<PAGE> 1
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, 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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<PAGE> 2
RESULTS OF OPERATIONS
- ---------------------
Net Sales decreased 6% in the third quarter of the fiscal year ending August
1998 compared to the same quarter a year ago. In the tubing sector of the
Registrant's business, the Ford Kentucky Truck Plant historically accounted for
75% of sales. At that plant Ford operated two assembly lines which received
tubing from the Registrant, one for Medium Trucks and the second for Heavy
Trucks. In November of 1997 Ford discontinued production of Medium Trucks at the
plant. Ford resumed production of Medium Trucks in Mexico during the current
quarter but at reduced rates compared to the former Kentucky truck plant.
December of 1997 Ford also discontinued production of Heavy Trucks at the
Kentucky plant and sold the Heavy Truck business to Freightliner Corporation.
Freightliner resumed production of the former Ford Heavy Duty Truck at their St.
Thomas, Ontario Plant during the current quarter but also at substantially lower
rates than formerly produced at Ford's Kentucky Plant. As a result shipments of
tubing decreased $1,286,753 during the current quarter compared to a year ago.
It is not expected that Ford will increase production in Mexico to former levels
until the new Medium Truck begins production in March 1999. Freightliner is
expected to reach the same production rate as the former Kentucky Truck plant by
the end of December 1998.
In the month of January 1998, Knusaga Corporation purchased a six-way power seat
track line of business from ITT. This new business produced $1,136,337 of sales
in the current quarter, largely offsetting the decline in tubing sales.
Gross profits from operations decreased to a negative $134,697 due to unabsorbed
overhead from the low sales volume in the tubing sector of the registrant's
business.
In spite of the new seat track activity Selling and Administrative expenses
decreased 11% because of expense reductions in the tubing sector.
Net income decreased to a negative $87,812 for the quarter as compared to a
positive $453,686 for the previous year. The profit in the year ago quarter was
inflated by a $350,000 settlement from Chrysler for a discontinued business.
LIQUIDITY AND SOURCES OF CAPITAL
- --------------------------------
The company's operations consumed $534,412 of cash during the current quarter as
a result of losses in the tubing sector and a build up of receivables and
inventory in the seat track business. This cash requirement was financed
primarily by short term borrowings.
CONTINGENT MATTERS
- ------------------
There are no contingencies or consequential uncertainties known that will
materially affect the financial information as presented.
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<PAGE> 3
KNUSAGA CORPORATION
BALANCE SHEET (UNAUDITED)
MAY 31, 1998
<TABLE>
<CAPTION>
ASSETS May 31, 1998
<S> <C>
CASH $ 5,291
ACCOUNTS RECEIVABLE $1,085,992
NOTES RECEIVABLE $ 94,143
INVENTORIES $ 626,241
PREPAID EXPENSE $ 331,820
----------
TOTAL CURRENT ASSETS $2,136,795
NET PROPERTY, PLANT AND EQUIPMENT $2,389,742
OTHER ASSETS $ 22,861
----------
TOTAL ASSETS $4,549,398
LIABILITIES
ACCOUNTS PAYABLE $ 839,845
NOTES PAYABLE $ 935,728
ACCRUED LIABILITIES $ 68,329
----------
TOTAL CURRENT LIABILITIES $1,843,902
LONG TERM DEBT $1,535,879
----------
TOTAL LIABILITIES $3,379,781
STOCKHOLDERS EQUITY (DEFICIENCY)
Common Stock, par value $.01 per share authorized $ 70,000
7,000,000 shares issued and outstanding.
Preferred stock, par value $.01 per share $ 175,000
authorized 500,000 shares, issued and outstanding
175,000 of Class A $1.00 stated value, 4%
non-cumulative, non-voting.
ADDITIONAL PAID-IN CAPITAL $ 366,365
RETAINED EARNINGS $ 558,252
----------
TOTAL STOCKHOLDERS EQUITY $1,169,617
----------
TOTAL LIABILITIES AND
STOCKHOLDERS EQUITY $4,549,398
</TABLE>
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<PAGE> 4
KNUSAGA CORPORATION
STATEMENT OF INCOME (UNAUDITED)
THREE MONTHS ENDED
MAY 31, 1998 AND MAY 31, 1997
<TABLE>
<CAPTION>
(UNAUDITED) (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
MAY 31, 1998 MAY 31, 1997 MAY 31, 1998 MAY 31, 1997
<S> <C> <C> <C> <C>
NET SALES $2,338,038 $2,488,274 $6,490,276 $6,999,126
COST OF GOODS SOLD $2,171,239 $1,828,113 $5,787,284 $5,563,302
---------- ---------- ---------- ----------
GROSS PROFIT $ 166,799 $ 660,161 $ 702,992 $1,435,824
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES $ 254,685 $ 287,162 $ 743,255 $ 697,995
MISC. INCOME (EXPENSE) ($ 46,817) $ 320,522 ($ 120,539) $ 205,156
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE TAXES ($ 134,697) $ 693,521 ($ 160,802) $ 942,985
PROVISION FOR FEDERAL INCOME TAXES ($ 46,885) $ 239,835 ($ 50,810) $ 320,535
---------- ---------- ---------- ----------
NET INCOME BEFORE EXTRAORDINARY ITEMS ($ 87,812) $ 453,686 ($ 109,992) $ 622,450
EXTRAORDINARY ITEMS:
WRITE OFF R S HUGHES IND.
TAX BENEFIT OF OPERATING LOSS
CARRYFORWARD __________ __________ __________ __________
NET INCOME ($ 87,812) $ 453,686 ($ 109,992) $ 622,450
PAR SHARE OF COMMON STOCK AND COMMON STOCK
EQUIVALENTS:
NET INCOME (LOSS) FROM
OPERATIONS PER SHARE (0.01) 0.07 (0.02) 0.09
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 FAIR PRESENTATION.
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<PAGE> 5
KNUSAGA CORPORATION
STATEMENT OF CASH FLOW (UNAUDITED)
THREE MONTHS ENDED
MAY 31, 1997 AND MAY 31, 1998
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED
MAY 31, 1998 MAY 31, 1997
<S> <C> <C>
CASH PROVIDED BY (USED FOR) OPERATIONS
NET INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS, NON-CASH ($ 87,812) $622,448
EXPENSE INCLUDED IN NET INCOME
DEPRECIATION $ 82,686 $155,287
(INCREASE) DECREASE IN:
ACCOUNTS RECEIVABLE ($386,744) ($329,258)
INVENTORIES $ 42,941 $ 953
PREPAID EXPENSES ($ 69,362) $ 41,790
OTHER ASSETS $ 61,010
INCREASE (DECREASE) IN:
ACCOUNTS PAYABLE ($ 85,222) $ 58,927
ACCRUED LIABILITIES $ 21,621 $141,256
-------- --------
NET CASH PROVIDED BY (USED FOR) ($481,390) $752,413
OPERATING ACTIVITIES
CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES
PURCHASES OF EQUIPMENT $ 53,023 ($125,442)
--------
NET CASH PROVIDED BY (USED FOR)
INVESTING ACTIVITIES
CASH PROVIDED BY (USED FOR) BEFORE ($534,412) $626,971
FINANCING ACTIVITIES
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES
DEBT INCREASE (DECREASE)
SHORT-TERM $505,579 ($420,000)
LONG-TERM $ 25,579 ($202,750)
-------- --------
NET CASH PROVIDED BY (USED FOR) $531,158 ($622,750)
FINANCING ACTIVITIES
INCREASE (DECREASE) IN CASH ($ 3,254) $ 4,221
BALANCE AT BEGINNING OF PERIOD $ 8,473 $ 34,020
BALANCE AT END OF PERIOD $ 5,219 $ 38,241
</TABLE>
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<PAGE> 6
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: December 23, 1998 BY: /s/ James G. Musser
-------------------
James G. Musser
President
<PAGE> 7
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ------- --- -----------
Ex-27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> MAR-01-1998
<PERIOD-END> MAY-31-1998
<CASH> 5,291
<SECURITIES> 0
<RECEIVABLES> 1,085,992
<ALLOWANCES> 0
<INVENTORY> 629,622
<CURRENT-ASSETS> 2,136,795
<PP&E> 3,630,722
<DEPRECIATION> 1,240,981
<TOTAL-ASSETS> 4,549,398
<CURRENT-LIABILITIES> 1,843,902
<BONDS> 868,814
0
175,000
<COMMON> 70,000
<OTHER-SE> 924,617
<TOTAL-LIABILITY-AND-EQUITY> 4,549,398
<SALES> 6,490,276
<TOTAL-REVENUES> 6,490,276
<CGS> 5,787,284
<TOTAL-COSTS> 6,530,539
<OTHER-EXPENSES> 1,964
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 48,775
<INCOME-PRETAX> (160,802)
<INCOME-TAX> (50,810)
<INCOME-CONTINUING> (109,992)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (109,992)
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
