##### 



U.S. SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-KSB
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
 For the fiscal year ended August 31, 2006
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
 GLASSMASTER COMPANY
  South Carolina
    
    0-2331
    
    57-0283724(State or other jurisdiction of
    
    (Commission
    
    (IRS EmployerIncorporation of organization)
    
    File Number)
    
    Identification No.)
 PO Box 788, Lexington, SC
    
    
    
    29071(Address of principal executive offices)
    
    
    
    (Zip Code)
  Issuers Telephone Number, including area code
 None   Common Stock, par value $.03 per share
 þ o
 þ
 $20,412,802
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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##### 



TABLE OF CONTENTS
 Part IItem 1. DESCRIPTION OF BUSINESS
    
    
    3Item 1A. RISK FACTORS
    
    
    5Item 2. DESCRIPTION OF PROPERTIES
    
    
    6Item 3. LEGAL PROCEEDINGS
    
    
    6Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    6Part IIItem 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
    
    
    7Item 6. MANAGEMENTS DISCUSSION AND ANALYSIS
    
    
    8Item 7. FINANCIAL STATEMENTS
    
    
    15Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
    
    
    33Item 8A. CONTROLS AND PROCEDURES
    
    
    33Item 8B. OTHER INFORMATION
    
    
    33Part IIIItem 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS
AND CORPORATE GOVERNANCE; COMPLIANCE WITH SECTION 16(A) OF THE
EXCHANGE ACT
    
    
    33Item 10. EXECUTIVE COMPENSATION
    
    
    33Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
    
    
    33Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
    
    
    33Item 13. EXHIBITS
    
    
    34Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    35SIGNATURES
    
    
    35
 - 2 -




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##### 



PART I
 Item 1. Description of Business
   TM
    INDUSTRIAL PRODUCTS
  - 3 -




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##### 



CONTROLS AND ELECTRONICS
  MARINE
        - 4 -




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##### 



Item 1A. Risk Factors
  Deterioration of industry conditions could harm our business and prospects.
 A downturn in general economic conditions may adversely affect our results of operations.
 Our dependence on, and the price and availability of, raw materials may adversely affect the
companys profits.
 We purchase and sell internationally, which exposes us to the risks of doing business abroad.
 We are subject on an ongoing basis to the risk of litigation arising in the ordinary course of
business.
 We may be unable to obtain financing or have current loans called before their maturity.
 We may be unable to recover new product development and testing costs, which could increase the
cost of operating our business.
 - 5 -




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##### 



If we do not successfully manage our operating margins, our business can be negatively impacted.
 We are subject to environmental, health and safety and employment laws and regulations and related
compliance expenditures and liabilities.
 Item 2. Description of Properties
    Item 3. Legal Proceedings
  Item 4. Submission of Matters to a Vote of Security Holders
  - 6 -




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##### 



Item 5. Market for Registrants Common Equity and Related Stockholder Matters
   Quarter ending:
    
    High
    
    LowAugust 31, 2004
    
    $
    0.35
    
    
    $
    0.30December 1, 2004
    
    
    0.43
    
    
    
    0.30March 2, 2005
    
    
    0.85
    
    
    
    0.43June 1, 2005
    
    
    1.35
    
    
    
    0.53August 31, 2005
    
    
    3.00
    
    
    
    1.15December 4, 2005
    
    
    2.20
    
    
    
    1.10March 5, 2006
    
    
    1.70
    
    
    
    1.06June 4, 2006
    
    
    1.12
    
    
    
    0.77August 31, 2006
    
    
    0.96
    
    
    
    0.53
     - 7 -




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##### 



PART II
 Item 6. Managements Discussion and Analysis
 FORWARD-LOOKING STATEMENTS
  Executive Summary
       - 8 -




---



##### 



Financial Condition
 General.
 Going concern.
 Cash and cash equivalents.
 Accounts receivables.
 Inventory.
 Property, plant, and equipment.
 Accounts payable.
 - 9 -




---



##### 



Current and long term debt.
 Results of Operations
 General.
 Sales.
 Cost of sales.
 General, selling, and administrative.
 Interest expense.
 - 10 -




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##### 



Marine Segment
  For the years ended August 31,2006
    
    
    2005
    
    
    changeSales
    
    $
    478,224
    
    
    $
    
    
    
    $
    478,224Cost of sales
    
    
    624,941
    
    
    
    
    
    
    
    624,941Gross profit (loss)
    
    
    (146,717
    )
    
    
    
    
    
    
    (146,717
    )Marketing and selling
    
    
    82,306
    
    
    
    
    
    
    
    82,306General and administrative
    
    
    7,034
    
    
    
    25,281
    
    
    
    (18,247
    )Total operating expenses
    
    
    89,340
    
    
    
    25,281
    
    
    
    64,059Loss from operations
    
    $
    (236,057
    )
    
    $
    (25,281
    )
    
    $
    (210,776
    )As a percentage of salesSales
    
    
    100.00
    %
    
    
    0.00
    %
    
    
    100.00
    %Cost of sales
    
    
    130.68
    %
    
    
    0.00
    %
    
    
    130.68
    %Gross profit (loss)
    
    
    -30.68
    %
    
    
    0.00
    %
    
    
    -30.68
    %Marketing and selling
    
    
    17.21
    %
    
    
    0.00
    %
    
    
    17.21
    %General and administrative
    
    
    1.47
    %
    
    
    0.00
    %
    
    
    1.47
    %Total operating expenses
    
    
    18.68
    %
    
    
    0.00
    %
    
    
    18.68
    %Loss from operations
    
    
    -49.36
    %
    
    
    0.00
    %
    
    
    -49.36
    %
  - 11 -




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##### 



Industrial Products Segment
  For the years ended August 31,2006
    
    
    2005
    
    
    changeSales
    
    $
    13,442,131
    
    
    $
    12,480,175
    
    
    $
    961,956Cost of sales
    
    
    11,721,365
    
    
    
    10,343,388
    
    
    
    1,377,977Gross profit
    
    
    1,720,766
    
    
    
    2,136,787
    
    
    
    (416,021
    )Marketing and selling
    
    
    647,637
    
    
    
    669,755
    
    
    
    (22,118
    )General and administrative
    
    
    582,019
    
    
    
    311,119
    
    
    
    270,900Total operating expenses
    
    
    1,229,656
    
    
    
    980,874
    
    
    
    248,782Income from operations
    
    $
    491,110
    
    
    $
    1,155,913
    
    
    $
    (664,803
    )As a percentage of salesSales
    
    
    100.00
    %
    
    
    100.00
    %
    
    
    0.00
    %Cost of sales
    
    
    87.20
    %
    
    
    82.88
    %
    
    
    4.32
    %Gross profit
    
    
    12.80
    %
    
    
    17.12
    %
    
    
    -4.32
    %Marketing and selling
    
    
    4.82
    %
    
    
    5.37
    %
    
    
    -0.55
    %General and administrative
    
    
    4.33
    %
    
    
    2.49
    %
    
    
    1.84
    %Total operating expenses
    
    
    9.15
    %
    
    
    7.86
    %
    
    
    1.29
    %Income from operations
    
    
    3.65
    %
    
    
    9.26
    %
    
    
    -5.61
    %
  - 12 -




---



##### 



Controls and Electronics Segment
  For the years ended August 31,2006
    
    
    2005
    
    
    changeSales
    
    $
    6,492,447
    
    
    $
    5,768,095
    
    
    $
    724,352Cost of sales
    
    
    5,614,231
    
    
    
    4,980,194
    
    
    
    634,037Gross profit
    
    
    878,216
    
    
    
    787,901
    
    
    
    90,315Marketing and selling
    
    
    177,376
    
    
    
    184,544
    
    
    
    (7,168
    )General and administrative
    
    
    453,818
    
    
    
    386,102
    
    
    
    67,716Total operating expenses
    
    
    631,194
    
    
    
    570,646
    
    
    
    60,548Income from operations
    
    $
    247,022
    
    
    $
    217,255
    
    
    $
    29,767As a percentage of salesSales
    
    
    100.00
    %
    
    
    100.00
    %
    
    
    0.00
    %Cost of sales
    
    
    86.47
    %
    
    
    86.34
    %
    
    
    0.13
    %Gross profit
    
    
    13.53
    %
    
    
    13.66
    %
    
    
    -0.13
    %Marketing and selling
    
    
    2.73
    %
    
    
    3.20
    %
    
    
    -0.47
    %General and administrative
    
    
    6.99
    %
    
    
    6.69
    %
    
    
    0.30
    %Total operating expenses
    
    
    9.72
    %
    
    
    9.89
    %
    
    
    -0.17
    %Income from operations
    
    
    3.80
    %
    
    
    3.77
    %
    
    
    0.04
    %
  Liquidity and Capital Resources
    - 13 -




---



##### 



- 14 -




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##### 



Item 7. Financial Statements
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 Glassmaster Company, Inc. and Subsidiaries
 Glassmaster Company, Inc. and
Subsidiaries
    /s/ Elliott Davis, LLCNovember 27, 2006Columbia, South Carolina
 - 15 -




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##### 



Glassmaster Company Inc., and Subsidiaries
Consolidated Balance Sheets
 August 31, 2006
    
    
    August 31, 2005ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    248,708
    
    
    $
    278,026Certificate of deposit
    
    
    50,769
    
    
    
    Accounts receivable, trade (net of reserve)
    
    
    2,410,526
    
    
    
    2,770,007Inventories (net of reserve)
    
    
    3,846,592
    
    
    
    3,523,778Prepaid expenses & other current assets
    
    
    95,718
    
    
    
    111,743Deferred income taxes, current
    
    
    78,846
    
    
    
    39,899Total Current Assets
    
    
    6,731,159
    
    
    
    6,723,453Property, plant, and equipment, net
    
    
    2,959,847
    
    
    
    3,014,207Deferred tax assets, non-current
    
    
    1,806,232
    
    
    
    1,399,665Accounts receivable, non-current (net of reserve)
    
    
    64,695
    
    
    
    Other assets
    
    
    40,000
    
    
    
    Total Assets
    
    $
    11,601,933
    
    
    $
    11,137,325LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Revolving lines of credit
    
    $
    2,743,572
    
    
    $
    3,055,211Notes and convertible debentures payable, current
    
    
    4,560,495
    
    
    
    798,550Accounts payable
    
    
    3,148,991
    
    
    
    1,932,010Accrued expenses
    
    
    198,010
    
    
    
    152,778Total Current Liabilities
    
    
    10,651,068
    
    
    
    5,938,549Other LiabilitiesNotes and convertible debentures payable, long term
    
    
    899,684
    
    
    
    4,465,213Total Liabilities
    
    
    11,550,752
    
    
    
    10,403,762Stockholders EquityCapital stock, 5,000,000 shares authorized $0.03 Par,
2,234,390 and 2,192,390 shares issued and outstanding at
August 31, 2006 and August 31, 2005, respectively
    
    
    67,032
    
    
    
    65,772Paid-in capital
    
    
    1,941,229
    
    
    
    1,899,989Donated capital
    
    
    124,210
    
    
    
    124,210Retained deficit
    
    
    (2,081,290
    )
    
    
    (1,356,408
    )Total Stockholders Equity
    
    
    51,181
    
    
    
    733,563Total Liabilities and Stockholders Equity
    
    $
    11,601,933
    
    
    $
    11,137,325
 The notes to consolidated financial statements are an integral part of this statement.
 - 16 -




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##### 



Glassmaster Company Inc., and Subsidiaries
Consolidated Statements of Operations
 For the fiscal years ended,August 31, 2006
    
    
    August 31, 2005Sales
    
    $
    20,412,802
    
    
    $
    18,248,270Cost of sales
    
    
    17,960,537
    
    
    
    15,323,582Gross profit
    
    
    2,452,265
    
    
    
    2,924,688Operating expensesMarketing and selling
    
    
    907,319
    
    
    
    854,299General and administrative
    
    
    1,885,307
    
    
    
    1,333,096Total operating expenses
    
    
    2,792,626
    
    
    
    2,187,395Income (loss) from operations
    
    
    (340,361
    )
    
    
    737,293Interest expense
    
    
    830,035
    
    
    
    634,201Income (loss) before taxes
    
    
    (1,170,396
    )
    
    
    103,092Income tax benefit (expense)
    
    
    445,514
    
    
    
    (2,277
    )Net income (loss)
    
    $
    (724,882
    )
    
    $
    100,815Net income (loss) per common share (Basic and Diluted)
    
    $
    (0.33
    )
    
    $
    0.06Weighted average shares outstanding
    
    
    2,197,722
    
    
    
    1,758,428
 The notes to consolidated financial statements are an integral part of this statement.
 - 17 -




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##### 



Glassmaster Company Inc., and Subsidiaries
Consolidated Statements of Stockholders Equity
For the fiscal years ended August 31, 2006 And 2005
 TotalCapital Stock
    
    
    Paid-in
    
    
    Donated
    
    
    Retained
    
    
    stockholdersShares
    
    
    Amount
    
    
    capital
    
    
    capital
    
    
    deficit
    
    
    equityBALANCE, SEPTEMBER 1,
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
    )
    
    
    733,563Issuances of common stock
    
    
    42,000
    
    
    
    1,260
    
    
    
    41,240
    
    
    
    
    
    
    
    
    
    
    
    42,500Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (724,882
    )
    
    
    (724,882
    )BALANCE, AUGUST 31, 2006
    
    
    2,234,390
    
    
    $
    67,032
    
    
    $
    1,941,229
    
    
    $
    124,210
    
    
    $
    (2,081,290
    )
    
    $
    51,181
 The notes to consolidated financial statements are an integral part of this statement.
 - 18 -




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##### 



Glassmaster Company Inc., and Subsidiaries
Consolidated Statements of Cash Flows
 For the fiscal years endedAugust 31, 2006
    
    
    August 31, 2005Cash flows from operating activities:Net income (loss)
    
    $
    (724,882
    )
    
    $
    100,815Adjustments to reconcile net income (loss) to net cash
provided from (used by) operations
Depreciation and amortization
    
    
    354,708
    
    
    
    438,479Bad debt expense (recovery)
    
    
    105,526
    
    
    
    (13,632
    )Deferred income taxes
    
    
    (445,514
    )
    
    
    2,277Changes in operating assets and liabilities:Accounts receivable
    
    
    189,260
    
    
    
    (383,946
    )Inventories
    
    
    (322,814
    )
    
    
    (622,057
    )Prepaid expenses & other assets
    
    
    15,256
    
    
    
    14,125Accounts payable
    
    
    1,216,981
    
    
    
    195,067Accrued expenses
    
    
    45,232
    
    
    
    (55,857
    )Net cash provided from (used by) operating activities
    
    
    433,753
    
    
    
    (324,729
    )Cash flows from investing activities:Purchases of property, plant, and equipment
    
    
    (271,592
    )
    
    
    (593,526
    )Purchase of certificate of deposit
    
    
    (50,000
    )
    
    
    Collection of deposits
    
    
    
    
    
    
    15,000Net cash used by investing activities
    
    
    (321,592
    )
    
    
    (578,526
    )Cash flows from financing activitiesProceeds from sale of common stock
    
    
    42,500
    
    
    
    399,000Cash payments for deferred charges
    
    
    (68,756
    )
    
    
    (24,613
    )Proceeds from issuance of short-term debt
    
    
    462,129
    
    
    
    115,065Proceeds from issuance of long-term debt
    
    
    300,000
    
    
    
    530,121Principal payments on short-term debt
    
    
    (230,283
    )
    
    
    (93,575
    )Principal payments on long-term debt
    
    
    (335,430
    )
    
    
    (324,702
    )Net borrowings (repayments) on lines of credit
    
    
    (311,639
    )
    
    
    449,089Net cash provided from (used by) financing activities
    
    
    (141,479
    )
    
    
    1,050,385Net increase (decrease) in cash and cash equivalents
    
    
    (29,318
    )
    
    
    147,130Cash and cash equivalents at beginning of period
    
    
    278,026
    
    
    
    130,896Cash and cash equivalents at end of period
    
    $
    248,708
    
    
    $
    278,026Supplemental cash flow informationCash paid for interest
    
    $
    860,679
    
    
    $
    662,228Non cash financing activity:Conversion of debt to common stock
    
    $
    
    
    
    $
    150,000Refinanced debt
    
    $
    110,000
    
    
    $
    649,879
 The notes to consolidated financial statements are an integral part of this statement.
 - 19 -




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##### 



GLASSMASTER COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Description of business
  Principles of consolidation
  Going concern
   Estimates
  Cash and cash equivalents
  Certificate of deposit
  - 20 -




---



##### 



Other assets
  Accounts receivable and allowances
  Inventories
  Property, plant and equipment
  Buildings
    
    30  40 yearsFurniture and fixtures
    
    5  7 yearsAutomotive equipment
    
    3  5 yearsPlant equipment
    
    7  10 yearsTooling and dies
    
    3  5 years
 Accounting for the Impairment of Long Lived Assets
 Revenue recognition
  Accounts payable
 st
 Net income (loss) per common share
 Earnings per
Share.
 Pre-production costs
 Accounting for Pre-Production Costs Related to Long-term Supply
Arrangements
 Start-up costs
 Reporting on the Costs of Start-Up Activities
 - 21 -




---



##### 



Stock option plans
 Accounting for Stock Issued to Employees
 Share-Based Payment
  2006
    
    
    2005Net income (loss) as reported
    
    $
    (724,882
    )
    
    $
    100,815Less:
    
    Total stock-based employee compensationexpense determined under fair value basedmethod for all awards, net of related tax effects
    
    
    (1,460
    )
    
    
    (1,460
    )Pro forma net income (loss)
    
    $
    (726,342
    )
    
    $
    99,355Pro forma basic and diluted income (loss) per share
    
    $
    (0.33
    )
    
    $
    0.06Basic and diluted income (loss) per share as reported
    
    $
    (0.33
    )
    
    $
    0.06
   Income taxes
 Accounting for Income Taxes
 Advertising
  Research and development
  - 22 -




---



##### 



Compensated absences
 Accounting for
Compensated Absences
 Financial instruments
   Recently issued accounting standards
  Share-Based Payment
 Fair Value Measurements
 Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current
Year Financial Statements
 Accounting for Uncertainty in Income Taxes
 - 23 -




---



##### 



Reclassifications
  NOTE 2  CONCENTRATION OF CREDIT RISK
  NOTE 3  INVENTORIES
  August 31, 2006
    
    
    August 31, 2005Materials
    
    $
    2,409,327
    
    
    $
    2,447,324Work in process
    
    
    420,640
    
    
    
    412,381Finished products
    
    
    1,126,625
    
    
    
    802,096Reserve for excess and obsolete inventories
    
    
    (110,000
    )
    
    
    (138,023
    )$
    3,846,592
    
    
    $
    3,523,778
 - 24 -




---



##### 



NOTE 4  PROPERTY, PLANT AND EQUIPMENT
  August 31, 2006
    
    
    August 31, 2005Land
    
    $
    155,774
    
    
    $
    155,774Buildings
    
    
    3,188,479
    
    
    
    3,180,081Furniture and fixtures
    
    
    515,531
    
    
    
    187,046Automotive equipment
    
    
    151,689
    
    
    
    151,689Plant equipment
    
    
    7,865,172
    
    
    
    7,928,914Tooling and dies
    
    
    1,262,424
    
    
    
    1,243,973Impairment reserve
    
    
    (100,000
    )
    
    
    (100,000
    )Total
    
    
    13,039,069
    
    
    
    12,747,477Accumulated depreciation
    
    
    (10,079,222
    )
    
    
    (9,733,270
    )Property, plant and equipment, net
    
    $
    2,959,847
    
    
    $
    3,014,207
 NOTE 5  REVOLVING LINES OF CREDIT
   - 25 -




---



##### 



NOTE 6  NOTES AND CONVERTIBLE DEBENTURES PAYABLE
  August 31, 2006
    
    
    August 31, 2005Mortgage loan payable to a financial
institution with monthly payments of
accrued interest at prime plus 3.0%
with the remaining principal and
accrued interest due January 31,
2007.
    
    $
    3,774,608
    
    
    $
    3,726,608Mortgage loan payable to a financial
institution, in monthly principal
installments of $5,000 plus accrued
interest at LIBOR plus 2.5% with the
remaining principal and unpaid
accrued interest due March 2010.
    
    
    415,000
    
    
    
    475,000Installment loan payable to a
financial institution in monthly
installments of $5,871 including
interest at prime plus 0.5% with the
remaining principal and unpaid
accrued interest due February 2009.
    
    
    165,853
    
    
    
    222,298Debentures to a related party with
annual payments of accrued interest
at 10.5% due December 2005 in one
installment of principal and unpaid
accrued interest.
    
    
    
    
    
    
    110,000Convertible debentures to related
parties with annual payments of
accrued interest at prime plus 2.0%
due from May  August 2010 in one
installment of principal and unpaid
accrued interest.
    
    
    430,000
    
    
    
    430,000Note payable to a financial
institution due in one installment of
$100,000 plus any accrued interest at
prime plus 2.0% due on November 30,
2006
    
    
    100,000
    
    
    
    Notes payable to related parties with
semi-annual payments of accrued
interest ranging from 8.25% - 10% due
from September 2006 through June 2008
in one installment of principal and
unpaid accrued interest.
    
    
    519,574
    
    
    
    282,971Various installment notes and capital
leases with maturities ranging from
January 2007 to November 2009 used to
finance insurance and equipment
purchases.
    
    
    55,144
    
    
    
    16,8865,460,179
    
    
    
    5,263,763Less current portion
    
    
    4,560,495
    
    
    
    798,550$
    899,684
    
    
    $
    4,465,213
 - 26 -




---



##### 



2007
    
    $
    4,560,4952008
    
    
    163,0552009
    
    
    70,3752010
    
    
    666,2542011
    
    
    Thereafter
    
    
    Total
    
    $
    5,460,179
  NOTE 7  RELATED PARTY TRANSACTIONS
  NOTE 8  INCOME TAXES
  2006
    
    
    2005Current
    
    Deferred
    
    Current
    
    DeferredFederal
    
    $
    
    
    
    $
    357,655
    
    
    $
    
    
    
    $
    (35,058
    )State
    
    
    
    
    
    
    87,859
    
    
    
    
    
    
    
    32,781$
    
    
    
    $
    445,514
    
    
    $
    
    
    
    $
    (2,277
    )
  - 27 -




---



##### 



State NOL
    
    
    Federal NOLCarry-forward
    
    
    Carry-forwardAugust 31, 2012
    
    $
    63,942
    
    
    $
    August 31, 2018
    
    
    148,846
    
    
    
    August 31, 2019
    
    
    2,045,931
    
    
    
    1,012,031August 31, 2020
    
    
    986,256
    
    
    
    958,772August 31, 2021
    
    
    1,168,626
    
    
    
    1,592,105August 31, 2022
    
    
    492,498
    
    
    
    470,984August 31, 2023
    
    
    212,422
    
    
    
    27,372August 31, 2024
    
    
    243,003
    
    
    
    1,041August 31, 2026
    
    
    1,257,546
    
    
    
    977,066$
    6,619,070
    
    
    $
    5,039,371
   2006
    
    
    2005Deferred tax assets relating to:Allowance for doubtful accounts
    
    $
    78,846
    
    
    $
    39,899Alternative minimum tax credit
    
    
    28,697
    
    
    
    28,697Inventory and equipment valuation reserves
    
    
    78,330
    
    
    
    88,518Valuation allowance
    
    
    
    
    
    
    (24,818
    )Federal and state NOL carry-forwards
    
    
    1,926,988
    
    
    
    1,566,508Deferred tax liabilities relating to:Property and equipment
    
    
    (227,783
    )
    
    
    (259,240
    )Net deferred tax asset
    
    $
    1,885,078
    
    
    $
    1,439,564
  2006
    
    2005Current deferred taxes
    
    $
    78,846
    
    
    $
    39,899Non-current deferred taxes
    
    
    1,806,232
    
    
    
    1,399,665
  - 28 -




---



##### 



Years ended August 31,2006
    
    
    2005Income tax at statutory rate
    
    $
    397,935
    
    
    
    34.0
    %
    
    $
    (36,082
    )
    
    
    -34.0
    %State tax, net of federal benefit
    
    
    63,327
    
    
    
    5.0
    %
    
    
    (5,155
    )
    
    
    -5.0
    %Valuation Allowance
    
    
    24,818
    
    
    
    2.3
    %
    
    
    30,793
    
    
    
    29.9
    %Other, net
    
    
    (40,566
    )
    
    
    -3.7
    %
    
    
    8,167
    
    
    
    7.9
    %Income tax expense
    
    $
    445,514
    
    
    
    37.6
    %
    
    $
    (2,277
    )
    
    
    -1.2
    %
 NOTE 9  LEASES
   NOTE 10  STOCK OPTIONS
   2006
    
    2005Weighted
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    AverageNumber of
    
    Exercise
    
    Number of
    
    ExerciseShares
    
    Price
    
    Shares
    
    PriceOutstanding beginning of year
    
    
    54,500
    
    
    $
    0.85
    
    
    
    54,500
    
    
    $
    0.85Granted
    
    
    
    
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    
    
    
    
    Outstanding end of year
    
    
    54,500
    
    
    $
    0.85
    
    
    
    54,500
    
    
    $
    0.85
 - 29 -




---



##### 



Outstanding Options
    
    Exercisable OptionsWeightedAverage
    
    WeightedRemaining
    
    AverageExercise
    
    
    
    
    
    Contractual
    
    Exercise
    
    
    
    
    
    ExercisePrice
    
    Number
    
    Life
    
    Price
    
    Number
    
    Price$
    .85
    
    
    
    54,500
    
    
    5 years
    
    $
    .85
    
    
    
    54,500
    
    
    $
    .85
 NOTE 11  EARNINGS PER SHARE
  Net incomeNet income
    
    
    
    
    
    
    (loss)(loss)
    
    
    Shares
    
    
    Per share(numerator)
    
    
    (denominator)
    
    
    amountYear ended August 31, 2006Basic
    
    $
    (724,882
    )
    
    
    2,197,722
    
    
    $
    (0.33
    )Effect of dilutive
securitiesoptions to
purchase common shares
    
    
    
    
    
    
    
    
    
    
    Diluted
    
    $
    (724,882
    )
    
    
    2,197,722
    
    
    $
    (0.33
    )Year ended August 31, 2005Basic
    
    $
    100,815
    
    
    
    1,758,428
    
    
    $
    0.06Effect of dilutive
securitiesoptions to
purchase common shares
    
    
    
    
    
    
    
    
    
    
    Diluted
    
    $
    100,815
    
    
    
    1,758,428
    
    
    $
    0.06
 NOTE 12  DEFINED CONTRIBUTION PLAN
    - 30 -




---



##### 



NOTE 13  BUSINESS SEGMENTS
   Year ended August 31, 2006Controls &
    
    
    Corporate OverheadMarine
    
    
    Industrial Products
    
    
    Electronics
    
    
    & Other
    
    
    ConsolidatedSales
    
    $
    478,224
    
    
    $
    13,442,131
    
    
    $
    6,492,447
    
    
    $
    
    
    
    $
    20,412,802Cost of sales
    
    
    624,941
    
    
    
    11,721,365
    
    
    
    5,614,231
    
    
    
    
    
    
    
    17,960,537Gross profit (loss)
    
    
    (146,717
    )
    
    
    1,720,766
    
    
    
    878,216
    
    
    
    
    
    
    
    2,452,265Marketing and selling
    
    
    82,306
    
    
    
    647,637
    
    
    
    177,376
    
    
    
    
    
    
    
    907,319General and administrative
    
    
    7,034
    
    
    
    582,019
    
    
    
    453,818
    
    
    
    842,436
    
    
    
    1,885,307Total operating expenses
    
    
    89,340
    
    
    
    1,229,656
    
    
    
    631,194
    
    
    
    842,436
    
    
    
    2,792,626Income (loss) from operations
    
    
    (236,057
    )
    
    
    491,110
    
    
    
    247,022
    
    
    
    (842,436
    )
    
    
    (340,361
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    830,035
    
    
    
    830,035Provision for income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    445,514
    
    
    
    445,514Net income (loss)
    
    $
    (236,057
    )
    
    $
    491,110
    
    
    $
    247,022
    
    
    $
    (1,226,957
    )
    
    $
    (724,882
    )Total assets
    
    $
    1,473,075
    
    
    $
    4,185,371
    
    
    $
    3,975,463
    
    
    $
    1,968,024
    
    
    $
    11,601,933Gross profit %
    
    
    -30.7
    %
    
    
    12.8
    %
    
    
    13.5
    %
    
    
    
    
    
    
    12.0
    %
 Year ended August 31, 2005Controls &
    
    
    Corporate OverheadMarine
    
    
    Industrial Products
    
    
    Electronics
    
    
    & Other
    
    
    ConsolidatedSales
    
    $
    
    
    
    $
    12,480,175
    
    
    $
    5,768,095
    
    
    $
    
    
    
    $
    18,248,270Cost of sales
    
    
    
    
    
    
    10,343,388
    
    
    
    4,980,194
    
    
    
    
    
    
    
    15,323,582Gross profit
    
    
    
    
    
    
    2,136,787
    
    
    
    787,901
    
    
    
    
    
    
    
    2,924,688Marketing and selling
    
    
    
    
    
    
    669,755
    
    
    
    184,544
    
    
    
    
    
    
    
    854,299General and administrative
    
    
    25,281
    
    
    
    311,119
    
    
    
    386,102
    
    
    
    610,594
    
    
    
    1,333,096Total operating expenses
    
    
    25,281
    
    
    
    980,874
    
    
    
    570,646
    
    
    
    610,594
    
    
    
    2,187,395Income (loss) from operations
    
    
    (25,281
    )
    
    
    1,155,913
    
    
    
    217,255
    
    
    
    (610,594
    )
    
    
    737,293Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    634,201
    
    
    
    634,201Provision for income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,277
    )
    
    
    (2,277
    )Net income (loss)
    
    $
    (25,281
    )
    
    $
    1,155,913
    
    
    $
    217,255
    
    
    $
    (1,247,072
    )
    
    $
    100,815Total assets
    
    $
    641,647
    
    
    $
    4,469,333
    
    
    $
    4,057,374
    
    
    $
    1,968,971
    
    
    $
    11,137,325Gross profit %
    
    
    
    
    
    
    17.1
    %
    
    
    13.7
    %
    
    
    
    
    
    
    16.0
    %
 - 31 -




---



##### 



Geographic Information
 As of and for the year ended August 31, 2006Total
    
    Property, PlantRevenues
    
    Assets
    
    and EquipmentUnited States
    
    $
    18,552,862
    
    
    $
    11,601,933
    
    
    $
    2,959,847Other foreign countries
    
    
    1,859,940
    
    
    
    
    
    
    
    
 As of and for the year ended August 31, 2005Total
    
    Property, PlantRevenues
    
    Assets
    
    and EquipmentUnited States
    
    $
    16,107,213
    
    
    $
    11,137,325
    
    
    $
    3,014,207Other foreign countries
    
    
    2,141,057
    
    
    
    
    
    
    
    
  NOTE 14  IMPAIRMENT OF ASSETS
   NOTE 15  PURCHASE OF BUSINESS ASSETS
  - 32 -




---



##### 



Item 8. Changes in or Disagreements with Accountants on Accounting and Financial
Disclosure
  Item 8A. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures.
  Changes in Internal Control over Financial Reporting.
 Item 8B. Other Information
 
 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 Related Stockholder Matters; and Certain Relationships
and Related Transactions, and Director Independence.
  - 33 -




---



##### 



Item 13. Exhibits
 (a)
    
    Exhibits (numbered in accordance with Item 601 of Regulation S-B)
 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.10.1
    
    Form of Subordinated Convertible Debenture agreement
    
    3621
    
    Subsidiaries of the Company.
    
    3931.1
    
    Section 302 Certification of Principal Executive Officer
    
    4031.2
    
    Section 302 Certification of Principal Financial Officer
    
    4132.1
    
    Form 906 Certification
    
    42
 - 34 -




---



##### 



Item 14. Principal Accountant Fees and Services
  SIGNATURES
   By
    
    /s/ Raymond M. Trewhella
    
    
    
    By
    
    /s/ Nathan G. Leaphart III, CPARaymond M. Trewhella, CEO
    
    
    
    
    
    Nathan G. Leaphart III, CPA, CFO(Principal Executive Officer)
    
    
    
    
    
    (Principal Financial Officer)(Principal Accounting Officer)
 Date
    
    November 29, 2006
    
    
    
    Date
    
    November 29, 2006
  By
    
    /s/ Stephen W. Trewhella
    
    
    
    By
    
    /s/ Raymond M. TrewhellaStephen W. Trewhella, Director
    
    
    
    
    
    Raymond M. Trewhella, Director
 Date
    
    November 29, 2006
    
    
    
    Date
    
    November 29, 2006
 By
    
    /s/ Stephen W. Trewhella, Jr.
    
    
    
    By
    
    /s/ Melvin L. ChavisStephen W. Trewhella, Jr., Director
    
    
    
    
    
    Melvin L. Chavis, Director
 Date
    
    November 29, 2006
    
    
    
    Date
    
    November 29, 2006
 - 35 -