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INDEX TO ANNUAL REPORT ON FORM 10-K
Item 8

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

ANNUAL 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: 1-9852

CHASE CORPORATION
(Exact name of registrant as specified in its charter)

26 Summer Street, Bridgewater, Massachusetts 02324
(Address of Principal Executive Offices, Including Zip Code)

(508) 279-1789
(Registrant's Telephone Number, Including Area Code)

www.chasecorp.com
(Registrant's Website)

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

Securities registered pursuant to section 12(g) of the Act: Common Stock, $.10 per share par value

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. YES ý    NO o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K 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-K or any amendment to this Form 10-K. o

Indicate by checkmark whether the registrant is an accelerated filer (as defined in Rule 12-b-2 of the Exchange Act). YES o    NO ý

The aggregate market value of the common stock held by non-affiliates of the registrant, as of February 27, 2004 (the last business day of the registrant's second quarter of fiscal 2004), was approximately $32,672,884.

As of October 31, 2004, the Company had outstanding 3,752,483 shares of common stock, $.10 par value, which is its only class of common stock.

Documents Incorporated By Reference:

Portions of the registrant's definitive proxy statement for the Annual Meeting of Shareholders, which is expected to be filed within 120 days after the registrant's fiscal year ended August 31, 2004, are incorporated by reference into Part III hereof.

CHASE CORPORATION
INDEX TO ANNUAL REPORT ON FORM 10-K
For the Year Ended August 31, 2004

PART I

Item 1—Business

Primary Operating Divisions and Facilities and Industry Segment

Chase Corporation (the "Company" or "Chase") is a multi-divisional advanced manufacturing company providing industrial products to a wide variety of industries including wire and cable, construction and electronics. The Company's strategy is to maximize its core businesses while seeking future opportunities through selective acquisitions. The Company is organized into six major operating divisions. All operating divisions are part of the Company's Specialized Manufacturing segment with the exception of Chase EMS, which is part of the Company's Electronic Manufacturing Services segment. A summary of the Company's operating divisional structure is as follows:

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Other Business Developments

International Operations—Chase Canada

In April 1992, the Company acquired certain tape product lines and associated assets for cash from the Stewart Group, Ltd. This division, Chase Canada, was part of the Company's Specialized Manufacturing segment. However, in fiscal year 2004, the Company closed this Canadian facility, located in Winnipeg, Canada, and reorganized it within the domestic operating facilities of the Company's Coating & Laminating division in the United States. The Company decided to close its only manufacturing facility located outside of the United States, as a result of the consolidation of the customer base of its Canadian facility, which is predominantly located in the United States.

Investment in Joint Venture—The Stewart Group, Inc.

In June 1995, the Company formed a joint venture, The Stewart Group, Inc. ("SGI"), with The Stewart Group, Ltd. of Canada, to produce various products for the fiber optic cable market. In February 1996, the Company increased its original investment in this entity which resulted in the Company having a 42% interest in the joint venture. In May 1997, the majority of the assets related to the original business were sold to Owens Corning. The joint venture continues to operate two manufacturing facilities selling polymers and specialty coatings primarily to the telecommunications industry.

In November 2003 (the Company's first quarter of fiscal 2004), the Company recorded an impairment charge of $500,000 related to the Company's investment in SGI due to changes in SGI's projected future cash flows. This impairment charge was determined based upon an updated understanding of SGI's businesses through discussions with SGI's majority shareholder as well as an analysis of SGI's projected future cash flows.

Sunburst Electronic Manufacturing Solutions, Inc.

In August 1996, the Company purchased a 20% interest in DC Scientific located in West Bridgewater, Massachusetts. In January 1997, the Company purchased a controlling interest in DC Scientific. In January 1999, the Company acquired the remaining interest of DC Scientific Inc., and changed the name to Sunburst Electronic Manufacturing Solutions Inc. ("Sunburst"). On December 10, 2003 (the Company's second quarter of fiscal 2004), the Company sold Sunburst to the Edward L. Chase Revocable Trust (the "Trust") in exchange for shares of Chase common stock that were held by the Trust.

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Employees

As of October 31, 2004, the Company employed approximately 320 people (including certain union employees). The Company believes that its relationship with its employees is good.

Products and Markets

The Company's principal products are protective coatings and tape products that are sold by Company salespeople and manufacturers' representatives. These products consist of: (i) insulating and conducting materials for the manufacture of electrical and telephone wire and cable, electrical splicing, and terminating and repair tapes, which are marketed to wire and cable manufacturers and public utilities; (ii) protective pipe coating tapes and other protectants for valves, regulators, casings, joints, metals, concrete, and wood, which are sold to oil companies, gas utilities, and pipeline companies; (iii) protectants for highway bridge deck metal supported surfaces, which are sold to municipal transportation authorities; (iv) moisture protective coatings, which are sold to the electronics industry; and (v) laminated, durable papers, which are produced and sold primarily to the envelope converting and commercial printing industries. The Company's Electronic Manufacturing Services segment provides circuit board assembly and contract manufacturing services to electronic goods manufacturers. There are no material seasonal aspects to the Company's business and the Company has introduced no new products or segments requiring an investment of a material amount of the Company's assets.

Backlog, Customers and Competition

As of October 31, 2004, the backlog of orders believed to be firm was approximately $8,025,000, of which $3,635,000 was related to our Electronic Manufacturing Services segment. This compared with a total of $11,288,000 as of October 31, 2003 of which $7,193,000 was associated with the Company's Electronic Manufacturing Services segment. Of the total backlog amount as of October 31, 2003, $2,778,000 related to Sunburst, which was sold in fiscal 2004 and, therefore, is not included in the October 31, 2004 backlog amount. The backlog is not seasonal. During fiscal 2004, 2003 and 2002, no customer accounted for more than 10% of sales. No material portion of the Company's business is subject to renegotiation or termination of profits or contracts at the election of the government.

There are other companies that manufacture or sell products and services similar to those made and sold by the Company. Many of those companies are larger and have greater financial resources than the Company. The Company competes principally on the basis of technical performance, service reliability, quality and price.

Raw Materials

The Company obtains raw materials from a wide variety of suppliers with alternative sources of all essential materials available within reasonable lead times.

Patents, Trademarks, Licenses, Franchises and Concessions

The Company owns the following trademarks: HumiSeal®, a trademark for moisture protective coatings sold to the electronics industry; Chase BLH₂OCK®, a trademark for water blocking compound sold to the wire and cable industry; Rosphalt50®, a trademark for an asphalt additive used predominantly on bridge decks for waterproofing protection; Insulfab®, a trademark for insulation material used in the aerospace industry; and Paper Tyger®, a trademark for laminated durable papers sold to the envelope converting and commercial printing industries. The Company has no other material trademarks, licenses, franchises, or concessions. The Company holds various patents but believes that, at this time, they are not material to the success of the business.

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Working Capital and Research and Development

There are no special practices followed by the Company relating to working capital. Approximately $1,200,000, $746,000, and $781,000 was spent for Company-sponsored research and development during fiscal 2004, 2003 and 2002, respectively. Research and development increased by $454,000 in fiscal 2004 compared to 2003 due to increased expenses at the Company's Coating & Laminating division, including its newly acquired Paper Tyger business.

Available Information

The Company maintains a website at www.chasecorp.com. The Company makes available, free of charge, on its website its Annual Report on Form 10-K, as soon as reasonably practicable after such report is electronically filed with, or furnished to, the SEC. Additionally, the Company's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports, filed or furnished pursuant to Section 13(a) of 15(d) of the Securities Exchange Act of 1934, as amended, are available at the SEC's website at www.sec.gov. Information contained on the Company's website is not part of, or incorporated by reference into, this Annual Report on Form 10-K.

Financial Information About Segments and Geographic Areas

Please see Notes 11 and 12 to the Company's Consolidated Financial Statements for financial information about the Company's industry segments and domestic and foreign operations for each of the last three fiscal years.

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Item 2—Properties

The Company owns office and manufacturing properties and leases office and manufacturing space as outlined in the table below. All properties are used by the Company's Specialized Manufacturing segment except for Corporate and the Chase EMS division. The Chase EMS property is used by the Company's Electronic Manufacturing Services segment.

The above facilities range in age from new to about 100 years, are generally in good condition and, in the opinion of management, adequate and suitable for present operations. The Company also owns equipment and machinery that is in good repair and, in the opinion of management, adequate and suitable for present operations. The Company could significantly add to its capacity by increasing shift operations. Availability of machine hours through additional shifts would provide expansion of current product volume without significant additional capital investment.

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Item 3—Legal Proceedings

From time to time, the Company is involved in litigation incidental to the conduct of its business. The Company is not party to any lawsuit or proceeding that, in management's opinion, is likely to seriously harm the Company's business.

The Company is one of over a hundred defendants in each of three personal injury lawsuits, all of which allege personal injury from exposure to asbestos contained in various products. Of these lawsuits, one is pending in Mississippi and two are pending in Ohio. The Mississippi lawsuit is a wrongful death action that is in discovery and has not yet been given a firm trial date. One of the two lawsuits in Ohio has been scheduled for trial on August 5, 2005, and is in discovery. The other Ohio lawsuit has been inactive with respect to Chase since Chase was named as a defendant in July 2004.

The Company is also a defendant in a case pending in Massachusetts Superior Court alleging that two of its employees had disclosed confidential information and/or trade secrets of their former employer to the Company and that the Company had improperly used that information. In addition, the complaint alleges that the Company engaged in unfair and deceptive trade practices pursuant to Massachusetts General Law, Chapter 93A. Discovery in the case is closed but no trial date has yet been set.

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

There were no matters submitted to a vote of the Company's security holders during the fourth quarter of the Company's fiscal year ended August 31, 2004.

Item 4a—Executive Officers of the Registrant

The following table sets forth information concerning the Company's Executive Officers. Each officer is selected by the Company's Board of Directors and holds office until his successor is elected and qualified.

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PART II

Item 5—Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

The Company's common stock is traded on the American Stock Exchange (Symbol: CCF). The approximate number of common stock shareholders of record on October 31, 2004 was 1,466, and the closing price of Chase Corporation's common stock was $15.70 per share as reported by the American Stock Exchange.

The following table sets forth the high and low sales prices for the Company's common stock as reported by the American Stock Exchange for each quarter in the fiscal years ended August 31, 2004 and 2003:

The Company paid a cash dividend per common share of $0.35, $0.31, and $0.27 for the years ended August 31, 2004, 2003 and 2002, respectively. The cash dividend for each fiscal year was paid subsequent to year end.

The following table summarizes the Company's stock option plans as of August 31, 2004. Further details on the Company's stock option plans are discussed in the notes to the consolidated financial statements.

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Item 6—Selected Consolidated Financial Data

The following selected financial data should be read in conjunction with "Item 7—Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Item 8—Financial Statements and Supplementary Data"

(1)

As of September 1, 2001 (fiscal 2002), the Company ceased the amortization of goodwill in accordance with SFAS 142. In fiscal 2001 and 2000, prior to the Company's adoption of SFAS 141, goodwill amortization expense was $667,000 and $660,000, respectively.

(2)

Single annual dividend payments declared and paid subsequent to fiscal year end.

Note: Information related to the Company's acquisitions and dispositions can be found in the Overview section of "Item 7—Management's Discussion and Analysis of Financial Condition and Results of Operations."

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Item 7—Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion provides an analysis of the Company's financial condition and results of operations and should be read in conjunction with the Consolidated Financial Statements and notes thereto included in Item 8 of this Annual Report on Form 10-K.

Selected Relationships within the Consolidated Statements of Operations

Overview

Overall performance in fiscal year 2004 was good, reflecting continuing improvement from last fiscal year. All of the Company's businesses benefited from a steadily improving economy. Strong gains in the Electronic Manufacturing Services segment and increased demand for products in the Specialized Manufacturing segment, and HumiSeal in particular, indicates a resurgence of activity of manufacturers needing to rebuild inventories. The following charges had a negative effect of approximately $1,347,000 on the Company's net income in fiscal year 2004 (a) the impairment of the Company's investment in unconsolidated joint venture, SGI, of $500,000 (b) the impairment of goodwill related to Sunburst of $579,000, and (c) the after tax losses of the Company's Canadian operations. Over the past two years, the Company has been restructuring manufacturing operations as a means of better positioning its businesses and maximizing resources. This will continue into fiscal year 2005.

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The Company has two reportable segments summarized below:

Chase Canada, the Company's only manufacturing plant located outside of the United States, in Winnipeg, Canada has been reorganized within the domestic operating facilities of the Company's Specialized Manufacturing segment. This was completed in the fourth quarter of fiscal 2004. This reorganization of plant facilities is a result of the continued consolidation of Chase Canada's customer base, predominantly to the United States. For the fiscal year ended August 31, 2004, the Company incurred losses before income taxes of approximately $754,000 from its operations in Canada. Included in the fiscal year loss was approximately $300,000 in costs related to employee severance, stay bonuses, accelerated depreciation on certain manufacturing equipment, a one time termination fee related to the building lease commitment, realization of unrealized foreign currency translation adjustments and other shut down costs.

In January 2004, the Company purchased manufacturing equipment. The Company utilized this manufacturing equipment to begin manufacturing operations at a newly leased facility in Taylorsville, North Carolina. This new operating facility is part of the Company's Specialized Manufacturing segment. The equipment purchase was financed through an increase in the Company's long-term debt.

On December 10, 2003, the Company sold its subsidiary, Sunburst Electronics Manufacturing Solutions, Inc. ("Sunburst") to the Edward L. Chase Revocable Trust (the "Trust") in exchange for shares of Chase common stock that were held by the Trust. The closing date of the transaction was December 10, 2003, with an effective date for accounting purposes of December 1, 2003. The Company received 230,406 shares of Chase common stock valued at $3,000,000. Sunburst was part of the Company's Electronic Manufacturing Services segment through the end of the first quarter of fiscal year 2004.

In December 2003, the Company acquired the assets of Paper Tyger, LLC ("Paper Tyger"), headquartered in Middlefield, Connecticut. The Paper Tyger business manufactures and markets laminated, durable papers produced with patented technology. Paper Tyger products, marketed under the names Paper Tygerâ, NaturalWhite and SuperWhite, are sold primarily to the envelope converting and commercial printing industries. The total purchase price for this acquisition was $702,000 with additional contingent payments to be made by the Company if certain revenue and product margin targets are met with respect to the Paper Tyger products over the next three years. The additional contingent payments will be recorded as goodwill in accordance with SFAS 141. In connection with the acquisition, the Company recorded $763,000 of goodwill and $360,000 of intangible assets related to the customer relationships of Paper Tyger. The Paper Tyger products are being manufactured in the Company's Webster facility and are part of the Coating & Laminating division which is part of the Specialized Manufacturing segment.

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Effective February 12, 2003, Chase Facile, Inc. ("Chase Facile"), a wholly owned subsidiary of the Company, acquired certain assets of Facile, Inc. ("Facile") for $5,032,000 (including $150,000 of acquisition costs) from Facile and Facile's lender. The acquired assets consisted principally of equipment, inventory and receivables. The majority of the assets that the Company acquired from Facile are being used in the Coating & Laminating division's Paterson facility which is part of the Specialized Manufacturing segment.

Effective November 1, 2001, the Company purchased the assets of the Tapecoat division of TC Manufacturing, Inc. for a total purchase price of $5,855,000, $5,427,000 of which was paid in cash and $428,000 of which was paid through the issuance of 40,000 shares of Chase common stock, valued at $10.70 per share. Tapecoat is part of the Company's Specialized Manufacturing segment.

Results of Operations

Revenues and Operating Profit by Segment are as follows (dollars in thousands)

* Includes loss on impairment of goodwill of $579,000

Total Revenues

Total revenues for fiscal 2004 increased $12.5 million or 17% to $87.1 million from $74.6 million in the prior year. The increase in revenues for the Company's Specialized Manufacturing segment is primarily due to the following: (a) the acquisition of Paper Tyger; (b) Chase Facile's Paterson facility has been fully integrated with a full year of production and has bolstered revenues through sales in CATV and Insulfab and contributed additional revenues in fiscal 2004 as it was included in Chase Corporation's results for only six months in fiscal 2003; (c) strong demand has resulted in increased sales of Chase BLH₂OCK®; (d) demand internationally for HumiSeal® products has increased; and (e) the Specialized

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Manufacturing segment's product lines have continued to improve and become more diversified. These increases in Specialized Manufacturing were offset by a decrease of approximately $1.0 million in revenues from the Company's Canadian operation as it was reorganized in fiscal 2004. Additionally, increased demand internationally in Europe and Asia Pacific caused royalty revenues to increase $259,000 or 28% to $1,196,000 in fiscal 2004 compared to $937,000 in fiscal 2003.

Revenues in the Company's Electronic Manufacturing Services segment were flat in fiscal 2004 compared to fiscal 2003. However, this segment's revenues were negatively affected by the December 2003 sale of Sunburst, which accounted for $8.8 million in revenues in fiscal 2003 compared to $2.5 million in the current fiscal year (Sunburst revenues were included for only three months of fiscal year 2004 prior to being sold). The shortfall caused by the sale of Sunburst was offset by an increase in revenues of $6.0 million from the Company's Chase EMS division, which is also part of the Electronic Manufacturing Services segment. The increase in Chase EMS sales was predominantly due to the strengthening of the hi-tech market, which continues to rebound from the economic downturn suffered in 2001 and 2002, and greater demand for specialized turnkey production from its existing and new customers.

Export sales from continuing domestic operations to unaffiliated third parties were $8,964,000, $5,459,000, and $4,504,000 for the years ended August 31, 2004, 2003 and 2002, respectively. The change in export sales was due to the general improvement of the global economy. A license and royalty arrangement entered into in 2002, with a manufacturer in the Far East, caused a reduction in export sales in 2002 and corresponding increase to royalty income as certain customers who were purchasing directly from the Company in the United States began purchasing from the Company's new licensee. The Company does not anticipate any material change to export sales during fiscal 2005

Total revenues for fiscal 2003 increased $5.3 million or 8% to $74.6 million from $69.3 million in the prior fiscal year. The increase in revenues was primarily a result of sales generated by the Company's acquisitions of Tapecoat (acquired in fiscal 2002) and Chase Facile (acquired in fiscal 2003). Fiscal 2003 Specialized Manufacturing revenues increased over the previous year as this segment continued to benefit from the asset purchase of the Tapecoat division as well as seven months of sales activity generated by the February 2003 acquisition of Chase Facile.

Cost of Products and Services Sold

In fiscal 2004, cost of products and services sold increased $10.1 million or 20% to $61.7 million compared to $51.6 million in the prior fiscal year. The majority of the dollar value increase was a direct result of increased revenues in fiscal 2004. As a percentage of revenues, cost of products and services sold increased to 71% in fiscal 2004 compared to 69% in fiscal 2003. This percentage increase was primarily due to the Company's Specialized Manufacturing segment which experienced increased pricing pressure on raw material costs in fiscal 2004 coupled with increased sales of lower margin products. Additionally, sales related to the Paper Tyger product line have lower margins compared to some of the Company's other divisions due to the higher cost of raw materials used in Paper Tyger products. Fiscal 2004 included nine months of Paper Tyger compared to no sales activity in fiscal 2003, which was prior to the acquisition.

In fiscal 2003, cost of products and services sold increased $2.4 million or 5% to $51.6 million compared to $49.2 million in the prior year period. The dollar value increase was a direct result of increased revenues in fiscal 2003. As a percentage of revenues, cost of products and services sold decreased to 69% in fiscal 2003 compared to 71% in fiscal 2002, primarily due to increased revenues from the Company's Tapecoat and Chase Facile's divisions. Fiscal 2003 included a full year of Tapecoat and seven months of Chase Facile's operations compared to four months and no activity for Tapecoat and Chase Facile, respectively, in fiscal 2002. These two divisions, which are in the Specialized Manufacturing segment, sell products with higher margins compared to the Company's Electronic Manufacturing Services segment. Accordingly, there were more sales of these higher margin products in fiscal 2003.

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Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $1.3 million or 9% to $15.9 million in fiscal 2004 compared to $14.6 million in fiscal 2003, and increased $1.3 million or 9% to $14.6 million in fiscal 2003 compared to $13.3 million in fiscal 2002. As a percent of revenues, selling, general and administrative expenses decreased in fiscal 2004 to 18% compared to 19% in fiscal 2003 and 2002. The increase in fiscal 2004 and 2003 relates primarily to salary and benefits, including health care costs; information technology and telecommunication costs; higher public company expenses, including accounting and legal fees; and costs associated with the Paper Tyger sales office, which was acquired in fiscal 2004. Additionally, selling expenses are higher in the current fiscal year due to a proportionate increase in commissions associated with the increase in revenues. The Company has also invested in certain personnel that it believes are required to support continued growth in future periods.

Bad debt expense, net of recoveries, decreased $97,000 to $397,000 in fiscal 2004 compared to $494,000 in fiscal 2003. The decrease in 2004 is a result of the financial difficulties of a long standing customer in the Company's Specialized Manufacturing segment whose receivable balance was written off in fiscal 2003.

Loss on Impairment of Goodwill

As discussed in the notes of the Company's consolidated financial statements, in fiscal year 2004, the Company recorded a $579,000 charge related to the impairment of goodwill in connection with its sale of Sunburst. Goodwill related to Sunburst, having a pre-impairment book value of $1,412,000, was written down to its fair value of $833,000, which was realized upon the December 10, 2003 sale of Sunburst. The impairment was recorded in the Company's first fiscal quarter ended November 30, 2003 while the effective date of the sale of Sunburst for accounting purposes was December 1, 2003 in the second fiscal quarter ended February 29, 2004.

Interest Expense

Interest expense was $346,000 in fiscal 2004 compared to $381,000 and $517,000 in fiscal 2003 and 2002, respectively. The change in interest expense is a direct result of the Company's ability to reduce overall debt balances through principal payments from operating cash flow offset by increases in the Company's outstanding debt as a result of: (a) the repurchase of common stock (b) the acquisition of Paper Tyger and (c) the acquisition of manufacturing equipment located in Taylorsville, North Carolina. The Company's debt will continue to be paid down through operating cash flow in fiscal 2005. The Company continues to receive the benefits from favorable borrowing rates from its financial institutions.

Other Income (Expense)

Other income (expense) in fiscal year 2004 includes $151,000 of foreign currency translation loss which was realized upon the closing of the Company's Canadian facility offset by $107,000 ($11,900 per month) related to rental income on property (building and land) owned by the Company and leased to Sunburst under a 36-month rental agreement entered into in conjunction with the Company's sale of Sunburst.

Income Taxes

The effective tax rate for fiscal 2004 was 40.0% compared to 33.3% and 31.5% in fiscal 2003 and 2002, respectively. In all three years, the Company has received the benefit of strong export sales and foreign tax credits. In fiscal 2004, the sale of Sunburst created a capital loss carryforward for income tax purposes of approximately $2.3 million. This capital loss expires in 2008 and will be used to offset capital gains generated by the Company in future periods. As of August 31, 2004, management has concluded that it is more likely than not that the Company will not realize the benefit of this capital loss carryforward and thus the deferred tax asset has been offset by a full valuation allowance.

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Accordingly, the Company's annual fiscal 2004 effective income tax rate reflects this valuation allowance as well as less favorable state income tax rates in the form of a higher effective tax rate compared to prior fiscal years.

Income Before Minority Interest

Income before minority interest decreased 4% in fiscal 2004 compared to prior year. Income before minority interest increased 22% in fiscal 2003 compared to fiscal 2002. Excluding the $579,000 loss on impairment of goodwill related to Sunburst, which was recorded in the first quarter of fiscal 2004, income before minority interest increased 7% for the fiscal year 2004 compared to the prior year. This increase was a direct result of increased revenues offset by continued pressure on profit margins and additional selling, general and administrative expenses as discussed above.

Income (Loss) from Unconsolidated Joint Venture

The income (loss) from unconsolidated joint venture relates to a 42% equity position in the Stewart Group, Inc. ("SGI"), located in Toronto, Canada. In fiscal 1995, the Company formed a joint venture, SGI with The Stewart Group, Ltd. of Canada, to produce various products for the fiber optic cable market. The business focus is geared toward the telecommunication's market, which the Company anticipates will continue to be a soft economic market in fiscal 2005.

In accordance with the Company's accounting policies, the carrying value of this investment in joint venture asset is reviewed periodically to determine if an impairment exists. In fiscal year 2004, an impairment of $500,000 related to the Company's investment in SGI was recorded due to changes in SGI's projected future cash flows due to the expected future loss of a key customer. This impairment charge was determined based upon an updated understanding of SGI's businesses through discussions with SGI's majority shareholder as well as an analysis of SGI's projected future cash flows.

Net Income

Net income in fiscal 2004 decreased 12% compared to the prior fiscal year. Net income increased 18% in fiscal 2003 compared to fiscal 2002. The decrease in net income in the current fiscal year is a direct result of the three significant charges recorded in fiscal 2004 all of which are discussed above (a) the impairment of the Company's investment in unconsolidated joint venture, SGI, of $500,000 (b) the impairment of goodwill related to Sunburst of $579,000, and (c) the after tax losses of the Company's Canadian operations, which were approximately $498,000 in fiscal 2004 compared to $230,000 in fiscal 2003. Included in the fiscal year loss for the Canadian operations was approximately $300,000 in costs related to employee severance, stay bonuses, accelerated depreciation on certain manufacturing equipment, one time buy out of the building lease commitment, realization of unrealized foreign currency translation adjustments, and other shut down costs. The charges discussed above had a negative effect of approximately $1,347,000 on the Company's net income in fiscal year 2004. These decreases in net income were partially offset by increases in net income due to higher revenues in fiscal 2004 compared to fiscal 2003.

Fiscal 2003 earnings were primarily affected by increased revenues as a result of acquisitions in the Company's Tapecoat division and Chase Facile operating facility. Chase Facile is part of the Company's Coating & Laminating division and along with Tapecoat are both part of the Specialized Manufacturing segment. The margin on the increased revenues generated from the Specialized Manufacturing segment was higher when compared to the Company's Electronic Manufacturing Services segment.

Liquidity and Sources of Capital

The Company's cash balances increased $1,239,000 to $1,406,000 at August 31, 2004 from $167,000 at August 31, 2003. Generally, the Company manages its borrowings and payments under its revolving line of credit in order to maintain a low cash balance. The relatively high cash balance at August 31, 2004 was primarily the result of the timing

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