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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 February 28, 1998
Commission File Number 0-7795
KNUSAGA CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
62-1004034
(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
--- ---
Shares of Common Stock Par Value $.01, outstanding: 7,000,000.
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RESULTS OF OPERATIONS
Net Sales decreased 54% in the second quarter of fiscal year ending August 1998
to $1,163,433. The majority of this sales decrease is due to our largest
customer, Ford Truck Division, Louisville, Kentucky, shutting down the
production of their HN-80 lines of heavy-duty trucks at the end of December
1997.
Freightliner Corporation purchased the vehicle line from Ford Motor Company.
Freightliner's intention is to use the months of January 1998 - March 1998 to
transfer necessary equipment from Louisville, Kentucky to their plant in St.
Thomas, Ontario, and make all necessary adjustments at that facility in order
to produce the new product line. They are forecasting production to begin in
the second half of April 1998. All current vendors of the HN-80 line at Ford
Truck Division will be retained by Freightliner.
In the month of January 1998, Knusaga Corporation purchased a six-way power
seat track line of business from ITT for $315,000. The customer base for this
product line is mainly the motor home industry serviced by independent
distributors. In the first year of operation, we are projecting $3,500,000 of
sales.
Gross profits from operations decreased to a negative $243,973. This is
partially attributable to fixed costs remaining constant with the severe
reduction in sales volume. Also, during this period, the plant machine lay-out
was drastically changed from a batch and que processing method to a work cell
concept at a cost of $130,000.
Selling and Administrative expenses increased to 21% of sales during the
quarter as compared to 9% for the year earlier period. The increased
percentage is attributable to fixed costs remaining constant as compared to the
reduced sales volume.
Net income decreased to a negative $349,641 for the quarter as compared to a
positive $155,108 for the previous year. The significant decrease in net
income is the result of lower sales and production volumes due to the purchase
of the HN-80 line of trucks by Freightliner from Ford Truck causing the three
month delay of shipments for this product line.
LIQUIDITY AND SOURCES OF CAPITAL
The company's cash flow generated $106,002 from operating activities. The
purchase of the seat track product line and other machinery requirements
totaling $407,860 was financed from cash flow and bank borrowing of $326,565
resulting in a $7,761 decrease in our cash balance.
CONTINGENT MATTERS
There are no contingencies or consequential uncertainties known that will
materially affect the financial information as presented.
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KNUSAGA CORPORATION
BALANCE SHEET (UNAUDITED)
FEBRUARY 28, 1998
ASSETS February 28, 1998
CASH $ 8,473
ACCOUNTS RECEIVABLE $ 699,248
NOTES RECEIVABLE $ 94,143
INVENTORIES $ 662,564
PREPAID EXPENSE $ 181,365
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TOTAL CURRENT ASSETS $1,645,793
NET PROPERTY, PLANT AND EQUIPMENT $2,419,405
OTHER ASSETS $ 23,362
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TOTAL ASSETS $4,088,560
LIABILITIES
ACCOUNTS PAYABLE $ 870,012
NOTES PAYABLE $ 413,320
ACCRUED LIABILITIES $ 49,694
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TOTAL CURRENT LIABILITIES $1,333,026
LONG TERM DEBT $1,498,105
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TOTAL LIABILITIES $2,831,131
STOCKHOLDERS EQUITY (DEFICIENCY)
Common Stock, par value $.01 per
share authorized 7,000,000 shares
issued and outstanding. $ 70,000
Preferred stock, par value $.01 per
share authorized 500,000 shares,
issued and outstanding 175,000 of
Class A $1.00 stated value, 4%
non-cumulative, non-voting. $ 175,000
ADDITIONAL PAID-IN CAPITAL $ 366,365
RETAINED EARNINGS $ 646,064
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TOTAL STOCKHOLDERS EQUITY $1,257,429
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TOTAL LIABILITIES AND
STOCKHOLDERS EQUITY $4,088,560
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KNUSAGA CORPORATION
STATEMENT OF INCOME (UNAUDITED)
THREE MONTHS ENDED
FEBRUARY 28, 1998 AND FEBRUARY 28, 1997
(UNAUDITED) (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
FEB. 28, 1998 FEB. 28, 1997 FEB. 28, 1998 FEB. 28, 1997
NET SALES $1,163,433 $2,539,739 $4,152,237 $4,510,852
COST OF GOODS SOLD $1,407,406 $2,018,725 $3,616,044 $3,735,189
------------- ------------------ ------------- -------------
GROSS PROFIT ($ 243,973) $ 521,014 $ 536,193 $ 775,663
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES $ 250,366 $ 222,706 $ 488,570 $ 410,833
MISC. INCOME (EXPENSE) ($ 29,422) ($ 65,000) ($ 73,728) ($ 115,366)
------------- ------------------ ------------- -------------
INCOME (LOSS) BEFORE TAXES ($ 523,761) $ 233,308 ($ 26,105) $ 249,464
PROVISION FOR FEDERAL
INCOME TAXES ($ 174,120) $ 78,200 ($ 3,925) $ 80,700
------------- ------------------ ------------- -------------
NET INCOME BEFORE
EXTRAORDINARY ITEMS ($ 349,641) $ 155,108 ($ 22,180) $ 168,764
EXTRAORDINARY ITEMS:
WRITE OFF R S HUGHES IND.
TAX BENEFIT OF OPERATING
LOSS CARRYFORWARD
------------- ------------------ ------------- -------------
NET INCOME ($ 349,641) $ 155,108 ($ 22,180) $ 168,764
PAR SHARE OF COMMON STOCK
AND COMMON STOCK
EQUIVALENTS:
NET INCOME (LOSS) FROM
OPERATIONS PER SHARE 0.00 0.03 0.00 0.03
CASH DIVIDENDS NONE NONE NONE NONE
AVERAGE OUTSTANDING SHARES 7,000,000 7,000,000 7,000,000 7,000,000
THE FINANCIAL STATEMENTS INCLUDED IN THIS REPORT REFLECT ALL
ADJUSTMENTS, WHICH, IN THE OPINION OF MANAGEMENT, ARE NECESSARY FOR FAIR
PRESENTATION.
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KNUSAGA CORPORATION
STATEMENT OF CASH FLOW (UNAUDITED)
SIX MONTHS ENDED
FEBRUARY 28, 1997 AND FEBRUARY 28, 1998
(UNAUDITED)
THREE MONTHS ENDED
FEBRUARY 28, 1998 FEBRUARY 28, 1997
CASH PROVIDED BY (USED FOR) OPERATIONS
NET INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS,
NON-CASH EXPENSE INCLUDED IN NET INCOME ($349,641) $168,762
DEPRECIATION $ 78,187 $103,525
(INCREASE) DECREASE IN:
ACCOUNTS RECEIVABLE $655,381 ($417,310)
INVENTORIES ($189,220) ($ 306)
PREPAID EXPENSES ($ 87,053) $113,412
OTHER ASSETS ($ 20,716) ($ 3,001)
INCREASE (DECREASE) IN:
ACCOUNTS PAYABLE $299,784 $129,292
ACCRUED LIABILITIES ($280,720) $ 83,632
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NET CASH PROVIDED BY (USED FOR)
OPERATING ACTIVITIES $106,002 $178,006
CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES
PURCHASES OF EQUIPMENT ($407,860) ($106,751)
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NET CASH PROVIDED BY (USED FOR)
INVESTING ACTIVITIES ($407,860) ($106,751)
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CASH PROVIDED BY (USED FOR) BEFORE
FINANCING ACTIVITIES $301,858 $ 71,255
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES
DEBT INCREASE (DECREASE)
SHORT-TERM $ 70,000 $ 85,000
LONG-TERM $256,565 ($161,495)
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NET CASH PROVIDED BY (USED FOR)
FINANCING ACTIVITIES $326,565 ($ 76,495)
INCREASE (DECREASE) IN CASH $ 24,707 ($ 5,240)
BALANCE AT BEGINNING OF PERIOD $ 16,234 $ 34,020
BALANCE AT END OF PERIOD $ 8,473 $ 28,780
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Corporation has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
KNUSAGA CORPORATION
Dated: April 22, 1998 BY: /s/ Gerald Warzynski
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Gerald Warzynski
Chief Financial Officer
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INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
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27 Financial Data Schedule