SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended May 31, 2002
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 48803
(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
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Shares of Common Stock Par Value $0.001, outstanding: 7,175,000.
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RESULTS OF OPERATIONS
The Company's operations are classified into two principal reportable segments,
tubing and seat tracks, 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.
Combined net sales increased 2.0% in the third quarter ending May 31, 2002 of
the fiscal year ending August 2002 to $2,617,025 from $2,566,936 a year ago.
This is a result of a strong recovery in the motor home market served by the
registrant's seat track business and an increase in prices resulting from the
company selling direct rather than through a distributor, although there was an
increase in selling expense. For the third quarter, sales for this segment
increased 20.5% to $1,184,024 from $982,872 a year ago. The heavy truck market
served by our tubing segment is in the second year of a sharp decline. For the
third quarter the registrant's tube sales to this segment declined 9.5% to
$1,433,001 from $1,584,064 a year ago.
For the nine months ending May 31, 2002 sales declined 1.2% to $7,183,627 from
$7,272,890 in the year ago period as a result of the weak first quarter of the
current fiscal year ending August 31, 2002.
The registrant operated at a $141,360 profit in the third quarter of the 2002
fiscal year ending May 31, 2002 versus a profit of $23,400 in the year ago
period as a result of the improvement in the seat track business and continuing
expense reduction in the tubing business. For the nine months ending May 31,
2002 profit was $236,141 versus a loss of $149,980 in the year ago period.
Below is summarized segmental data for the third quarters and nine months ending
May 31, 2002 and May 31, 2001.
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| TUBING SEAT TRACK TOTAL |
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| 3RD QTR 2002 2001 2002 2001 2002 2001 |
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| REVENUE 1,433,001 1,584,064 1,184,024 982,872 2,617,025 2,566,936 |
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| PROFIT (41,074) (127,679) 182,434 151,079 141,360 23,400 |
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| |
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| 9 MTHS |
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| REVENUE 4,048,504 4,832,517 3,135,123 2,440,373 7,183,627 7,272,890 |
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| PROFIT (243,251) (442,892) 479,392 293,038 236,141 (149,854) |
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Selling, general and administrative expenses increased 37.4% in the third
quarter ending May 31, 2002 to $332,774 from $242,190 in the year ago period as
a result of the expenses incurred in direct selling versus using the
distributor. Gross income improvement from higher selling prices offset this
increased selling expense. For the nine months ending May 31, 2002 these
expenses increased 15.2% to $913,907 to $793,222 in the year ago period.
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LIQUIDITY AND SOURCES OF CAPITAL
As of the end of the fiscal third quarter, the registrant was in compliance with
its loan covenants. These loan agreements currently mature October 1, 2002. Net
cash generated from operating activities was $317,808 in the third quarter
ending May 31, 2002 versus $405,659 used for operations in the year ago period.
RECENT DEVELOPMENTS
The tubing business which primarily serves the heavy truck (automotive) sector
of the economy has experienced continuing pricing pressure from its OEM
customers. There appears to be little prospect that this situation will change
in the future so this segment can return to acceptable profitability, therefore
the registrant has decided to eliminate or sharply reduce this business segment
by the end of its current fiscal year.
The leased facility in St. Thomas, Ontario that was used to sequence exhaust
systems into Freightliner's Sterling truck plant was closed during the third
quarter when the lease expired.
The seat track business has encountered significant price competition in the
current fiscal year, which has resulted in the loss of a significant customer.
This customer loss will result in substantially reduced sales for the fiscal
year starting September 1, 2002.
Effective May 19, 2002, the Registrant merged into its wholly-owned Nevada
subsidiary. As a part of this merger, outstanding shares of the Registrant's
common stock and preferred stock were converted into an equal number of shares
of the subsidiary's common stock and the subsidiary's name was changed to
"KnuSaga Corporation." Registrant is now a Nevada corporation and the rights of
its shareholders are governed by Nevada law.
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KNUSAGA CORPORATION
BALANCE SHEET (UNAUDITED)
MAY 31, 2002 AND AUGUST 31, 2001
31-May-02 31-Aug-01
ASSETS
CASH 330,214 62,753
ACCOUNTS RECEIVABLE 1,528,066 1,538,348
ACCOUNTS RECEIVABLE-OTHER 6,128 3,598
INVENTORIES 1,031,349 1,010,533
REFUNDABLE TAXES 205,566
PREPAID EXPENSES 110,030 44,600
TOTAL CURRENT ASSETS 3,005,787 2,865,398
NET PROPERTY AND EQUIPMENT 1,846,924 2,053,985
OTHER ASSETS
DEPOSITS 7,051 10,579
INVESTMENTS IN JOINT VENTURES 111,285 99,291
GOODWILL, NET OF AMORTIZATION 5,149 6,652
TOTAL OTHER ASSETS 123,485 116,522
TOTAL ASSETS 4,976,196 5,035,905
LIABILITIES
ACCOUNTS PAYABLE 368,663 715,712
NOTES PAYABLE 1,352,944 1,667,884
ACCRUED LIABILITIES 1,343,263 863,172
TOTAL CURRENT LIABILITIES 3,064,870 3,246,768
LONG TERM DEBT 584,867 698,819
DEFERRED TAXES 36,500 36,500
TOTAL LIABILITIES 3,686,237 3,982,087
STOCKHOLDER EQUITY
STOCK 7,175 70,000
PREFERRED STOCK 0 175,000
ADDITIONAL PAIN IN CAPITAL 604,190 366,365
RETAINED EARNINGS 785,937 549,796
NOTE RECEIVABLE SHAREHOLDER (107,343) (107,343)
TOTAL SHAREHOLDER EQUITY 1,289,959 1,053,818
TOTAL LIABILITIES & SHAREHOLDER 4,976,196 5,035,905
EQUITY
The financial statements included in this Report reflect all adjustment, in the
opinion of management, which are necessary for fair presentation. These
financial statements should be read in connection with the footnotes that are a
part of Registrant's audited financial statements contained in its most
recently filed annual report on Form 10KSB.
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KNUSAGA CORPORATION
STATEMENT OF INCOME (UNAUDITED)
FOR MONTHS ENDED
MAY 31, 2002 AND MAY 31, 2001
3 MONTHS ENDED 9 MONTHS ENDED
5/31/02 5/31/01 5/31/02 5/31/01
NET SALES 2,617,025 2,566,936 7,183,627 7,272,890
COST OF GOODS SOLD 2,034,541 2,245,956 5,762,519 6,440,602
GROSS PROFIT 582,484 320,980 1,421,108 832,288
SG&A EXPENSES 332,714 242,190 915,844 793,222
MISC INCOME (EXPENSE) (25,296) (36,127) (85,536) (212,316)
INCOME (LOSS) BEFORE 224,474 42,663 419,728 (173,250)
TAXES
FED INCOME TAXES 83,114 19,263 183,587 (23,396)
NET INCOME BEFORE 141,360 23,400 236,141 (149,854)
EXTRAORDINARY
EXTRAORDINARY ITEMS -- -- -- --
NET INCOME 141,360 23,400 236,141 (149,854)
SHARES 7,175,000 7,000,000 7,175,000 7,000,000
EARNINGS PER SHARE 0.020 0.003 0.03 (0.021)
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KNUSAGA CORPORATION
STATEMENT OF CASH FLOW (UNAUDITED)
FOR MONTHS ENDED
MAY 31, 2002 AND MAY 31, 2001
3 MONTHS ENDED 9 MONTHS ENDED
5/31/02 5/31/01 5/31/02 5/31/01
NET INCOME 141,360 23,400 236,141 (149,854)
DEPRECIATION 55,620 88,805 210,566 270,825
(INCREASE)DECREASE IN
ACCTS RECEIVABLE 113,971 (330,311) 7,752 (222,392)
INVENTORIES 66,165 (29,024) (20,816) (93,595)
REFUNDABLE TAXES 205,566
PREPAID EXPENSES (31,470) 9,597 (65,430) (40,565)
OTHER ASSETS (262) 1,034 3,528 2,942
INCREASE(DECREASE) IN
ACCOUNTS PAYABLE (183,815) (184,316) (347,049) (394,634)
ACCRUED LIABILITIES 156,239 15,156 480,091 467,684
CASH PROVIDE BY (USED
FOR) OPERATING
ACTIVITIES 317,808 (405,659) 710,349 (159,589)
INVESTMENT ACTIVITIES
PURCHASE (SALE) OF
EQUIPMENT 9,462 7,839 (2,002) (15,244)
INVESTMENT IN JOINT
VENTURES (1,174) (26,221) (11,994) 7,372
CASH PROVIDED BY (USED
FOR) INVESTING
ACTIVITIES 8,288 (18,382) (13,996) (7,872)
FINANCING ACTIVITIES
PAYMENT OF NOTES (121,768) 230,639 (428,892) (282,537)
CASH USED FOR
FINANCING ACTIVITIES (121,768) 230,639 (428,892) (282,537)
NET INCREASE(DECREASE) 204,328 (193,402) 267,461 (449,998)
BEGINNING CASH 125,893 192,317 62,753 448,913
ENDING CASH 330,221 (1,085) 330,214 (1,085)
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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: James Musser
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President, Duly Authorized Officer and
Principal Accounting Officer
Dated: July 11, 2002
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