<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For fiscal year ended August 31, 1999 Commission File No. 0-7795
KNUSAGA CORPORATION
- --------------------------------------------------------------------------------
(Exact name of Registrant as Specified in its Charter)
<TABLE>
<CAPTION>
DELAWARE 62-1004034
<S> <C>
- ------------------------------------------ --------------------------------------
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification Number)
organization)
</TABLE>
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 of common stock outstanding as of August 31, 1999: 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. [ X ]
-----
Registrant's revenue for fiscal year ended August 31, 1999: $11,843,848.
Page 1 of 28
<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, 1999,
Registrant was engaged in the fabrication and sale of steel, aluminum and copper
tubes for use in the truck industry and power seat tracks for the automotive
aftermarket.
During said fiscal year, Registrant shipped various air intake, exhaust
and radiator tubes for medium and large over-the-road 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 shareholders' ownership of
Registrant's common stock increased to 94.51%.
In January of 1998, Registrant acquired a power seat track business
from ITT Electric Systems, Inc.. Equipment and tooling was moved from the ITT
facility in Rochester, NY to a facility leased by the Registrant in Imlay City,
MI during January of 1998 and production of the seat track began in February of
1998.
The principal customer for Registrant's air intake, exhaust and radiator
tubes is Freightliner Corporation (Freightliner), which accounted for 71% of
Registrant's sales for said products during its fiscal year ended August 31,
1999. Registrant's second biggest customer is Ford Motor Company ("Ford"), which
accounted for 15% of Registrant's sales for said products during said fiscal
year.
Alpha Tube, Michigan Extruded 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 Extruded 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, Freightliner, Nova Bus,
and Volvo and deals with each on a just-in-time inventory basis from a rolling
ten to fifteen working day firm shipping schedule.
The Registrant's customers issue purchase orders to the Registrant for
specific parts. As with Registrant's purchase orders to its vendors, customer
purchase orders 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.
Page 2 of 28
<PAGE> 3
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.
The principal customers for the Registrant's seat tracks are
recreational vehicle manufacturers. The Regstrant uses distributors to market
the product.
Research and development ("R&D") expenditures were made to Travel
Products. Originally the Registrant paid Travel Products a 3% royalty, but for
the past several years the Registrant has been paying Travel Products a monthly
fee for R&D work with adjustments for extra work. R&D expenditures for the last
three fiscal years were $60,000 in 1999, $185,000 in 1998, and $60,000 in 1997
The Registrant has 110 employees.
The Registrant does not do any promotional advertising. The Registrant
does not own any patents or trademarks which are material to its business.
The Company's computers and computer software have been updated to be Y2K
compliant.
Item 2.DESCRIPTION OF PROPERTY
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. The Registrant leases a facility in Imlay City, MI which it uses for
the production of seat tracks. It also leases a building in St. Thomas, Ontario
which it uses to sequence exhaust systems into Freightliner's Sterling truck
plant.
Registrant owns certain fabricating equipment, which is used for the
fabrication of steel, aluminum, and copper tubes and certain assembly equipment
and tooling which is used for the production of power seat tracks.
Item 3. LEGAL PROCEEDINGS
Registrant is not currently involved in any pending material litigation.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
Page 3 of 28
<PAGE> 4
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, 1999, 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, express convenants in loan agreements or other
obligations to third parties with regard to dividend payments, although payment
of dividends could not be made if after giving effect to such payment an event
of default would arise by virtue of such payment. The Registrant does not
anticipate the payment of any cash dividends in the foreseeable future.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
6 (a) Net sales for the fiscal year ended August 31, 1999, increased by
$2,952,169 or 33.2% from the year ended August 31, 1998, which sales had
decreased by $581,594 or 6.1% from the prior fiscal year. The change in sales
for fiscal year 1999 was a result of two factors.
In November of 1997 Ford discontinued production of Medium Trucks at its
Kentucky truck plant. Ford did not resume production of Medium Trucks in Mexico
until March of 1998. In December of 1997 Ford discontinued production of Heavy
Trucks at the plant and sold the Heavy Truck business to Freightliner
Corporation. Freightliner did not resume production of the Heavy Truck at their
St. Thomas, Ontario plant until March of 1998. The Registrant continues to
supply the same parts for the medium and heavy trucks after these changes,
however there was an interruption in production from November 1997 until March
of 1998. During the current fiscal year production returned to normal volume
resulting in $1,080,807 or 16.7% increased volume in fiscal year 1999 over the
fiscal year ending August 31, 1998. The former Ford Heavy Truck is now marketed
by Freightliner under the Sterling brand name.
The seat track line of business provided $2,410,865 of additional sales in
the February through August 1998 period. In the fiscal year end August 31, 1999,
sales of $4,201,377 in seat tracks representing a full year of production
resulted in increased sales of $1,790,512 or 74.3% over 1998.
Cost of goods sold in fiscal year 1999 decreased to 86.1% of sales as a
result of improved overhead absorption with the higer sales volume. This
compares to 89.5% in the fiscal year 1998 and 78.6% in the fiscal year 1997.
Selling, general, and administrative expenses in fiscal year 1999 increased by
$215,527 as a result of increased sales activity.
Page 4 of 28
<PAGE> 5
The events of fiscal 1999 reduced the Registrant's sales concentration
with Ford from 43% in fiscal 1998 to 10% in fiscal 1999. Freightliner sales
increased to 46% in fiscal 1999 versus 14% in fiscal 1998 which reflected only
6 months of shipments. Seat track sales were 36% of sales. Seat tracks are sold
to distributors who in turn sell to end users.
6(b) Liquidity and Capital Resources. The Registrant's working capital
position increased in fiscal year 1999 to $348,869 on August 31, 1999, from a
working capital position of $313,823 on August 31, 1998. The increase in working
capital during fiscal 1999 is largely the result of increased sales activity in
both the tubing and seat track sections of the business.
Two loans payable to Michigan National Bank mature in December 2000 and
October 2001, bear interest at 1% over the lender's prime rate and are secured
by all assets of the Registrant. At August 31, 1999, the outstanding aggregate
principal balance of both notes was $221,068 and the applicable interest rate
was 9.5%.
Six loans payable to Michigan National Bank mature in January 2000,
January 2002, April 2003, August 2003, December 2003 and April 2004, bear
interest at .5% over the lender's prime rate and are secured by all assets of
Registrant. At August 31, 1999, the outstanding aggregate principal balance was
$421,207 and the applicable interest rate was 9.5%.
Registrant has a line of credit with Michigan National Bank with interest
payable in monthly installments at .5% over said bank's prime rate. The note is
secured by all assets of the Registrant and the principle is due in January of
2000. At August 31, 1999, the outstanding balance was $1,043,761 and the
applicable interest rate was 9.5% The Registrant has no reason to believe the
bank will not extend the maturity of this line of credit at least until January
2001.
The Registrant does not have any material commitment for capital
expenditures in the current fiscal year.
Item 7.FINANCIAL STATEMENTS
The report of independent auditors and consolidated financial statements
included on pages 10 through 29 of the annual financial report for the
year ended August 31, 1999 and 1998 are incorporated herein by reference.
Item 8.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
No response required.
Page 5 of 28
<PAGE> 6
PART III.
Item 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT; COMPLIANCE WITH
SECTION 16(a) OF THE EXCHANGE ACT
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
James G. Musser, Jr. 64 Director/President
Jerry D. Luptak 77 Director/Vice President Finance and
General Counsel
Harold Beznos 61 Director/Secretary-Treasurer
J. Ted Beebe 69 Executive Vice President
</TABLE>
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
effective March 3, 1997.
The following outlines the past and present occupations and business
experience of the executive officers of the Registrant.
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 2% of his time per month to the business affairs of
the Registrant.
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 1% 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 100% of his time per month to the business
affairs of the Registrant.
Items 10
and 12. EXECUTIVE COMPENSATION AND CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS.
In the fiscal year ended August 31, 1999, Mr. Musser was paid $100,000in
salary and Mr. Beebe was paid $78,000 in salary. None of the other directors
or officers received any direct or indirect remuneration during the fiscal
year ended August 31, 1999, and none is anticipated in the fiscal year endin
August 31, 2000.
Messrs. Beznos, Knudsen (estate), Luptak, and Musser have collectively
made working capital loans to the Corporation. These loans are payable on
demand and are represented by a single note bearing an annual interest rate of
Page 6 of 28
<PAGE> 7
12%, with principal and interest originally payable June, 1990. The
outstanding principal balance on this note at August 31, 1999, was $165,836.
As a result of the merger of Hydraulic Tubes and Fittings, Inc., into
Registrant, the Registrant assumed the obligation for repayment of demand
loans payable to Messrs. Beznos, Knudsen (estate), and Luptak bearing an
annual interest rate of 12% and having an aggregate unpaid principal balance
at August 31, 1999, of $141,417. The information set forth under Note 10 in
the Financial Statements is incorporated by reference.
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, 1999, was $50,000 each. The beneficiaries of the Beznos Family Irrevocable
Trust are beneficial shareholders of the Registrant and are related to Harold
Beznos, an officer and director of the Registrant. The note originally issued
to the Paola M. Luptak Irrevocable Trust has been assigned and is presently
held by Mayfair Associates Limited Partnership.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
<TABLE>
<CAPTION>
11(a)
Title
Of Name and Address of Amount and Nature of
Class Beneficial Owner 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 1,449,137 shares 20.7%
Stock Lauren Beznos (2) trust beneficiary
31731 Northwestern Hwy.
Farmington Hills, MI 48334
Common Mayfair Associates Limited 1,463,109 shares 20.9%
Stock Partnership (3) Direct
c/o 31731 Northwestern Hwy.
Ste. 250W
Farmington Hills, MI 48334
Common K. Peter Knudsen (4) 562,402 shares 8.0%
Stock 837 Glen Dr. trust beneficiary
Harbor Springs, MI 49740
Common J. Ted Beebe 805,205 shares 11.5%
Stock 22515 Sunnydale Direct
St. Clair Shores, MI 48081
Common Harold Beznos (2) 1,449,137 shares 20.7%
Stock 31731 Northwestern Hwy. Indirect
Farmington Hills, MI 48334
</TABLE>
Page 7 of 28
<PAGE> 8
(1) Lorraine A. Musser is the wife of James G. Musser, Jr.
(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. Mr. Beznos does not own
any shares directly.
(3) These shares are owned by a Nevada Limited Partnership of which
Mayfair General Corporation, a Nevada Corporation, is the sole
general partner. As the sole director of said corporation,
Virginia Buell has the power to vote the stock.
(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.
11(b No shares of common stock of the Registrant are directly owned
by any officers and directors of the Registrant, except Mr. James
G. Musser, Jr. and Mr. J. Ted Beebe as listed in Item 11(a)
above.
As a group, the officers and directors directly and indirectly own 3,703,479
shares of Registrant's common stock, representing 52.9% of all outstanding
common stock.
Item 13 EXHIBITS AND REPORTS ON FORM 8-K
13a. Financial Statement Schedules
For Fiscal Years Ended August 31, 1999 and 1998
1) Accountant's opinion for years ended August 31, 1999 and 1998.
2) Balance Sheet for the years ended August 31, 1999 and 1998.
3) Statement of Income for years ended August 31, 1999 and 1998.
4) Statement of Stockholder's Equity for years ended August 31,
1999 and 1998.
5) Statement of Cash Flows for years ended August 31, 1999 and
1998.
6) Notes to Financial Statements for years ended 1999 and 1998.
13b. Reports on Form 8-K
None
13c. Exhibits
Article 5 Financial Data Schedule
Page 8 of 28
<PAGE> 9
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: December 27, 1999
----------------------------------
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: James G. Musser Date: December 27, 1999
------------------------------------- ------------------------
Director/President
(Principal Executive Officer and
Controller)
By: Jerry D. Luptak Date: December 27, 1999
------------------------------------- ------------------------
Director
Vice President, Finance and
General Counsel
(Principal Financial Officer)
By: Harold Beznos Date: December 27, 1999
------------------------------------- ------------------------
Director Secretary-Treasurer
By: J. Ted Beebe Date: December 27, 1999
------------------------------------- ------------------------
Executive Vice President
Page 9 of 28
<PAGE> 10
KNUSAGA CORPORATION AND SUBSIDIARY
D.B.A. HYDRAULIC TUBES AND FITTINGS
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
AUGUST 31, 1999 AND 1998
Page 10 of 28
<PAGE> 11
KNUSAGA CORPORATION AND SUBSIDIARY
D.B.A. HYDRAULIC TUBES AND FITTINGS
================================================================================
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report..................................12
Consolidated Balance Sheets................................13-14
Consolidated Statements of Income.............................15
Consolidated Statements of Stockholders' Equity...............16
Consolidated Statements of Cash Flows.........................17
Notes to Consolidated Financial Statements.................18-28
</TABLE>
Page 11 of 28
<PAGE> 12
FREEDMAN & GOLDBERG
CERTIFIED PUBLIC ACCOUNTANTS
A PROFESSIONAL CORPORATION
================================
TRI-ATRIA
32255 NORTHWESTERN HIGHWAY, SUITE 298
FARMINGTON HILLS, MICHIGAN 48334
(248) 626-2400
FAX: (248) 626-4298
ERIC W. FREEDMAN
MICHAEL GOLDBERG
DAVID C. GRIEP
JULIE A. CHEEK
WILLIAM A. MARSHALL
BROCK A. HULER
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 consolidated balance sheets of Knusaga
Corporation and Subsidiary, D.B.A. Hydraulic Tubes and Fittings as of August 31,
1999 and 1998 and the related consolidated statement of income, stockholder's
equity, and cash flows for the years ended August 31, 1999 and 1998. 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.
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.
In our opinion the financial statements referred to above present fairly, in all
material respects, the financial position of Knusaga Corporation and Subsidiary,
D.B.A. Hydraulic Tubes and Fittings as of August 31, 1999 and 1998 and the
results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
Respectfully,
- ----------------------------------
Freedman & Goldberg
Certified Public Accountants
Farmington Hills, Michigan
November 2, 1999
Represented worldwide as a member firm of the International Association of Local
Public Accountants
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Page 12 of 28
<PAGE> 13
KNUSAGA CORPORATION AND SUBSIDIARY
D.B.A. HYDRAULIC TUBES AND FITTINGS
CONSOLIDATED BALANCE SHEETS
================================================================================
AS OF AUGUST 31, 1999 AND 1998
ASSETS
<TABLE>
<CAPTION>
1999 1998
------------------------------------------
<S> <C> <C>
Current Assets
Cash $ 500,875 $ 364,881
Accounts Receivable - Trade, Net of Allowance for Doubtful Accounts of
$-0- 2,092,314 1,029,669
Note Receivable - Officer 124,143 94,143
Inventories 717,066 568,708
Prepaid Expenses 37,901 247,009
............................................................................................................................
Total Current Assets 3,472,299 2,304,410
............................................................................................................................
Property and Equipment, Net 2,575,859 2,412,733
............................................................................................................................
Other Assets
Deposits 18,523 9,696
Intangible Assets, Net 10,660 12,664
............................................................................................................................
Total Other Assets 29,183 22,360
............................................................................................................................
Total Assets $6,077,341 $4,739,503
============================================================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
================================================================================
Page 13 of 28
<PAGE> 14
KNUSAGA CORPORATION AND SUBSIDIARY
D.B.A. HYDRAULIC TUBES AND FITTINGS
CONSOLIDATED STATEMENTS OF INCOME
================================================================================
AS OF AUGUST 31, 1999 AND 1998
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1999 1998
------------------------------------------
<S> <C> <C>
Current Liabilities
Accounts Payable - Trade $ 1,377,517 $ 764,882
Current Maturities of Long-Term Debt 1,307,988 1,026,634
Accrued Expenses 437,925 199,071
............................................................................................................................
Total Current Liabilities 3,123,430 1,990,587
............................................................................................................................
Other Liabilities
Accrued Expenses - Non Current Interest and Salary to Officers 612,440 563,670
Long-Term Debt - Less Current Maturities 871,089 924,111
............................................................................................................................
Total Other Liabilities 1,483,529 1,487,781
............................................................................................................................
Deferred Taxes 11,800 -0-
............................................................................................................................
Total Liabilities 4,618,759 3,478,368
............................................................................................................................
Stockholders' Equity
Common Stock, $.01 Par Value, 7,000,000 Shares Authorized, 7,000,000,
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
Retained Earnings 175,000 175,000
366,365 366,365
847,217 649,770
............................................................................................................................
Total Stockholders' Equity 1,458,582 1,261,135
............................................................................................................................
Total Liabilities and Stockholders' Equity $ 6,077,341 $ 4,739,503
============================================================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
================================================================================
Page 14 of 28
<PAGE> 15
KNUSAGA CORPORATION AND SUBSIDIARY
D.B.A. HYDRAULIC TUBES AND FITTINGS
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
================================================================================
FOR THE YEARS ENDED AUGUST 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---------------------------------------------
<S> <C> <C>
Sales, Net $11,843,848 $ 8,891,679
Cost of Sales 10,195,235 7,960,423
............................................................................................................................
Gross Profit 1,648,613 931,256
Selling, General and Administrative Expenses 1,134,024 918,497
............................................................................................................................
Operating Income 514,589 12,759
............................................................................................................................
Other Income (Expense)
Interest Income 51 -0-
Interest Expense (185,015) (153,616)
Miscellaneous Income 6,632 2,265
Loss on Sale of Asset (1,769) (8,390)
Forgiveness of Debt -0- 90,000
............................................................................................................................
Total Other Income (Expense) (180,101) (69,741)
............................................................................................................................
Income Before Income Taxes 334,488 (56,982)
Income Taxes (Refundable) 137,041 (38,508)
............................................................................................................................
Net Income $ 197,447 $ (18,474)
============================================================================================================================
Net Income Per Share $ .03 $ (.00)
============================================================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
================================================================================
Page 15 of 28
<PAGE> 16
KNUSAGA CORPORATION AND SUBSIDIARY
D.B.A. HYDRAULIC TUBES AND FITTINGS
CONSOLIDATED STATEMENTS OF CASH FLOWS
================================================================================
FOR THE YEARS ENDED AUGUST 31, 1999 AND 1998
<TABLE>
<CAPTION>
Retained
Earnings
Common Preferred Additional (Accumulated
Stock Stock Paid-In Capital Deficit)
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, September 1, 1997 $70,000 $ 175,000 $ 366,365 $ 668,244
Net Income (Loss) For the Year Ended August 31, 1998
-0- -0- -0- ( 18,474)
.............................................................................................................................
Balance, August 31, 1998 70,000 175,000 366,365 649,770
Net Income (Loss) for the Year Ended August 31, 1999
-0- -0- -0- 197,447
.............................................................................................................................
Balance, August 31, 1999 $70,000 $ 175,000 $ 366,365 $ 847,217
=============================================================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
================================================================================
Page 16 of 28
<PAGE> 17
KNUSAGA CORPORATION AND SUBSIDIARY
D.B.A. HYDRAULIC TUBES AND FITTINGS
CONSOLIDATED STATEMENTS OF CASH FLOWS
================================================================================
FOR THE YEARS ENDED AUGUST 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows From Operations
Net Income (Loss) $ 197,447 $ (18,474)
Adjustments to Reconcile Net Income to Net Cash
Provided By Operating Activities
Depreciation and Amortization 321,077 263,511
(Gain) Loss on Sale of Asset 1,769 8,390
Forgiveness of Debt -0- (90,000)
(Increase) Decrease In:
Accounts Receivable (1,062,645) 395,875
Inventories (148,358) 4,744
Prepaid Expenses 209,108 (61,542)
Deposits (8,827) (7,050)
Increase (Decrease) In:
Accounts Payable 612,635 71,212
Accrued Expenses 287,624 (178,430)
Deferred Taxes 11,800 -0-
............................................................................................................................
Net Cash Provided By Operating Activities 421,630 388,236
............................................................................................................................
Cash Flows From Investing Activities
Equipment Purchases (409,277) (301,519)
Purchase of Seat Track Business -0- (314,000)
Proceeds From Sale of Assets 16,800 9,500
Payments For Notes Receivable (30,000) -0-
............................................................................................................................
Net Cash Used By Investing Activities (422,477) (606,019)
............................................................................................................................
Cash Flows From Financing Activities
Proceeds From Debt 420,223 1,893,328
Principal Payments on Debt (283,382) (1,586,958)
............................................................................................................................
Net Cash Provided By (Used in) Financing
Activities 136,841 306,370
............................................................................................................................
Increase (Decrease) in Cash 135,994 88,587
Balance, September 1 364,881 276,294
............................................................................................................................
Balance, August 31 $ 500,875 $ 364,881
=============================================================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
================================================================================
Page 17 of 28
<PAGE> 18
KNUSAGA CORPORATION AND SUBSIDIARY
D.B.A. HYDRAULIC TUBES AND FITTINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
FOR THE YEARS ENDED AUGUST 31, 1999 AND 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Knusaga Corporation and
Subsidiary, 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 - Knusaga Corporation's operations relate mainly
to the fabrication of tubing for the auto industry. In January, 1998 the
Company began manufacturing seat tracks for the auto industry.
B. Basis of Consolidation - The consolidated financial statements include
the accounts of HTF, Ltd., a wholly owned subsidiary. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
C. Concentration of Credit Risk - Substantially all of the accounts
receivable are from three 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.
D. Revenues - The Company recognizes revenue from automotive tubes and
seat tracks upon shipment.
E. 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.
F. 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 three to forty years. Depreciation
charged to operations was $319,073 and $262,175 for the years ended August
31, 1999 and 1998, 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.
G. 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, 1999 and 1998 consisted of the following
<TABLE>
<CAPTION>
1999 1998
------------------------------------------
<S> <C> <C>
Raw Material $ 299,517 $ 371,763
Work in Process 273,876 123,804
Finished Goods 143,673 73,141
..........................................
$ 717,066 $ 568,708
==========================================
</TABLE>
Page 18 of 28
<PAGE> 19
KNUSAGA CORPORATION AND SUBSIDIARY
D.B.A. HYDRAULIC TUBES AND FITTINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
FOR THE YEARS ENDED AUGUST 31, 1999 AND 1998
NOTE 1. CONTINUED
H. Impairment of Long-Lived Assets - In March 1995, the Financial
Accounting Standards Board issued Statements of Financial Accounting
Standards ("SFAS") No. 121, "Accounting For the Impairment of
Long-Lived Assets and For Long-Lived Assets To Be Disposed Of". SFAS
No. 121 establishes accounting standards for the impairment of
long-lived assets, certain identifiable intangibles, and goodwill
related to those assets to be held and used, and for long-lived assets
and certain identifiable intangibles to be disposed of.
In accordance with SFAS No. 121, the Company reviews its long-lived
assets, including property and equipment, goodwill and other
identifiable intangibles for impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets may not
be fully recoverable. To determine recoverability of its long-lived
assets, the Company evaluates the probability that future undiscounted
net cash flows, without interest charges, will be less than the
carrying amount of the assets. Impairment is measured at fair value.
The adoption of SFAS No. 121 had no effect on the Company's
consolidated financial statements.
G. Major Suppliers - At August 31, 1999 and 1998 45% and 26%,
respectively of the accounts payable - trade was to five major
suppliers of aluminum and steel tubing. The Company believes there is
no potential credit risk pertaining to the major suppliers.
At August 31, 1999 and 1998, 53% and 36%, respectively of the accounts
payable - trade was to two major suppliers of seat track components.
J. 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.
K. 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.
L. Intangible Assets - Finders fee associated with the acquisition of the
seat track business amortized over seven years on a straight-line basis. At
August 31, 1999 and 1998, accumulated amortization is $3,340 and $1,336,
respectively.
Page 19 of 28
<PAGE> 20
KNUSAGA CORPORATION AND SUBSIDIARY
D.B.A. HYDRAULIC TUBES AND FITTINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
FOR THE YEARS ENDED AUGUST 31, 1999 AND 1998
NOTE 2. PREPAID EXPENSES
The following is a detail of the prepaid expenses as of August 31, 1999 and
1998:
<TABLE>
<CAPTION>
1999 1998
---------------------------------------------
<S> <C> <C>
Prepaid Insurance $ 35,587 $ 39,173
Prepaid Taxes 2,314 207,836
.............................................
Total Prepaid Expenses $ 37,901 $ 247,009
=============================================
</TABLE>
NOTE 3. PROPERTY AND EQUIPMENT
The major components of property and equipment are as follows:
<TABLE>
<CAPTION>
1999 1998
---------------------------------------
<S> <C> <C>
Land $ 24,847 $ 24,847
Land Improvements 17,195 10,230
Buildings and Improvements 1,459,433 1,436,165
Machinery and Equipment 1,958,149 1,673,055
Furniture and Fixtures 155,970 131,198
Transportation Equipment 214,011 130,446
Obligations Under Capital Leases 146,653 207,115
Equipment Under Construction 114,459 63,455
.......................................
4,090,717 3,676,511
Less: Accumulated Depreciation 1,514,858 1,263,778
.......................................
Net Property and Equipment $ 2,575,859 $2,412,733
=======================================
</TABLE>
NOTE 4. ACCRUED EXPENSES
The following is a detail of the current accrued expenses as of August 31,
1999 and 1998.
<TABLE>
<CAPTION>
1999 1998
---------------------------------------
<S> <C> <C>
Accrued Insurance $ 29,345 $ 10,762
Accrued Interest - Other 11,829 11,289
Accrued Payroll 177,457 98,927
Accrued and Withheld Payroll Taxes 26,632 10,553
Accrued Pension 22,396 28,802
Accrued Professional Fees 28,881 28,200
Accrued Taxes 141,385 10,538
.......................................
Total Current Accrued Expenses $ 437,925 $199,071
=======================================
</TABLE>
Page 20 of 28
<PAGE> 21
KNUSAGA CORPORATION AND SUBSIDIARY
D.B.A. HYDRAULIC TUBES AND FITTINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
FOR THE YEARS ENDED AUGUST 31, 1999 AND 1998
NOTE 4. CONTINUED
The following is a detail of the non-current accrued expenses as of August 31,
1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---------------------------------------
<S> <C> <C>
Accrued Interest - Shareholders $ 469,157 $420,387
Accrued Payroll - Officers 143,283 143,283
.......................................
Total Non-Current Accrued Expenses $ 612,440 $563,670
=======================================
</TABLE>
Per the loan covenants with the bank, the Company cannot pay the accrued
payroll - officers shown as non-current without the bank's permission.
Management does not anticipate paying the above expenses within one year.
NOTE 5. NOTES RECEIVABLE
<TABLE>
<CAPTION>
1999 1998
---------------------------------------
<S> <C> <C>
Non-interest bearing note receivable from an officer/stockholder. The note is
unsecured and due on demand.
$ 124,143 $ 94,143
=======================================
</TABLE>
NOTE 6. NOTES PAYABLE AND OBLIGATIONS UNDER CAPITAL LEASES
Notes payable and obligations under capital leases consist of the following:
<TABLE>
<CAPTION>
1999 1998
---------------------------------------
<S> <C> <C>
A. Notes payable - directors, officers, and shareholders, bearing interest
at 12% per annum. The notes are payable on demand and are unsecured. Loans
totaling $265,000 have been subordinated to the bank.
$ 407,253 $407,253
B. Loan Payable - Bank, payable in monthly installments of $8,646 plus
interest at 1% over the lender's prime rate, through October, 1999. The note
is secured by all the assets of the Company.
-0- 25,930
C. 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, 1999
was 9.25%.
167,734 242,302
D. 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, 1999 was
9.25%.
53,334 93,334
</TABLE>
Page 21 of 28
<PAGE> 22
KNUSAGA CORPORATION AND SUBSIDIARY
D.B.A. HYDRAULIC TUBES AND FITTINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
FOR THE YEARS ENDED AUGUST 31, 1999 AND 1998
NOTE 6. CONTINUED
<TABLE>
<S> <C> <C>
E. $1,500,000 Line of Credit - Bank, interest payable in monthly
installments at .5% over lender's prime rate. Principal is due January 1,
2000. Note is secured by all assets of the Company. The interest rate at
August 31, 1999 was 8.75%.
1,043,761 773,762
F. Loan Payable - Bank, payable in monthly installments of $6,383 plus
interest at .5% over lender's prime rate, through January, 2002. The note is
secured by all the assets of the Company. The interest rate at August 31, 1999
was 8.75%.
185,086 261,683
G. Loan Payable - Bank, payable in monthly installments of $2,249 plus
interest at .5% over the lender's prime rate through April, 2003. The note is
secured by all the assets of the Company. The interest rate at August 31, 1999
was 8.75%.
98,963 125,954
H. Loan Payable - Bank, payable in monthly installments of $244 plus
interest at .5% over lender's prime rate through August, 2003. The loan is
secured all assets of Company. The interest rate at August 31, 1999 was 8.75%.
11,734 14,667
I. Obligation Under Capital Lease - machinery, payable in monthly
installments of $573, through November 1999, including interest at 17.3%.
Secured by the machinery.
-0- 1,125
J. Obligation Under Capital Lease - improvements, payable in monthly
installments of $628, through November 1999, including interest at 8.17%.
Secured by the improvements.
-0- 1,860
K. Loan Payable - Bank, payable in monthly installments of $731, through
December 1999, including interest at 8.49%. Secured by an automobile.
-0- 2,875
L. Loan Payable - Bank, payable in monthly installments of $1,438,
including interest at .5% over lender's prime rate, through December, 2003.
The note is secured by all the assets of the Company. The interest rate at
August 31, 1999 was 8.75%.
62,050 -0-
</TABLE>
Page 22 of 28
<PAGE> 23
KNUSAGA CORPORATION AND SUBSIDIARY
D.B.A. HYDRAULIC TUBES AND FITTINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
FOR THE YEARS ENDED AUGUST 31, 1999 AND 1998
NOTE 6. CONTINUED
<TABLE>
<S> <C> <C>
M. Loan Payable - Bank, payable in monthly installments of $1,355
including interest at .5% over the lender's prime rate through April, 2004.
The note is secured by all the assets of the Company. The interest rate at
August 31, 1999 was 8.75%.
63,374 -0-
N. Loan Payable - Chrysler Financial Company, payable in monthly
installments of $863 including interest at 7.75% through May, 2002. The loan
is secured by transportation equipment.
24,881 -0-
O. Obligation Under Capital Lease - machinery, payable in monthly
installments of $1,282 through May, 2004 including interest at 7.88%. Secured
by the machinery.
60,907 -0-
---------------------------------------
Total 2,179,077 1,950,745
Amounts due within one year 1,307,988 1,026,634
.......................................
$ 871,089 $ 924,111
=======================================
</TABLE>
The debt and lease maturities for the next five years are as follows:
<TABLE>
<S> <C>
August 31, 2000 $ 1,307,988
August 31, 2001 241,306
August 31, 2002 128,065
August 31, 2003 65,340
August 31, 2004 436,378
.....................
$ 2,179,077
=====================
</TABLE>
Interest expense for the years ended August 31, 1999 and 1998 totaled $185,015
and $153,616, respectively.
Interest expense on obligations under capital leases for the years ended
August 31, 1999 and 1998 was $922 and $1,081, respectively. Depreciation
expense of equipment held under capital leases for the years ended August 31,
1999 and 1998 was $21,999 and $26,723, respectively.
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 1.00 to 1.00
Page 23 of 28
<PAGE> 24
KNUSAGA CORPORATION AND SUBSIDIARY
D.B.A. HYDRAULIC TUBES AND FITTINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
FOR THE YEARS ENDED AUGUST 31, 1999 AND 1998
NOTE 7. CONTINUED
2. Maintain a net worth plus subordinated debt of not less than $1,200,000.
3. Maintain a ratio of total liabilities to net worth plus subordinated debt
of not more than 3.5 to 1.
4. Maintain a debt service coverage ratio of not less than 1.25 to 1.
As of August 31, 1999, the Company was in compliance with its loan covenants.
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>
1999 1998
------------------------------------------
Current:
<S> <C> <C>
Current Due (Refundable) $ 125,241 $ (38,508)
Deferred 11,800 -0-
..........................................
Net Tax Expense (Recovery) $ 137,041 $ (38,508)
==========================================
</TABLE>
Deferred taxes are detailed as follows:
<TABLE>
<CAPTION>
1999 1998
------------------------------------------
<S> <C> <C>
Deferred Income Tax Liability - Depreciation $ 81,218 $ 59,655
............................................................................................................................
Deferred Income Tax Assets
Accrued Expenses 69,418 65,221
Valuation Allowance -0- (5,565)
............................................................................................................................
Net Deferred Income Tax Asset 69,418 59,655
............................................................................................................................
Net Deferred Income Taxes $ 11,800 $ -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.
NOTE 10. RELATED PARTY TRANSACTION
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, 1999 and 1998 totaled
$407,253. Interest accrued on these notes at August 31, 1999 and 1998
totaled $469,157 and $420,387, respectively. Interest expense accrued for
the years ended August 31, 1999 and 1998 was $48,770 for each year.
Page 24 of 28
<PAGE> 25
KNUSAGA CORPORATION AND SUBSIDIARY
D.B.A. HYDRAULIC TUBES AND FITTINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
FOR THE YEARS ENDED AUGUST 31, 1999 AND 1998
NOTE 11. CASH FLOW DISCLOSURES
Interest and income taxes paid for the years ended August 31, 1999 and 1998
were as follows:
<TABLE>
<CAPTION>
1999 1998
------------------------------------------
<S> <C> <C>
Interest $ 135,705 $ 99,658
==========================================
Income Taxes $ -0- $ 21,000
==========================================
</TABLE>
Income tax refunds received during the years ended August 31, 1999 and 1998
was $199,497 and $-0-, respectively.
Interest received during the years ended August 31, 1999 and 1998 was $51
and $-0-, respectively.
During the year ended August 31, 1999, the Company acquired equipment
through non-cash financing transactions of $91,491.
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, 1999 and 1998 was $22,396 and $28,802,
respectively. Pension contributions due to the plan at August 31, 1999 and
1998 were $32,654 and $30,000, respectively. As of August 31, 1999 the defined
benefit pension plan is funded in accordance with ERISA.
The following table sets forth the plan's funded and amounts recognized in the
Company's statement of financial position at August 31, 1999 and 1998.
<TABLE>
<CAPTION>
1999 1998
--------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligations: $ 178,348 $ 181,450
............................................................................................................................
Projected benefit obligation for service rendered to date.
178,348 181,450
Plan assets at fair value 229,318 172,968
...................................................................................................... .....................
Projected benefit obligation in excess of plan assets.
(50,970) 8,482
Unrecognized net gain from past experience different from that assumed and
effect of changes in assumptions.
127,074 76,365
</TABLE>
Page 25 of 28
<PAGE> 26
KNUSAGA CORPORATION AND SUBSIDIARY
D.B.A. HYDRAULIC TUBES AND FITTINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
FOR THE YEARS ENDED AUGUST 31, 1999 AND 1998
NOTE 12. CONTINUED
<TABLE>
<S> <C> <C>
Prior service cost not yet recognized in net periodic pension cost
$ (21,669) $(22,612)
Unrecognized net obligation at date of initial application of FAS-87
(32,039) (33,433)
............................................................................................................................
(Prepaid) accrued cost $ 22,396 $ 28,802
============================================================================================================================
Net pension cost for 1999 and 1998 includes the following components:
Service cost - benefits earned during the period $ 27,989 $ 31,725
Interest cost on projected benefit obligation 11,020 9,173
Actual return on plan assets (51,038) (597)
Amortization of Actuarial Gains and Net Transition Asset
38,277 (11,499)
............................................................................................................................
Net periodic pension costs $ 26,248 $ 28,802
============================================================================================================================
</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.
NOTE 14. FOREIGN SUBSIDIARY
In March 1999, the Company established HTF, Ltd., a new subsidiary, located
in St. Thomas, Ontario, Canada. HTF, Ltd. services its major customer by
arranging various automotive tubing parts in a specific order as requested by
its customers. The parts used are manufactured and sold by Knusaga
Corporation, its parent corporation.
NOTE 15. PURCHASE OF SEAT TRACK BUSINESS
In January, 1998, the Company purchased the assets of ITT Automotive Electric
Systems, Inc.'s seat track business. The total cost of the assets acquired
was $300,000. In addition, the Company paid a third party $14,000 as a fee
for organizing the transaction. The purchase price has been allocated to the
assets purchased on estimated fair market value of assets acquired as
follows:
<TABLE>
<S> <C>
Equipment $ 100,000
Tooling 200,000
Intangible Assets 14,000
.....................
$ 314,000
=====================
</TABLE>
Page 26 of 28
<PAGE> 27
KNUSAGA CORPORATION AND SUBSIDIARY
D.B.A. HYDRAULIC TUBES AND FITTINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
FOR THE YEARS ENDED AUGUST 31, 1999 AND 1998
NOTE 16. LEASE OBLIGATION
The Company leases a facility in Imlay, Michigan for its seat track
operations. The lease requires minimum monthly payments of $3,721 in
addition to property taxes, insurance and maintenance. The lease expires
January, 2003.
The Company's subsidiary leases a facility in St. Thomas, Ontario for its
sequencing operations. The lease requires monthly payments of $7,746
through March 2000.
The Company's subsidiary has lease agreements to rent forklifts. The leases
call for monthly payments of $343 through June 2004.
Total rents paid during the years ended August 31, 1999 and 1998 were
$88,423 and $25,458, respectively.
Future minimum lease obligations under all operating leases are as follows:
<TABLE>
<S> <C>
August 31, 2000 $ 102,986
August 31, 2001 48,764
August 31, 2002 48,764
August 31, 2003 22,726
August 31, 2004 3,435
.....................
$ 226,675
=====================
</TABLE>
NOTE 17. SEGMENTAL DATA
The Company's operations are classified into two principal reportable
segments that provide different products or services. Separate management
of each segment is required because each business unit is subject to
different marketing, production and technology strategies. Below is
summarized segmental data for the years ended August 31, 1999 and 1998.
<TABLE>
<CAPTION>
TUBING SEAT TRACK TOTAL
1999 1998 1999 1998 1999 1998
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
External Revenue $ 7,642,471 $ 6,480,814 $ 4,201,377 $ 2,410,865 $11,843,848 $ 8,891,679
Intersegment Revenue -0- -0- -0- -0- -0- -0-
Interest Revenue -0- -0- -0- -0- -0- -0-
Interest Expense 162,678 131,216 22,337 22,400 185,015 153,616
Depreciation and Amortization 269,975 238,869 51,102 24,642 321,077 263,511
Profit (Loss) (378,802) (260,610) 713,290 203,628 334,488 (56,982)
Total Assets 4,764,870 3,926,718 1,312,471 812,785 6,077,341 4,739,503
Expenditures of Long-Lived Assets $ 473,665 $ 272,110 $ 27,103 $ 343,409 $ 500,768 $ 615,519
</TABLE>
Page 27 of 28
<PAGE> 28
KNUSAGA CORPORATION AND SUBSIDIARY
D.B.A. HYDRAULIC TUBES AND FITTINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
FOR THE YEARS ENDED AUGUST 31, 1999 AND 1998
NOTE 17. CONTINUED
The tubing segment derives its revenues from the sale of automotive tubing
in the production process of the automobile industry. The seat track
segment derives its revenues from the sale of adjustable seat tracks to
recreation vehicle manufacturers and van converters.
The Company maintains separate records for each segment. The accounting
policies applied by each of the segments are the same as those used by the
Company in general.
Net sales to one customer of its tubing segment totaled $1,241,679 and
$4,112,714 of the Company's net sales for the years ended August 31, 1999
and 1998, respectively. Net sales to another customer of its tubing segment
totaled $5,493,129 and $1,248,991 of the Company's net sales for the years
ended August 31, 1999 and 1998, respectively. Net sales to one customer of
its seat track segment totaled $4,183,967 and $2,360,400 of the Company's
net sales for the years ended August 31, 1999 and 1998, respectively.
NOTE 18. FORGIVENESS OF DEBT
On August 31, 1998, the Company was forgiven its debt owed to Travel Products in
the amount of $90,000. This amount was for engineering services provided to the
company during the year ended August 31, 1994. This amount was previously shown
as accrued engineering expenses prior to the year ended August 31, 1998.
Page 28 of 28
<PAGE> 29
Exhibit Index
-------------
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-END> AUG-31-1999
<CASH> 500,875
<SECURITIES> 0
<RECEIVABLES> 2,216,457
<ALLOWANCES> 0
<INVENTORY> 717,066
<CURRENT-ASSETS> 3,472,299
<PP&E> 4,090,717
<DEPRECIATION> 1,514,858
<TOTAL-ASSETS> 6,077,341
<CURRENT-LIABILITIES> 3,123,430
<BONDS> 871,089
176,000
0
<COMMON> 70,000
<OTHER-SE> 1,213,582
<TOTAL-LIABILITY-AND-EQUITY> 6,077,341
<SALES> 11,843,848
<TOTAL-REVENUES> 0
<CGS> 10,195,235
<TOTAL-COSTS> 11,329,259
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 185,015
<INCOME-PRETAX> 334,488
<INCOME-TAX> 137,041
<INCOME-CONTINUING> 197,447
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 197,447
<EPS-BASIC> .03
<EPS-DILUTED> .03
</TABLE>
