<PAGE> 1
SECURITIES ANS EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended May 31, 1997
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 offices 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 Sectioin 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 $.01, outstanding: 7,000,000.
<PAGE> 2
RESULTS OF OPERATIONS
Net sales increased 10% in the third quarter of 1997, up $200,000 over
the third quarter of 1996. For the first nine months, net sales were $7
million or 12% higher than the same period in 1996. The majority of the sales
increase is due to increased production and tubing requirements of our
customer, Ford Truck Division, Louisville, Kentucky. There are no increases
in net sales for this period due to selling price increases. The reason being
is that the automotive-truck industry does not allow price increases on parts
once placed in production.
Gross profits from operations increased to 26.5% of sales during the
quarter ending May 31, 1997, as compared to the year earlier period of 9.8%.
This positive result is primarily due to a reduction of raw material cost and,
secondarily, to increased direct labor efficiency.
Selling and administrative expenses increased to 11.5% of sales during
the quarter ending May 31, 1997, as compared to the year earlier period of
7.2%. The nine month comparison is 10.0% for May 31, 1997, and 8.6% for May,
1996. The increased dollar amount of $180,000 is due to increased personnel
($110,000), professional services ($35,000), and taxes ($35,000). Also, during
the quarter, Chrysler Corp. issued a check to us in the amount of $350,000
(recorded under Misc. Income) in final payment of all expenses incurred because
Knusaga Corp. is no longer a supplier of seats for the van line. This
discontinuance of production occurred in the spring of 1995.
Net income increased to a positive $454,000 in the quarter as compared
to $6,000 during the same period during 1996. The nine month period produced
net income of $622,000 as compared to a loss of $145,000 for the previous year.
The significant improvement in net income is the result of stable margins on
improved sales and the reduction of material cost and other expenses.
-1-
<PAGE> 3
LIQUIDITY AND SOURCES OF CAPITAL
The company's net cash flow position for the nine months ending May 31,
1997, generated $752,000 of cash from operating activities as compared to a
$96,000 decrease for the same period a year ago.
During this period, we purchased $125,000 of equipment, decreased our
long-term notes $203,000, and reduced our short-term line of credit $420,000,
resulting in an ending cash balance of $38,241. The Company expects that
available cash and existing short-term lines of credit will be sufficient to
meet normal operating requirements over the near term.
CONTINGENT MATTERS
There are no contingencies or consequential uncertainties known that
will materially affect the financial information as presented.
-2-
<PAGE> 4
KNUSAGA CORPORATION
BALANCE SHEET (UNAUDITED)
MAY 31, 1997
<TABLE>
<CAPTION>
ASSETS MAY 31, 1997
<S> <C>
CASH $38,241
ACCOUNTS RECEIVABLE $1,371,628
ACCOUNTS RECEIVABLE - OTHER $62,600
INVENTORIES $505,248
PREPAID EXPENSE $70,248
----------
TOTAL CURRENT ASSETS $2,047,965
NET PROPERTY, PLANT AND EQUIPMENT $2,068,097
OTHER ASSETS $40,424
----------
TOTAL ASSETS $4,156,486
LIABILITIES
ACCOUNTS PAYABLE $728,134
NOTES PAYABLE $413,847
ACCRUED LIABILITIES $329,634
----------
TOTAL CURRENT LIABILITIES $1,471,615
LONG TERM DEBT $1,708,383
----------
TOTAL LIABILITIES $3,179,998
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-cumlative, non-
voting. $175,000
ADDITIONAL PAID-IN CAPITAL $366,365
RETAINED EARNINGS $365,123
----------
TOTAL STOCKHOLDERS EQUITY $976,488
----------
TOTAL LIABILITIES AND
STOCKHOLDERS EQUITY $4,156,486
</TABLE>
<PAGE> 5
KNUSAGA CORPORATION
STATEMENT OF CASH FLOW (UNAUDITED)
NINE MONTHS ENDED
MAY 31, 1997 AND MAY 31, 1996
<TABLE>
<CAPTION>
(UNAUDITED)
NINE MONTHS ENDED
MAY 31, 1997 MAY 31, 1996
<S> <C> <C>
CASH PROVIDED BY (USED FOR) OPERATIONS
NET INCOME (LOSS) Before extraordinary items $622,448 ($145,026)
NONCASH EXPENSE INCLUDED IN NET INCOME
DEPRECIATION $155,287 $140,313
(INCREASE) DECREASE IN:
ACCOUNTS RECEIVABLE ($329,258) $33,513
INVENTORIES $953 $16,108
PREPAID EXPENSES $41,790 ($17,102)
OTHER ASSETS $61,010 ($18,430)
INCREASE (DECREASE) IN:
ACCOUNTS PAYABLE $58,927 ($91,172)
ACCRUED LIABILITIES $141,256 ($13,930)
------------ -------------
NET CASH PROVIDED BY (USED FOR)
OPERATING ACTIVITIES $752,413 ($95,726)
CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES
PURCHASES OF EQUIPMENT ($125,442) ($346,064)
------------ -------------
NET CASH PROVIDED BY (USED FOR) $626,971 ($441,790)
BEFORE INVESTING ACTIVITIES
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES
DEBT INCREASE (DECREASE)
SHORT-TERM ($420,000) $322,000
LONG-TERM ($202,750) $30,256
------------ -------------
NET CASH PROVIDED BY (USED FOR)
FINANCING ACTIVITIES ($622,750) $352,256
INCREASE (DECREASE) IN CASH $4,221 ($89,534)
BALANCE AT BEGINNING OF PERIOD $34,020 $98,402
BALANCE AT END OF PERIOD $38,241 $8,868
</TABLE>
<PAGE> 6
KNUSAGA CORPORATION
STATEMENT OF INCOME (UNAUDITED)
THREE MONTHS ENDED
MAY 31, 1997 AND MAY 31, 1996
<TABLE>
<CAPTION>
(UNAUDITED) (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
MAY 31, 1997 MAY 31, 1996 MAY 31, 1997 MAY 31, 1996
<S> <C> <C> <C> <C>
NET SALES $ 2,488,274 $ 2,263,297 $ 6,999,126 $ 6,277,542
COST OF GOODS SOLD $ 1,828,113 $ 2,042,301 $ 5,563,302 $ 5,801,260
----------- ----------- ----------- -----------
GROSS PROFIT $ 660,161 $ 220,996 $ 1,435,824 $ 476,282
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES $ 287,162 $ 162,246 $ 697,995 $ 538,173
MISC INCOME (EXPENSE) $ 320,522 ($52,788) $ 205,156 ($143,952)
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE TAXES $ 693,521 $5,962 $ 942,985 ($205,843)
PROVISION FOR FEDERAL INCOME TAXES $ 239,835 $ 320,535 ($60,817)
----------- ----------- ----------- -----------
NET INCOME BEFORE EXTRAORDINARY
ITEMS $ 453,686 $5,962 $ 622,450 ($145,026)
EXTRAORDINARY ITEMS:
TAX BENEFIT OF OPERATING LOSS
CARRYFORWARD
----------- ----------- ----------- -----------
NET INCOME $ 453,686 $5,962 $ 622,450 ($145,026)
PER SHARE OF COMMON STOCK AND
COMMON STOCK EQUIVALENTS:
NET INCOME (LOSS) PER SHARE 0.07 0.01 0.09 (0.02)
CASH DIVIDENDS NONE NONE NONE NONE
AVERAGE OUTSTANDING SHARES 7,000,000 7,000,000 7,000,000 7,000,000
</TABLE>
THE FINANCIAL STATEMENTS INCLUDED IN THIS REPORT REFLECT ALL ADJUSTMENTS,
WHICH IN THE OPINION OF MANAGEMENT, ARE NECESSARY FOR A FAIR PRESENTATION
<PAGE> 7
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> MAY-01-1997
<CASH> 38,241
<SECURITIES> 0
<RECEIVABLES> 1,434,228
<ALLOWANCES> 0
<INVENTORY> 505,248
<CURRENT-ASSETS> 2,047,965
<PP&E> 3,019,667
<DEPRECIATION> 951,570
<TOTAL-ASSETS> 4,156,486
<CURRENT-LIABILITIES> 1,471,616
<BONDS> 788,272
0
175,000
<COMMON> 70,000
<OTHER-SE> 731,488
<TOTAL-LIABILITY-AND-EQUITY> 4,156,486
<SALES> 6,918,702
<TOTAL-REVENUES> 6,999,126
<CGS> 5,563,302
<TOTAL-COSTS> 6,261,297
<OTHER-EXPENSES> 205,156
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 142,165
<INCOME-PRETAX> 942,985
<INCOME-TAX> 320,535
<INCOME-CONTINUING> 622,450
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 622,450
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
