10QSB 1 knusaga10qsb053105.txt PERIOD ENDED 05-31-05 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 May 31, 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. YES X NO ----- ----- Shares of Common Stock Par Value $.001, outstanding: 10,862,773. -1- RESULTS OF OPERATIONS Prior to December 23, 2004 the Registrant's operations were classified into two principal reportable segments that provide different products or services. Separate management of each segment was required because each business unit was 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, 2004. 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. There was no revenue for the discontinued tubing segment in the quarter ending May 31, 2005 compared to revenue of $1,253,762 in the year ago period. Operating losses increase to $109,673 compared to the year ago period of $89,739. For the nine month period ending May 31, 2005 sales dropped to $1,734,081 compared to $3,346,735 in the year ago period and operating losses increase to $465,352 compared to $321,235 in the year ago period. Seat track sales were little changed in the quarter ending May 31, 2005 at $272,266 compared to $276,779 in the year ago period. New product development costs caused a loss of $6,847 compared to a profit of $8,704 in the year ago period. For the nine months ending May 31, 2005 sales dropped 31% to $752,468, compared to $1,090,630 in the year ago period. This was the result of a customer that was present in the early part of the 2004 nine month period which was lost to competition in the 2005 period. There was no significant change in Selling,General and Administrative expenses for either the quarter or nine month period compared to a year ago. 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. -2- KNUSAGA CORPORATION BALANCE SHEET (UNAUDITED) MAY 31, 2005 AND MAY 31, 2004 31-May-05 31-May-04 ASSETS CASH 14,372 7,743 NOTES RECEIVABLE 14,424 92,031 ACCOUNTS RECEIVABLE 169,889 131,742 ACCRUED INTEREST RECEIVABLE 8,642 2,446 INVENTORIES 141,613 112,971 PREPAID EXPENSES 4,729 11,347 DEFERRED TAX ASSET 10,400 0 CURRENT ASSETS FROM DISCONTINUED OPERATIONS 549,754 1,378,432 TOTAL CURRENT ASSETS 913,823 1,736,712 NET PROPERTY AND EQUIPMENT CONTINUING OPERATIONS 89,905 155,749 NET PROPERTY AND EQUIPMENT 1,066,515 1,502,149 DICONTINUED OPERATIONS NET PROPERTY AND EQUIPMENT 1,156,420 1,657,898 DEPOSITS 7,050 7,150 INVESTMENTS IN JOINT VENTURES 137,530 110,356 INTANGIBLES 4,648 4,648 TOTAL OTHER ASSETS 149,228 122,154 TOTAL ASSETS 2,219,471 3,516,764 LIABILITIES ACCOUNTS PAYABLE 124,125 87,952 NOTES PAYABLE 28,060 33,787 ACCRUED LIABILITIES 107,707 642,293 LIABILITIES FROM DISCONTINUED OPERATIONS 447,746 669,943 TOTAL CURRENT LIABILITIES 707,638 1,443,975 LONG TERM DEBT 78,266 251,991 DEFERRED TAXES CONTINUING OPER 10,400 6,900 DEFERRED TAXES DISCONTINUED OPER 13,500 9,100 TOTAL LIABILITIES 809,804 1,701,966 STOCKHOLDER EQUITY COMMON STOCK 10,863 10,863 PAID IN CAPITAL 1,522,446 1,522,446 RETAINED EARNINGS (92,369) 281,489 OTHER COMPREHENSIVE LOSS (31,273) 0 TOTAL SHAREHOLDER EQUITY 1,409,667 1,814,798 TOTAL LIABILITIES & SHAREHOLDER EQUITY 2,219,471 3,516,764 -3-
KNUSAGA CORPORATION STATEMENT OF INCOME (UNAUDITED) FOR MONTHS ENDED MAY 31, 2005 AND MAY 31, 2004 3 MONTHS ENDED 9 MONTHS ENDED 5/31/05 5/31/04 5/31/05 5/31/04 NET SALES 272,266 276,779 752,468 1,090,630 COST OF GOODS SOLD 243,792 229,377 646,570 862,517 GROSS PROFIT 28,474 47,402 105,898 228,113 SELLING, GENERAL & 38,849 38,697 116,095 119,068 ADMINISTRATIVE EXPENSES INCOME FROM OPERATIONS (10,375) 8,705 (10,197) 109,045 INCOME (LOSS) BEFORE TAXES (10,375) 8,705 (10,197) 109,045 FED INCOME TAXES 1,000 2,961 3,300 37,077 INCOME FROM CONTINUING OPERATIONS (11,375) 5,744 (13,497) 71,968 DISCONTINUED OPERATIONS INCOME FROM (110,573) (142,826) (465,352) (321,235) DISCONTINUED OPERATIONS GAIN ON DISPOSAL OF DISCONTINUED 0 7,385 281,866 7,385 OPERATIONS INCOME TAX ON (1,000) (45,702) (3,300) (106,613) DISCONTINUED OPERATIONS NET INCOME DISCONTINUED OPERATIONS (109,573) (89,739) (180,186) (207,237) NET INCOME (120,948) (83,993) (193,683) (135,269) AVERAGE SHARES 10,862,773 10,862,773 10,862,773 10,862,773 OUTSTANDING EARNINGS PER SHARE (.011) (.008) (.018) (.012) 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. -4-
KNUSAGA CORPORATION STATEMENT OF CASH FLOW (UNAUDITED) FOR MONTHS ENDED MAY 31, 2005 AND MAY 31, 2004 3 MONTHS ENDED 9 MONTHS ENDED 5/31/05 5/31/04 5/31/05 5/31/04 NET INCOME (11,375 5,744 (13,497) 71,968 ADJUSTMENTS TO RECONCILE NET INCOME FROM CONTINUING OPERATIONS TO CASH PROVIDED BY OPERATING ACTIVITIES DEPRECIATION 12,546 12,721 37,225 37,941 (INCREASE)DECEASE IN: ACOUNTS RECEIVABLE (24,462) 4,245 (35,590) 88,875 INVENTORIES (5,338) 8,290 (40,702) (8,687) PREPAID EXPENSES 2,443 (1,476) (69) (5,710) OTHER ASSETS 0 0 0 0 DECREASE(INCREASE) IN: ACCOUNTS PAYABLE 25,191 1,333 (18,412) (48,939) ACCRUED EXPENSES 12,162 5,703 15,665 38,322 NET CASH PROVIDED BY (USED 11,167 36,560 (55,380) 173,770 IN)CONTINUING OPERATIONS NET CASH PROVIDED BY (USED IN) (113,999) (160,948) 158,469 (220,476) DISCONTINUED OPERATIONS NET CASH USED IN OPERATING ACTIVITIES (102,832) (124,388) 103,089 (46,706) INVESTING ACTIVITIES PROCEEDS FROM SALE OF ASSETS 0 36,500 640,710 36,500 PURCHASE OF PROPERTY AND EQUIPMENT 0 (45,646) (22,372) (97,847) INVESTMENT IN JOINT VENTURES 0 0 (2,250) 0 PAYMENTS FOR NOTES RECEIVABLE 0 0 0 0 PROCEEDS FROM NOTES RECEIVABLE 30,080 69,022 73,640 112,909 NET CASH PROVIDED BY INVESTMENT 30,080 59,876 689,728 51,562 ACTIVITIES FINANCING ACTIVITIES PAYMENT OF NOTES PAYABLE 54,563 50,404 (862,219) (44,174) NET CASH USED IN FINANCING ACTIVITES 54,563 50,404 (862,219) (44,174) NET INCREASE(DECREASE) IN CASH (18,189) (14,108) (69,402) (39.318) BEGINNING CASH 32,561 21,851 83,774 47,061 ENDING CASH 14,372 7,743 14,372 7,743 -5-
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. PART II - OTHER INFORMATION ITEM 6. Exhibits and Reports on Form 8K a) Exhibits. Description 31.1 Certification of the CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of the CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of the CEO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of the CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 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: July 12, 2005 Dated: July 12, 2005 ----------------------- ------------------------