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, 2004
Commission File Number 0-7795
KNUSAGA CORPORATION
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(Exact name of Registrant as specified in its charter)
NEVADA
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(State or other jurisdiction of incorporation or organization)
38-3601122
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(I.R.S.) Employer Identification Number
3578 S. VAN DYKE
ALMONT, MI 48003
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(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
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Shares of Common Stock Par Value $.001, outstanding: 10,862,773.
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RESULTS OF OPERATIONS
The Company's operations are classified into two principal reportable segments,
tubing and seat tracks.
Combined net sales increased 26.2% in the third quarter ended May 31, 2004 of
the fiscal year ending August 2004 to $1,530,541 from $1,212,948 a year ago.
Sales for the tubing segment in the third quarter increased by 43.6% to
$1,253,762 from $873,052 a year ago. This reflects the improvement in the heavy
truck market from the depressed levels of the last two years plus additional
business from a new customer.
In the third quarter sales in the seat track segment, which serves the Class A
motorhome market, declined 18.6% to $276,779 from $339,896 a year ago. This is a
result of the registrant's major customer switching to a 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 2005 model motorhome production which begins in the Fall of this year.
For the nine months ended May 31, 2004, combined sales increased 11.7% to
$4,437,365 from $3,972,579 in the year ago period for the same reasons as stated
above.
The registrant operated at a loss of $83,993 in the third quarter of the 2004
fiscal year ended May 31, 2004 versus a loss of $68,036 in the year ago period.
In the tubing segment, earnings for the third quarter were depressed by three
factors, steel price increases, hiring and training of additional employees, and
a non-recurring legal cost associated with a successful arbitration regarding
the discharge of a bargaining unit employee. The combined effect of these
factors resulted in a loss of $92,697 versus a loss of $84,660 in the year ago
period. As a result of negotiation with its customers the registrant expects to
recover approximately $20,000 of steel price increases and surcharges
encountered in the third quarter. Substantial order intake for shipment in the
fourth quarter required increasing the direct labor force by 53% during the
third quarter. Training and other costs related to these new employees depressed
earnings in the third quarter for which the registrant should receive benefits
in the fourth quarter.
Below is summarized segmental data for the second quarters and six months ended
May 31, 2004 and May 31, 2003.
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TUBING SEAT TRACK TOTAL
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3RD QTR 2004 2003 2004 2003 2004 2003
REVENUE 1,253,762 873,052 276,779 339,896 1,530,541 1,212,948
PROFIT (92,697) (84,660) 8,704 16,624 (83,993) (68,036)
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9 MTHS
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REVENUE 3,346,735 2,815,366 1,090,630 1,157,213 4,437,365 3,972,579
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PROFIT (244,313) (184,329) 109,045 73,459 (135,268) (110,870)
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Selling, general and administrative expenses increased 13.6% in the third
quarter ended May 31, 2004 to $206,755 from $181,945 in the year ago period
primarily a result of the arbitration expense noted above. For the nine months
ended May 31, 2004 these expenses were little changed to $574,358 from $576,846
in the year ago period.
LIQUIDITY AND SOURCES OF CAPITAL
The Registrant has a $600,000 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 August 31, 2004. As of
May 31, 2004, the outstanding balance was $444,761 and the applicable interest
rate was 5.0%.
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)
MAY 31, 2004 AND MAY 31, 2003
31-May-04 31-May-03
ASSETS
CASH 7,743 78,277
ACCOUNTS RECEIVABLE 787,155 534,688
ACCOUNTS RECEIVABLE-OTHER 92,031 289,972
ACCRUED INTEREST RECEIVABLE 2,446
INVENTORIES 764,625 708,348
REFUNDABLE TAXES 73,374
PREPAID EXPENSES 82,712 103,514
DEFERRED TAX ASSET 47,600
TOTAL CURRENT ASSETS 1,857,686 1,714,799
NET PROPERTY AND EQUIPMENT 1,657,898 1,699,589
OTHER ASSETS
DEPOSITS 7,150 7,150
INVESTMENTS IN JOINT VENTURES 110,356 126,066
INTANGIBLES 60,961 4,648
TOTAL OTHER ASSETS 178,467 137,648
TOTAL ASSETS 3,694,051 3,552,252
LIABILITIES
ACCOUNTS PAYABLE 524,359 341,153
NOTES PAYABLE 686,464 847,123
ACCRUED LIABILITIES 352,699 781,292
TOTAL CURRENT LIABILITIES 1,563,661 1,969,568
LONG TERM DEBT 151,991 344,891
DEFERRED TAXES 63,600
TOTAL LIABILITIES 1,879,252 2,371,759
STOCKHOLDER EQUITY
STOCK 10,863 7,175
PREFERRED STOCK
ADDITIONAL PAID IN CAPITAL 1,522,446 604,190
RETAINED EARNINGS 281,490 569,128
NOTE RECEIVABLE SHARE HOLDER
TOTAL SHAREHOLDER EQUITY 1,814,799 1,180,493
TOTAL LIABILITIES & SHAREHOLDER EQUITY 3,694,051 3,552,252
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KNUSAGA CORPORATION
STATEMENT OF INCOME (UNAUDITED)
FOR MONTHS ENDED
MAY 31, 2004 AND MAY 31, 2003
3 MONTHS ENDED 9 MONTHS ENDED
5/31/04 5/31/03 5/31/04 5/31/03
NET SALES 1,530,541 1,212,948 4,437,365 3,972,579
COST OF GOODS SOLD 1,447,180 1,129,669 4,049,338 3,601,869
GROSS PROFIT 83,361 83,279 388,027 370,710
SELLING, GENERAL & 206,755 181,945 574,358 576,846
ADMINISTRATIVE EXPENSES
MISC INCOM (EXPENSE) (3,341) 19,823 (18,474) 38,465
INCOME (LOSS) BEFORE TAXES (126,735) (78,843) (204,805) (167,671)
FED INCOME TAXES (42,742) (10,807) (69,537) (56,801)
NET INCOME BEFORE EXTRAORDINARY ITEMS (83,993) (68,036) (135,268) (110,870)
NET INCOME (83,993) (68,036) (135,268) (110,870)
AVERAGE SHARES OUTSTANDING 10,862,773 7,175,000 10,862,773 7,175,000
EARNINGS PER SHARE (.008) (0.009) (.012) (0.015)
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.
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KNUSAGA CORPORATION
STATEMENT OF CASH FLOW (UNAUDITED)
FOR MONTHS ENDED
MAY 31, 2004 AND MAY 31, 2003
3 MONTHS ENDED 9 MONTHS ENDED
5/31/04 5/31/03 5/31/04 5/31/03
NET INCOME (83,993 (110,870) (135,268) (110,870)
DEPRECIATION 63,045 84,457 187,529 207,622
GAIN ON SALE OF ASSETS (7,385) (7,385) (76,398)
(INCREASE)DECREASE IN
ACCTS RECEIVABLE (23,774) 488,114 (2,553) 488,114
INVENTORIES (82,202) (8,026) (156,920) (8,026)
REFUNDABLE TAXES (42,742) (10,611)
PREPAID EXPENSES 6 (46,115) (31,274) (46,115)
OTHER ASSETS (100) (100) (100) (100)
INCREASE(DECREASE) IN
ACCOUNTS PAYABLE 146,077 (72,646) 209,950 (72,646)
ACCRUED LIABILITIES (24,297) 136,091) 9,980 (136,091)
CASH PROVIDED BY (USED FOR) (55,365) 198,723 63,348 245,490
OPERATING ACTIVITIES
INVESTMENT ACTIVITIES
PURCHASE OF EQUIP'T SALE OF (45,646) 94,767 (97,847) (42,258)
EQUIPMENT 36,500 36,500 90,258
INVESTMENT IN JOINT VENTURES 0 (120) 0 (120)
CASH PROVIDED BY (USED FOR) (9,146) 94,647 (61,347) 47,880
INVESTING ACTIVITIES
FINANCING ACTIVITIES
PAYMENT OF NOTES 50,404 (350,621) (44,174) (350,621)
CASH USED FOR FINANCINB ACTIVITIES 50,404 (350,621) (44,174) (350,621)
NET INCREASE (DECREASE) (14,107) (57251) (42,173) (57,251)
BEGINNING CASH 21,850 135,528 49,916 135,528
ENDING CASH 7,743 78,277 7,743 78,277
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FORWARD LOOKING STATEMENTS
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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
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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.
Item 6. Exhibits and Reports on Form 8-K
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(a) Exhibits:
31.1 Certification of Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K during the quarter ended Mat 31, 2004: None
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SIGNATURES
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
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James G. Musser Jerry Lutak
Director/President Vice President and
(Principal Executive Officer Principal Financial
and Controller) Officer
Dated: July 12, 2004 Dated: July 12, 2004
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EXHIBIT LIST
31.1 Certification of Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
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