10QSB 1 knusaga10qsb053104.txt PERIOD ENDED 05-31-04 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended May 31, 2004 Commission File Number 0-7795 KNUSAGA CORPORATION ---------------------------------------------------- (Exact name of Registrant as specified in its charter) NEVADA ------------------------------------------------------------ (State or other jurisdiction of incorporation or organization) 38-3601122 -------------------------------------- (I.R.S.) Employer Identification Number 3578 S. VAN DYKE ALMONT, MI 48003 -------------------------------------------------- (Address of principal executive office and zip code) Registrant's telephone number (include area code): (810) 798-8567 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 twelve months (or such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES X NO ----- ----- Shares of Common Stock Par Value $.001, outstanding: 10,862,773. -1- RESULTS OF OPERATIONS The Company's operations are classified into two principal reportable segments, tubing and seat tracks. Combined net sales increased 26.2% in the third quarter ended May 31, 2004 of the fiscal year ending August 2004 to $1,530,541 from $1,212,948 a year ago. Sales for the tubing segment in the third quarter increased by 43.6% to $1,253,762 from $873,052 a year ago. This reflects the improvement in the heavy truck market from the depressed levels of the last two years plus additional business from a new customer. In the third quarter sales in the seat track segment, which serves the Class A motorhome market, declined 18.6% to $276,779 from $339,896 a year ago. This is a result of the registrant's major customer switching to a lower cost product from a competitor. The registrant has delivered prototypes of a new seat track design to two major potential customers. This new design could enter production in time for the 2005 model motorhome production which begins in the Fall of this year. For the nine months ended May 31, 2004, combined sales increased 11.7% to $4,437,365 from $3,972,579 in the year ago period for the same reasons as stated above. The registrant operated at a loss of $83,993 in the third quarter of the 2004 fiscal year ended May 31, 2004 versus a loss of $68,036 in the year ago period. In the tubing segment, earnings for the third quarter were depressed by three factors, steel price increases, hiring and training of additional employees, and a non-recurring legal cost associated with a successful arbitration regarding the discharge of a bargaining unit employee. The combined effect of these factors resulted in a loss of $92,697 versus a loss of $84,660 in the year ago period. As a result of negotiation with its customers the registrant expects to recover approximately $20,000 of steel price increases and surcharges encountered in the third quarter. Substantial order intake for shipment in the fourth quarter required increasing the direct labor force by 53% during the third quarter. Training and other costs related to these new employees depressed earnings in the third quarter for which the registrant should receive benefits in the fourth quarter. Below is summarized segmental data for the second quarters and six months ended May 31, 2004 and May 31, 2003. -------------------------------------------------------------------------------- TUBING SEAT TRACK TOTAL -------------------------------------------------------------------------------- 3RD QTR 2004 2003 2004 2003 2004 2003 REVENUE 1,253,762 873,052 276,779 339,896 1,530,541 1,212,948 PROFIT (92,697) (84,660) 8,704 16,624 (83,993) (68,036) -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 9 MTHS -------------------------------------------------------------------------------- REVENUE 3,346,735 2,815,366 1,090,630 1,157,213 4,437,365 3,972,579 -------------------------------------------------------------------------------- PROFIT (244,313) (184,329) 109,045 73,459 (135,268) (110,870) -------------------------------------------------------------------------------- -2- Selling, general and administrative expenses increased 13.6% in the third quarter ended May 31, 2004 to $206,755 from $181,945 in the year ago period primarily a result of the arbitration expense noted above. For the nine months ended May 31, 2004 these expenses were little changed to $574,358 from $576,846 in the year ago period. LIQUIDITY AND SOURCES OF CAPITAL The Registrant has a $600,000 line of credit with Standard Federal Bank, with interest payable monthly at the Bank's Prime Rate plus 1%. This line of credit is evidenced by a note which is secured by a security interest/mortgage on all of the Registrant's assets. This line of credit is due August 31, 2004. As of May 31, 2004, the outstanding balance was $444,761 and the applicable interest rate was 5.0%. CONTINGENT MATTERS There are no contingencies or consequential uncertainties known that will materially affect the financial information as presented. -3- KNUSAGA CORPORATION BALANCE SHEET (UNAUDITED) MAY 31, 2004 AND MAY 31, 2003 31-May-04 31-May-03 ASSETS CASH 7,743 78,277 ACCOUNTS RECEIVABLE 787,155 534,688 ACCOUNTS RECEIVABLE-OTHER 92,031 289,972 ACCRUED INTEREST RECEIVABLE 2,446 INVENTORIES 764,625 708,348 REFUNDABLE TAXES 73,374 PREPAID EXPENSES 82,712 103,514 DEFERRED TAX ASSET 47,600 TOTAL CURRENT ASSETS 1,857,686 1,714,799 NET PROPERTY AND EQUIPMENT 1,657,898 1,699,589 OTHER ASSETS DEPOSITS 7,150 7,150 INVESTMENTS IN JOINT VENTURES 110,356 126,066 INTANGIBLES 60,961 4,648 TOTAL OTHER ASSETS 178,467 137,648 TOTAL ASSETS 3,694,051 3,552,252 LIABILITIES ACCOUNTS PAYABLE 524,359 341,153 NOTES PAYABLE 686,464 847,123 ACCRUED LIABILITIES 352,699 781,292 TOTAL CURRENT LIABILITIES 1,563,661 1,969,568 LONG TERM DEBT 151,991 344,891 DEFERRED TAXES 63,600 TOTAL LIABILITIES 1,879,252 2,371,759 STOCKHOLDER EQUITY STOCK 10,863 7,175 PREFERRED STOCK ADDITIONAL PAID IN CAPITAL 1,522,446 604,190 RETAINED EARNINGS 281,490 569,128 NOTE RECEIVABLE SHARE HOLDER TOTAL SHAREHOLDER EQUITY 1,814,799 1,180,493 TOTAL LIABILITIES & SHAREHOLDER EQUITY 3,694,051 3,552,252 -4-
KNUSAGA CORPORATION STATEMENT OF INCOME (UNAUDITED) FOR MONTHS ENDED MAY 31, 2004 AND MAY 31, 2003 3 MONTHS ENDED 9 MONTHS ENDED 5/31/04 5/31/03 5/31/04 5/31/03 NET SALES 1,530,541 1,212,948 4,437,365 3,972,579 COST OF GOODS SOLD 1,447,180 1,129,669 4,049,338 3,601,869 GROSS PROFIT 83,361 83,279 388,027 370,710 SELLING, GENERAL & 206,755 181,945 574,358 576,846 ADMINISTRATIVE EXPENSES MISC INCOM (EXPENSE) (3,341) 19,823 (18,474) 38,465 INCOME (LOSS) BEFORE TAXES (126,735) (78,843) (204,805) (167,671) FED INCOME TAXES (42,742) (10,807) (69,537) (56,801) NET INCOME BEFORE EXTRAORDINARY ITEMS (83,993) (68,036) (135,268) (110,870) NET INCOME (83,993) (68,036) (135,268) (110,870) AVERAGE SHARES OUTSTANDING 10,862,773 7,175,000 10,862,773 7,175,000 EARNINGS PER SHARE (.008) (0.009) (.012) (0.015) The Financial Statements included in this report reflect all the adjustments, which, in the opinion of Registrant's management, are necessary for fair presentation. The Financial Statements should be read in conjunction with the footnotes which are a part of Registrant's Audited Financial Statements contained in Registrant's most recently Filed Annual Report on Form 10KSB. -5-
KNUSAGA CORPORATION STATEMENT OF CASH FLOW (UNAUDITED) FOR MONTHS ENDED MAY 31, 2004 AND MAY 31, 2003 3 MONTHS ENDED 9 MONTHS ENDED 5/31/04 5/31/03 5/31/04 5/31/03 NET INCOME (83,993 (110,870) (135,268) (110,870) DEPRECIATION 63,045 84,457 187,529 207,622 GAIN ON SALE OF ASSETS (7,385) (7,385) (76,398) (INCREASE)DECREASE IN ACCTS RECEIVABLE (23,774) 488,114 (2,553) 488,114 INVENTORIES (82,202) (8,026) (156,920) (8,026) REFUNDABLE TAXES (42,742) (10,611) PREPAID EXPENSES 6 (46,115) (31,274) (46,115) OTHER ASSETS (100) (100) (100) (100) INCREASE(DECREASE) IN ACCOUNTS PAYABLE 146,077 (72,646) 209,950 (72,646) ACCRUED LIABILITIES (24,297) 136,091) 9,980 (136,091) CASH PROVIDED BY (USED FOR) (55,365) 198,723 63,348 245,490 OPERATING ACTIVITIES INVESTMENT ACTIVITIES PURCHASE OF EQUIP'T SALE OF (45,646) 94,767 (97,847) (42,258) EQUIPMENT 36,500 36,500 90,258 INVESTMENT IN JOINT VENTURES 0 (120) 0 (120) CASH PROVIDED BY (USED FOR) (9,146) 94,647 (61,347) 47,880 INVESTING ACTIVITIES FINANCING ACTIVITIES PAYMENT OF NOTES 50,404 (350,621) (44,174) (350,621) CASH USED FOR FINANCINB ACTIVITIES 50,404 (350,621) (44,174) (350,621) NET INCREASE (DECREASE) (14,107) (57251) (42,173) (57,251) BEGINNING CASH 21,850 135,528 49,916 135,528 ENDING CASH 7,743 78,277 7,743 78,277 -6-
FORWARD LOOKING STATEMENTS -------------------------- Certain sections of this quarterly report contain statements reflecting the Registrant's views about its future performance and constitute "forward-looking statements" under the Private Securities Litigation Reform Act of 1995. Such statements can be identified by the use of terminology such as "will," anticipate," "estimate," "expect," intends," or similar words. These views involve risks and uncertainties that are difficult to predict and, accordingly, the Registrant's actual results may differ materially from the results discussed in such forward-looking statements. Readers should consider that various factors in the United States and abroad, including changes in general economic conditions, competitive market conditions and pricing pressures, relationships with key customers, industry consolidation of vehicle and truck suppliers, shifts in distribution, currency exchange rates and other factors discussed in the Registrant's other filings with the Securities and Exchange Commission, may affect the Registrant's performance. The Registrant undertakes no obligation to update publicly any forward-looking statements as a result of new information, future events or otherwise. Supplemental Item. Controls and Procedures ----------------------- Based on their most recent evaluation, which was completed within 90 days of the filing of this Form 10-QSB, the registrant's Chief Executive Officer and Chief Financial Officer believe the registrant's disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) are effective to ensure that information required to be disclosed by the registrant in this report is accumulated and communicated to the registrant's management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. There were no significant changes in these controls subsequent to the date of their evaluation and there were no corrective actions with regard to significant deficiencies and material weaknesses. Item 6. Exhibits and Reports on Form 8-K ----------------------------------------- (a) Exhibits: 31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) Reports on Form 8-K during the quarter ended Mat 31, 2004: None -7- 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. KNUSAGA CORPORATION KNUSAGA CORPORATION By: /s/ James G. Musser By: /s/ Jerry Luptak ---------------------------------- -------------------------------- James G. Musser Jerry Lutak Director/President Vice President and (Principal Executive Officer Principal Financial and Controller) Officer Dated: July 12, 2004 Dated: July 12, 2004 ------------------------------- ----------------------------- -7- EXHIBIT LIST 31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. -9-