    
    
    
    49,302
    
    
    
    1,367,459
    
    
    
    124,210
    
    
    
    (1,126,177
    )
    
    
    414,794Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (321,923
    )
    
    
    (321,923
    )BALANCE, AUGUST 31, 2003
    
    
    1,643,390
    
    
    $
    49,302
    
    
    $
    1,367,459
    
    
    $
    124,210
    
    
    $
    (1,448,100
    )
    
    $
    92,871


See notes to consolidated financial statements which are an integral part of
this statement.

17



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##### 



GLASSMASTER COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS

For the years endedAugust 31,2003
    
    2002CASH FLOWS FROM OPERATIONSNet loss
    
    $
    (321,923
    )
    
    $
    (543,332
    )Adjustments to reconcile net loss to net cash
provided by operations
Depreciation and amortization
    
    
    703,148
    
    
    
    802,273Bad debt expense (recovery)
    
    
    (12,676
    )
    
    
    22,329Increase in deferred income taxes
    
    
    (184,522
    )
    
    
    (130,477
    )(Gain) loss on sale of assets
    
    
    (35,104
    )
    
    
    2,223Impairment of long-lived assets
    
    
    62,500
    
    
    
    37,500Unrealized gain on trading securities
    
    
    (2,609
    )
    
    
    Changes in operating assets and liabilities
Accounts receivable
    
    
    722,114
    
    
    
    (32,001
    )Inventories
    
    
    (57,469
    )
    
    
    199,783Prepaid expenses
    
    
    (41,183
    )
    
    
    21,673Accounts payable
    
    
    (598,630
    )
    
    
    37,905Accrued expenses
    
    
    27,172
    
    
    
    (49,934
    )Net cast provided by operating activities
    
    
    260,818
    
    
    
    367,942INVESTING ACTIVITIESCash payments for the purchase of property, plant and equipment
    
    
    (41,372
    )
    
    
    (110,951
    )Cash payments for deferred charges
    
    
    
    
    
    
    (21,415
    )Cash proceeds for the sale of property and assets
    
    
    350,000
    
    
    
    Cash advances from cash surrender value life insurance
    
    
    
    
    
    
    167,181Net cash provided by investing activities
    
    
    308,628
    
    
    
    34,815FINANCING ACTIVITIESProceeds from sale of common stock
    
    
    
    
    
    
    10,000Proceeds from issuance of short-term debt
    
    
    164,008
    
    
    
    Proceeds from issuance of long-term debt
    
    
    
    
    
    
    609,106Principal payments on short-term debt
    
    
    (552,324
    )
    
    
    (500,000
    )Principal payments on long-term debt
    
    
    
    
    
    
    (793,765
    )Net borrowings (repayments) under line of credit
    
    
    (221,930
    )
    
    
    345,993Net cash used for financing activities
    
    
    (610,246
    )
    
    
    (328,666
    )Net increase (decrease) in cash
    
    
    (40,800
    )
    
    
    74,091CASH AND CASH EQUIVALENTSBEGINNING OF YEAR
    
    
    173,296
    
    
    
    99,205END OF YEAR
    
    $
    132,496
    
    
    $
    173,296SUPPLEMENTAL CASH FLOW INFORMATIONCash paid for
Interest
    
    $
    515,690
    
    
    $
    690,679


See notes to consolidated financial statements which are an integral part of
this statement.

18



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##### 



GLASSMASTER COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of business

Glassmaster Company, Inc. (the Company) is a manufacturer and supplier of
extruded (thermoplastic) synthetic monofilament, pultruded (thermoset)
fiberglass products and composites located in Lexington, South Carolina.
Glassmaster Controls Company, Inc., its wholly owned subsidiary, designs,
manufactures, and assembles a wide range of electronic and mechanical
industrial controls and electronic testing equipment. Information about the
Companys business operating segments is presented in more detail in Note 11.

Principles of consolidation

The consolidated financial statements for the year ended August 31, 2003 and
2002, include the accounts of Glassmaster Company, Inc. and its wholly owned
subsidiary, Glassmaster Controls Company, Inc. Glassmaster Controls Company,
Inc. was organized and incorporated under the laws of the State of Michigan,
on October 28, 1988. All material intercompany transactions have been
eliminated.

Going concern

As reported in the accompanying consolidated financial statements, the Company
has incurred recurring losses from operations, and as of August 31, 2003, the
Companys current liabilities exceeded its current assets by $4,255,664. Its
total liabilities of $9,838,306 exceed its total assets of $9,931,177 net of
deferred tax assets of $1,393,812 by $1,300,941. These factors raise
substantial doubt about the Companys ability to continue as a going concern.
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.

Management and the primary lenders for the industrial products business
segment negotiated the current financing packages which expired September 5,
2003. Management plans to pursue a new long-term agreement with the current
primary lenders or other lending sources to insure a stable operating
environment. The financing was temporarily extended through January 5, 2004.

The accompanying financial statements do not include any adjustments that
might be necessary if the Company is unable to continue as a going concern.

Estimates

The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.

Cash and cash equivalents

Cash and cash equivalents include all highly liquid investments with an
original maturity of three months or less at the time of purchase. It is the
Companys practice to place its cash and cash equivalents with high quality
financial institutions.

19



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##### 



GLASSMASTER COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued

Marketable equity securities

Investments are classified into three categories as follows:



| |  |  | Trading securities reported at fair value with unrealized gains
and losses included in earnings.
| | - |  | ------------------------------------------------------------------------------------------------

| |  |  | Securities available-for-sale reported at fair value with
unrealized gains and losses reported in other comprehensive income.
At August 31, 2003 and 2002, the Companies had no securities
available-for-sale.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Held-to-maturity securities reported at amortized cost. At
August 31, 2003 and 2002, the Companies had no held-to-maturity
securities.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------

Accounts receivable and allowances

The Companies extend credit to customers generally without requiring
collateral The Company provides an allowance for losses on trade receivables
based on general economic and financial issues in the economy and a review of
historical and subsequent payment activity. Accounts receivables have been
reduced by an allowance for doubtful accounts in the amount of $123,456 and
$136,132 at August 31, 2003 and 2002, respectively.

Inventories

Inventories are stated net of valuation reserves at the lower of cost or
market, with cost determined on a first-in, first-out basis.

Property, plant and equipment

Property, plant and equipment is recorded at cost and depreciation for
financial reporting purposes is computed using the straight-line method over
the estimated useful lives of the assets as indicated below. The Company
utilizes applicable accelerated methods for tax purposes.

Buildings
    
    30-40 yearsFurniture and fixtures
    
    5-7 yearsAutomotive equipment
    
    3-5 yearsPlant equipment
    
    7-10 yearsTooling and dies
    
    3-5 years


The Company periodically reviews its property, plant and equipment in
accordance with Statement of Financial Accounting Standards (SFAS) No. 121
Accounting for the Impairment of Long Lived Assetsto determine if its
carrying costs will be recovered from future operating cash flows. The
assessment considers such factors such as business trends, prospects and
market conditions.

Revenue recognition

The Company recognizes revenue from product sales upon shipment to its
customers.

Earnings (loss) per common share

Earnings (loss) per common share are calculated under the provisions of SFAS
No. 128, Earnings per Share.SFAS No. 128 requires the Company to report both
basic earnings per share, which is based on the weighted-average number of
common shares outstanding, and diluted earnings per share, which is based on
the weighted-average number of common shares outstanding plus all potential
dilutive shares outstanding.

Stock option plans

The Company applies the intrinsic value-based method of accounting prescribed
by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations, in accounting for its stock option
plan as permitted under SFAS No. 123. As such, compensation expense would be
recorded on the date of grant only if the current market price of the
underlying stock exceeded the exercise price.

20



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##### 



GLASSMASTER COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued

Stock option plans (continued)

SFAS No. 123, Accounting for Stock Based Compensation, requires the Company to
disclose pro forma information regarding option grants made to its employees
and board of directors. SFAS No. 123 specifies certain valuation techniques
that produce estimated compensation charges that are included in the pro forma
results below. These amounts have not been reflected in the Companys
consolidated statement of operations, because APB No. 25 specifies that no
compensation charge arises when the price of the employees stock options
equal the market value of the underlying stock at the grant date, as in the
case of options granted to the Companys employees and board of directors.

SFAS No. 123 pro forma amounts are as follows for the years ended August 31, 2003 and 2002:

2003
    
    2002Net loss, as reported
    
    $
    321,923
    
    
    $
    543,332Add: Total stock-based employee compensation
expense determined under fair value based
method for all awards, net of related tax effects
    
    
    7,010
    
    
    
    7,010Pro forma net loss
    
    $
    328,933
    
    
    $
    550,342Pro forma basic and diluted total net loss per share
    
    $
    0.20
    
    
    $
    0.34Basic and diluted total net loss per share as reported
    
    $
    0.20
    
    
    $
    0.33


Under SFAS No. 123, the fair value of each option grant is estimated on the
date of grant using the Black-Scholes option pricing model. For the options
issued April 22, 1994, the following weighted average assumptions were used:
risk-free interest rate based on date of issuance 5.97%, no expected
dividends, a volatility factor of 307.77, an expected life of the options of
10 years (amortized over resting period), and expected vesting of the options
at 65%. Using these assumptions, the total value of stock options and rights
to receive stock granted in 1994 was $84,094. For the options issued August
3, 2001, the following weighted average assumptions were used: risk-free
interest rate based on date of issuance 3.47%, no expected dividends, a
volatility factor of 307.77, an expected life of the options of 10 years, and
expected vesting of the options at 65%. Using these assumptions, the total
value of stock options and rights to receive stock granted in 1994 was
$22,123.

The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Companys employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value
estimate, in managements opinion the existing models do not necessarily
provide a reliable single measure of the fair value of Glassmaster Companys
options.

Income taxes

Income taxes are provided for in accordance with SFAS No. 109, Accounting for
Income Taxeswhich requires that income taxes be provided for using the
liability method. Management has not recorded a valuation allowance as they
believe that it is more likely than not that the assets will be realized.

Advertising

The Company follows the policy of charging the costs of advertising to expense
as incurred. Advertising expense was $19,167 and $22,903 for the years ended
August 31, 2003 and 2002, respectively.

Research and development

Research and development costs are charged to expense as incurred. The costs
incurred for the years ended August 31, 2003 and 2002 were $264,912 and
$327,657, respectively. Those costs have generally been charged to cost of
goods sold.

21



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##### 



GLASSMASTER COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued

Compensated absences

The Company accounts for compensated absences in accordance with SFAS No. 43,
Accounting for Compensated Absences.

Financial instruments

The carrying amount reported in the balance sheets for cash and cash
equivalents, accounts receivable and accounts payable approximates fair value
because of the immediate or short-term maturity of these financial
instruments. The carrying amount for long-term debt approximates fair value
because the underlying instruments are primarily at current market rates.

Financial instruments that potentially subject the Company to concentrations
of credit risk consist of accounts receivable. In the normal course of
business, the Companies extend credit to certain customers. Management
performs initial and ongoing credit evaluations from their customers and
generally do not require collateral.

Recent accounting pronouncements

The following is a summary of recent authoritative pronouncements that affect
accounting, reporting, and disclosure of financial information by the Company.

In April 2002, The Financial Accounting Standards Board (FASB) issued SFAS No.
145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections. This statement rescinds SFAS No.
4, Reporting Gains and Losses from Extinguishments of Debtand SFAS No. 64,
Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements. This
statement also rescinds SFAS No. 44, Accounting for Intangible Assets of Motor
Carriersand amends SFAS No. 13, Accounting for Leases. This new statement
requires gains and losses from extinguishment of debt to be classified as an
extraordinary item only if they meet the criteria of APB Opinion No. 30,
Reporting the Results of Operations-Reporting the Effects of Disposal of a
Segment of Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions, which will distinguish transactions that are part of
an entitys recurring operations from those that are unusual or infrequent or
that meet the criteria for classification as an extraordinary item. The
adoption of the provisions of SFAS No. 145, as of September 1, 2002, had no
impact on the Companys financial position or results of operations.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities, which addresses financial accounting and
reporting for costs associated with exit or disposal activities and nullifies
Emerging Issues Task Force (EITF) Issue No. 94-3, Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring). This Statement applies
to costs associated with specific exit activities and requires a liability for
a cost associated with an exit or disposal activity to be recognized and
measured initially at its fair value in the period in which the liability is
incurred. A liability for a cost associated with an exit or disposal activity
is incurred when the definition of a liability is met. The provisions of this
statement are effective for exit or disposal activities that are initiated
after December 31, 2002. The provisions of this statement were adopted by the
Company on January 1, 2003 with no material impact on financial position or
results of operations.

22



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##### 



GLASSMASTER COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued

In December 2002, the FASB issued SFAS No. 148Accounting for Stock-Based
Compensation - Transition and Disclosure  an amendment of FASB Statement No.
123. This Statement amends FASB Statement No. 123,Accounting for
Stock-Based Compensation, to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. In addition, this statement amends the disclosure
requirements of Statement No. 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on
reported results. The Company adopted this standard effective August 31,
2003 and has included the required disclosures in the notes to the
consolidated financial statements. The Company has not elected the fair
value treatment of stock-based compensation and the adoption of this standard
has no impact on its financial position.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. SFAS No.
150 establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity.
It requires that an issuer classify a financial instrument that is within its
scope as a liability (or an asset in some circumstances). Many of those
instruments were previously classified as equity. SFAS No. 150 is generally
effective for financial instruments entered into or modified after May 31,
2003, and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. The adoption of SFAS No. 150 did not have a
material impact on our financial condition or operating results.

Other accounting standards that have been issued or proposed by the FASB or
other standards-setting bodies that do not require adoption until a future
date are not expected to have a material impact on the consolidated financial
statements upon adoption.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current
year presentation.

NOTE 2  CONCENTRATION OF CREDIT RISK

Revenues from two customers of the Controls and Electronics segment
represented approximately $1,746,510 and $1,905,019 of the Companys
consolidated revenues for the years ended August 31, 2003 and 2002,
respectively. Revenues from one customer of the Industrial Products segment
represented approximately $1,099,408 and $2,490,748 of the Companys
consolidated revenues for the years ended August 31, 2003 and 2002,
respectively.

NOTE 3  INVENTORIES

Inventories as reported on the balance sheets are classified below:

2003
    
    2002Materials
    
    $
    2,029,311
    
    
    $
    1,812,589Work in process
    
    
    369,922
    
    
    
    341,760Finished products
    
    
    511,712
    
    
    
    606,627Reserve for excess and obsolete inventories
    
    
    (130,000
    )
    
    
    (37,500
    )$
    2,780,945
    
    
    $
    2,723,476


23



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##### 



GLASSMASTER COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4  PROPERTY, PLANT AND EQUIPMENT

The basis for determining the values of property, plant and equipment is generally cost.

The provision for depreciation charged against income for the fiscal years
ended August 31, 2003 and 2002, totaled $618,278 and $749,924, respectively.

2003
    
    2002Land
    
    $
    155,774
    
    
    $
    190,274Buildings
    
    
    3,121,349
    
    
    
    3,713,950Furniture and fixtures
    
    
    187,046
    
    
    
    491,399Automotive equipment
    
    
    151,689
    
    
    
    151,689Plant equipment
    
    
    7,810,618
    
    
    
    7,475,836Tooling and dies
    
    
    826,768
    
    
    
    815,858Impairment reserve
    
    
    (100,000
    )
    
    
    (37,500
    )Total
    
    
    12,153,244
    
    
    
    12,801,506Accumulated depreciation
    
    
    (8,824,326
    )
    
    
    (8,518,253
    )Property, plant and equipment, net
    
    $
    3,328,918
    
    
    $
    4,283,253


NOTE 5  NOTES, MORTGAGES, & DEBENTURES PAYABLE

Substantially all property, plant and equipment are pledged as collateral
for the scheduled borrowings. In addition, inventories and customer
receivables are pledged as collateral to provide the Company and its 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 (4% at August 31, 2003) plus 2.5%. The line of
credit for the Companys subsidiary requires monthly interest payments at prime
plus 1%. The balances as of August 31, 2003 were $1,769,121 and $808,323,
respectively, and the balances as of August 31, 2002 were $1,946,875 and
$852,500, respectively. These credit agreements are subject to renegotiation
and renewal and will expire January 5, 2004 and December 31, 2003.

Special provisions of the loan agreements restrict payment of cash
dividends without the consent of the lender as well as providing for minimum
working capital requirements and maximum debt to net worth requirements in
addition to providing for other minimum financial ratio requirements. The
Company is in violation of certain of these covenants, and as such, all debt
related to these agreements is classified as current. The Company and its
subsidiary are in negotiations with the primary lenders to renew the financing
agreements set to expire on the dates stated above. The Company is also
actively seeking alternate sources of financing if an acceptable agreement with
its current lenders cannot be reached.

The following sets forth the Companys indebtedness as of August 31:

2003
    
    2002Mortgage, interest at prime plus 2.75%, maturing at January 5, 2004
    
    $
    3,960,492
    
    
    $
    4,770,492Notes, interest from prime plus 1% to prime plus 2.5%, due within 1 year
    
    
    2,577,444
    
    
    
    2,799,375


24



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##### 



GLASSMASTER COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5  NOTES, MORTGAGES, & DEBENTURES PAYABLE, Continued

2003
    
    2002Installment notes, with monthly principal and interest
payments from 5% to 8.68%, maturing in July and
August of 2004
    
    
    790,144
    
    
    
    368,459Debentures payable to related parties, interest
10.5%, due 12/30/05, convertible to common
stock at $3 per share
    
    
    410,000
    
    
    
    410,000Notes from related parties, interest 10%, maturities within 12 months
    
    
    200,000
    
    
    
    200,000Notes from officers, interest 10%, due within 1 year
    
    
    50,000
    
    
    
    50,0007,988,080
    
    
    
    8,598,326Less current portion
    
    
    (7,578,080
    )
    
    
    (3,732,818
    )$
    410,000
    
    
    $
    4,865,508


The prime interest rate was 4% and 4.75% for the years ended August 31,
2003 and 2002 respectively.

The principal maturities on the notes and mortgages payable over the next
five years as of August 31, are as follows:

2004
    
    $
    7,578,0802005
    
    
    2006
    
    
    410,000$
    7,988,080


On September 5, 2003, the Companys industrial products business segment
extended the maturity date of the existing debt to January 5, 2004. No other
terms of the original debt agreements were modified as a result of the
extension.

NOTE 6  INCOME TAXES

Components of the provision (benefit) for income taxes on continuing
operations are shown below for the years ended August 31:

2003
    
    2002Current
    
    Deferred
    
    Current
    
    DeferredFederal
    
    $
    4,565
    
    
    $
    (165,196
    )
    
    $
    
    
    
    $
    (145,579
    )State
    
    
    141
    
    
    
    (24,032
    )
    
    
    
    
    
    
    15,102$
    4,706
    
    
    $
    (189,228
    )
    
    $
    
    
    
    $
    (130,477
    )


25



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##### 



GLASSMASTER COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6  INCOME TAXES, Continued

For South Carolina tax purposes a net operating loss carry-forward of
$5,160,590 is available for offset against future taxable income. The
carry-forward will expire in the year ended August 31, 2018. For federal tax
purposes, the Corporation sustained net operating losses of $3,493 and $470,752
for the years ended August 31, 2003 and 2002, respectively. The Company has
federal net operating loss carryforwards of $4,455,809 available for offset
against future taxable income and will expire in the year ended August 31,
2023.

For income tax reporting, an Alternative Minimum Tax credit of $28,697 is
indefinitely available to reduce future regular taxes. For financial statement
reporting, the credit has been recognized as a deferred tax asset.

The net deferred tax assets and liabilities consisted of the following
components as of August 31, 2003 and 2002.

2003
    
    2002Deferred tax assets relating to:Allowance for doubtful accounts
    
    $
    42,820
    
    
    $
    47,526Alternative minimum tax credit
    
    
    28,697
    
    
    
    28,697Federal and state NOL carry-forwards
    
    
    1,735,121
    
    
    
    1,658,979Deferred tax liabilities relating to:Property and equipment
    
    
    (370,006
    )
    
    
    (483,125
    )Net deferred tax asset
    
    $
    1,436,632
    
    
    $
    1,252,077


The components giving rise to the deferred tax assets and liabilities
described above have been included in the accompanying balance sheet as of
August 31, 2003 and 2002 as follows:

2003
    
    2002Current assets
    
    $
    42,820
    
    
    $
    47,526Other assets
    
    
    1,393,812
    
    
    
    1,204,551


Utilization of the deferred tax asset of $1,436,632 disclosed above is
dependent on future taxable profits in excess of profits arising from existing
taxable temporary differences. Although there have been reported losses for
the past four years, the asset has been recognized because the Company
estimates the market value of the Companys assets, if realized in a sales
transaction, would generate gains in excess of the net operating loss
carryovers. The Companys primary plan is to return to profitability and to
utilize the deferred tax assets on future income from operations. For further
information on the Companys plans for future operations, see Note 1.

NOTE 7  LEASES

The Company renegotiated an existing equipment lease in December 2001 with
the lessor that reduced scheduled lease payments during the year ended August
31, 2002 and extended the lease term which was to expire in August of 2002 to
November 30, 2005. The renewed lease was effective as of December 1, 2001 and
calls for graduated monthly payments $0 to $8,503 for a period of thirty-six
months. Future minimum lease payments under the lease for the years ended
August 31, are as follows:

2004
    
    $
    102,0362005
    
    
    25,509$
    127,545


26



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##### 



GLASSMASTER COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8- STOCK OPTIONS

The Company has an incentive stock option plan. Under the plan the
Company may grant options for up to 260,000 shares of common stock. Options
granted under the plan become exercisable at varying percentages from date of
grant through expiration, either at termination of employment or ten years
after date of grant. The exercise price of each option is equal to the market
price of the Companys stock on the date of grant. The exercise prices for the
options range from $4.00 to $0.85.

Following is a summary of the status of the incentive stock options for the years ended August 31, 2003 and 2002:

2003
    
    2002Weighted
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    AverageNumber of
    
    Exercise
    
    Number of
    
    ExerciseShares
    
    Price
    
    Shares
    
    PriceOutstanding beginning of year
    
    
    77,600
    
    
    $
    1.12
    
    
    
    100,300
    
    
    $
    1.33Granted
    
    
    
    
    
    
    
    
    
    
    7,500
    
    
    
    .85Forfeited
    
    
    (19,800
    )
    
    
    1.38
    
    
    
    (30,200
    )
    
    
    1.76Outstanding end of year
    
    
    57,800
    
    
    $
    1.03
    
    
    
    77,600
    
    
    $
    1.12


Following is a summary of the status of the incentive options outstanding at August 31, 2003:

Outstanding Options
    
    Exercisable OptionsWeightedAverage
    
    WeightedRemaining
    
    AverageExercise
    
    
    
    
    
    Contractual
    
    Exercise
    
    
    
    
    
    ExercisePrice
    
    Number
    
    Life
    
    Price
    
    Number
    
    Price$
    4.00
    
    
    
    3,300
    
    
    1 year
    
    $
    4.00
    
    
    
    3,300
    
    
    $
    4.00.85
    
    
    
    54,500
    
    
    8 years
    
    
    .85
    
    
    
    21,800
    
    
    
    .85


NOTE 9  LOSS PER SHARE

The weighted average number of shares used in the computation of basic and
diluted loss per common share was 1,643,390 in 2003 and 1,636,469 in 2002.
Options on 57,800 and 77,600 shares of common stock as of August 31, 2003 and
2002, respectively were not included in computing diluted earnings per share
because their effects were antidilutive.

NOTE 10  DEFINED CONTRIBUTION PLAN

The Company established a qualified 401(k) defined contribution plan
effective January 1, 1990. The plan year ends on December 31. Participation
in the plan is voluntary and employees may contribute from 1% to 15% of
eligible compensation on a tax-deferred basis. The matching amount to be
contributed by the Company will be determined each year prior to December 1.
As of January 1, 2002, the Company discontinued matching contributions.

27



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##### 



GLASSMASTER COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10  DEFINED CONTRIBUTION PLAN, Continued

The plan provides for the Company to make a discretionary contribution on
behalf of all eligible employees (those with one full year of active service)
regardless of whether they have elected to voluntarily participate in the plan.
This discretionary contribution will be allocated based on a ratio of the
employees total W-2 earnings to the total W-2 earnings of all eligible
employees. Any discretionary contribution will be dependent upon the overall
profitability of the Corporation and will be made with the approval of the
Board of Directors.

There were no contributions charged to expenses for the year ended August
31, 2003 and $11,087 for the year ended August 31, 2002.

NOTE 11  BUSINESS SEGMENTS

The Company classifies its 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
to original equipment manufacturers and distributors for use in a variety of
industrial applications and markets. The Controls and Electronics segment
produces electronic testing equipment, flexible cable controls, mechanical and
electronic HVAC controls, and molded control panels that are sold to original
equipment manufacturers and distributors in the heavy truck, marine, and
agricultural industries and is a contract manufacturer of custom electronic
products.

The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. 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.

Year ended August 31, 2003Industrial
    
    Controls andProducts
    
    Electronics
    
    Other
    
    TotalSegment assets
    
    $
    4,554,625
    
    
    $
    3,518,758
    
    
    $
    1,857,794
    
    
    $
    9,931,177Expenditures for segment assets
    
    
    13,192
    
    
    
    26,827
    
    
    
    1,353
    
    
    
    41,372Depreciation and amortization
    
    
    422,338
    
    
    
    248,792
    
    
    
    32,018
    
    
    
    703,148Research and development
    
    
    242,307
    
    
    
    22,605
    
    
    
    
    
    
    
    264,912Revenues from external customers
    
    
    9,571,471
    
    
    
    5,918,742
    
    
    
    
    
    
    
    15,490,213Segment profit (loss)
    
    
    753,371
    
    
    
    268,316
    
    
    
    (954,663
    )
    
    
    67,024Interest expense
    
    
    465,425
    
    
    
    108,044
    
    
    
    
    
    
    
    573,469Loss before taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    506,445


28



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##### 



GLASSMASTER COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11  BUSINESS SEGMENTS, Continued

Year ended August 31, 2002Industrial
    
    Controls andProducts
    
    Electronics
    
    Other
    
    TotalSegment assets
    
    $
    6,291,722
    
    
    $
    3,560,047
    
    
    $
    1,583,035
    
    
    $
    11,434,804Expenditures for segment assets
    
    
    7,035
    
    
    
    103,916
    
    
    
    
    
    
    
    110,951Depreciation and amortization
    
    
    490,379
    
    
    
    283,949
    
    
    
    27,945
    
    
    
    802,273Research and development
    
    
    288,707
    
    
    
    38,950
    
    
    
    
    
    
    
    327,657Revenues from external customers
    
    
    11,695,740
    
    
    
    5,948,873
    
    
    
    
    
    
    
    17,644,613Segment profit (loss)
    
    
    993,775
    
    
    
    123,266
    
    
    
    (1,125,070
    )
    
    
    (8,029
    )Interest expense
    
    
    531,608
    
    
    
    134,173
    
    
    
    
    
    
    
    665,781Loss before taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    673,809


Geographic Information

Year ended August 31, 2003Property, plantRevenues
    
    Total assets
    
    and equipmentUnited States
    
    $
    13,309,578
    
    
    $
    9,931,177
    
    
    $
    3,328,918Other foreign countries
    
    
    2,180,635
    
    
    
    
    
    
    
    


Year ended August 31, 2002Property, plantRevenues
    
    Total assets
    
    and equipmentUnited States
    
    $
    14,985,068
    
    
    $
    11,434,804
    
    
    $
    4,283,253Other foreign countries
    
    
    2,659,545
    
    
    
    
    
    
    
    


Revenues in the above schedule are attributed to countries based on the
location of the customer.

NOTE 12  IMPAIRMENT OF ASSETS

In 2003 and 2002, during the course of the Companys strategic review of
its Industrial Products segment, the Company assessed the recoverability of the
carrying value of certain assets related to its composites product lines which
resulted in a write down of excess inventories of $92,500 and $37,500 and an
impairment loss on property, plant and equipment of $62,500 and $37,500 for the
years ended August 31, 2003 and 2002, respectively. The impairment loss
reflects the amounts by which the carrying values of these assets exceed their
estimated fair values determined by their estimated future discounted cash
flows. The write down of composite inventory is recorded as a component of
cost of goods sold. The impairment loss is recorded as a component of general,
administrative and other expense in the income statement for the years ended
August 31, 2003 and 2002.

29



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##### 



Report of Independent Certified Public Accountants

To the Board of Directors and StockholdersGlassmaster Company, Inc. and Subsidiary
Lexington, South Carolina

We have audited the accompanying consolidated balance sheet of Glassmaster
Company, Inc. and Subsidiaryas of August 31, 2003, and the related statements
of operations, stockholders equity and cash flows for the year then ended.
These consolidated financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial
statements based on our audit. The consolidated financial statements of
Glassmaster Company, Inc. and Subsidiaryas of and for the year ended August
31, 2002 were audited by other auditors whose report, dated October 31, 2002,
on those consolidated financial statements included an explanatory paragraph
that expressed substantial doubt about the Companys ability to continue as a
going concern.

We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.

In our opinion, the financial statements present fairly, in all material
respects, the consolidated financial position of Glassmaster Company, Inc. and
Subsidiaryas of August 31, 2003, and the consolidated results of their
operations and their cash flows for the year then ended, in conformity with
accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared
assuming that the Company and its subsidiary will continue as a going concern.
As discussed in Note 1 to the consolidated financial statements, Glassmaster
Company, Inc. and Subsidiaryhas suffered recurring losses from operations and
does not have sufficient tangible equity capital to sustain operations for the
next year, which raise substantial doubt about its ability to continue as a
going concern. Managements plans regarding those matters also are described
in Note 1. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.

/s/ Elliott Davis, LLC
October 9, 2003
Columbia, SC

30



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##### 



Exhibit Index

Exhibit No.
    
    Exhibit
    
    Sequential Page No.3.1
    
    Amended and Restated Certificate of Incorporation of the Company,
filed as Exhibit 3.1 to Form 10-K for the year ended August 31,
1991 and incorporated herein by reference
    
    3.2
    
    Amended and Restated Bylaws of the company, filed as Exhibit 3.2
to Form 10-K for the year ended August 31, 1991 and incorporated
herein by reference
    
    10
    
    Amended and restated Glassmaster Company 1992 Incentive Stock Option
Plan, filed as exhibit 10 to Form 10-KSB for the year ended August 31,
1993 and incorporated herein by reference
    
    11
    
    Computation of Earnings Per Share for two years ended August 31, 2003 and 2002.
    
    3221
    
    Subsidiaries of the Company
    
    33


31