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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
 August 31, 2005 0-2331
 GLASSMASTER COMPANY
  South Carolina
    
    57-0283724(State of incorporation)
    
    (IRS Employer ID No.)PO Box 788, Lexington SC
    
    29071(Address of principal executive offices)
    
    (Zip Code)
 803-359-2594
 None
 Common Stock, par value $.03 per share
 X
 X
 $18,248,270
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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TABLE OF CONTENTS  PART IItem 1. BusinessItem 2. PropertiesItem 3. Legal ProceedingsItem 4. Submission of Matters to a Vote of Security HoldersItem 5. Market for Registrants Common Equity and Related Stockholder MattersPART IIItem 6. Managements Discussion and AnalysisItem 7. Financial StatementsItem 8. Changes in or Disagreements with Accountants on Accounting and Financial DisclosurePART IIIItem 9, 10, 11, 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 TransactionsPART IVItem 13. Exhibits and Reports on Form 8-KItem 14. Controls and ProceduresSignaturesEX-11EX-121EX-99.3    Table of Contents  
 PART I
 
 Item 1. Business
    ä
      2




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Item 1. Business Continued
          3




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##### Table of Contents



Item 1. Business Continued
     
 Item 2. Properties
     
 Item 3. Legal Proceedings
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Market for Registrants Common Equity and Related Stockholder Matters
  4




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Item 5. Market for Registrants Common Equity and Related Stockholder Matters Continued
  Quarter Ending
    
    High
    
    
    LowAugust 31, 2003
    
    
    .43
    
    
    
    .35November 30, 2003
    
    
    .35
    
    
    
    .43February 29, 2004
    
    
    .46
    
    
    
    .30May 30, 2004
    
    
    .35
    
    
    
    .30August 31, 2004
    
    
    .35
    
    
    
    .30December 1, 2004
    
    
    .43
    
    
    
    .30March 2, 2005
    
    
    .85
    
    
    
    .43June 1, 2005
    
    
    1.35
    
    
    
    .53August 31, 2005
    
    
    3.00
    
    
    
    1.15
     5




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PART II
 
 Item 6. Managements Discussion and Analysis
  Comparison of 2005 to 2004
  Net Sales.
  Gross Profit.
 Expenses.
 Income from Operations.
 Interest Expense.
 6




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7




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Item 6. Managements Discussion and Analysis, Continued
 Comparison of 2005 to 2004, Continued
 Provision for Income Taxes.
 Comparison of 2004 to 2003
  Net Sales.
  Gross Profit.
 Expenses.
 Income from Operations.
 Interest Expense.
 8




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Item 6. Managements Discussion and Analysis, Continued
 Comparison of 2004 to 2003, Continued
 Provision for Income Taxes.
 Liquidity and Capital Resources
     9




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Liquidity and Capital Resources Continued
    
 Item 7. Financial Statements
  
 Item 8. Changes in or Disagreements with Accountants on Accounting and Financial
Disclosure
  
 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.
  10




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PART IV
 
 Item 13. Exhibits and Reports on Form 8-K
  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 Registrant99.3
    
    Form 906 Certification
  May 4, 2005
    
    Change in Directors or Principal OfficersMay 13, 2005
    
    Other EventsAugust 2, 2005
    
    Change in Directors or Principal OfficersOctober 25, 2005
    
    Change in Directors or Principal Officers
 
 Item 14. Controls and Procedures
   11




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Signatures
   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 29, 2005
    
    
    
    Date November 29, 2005
  By
    
    /s/ Stephen W. Trewhella
    
    By
    
    /s/ Raymond M. TrewhellaStephen W. Trewhella, Director
    
    
    
    Raymond M. Trewhella, DirectorDate November 29, 2005
    
    
    
    Date November 29, 2005By
    
    /s/ Stephen W. Trewhella, Jr.
    
    By
    
    /s/ Melvin L. ChavisStephen W. Trewhella, Jr., Director
    
    
    
    Melvin L. Chavis, DirectorDate November 29, 2005
    
    
    
    Date November 29, 2005
 Certifications
       12




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/s/ Raymond M. Trewhella
 
        13




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/s/ Richard E. Trewhella
 
 14




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##### Table of Contents



GLASSMASTER COMPANY, INC.  AND SUBSIDIARIES
 REPORT ON CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE FISCAL YEARS ENDED AUGUST 31, 2005 AND 2004
  PageReport of Independent Certified Public Accountants
    
    
    16Consolidated Balance Sheets
    
    
    17Consolidated Statements of Operations
    
    
    18Consolidated Statements of Changes in Stockholders Equity
    
    
    19Consolidated Statements of Cash Flows
    
    
    20Notes to Consolidated Financial Statements
    
    
    21-32
 15




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Report of Independent Certified Public Accountants
 Glassmaster Company, Inc. and Subsidiaries
 Glassmaster Company, Inc. and
Subsidiaries
  Glassmaster Company, Inc. and Subsidiaries
 
 16




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GLASSMASTER COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 AUGUST 31,2005
    
    
    2004ASSETSCURRENT ASSETSCash
    
    $
    278,026
    
    
    $
    130,896Accounts receivableTrade, net of allowance for doubtful
accounts of $115,626 and $129,258, respectively
    
    
    2,770,007
    
    
    
    2,372,429Inventories, net
    
    
    3,523,778
    
    
    
    2,901,721Prepaid expenses
    
    
    111,743
    
    
    
    125,868Deferred income taxes
    
    
    39,899
    
    
    
    44,984Total current assets
    
    
    6,723,453
    
    
    
    5,575,898PROPERTY, PLANT AND EQUIPMENT, net
    
    
    3,014,207
    
    
    
    2,829,547DEFERRED TAX ASSETS
    
    
    1,399,665
    
    
    
    1,396,857OTHER ASSETS
    
    
    
    
    
    
    20,000Total Assets
    
    $
    11,137,325
    
    
    $
    9,822,302LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESRevolving lines of credit
    
    $
    3,055,211
    
    
    $
    2,606,122Notes and debentures payable, current
    
    
    798,550
    
    
    
    1,050,246Accounts payable
    
    
    1,932,010
    
    
    
    1,736,943Accrued expenses
    
    
    152,778
    
    
    
    208,635Total current liabilities
    
    
    5,938,549
    
    
    
    5,601,946OTHER LIABILITIESNotes and debentures payable, long term
    
    
    4,465,213
    
    
    
    4,136,608Total liabilities
    
    
    10,403,762
    
    
    
    9,738,554Commitments and contingencies (Note 1 and 9)STOCKHOLDERS EQUITYCapital stock, 5,000,000 shares authorized;
$.03 Par value, 2,192,390 shares issued and outstanding
    
    
    65,772
    
    
    
    49,302Paid-in capital
    
    
    1,899,989
    
    
    
    1,367,459Donated capital
    
    
    124,210
    
    
    
    124,210Retained earnings deficit
    
    
    (1,356,408
    )
    
    
    (1,457,223
    )Total stockholders equity
    
    
    733,563
    
    
    
    83,748Total liabilities and stockholders equity
    
    $
    11,137,325
    
    
    $
    9,822,302
  17




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GLASSMASTER COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
 For the years endedAugust 31,2005
    
    
    2004SALES
    
    $
    18,248,270
    
    
    $
    15,749,603COST OF SALES
    
    
    15,323,582
    
    
    
    13,128,508GROSS INCOME
    
    
    2,924,688
    
    
    
    2,621,095OPERATING EXPENSESMarketing and selling
    
    
    854,299
    
    
    
    676,401General and administrative
    
    
    1,333,096
    
    
    
    1,431,642Total operating expenses
    
    
    2,187,395
    
    
    
    2,108,043INCOME FROM OPERATIONS
    
    
    737,293
    
    
    
    513,052OTHER INCOME (EXPENSE), netInterest expense
    
    
    (634,201
    )
    
    
    (530,219
    )Realized gains
    
    
    
    
    
    
    2,835Total other income (expense), net
    
    
    (634,201
    )
    
    
    (527,384
    )INCOME (LOSS) BEFORE INCOME TAX BENEFIT (EXPENSE)
    
    
    103,092
    
    
    
    (14,332
    )INCOME TAX BENEFIT (EXPENSE)
    
    
    (2,277
    )
    
    
    5,209NET INCOME (LOSS)
    
    $
    100,815
    
    
    $
    (9,123
    )INCOME (LOSS) PER COMMON SHAREBASIC AND DILUTED
    
    $
    0.06
    
    
    $
    (0.01
    )WEIGHTED AVERAGE SHARES OUTSTANDING
    
    
    1,758,428
    
    
    
    1,643,390
  18




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GLASSMASTER COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
FOR THE YEARS ENDED AUGUST 31, 2003 AND 2004
 Capital Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    TotalPaid-in
    
    
    Donated
    
    
    Retained
    
    
    Stockholders'Shares
    
    
    Amount
    
    
    capital
    
    
    capital
    
    
    deficit
    
    
    equityBALANCE, SEPTEMBER 1, 2003
    
    
    1,643,390
    
    
    $
    49,302
    
    
    $
    1,367,459
    
    
    $
    124,210
    
    
    $
    (1,448,100
    )
    
    $
    92,871Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,123
    )
    
    
    (9,123
    )BALANCE, AUGUST 31, 2004
    
    
    1,643,390
    
    
    
    49,302
    
    
    
    1,367,459
    
    
    
    124,210
    
    
    
    (1,457,223
    )
    
    
    83,748Issuances of common stock
    
    
    549,000
    
    
    
    16,470
    
    
    
    532,530
    
    
    
    
    
    
    
    
    
    
    
    549,000Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100,815
    
    
    
    100,815BALANCE, AUGUST 31, 2005
    
    
    2,192,390
    
    
    $
    65,772
    
    
    $
    1,899,989
    
    
    $
    124,210
    
    
    $
    (1,356,408
    )
    
    $
    733,563
  19




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GLASSMASTER COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the years endedAugust 31,2005
    
    
    2004CASH FLOWS FROM OPERATIONSNet income (loss)
    
    $
    100,815
    
    
    $
    (9,123
    )Adjustments to reconcile net income (loss) to net cash
provided (used for) operationsDepreciation and amortization
    
    
    438,479
    
    
    
    548,995Bad debt expense (recovery)
    
    
    (13,632
    )
    
    
    5,802Increase in deferred income taxes
    
    
    2,277
    
    
    
    (5,209
    )Realized gains on marketable equity securities
    
    
    
    
    
    
    (2,835
    )Changes in operating assets and liabilitiesAccounts receivable
    
    
    (383,946
    )
    
    
    (262,465
    )Inventories
    
    
    (622,057
    )
    
    
    (120,776
    )Prepaid expenses
    
    
    14,125
    
    
    
    (36,017
    )Accounts payable
    
    
    195,067
    
    
    
    87,445Accrued expenses
    
    
    (55,857
    )
    
    
    7,907Proceeds from sales of securities
    
    
    
    
    
    
    13,599Net cash provided by (used for) operating activities
    
    
    (324,729
    )
    
    
    227,323INVESTING ACTIVITIESPayments for the purchase of property, plant and equipment
    
    
    (593,526
    )
    
    
    (6,318
    )Payments for deferred charges
    
    
    (24,613
    )
    
    
    (12,500
    )Collection of (payment for) deposits
    
    
    15,000
    
    
    
    (15,000
    )Net cash used for investing activities
    
    
    (603,139
    )
    
    
    (33,818
    )FINANCING ACTIVITIESProceeds from issuance of common stock
    
    
    399,000
    
    
    
    Proceeds from issuance of short-term debt
    
    
    115,065
    
    
    
    179,013Proceeds from issuance of long-term debt
    
    
    530,121
    
    
    
    Principal payments on short-term debt
    
    
    (93,575
    )
    
    
    (300,795
    )Principal payments on long-term debt
    
    
    (324,702
    )
    
    
    (102,000
    )Net borrowings under lines of credit
    
    
    449,089
    
    
    
    28,677Net cash provided by (used for) financing activities
    
    
    1,074,998
    
    
    
    (195,105
    )Net increase (decrease) in cash
    
    
    147,130
    
    
    
    (1,600
    )CASH, BEGINNING OF YEAR
    
    
    130,896
    
    
    
    132,496CASH, END OF YEAR
    
    $
    278,026
    
    
    $
    130,896SUPPLEMENTAL CASH FLOW INFORMATIONCash paid during year for:Interest
    
    $
    662,228
    
    
    $
    519,088NON-CASH FINANCING TRANSACTIONNote payable refinanced
    
    $
    449,879
    
    
    $
    184,032Debentures and notes converted into shares of common stock
    
    $
    150,000
    
    
    $
    Debentures rolled into new debentures
    
    $
    200,000
    
    
    $
    
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GLASSMASTER COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Description of business
 Glassmaster Company, Inc. (Glassmaster) 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. (Controls) and Glassmaster Marine,
LLC (Marine) are wholly-owned subsidiaries of Glassmaster (collectively the Company). Controls
designs, manufactures, and assembles a wide range of electronic and mechanical industrial controls
and electronic testing equipment. Marine designs, manufactures and assembles recreational
watercraft primarily for sale to retailers. Information about the Companys business operating
segments is presented in more detail in Note 13.
 Principles of consolidation
 The consolidated financial statements for the year ended August 31, 2005 and 2004 include the
accounts of Glassmaster, Controls and Marine. Controls was organized and incorporated under the
laws of the State of Michigan, on October 28, 1988. Marine was organized under the laws of the
State of South Carolina, on June 20, 2005. All material intercompany transactions have been
eliminated.
 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.
 Other assets
 Other assets consist primarily of capitalized loan costs and development costs for a mold that
will be used in producing products to be sold under a long-term supply arrangement.
 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 $115,626 and
$129,258 at August 31, 2005 and 2004, 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.
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GLASSMASTER COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
 Property, plant and equipment
 Property, plant and equipment are 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 Companies utilize 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 Assets
to 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.
 Pre-production costs
 In accordance with EITF 99-5 Accounting for Pre-Production Costs Related to Long-term Supply
Arrangements, the Company capitalizes development costs for molds that will be used in producing
products to be sold under long-term supply arrangements.
 Start-up costs
 In accordance with SOP 98-5 Reporting on the Costs of Start-Up Activities, the Company has
expensed all start-up costs associated with Marine except for certain costs which fall outside the
scope of the SOP and have been capitalized. Certain fixed assets associated with Marine were not
in service at August 31, 2005 and therefore, have not yet been depreciated.
 Stock option plans
 The Company applies the intrinsic value-based method of accounting prescribed by Accounting
Principles Board Opinion No. 25, (APB) Accounting for Stock Issued to Employees, and related
interpretations, in accounting for its stock option plan as permitted under SFAS No. 123. This
Statement specifies certain valuation techniques that produce estimated compensation charges that
are included in the pro forma results below. 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.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. 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.
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GLASSMASTER COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
 Stock option plans (continued)
 SFAS No. 123 pro forma amounts are as follows for the years ended August 31, 2005 and 2004:
 2005
    
    
    2004Net income (loss) as reported
    
    $
    100,815
    
    
    $
    (9,123
    )Add: Total stock-based employee compensation
expense determined under fair value based
method for all awards, net of related tax effects
    
    
    (1,460
    )
    
    
    (1,460
    )Pro forma net income (loss)
    
    $
    99,355
    
    
    $
    (10,583
    )Pro forma basic and diluted income (loss) per share
    
    $
    0.06
    
    
    $
    (0.01
    )Basic and diluted income (loss) per share as reported
    
    $
    0.06
    
    
    $
    (0.01
    )
 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 vesting 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 2001 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 recorded a
valuation allowance against a portion of the state loss carryforwards as they believe that it is
more likely than not that not all of the asset will be realized.
 Advertising
 The Company follows the policy of charging the costs of advertising to expense as incurred.
Advertising expense was $22,348 and $19,054 for the years ended August 31, 2005 and 2004,
respectively.
 Research and development
 Research and development costs are charged to expense as incurred. The costs incurred for the
years ended August 31, 2005 and 2004 were $252,114 and $231,387, respectively. Those costs have
generally been charged to cost of goods sold.
 Compensated absences
 The Company accounts for compensated absences in accordance with SFAS No. 43, Accounting for
Compensated Absences.
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GLASSMASTER COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
 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.
 Recently issued accounting standards
 The following is a summary of recent authoritative pronouncements that affect accounting,
reporting, and disclosure of financial information by the Company:In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 123 (revised 2004), Share-Based Payment(SFAS No. 123(R)). SFAS
No. 123(R) covers a wide range of share-based compensation arrangements including share options,
restricted share plans, performance-based awards, share appreciation rights, and employee share
purchase plans. SFAS No. 123(R) will require companies to measure all employee stock-based
compensation awards using a fair value method and record such expense in their financial
statements. In addition, the adoption of SFAS No. 123(R) requires additional accounting and
disclosure related to the income tax and cash flow effects resulting from share-based payment
arrangements. SFAS No. 123(R) is effective beginning as of the Companys next fiscal year that
begins after December 15, 2005. The Company is currently evaluating the impact that the adoption
of SFAS No. 123(R) will have on its financial position, results of operations and cash flows. The
cumulative effect of adoption, if any, will be measured and recognized in the statement of
operations on the date of adoption.FASB Staff Position (FSP) No. 109-1, Application of FAS 109 to Tax Deduction on Qualified
Production Activities, issued in December 2004 (FSP 109-1), provides guidance on the application
of FASB Statement No. 109, Accounting for Income Taxes, (SFAS 109), to the tax deduction on
qualified production activities provided by the American Jobs Creation Act of 2004 (the Jobs Act).
The Jobs Act was enacted on October 22, 2004. FSP 109-1 is intended to clarify that the domestic
manufacturing deduction should be accounted for as a special deduction (rather than a rate
reduction) under SFAS 109. A special deduction is recognized under SFAS 109 as it is earned. The
Company is currently completing an evaluation to determine applicability and potential impact, if
any, regarding the applicability of FSP 109-1.In November 2004, the FASB issued SFAS No. 151, Inventory Costs  An Amendment of ARB No. 43,
Chapter 4(SFAS 151). SFAS 151 amends the guidance in ARB No. 43, Chapter 4, Inventory Pricing,
to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs,
and wasted material (spoilage). Among other provisions, the new rule requires that items such as
idle facility expense, excessive spoilage, double freight, and rehandling costs be recognized as
current-period charges regardless of whether they meet the criterion of so abnormal as stated in
ARB No. 43. Additionally, SFAS 151 requires that the allocation of fixed production overheads to
the costs of conversion be based on the normal capacity of the production facilities. SFAS 151 is
effective for fiscal years beginning after June 15, 2005 and is required to be adopted by the
Company in the first quarter of fiscal 2006. The Company is currently evaluating the effect that
the adoption of SFAS 151 will have on its consolidated results of operations and financial
condition.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.
 24




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##### Table of Contents



GLASSMASTER COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
 Reclassifications
 Certain prior year amounts have been reclassified to conform to the current year presentation.
These reclassifications have no effect on previously reported loss or retained deficit.
 NOTE 2  CONCENTRATION OF CREDIT RISK
  NOTE 3  INVENTORIES
  2005
    
    
    2004Materials
    
    $
    2,447,324
    
    
    $
    1,986,690Work in process
    
    
    412,381
    
    
    
    348,628Finished products
    
    
    802,096
    
    
    
    712,452Reserve for excess and obsolete inventories
    
    
    (138,023
    )
    
    
    (146,049
    )$
    3,523,778
    
    
    $
    2,901,721
 NOTE 4  PROPERTY, PLANT AND EQUIPMENT
  2005
    
    
    2004Land
    
    $
    155,774
    
    
    $
    155,774Buildings
    
    
    3,180,081
    
    
    
    3,121,349Furniture and fixtures
    
    
    187,046
    
    
    
    187,046Automotive equipment
    
    
    151,689
    
    
    
    151,689Plant equipment
    
    
    7,928,914
    
    
    
    7,816,936Tooling and dies
    
    
    1,243,973
    
    
    
    826,768Impairment reserve
    
    
    (100,000
    )
    
    
    (100,000
    )Total
    
    
    12,747,477
    
    
    
    12,159,562Accumulated depreciation
    
    
    (9,733,270
    )
    
    
    (9,330,015
    )Property, plant and equipment, net
    
    $
    3,014,207
    
    
    $
    2,829,547
 25




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##### Table of Contents



GLASSMASTER COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 5  REVOLVING LINES OF CREDIT
   NOTE 6  NOTES AND DEBENTURES PAYABLE
  August 31,2005
    
    
    2004Mortgage loan payable to a financial
institution in eight scheduled principal
payments of $34,000, plus monthly payments
of accrued interest at prime (6.5 % at
August 31, 2005) plus 2% with the
remaining principal and accrued interest
due November 15, 2006. Prior to August
31, 2005, the loan had a maturity of
October 5, 2005. It was renewed on
November 3, 2005.
    
    $
    3,726,608
    
    
    $
    3,998,608Mortgage loan payable to a financial
institution, in monthly principal
installments of $5,000 plus accrued
interest at LIBOR (3.56 % at August 31,
2005) plus 2.5% with the remaining
principal and unpaid accrued interest due
March 2010.
    
    
    475,000
    
    
    
    305,000Installment loan payable to a financial
institution in monthly installments of
$5,871 including interest at prime (6.5%
at August 31, 2005) plus 0.5% with the
remaining principal and unpaid accrued
interest due February 2009.
    
    
    222,298
    
    
    
    204,952Installment loan payable to a premium
finance company in nine monthly
installments of $3,378 including interest
at 7.74% with the remaining principal and
accrued interest due February 2006.
    
    
    16,886
    
    
    
    18,294Debentures to related party with annual
payments of accrued interest at 10.5% due
December 2005 in one installment of
principal and unpaid accrued interest.
    
    
    110,000
    
    
    
    410,000
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##### Table of Contents



GLASSMASTER COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 6  NOTES AND DEBENTURES PAYABLE, Continued
 Debentures to related parties with annual
payments of accrued interest at prime
(6.5% at August 31, 2005) plus 2% due from
May  August 2010 in one installment of
principal and unpaid accrued interest.
    
    
    430,000
    
    
    
    Note payable to a Company officer bearing
interest at 10.5% with annual payments of
accrued interest and due on demand.
    
    
    
    
    
    
    50,000Notes payable to related parties with
semi-annual payments of accrued interest
ranging from 8.25% - 10% due January 2006
in one installment of principal and unpaid
accrued interest.
    
    
    282,971
    
    
    
    200,0005,263,763
    
    
    
    5,186,854Less current portion
    
    
    798,550
    
    
    
    1,050,246$
    4,465,213
    
    
    $
    4,136,608
   2006
    
    $
    798,5502007
    
    
    3,575,3972008
    
    
    125,1842009
    
    
    99,6322010
    
    
    665,000Total
    
    $
    5,263,763
 NOTE 7  RELATED PARTY TRANSACTIONS
  NOTE 8  INCOME TAXES
  2005
    
    
    2004Current
    
    
    Deferred
    
    
    Current
    
    
    DeferredFederal
    
    $
    
    
    
    $
    35,058
    
    
    $
    
    
    
    $
    8,555State
    
    
    
    
    
    
    (37,781
    )
    
    
    
    
    
    
    (13,766
    )$
    
    
    
    $
    2,277
    
    
    $
    
    
    
    $
    (5,209
    )
 27




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##### Table of Contents



GLASSMASTER COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 8  INCOME TAXES, Continued
    2005
    
    
    2004Deferred tax assets relating to:Allowance for doubtful accounts
    
    $
    39,899
    
    
    $
    44,984Alternative minimum tax credit
    
    
    28,697
    
    
    
    28,697Inventory and equipment valuation reserves
    
    
    88,518
    
    
    
    88,058Valuation allowance
    
    
    (24,818
    )
    
    
    (55,611
    )Federal and state NOL carry-forwards
    
    
    1,566,508
    
    
    
    1,643,679Deferred tax liabilities relating to:Property and equipment
    
    
    (259,240
    )
    
    
    (307,966
    )Net deferred tax asset
    
    $
    1,439,564
    
    
    $
    1,441,841
  2005
    
    
    2004Current assets
    
    $
    39,899
    
    
    $
    44,984Deferred tax asset
    
    
    1,399,665
    
    
    
    1,396,857
  NOTE 9  LEASES
  2006
    
    $
    14,4052007
    
    
    10,5172008
    
    
    10,517$
    35,439
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##### Table of Contents



GLASSMASTER COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 9  LEASES, Continued
  NOTE 10  STOCK OPTIONS
   2005
    
    2004Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    AverageNumber of
    
    
    Exercise
    
    
    Number of
    
    
    ExerciseShares
    
    
    Price
    
    
    Shares
    
    
    PriceOutstanding beginning of year
    
    
    54,500
    
    
    $
    .85
    
    
    
    57,800
    
    
    $
    1.03Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    
    
    
    
    (3,300
    )
    
    
    4.00Outstanding end of year
    
    
    54,500
    
    
    $
    .85
    
    
    
    54,500
    
    
    $
    .85
  Outstanding Options
    
    

Exercisable
OptionsWeightedAverage
    
    
    WeightedRemaining
    
    
    AverageExercise
    
    
    
    
    
    Contractual
    
    
    Exercise
    
    
    
    
    
    
    ExercisePrice
    
    Number
    
    
    Life
    
    
    Price
    
    
    Number
    
    
    Price$.85
    
    
    54,500
    
    
    6 years
    
    $
    .85
    
    
    
    43,600
    
    
    $
    .85
 NOTE 11  EARNINGS PER SHARE OF COMMON STOCK
  NOTE 12  DEFINED CONTRIBUTION PLAN
  29




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GLASSMASTER COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 12  DEFINED CONTRIBUTION PLAN, Continued
   NOTE 13  BUSINESS SEGMENTS
    As of and for the year ended August 31, 2005Industrial
    
    
    Controls andMarine
    
    
    Products
    
    
    Electronics
    
    
    Other
    
    
    TotalSegment assets
    
    $
    641,647
    
    
    $
    4,469,333
    
    
    $
    4,057,374
    
    
    $
    1,968,971
    
    
    $
    11,137,325Expenditures for property,
plant and equipment
    
    
    438,225
    
    
    
    53,661
    
    
    
    61,070
    
    
    
    40,570
    
    
    
    593,526Depreciation and
amortization
    
    
    
    
    
    
    230,981
    
    
    
    166,351
    
    
    
    41,147
    
    
    
    438,479Research and development
    
    
    
    
    
    
    242,789
    
    
    
    9,325
    
    
    
    
    
    
    
    252,114Revenues from external
customers
    
    
    
    
    
    
    12,480,175
    
    
    
    5,768,095
    
    
    
    (612,871
    )
    
    
    18,248,270Segment profit (loss)
    
    
    (25,281
    )
    
    
    1,158,190
    
    
    
    217,255
    
    
    
    
    
    
    
    737,293Interest expense
    
    
    
    
    
    
    552,175
    
    
    
    82,026
    
    
    
    
    
    
    
    634,201Income before taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    103,092
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GLASSMASTER COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 13  BUSINESS SEGMENTS, Continued
 As of and for the year ended August 31, 2004Industrial
    
    
    Controls andProducts
    
    
    Electronics
    
    
    Other
    
    
    TotalSegment assets
    
    $
    4,568,468
    
    
    $
    3,428,852
    
    
    $
    1,824,982
    
    
    $
    9,822,302Expenditures for property,
plant and equipment
    
    
    
    
    
    
    6,318
    
    
    
    
    
    
    
    6,318Depreciation and
amortization
    
    
    297,287
    
    
    
    203,932
    
    
    
    47,775
    
    
    
    548,994Research and development
    
    
    229,013
    
    
    
    2,374
    
    
    
    
    
    
    
    231,387Revenues from external
customers
    
    
    9,721,858
    
    
    
    6,027,745
    
    
    
    
    
    
    
    15,749,603Segment profit (loss)
    
    
    776,584
    
    
    
    432,333
    
    
    
    (693,030
    )
    
    
    515,887Interest expense
    
    
    446,098
    
    
    
    84,121
    
    
    
    
    
    
    
    530,219Loss before taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (14,332
    )
 Geographic Information
 As of and for the year ended August 31, 2005Property, plantRevenues
    
    
    Total assets
    
    
    and equipmentUnited States
    
    $
    16,107,213
    
    
    $
    11,137,325
    
    
    $
    3,014,207Other foreign countries
    
    
    2,141,057
    
    
    
    
    
    
    
    
 As of and for the year ended August 31, 2004Property, plantRevenues
    
    
    Total assets
    
    
    and equipmentUnited States
    
    $
    14,261,485
    
    
    $
    9,822,302
    
    
    $
    2,829,547Other foreign countries
    
    
    1,488,118
    
    
    
    
    
    
    
    
  NOTE 14  IMPAIRMENT OF ASSETS
   31




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GLASSMASTER COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 15  PURCHASE OF BUSINESS ASSETS
  32




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##### Table of Contents



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, 2005
and 2004.
    
    
    3321
    
    Subsidiaries of the Company.
    
    
    3499.3
    
    Form 906 Certification
    
    
    35
 33