10QSB 1 knusaga10qsb022805.txt PERIOD ENDED 02-28-05 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 February 28, 2005 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. X YES NO ----- ----- Shares of Common Stock Par Value $.001, outstanding: 10,862,773. -1- RESULTS OF OPERATIONS The Registrant's operations are classified into two principal reportable segments that provide different products or services. Separate management of each segment is required because each business unit is subject to different marketing, production and technology strategies. The tubing business segment serviced the heavy truck market and the seat track business segment services the recreational vehicle market. The Registrant ceased operation of the tubing segment on December 23, 2005. The equipment associated with this segment has been sold. The building associated with this segment has been listed for sale. The seat track segment is unaffected and continues to operate out of the Registrant's other leased facility. The Statements of Income and Cash Flow for the 2004 periods have been restated reflecting the discontinued operations. Sales for the discontinued tubing segment decreased 68.8% in the second quarter ending February 28, 2005 to $324,526 from $1,040,025 in the year ago period. This was due to cessation of production on December 23, 2004. Loss for the discontinued truck segment for the period ending February 28, 2005 was $117,781 compared to a loss of $82,885 in the year ago period as a result of the discontinued operations. The seat track segment sales decreased 8.0% in the quarter ending February 28, 2005 to $241,362 from $262,255 in the year ago period. This was a result of a decline in the Industry's motorhome market during the quarter. There was however an improvement in income for the quarter ending February 28, 2005 to $3,263 from a loss of $8,097 in the year ago period as a result of reduced research and development expenses.. Below is summarized segmental data for the second quarter and six months ended February 28, 2005 and February 29, 2004. -------------------------------------------------------------------------------- 2ND QTR TUBING SEAT TRACK TOTAL -------------------------------------------------------------------------------- 2005 2004 2005 2004 2005 2004 -------------------------------------------------------------------------------- REVENUE 324,526 1,040,025 241,362 262,255 565,888 1,302,280 -------------------------------------------------------------------------------- PROFIT (117,781) (82,885) 3,263 (8,097) (114,518) (90,982) -------------------------------------------------------------------------------- -2- -------------------------------------------------------------------------------- 6 MONTHS TUBING SEAT TRACK TOTAL -------------------------------------------------------------------------------- 2005 2004 2005 2004 2005 2004 -------------------------------------------------------------------------------- REVENUE 1,753,621 2,092,973 480,202 813,851 2,233,823 2,906,824 -------------------------------------------------------------------------------- PROFIT (70,613) (117,499) (2,122) 66,224 (72,735) (51,275) -------------------------------------------------------------------------------- Selling, general and administrative expenses were little changed with an increase of 0.9% in the second quarter ended February 28, 2005, to $39,260 from $37,982 in the year ago period. For the six months ended February 28, 2005, these expenses decreased 3.7% to $77,246 from $80,371 in the year ago period. LIQUIDITY AND SOURCES OF CAPITAL The line of credit and the term note with Standard Federal Bank was paid off with the proceeds of the tubing segment's equipment sale. 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) FEBRUARY 28, 2005 AND FEBRUARY 29, 2004 RESTATED FEBRUARY 28, FEBRUARY 28, ASSETS 2005 2005 CASH 32,561 21,851 NOTES RECEIVABLE 44,504 161,053 ACCOUNTS RECEIVABLE 145,427 135,987 ACCRUED INTEREST RECEIVABLE 8,642 2,446 INVENTORIES 136,275 121,261 PREPAID EXPENSES 7,172 9,871 DEFERRED TAX ASSET 13,500 0 CURRENT ASSETS FROM DISCONTINUED OPERATIONS 609,293 1,192,280 ---------- ---------- TOTAL CURRENT ASSETS 997,374 1,644,749 ---------- ---------- NET PROPERTY AND EQUIPMENT - CONTINUING OPERATIONS 103,986 164,803 NET PROPERTY AND EQUIPMENT - 1,080,801 1,427,708 ---------- ---------- DISCONTINUED OPERATIONS NET PROPERTY AND EQUIPMENT 1,184,787 1,592,511 ---------- ---------- DEPOSITS 7,050 7,150 INVESTMENT IN JOINT VENTURES 137,530 110,356 INTANGIBLES 4,648 4,648 ---------- ---------- TOTAL OTHER ASSETS 149,228 122,154 ---------- ---------- TOTAL ASSETS 2,331,389 3,359,414 ---------- ---------- LIABILITIES ACCOUNTS PAYABLE 98,934 86,619 NOTES PAYABLE 30,373 26,850 ACCRUED LIABILITIES 95,545 636,590 ---------- ---------- LIABILITIES FROM DISCONTINUED OPERATIONS 526,732 480,895 ---------- ---------- TOTAL CURRENT LIABILITIES 751,584 1,230,954 LONG-TERM DEBT, NET OF CURRENT PORTION 21,390 213,667 DEFERRED TAXES-CONTINUING OPERATIONS 13,500 6,900 DEFERRED TAXES-DISCONTINUED OPERATIONS 14,300 9,100 ---------- ---------- TOTAL LIABILITIES 800,774 1,460,621 ---------- ---------- STOCKHOLDERS' EQUITY (DEFICIT) COMMON STOCK 10,863 10,863 PAID IN CAPITAL 1,522,446 1,522,446 RETAINED EARNINGS 28,579 365,484 OTHER COMPREHENSIVE LOSS (31,273) 0 ---------- ---------- TOTAL STOCKHOLDERS' EQUITY 1,530,615 1,898,793 ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 2,331,389 3,359.414 ========== ========== -4-
KNUSAGA CORPORATION STATEMENT OF INCOME (UNAUDITED) FOR THREE AND SIX MONTH PERIOD ENDED FEBRUARY 28, 2005 AND FEBRUARY 29, 2004 (UNAUDITED) (UNAUDITED) THREE MONTHS ENDED SIX MONTHS ENDED RESTATED RESTATED FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 29, 2005 2004 2005 2004 SALES $ 241,362 $ 262,255 $ 480,202 $ 813,851 COST OF SALES $ 194,839 $ 236,540 $ 402,778 $ 633,140 --------- --------- --------- --------- GROSS PROFIT $ 46,523 $ 25,715 $ 77,424 $ 180,711 SGA $ 39,260 $ 37,982 $ 77,246 $ 80,371 --------- --------- INCOME FROM OPERATIONS $ 7,263 ($ 12,267) $ 178 $ 100,340 OTHER INCOME (EXPENSE) $ 0 $ 0 $ 0 $ 0 --------- --------- --------- --------- INCOME BEFORE TAXES $ 7,263 ($ 12,267) $ 178 $ 100,340 PROVISION FOR INCOME TAXES $ 4,000 ($ 4,170) $ 2,300 $ 34,116 --------- --------- --------- --------- INCOME FROM CONTINUING OPERATIONS $ 3,263 ($ 8,097) ($ 2,122) $ 66,224 --------- --------- --------- --------- DISCONTINUED OPERATIONS ($121,781) ($125,584) ($354,779) ($178,409) INCOME FROM DISCONTINUED OPERATIONS GAIN ON DISPOSAL OF DISCONTINUED OPERATIONS $ 0 $ 0 $ 281,866 $ 0 --------- --------- --------- --------- ($121,781) ($125,584) ($ 72,913) ($178,409) INCOME TAX ON ($ 4,000) ($ 42,699) ($ 2,300) ($ 60,911) DISCONTINUED OPERATIONS --------- --------- --------- --------- NET INCOME FROM DISCONTINUED OPERATIONS ($117,781) ($ 82,885) ($ 70,613) ($117,498) --------- --------- --------- --------- NET INCOME ($114,518) ($ 90,982) ($ 72,735) ($ 51,724) ========= ========= ========= ========= THE FINANCIAL STATEMENTS INCLUDED IN THIS REPORT REFLECT ALL 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) THREE AND SIX MONTHS PERIOD ENDED FEBRUARY 28, 2005 AND FEBRUARY 29, 2004 (UNAUDITED) (UNAUDITED) THREE MONTHS ENDED SIX MONTHS ENDED RESTATED RESTATED FEBRUARY FEBRUARY FEBRUARY FEBRUARY 28, 2005 29, 2004 28, 2005 29, 2004 NET INCOME $ 3,263 ($ 8,097) ($ 2,122) $ 66,224 ADJUSTMENTS TO RECONCILE NET INCOME FROM CONTINUING OPERATIONS TO CASH PROVIDED BY OPERATING ACTIVITIES DEPRECIATION $ 12,148 $ 12,705 $ 24,679 $ 25,220 (INCREASE) DECREASE IN: ACCOUNTS RECEIVABLE ($ 34,773) $ 68,743 ($ 11,128) $ 84,630 INVENTORIES ($ 31,582) ($ 10,949) ($ 35,364) ($ 16,977) PREPAID EXPENSES ($ 5,305) ($ 530) ($ 2,512) ($ 4,234) OTHER ASSETS $ 8,000 $ 0 $ 0 $ 0 DECREASE (INCREASE) IN: ACCOUNTS PAYABLE $ 2,351 ($ 55,940) ($ 43,603) ($ 50,272) ACCRUED EXPENSES $ 4,839 ($ 4,883) $ 3,503 $ 32,619 --------- --------- --------- --------- NET CASH PROVIDED BY (USED IN) CONTINUING OPERATIONS ($ 41,059) $ 1,049 ($ 66,547) $ 137,210 NET CASH PROVIDED BY (USED IN) DISCONTINUED OPERATIONS NET CASH USED IN OPERATING ACTIVIITES $ 130,211 ($ 49,069) $ 272,468 ($ 59,528) --------- --------- --------- --------- $ 89,152 ($ 48,020) $ 205,921 $ 77,682 --------- --------- --------- INVESTING ACTIVITIES PROCEEDS FROM SALES OF ASSETS $ 0 $ 0 $ 640,710 $ 0 PURCHASE OF PROPERTY AND EQUIPMENT $ 0 ($ 36,122) ($ 22,372) ($ 52,201) INVESTMENT IN JOINT VENTURES $ 0 $ 0 ($ 2,250) $ 0 PAYMENTS FOR NOTES RECEIVABLE $ 0 $ 22,955 $ 0 $ 0 PROCEEDS FROM NOTES RECEIVABLE $ 25,000 $ 43,887 $ 43,560 $ 43,887 --------- --------- --------- --------- NET CASH PROVIDED BY INVESTING ACTIVITIES $ 25,000 $ 30,720 $ 659,648 ($ 8,314) --------- --------- --------- --------- FINANCING ACTIVITIES PAYMENT OF NOTES PAYABLE ($108,532) ($ 47,625) ($916,782) ($ 94,578) --------- --------- --------- --------- NET CASH USED IN FINANCING ACTIVITIES ($108,532) ($ 47,625) ($916,782) ($ 94,578) --------- --------- --------- --------- NET INCREASE (DECREASE) IN CASH $ 5,620 ($ 64,925) ($ 51,213) ($ 25,210) BEGINNING CASH $ 26,941 $ 86,776 $ 83,774 $ 47.061 --------- --------- --------- --------- ENDING CASH $ 32,561 $ 21,851 $ 32,561 $ 21,851 ========= ========= ========= ========= PER B/S $ 32,561 $ 21,851 $ 32,561 $ 21,851 ========= ========= ========= ========= -6-
PART II - OTHER INFORMATION ITEM 1. Legal Proceedings None ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds None. ITEM 3. Defaults Upon Senior Notes None. ITEM 4. Submission of Matters to a Vote of Security Holders None. ITEM 5. Other Information None. ITEM 6. Exhibits and Reports on Form 8K a) Exhibits. Description 31.1 Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of CEO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. -7- 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 By: /s/ James Musser -------------------------------- James Musser President, Duly Authorized Officer and Principal Accounting Officer Dated: April 13, 2005 ----------------------------- -8- 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. 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 Luptak Director/President Vice President and (Principal Executive Officer Principal Financial Officer and Controller) Dated: April 13, 2005 Dated: April 13, 2005 ---------------------------- ----------------------------- -9-