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, 2003
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
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Shares of Common Stock Par Value $.001, outstanding: 7,175,000.
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 declined 53.7% in the third quarter ending May 31, 2003 of
the fiscal year ending August 2003 to $1,212,948 from $2,617,025 a year ago.
Sales for the tubing segment in the third quarter decreased by 39.1% to $873,052
from $1,433,001 a year ago. The heavy truck market, served by our tubing
segment, is entering the third year of a sharp decline from traditional levels,
however the decline in this quarter, compared to a year ago, is the result of
business lost to a competitor because of pricing pressures only partially offset
by business from new customers.
In the third quarter sales in the seat track segment, which serves the Class A
motorhome market, declined 71.3% to $339,896 from $1,184,024 a year ago. This is
a result of the registrant's major customer switching to a newer, 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 2004 model motorhome production which begins in the
Fall of this year.
For the nine months ending May 31, 2003, combined sales declined 44.7% to
$3,972,579 from $7,183,627 in the prior year the same reasons as stated above.
The registrant operated at a loss of $68,036 in the third quarter of the 2003
fiscal year ending May 31, 2003 versus a profit of $141,360 in the prior year as
a result of the decreased sales revenue. For the nine months ending May 31,
2003, the loss was $110,870 versus a profit of $236,141 in the prior year.
Below is summarized segmental data for the third quarters and nine months ending
May 31, 2003 and May 31, 2002.
- -----------------------------------------------------------------------------------
TUBING SEAT TRACK TOTAL
- -----------------------------------------------------------------------------------
3RD QTR 2003 2002 2003 2002 2003 2002
- -----------------------------------------------------------------------------------
REVENUE 873,052 1,433,001 339,896 1,184,024 1,212,948 2,617,025
- -----------------------------------------------------------------------------------
PROFIT (84,660) (41,074) 16,624 182,434 (68,036) 141,360
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
9 MTHS
- -----------------------------------------------------------------------------------
REVENUE 2,815,366 4,048,504 1,157,213 3,135,123 3,972,579 7,183,627
- -----------------------------------------------------------------------------------
PROFIT (184,329) (243,251) 73,459 479,392 (110,870) 236,141
- -----------------------------------------------------------------------------------
Selling, general and administrative expenses decreased 37.4% in the third
quarter ending May 31, 2003 to $181,945 from $290,323 in the prior year as a
result of cost reduction actions taken in response to the decreased sales. For
the nine months ending May 31, 2003 selling, general and administrative expenses
of $576,853 were virtually unchanged from $582,368 in the prior year.
LIQUIDITY AND SOURCES OF CAPITAL
The Registrant has a $1,250,000 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 January 1, 2004. As of
May 31,2003, the outstanding balance was $244,761 and the applicable interest
rate was 5.25%.
The Registrant believes that its present cash balances, its cash flow from
operations and, to the extent necessary, bank borrowings are sufficient to fund
its working capital and other investment needs.
CONTINGENT MATTERS
There are no contingencies or consequential uncertainties known that will
materially affect the financial information as presented.
KNUSAGA CORPORATION
BALANCE SHEET (UNAUDITED)
MAY 31,2003 AND AUGUST 31, 2002
31-May-03 31-Aug-02
ASSETS
CASH 78,277 330,214
ACCOUNTS RECEIVABLE 534,688 1,528,066
ACCOUNTS RECEIVABLE-OTHER 289,972 6,128
INVENTORIES 708,348 1,031,349
REFUNDABLE TAXES
PREPAID EXPENSES 103,514 110,030
TOTAL CURRENT ASSETS 1,714,799 3,005,787
NET PROPERTY AND EQUIPMENT 1,699,589 1,846,924
OTHER ASSETS
DEPOSITS 7,150 7,051
INVESTMENTS IN JOINT VENTURES 126,066 111,285
GOODWILL, NET OF AMORTIZATION 4,648 5,149
TOTAL OTHER ASSETS 137,648 123,485
TOTAL ASSETS 3,552,252 4,976,196
LIABILITIES
ACCOUNTS PAYABLE 341,153 368,663
NOTES PAYABLE 847,123 1,352,944
ACCRUED LIABILITIES 781,292 1,343,263
TOTAL CURRENT LIABILITIES 1,969,568 3,064,870
LONG TERM DEBT 344,891 584,867
DEFERRED TAXES 36,500
TOTAL LIABILITIES 2,371,759 3,686,237
STOCKHOLDER EQUITY
STOCK 7,175 70,000
PREFERRED STOCK 175,000
ADDITIONAL PAID IN CAPITAL 604,190 366,365
RETAINED EARNINGS 569,128 785,937
NOTE RECEIVABLE SHARE HOLDER (107,343)
TOTAL SHAREHOLDER EQUITY 1,180,493 1,289,959
TOTAL LIABILITIES & SHAREHOLDER 3,552,252 4,976,196
EQUITY
KNUSAGA CORPORATION
STATEMENT OF INCOME (UNAUDITED)
FOR MONTHS ENDED
MAY 31, 2003 AND MAY 31, 2002
3 MONTHS ENDED 9 MONTHS ENDED
5/31/03 5/31/02 5/31/03 5/31/02
NET SALES 1,212,948 2,617,025 3,972,579 7,183,627
COST OF GOODS SOLD 1,129,669 2,034,541 3,601,869 5,762,519
GROSS PROFIT 83,279 582,484 370,710 1,421,108
SELLIN, GENERAL & 181,945 332,714 576,846 915,844
ADMINISTRATIVE EXPENSES
MISC INCOME (EXPENSE) 19,823 (25,296) 38,465 (85,536)
INCOME (LOSS) BEFORE (78,843) 224,474 (167,671) 419,728
TAXES
FED INCOME TAXES (10,807) 83,114 (56,801) 183,587
NET INCOME BEFORE (68,036) 141,360 (110,870) 236,141
EXTRAORDINARY ITEMS
- -
NET INCOME (68,036) 141,360 (110,870) 236,141
AVERAGE SHARES 7,175,000 7,000,000 7,175,000 7,000,000
OUTSTANDING
EARNINGS PER SHARE (0.009) 0.020 (0.015) 0.034
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.
KNUSAGA CORPORATION
STATEMENT OF CASH FLOW (UNAUDITED)
FOR MONTHS ENDED
MAY 31, 2003 AND MAY 31, 2002
3 MONTHS ENDED 9 MONTHS ENDED
5/31/03 5/31/02 5/31/03 5/31/02
NET INCOME (110,870) 141,360 (110,870) 236,141
DEPRECIATION 84,457 55,620 207,622 210,566
GAIN ON SALE OF ASSETS (76,398)
(INCREASE)DECREASE IN
ACCTS RECEIVABLE 488,114 113,971 488,114 7,752
INVENTORIES (8,026) 66,165 (8,026) (20,816)
REFUNDABLE TAXES 205,566
PREPAID EXPENSES (46,115) (31,470) (46,115) (65,430)
OTHER ASSETS (100) (262) (100) 3,528
INCREASE(DECREASE) IN
ACCOUNTS PAYABLE (72,646) (183,815) (72,646) (347,049)
ACCRUED LIABILITIES 136,091) 156,239 (136,091) 480,091
CASH PROVIDED BY (USED FOR) 198,723 317,808 245,490 710,349
OPERATING ACTIVITIES
INVESTMENT ACTIVITIES
PURCHASE OF EQUIP'T 94,767 9,462 (42,258) (2,002)
SALE OF EQUIPMENT 90,258
INVESTMENT IN JOINT (120) (1,174) (120) (11,994)
VENTURES
CASH PROVIDED BY 94,647 8,288 47,880 (13,996)
(USED FOR) INVESTING
ACTIVITIES
FINANCING ACTIVITIES
PAYMENT OF NOTES (350,621) (121,768) (350,621) (428,892)
CASH USED FOR (350,621) (121,768) (350,621) (428,892)
FINANCINB ACTIVITIES
NET INCREASE (57251) 204,328 (57,251) 267,461
(DECREASE)
BEGINNING CASH 135,528 125,893 135,528 62,753
ENDING CASH 78,277 330,221 78,277 330,214
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: James G. Musser By: Jerry Luptak
-------------------------------------------- -----------------------------------------------
Director/President Vice President and Principal Financial Officer
(Principal Executive Officer and Controller)
Dated: July 2, 2003 Dated: July 2, 2003
-------------------------------------------- -----------------------------------------------
KNUSAGA CORPORATION
CERTIFICATIONS PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
CERTIFICATION
---------------
I, James G. Musser, certify that:
1) I have received this quarterly report on Form 10-QSB of KnuSaga
Corporation;
2) Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;
3) Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report;
4) The registrant's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and we have:
a. Designed such disclosure controls and procedures to ensure
that material information relating to the registrant is
made known to us, particularly during the period in which
this quarterly report is being prepared;
b. Evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a
date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c. Presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date;
5) The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a. All significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b. Any fraud, whether or not material, that involves
management or other employees who have a
significant role in the registrant's internal controls;
and
6) The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: July 2, 2003
/s/ James G. Musser
- -------------------------
James G. Musser
Chief Executive Officer
KNUSAGA CORPORATION
CERTIFICATIONS PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
CERTIFICATION
-----------------
I, Jerry Luptak, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of
KnuSaga Corporation;
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report,
fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and we have:
a. Designed such disclosure controls and procedures to ensure
that material information relating to the registrant is
made known to us, particularly during the period in which
this quarterly report is being prepared;
b. Evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a
date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c. Presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date;
5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent
function):
a. All significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b. Any fraud, whether or not material, that involves
management or other employees who have a
significant role in the registrant's internal controls;
and
6. The registrant's other certifying office and I have indicated
in this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
Date: July 2, 2003
/s/ Jerry Luptak
- ---------------------
Jerry Luptak
Chief Financial Officer
10-Q EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
EX-99.1 Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
Ex-99.2 Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002