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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 1934o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the fiscal year ended
    
    August 31, 2004
    
    Commission File Number
    
    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)
 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 o 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.      $15,749,603 The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $353,595 as of October 31, 2004, 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, 2004 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 2005 annual meeting of stockholders that will be filed no
later than December 31, 2004.




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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 13 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 1,112 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 2




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Item 1. Business Continued 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, 2004, the order backlog was $2,143,250 compared to
$2,090,205 at August 31, 2003. 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
$231,000 in 2004 and $265,000 in 2003. 3




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Item 1. Business Continued 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 159
persons at August 31, 2004 and 165 persons at August 31, 2003. 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, 2004 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, 2002
    
    
    .150
    
    
    
    .120December 1, 2002
    
    
    .150
    
    
    
    .120March 2, 2003
    
    
    .400
    
    
    
    .120June 1, 2003
    
    
    .510
    
    
    
    .130August 31, 2003
    
    
    .430
    
    
    
    .350November 30, 2003
    
    
    .350
    
    
    
    .430February 29, 2004
    
    
    .460
    
    
    
    .300May 30, 2004
    
    
    .350
    
    
    
    .300August 31, 2004
    
    
    .350
    
    
    
    .300
 4




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Item 5. Market for Registrants Common Equity and Related Stockholder Matters
Continued Since September 1, 2004 and to the date of this report, the high and low sales
price per share was $0.43 and $0.30, respectively. (b) There were 1,112 shareholders of record at October 31, 2004. (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. 5




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PART II Item 6. Managements Discussion and Analysis Review of Operations Comparison of 2004 to 2003 Consolidated sales for the fiscal year ended August 31, 2004 were
approximately $15.8 million compared to approximately $15.5 million last year,
an increase in sales of 2%. The net loss for the year was $9,123, or $.01 per
share, compared to a net loss of $321,923, or $0.20 per share, last year. Net Sales.Industrial Products segment sales increased 2% to
approximately $9.7 million this year compared to approximately $9.6 million in
the prior year. Industrial Products sales are expected to improve in tandem
with the economy and as recently developed products begin to generate
additional revenue in 2005. Several new products have been approved for
production. The company continues to search for additional distribution
channels and marketing partners to increase sales of Industrial Products. Controls and Electronics segment sales increased 1.8% this year to just
over $6.0 million, compared to prior year sales of approximately $5.9 million.
Electronic control products and contract manufacturing services sales decreased
by 30% in the current year compared to last year due to the scheduled
completion of contracts. The decline in electronic sales offset an increase in
sales of cable systems and control assemblies used in the heavy truck and bus
industry, which have improved in tandem with the industry recovery that began
in late 2003. Sales of controls and electronics are expected to improve in the
second and third quarter of 2005 due to new electronic contracts 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 continues to recover from its prolonged slump. Gross Profit.Total gross profit increased 22.5%, to approximately $2.62
million, or 16.6% of sales, compared with approximately $2.14 million or 13.8%
of sales during the 2003 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 slightly to approximately
$2.108 million, or 13.4% of sales this year, versus the prior year of
approximately $2.111 million, or 13.6% of sales. 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.Total income from operations for the 2004 fiscal
year was $513,052, a significant improvement compared to the prior year
operating income of $29,311. Operating profit at the Industrial Products
segment increased to $776,584 this year compared to $287,946 in the prior year
to date period. The Controls and Electronics segment income from operations
increased to $432,333 this year compared to $268,316 last year. The
improvement in operating earnings is primarily due to cost reductions
implemented at all operating units and a more favorable mix of products sold. Interest Expense.Interest expense decreased to $530,219 this year
compared to $573,469 in the prior fiscal year. The decrease in interest
expense is primarily due to reductions in long term debt outstanding. 6




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Item 6. Managements Discussion and Analysis, Continued Comparison of 2004 to 2003, Continued Provision for Income Taxes.The company has recognized a total benefit
from income taxes in the current year of $5,209 compared with a benefit of
$184,522 last year. The benefit recognized in the current and prior year
relates primarily to deferred tax assets recognized as a result of federal and
state net operating tax loss carry-forwards that are available to be used to
offset future taxable income. The total deferred tax asset recognized in the
balance sheet as of August 31, 2004 is $1,441,841. 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 five 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 8 of the Notes to
Consolidated Financial Statements. Comparison of 2003 to 2002
(Excerpted from the 2003 Form 10-KSB) 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. 7




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Item 6. Managements Discussion and Analysis, Continued Comparison of 2003 to 2002, Continued 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 available to be used to
offset future taxable income. The total deferred tax asset recognized in the
balance sheet as of August 31, 2003 is $1,436,632. 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 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 8 of the Notes to
Consolidated Financial Statements. Liquidity and Capital Resources Cash provided by operating activities was $227,323 this fiscal year
compared with $260,818 during the prior year. While net earnings before
non-cash charges and credits increased by approximately $329,000 this fiscal
year compared to the prior year, the decrease in net cash provided by operating
activities in the current year was primarily due to increases in accounts
receivable outstanding and inventories at Monofilament that resulted from
improved orders and sales during the fourth quarter. Cash provided by (used for) investing activities was ($33,818) this year
versus $308,628 last year. The decrease in net cash provided by investing
activities was due to the cash proceeds received from the sale of the Newberry,
South Carolina manufacturing facility in September 2002 impacting the prior
year. Cash used by financing activities was $195,105 in the current year
compared to $610,246 in the prior fiscal year. The decrease in net cash used
by financing activities is due to a decline in net repayments of debt in the
current year when compared to the prior year. The Company funds its operations and long term capital requirements
primarily through financing agreements with its primary banking institutions.
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, 2004 subject
to the loan agreements include $2,043,192 under the Revolving Working Capital
Credit Line (total line of $2.5 Million) and $3,998,608 under an Equipment and
Real Estate Term Loan. These credit lines originally had a due date of October
5, 2004 but were refinanced on November 5, 2004 and currently have a due date
of October 5, 2005. In Michigan, indebtedness outstanding as of August 31, 2004 subject to the
applicable loan agreement included $562,930 under the Working Capital Revolver
(total line of $1,150,000) and $509,952 under the Equipment and Real Estate
Term Loans. These credit lines are currently scheduled to mature in December
2004. The company currently expects these credit agreements to also be renewed. 8




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Liquidity and Capital Resources Continued Through cost reductions and an improving business climate the Company has been
successful in returning to near break-even net income in the 2004 fiscal year,
has generated positive cash flow from operations for the last two fiscal years,
and currently projects operating earnings improvement in the 2005 fiscal year.
As a result, the Company currently anticipates that its cash requirements
during the 2005 fiscal year will continue to be provided by operations and by
existing and committed credit lines. Item 7. Financial Statements Financial Statements of Glassmaster Company and the Notes to Consolidated
Financial Statements for the fiscal years ended August 31, 2004 and 2003 appear
on pages 15 through 29, the Index to the Exhibits and Exhibits appear on page
10, and the Report of Independent Auditors appears on page 30 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 2005 Annual Meeting of Shareholders to be held on January 21, 2005 and
is incorporated herein by reference. 9




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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 There were no reports on Form 8-K filed by the company during the fiscal
year ended August 31, 2004. 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. 10




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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 29, 2004
    
    Date
    
    November 29, 2004
 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 29, 2004
    
    Date
    
    November 29, 2004By
    
    /s/ Stephen W. Trewhella, Jr.
    
    By
    
    /s/ Melvin L. ChavisStephen W. Trewhella, Jr., Director
    
    
    
    Melvin L. Chavis, DirectorDate
    
    November 29, 2004
    
    Date
    
    November 29, 2004
  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; 11




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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 29, 2004/s/
Raymond M. TrewhellaRaymond M. TrewhellaCEO and Chairman of the Board of DirectorsPrincipal 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 29, 2004/s/ Richard E. TrewhellaRichard E. TrewhellaCorporate ControllerPrincipal Financial OfficerPrincipal Accounting Officer
 13




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##### 



GLASSMASTER COMPANY, INC.AND SUBSIDIARY REPORT ON CONSOLIDATED FINANCIAL STATEMENTS FOR THE FISCAL YEARS ENDED AUGUST 31, 2004 AND 2003 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 31,2004
    
    2003ASSETSCURRENT ASSETSCash
    
    $
    130,896
    
    
    $
    132,496Marketable equity securities  trading
    
    
    
    
    
    
    10,764Accounts receivableTrade, net of allowance for doubtful
accounts of $129,258 and $123,456, respectively
    
    
    2,372,429
    
    
    
    2,115,766Inventories, net
    
    
    2,901,721
    
    
    
    2,780,945Prepaid expenses
    
    
    125,868
    
    
    
    89,851Deferred income taxes
    
    
    44,984
    
    
    
    42,820Total current assets
    
    
    5,575,898
    
    
    
    5,172,642PROPERTY, PLANT AND EQUIPMENT, net
    
    
    2,829,547
    
    
    
    3,328,918DEFERRED TAX ASSETS
    
    
    1,396,857
    
    
    
    1,393,812OTHER ASSETS
    
    
    20,000
    
    
    
    35,805Total Assets
    
    $
    9,822,302
    
    
    $
    9,931,177LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESRevolving lines of credit
    
    $
    2,606,122
    
    
    $
    2,577,444Notes and debentures payable, current
    
    
    1,050,246
    
    
    
    5,000,636Accounts payable
    
    
    1,736,943
    
    
    
    1,649,498Accrued expenses
    
    
    208,635
    
    
    
    200,728Total current liabilities
    
    
    5,601,946
    
    
    
    9,428,306OTHER LIABILITIESNotes and debentures payable, long term
    
    
    4,136,608
    
    
    
    410,000Total liabilities
    
    
    9,738,554
    
    
    
    9,838,306Commitments and contingencies (Note 1 and 9)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 earnings deficit
    
    
    (1,457,223
    )
    
    
    (1,448,100
    )Total stockholders equity
    
    
    83,748
    
    
    
    92,871Total liabilities and stockholders equity
    
    $
    9,822,302
    
    
    $
    9,931,177
 See notes to 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 31,2004
    
    2003SALES
    
    $
    15,749,603
    
    
    $
    15,490,213COST OF SALES
    
    
    13,128,508
    
    
    
    13,350,299GROSS INCOME
    
    
    2,621,095
    
    
    
    2,139,914OPERATING EXPENSESMarketing and selling
    
    
    676,401
    
    
    
    695,868General and administrative
    
    
    1,431,642
    
    
    
    1,414,735Total operating expenses
    
    
    2,108,043
    
    
    
    2,110,603INCOME FROM OPERATIONS
    
    
    513,052
    
    
    
    29,311OTHER INCOME (EXPENSE), netInterest expense
    
    
    (530,219
    )
    
    
    (573,469
    )Realized gains
    
    
    2,835
    
    
    
    Unrealized gains
    
    
    
    
    
    
    2,609Gain on sale of property and assets
    
    
    
    
    
    
    35,104Total other expense, net
    
    
    (527,384
    )
    
    
    (535,756
    )LOSS BEFORE INCOME TAX BENEFIT
    
    
    (14,332
    )
    
    
    (506,445
    )INCOME TAX BENEFIT
    
    
    5,209
    
    
    
    184,522NET LOSS
    
    $
    (9,123
    )
    
    $
    (321,923
    )LOSS PER COMMON SHAREBASIC AND DILUTED
    
    $
    (0.01
    )
    
    $
    (0.20
    )WEIGHTED AVERAGE SHARES OUTSTANDING
    
    
    1,643,390
    
    
    
    1,643,390
 See notes to 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
FOR THE YEARS ENDED AUGUST 31, 2004 AND 2003 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
    
    
    $
    (1,126,177
    )
    
    $
    414,794Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (321,923
    )
    
    
    (321,923
    )BALANCE, AUGUST 31, 2003
    
    
    1,643,390
    
    
    
    49,302
    
    
    
    1,367,459
    
    
    
    124,210
    
    
    
    (1,448,100
    )
    
    
    92,871Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,123
    )
    
    
    (9,123
    )BALANCE, AUGUST 31, 2004
    
    
    1,643,390
    
    
    $
    49,302
    
    
    $
    1,367,459
    
    
    $
    124,210
    
    
    $
    (1,457,223
    )
    
    $
    83,748
 See notes to 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 31,2004
    
    2003CASH FLOWS FROM OPERATIONSNet loss
    
    $
    (9,123
    )
    
    $
    (321,923
    )Adjustments to reconcile net loss to net cash
provided by operationsDepreciation and amortization
    
    
    548,995
    
    
    
    703,148Bad debt expense (recovery)
    
    
    5,802
    
    
    
    (12,676
    )Increase in deferred income taxes
    
    
    (5,209
    )
    
    
    (184,522
    )Gain on sale of assets
    
    
    
    
    
    
    (35,104
    )Impairment of long-lived assets
    
    
    
    
    
    
    62,500Realized gain on trading securities
    
    
    (2,835
    )
    
    
    Unrealized gain on trading securities
    
    
    
    
    
    
    (2,609
    )Changes in operating assets and liabilitiesAccounts receivable
    
    
    (262,465
    )
    
    
    722,114Inventories
    
    
    (120,776
    )
    
    
    (57,469
    )Prepaid expenses
    
    
    (36,017
    )
    
    
    (41,183
    )Accounts payable
    
    
    87,445
    
    
    
    (598,630
    )Accrued expenses
    
    
    7,907
    
    
    
    27,172Proceeds from sale of trading securities
    
    
    13,599
    
    
    
    Net cash provided by operating activities
    
    
    227,323
    
    
    
    260,818INVESTING ACTIVITIESPayments for the purchase of property, plant and equipment
    
    
    (6,318
    )
    
    
    (41,372
    )Payments for deferred charges
    
    
    (12,500
    )
    
    
    Payments for deposits
    
    
    (15,000
    )
    
    
    Proceeds for the sale of property
    
    
    
    
    
    
    350,000Net cash provided by (used for) investing activities
    
    
    (33,818
    )
    
    
    308,628FINANCING ACTIVITIESProceeds from issuance of short-term debt
    
    
    179,013
    
    
    
    164,008Principal payments on short-term debt
    
    
    (300,795
    )
    
    
    (552,324
    )Principal payments on long-term debt
    
    
    (102,000
    )
    
    
    Net borrowings (repayments) under line of credit
    
    
    28,677
    
    
    
    (221,930
    )Net cash used by financing activities
    
    
    (195,105
    )
    
    
    (610,246
    )Net decrease in cash
    
    
    (1,600
    )
    
    
    (40,800
    )CASH AT BEGINNING OF YEAR
    
    
    132,496
    
    
    
    173,296CASH AT END OF YEAR
    
    $
    130,896
    
    
    $
    132,496SUPPLEMENTAL CASH FLOW INFORMATIONCash paid during year forInterest
    
    $
    519,088
    
    
    $
    515,690NONCASH FINANCING TRANSACTIONNote payable refinanced
    
    $
    184,032
    
    
    $
    
 See notes to 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 businessGlassmaster Company, Inc. 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 13.Principles of consolidationThe consolidated financial statements for the year ended August 31, 2004 and
2003, include the accounts of Glassmaster Company, Inc. and its wholly owned
subsidiary, Glassmaster Controls Company, Inc.(collectively, the Company).
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 concernAs reported in the accompanying consolidated financial statements, the Company
has incurred recurring losses from operations, and as of August 31, 2004, the
Companys current liabilities exceeded its current assets by $26,048. Its
total liabilities of $9,738,554 exceed its total assets of $8,380,461 net of
deferred tax assets of $1,441,841 by $1,358,093. These factors raise 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 October 5,
2004. Management executed a new long-term agreement on November 5, 2004 with
the current primary lenders that extends the maturity dates to October 2005.The accompanying financial statements do not include any adjustments that
might be necessary if the Company is unable to continue as a going concern.EstimatesThe 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 equivalentsCash 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 assetsOther 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. 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 securitiesAt August 31, 2003, marketable equity securities consisted of trading
securities reported at fair value with unrealized gains and losses included in
earnings.Accounts receivable and allowancesThe 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 $129,258 and
$123,456 at August 31, 2004 and 2003, respectively.InventoriesInventories 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 equipmentProperty, 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 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 recognitionThe Company recognizes revenue from product sales upon shipment to its
customers.Earnings (loss) per common shareEarnings (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 costsIn 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.Stock option plansThe 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. 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. 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. 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, 2004 and 2003: 2004
    
    2003Net loss as reported
    
    $
    (9,123
    )
    
    $
    (321,923
    )Add: Total stock-based employee compensation
expense determined under fair value based
method for all awards, net of related tax effects
    
    
    (1,460
    )
    
    
    (7,010
    )Pro forma net loss
    
    $
    (10,583
    )
    
    $
    (328,933
    )Pro forma basic and diluted loss per share
    
    $
    (0.01
    )
    
    $
    (0.20
    )Basic and diluted loss per share as reported
    
    $
    (0.01
    )
    
    $
    (0.20
    )
  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 taxesIncome 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.AdvertisingThe Company follows the policy of charging the costs of advertising to expense
as incurred. Advertising expense was $19,054 and $19,167 for the years ended
August 31, 2004 and 2003, respectively.Research and developmentResearch and development costs are charged to expense as incurred. The costs
incurred for the years ended August 31, 2004 and 2003 were
$231,387 and
$264,912, 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 absencesThe Company accounts for compensated absences in accordance with SFAS No. 43,
Accounting for Compensated Absences.Financial instrumentsThe 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 pronouncementsNo recent authoritative pronouncements that affect accounting, reporting, and
disclosure of financial information by us have occurred during the year ending
August 31, 2004, other than the items described below.In March 2004, the FASB issued an exposure draft on Share-Based Payment.
The proposed Statement addresses the accounting for transactions in which an
enterprise receives employee services in exchange for (a) equity instruments
of the enterprise or (b) liabilities that are based on the fair value of the
enterprises equity instruments or that may be settled by the issuance of such
equity instruments. This proposed Statement would eliminate the ability to
account for share-based compensation transactions using APB Opinion No. 25,
Accounting for Stock Issued to Employees, and generally would require instead
that such transactions be accounted for using a fair-value-based method. This
Statement, if approved, was scheduled to be effective for awards that are
granted, modified, or settled in fiscal years beginning after a) December 15,
2004 for public entities and nonpublic entities that used the fair-value-based
method of accounting under the original provisions of Statement 123 for
recognition or pro forma disclosure purposes and b) December 15, 2005 for all
other nonpublic entities. On October 16, 2004, the FASB delayed the effective
date of this proposal by six months and anticipates it will be effective for
the third quarter of 2005. Retrospective application of this Statement is not
permitted. The adoption of this Statement, if approved, could have an impact
on the Companys financial position or results of operations.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.ReclassificationsCertain prior year amounts have been reclassified to conform to the current
year presentation. These reclassifications have no effect on previously
reported income or retained earnings. NOTE 2  CONCENTRATION OF CREDIT RISK Revenues from one customer of the Controls and Electronics segment represented
$988,289 and $1,223,703 of the Companys consolidated revenues for the years
ended August 31, 2004 and 2003, respectively. Revenues from one customer of the
Industrial Products segment represented $965,814 and $1,099,408 of the
Companys consolidated revenues for the years ended August 31, 2004 and 2003,
respectively. 22




---



##### 



GLASSMASTER COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3  INVENTORIES Inventories as reported on the balance sheets are classified below: 2004
    
    2003Materials
    
    $
    1,986,690
    
    
    $
    2,029,311Work in process
    
    
    348,628
    
    
    
    369,922Finished products
    
    
    712,452
    
    
    
    551,596Reserve for excess and obsolete inventories
    
    
    (146,049
    )
    
    
    (169,884
    )$
    2,901,721
    
    
    $
    2,780,945
 NOTE 4  PROPERTY, PLANT AND EQUIPMENT The provision for depreciation charged against income for the fiscal years
ended August 31, 2004 and 2003, totaled $505,690 and $618,278, respectively. 2004
    
    2003Land
    
    $
    155,774
    
    
    $
    155,774Buildings
    
    
    3,121,349
    
    
    
    3,121,349Furniture and fixtures
    
    
    187,046
    
    
    
    187,046Automotive equipment
    
    
    151,689
    
    
    
    151,689Plant equipment
    
    
    7,816,936
    
    
    
    7,810,618Tooling and dies
    
    
    826,768
    
    
    
    826,768Impairment reserve
    
    
    (100,000
    )
    
    
    (100,000
    )Total
    
    
    12,159,562
    
    
    
    12,153,244Accumulated depreciation
    
    
    (9,330,015
    )
    
    
    (8,824,326
    )Property, plant and equipment, net
    
    $
    2,829,547
    
    
    $
    3,328,918
 NOTE 5  REVOLVING LINES OF CREDIT Inventories and customer receivables are pledged as collateral to provide
the Company with two 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 (4.25% at August
31, 2004) plus 2.5%. The line of credit for the Companys subsidiary requires
monthly interest payments at prime plus 1%. The balances as of August 31, 2004
were $2,043,192 and $562,930, respectively, and the balances as of August 31,
2003 were $1,769,121 and $808,323, respectively. These credit agreements are
subject to renegotiation and renewal and will expire October 5, 2004 and
December 31, 2004 for the Company and its subsidiary, respectively. Prior to
August 31, 2004, the line of credit for the Company had a maturity date of
October 5, 2004. It was renewed on November 5, 2004. Special provisions of the loan agreements restrict payment of cash
dividends without the consent of the lender. 23




---



##### 



GLASSMASTER COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 6  NOTES AND DEBENTURES PAYABLE Long-term notes and debentures payable consist of the following: August 31,2004
    
    2003Mortgage loan payable to a financial
institution in eight scheduled principal
payments of $34,000, plus monthly payments
of accrued interest at prime (4.25 % at
August 31, 2004) plus 2% with the
remaining principal and accrued interest
due October 2005 (original due date of
October 2004, refinanced subsequent to
August 31, 2004)
    
    $
    3,998,608
    
    
    $
    3,960,492Mortgage loan payable to a financial
institution, in monthly principal
installments of $5,000 plus accrued
interest at prime (4.25 % at August 31,
2004) plus 1% with the remaining principal
and unpaid accrued interest due December
2004
    
    
    305,000
    
    
    
    365,000Installment loan payable to a financial
institution in monthly installments of
$9,854 including interest at prime (4.25 %
at August 31, 2004) plus 1% with the
remaining principal and unpaid accrued
interest due December 2004
    
    
    204,952
    
    
    
    310,331Installment loan payable to a financial
institution in monthly principal
installments of $12,500 plus accrued
interest at prime (4.25% at August 31,
2004) plus 2.5 % with the remaining
principal and accrued interest due January
2004
    
    
    
    
    
    
    96,532Installment loan payable to a premium
finance company in nine monthly
installments of $3,659 including interest
at 8.25% with the remaining principal and
accrued interest due January 2005
    
    
    18,294
    
    
    
    18,281Debentures to related parties with annual
payments of accrued interest at 10.5% due
December 2005 in one installment of
principal and unpaid accrued interest
    
    
    410,000
    
    
    
    410,000Note payable to a Company officer bearing
interest at 10.5% with annual payments of
accrued interest and due on demand
    
    
    50,000
    
    
    
    50,000Notes payable to related parties with
semi-annual payments of accrued interest
at 10% due January 2005 in one installment
of principal and unpaid accrued interest
    
    
    200,000
    
    
    
    200,0005,186,854
    
    
    
    5,410,636Less current portion
    
    
    1,050,246
    
    
    
    5,000,636$
    4,136,608
    
    
    $
    410,000
 24




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##### 



GLASSMASTER COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 6  NOTES AND DEBENTURES PAYABLE, Continued Substantially all property, plant and equipment are pledged as collateral
for the above scheduled borrowings. The prime interest rate was 4.25% and
4.00% for the years ended August 31, 2004 and 2003 respectively. The principal maturities on the notes and debentures payable over the next
five years as of August 31 are as follows: 2005
    
    $
    1,050,2462006
    
    
    4,136,608$
    5,186,854
 NOTE 7  RELATED PARTY TRANSACTIONS Interest expense for related party obligations was $68,300 for the years
ended August 31, 2004 and 2003. Accrued interest payable to related parties
was $46,467 and $48,717 as of August 31, 2004 and 2003, respectively. NOTE 8  INCOME TAXES Components of the provision (benefit) for income taxes on continuing
operations are shown below for the years ended August 31: 2004
    
    2003Current
    
    Deferred
    
    Current
    
    DeferredFederal
    
    $
    
    
    
    $
    8,555
    
    
    $
    4,565
    
    
    $
    (165,196
    )State
    
    
    
    
    
    
    (13,766
    )
    
    
    141
    
    
    
    (24,032
    )$
    
    
    
    $
    (5,209
    )
    
    $
    4,706
    
    
    $
    (189,228
    )
 For South Carolina tax purposes a net operating loss carry-forward of
$5,417,857 is available for offset against future taxable income. The
carry-forward will expire in the year ended August 31, 2019. For federal tax
purposes, the Company sustained net operating losses of $14,332 and $27,371 for
the years ended August 31, 2004 and 2003, respectively. The Company has
federal net operating loss carryforwards of $4,308,449 available for offset
against future taxable income and will expire in the year ended August 31,
2024. 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, 2004 and 2003. 2004
    
    2003Deferred tax assets relating to:Allowance for doubtful accounts
    
    $
    44,984
    
    
    $
    42,820Alternative minimum tax credit
    
    
    28,697
    
    
    
    28,697Federal and state NOL carry-forwards
    
    
    1,676,126
    
    
    
    1,735,121Deferred tax liabilities relating to:Property and equipment
    
    
    (307,966
    )
    
    
    (370,006
    )Net deferred tax asset
    
    $
    1,441,841
    
    
    $
    1,436,632
 25




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##### 



GLASSMASTER COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 8  INCOME TAXES, Continued 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, 2004 and 2003 as follows: 2004
    
    2003Current assets
    
    $
    44,984
    
    
    $
    42,820Other assets
    
    
    1,396,857
    
    
    
    1,393,812
 Utilization of the deferred tax asset of $1,441,841 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 five 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 9  LEASES The Company leases manufacturing and office equipment under operating
leases expiring in various years through 2008. An operating lease for
manufacturing equipment provides for a renewal option for an additional
four-year period at the fair rental value at the time of renewal. In the
normal course of business, operating leases are generally renewed or replaced
by other leases. Future minimum lease payments due under these non-cancelable
operating leases as of August 31, 2004 are as follows: 2005
    
    $
    45,4932006
    
    
    14,4052007
    
    
    10,5162008
    
    
    4,382$
    74,796
 Total rent expense under these operating leases was $123,179 and $114,333
for the years ended August 31, 2004 and 2003, respectively. NOTE 10  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 activity of the incentive stock options for
the years ended August 31, 2004 and 2003: 2004
    
    2003Weighted
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    AverageNumber of
    
    Exercise
    
    Number of
    
    ExerciseShares
    
    Price
    
    Shares
    
    PriceOutstanding beginning of year
    
    
    57,800
    
    
    $
    1.03
    
    
    
    77,600
    
    
    $
    1.12Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeited
    
    
    (3,300
    )
    
    
    4.00
    
    
    
    (19,800
    )
    
    
    1.38Outstanding end of year
    
    
    54,500
    
    
    $
    .85
    
    
    
    57,800
    
    
    $
    1.03
 26




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##### 



GLASSMASTER COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 10  STOCK OPTIONS, Continued Following is a summary of the status of the incentive options outstanding at August 31, 2004: Outstanding Options
    
    Exercisable OptionsWeightedAverage
    
    WeightedRemaining
    
    AverageExercise
    
    
    
    
    
    Contractual
    
    Exercise
    
    
    
    
    
    ExercisePrice
    
    Number
    
    Life
    
    Price
    
    Number
    
    Price$
    .85
    
    
    
    54,500
    
    
    7 years
    
    $
    .85
    
    
    
    32,700
    
    
    $
    .85
 NOTE 11  EARNINGS PER SHARE OF COMMON STOCK The weighted average number of shares used in the computation of basic and
diluted loss per common share was 1,643,390 in 2004 and 2003. Options on
54,500 and 57,800 shares of common stock as of August 31, 2004 and 2003,
respectively, were not included in computing diluted earnings per share because
their effects were antidilutive. NOTE 12  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. 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 years ended August
31, 2004 and 2003. NOTE 13  BUSINESS SEGMENTS The Company classifies its business into two segments based on products
offered and geographic location; Industrial Products and Controls and
Electronics. The Industrial Products segment produces extruded synthetic
monofilament line, pultruded fiberglass products, and composites that are sold
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. 27




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##### 



GLASSMASTER COMPANY, INC. AND SUBSIDIARY
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 segment assets
    
    
    
    
    
    
    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
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    14,332As of and for the 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
    
    
    410,352
    
    
    
    248,792
    
    
    
    44,004
    
    
    
    703,148Research and development
    
    
    242,307
    
    
    
    22,605
    
    
    
    
    
    
    
    264,912Revenues from external customers
    
    
    9,571,471
    
    
    
    5,918,742
    
    
    
    
    
    
    
    15,490,213Segment profit (loss)
    
    
    287,946
    
    
    
    268,316
    
    
    
    (489,238
    )
    
    
    67,024Interest expense
    
    
    465,425
    
    
    
    108,044
    
    
    
    
    
    
    
    573,469Loss before taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    506,445
 Geographic Information 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
    
    
    
    
    
    
    
    As of and for the 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
    
    
    
    
    
    
    
    
 Revenues in the above schedule are attributed to countries based on the
location of the customer. 28




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##### 



GLASSMASTER COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 14  IMPAIRMENT OF ASSETS In 2004 and 2003, 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 an impairment
loss on property, plant and equipment of $62,500 for the year ended August 31,
2003. 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 year ended August 31, 2003. There was no additional write down of excess inventories or impairment
loss on property for the year ended August 31, 2004. 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 sheets of Glassmaster
Company, Inc. and Subsidiaryas of August 31, 2004 and 2003, and the related
consolidated statements of operations, stockholders equity and cash flows for
the years then ended. These consolidated financial statements are the
responsibility of the Companys management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit. We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material misstatement. An
audit includes examining on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion. In our opinion, the consolidated financial statements present fairly, in
all material respects, the consolidated financial position of Glassmaster
Company, Inc. and Subsidiaryas of August 31, 2004 and 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. /s/ Elliott Davis, LLC
November 5, 2004
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, 2004
and 2003.
    
    
    3221
    
    Subsidiaries of the Company.
    
    
    33
 31