<PAGE> 1
Second Submission
Revision Date: November 3, 1997
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Amendment - 1
to
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For fiscal year ended August 31, 1996 Commission File No. 0-7795
KNUSAGA CORPORATION
- --------------------------------------------------------------------------------
(Exact name of Registrant as Specified in its Charter)
DELAWARE 62-1004034
- ------------------------------------------ ------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
3578 S. Van Dyke, Almont, Michigan 48003
- --------------------------------------------------------------------------------
(Address of Principal Executive Office and Zip Code)
Registrant's telephone number, including area code: (810) 798-2402
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.01 Per Share
- --------------------------------------------------------------------------------
(Title of Class)
Number of shares outstanding as of August 31, 1996: 7,000,000
Market value of shares held by non-affiliates not available due to lack of
market for stock.
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_____]
Page 1 of 51
<PAGE> 2
PART I
Item 1. DESCRIPTION OF BUSINESS.
Knusaga Corporation ("Registrant") was originally incorporated in the
State of Delaware on May 28, 1971. As of its fiscal year ended August 31, 1996,
Registrant was engaged in the fabrication and sale of
steel, aluminum and copper tubes for use in the truck industry. During said
fiscal year, Registrant shipped some 800 different parts which consisted of
various air intake, exhaust and radiator tubes for medium and large over-theroad
trucks. Registrant acquired this line of business on September 1, 1994, from a
group of Registrant's shareholders through an issuance of 2,601,753 shares of
its common stock for all of the issued and outstanding stock of Hydraulic Tubes
and Fittings, Inc., a closely held Michigan corporation, followed by a merger of
Hydraulic Tubes and Fittings, Inc., into Registrant. At the time of said
acquisition, the shareholders of Hydraulic Tubes and Fittings, Inc.,
collectively owned 91.26% of the issued and outstanding common stock of
Registrant. Following said acquisition, said shareholder's ownership of
Registrant's common stock increased to 94.51%.
In January of 1995, Registrant discontinued its business of selling a
seat unit that was convertible into a bed suitable for use in full size
automotive vans as a result of the loss of its business with Chrysler
Corporation ("Chrysler"), which was its sole original equipment customer for
said item. The convertible seat unit consisted of two bench seats plus a
collapsible dinette table, and the bench seats were convertible so that in
addition to a forward position they could be adjusted for use as a bed, lounge,
or dinette set.
Registrant had also previously sold a seat unit convertible to a bed for
use in mini vans. The unit consisted of a single seat unit which folded out to a
bed by moving one handle. The Registrant replaced this convertible seat unit for
use in mini vans, which it has supplied to Chrysler since 1985, with a new
design starting in the 1992 model year. During the 1992 through 1994 model
years. Registrant supplied its new mini van convertible seat unit to Magna
International Company ("Magna"),
Page 2 of 51
<PAGE> 3
who completed the trim on each such unit and then supplied the finished product
directly to Chrysler. Registrant's sale of this mini van convertible seat ended
in June of 1994 with the end of Chrysler's 1994 mini van model year production.
During its fiscal year ended August 31, 1995, Registrant also received
royalty payments totaling $128,290 from Magna for a component (a seat riser)
which Magna produced and supplied to Chrysler under a patent licensed from the
Registrant, beginning with the 1992 model year. The royalty payments from Magna
for the use of the patent ended in May of 1995 as a result of Chrysler's
introduction of its redesigned mini vans.
The principal customer for Registrant's air intake, exhaust and radiator
tubes is Ford Motor Company ("Ford"), which accounted for 84% of Registrant's
sales for said products during its fiscal year ended August 31, 1996. Of those
sales, 73% were for parts to be used as original equipment on flat bed, stake
and semi tractor trucks and 11% were for parts to be used as replacement parts.
Registrant's second biggest customer is Nova Bus, which accounted for 10% of
Registrant's sales for said products during said fiscal year.
Service Steel, Michigan Extrude Aluminum and United Industries are
Registrant's three largest suppliers. Registrant issues periodic purchase orders
to its suppliers for specific quantities on an as needed basis, which for
purchases from Michigan Extrude Aluminum and United Industries are generally for
six to eight week projected requirements. Such purchase orders represent the
only enforceable formal agreement between the Registrant and its suppliers.
The Registrant is a tier one supplier to Ford and deals with Ford on a
just-in-time inventory basis, that is, the Registrant ships daily to Ford's
schedule. Ford gives the Registrant a rolling ten to fifteen working day firm
shipping schedule.
Ford and Registrant's other customers issue purchase orders to the
Registrant for specific parts. As with Registrant's purchase orders to its
vendors, Ford's purchase orders and the purchase orders of
Page 3 of 51
<PAGE> 4
Registrant's other customers represent the only enforceable formal agreement
between the Registrant and each company with respect to Registrant's products.
Registrant's firm order backlog is just ten to fifteen working days.
There are several competitors in the truck metal tube fabricating
business, with Northern Tube being Registrant's major competitor for Ford's
medium and large over-the-road truck tube business. Truck suppliers compete on
the basis of price, quality, technology and on-time delivery.
Research and development ("R&D") expenditures were made to Travel
Products, the patent holder of the Registrant's discontinued automotive seat
products. Originally the Registrant paid Travel Products a 3% royalty, but for
the past several years the Registrant has been paying Travel Products a $7,500
per month fee for R&D work with adjustments for extra work. R&D expenditures for
the last three fiscal years were $75,000 in 1996, $75,000 in 1995, and $-0- in
1994.
The Registrant has one hundred employees.
The Registrant does not do any promotional advertising. The Registrant
does not own any patents or trademarks other than the patent relating to the
seat riser discussed above. This patent expires in September, 2006.
Item 2. DESCRIPTION OF PROPERTIES
The Registrant owns a manufacturing building with attached office space
and an attached warehouse located on 10 acres of land at 3578 South Van Dyke
Road, Almont, Michigan. Registrant had previously been leasing office space in
said facility from Hydraulic Tubes and Fittings, Inc., and acquired ownership of
the entire facility when Hydraulic Tubes and Fittings, Inc., was merged into the
Registrant.
Registrant owns certain fabricating equipment, which is used for the
fabrication of steel, aluminum, and copper tubes.
Item 3. LEGAL PROCEEDINGS
Registrant is not currently involved in any pending material litigation.
Page 4 of 51
<PAGE> 5
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND
RELATED SECURITY HOLDING MATTERS
5 (a) The principal market for the Registrant's common stock is the over-
the-counter market. Due to the infrequent trading of Registrant's stock, no
quotations are available.
5 (b) As of August 31, 1996, there were approximately 1,592 shareholders of
Registrant's common stock.
5 (c) Registrant has not paid any dividends in the past two (2) years. This
failure to pay dividends is due solely to financial considerations. The
Registrant is not under any legal restrictions imposed by its Articles of
Incorporation, Bylaws, convenants to loan agreements or other obligations to
third parties with regard to dividend payments.
Page 5 of 51
<PAGE> 6
Item 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
KNUSAGA CORPORATION
D.B.A. HYDRAULIC TUBES AND FITTINGS
FIVE YEAR SUMMARY OF OPERATIONS
- -------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------
1992 1993 1994 1995 1996
From Operations -----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales $1,096,129 $ 1,182,305 $1,499,548 $9,566,217 $ 8,177,943
Other Income, Net 288,925 268,947 377,420 17,703 5,538
Unusual or Nonrecurring Items -0- -0- -0- -0- -0-
Cost of Sales 994,306 1,078,288 1,289,321 8,092,147 7,342,353
Selling, General & Administrative Expenses 161,884 464,292 324,124 843,211 671,457
Interest Expense 64,336 57,872 44,873 157,065 196,346
Income Taxes 47,500 -0- 107,000 124,846 (27,733)
Income (Loss) From Continuing Operations 164,528 (149,200) 111,650 366,651 1,058
Income (Loss) Before Extraordinary Items 117,028 (149,200) 111,650 349,417 1,058
Extraordinary Items 47,500 -0- 107,000 24,555 -0-
Net Income (Loss) Applicable to Common Stock 164,528 (149,200) 218,650 373,968 1,058
Per Share of Common Stock:
Income (Loss) Before Extraordinary Item .03 ( .03) .03 .05 .00
Extraordinary Item .01 .00 .02 .00 .00
-----------------------------------------------------------------
Net Income (Loss) $ .04 $( .03) $ .05 $ .05 $ .00
=================================================================
Dividends Per Share Declared on Common Stock (1) -0- -0- -0- -0- -0-
Average Number of Common and Common Equivalent
Shares Used in Determining per Share Amounts (2) 4,573,247 4,573,247 4,573,247 7,175,000 7,175,000
</TABLE>
(1) The Company has not paid dividends on its outstanding common stock nor
Class A preferred stock during the past five years.
(2) Income (Loss) per share has been calculated based on weighted average
shares outstanding. The 4% preferred stock is a common stock equivalent.
Page 6 of 51
<PAGE> 7
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
7(a) Net sales for the fiscal year ended August 31, 1996, decreased by
$1,388,274, or 14.5% from the year ended August 31, 1995, which sales had
increased by $8,066,669, or 537.9% from the prior fiscal year. The decrease in
sales for fiscal year 1996 was a result of a decline in the number of heavy duty
trucks manufactured by Registrant's customers. The increase in sales for fiscal
year ended 1995 from the previous year was a result of Registrant's
discontinuance of its van seat production business and entry into the business
of fabricating metal tubes for the truck industry through the acquisition of and
merger into Registrant of Hydraulic Tubes and Fittings, Inc.
Cost of goods sold for sales in fiscal year 1996 increased to 89.8% as a
percentage of sales as compared to 84.6% in the fiscal year 1995, and 86% in
fiscal year 1994 due to a decline in sales volume with the same fixed costs.
Selling, general, and administrative expenses in fiscal year 1996 decreased by
$171,754, and decreased as a percentage of sales to 8.2% as compared to 8.8% in
fiscal year 1995 and 21.6% in 1994. This decrease in expenses is due to the
decline in sales for 1996. Expenses that decreased were officers' salaries
$106,947, Single Business Tax $82,388, Legal and Professional $30,049, and
expenses that increased were travel expense $13,885, temporary help $8,147,
property taxes $6,596, depreciation $6,350, computer operation expense $5,425,
holiday pay $4,449, and agent fees $3,649. The Registrant's income of $1,058 in
fiscal year of 1996 compared to income of $373,968 in fiscal year 1995 is due to
the decline in sales for 1996.
Ford the year ended August 31, 1996, Ford sales of $6,869,000 amounted to
84% of total sales. This trend is expected to continue in the future.
Page 7 of 51
<PAGE> 8
7(b) Liquidity and Capital Resources. The Registrant's working capital
position improved in fiscal year 1996 to a positive $90,843 on August 31, 1996,
from a working capital position of a negative $602,297 on August 31, 1995, and a
positive $56,971 on August 31, 1994. The increase in working capital for fiscal
1996 is largely the result of increases in deposits of $50,240 and notes
receivable of $50,955, and decreases in accounts payable trade of $141,154,
accounts payable - other of $46,757, accrued expenses of $329,887, and loans
payable of $72,154.
A loan payable to Michigan National Bank matured in October of 1994 at
which time the remaining principle was refinanced into two term loans with
maturity dates of October 1998 and October 2001, bearing interest at 1% over the
lender's prime rate and secured by all assets of the Registrant. At August 31,
1996, the outstanding principal balance of both notes was $624,872 and the
applicable interest rate was 9.25%.
A third loan payable to Michigan Bank was created on December 6, 1995, to
finance equipment purchases. Said loan has a maturity date of December 6, 2000,
bears interest at 1% over the lender's prime rate and is secured by all assets
of Registrant. At August 31, 1996, the outstanding principal balance was
$173,333 and the applicable interest rate was 9.25%.
Registrant has a line of credit with Michigan National Bank with interest
payable in monthly installments at 1% over said bank's prime rate. The note is
secured by all assets of the Registrant and the principle is due in January of
1997. At August 31, 1996, the outstanding balance was $592,000 and the
applicable interest rate was 9.25%.
The Registrant does not have any material commitment for capital
expenditures in the current year.
Page 8 of 51
<PAGE> 9
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following statements are enclosed as part of this report on Form 10K.
8(a) Financial Statements:
(1) For the Fiscal Year Ended
August 31, 1996, 1995, and
1994
Accountant's Opinion.
Balance Sheet for the year ended August 31, 1996 and
1995
Statement of Income for the year ended August 31,
1996, 1995, and 1994
Statement of Changes in Stockholders' Equity and
Accumulated Deficit for the year ended August 31,
1996, 1995, and 1994
Statement of Cash Flows for the year ended August 31,
1996, 1995, and 1994
Notes to Financial Statements.
8(b) Financial Statement Schedules:
(1) Independent Auditor's Report on Supplementary
Information.
(2) Supplementary Schedule of Fixed Assets for the
years ending August 31, 1995 and 1994.
(3) Supplementary Schedule of Accumulated Depreciation
for the years ending August 31, 1996, 1995, and
1994.
Page 9 of 51
<PAGE> 10
(4) Indebtedness to related parties for years ending
August 31, 1996, 1995, and 1994.
(5) Supplementary Income Statement Information for
years ending August 31, 1996 and 1995.
(6) Five Year Summary of Operations for years ending
August 31, 1992, 1993, 1994, 1995, and 1996.
Page 10 of 51
<PAGE> 11
Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
No response required.
PART III.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
NAME AGE POSITION
---- --- --------
Semon E. Knudsen 84 Director/Chairman of the Board
James G. Musser, Jr. 61 Director/President
Jerry D. Luptak 74 Director/Vice President Finance and
General Counsel
Harold Beznos 58 Director/Secretary-Treasurer
J. Ted Beebe 66 Executive Vice President
The directors were elected in March, 1978 at the annual stockholders
meeting to serve until their successors are duly elected and qualified. Because
Registrant has not had another stockholders meeting, the directors have
continued to act in their present capacities as directors of Registrant. The
officers were appointed by the Board of Directors by Unanimous Written Consent
dated March 1, 1990.
The following outlines the past and present occupations and business
experience of the executive officers of the Registrant.
MR. KNUDSEN is, and has been, a Director and Chairman of the
Board of the Registrant since September 1, 1977. Mr. Knudsen is also a
director of First National Bank of Palm Beach.
MR. MUSSER is, and has been, a Director and President of the
Registrant since September 1, 1977. He devotes 100% of his time per month
to the business affairs of the Registrant.
MR. LUPTAK has served in his present capacities with the
Registrant since September 1, 1977. Currently, and for more than five
years, he has been Chairman of the Board and Chief Executive Officer
(formerly President) of Armada Corporation, a manufacturer of metal
alloys, and has been actively engaged in real estate development
including multifamily residential, single family residential, retail and
office buildings. He devotes approximately ____% of his time per month to
the business affairs of the Registrant.
Page 11 of 51
<PAGE> 12
MR. BEZNOS has served in his present capacities with the
Registrant since September 1, 1977. Currently, and for more than five
years, he has been actively engaged in real estate development including
multifamily, residential, single family residential, retail and office
buildings. He devotes approximately ____% of his time per month to the
business affairs of the Registrant.
MR. BEEBE has been the Executive Vice President of the Registrant
since November, 1979. He devotes 8 days per month to the business affairs
of the Registrant.
Items 11
and 13. MANAGEMENT REMUNERATIONS AND CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS.
In the fiscal year ended August 31, 1996, Mr. Musser was paid $92,079 in
salary and Mr. Beebe was paid $43,317 in salary. None of the other directors or
officers received any direct or indirect remuneration during the fiscal year
ended August 31, 1996, and none is anticipated in the fiscal year ending August
31, 1997.
Messrs. Beznos, Knudsen, Luptak, and Musser have collectively made
working capital loans to the Corporation. These loans are payable on demand and
are represented by a noted bearing an annual interest rate of 12%, with
principal and interest originally payable June, 1990. The outstanding principal
balance on this note at August 31, 1996, was $165,836. As a result of the merger
of Hydraulic Tubes and Fittings, Inc., into Registrant, it assumed the
obligation for repayment of demand loans payable to Messrs. Beznos, Knudsen, and
Luptak bearing an annual interest rate of 12% and having a combined unpaid
principal balance at August 31, 1996, of $141,417.
In March and April of 1990, Jay A. Fishman, as Trustee of the Paola M.
Luptak Irrevocable Trust U/A/D August 20, 1970, and Frieda Applebaum, as Trustee
of the Beznos Family Irrevocable Trust U/A/D February 2, 1976, each loaned
$50,000 to the Registrant as working capital in return for which they each
received a note bearing an annual interest rate of 12%, with principal and
interest payable on demand. The principal balance of these notes at August 31,
1996, was $50,000 each. The beneficiaries of each trust are beneficial
shareholders of the Registrant and are related to certain officers and directors
of the Registrants.
Page 12 of 51
<PAGE> 13
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGERS.
12(a)
<TABLE>
<CAPTION>
Title Amount and Nature of
of Name and Address of Beneficial Owner
Class Beneficial Owner % of Class
- ------ ------------------- -------------------- ----------
<S> <C> <C> <C>
Common James G. Musser, Jr. (1) 726,520 shares 10.4%
Stock 7475 Pinehurst Circle Direct
Birmingham, MI 48010
Common Lorraine A. Musser (1) 722,617 shares 10.3%
Stock 7475 Pinehurst Circle Direct
Birmingham, MI 48010
Common Leslie, Samuel and Lauren Beznos 1,449,137 shares 20.7%
Stock (2) trust beneficiary
31731 Northwestern Hwy.
Farmington Hills, MI 48334
Common Paola M. Luptak (3) 1,463,109 shares 20.9%
Stock 19115 Fox Landing Drive Direct
Boca Raton, Florida 33434
Common K. Peter Knudsen (4) 562,402 shares 8.0%
Stock 29757 Somerset Drive trust beneficiary
Perrysburg, Ohio 43551
Common J. Ted Beebe 805,205 shares 11.5%
Stock 22515 Sunnydale Direct
St. Clair Shores, MI 48081
Common Jerry D. Luptak (3) 1,463,109 shares 20.9%
Stock 19115 Fox Landing Drive Indirect
Boca Raton, Florida 33434
Common Harold Beznos (2) 1,449,137 shares 20.7%
Stock 317313 Northwestern Hwy. Indirect
Farmington Hills, MI 48334
Common Semon E. Knudsen (4) (5) 1,449,137 shares 20.7%
Stock 1965 N. Woodward Ave. Indirect
Bloomfield Hills, MI 48304
</TABLE>
(1) Lorraine A. Musser is the wife of James G. Musser, Jr.
Page 13 of 51
<PAGE> 14
(2) These shares are held in an irrevocable trust with Frieda
Applebaum as Trustee with voting and investment power for the
benefit of Leslie Beznos, Samual Beznos and Lauren Beznos, who are
the daughter, son and niece, respectively, of Harold Beznos, a
director and officer of the Registrant.
(3) Paola M. Luptak is the daughter of Jerry D. Luptak, a director and
officer of the Registrant.
(4) These shares are held in a revocable trust with the NBD Bank of
Detroit, Michigan, as Trustee with voting and investment power for
the benefit of K. Peter Knudsen. Mr. Knudsen is the son of Semon
E. Knudsen, a director and officer of the Registrant.
(5) Judith K. Christie, Lisa K. Flint, and Kristina K. Gregg directly
own 295,245, 295,245, and 296,245 shares of common stock,
respectively, and are daughters of Semon E. Knudsen, a director
and officer of the Registrant.
12(b) No shares of common stock of the Registrant are owned by any
officers and directors of the Registrant, except Mr. James G.
Musser, Jr. and Mr. J. Ted Beebe as listed in Item 12(a) above.
As a group, the officers and directors directly and indirectly own 6,615,725
shares of Registrant's common stock, representing 94.5% of all outstanding
common stock.
PART IV.
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
14(a) Financial Statements:
(1) For Fiscal Years Ended August 31, 1996 and 1995.
Accountant's Opinion for the year ended August 31, 1996,
1995, and 1994.
Balance Sheet for the year ended August 31, 1996 and
1995.
Page 14 of 51
<PAGE> 15
Statement of Income for the year ended August 31, 1996,
1995, and 1994.
Statement of Cash Flows for the year ended August 31,
1996, 1995, and 1994.
Notes to Financial Statements for the year ended August
31, 1996.
14(b) Reports on Form 8-K Filed during
this Quarter:
None.
14(c) Exhibits.
None.
14(d) Financial Statement Schedules:
(1) Schedule IV - Indebtedness of and to Related Parties
for the Years Ended August 31, 1996, 1995, and 1994.
(2) Fixed Assets and Accumulated Depreciation for the Years
Ended August 31, 1996, 1995, and 1994.
(3) Schedule X - Supplementary Income Statement Information
for the Years Ended August 31, 1996 and 1995.
(4) Five Year Statement of Stockholders' Equity for years
ending August 31, 1992, 1993, 1994, 1995, and 1996.
Page 15 of 51
<PAGE> 16
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
By: Jerry Luptak
------------------------------
Vice President
Dated: February 25, 1997
----------------------------
Page 16 of 51
<PAGE> 17
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the date indicated:
By: Semon E. Knudsen Date: February 25, 1997
---------------------------------- ---------------------
Director
Chairman of the Board
By: James G. Musser Date: February 25, 1997
---------------------------------- ---------------------
Director/President
(Principal Executive Officer and
Controller)
By: Jerry D. Luptak Date: February 25, 1997
---------------------------------- ---------------------
Director
Vice President, Finance and
General Counsel
(Principal Financial Officer)
By: Harold Beznos Date: February 25, 1997
---------------------------------- ---------------------
Director Secretary-Treasurer
By: J. Ted Beebe Date: February 25, 1997
---------------------------------- ---------------------
Executive Vice President
Page 17 of 51
<PAGE> 18
KNUSAGA CORPORATION
D.B.A. HYDRAULIC TUBES AND FITTINGS
FINANCIAL STATEMENTS
FOR THE YEARS ENDED
AUGUST 31, 1996, 1995, AND 1994
Page 18 of 51
<PAGE> 19
KNUSAGA CORPORATION
D.B.A. HYDRAULIC TUBES AND FITTINGS
================================================================================
================================================================================
TABLE OF CONTENTS
PAGE
Independent Auditors' Report.............................................. 20
Balance Sheet............................................................. 21-22
Statement of Income....................................................... 23
Statement of Stockholders' Equity......................................... 24
Statement of Cash Flows................................................... 25
Notes to Financial Statements............................................. 26-40
Supplementary Information:
Independent Auditors' Report on Supplementary Information............... 42
Supplementary Schedules of Fixed Assets................................. 43-44
Supplementary Schedules of Accumulated Depreciation..................... 45-46
Indebtedness to Related Parties......................................... 47-48
Supplementary Income Statement Information.............................. 49-50
Five Year Summary of Operations......................................... 51
================================================================================
Page 19 of 51
<PAGE> 20
[FREEDMAN & GOLDBERG LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Knusaga Corporation
D.B.A. Hydraulic Tubes and Fittings
Almont, MI 48003
We have audited the accompanying balance sheets of Knusaga Corporation, D.B.A.
Hydraulic Tubes and Fittings as of August 31, 1996 and 1995 and the related
statement of income, stockholder's equity, and cash flows for each of the three
years in the period ended August 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
Except as explained in the following paragraph, we conducted our audits in
accordance with generally accepted auditing standards. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessment of the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provide a reasonable basis for our opinion.
We did not audit the statements of income, stockholders' equity, and cash flows
of Hydraulic Tubes and Fittings, Inc. for the year ended August 31, 1994 (prior
to its acquisition by Knusaga Corporation) which are included in the 1994
financial statements. Income of Hydraulic Tubes and Fittings, Inc. included in
the statement of income for the year ended August 31, 1994 was $171,448.
Because of the matter discussed in the preceding paragraph, the scope of our
work was not sufficient to enable us to express, and we do not express, an
opinion on the results of operation and its cash flows of Knusaga Corporation
for the year ended August 31, 1994.
In our opinion the financial statements referred to above present fairly, in all
material respects, the financial position of Knusaga Corporation, D.B.A.
Hydraulic Tubes and Fittings as of August 31, 1996 and 1995 and the results of
its operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
As discussed in Note 17 to the financial statements, the Company's 1996
financial statements have been reissued to present the Company on a comparative
basis with prior years. Additional footnotes have been added which were omitted
in our report dated November 6, 1996.
Respectfully,
Freedman & Goldberg
Certified Public Accountants
Farmington Hills, Michigan
November 6, 1996, except for note 17, as to which the date is October 6, 1997
Page 20 of 51
<PAGE> 21
KNUSAGA CORPORATION
D.B.A. HYDRAULIC TUBES AND FITTINGS
BALANCE SHEET
================================================================================
AS OF AUGUST 31, 1996 AND 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
Current Assets
<S> <C> <C>
Cash $ 34,020 $ 98,402
Accounts Receivable - Trade, Net of Allowance for Doubtful Accounts
of $-0- 1,053,176 1,246,241
Accounts Receivable - Other -0- 20,000
Notes Receivable 50,955 -0-
Accrued Interest Receivable 839 -0-
Inventories 506,203 578,712
Prepaid Expenses 181,134 130,066
- ------------------------------------------------------------------------------------------------------
Total Current Assets 1,826,327 2,073,421
- ------------------------------------------------------------------------------------------------------
Property and Equipment, Net 2,097,937 1,874,680
- ------------------------------------------------------------------------------------------------------
Other Assets
Deposits 5,575 20,710
Assets Held for Resale 27,663 27,283
- ------------------------------------------------------------------------------------------------------
Total Other Assets 33,238 47,993
- ------------------------------------------------------------------------------------------------------
Total Assets $3,957,502 $3,996,094
======================================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTERGRAL PART OF THE FINANCIAL STATEMENTS.
================================================================================
Page 21 of 51
<PAGE> 22
KNUSAGA CORPORATION
D.B.A. HYDRAULIC TUBES AND FITTINGS
BALANCE SHEET
================================================================================
AS OF AUGUST 31, 1996 AND 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1996 1995
Current Liabilities ----------------------------
<S> <C> <C>
Accounts Payable - Trade $ 619,952 $ 761,105
Current Maturities of Long-Term Debt 877,737 907,893
Accrued Expenses 237,796 1,166,720
- -----------------------------------------------------------------------------------------------------------
Total Current Liabilities 1,735,485 2,835,718
- -----------------------------------------------------------------------------------------------------------
Other Liabilities
Accrued Expenses - Non current 853,612 -0-
Long-Term Debt - Less Current Maturities 1,014,367 807,396
- -----------------------------------------------------------------------------------------------------------
Total Other Liabilities 1,867,979 807,396
- -----------------------------------------------------------------------------------------------------------
Total Liabilities 3,603,464 3,643,114
- -----------------------------------------------------------------------------------------------------------
Stockholders' Equity
Common Stock, $.01 Par Value, 7,000,000 Shares Authorized,
7,000,000, 7,000,000, and 4,398,247, respectively, Shares Issued
and Outstanding
Preferred Stock, Class A, 4% Non-Cumulative Non-Voting, Each Share 70,000 70,000
Convertible into One Share of Common Stock, Par Value $.01, Stated
Value $1.00, 500,000 Shares Authorized, 175,000 Shares Issued and
Outstanding
Additional Paid-In Capital
Accumulated Deficit 175,000 175,000
366,365 366,365
(257,327) (258,385)
- -----------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 354,038 352,980
- -----------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity
(Deficit) $ 3,957,502 $ 3,996,094
===========================================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
================================================================================
Page 22 of 51
<PAGE> 23
KNUSAGA CORPORATION
D.B.A. HYDRAULIC TUBES AND FITTINGS
STATEMENT OF INCOME
===============================================================================
FOR THE YEARS ENDED AUGUST 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
1994 Restated
1995 Restated (Note
1996 (Note 17) 14 and 17)
------------------------------------------------
<S> <C> <C> <C>
Sales, Net $ 8,177,943 $ 9,566,217 $ 8,554,602
Cost of Sales 7,342,353 8,092,147 7,493,206
----------------------------------------------------------------------------------------------------------------------------------
Gross Profit 835,590 1,474,070 1,061,396
Selling, General and Administrative Expenses
----------------------------------------------------------------------------------------------------------------------------------
Operating Income 164,133 630,859 281,521
----------------------------------------------------------------------------------------------------------------------------------
Other Income (Expense)
Interest Income 839 -0- -0-
Interest Expense (196,346) (157,065) (132,920)
Miscellaneous Income 3,738 13,516 22,957
Gain on Sale of Asset 961 4,187 -0-
----------------------------------------------------------------------------------------------------------------------------------
Total Other Income (Expense) (190,808) (139,362) (109,963)
----------------------------------------------------------------------------------------------------------------------------------
Income Before Income Taxes (26,675) 491,497 171,558
Income Taxes (Refundable) (27,733) 77,646 110
----------------------------------------------------------------------------------------------------------------------------------
Net Income From Continuing Operations
1,058 413,851 171,448
Discontinued Operations:
Income (Loss) from operations of van seat production disposed of (net of
income tax benefit of $-0-, $8,900, and $-0-, respectively)
-0- (17,234) 50,351
----------------------------------------------------------------------------------------------------------------------------------
Net Income Before Extraordinary Items
Extraordinary Items: 1,058 396,617 221,799
Loss of disposal of equipment for van seat
production (net of income tax benefit of $0,
$11,600 and $0, respectively)
-0- (22,649) -0-
----------------------------------------------------------------------------------------------------------------------------------
Net Income $ 1,058 $ 373,968 $ 221,799
==================================================================================================================================
Net Income Per Share $ -0- $ .05 $ .02
==================================================================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTERGRAL PART OF THE FINANCIAL STATEMENTS.
================================================================================
Page 23 of 51
<PAGE> 24
KNUSAGA CORPORATION
D.B.A. HYDRAULIC TUBES AND FITTINGS
STATEMENT OF STOCKHOLDERS' EQUITY
================================================================================
FOR THE YEARS ENDED AUGUST 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
Additional
Common Preferred Paid-In Accumulate
Stock Stock Capital Deficit
-----------------------------------------------
<S> <C> <C> <C> <C>
Balance, September 1, 1993 $43,982 $175,000 $242,384 $(796,226)
Adjustment in Connection with
Pooling of Interests (Note 14) 26,018 -0- 123,981 (57,926)
- ----------------------------------------------------------------------------------------
Balance, September 1, 1993, as 70,000 175,000 366,365 (854,152)
Restated
Net Income for the Year Ended August
31, 1994 -0- -0- -0- 221,799
- ----------------------------------------------------------------------------------------
Balance, September 1, 1994, as 70,000 175,000 366,365 (632,353)
Restated
Net Income For the Year Ended August
31, 1995 -0- -0- -0- 373,968
- ----------------------------------------------------------------------------------------
Balance, August 31, 1995 70,000 175,000 366,365 (258,385)
- ----------------------------------------------------------------------------------------
Net Income for the Year Ended August
31, 1996 -0- -0- -0- 1,058
- ----------------------------------------------------------------------------------------
Balance, August 31, 1996 $70,000 $175,000 $366,365 $(257,327)
========================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTERGRAL PART OF THE FINANCIAL STATEMENTS.
================================================================================
Page 24 of 51
<PAGE> 25
KNUSAGA CORPORATION
D.B.A. HYDRAULIC TUBES AND FITTINGS
STATEMENT OF CASH FLOWS
================================================================================
FOR THE YEARS ENDED AUGUST 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
1994 Restated
1996 1995 (Note 14)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operations
Net Income $ 1,058 $ 373,968 $ 221,799
Adjustments to Reconcile Net Income
to Net Cash Provided By Operating 194,523 161,916 163,420
Activities
Depreciation and Amortization -0- 34,249 -0-
Extraordinary Item - Loss on ( 961) (4,187) 600
Disposal of Equipment
(Gain) Loss on Sale of Asset 213,065 215,117 (724,589)
(Increase) Decrease In: ( 839) -0- (15,196)
Accounts Receivable 72,509 6,338 207,628
Accrued Interest Receivable (51,068) (70,348) 13,384
Inventories ( 380) (27,283) -0-
Prepaid Expenses ( 60) 2,265 (12,130)
Asset Held For Resale
Deposits (141,153) (185,041) 315,608
Increase (Decrease) In: (75,312) (103,227) 109,713
Accounts Payable
Accrued Expenses
- --------------------------------------------------------------------------------------
Net Cash Provided By Operating
Activities 211,382 403,767 280,237
- --------------------------------------------------------------------------------------
Cash Flows From Investing
Activities (360,500) (296,705) (177,373)
Equipment Purchases 3,500 55,100 400
Proceeds From Sale of Assets (50,955) -0- -0-
Payments For Notes Receivable
- --------------------------------------------------------------------------------------
Net Cash Used By Investing
Activities (407,955) (241,605) (176,973)
- --------------------------------------------------------------------------------------
Cash Flows From Financing
Activities 1,139,999 -0- 225,311
Proceeds From Debt (1,007,808) (83,705) (385,973)
Principal Payments on Debt
- --------------------------------------------------------------------------------------
Net Cash Provided By (Used in)
Financing Activities 132,191 (83,705) (160,662)
- --------------------------------------------------------------------------------------
Increase (Decrease) in Cash (64,382) 78,457 (57,398)
Balance, September 1 98,402 19,945 77,343
- --------------------------------------------------------------------------------------
Balance, August 31 $ 34,020 $ 98,402 $ 19,945
======================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTERGRAL PART OF THE FINANCIAL STATEMENTS.
================================================================================
Page 25 of 51
<PAGE> 26
KNUSAGA CORPORATION
D.B.A. HYDRAULIC TUBES AND FITTINGS
NOTES TO FINANCIAL STATEMENTS
================================================================================
AUGUST 31, 1996, 1995, AND 1994
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Knusaga Corporation,
D.B.A. Hydraulic Tubes and Fittings (the Company) is presented to assist in
understanding the Company's financial statements. The financial statements
and notes are representations of the Company's management who is
responsible for their integrity and objectivity. These accounting policies
conform to generally accepted accounting principles and have been
consistently applied in the preparation of the financial statements.
A. Nature of Operations/Major Customers - Knusaga Corporation's
operations relate mainly to the manufacturing of automotive tubes and
fittings for the auto industry, with a majority of sales to Ford Motor
Company.
For the years ended August 31, 1996, 1995, and 1994 Ford Motor Company
sales of $7,111,000, $8,715,466, and $7,403,000 amounted to 87%, 91%,
and 87% of total sales, respectively. This trend is expected to
continue in the future.
During the years ended August 31, 1995 and 1994, the Company
manufactured van seats for the auto industry, with a majority of sales
to two customers. The business was discontinued during the year ended
August 31, 1995. During the year ended August 31, 1994 sales to the two
customers were $1,505,266.
Substantially all of the accounts receivable are from the major
customers, which potentially subjects the Company to concentration of
credit risk. All receivables are due within thirty days and are
unsecured. It is the Company's policy not to require collateral.
B. Revenues - The Company recognizes revenue from automotive tubes and
fittings and van seats upon shipment.
C. For purposes of the statement of cash flows, the company considers
all short-term debt securities purchased with a maturity of three
months or less to be cash equivalents.
D. Property, Equipment and Related Depreciation - Property and
equipment are recorded at cost. Depreciation is computed by the
straight-line method for financial reporting purposes and accelerated
methods for tax reporting purposes. Estimated lives range from five to
forty years. Depreciation charged to operations was $194,523, $161,460,
and $160,294 for the years ended August 31, 1996, 1995, and 1994,
respectively. When properties are disposed of, the related costs and
accumulated depreciation are removed from the respective accounts and
any gain or loss on disposition is recognized currently. Maintenance
and repairs which do not improve or extend the lives of assets are
expensed as incurred.
================================================================================
Page 26 of 51
<PAGE> 27
KNUSAGA CORPORATION
D.B.A. HYDRAULIC TUBES AND FITTINGS
NOTES TO FINANCIAL STATEMENTS
================================================================================
AUGUST 31, 1996, 1995, AND 1994
NOTE 1. CONTINUED
E. Inventories - Inventories are stated at lower of cost or market.
Cost is determined on the first-in, first-out (FIFO) basis. Inventory
classifications as of August 31, 1996, 1995, and 1994 consisted of the
following:
<TABLE>
<CAPTION>
1996 1995 1994
----------------------------------------------
<S> <C> <C> <C>
Raw Material $ 277,054 $ 281,614 $ 124,013
Work in Process 183,979 229,948 239,464
Finished Goods 45,170 67,150 50,150
----------------------------------------------
$ 506,203 $ 578,712 $ 413,627
==============================================
</TABLE>
F. Loan Costs - Costs incurred with the company's securing of a loan
from Manufacturers National Bank in October, 1989 are being amortized
on a straight line basis over the term of the loan. Amortization
expensed totaled $456 and $3,126 for the years ended August 31, 1995
and 1994, respectively.
G. Royalty Income - In January 1991, Knusaga entered into a royalty
agreement with Integram Seating for patented seat risers. Integram pays
Knusaga royalties for seat risers sold by Integram at a rate of 9.46%
of each unit sold. The agreement ended on July 31, 1995, or on such
date as Integram ceases to use the risers.
Integram discontinued the use of the patented seat risers in May, 1995.
Royalty income for the years ended August 31, 1995 and 1994 was
$128,390 and $204,188, respectively, which is included in the
discontinued operations - loss from operations of van seat production
disposed of. See Note 15 for details.
H. Major Suppliers - At August 31, 1996, 1995, and 1994 58%, 61%, and
79%, respectively of the accounts payable - trade was to four major
suppliers. The Company believes there is no potential credit risk
pertaining to the major suppliers.
I. Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
================================================================================
Page 27 of 51
<PAGE> 28
KNUSAGA CORPORATION
D.B.A. HYDRAULIC TUBES AND FITTINGS
NOTES TO FINANCIAL STATEMENTS
================================================================================
AUGUST 31, 1996, 1995, AND 1994
NOTE 1. CONTINUED
J. Income Taxes - The Company accounts for income taxes under the
provisions of SFAS No. 109, "Accounting for Income Taxes," which
requires recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in
the Company's consolidated financial statements or tax returns. Under
this method, deferred tax assets and liabilities are determined based
on the differences between the financial accounting and tax basis of
assets and liabilities using enacted tax rates in effect for the year
in which the differences are expected to reverse.
NOTE 2. PREPAID EXPENSES
The following is a detail of the prepaid expenses as of August 31, 1996,
1995, and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
--------------------------------------
<S> <C> <C> <C>
Prepaid Insurance $ 88,312 $ 100,910 $ 34,475
Prepaid Taxes 92,822 29,156 25,243
--------------------------------------
Total Prepaid Expenses $ 181,134 $ 130,066 $ 59,718
======================================
</TABLE>
NOTE 3. PROPERTY AND EQUIPMENT
The major components of property and equipment are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------------------------------------
<S> <C> <C> <C>
Land $ 24,847 $ 24,847 $ 24,847
Land Improvements 10,230 10,230 -0-
Buildings and Improvements 1,352,872 1,293,605 1,235,858
Machinery and Equipment 1,118,007 846,478 993,993
Furniture and Fixtures 111,090 72,607 74,267
Autos and Truck 70,062 58,909 72,592
Obligations Under Capital Leases 207,115 185,663 280,222
--------------------------------------
2,894,223 2,492,339 2,681,779
Less: Accumulated Depreciation 796,286 617,659 856,531
--------------------------------------
Net Property and Equipment $2,097,937 $1,874,680 $1,825,248
======================================
</TABLE>
================================================================================
Page 28 of 51
<PAGE> 29
KNUSAGA CORPORATION
D.B.A. HYDRAULIC TUBES AND FITTINGS
NOTES TO FINANCIAL STATEMENTS
================================================================================
AUGUST 31, 1996, 1995, AND 1994
NOTE 4. ACCRUED EXPENSES
The following is a detail of the current accrued expenses as of August 31, 1996,
1995 and 1994.
<TABLE>
<CAPTION>
1996 1995 1994
-------------------------------------------
<S> <C> <C> <C>
Accrued Insurance $ 44,084 $ 71,845 $ 107,319
Accrued Interest - Shareholders -0- 271,628 223,389
Accrued Interest - Other 11,510 9,904 10,899
Accrued Payroll 82,306 569,860 571,720
Accrued Pension 22,859 12,131 26,291
401K Withholdings 4,222 -0- -0-
Accrued Professional Fees 33,409 22,225 148,815
Accrued Engineering Expenses -0- 90,000 80,475
Accrued Taxes 39,406 119,127 69,437
Other Miscellaneous Accrued -0- -0- 31,602
-------------------------------------------
Total Current Accrued Expenses $ 237,796 $1,166,720 $1,269,947
===========================================
</TABLE>
The following is a detail of the non-current accrued expenses as of August 31,
1996, 1995, and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
-------------------------------------------
<S> <C> <C> <C>
Accrued Interest - Shareholders $ 320,329 $ -0- $ -0-
Accrued Payroll - Officers 443,283 -0- -0-
Accrued Engineering Expenses 90,000 -0- -0-
-------------------------------------------
Total Non-Current Accrued
Expenses $ 853,612 $ -0- $ -0-
===========================================
</TABLE>
Per the loan covenants with the bank, the Company cannot pay the accrued payroll
- - officers and engineering expenses shown as non-current without the bank's
permission. At August 31, 1996, management reclassified these expenses as
non-current. Management does not anticipate paying the above expenses within one
year.
================================================================================
Page 29 of 51
<PAGE> 30
KNUSAGA CORPORATION
D.B.A. HYDRAULIC TUBES AND FITTINGS
NOTES TO FINANCIAL STATEMENTS
================================================================================
AUGUST 31, 1996, 1995, AND 1994
NOTE 5. NOTES RECEIVABLE
<TABLE>
<CAPTION>
1996 1995 1994
------------------------------------------
<S> <C> <C> <C>
Note receivable from a start-up company which the
Company is interested in purchasing an ownership
interest. The note calls for interest at 6% per annum,
is unsecured and due on demand.
$ 23,000 $ -0- $ -0-
Note Receivable From an officer/stockholder with
interest at 6% per annum. The
note is unsecured and due August, 1997.
27,955 -0- 6,514
- ----------------------------------------------------------------------------------------------------
$ 50,955 $ -0- $ 6,514
==========================================
</TABLE>
NOTE 6. NOTES PAYABLE AND OBLIGATIONS UNDER CAPITAL LEASES
Notes payable and obligations under capital leases consist of the
following:
<TABLE>
<CAPTION>
1996 1995 1994
----------------------------------------------
<S> <C> <C> <C>
A. Notes payable - directors, officers, and
shareholders, bearing interest at annual
rates of 10% to 12%. The notes are payable
on demand and are unsecured. Loans totaling
$265,000 have been subordinated to the bank.
$ 407,253 $ 407,253 $ 423,503
B. Non-interest bearing note payable, replacing
prior years' accrued royalties. Payments
on note are contingent upon the Company
reporting a positive net worth.
20,284 35,284 35,284
</TABLE>
================================================================================
Page 30 of 51
<PAGE> 31
KNUSAGA CORPORATION
D.B.A. HYDRAULIC TUBES AND FITTINGS
NOTES TO FINANCIAL STATEMENTS
================================================================================
AUGUST 31, 1996, 1995, AND 1994
NOTE 6. CONTINUED
<TABLE>
<S> <C> <C> <C>
C. Loan Payable - Bank, payable in monthly
installments of $24,300 through October 1994,
including interest at 1 1/2% over Michigan
National Bank's prime rate. The note matured
October, 1994 at which time the remaining
principle was refinanced into two term loans
with maturity dates of October 1998, and
October 2001, including interest at 1% over
the lender's prime rate. The note is secured
by all the assets of the Company.The interest
rate at August 31, 1995 was 9.75%. -0- 803,192 931,206
D. Loan Payable - Bank, payable in monthly
installments of $8,646 plus interest at 1% over the
lender's prime rate, through October, 1998. The
note is secured by all the assets of the Company.
The interest rate at August 31, 1996 was 9.25%. 233,434 -0- -0-
E. Loan Payable - Bank, payable in monthly
installments of $6,214 plus interest at 1% over the
lender's prime rate through October, 2001. The
note is secured by all the assets of the Company.
The interest rate at August 31, 1996 was 9.25%. 391,438 -0- -0-
F. Loan Payable - Bank, payable in monthly
installments of $3,333 plus interest at 1% over
lender's prime rate through December, 2000. The
loan is secured by all assets of the Company. The
interest rate at August 31, 1996 was 9.25%. 173,333 -0- -0-
G. Line of Credit - Bank, interest payable in
monthly installments at 1% over lender's prime
rate. Principal is due January 1, 1997. Note is
secured by all assets of the Company. The interest
rate at August 31, 1996 was 9.25%. 592,000 390,000 185,311
</TABLE>
================================================================================
Page 31 of 51
<PAGE> 32
KNUSAGA CORPORATION
D.B.A. HYDRAULIC TUBES AND FITTINGS
NOTES TO FINANCIAL STATEMENTS
================================================================================
AUGUST 31, 1996, 1995, AND 1994
NOTE 6. CONTINUED
<TABLE>
<S> <C> <C> <C>
H. Obligation Under Capital Lease - machinery,
payable in monthly installments of $1,395, through
November 1995, including interest at 13.6%.
Secured by the machinery. -0- 2,712 19,142
I. Obligation Under Capital Lease - equipment,
payable in monthly installments of $187, through
February 1997, including interest at 15.3%.
Secured by the equipment. 900 2,842 4,638
J. Obligation Under Capital Lease - machinery,
payable in monthly installments of $681, through
November 1995, including interest at 15.6%.
Secured by the machinery. -0- 1,994 9,284
K. Obligation Under Capital Lease - equipment,
payable in monthly installments of $1,292, through
July 1997, including interest at 18.0%. Secured by
the equipment. 13,096 25,287 35,614
L. Obligation Under Capital Lease - equipment,
payable in monthly installments of $331, through
July 1997, including interest at 20.7%. Secured by
the equipment. 3,038 6,101 8,844
M. Obligation Under Capital Lease - equipment,
payable in monthly installments of $363, through
July 1997, including interest at 20.4%. Secured by
the equipment. 3,339 6,713 9,742
N. Obligation Under Capital Lease - machinery,
payable in monthly installments of $532, through
April 1997, including interest at 19.4%. Secured
by the machinery. 3,031 8,325 13,461
</TABLE>
================================================================================
Page 32 of 51
<PAGE> 33
KNUSAGA CORPORATION
D.B.A. HYDRAULIC TUBES AND FITTINGS
NOTES TO FINANCIAL STATEMENTS
================================================================================
AUGUST 31, 1996, 1995, AND 1994
<TABLE>
<S> <C> <C> <C>
NOTE 6. CONTINUED
O. Obligation Under Capital Lease - machinery,
payable in monthly installments of $573, through
November 1998, including interest at 17.3%.
Secured by the machinery. 12,518 16,990 21,096
P. Obligation Under Capital Lease - machinery,
payable in monthly installments of $444, through
September 1997, including interest at 19.2%.
Secured by the machinery. 4,477 8,596 -0-
Q. Obligation Under Capital Lease -
improvements, payable in monthly installments of
$628, through November 1998, including interest at
8.17%. Secured by the improvements. 15,445 -0- -0-
R. Loan Payable - Bank, payable in monthly
installments of $731, through December 1998,
including interest at 8.49%. Secured by an
automobile. 18,518 -0- -0-
S. Obligation Under Capital Lease - equipment,
payable in monthly installments of $309, through
July 1995, including interest at 11.5%. Secured by
the equipment. -0- -0- 3,218
T. Promissory Note - Bank, interest payable in
monthly installments at 1 1/2% over Michigan National
Bank's prime rate. Principal is due November, 1994
Note is secured by all assets of the Company. The
interest rate at August 31, 1994 was 9.25%. -0- -0- 40,000
</TABLE>
================================================================================
Page 33 of 51
<PAGE> 34
KNUSAGA CORPORATION
D.B.A. HYDRAULIC TUBES AND FITTINGS
NOTES TO FINANCIAL STATEMENTS
================================================================================
AUGUST 31, 1996, 1995, AND 1994
NOTE 6. CONTINUED
<TABLE>
<S> <C> <C> <C>
U. Note Payable - bearing interest at an0
annual rate of 10.95%, collateralized by a lien on
a certain asset, due in monthly installments of
$550, including interest, through March, 1995. -0- -0- 3,712
V. Obligation Under Capital Lease - bearing
interest at an annual rate of 13.42%,
collateralized by a lien on a certain asset, due in
monthly installments of $140, including interest, -0- -0- 936
through March, 1995.
W. Obligation Under Capital Lease - bearing
interest at an annual rate of 9%, collateralized by
a lien on a certain asset, due in monthly
installments of $2,361, including interest, through -0- -0- 34,653
October 1995.
-----------------------------------------
Total 1,892,104 1,715,289 1,779,644
Amounts due within one year 877,737 907,893 678,745
-----------------------------------------
$1,014,367 $ 807,396 $1,100,899
=========================================
</TABLE>
The debt and lease maturities for the next five years are as follows:
<TABLE>
<S> <C>
August 31, 1997 $ 877,737
August 31, 1998 648,069
August 31, 1999 145,232
August 31, 2000 114,568
August 31, 2001 87,901
-----------
$ 1,873,507
===========
</TABLE>
Interest expense for the years ended August 31, 1996, 1995, and 1994
totaled $196,346, $157,065, and $132,920, respectively.
Interest expense on obligations under capital leases for the years ended
August 31, 1996, 1995, and 1994 was $11,788, $18,652, and $10,858,
respectively. Depreciation expense of equipment held under capital leases
for the years ended August 31, 1996, 1995, and 1994 was $26,722, $21,853
and $13,456, respectively.
================================================================================
Page 34 of 51
<PAGE> 35
KNUSAGA CORPORATION
D.B.A. HYDRAULIC TUBES AND FITTINGS
NOTES TO FINANCIAL STATEMENTS
================================================================================
AUGUST 31, 1996, 1995, AND 1994
NOTE 6. CONTINUED
Although notes payable to directors, officers, and shareholders totaling
$407,253 are due upon demand, they have been classified as non current as
the Company does not expect to pay these balances within the next fiscal
year.
NOTE 7. LOAN COVENANTS
Under the terms of the loan agreement with the bank the Company must
maintain the following covenants:
1. Maintain a current ratio of not less than .65 to 1.00
2. Maintain a net worth plus subordinated debt of not less than $530,000.
3. Maintain a ratio of total liabilities to net worth plus subordinated
debt of not more than 6.1 to 1.
4. Maintain a debt service coverage ratio of not less than 1.5 to 1.
As of August 31, 1996, the Company was in default of its debt service
coverage ratio covenants. However, on December 19, 1996, the Company
received a waiver of this default.
NOTE 8. PER SHARE COMPUTATION
Earnings per share have been calculated based on the weighted average
number of shares outstanding. The 4% preferred stock is considered a common
equivalent. The number of shares used in computing net income per share was
7,175,000.
NOTE 9. INCOME TAXES
The provision for income taxes consists of the following components:
<TABLE>
<CAPTION>
1996 1995 1994
---------------------------------------------
Current:
<S> <C> <C> <C>
Tax Due (Refundable) $( 41,601) $ 169,045 $ 112,450
Tax Benefit From Loss of Discontinued
Operations -0- ( 8,900) -0-
Tax Benefit From Loss on Disposal of
Equipment Used in Discontinued
Operations -0- ( 11,600) -0-
Tax Benefit of Net Operating Loss
Carryforward -0- ( 47,200) ( 112,340)
Tax (Benefit) Recovery of Investment
Tax Credits 13,868 ( 23,699) -0-
Net Tax Expense (Recovery) $( 27,733) $ 77,646 $ 110
=============================================
</TABLE>
================================================================================
Page 35 of 51
<PAGE> 36
KNUSAGA CORPORATION
D.B.A. HYDRAULIC TUBES AND FITTINGS
NOTES TO FINANCIAL STATEMENTS
================================================================================
AUGUST 31, 1996, 1995, AND 1994
NOTE 9. CONTINUED
Deferred taxes are detailed as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------------------------------------------
<S> <C> <C> <C>
Deferred Income Tax Liability Depreciation $ 28,492 $ 9,226 $ -0-
- ----------------------------------------------------------------------------------------------
Deferred Income Tax Assets
Accrued Expenses 160,443 150,886 59,500
Net Operating Loss Carryforward -0- -0- 47,178
- ----------------------------------------------------------------------------------------------
160,443 150,886 106,678
Valuation Allowance ( 131,951) ( 141,660) ( 106,678)
- ----------------------------------------------------------------------------------------------
Net Deferred Income Tax Asset 28,492 9,226 -0-
- ----------------------------------------------------------------------------------------------
Net Deferred Income Taxes $ -0- $ -0- $ -0-
==============================================================================================
</TABLE>
The valuation allowance was estimated to offset the deferred tax asset because
it is uncertain that the company will ever realize the tax benefit.
The Company has investment credits totaling $13,868 that may be offset against
future federal income taxes. If not used, the carryforwards will expire as
follows:
August 31, 2001 $ 13,868
NOTE 10. RELATED PARTY TRANSACTIONS
A. Notes Payable
As disclosed in Note 6 to the financial statements, certain
stockholders and officers are major creditors of the Company. Amounts
due to the stockholders and officers as of August 31, 1996, 1995, and
1994 totaled $407,253, $407,253 and $423,503, respectively. Interest
accrued on these notes at August 31, 1996 totaled $320,329, $271,559,
and $223,389, respectively. Interest expense accrued for the years
ended August 31, 1996, 1995, and 1994 was $48,770, $48,170, and
$48,770, respectively. During the year ended August 31, 1995, the
Company repaid $16,250 of amounts due to shareholders.
B. Asset Held for Resale
During the year ended August 31, 1995, the Company purchased an
airplane for $27,283 from a related party. It was the Company's intent
to sell the airplane back to the related party within six months after
the year ended August 31, 1995. During the year ended August 31, 1996,
the Company capitalized $380 of expenses related to the airplane. As of
August 31, 1996, it is the Company's intent to either sell the airplane
within twelve months or put the asset in service for use by the
Company.
================================================================================
Page 36 of 51
<PAGE> 37
KNUSAGA CORPORATION
D.B.A. HYDRAULIC TUBES AND FITTINGS
NOTES TO FINANCIAL STATEMENTS
================================================================================
AUGUST 31, 1996, 1995, AND 1994
NOTE 11. CASH FLOW DISCLOSURES
Interest and income taxes paid for the years ended August 31, 1996, 1995,
and 1994 were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------------------------------------------
<S> <C> <C> <C>
Interest $ 146,039 $ 142,840 $ 137,743
=============================================
Income Taxes $ 25,000 $ 64,000 $ -0-
=============================================
Non-Cash Investing Activities
Property Acquired Under Capital
Lease $ 21,452 $ 12,330 $ 108,636
=============================================
Proceeds From Sale of Asset $ -0- $ 20,000 $ -0-
=============================================
Debt Financing For Purchase of
Auto $ 23,172 $ -0- $ -0-
=============================================
</TABLE>
Income tax refunds received during the year ended August 31, 1996 was
$26,845.
NOTE 12. DEFINED BENEFIT PENSION PLAN
The Company sponsors a defined benefit pension plan that covers
substantially all employees of the Company. The inception of the plan was
January 1, 1992, with a fiscal year end of August 31. The plan calls for
benefits to be paid to eligible employees at retirement based upon years of
service with the Company. Contributions to the plan reflect benefits
attributed to employees' services to date, as well as services expected to
be earned in the future. Pension expense for the years ended August 31,
1996, 1995, and 1994 was $22,859, $12,131, and $26,428, respectively.
Pension contributions due to the plan at August 31, 1996, 1995, and 1994
were $22,859, $12,131, and $26,428, respectively. As of August 31, 1996 the
defined benefit pension plan is funded in accordance with ERISA.
================================================================================
Page 37 of 51
<PAGE> 38
KNUSAGA CORPORATION
D.B.A. HYDRAULIC TUBES AND FITTINGS
NOTES TO FINANCIAL STATEMENTS
================================================================================
AUGUST 31, 1996, 1995, AND 1994
NOTE 12. CONTINUED
The following table sets forth the plan's funded and amounts recognized in
the Company's statement of financial position at August 31, 1996 and 1995.
<TABLE>
<CAPTION>
1996 1995
----------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligations, including vested benefits of
$79,658.
$ 99,372 $ 72,747
Projected benefit obligation for service rendered to date
99,704 87,874
Plan assets at fair value 78,264 62,390
Projected benefit obligation in excess of plan assets
21,440 25,484
Unrecognized net gain from past experience different from that assumed and
effect of changes in assumptions
21,626 -0-
Prior service cost not yet recognized in net periodic pension cost
-0- -0-
Unrecognized net obligation at date of initial application of FAS-87
(36,221) (37,615)
(Prepaid) accrued cost $ (6,845) $(12,131)
======================================================================================================
Net pension cost for 1996 and 1995 includes the following components:
Service cost - benefits earned during the period $ 28,496 $ 26,883
Interest cost on projected benefit obligation 5,272 -0-
Interest cost due to late quarterly contributions
-0- -0-
Actual return on plan assets (7,627) (6,968)
Amortization of Actuarial Gains and Net Transition Asset
4,966 4,816
Net periodic pension costs $ 31,107 $ 24,731
======================================================================================================
</TABLE>
NOTE 13. 401K PROFIT SHARING PLAN
The Company sponsors a 401K profit sharing plan that covers all employees
of the Company. The plan allows eligible employees to withhold amounts from
their pay on a pre-tax basis and invest in self directed investment
accounts. The company has no obligation to make any contributions to the
plan.
================================================================================
Page 38 of 51
<PAGE> 39
KNUSAGA CORPORATION
D.B.A. HYDRAULIC TUBES AND FITTINGS
NOTES TO FINANCIAL STATEMENTS
================================================================================
AUGUST 31, 1996, 1995, AND 1994
NOTE 14. COMPANY MERGER
On September 1, 1994, the Company acquired Hydraulic Tubes and Fittings,
Inc. (HTF) in a business combination accounted for as a pooling of
interests and accordingly, the statement of income, stockholders' equity
and cash flows for the year ended August 31, 1994 have been restated to
include the accounts of HTF. Hydraulic Tubes and Fittings, Inc. which
engages in the manufacturing of automotive tubing for the auto industry was
acquired through the exchange of 2,601,753 shares of the Company's common
stock for all of the outstanding stock of Hydraulic Tubes and Fittings,
Inc. Hydraulic Tubes and Fittings, Inc. outstanding stock was then
canceled. The accompanying financial statements for the year ended August
31, 1995 reflect the combined operations of both companies for the full
year. Included in the net income from operations for the year ended August
31, 1994 is $171,488 which is attributable to Hydraulic Tubes and Fittings,
Inc. prior to the merger. Since the pooling of interest occurred on the
first day of the fiscal year ended August 31, 1995 and no revenues or net
income from Hydraulic Tubes and Fittings, Inc. were attributable to
operations prior to the merger.
NOTE 15. EXTRAORDINARY ITEMS\DISCONTINUED OPERATIONS
A. In January, 1995, the Knusaga Corporation's van seat production was
discontinued by Chrysler Corporation. The results of operation from the van
seat production is shown as a loss from discontinued operations of $17,234
(net of income tax benefit of $8,900 for the year ended August 31, 1995).
Income from discontinued operations for the year ended August 31, 1994 was
$50,351 (net of income tax benefit of $-0-).
Net sales of the van seat production for the years ended August 31, 1995
and 1994 were $203,284 and $1,499,548, respectively. This amount is not
included in net sales in the accompanying income statement.
B. For the year ended August 31, 1995, the Company reported as an
extraordinary item a loss of $22,649 (net of income tax benefit of $11,600)
on disposal of equipment from van seat production. Equipment was sold for
$70,000 and all other equipment disposed of was scrapped.
NOTE 16. CONTINGENT INCOME
The Company is negotiating a settlement with Chrysler Corporation regarding
the production of a van seat line which was discontinued during the year
ended August 31, 1995. The settlement is for reimbursements of costs
incurred by the Company in preparation of the production volumes promised
by Chrysler Corporation which were never realized. Management estimates the
amount of the settlement to be $350,000.
================================================================================
Page 39 of 51
<PAGE> 40
KNUSAGA CORPORATION
D.B.A. HYDRAULIC TUBES AND FITTINGS
NOTES TO FINANCIAL STATEMENTS
================================================================================
AUGUST 31, 1996, 1995, AND 1994
NOTE 17. REISSUANCE OF FINANCIAL STATEMENTS
A. The financial statements for the year ended August 31, 1996
have been reissued to present the Company on a comparative basis with
the years ended August 31, 1995 and 1994. As discussed in Note 14, the
statement of income, stockholders' equity, and cash flows for the year
ended August 31, 1994 have been restated to include the income and
expenses of Hydraulic Tubes and Fittings, Inc. (HTF), prior to its
merger with Knusaga Corporation.
B. The statements of income for the years ended August 31, 1995 and
1994 have been restated to include the tax benefits from the use of
a net operating loss carryforward in net income from continuing
operations in accordance with FASB 109. For the year ended August 31,
1995, the Company utilized a net operating loss carryforward of
$138,758 to offset federal taxable income resulting in a net tax
benefit of $47,200. For the year ended August 31, 1994, Knusaga and
Hydraulic Tubes and Fittings, Inc. each utilized a net operating loss
carryforward of $316,677 and $35,631, respectively, to offset taxable
income resulting in net tax benefits of $107,000 and $5,340,
respectively. The net tax benefits were previously shown as an
extraordinary item.
C. The notes to financial statements have been revised to include the
following additional disclosures not included in the previously issued
financial statements under the auditors' report dated November 6, 1996.
1. Recognition of Revenue - See Note 1-B
2. Estimated life of assets - See Note 1-D
3. Use of Estimates - See Note 1-l
4. Income Taxes - See Notes 1-J and 9
================================================================================
Page 40 of 51
<PAGE> 41
SUPPLEMENTARY INFORMATION
================================================================================
Page 41 of 51
<PAGE> 42
INDEPENDENT AUDITOR'S REPORT ON SUPPLEMENTARY INFORMATION
To the Board of Directors
Knusaga Corporation
D.B.A. Hydraulic Tubes and Fittings
Almont, MI 48003
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The information on pages 23-31 is
presented for purposes of additional analysis and is not a required part of the
basic financial statements. Such information, except for that portion marked
"un-audited," on which we express no opinion, has been subjected to the auditing
procedures applied in the audit of the basic financial statements; and, in our
opinion, the information is fairly stated in all material respects in relation
to the basic financial statements taken as a whole.
Respectfully,
- -------------------------------------
Freedman & Goldberg
Certified Public Accountants
Farmington Hills, Michigan
November 6, 1996
================================================================================
Page 42 of 51
<PAGE> 43
KNUSAGA CORPORATION
D.B.A. HYDRAULIC TUBES AND FITTINGS
SUPPLEMENTARY SCHEDULE OF FIXED ASSETS
================================================================================
FOR THE YEAR ENDED AUGUST 31, 1996
<TABLE>
<CAPTION>
BALANCE BALANCE
9-1-95 ADDITIONS DELETIONS 8-31-96
-----------------------------------------------------
<S> <C> <C> <C> <C>
Transportation Equipment $ 58,909 $ 24,171 $ 13,018 $ 70,062
Machinery and Equipment 846,478 276,946 5,417 1,118,007
Furniture and Fixtures 72,607 38,483 -0- 111,090
Obligation Under Capital Lease
Land 185,663 21,452 -0- 207,115
Land Improvements 24,847 -0- -0- 24,847
Buildings and Improvements 10,230 -0- -0- 10,230
1,293,605 59,267 -0- 1,352,872
-----------------------------------------------------
Totals $2,492,339 $420,319 $ 18,435 $2,894,223
=====================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
================================================================================
Page 43 of 51
<PAGE> 44
KNUSAGA CORPORATION
D.B.A. HYDRAULIC TUBES AND FITTINGS
SUPPLEMENTARY SCHEDULE OF FIXED ASSETS
================================================================================
FOR THE YEAR ENDED AUGUST 31, 1995
<TABLE>
<CAPTION>
Adjustment in
connection of Balance
BALANCE Pooling of 9-1-94, as Balance
9-1-94 Interests Restated Additions Deletions 8-31-95
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Transportation Equipment $ 43,510 $ 29,082 $ 72,592 $ -0- $ 13,683 $ 58,909
Machinery and Equipment 295,599 642,938 938,537 205,329 297,388 846,478
Furniture and Fixtures 21,650 52,617 74,267 14,243 15,903 72,607
Tooling 55,456 -0- 55,456 -0- 55,456 -0-
Leasehold Improvements 7,920 -0- 7,920 -0- 7,920 -0-
Obligation Under Capital
Lease 108,124 172,098 280,222 13,565 108,124 185,663
Land -0- 24,847 24,847 -0- -0- 24,847
Land Improvements -0- -0- -0- 10,230 -0- 10,230
Buildings -0- 1,227,938 1,227,938 65,667 -0- 1,293,605
----------------------------------------------------------------------------------
Totals $532,259 $2,149,520 $2,681,779 $ 309,034 $ 498,474 $2,492,339
==================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
================================================================================
Page 44 of 51
<PAGE> 45
KNUSAGA CORPORATION
D.B.A. HYDRAULIC TUBES AND FITTINGS
SUPPLEMENTARY SCHEDULE OF ACCUMULATED DEPRECIATION
================================================================================
FOR THE YEAR ENDED AUGUST 31, 1996
<TABLE>
<CAPTION>
BALANCE CURRENT YEAR BALANCE
9-1-95 RETIREMENTS EXPENSES 8-31-96
----------------------------------------------
<S> <C> <C> <C> <C>
Transportation Equipment
$ 38,915 $13,018 $ 10,377 $ 36,274
Machinery and Equipment 326,054 2,878 105,140 428,316
Furniture and Fixtures 34,286 -0- 16,710 50,996
Obligation Under Capital Lease
51,416 -0- 26,722 78,138
Land -0- -0- -0- -0-
Land Improvements 1,023 -0- 2,046 3,069
Buildings 165,965 -0- 33,528 199,493
----------------------------------------------
Totals $617,659 $15,896 $194,523 $796,286
==============================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
================================================================================
Page 45 of 51
<PAGE> 46
KNUSAGA CORPORATION
D.B.A. HYDRAULIC TUBES AND FITTINGS
SUPPLEMENTARY SCHEDULE OF ACCUMULATED DEPRECIATION
================================================================================
FOR THE YEAR ENDED AUGUST 31, 1995
<TABLE>
<CAPTION>
ADJUSTMENT IN
CONNECTION OF BALANCE
BALANCE POOLING OF 9-1-94, AS CURRENT YEAR BALANCE
9-1-94 INTERESTS RESTATED RETIREMENTS EXPENSES 8-31-95
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Transportation Equipment $ 35,912 $ 8,220 $ 44,132 $ 13,384 $ 8,167 $ 38,915
Machinery and Equipment 244,332 260,353 504,685 265,437 86,806 326,054
Furniture and Fixtures 21,059 20,732 41,791 17,990 10,485 34,286
Tooling 54,584 -0- 54,584 55,456 872 -0-
Leasehold Improvements 7,920 -0- 7,920 7,920 -0- -0-
Obligation Under Capital
Lease 39,557 29,561 69,118 40,145 22,443 51,416
Land -0- -0- -0- -0- -0- -0-
Land Improvements -0- -0- -0- -0- 1,023 1,023
Buildings -0- 134,301 134,301 -0- 31,664 165,965
-------------------------------------------------------------------------
Totals $403,364 $453,167 $856,531 $400,332 $161,460 $617,659
=========================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
================================================================================
Page 46 of 51
<PAGE> 47
KNUSAGA CORPORATION
D.B.A. HYDRAULIC TUBES AND FITTINGS
INDEBTEDNESS TO RELATED PARTIES
================================================================================
AUGUST 31, 1996
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
SEPT. 1, 1995 AUG. 31, 1996
NAME OF PERSON OR ENTITY ADDITIONS REDUCTIONS
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Semon E. Knudsen, Director Chairman of Board $ 53,700 $ -0- $ -0- $ 53,700
James G. Musser, Jr. Director, President 836 -0- -0- 836
Jerry D. Luptak, Director, Vice-President-Finance, General Counsel
132,717 -0- -0- 132,717
Harold Beznos, Director, Secretary-Treasurer 120,000 -0- -0- 120,000
Beznos Family Trust, Shareholder 50,000 -0- -0- 50,000
Poala Luptak Trust, Shareholder 50,000 -0- -0- 50,000
--------------------------------------------------
$407,253 $ -0- $ -0- $407,253
==================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
================================================================================
Page 47 of 51
<PAGE> 48
KNUSAGA CORPORATION
D.B.A. HYDRAULIC TUBES AND FITTINGS
INDEBTEDNESS TO RELATED PARTIES
================================================================================
AUGUST 31, 1995
<TABLE>
<CAPTION>
ADJUSTMENT IN
CONNECTION OF BALANCE SEPT. 1,
BALANCE AT POOLING OF 1994, AS RESTATED BALANCE AT
SEPT. 1, 1994 INTERESTS AUG. 31, 1995
NAME OF PERSON OR ENTITY ADDITIONS REDUCTIONS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Semon E. Knudsen, Director Chairman
of Board
$ 39,063 $ 18,700 $ 57,763 $ -0- $ 4,063 $ 53,700
James G. Musser, Jr. Director,
President 4,849 -0- 4,899 -0- 4,063 836
Jerry D. Luptak, Director, Vice-
President-Finance, General Counsel
99,062 37,717 136,779 -0- 4,062 132,717
Harold Beznos, Director, Secretary-
Treasurer 39,062 85,000 124,062 -0- 4,062 120,000
Beznos Family Trust, Shareholder
50,000 -0- 50,000 -0- -0- 50,000
Poala Luptak Trust, Shareholder
50,000 -0- 50,000 -0- -0- 50,000
-----------------------------------------------------------------------------------------
$ 282,086 $141,417 $423,503 $ -0- $ 16,250 $407,253
=========================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
================================================================================
Page 48 of 51
<PAGE> 49
KNUSAGA CORPORATION
D.B.A. HYDRAULIC TUBES AND FITTINGS
SUPPLEMENTARY INCOMES STATEMENT INFORMATION
===============================================================================
FOR THE YEAR ENDED AUGUST 31, 1995
Depreciation and Amortization $ 194,523
===========
Engineering Fees $ -0-
===========
Rent Expense $ -0-
===========
Royalties Expense $ -0-
===========
Taxes, Other Than Income and Payroll Taxes $ 40,452
===========
================================================================================
Page 49 of 51
<PAGE> 50
KNUSAGA CORPORATION
D.B.A. HYDRAULIC TUBES AND FITTINGS
SUPPLEMENTARY INCOME STATEMENT INFORMATION
===============================================================================
FOR THE YEAR ENDED AUGUST 31, 1995
Depreciation and Amortization $ 161,916
===========
Engineering Fees $ -0-
===========
Rent Expense $ 694
===========
Royalties Expense $ -0-
===========
Taxes, Other Than Income and Payroll Taxes $ 133,120
===========
================================================================================
Page 50 of 51
<PAGE> 51
KNUSAGA CORPORATION
D.B.A. HYDRAULIC TUBES AND FITTINGS
SUPPLEMENT INCOMES STATEMENT INFORMATION
================================================================================
FOR THE YEAR ENDED AUGUST 31, 1995
<TABLE>
<CAPTION>
Unaudited Unaudited Unaudited
-----------------------------------------------------------------------------
1992 (1) 1993 (1) 1994 (1) 1995 1996
<S> <C> <C> <C> <C> <C>
From Operations:
Net Sales $ 3,735,708 $ 5,336,261 $8,554,602 $ 9,566,217 $ 8,177,943
Other Income, Net (224) 55,181 22,957 17,703 5,538
Unusual or Nonrecurring Items -0- -0- -0- -0-
Cost of Sales 3,007,741 4,340,414 7,493,206 8,092,147 7,342,353
Selling, General & Administrative Expenses 456,006 570,864 779,875 843,211 671,457
Interest Expense 181,193 114,407 132,920 157,065 196,346
Income Taxes -0- -0- 110 77,646 (27,733)
Income (Loss) From Continuing Operations 90,544 365,752 174,448 413,851 1,058
Income (Loss) From Discontinued Operations 106,886 (218,516) 50,351 (17,234) -0-
Income (Loss) Before Extraordinary Items 197,430 147,241 221,799 396,617 1,058
Extraordinary Items -0- -0- -0- (22,649) -0-
Net Income (Loss) Applicable to Common Stock 197,430 147,241 221,799 373,968 1,058
Total Assets 3,100,224 3,613,381 3,974,750 3,996,094 3,957,502
Long-Term Obligations, Net of Current Portion 1,743,987 1,307,406 1,100,899 807,396 1,867,979
Per Share of Common Stock:
Income (Loss) Before Extraordinary Item .03 .02 .03 .05 .00
Extraordinary Item .00 .00 .00 .00 .00
------------------------------------------------------------------------------
Net Income (Loss) $ .03 $ .02 $ .03 $ .05 $ .00
==============================================================================
Dividends Per Share Declared on Common Stock
(2) -0- -0- -0- -0- -0-
Average Number of Common and Common
Equivalent Shares Used in Determining per
Share Amounts (3)
7,175,000 7,175,000 7,175,000 7,175,000 7,175,000
</TABLE>
(1) THE YEARS ENDED AUGUST 31, 1992, 1993 AND 1994 HAVE BEEN RESTATED TO SHOW
KNUSAGA CORPORATION AND HYDRAULIC TUBES AND FITTINGS, INC. ON A COMBINED BASIS.
THE TWO COMPANIES WERE MERGED ON SEPTEMBER 1, 1994. IN ADDITION, THESE YEARS
HAVE ALSO BEEN RESTATED TO REFLECT THE INCOME (LOSS) FROM DISCONTINUED
OPERATIONS WHICH WAS INCURRED DURING THE YEAR ENDED AUGUST 31, 1995.
(2) THE COMPANY HAS NOT PAID DIVIDENDS ON ITS OUTSTANDING COMMON STOCK NOR CLASS
A PREFERRED STOCK DURING THE PAST FIVE YEARS.
(3) INCOME (LOSS) PER SHARE HAS BEEN CALCULATED BASED ON WEIGHTED AVERAGE SHARES
OUTSTANDING. THE 4% PREFERRED STOCK IS A COMMON STOCK EQUIVALENT. SHARE AMOUNTS
FOR 1992, 1993 AND 1994 HAVE BEEN RESTATED AS IF THE COMPANIES WERE MERGED AS OF
SEPTEMBER 1, 1991.
Page 51 of 51
<PAGE> 52
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000225544
<NAME> KNUSAGA CORPORATION
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> SEP-01-1995
<PERIOD-END> AUG-31-1996
<CASH> 34,020
<SECURITIES> 0
<RECEIVABLES> 1,104,970
<ALLOWANCES> 0
<INVENTORY> 506,203
<CURRENT-ASSETS> 1,826,327
<PP&E> 2,894,223
<DEPRECIATION> 796,286
<TOTAL-ASSETS> 3,957,502
<CURRENT-LIABILITIES> 1,735,485
<BONDS> 1,867,979
0
0
<COMMON> 70,000
<OTHER-SE> 284,038
<TOTAL-LIABILITY-AND-EQUITY> 3,957,502
<SALES> 8,177,943
<TOTAL-REVENUES> 8,201,655
<CGS> 7,342,353
<TOTAL-COSTS> 1,507,047
<OTHER-EXPENSES> 190,808
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 196,346
<INCOME-PRETAX> (26,675)
<INCOME-TAX> (27,733)
<INCOME-CONTINUING> 1,058
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,058
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
