<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, 2000 Commission File No. 0-7795
KNUSAGA CORPORATION
--------------------------------------------------------------------------------
(Exact name of Registrant as Specified in its Charter)
DELAWARE 62-1004034
---------------------------------- ----------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
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, 2000: 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. [ ]
Registrant's revenue for fiscal year ended August 31, 2000: $13,304,620.
Registrant timely filed a Form 12B-25.
<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, 2000,
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.
In October 2000, the Registrant entered into a joint venture (Modular
Tubes Systems S.A. de C.V.) with an unrelated entity in Mexico City, Mexico. The
joint venture will manufacture automotive tubing initially for Ford but will
pursue business with other manufacturers in Mexico. The Registrant and its
partner will make equal contributions to equity as required and will each own
50% of the joint venture.
The principal customer for Registrant's air intake, exhaust and
radiator tubes is Freightliner Corporation (Freightliner), which accounted for
77% of Registrant's sales for said products during its fiscal year ended August
31, 2000. Registrant's second biggest customer is Ford Motor Company ("Ford"),
which accounted for 10% of Registrant's sales for said products during said
fiscal year.
Alpha Tube and United Industries are Registrant's largest suppliers.
Registrant issues periodic purchase orders to its suppliers for specific
quantities on an as needed basis, which are generally for four weeks of
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 Freightliner, Ford, Volvo and
Nova Bus 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.
There are several competitors in the truck metal tube fabricating
business, with Northern Tube being Registrant's major competitor for Ford's
medium truck business and Tube Specialties being Registrant's competitor for
Freightliner's large over-the-road truck tube business. Truck suppliers compete
on the basis of price, quality, technology and on-time delivery.
<PAGE> 3
The principal customers for the Registrant's seat tracks are
recreational vehicle manufacturers. The Regstrant uses distributors to market
the product.
In addition to internal Research and Development, Research and
Development ("R&D") expenditures were also 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 two fiscal years,
including fees to Travel Products, were $101,388 in 2000 and $60,000 in 1999.
The Registrant has 115 employees.
The Registrant does not do any promotional advertising. The Registrant
does not own any patents or trademarks which are material to its business.
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> 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, 2000, 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, 2000, increased by
$1,460,772 or 12.3% from the year ended August 31, 1999, which sales had
increased by $2,952,169 or 33.2% from the prior fiscal year. The change in sales
for fiscal year 2000 was a result of the following events.
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 (under
the brand name of Sterling) at their St. Thomas, Ontario plant until March of
1998. These events depressed sales in fiscal 1998 which lead to the 33.2% sales
increase in fiscal 1999 as production returned to more normal levels. The 12.3%
increase of sales in fiscal 2000 are due to production increases by Freightliner
and increased business from Volvo.
The seat track line of business provided $3,926,990 of sales in Fiscal
2000 down $274,387 or 6.5% from fiscal 1999 sales of $4,201,377 as a result of a
decline in the van conversion market, but the class A motorhome market remained
strong.
Cost of goods sold, as a percentage of sales, remained virtually
unchanged for fiscal 2000 (86.2%) verses fiscal 1999 (86.1%). In spite of
numerous cost increases for labor, fringe benefits and other services these were
off set by improvements in efficiency of operations and purchasing of materials.
Selling, general, and administrative expenses in fiscal year 2000 increased by
$159,604 as a result of increased sales activity.
The events of fiscal 2000 increased the Registrant's sales concentration
with Freightliner from 46% in fiscal 1999 to 77% in fiscal 2000. Ford remained
unchanged at 10% in both fiscal 2000 and 1999. The new business from Volvo made
up 6% of sales. Seat track sales dropped from 36% of sales in fiscal 1999 to 30%
of sales in fiscal 2000. Seat tracks are sold to distributors who in turn sell
to end users.
<PAGE> 5
6(b) Liquidity and Capital Resources. The Registrant's working capital
position increased in fiscal year 2000 to $501,724 on August 31, 2000, from a
working capital position of $348,869 on August 31, 1999. The increase in working
capital during fiscal 2000 is largely the result of increased sales activity in
the tubing 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, 2000, the outstanding principal
balance of both notes were $13,334 and $93,166 respectively for an aggregate of
$106,500 and the applicable interest rate was 10.5%.
Seven loans payable to Michigan National Bank mature in January 2002,
April 2003, August 2003, December 2003, April 2004, October 2004, and February
2005, bear interest at .5% over the lender's prime rate and are secured by all
assets of Registrant. At August 31, 2000, the outstanding aggregate principal
balance of these seven loans was $378,113 and the applicable interest rate was
10.0%.
Registrant has a line of credit with Michigan National Bank with
interest payable in monthly installments at said bank's prime rate. The note is
secured by all assets of the Registrant and the principle is due in January of
2001. At August 31, 2000, the outstanding balance was $1,217,762 and the
applicable interest rate was 9.5%. Based on discussions with the bank the
Registrant believes the bank will extend the maturity of this line of credit
until January 2002.
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, 2000 and 1999 are incorporated herein by reference.
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
No response required.
<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. 65 Director/President
Jerry D. Luptak 78 Director/Vice President Finance and
General Counsel
Harold Beznos 62 Director/Secretary-Treasurer
J. Ted Beebe 70 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, 2000, Mr. Musser was paid $100,000
in 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, 2000, and none is anticipated in the fiscal year ending August
31, 2001.
Messrs. Beznos, Luptak, Musser, and the Knudsen Trust 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 12%,
with principal and interest originally payable June, 1990. The outstanding
principal balance on this note at August 31, 2000, 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, Luptak, and the Knudsen Trust bearing an annual interest rate of
12% and having an aggregate unpaid principal balance at August 31, 2000, of
$141,417. The information set forth under Note 10 in the Financial Statements is
incorporated by reference.
<PAGE> 7
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,
2000, 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. An aggregate of $50,770 of interest was
accrued during fiscal 2000 with respect to all of these loans, none of which was
paid.
On November 13, 2000, the Registrant's board of directors approved a
resolution to authorize additional shares of stock and issue stock to these
Directors, Officers, Shareholders and their affiliates in exchange for the
payment of all amounts due under the existing obligations. The Directors,
Officers, Shareholders and their affiliates have verbally agreed to the
transaction, but no documents have been executed by the Directors, Officers,
Shareholders and their affiliates. As of the December 14, 2000, the date of
this report, the number of shares to be issued has not yet been determined.
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
Birmingham, MI 48010
Common Lorraine A. Musser (1) 722,617 shares 10.3%
Stock 7475 Pinehurst Circle
Birmingham, MI 48010
Common Frieda Applebaum, as trustee of the 1,449,137 shares 20.7%
Stock Beznos Family Irrevocable Trust U/A/D
February 2, 1976(2)
31731 Northwestern Hwy.
Farmington Hills, MI 48334
Common Mayfair Associates Limited 1,463,109 shares 20.9%
Stock Partnership (3)
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.
Harbor Springs, MI 49740
Common J. Ted Beebe 805,205 shares 11.5%
Stock 22515 Sunnydale
St. Clair Shores, MI 48081
</TABLE>
(1) Lorraine A. Musser is the wife of James G. Musser, Jr.
<PAGE> 8
(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) 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 beneficially 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 beneficially own 2,254,342 shares of
Registrant's common stock, representing 32.2% of all outstanding common stock.
Item 13 EXHIBITS AND REPORTS ON FORM 8-K
13a. Financial Statement Schedules
For Fiscal Years Ended August 31, 2000 and 1999
1) Accountant's opinion for years ended August 31, 2000 and 1999.
2) Balance Sheet for the years ended August 31, 2000 and 1999.
3) Statement of Income for years ended August 31, 2000 and 1999.
4) Statement of Stockholder's Equity for years ended August 31,
2000 and 1999.
5) Statement of Cash Flows for years ended August 31, 2000 and
1999.
6) Notes to Financial Statements for years ended 2000 and 1999.
13b. Reports on Form 8-K
None
13c. Exhibits
None
<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 14, 2000
--------------------------
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 14, 2000
------------------------------------------ -----------------
Director/President
(Principal Executive Officer and
Controller)
By: Jerry D. Luptak Date: December 14, 2000
------------------------------------------ -----------------
Director
Vice President, Finance and
General Counsel
(Principal Financial Officer)
By: Harold Beznos Date: December 14, 2000
------------------------------------------ -----------------
Director Secretary-Treasurer
By: J. Ted Beebe Date: December 14, 2000
------------------------------------------ -----------------
Executive Vice President
<PAGE> 10
KNUSAGA CORPORATION AND SUBSIDIARY
D.B.A. HYDRAULIC TUBES AND FITTINGS
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
AUGUST 31, 2000 AND 1999
<PAGE> 11
KNUSAGA CORPORATION AND SUBSIDIARY
D.B.A. HYDRAULIC TUBES AND FITTINGS
================================================================================
TABLE OF CONTENTS
PAGE
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................................18-30
<PAGE> 12
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,
2000 and 1999 and the related consolidated statement of income, stockholders'
equity, and cash flows for the years ended August 31, 2000 and 1999. 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 audits 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, 2000 and 1999 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 20, 2000
<PAGE> 13
KNUSAGA CORPORATION AND SUBSIDIARY
D.B.A. HYDRAULIC TUBES AND FITTINGS
CONSOLIDATED BALANCE SHEETS
================================================================================
AS OF AUGUST 31, 2000 AND 1999
ASSETS
<TABLE>
<CAPTION>
2000 1999
-------------------------------------
<S> <C> <C>
Current Assets
Cash $ 448,855 $ 500,875
Accounts Receivable - Trade, Net of Allowance for Doubtful
Accounts of $-0-
Note Receivable - Officer 1,616,318 2,092,314
Note Receivable - Other 107,343 124,143
Inventories 30,959 -0-
Prepaid Expenses 1,251,750 717,066
52,806 37,901
---------------------------------------------------------------------------------------------------------------------
Total Current Assets 3,508,031 3,472,299
---------------------------------------------------------------------------------------------------------------------
Property and Equipment, Net 2,486,035 2,575,859
---------------------------------------------------------------------------------------------------------------------
Other Assets
Deposits 18,469 18,523
Intangible Assets, Net 8,656 10,660
Total Other Assets 27,125 29,183
---------------------------------------------------------------------------------------------------------------------
Total Assets $6,021,191 $6,077,341
=====================================================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE> 14
KNUSAGA CORPORATION AND SUBSIDIARY
D.B.A. HYDRAULIC TUBES AND FITTINGS
CONSOLIDATED BALANCE SHEETS
================================================================================
AS OF AUGUST 31, 2000 AND 1999
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
2000 1999
-------------------------------------
<S> <C> <C>
Current Liabilities
Accounts Payable - Trade $1,171,112 $1,377,517
Current Maturities of Long-Term Debt 1,484,413 1,307,988
Accrued Expenses 350,782 437,925
----------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 3,006,307 3,123,430
----------------------------------------------------------------------------------------------------------------------
Other Liabilities
Accrued Expenses - Non current 661,210 612,440
Long-Term Debt - Less Current Maturities 715,946 871,089
----------------------------------------------------------------------------------------------------------------------
Total Other Liabilities 1,377,156 1,483,529
----------------------------------------------------------------------------------------------------------------------
Deferred Taxes 22,500 11,800
----------------------------------------------------------------------------------------------------------------------
Total Liabilities 4,405,963 4,618,759
----------------------------------------------------------------------------------------------------------------------
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 70,000 70,000
Share 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
1,003,863 847,217
----------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 1,615,228 1,458,582
----------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $6,021,191 $6,077,341
======================================================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE> 15
KNUSAGA CORPORATION AND SUBSIDIARY
D.B.A. HYDRAULIC TUBES AND FITTINGS
CONSOLIDATED STATEMENTS OF INCOME
================================================================================
FOR THE YEARS ENDED AUGUST 31, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
-----------------------------------
<S> <C> <C>
Sales, Net $ 13,304,620 $ 11,843,848
Cost of Sales 11,467,287 10,195,235
---------------------------------------------------------------------------------------------------------------------
Gross Profit 1,837,333 1,648,613
Selling, General and Administrative Expenses 1,293,628 1,134,024
---------------------------------------------------------------------------------------------------------------------
Operating Income 543,705 514,589
---------------------------------------------------------------------------------------------------------------------
Other Income (Expense)
Interest Income 116 51
Interest Expense (213,134) (185,015)
Miscellaneous Income 2,496 6,632
Gain (Loss) on Sale of Asset 7,905 (1,769)
---------------------------------------------------------------------------------------------------------------------
Total Other Income (Expense) (202,617) (180,101)
---------------------------------------------------------------------------------------------------------------------
Income Before Income Taxes 341,088 334,488
Income Taxes 184,442 137,041
---------------------------------------------------------------------------------------------------------------------
Net Income $ 156,646 $ 197,447
=====================================================================================================================
Net Income Per Share $ .02 $ .02
=====================================================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE> 16
KNUSAGA CORPORATION AND SUBSIDIARY
D.B.A. HYDRAULIC TUBES AND FITTINGS
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
================================================================================
FOR THE YEARS ENDED AUGUST 31, 2000 AND 1999
<TABLE>
<CAPTION>
Retained
Additional Earnings
Common Preferred Paid-In (Accumulated
Stock Stock Capital Deficit)
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, September 1, 1998 $ 70,000 $ 175,000 $ 366,365 $ 649,770
Net Income For the Year Ended
August 31, 1999 -0- -0- -0- 197,447
---------------------------------------------------------------------------------------------------------------
Balance, August 31, 1999 70,000 175,000 366,365 847,217
Net Income for the Year Ended
August 31, 2000 -0- -0- -0- 156,646
---------------------------------------------------------------------------------------------------------------
Balance, August 31, 2000 $ 70,000 $ 175,000 $ 366,365 $1,003,863
===============================================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE> 17
KNUSAGA CORPORATION AND SUBSIDIARY
D.B.A. HYDRAULIC TUBES AND FITTINGS
CONSOLIDATED STATEMENTS OF CASH FLOWS
================================================================================
FOR THE YEARS ENDED AUGUST 31, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows From Operations
Net Income $ 156,646 $ 197,447
Adjustments to Reconcile Net Income to Net Cash
Provided By Operating Activities
Depreciation and Amortization 352,545 321,077
(Gain) Loss on Sale of Asset (7,905) 1,769
(Increase) Decrease In:
Accounts Receivable 475,996 (1,062,645)
Inventories (534,684) (148,358)
Prepaid Expenses (14,905) 209,108
Deposits 54 (8,827)
Increase (Decrease) In:
Accounts Payable (206,405) 612,635
Accrued Expenses (38,373) 287,624
Deferred Taxes 10,700 11,800
-------------------------------------------------------------------------------------------------------------------
Net Cash Provided By Operating Activities 193,669 421,630
-------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities
Equipment Purchases (295,746) (409,277)
Proceeds From Sale of Assets 67,618 16,800
Proceeds From Notes Receivable 30,000 -0-
Payments For Notes Receivable (44,159) (30,000)
-------------------------------------------------------------------------------------------------------------------
Net Cash Used For Investing Activities (242,287) (422,477)
-------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities
Proceeds From Debt 272,982 420,223
Principal Payments on Debt (276,384) (283,382)
-------------------------------------------------------------------------------------------------------------------
Net Cash Provided By (Used For) Financing
Activities (3,402) 136,841
-------------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Cash (52,020) 135,994
Balance, September 1 500,875 364,881
-------------------------------------------------------------------------------------------------------------------
Balance, August 31 $ 448,855 $ 500,875
===================================================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE> 18
KNUSAGA CORPORATION AND SUBSIDIARY
D.B.A. HYDRAULIC TUBES AND FITTINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
AUGUST 31, 2000 AND 1999
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 operates in two separate
industries: 1) fabrication of tubing for the auto industry and 2)
manufacturing of seat tracks for the auto industry.
B. Basis of Consolidation - The consolidated financial statements
include the accounts of HTF, Ltd., a wholly owned subsidiary located in
St. Thomas, Ontario. 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 $350,541 and
$319,073 for the years ended August 31, 2000 and 1999, 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> 19
KNUSAGA CORPORATION AND SUBSIDIARY
D.B.A. HYDRAULIC TUBES AND FITTINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
AUGUST 31, 2000 AND 1999
NOTE 1. CONTINUED
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, 2000 and 1999 consisted of the
following:
<TABLE>
<CAPTION>
2000 1999
-------------------------------
<S> <C> <C>
Raw Material $ 521,085 $ 299,517
Work in Process 317,411 273,876
Finished Goods 413,254 143,673
-------------------------------
$1,251,750 $ 717,066
===============================
</TABLE>
H. 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. The Company had no impairment of
assets during the years ended August 31, 2000 and 1999.
G. Major Suppliers - At August 31, 2000 and 1999 33% and 45%,
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, 2000 and 1999, 41% and 53%, 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.
<PAGE> 20
KNUSAGA CORPORATION AND SUBSIDIARY
D.B.A. HYDRAULIC TUBES AND FITTINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
AUGUST 31, 2000 AND 1999
NOTE 1. CONTINUED
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, 2000 and 1999, accumulated amortization is $5,344
and $3,340, respectively.
Note 2. Prepaid Expenses
The following is a detail of the prepaid expenses as of August 31, 2000
and 1999:
<TABLE>
<CAPTION>
2000 1999
------------------------------
<S> <C> <C>
Prepaid Insurance $48,567 $35,587
Prepaid Taxes 4,239 2,314
------------------------------
Total Prepaid Expenses $52,806 $37,901
==============================
</TABLE>
NOTE 3. PROPERTY AND EQUIPMENT
The major components of property and equipment are as follows:
<TABLE>
<CAPTION>
2000 1999
------------------------------
<S> <C> <C>
Land $ 24,847 $ 24,847
Land Improvements 17,195 17,195
Buildings and Improvements 1,482,417 1,459,433
Machinery and Equipment 2,171,726 1,958,149
Furniture and Fixtures 167,894 155,970
Transportation Equipment 209,944 214,011
Obligations Under Capital Leases 134,898 146,653
Equipment Under Construction 91,636 114,459
------------------------------
4,300,557 4,090,717
Less: Accumulated Depreciation 1,814,522 1,514,858
------------------------------
Net Property and Equipment $2,486,035 $2,575,859
==============================
</TABLE>
NOTE 4. ACCRUED EXPENSES
The following is a detail of the current accrued expenses as of August
31, 2000 and 1999.
<TABLE>
<CAPTION>
2000 1999
-----------------------------
<S> <C> <C>
Accrued Insurance $ 21,922 $ 29,345
Accrued Interest - Other 13,672 11,829
Accrued Payroll 157,603 177,457
Accrued and Withheld Payroll Taxes 17,280 26,632
Accrued Pension 21,450 22,396
Accrued Professional Fees 35,168 28,881
Accrued Taxes 83,687 141,385
-----------------------------
Total Current Accrued Expenses $350,782 $437,925
=============================
</TABLE>
<PAGE> 21
NOTE 4. CONTINUED
The following is a detail of the non-current accrued expenses as of August 31,
2000 and 1999:
<TABLE>
<CAPTION>
2000 1999
---------------------------------
<S> <C> <C>
Accrued Interest - Directors, officers, shareholders and their
affiliates (See Note 17) $ 517,927 $ 469,157
Accrued Payroll - Officers 143,283 143,283
---------------------------------
Total Non-Current Accrued Expenses $ 661,210 $ 612,440
=================================
</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>
2000 1999
---------------------------------
<S> <C> <C>
Non-interest bearing note receivable from an officer/stockholder. The note
is unsecured and due on demand.
$ 107,143 $ 124,143
=================================
Note receivable from the company's joint venture partner (See note 17) at
10% per annum. All outstanding principal and accrued interest is due August
28, 2001.
$ 30,959 $ -0-
=================================
</TABLE>
NOTE 6. NOTES PAYABLE AND OBLIGATIONS UNDER CAPITAL LEASES
Notes payable and obligations under capital leases consist of the
following:
<TABLE>
<CAPTION>
2000 1999
---------------------------------
<S> <C> <C>
A. Notes payable - directors, officers, shareholders and their affiliates,
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. (See
Note 17)
$ 407,253 $ 407,253
B. 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, 2000 was 10.5%.
93,166 167,734
C. 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 the assets of the Company. The interest rate at August 31,
2000 was 10.5%.
13,334 53,334
</TABLE>
<PAGE> 22
NOTE 6. CONTINUED
<TABLE>
<CAPTION>
2000 1999
---------------------------------
<S> <C> <C>
D. $1,500,000 Line of Credit - Bank, interest payable in monthly
installments at the lender's prime rate. Principal is due January 1, 2001.
Note is secured by all the assets of the Company. The interest rate at
August 31, 2000 was 9.5%.
1,217,762 1,043,761
E. 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, 2000 was 10.0%.
108,491 185,086
F. Loan Payable - Bank, payable in monthly installments of $2,249 plus
interest at .5% over the lender's prime rate through April, 2003. Note is
secured by all the assets of the Company. The interest rate at August 31,
2000 was 10.0%.
71,973 98,963
G. 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 by all the assets of the Company. The interest rate at August 31,
2000 was 10.0%.
8,800 11,734
H. Loan Payable - Bank, payable in monthly installments of $801 plus
interest at .5% over lender's prime rate through February 2005. Note is
secured by all the assets of the company. The interest rate at August 31,
2000 was 10.0%
44,074 -0-
I. Loan Payable - Bank, payable in monthly installments of $1,076 including
interest at .5% over lender's prime rate, through October 2004. Note is
secured by all the assets of the company. The interest rate at August 31,
2000 was 10.0%
43,889 -0-
J. 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, 2000 was 10.0%.
48,567 62,050
</TABLE>
<PAGE> 23
NOTE 6. CONTINUED
<TABLE>
<CAPTION>
2000 1999
---------------------------------
<S> <C> <C>
K. 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, 2000 was 10.0%.
52,319 63,374
L. 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.
16,146 24,881
M. Loan Payable - Chrysler Financial Company, payable in monthly
installments of $695, through August, 2003, including interest at .9%.
Secured by transportation equipment.
24,684 -0-
N. Obligation Under Capital Lease - machinery, payable in monthly
installments of $1,282 through May, 2004 including interest at 7.88%.
Secured by the machinery.
49,901 60,907
---------------------------------
Total 2,200,359 2,179,077
Amounts due within one year 1,484,413 1,307,988
---------------------------------
$ 715,946 $ 871,089
=================================
</TABLE>
The debt and lease maturities for the next five years are as follows:
<TABLE>
<S> <C>
August 31, 2001 $ 1,484,413
August 31, 2002 156,148
August 31, 2003 94,188
August 31, 2004 50,592
August 31, 2005 415,018
----------------
$ 2,200,359
================
</TABLE>
Interest expense for the years ended August 31, 2000 and 1999 totaled
$213,134 and $185,015, respectively.
Interest expense on obligations under capital leases for the years ended
August 31, 2000 and 1999 was $4,384 and $922, respectively. Depreciation
expense of equipment held under capital leases for the years ended August
31, 2000 and 1999 was $19,660 and $21,999, respectively.
<PAGE> 24
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 1.00 to 1.00
2. Maintain a net worth plus subordinated debt of not less than $1,500,000.
3. Maintain a ratio of total liabilities to net worth plus subordinated
debt of not more than 3.0 to 1.
4. Maintain a debt service coverage ratio of not less than 1.25 to 1.
As of August 31, 2000, 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>
2000 1999
-----------------------------
<S> <C> <C>
Current:
Current Due $ 173,742 $ 125,241
Deferred 10,700 11,800
-----------------------------
Net Tax Expense $ 184,442 $ 137,041
=============================
</TABLE>
<PAGE> 25
NOTE 9. CONTINUED
Differences between income taxes calculated using federal statutory income
tax rate of 34% and the provision for income taxes were as follows:
<TABLE>
<CAPTION>
2000 1999
-------------------------------------------
<S> <C> <C>
Income Before Income Taxes $ 341,088 $ 334,488
=========================================================================================================
Statutory Federal Income Tax $ 115,970 $ 113,726
State Income Tax, Net of Federal Benefit 8,381 6,930
Foreign Losses Not Benefited 53,785 16,422
Non-deductible Expenses 4,522 2,126
Other, Net 1,784 (2,163)
---------------------------------------------------------------------------------------------------------
Total $ 184,442 $ 137,041
=========================================================================================================
<CAPTION>
Deferred taxes are detailed as follows:
2000 1999
-------------------------------------------
<S> <C> <C>
Deferred Income Tax Liability - Depreciation $ 89,922 $ 81,218
---------------------------------------------------------------------------------------------------------
Deferred Income Tax Assets
Accrued Expenses 67,422 69,418
Valuation Allowance -0- -0-
---------------------------------------------------------------------------------------------------------
Net Deferred Income Tax Asset 67,422 69,418
---------------------------------------------------------------------------------------------------------
Net Deferred Income Taxes $ 22,500 $ 11,800
=========================================================================================================
</TABLE>
NOTE 10. RELATED PARTY TRANSACTION
As disclosed in Note 6 to the financial statements, certain directors,
officers, shareholders and their affiliates are major creditors of the
Company. Amounts due as of August 31, 2000 and 1999 totaled $407,253.
Interest accrued on these notes at August 31, 2000 and 1999 totaled
$517,927 and $469,157, respectively. Interest expense accrued for the years
ended August 31, 2000 and 1999 was $48,770 for both years.
<PAGE> 26
NOTE 11. CASH FLOW DISCLOSURES
Interest and income taxes paid for the years ended August 31, 2000 and 1999
were as follows:
<TABLE>
<CAPTION>
2000 1999
--------------------------------
<S> <C> <C>
Interest $ 211,291 $ 135,705
================================
Income Taxes $ 242,392 $ -0-
================================
</TABLE>
Income tax refunds received during the years ended August 31, 2000 and 1999
was $-0- and $199,497, respectively.
Interest received during the years ended August 31, 2000 and 1999 was $116
and $51, respectively.
During the year ended August 31, 2000 and 1999, the Company acquired
equipment through non-cash financing transactions of $24,684 and $91,491,
respectively.
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,
2000 and 1999 was $25,964 and $26,248, respectively. Pension contributions
due to the plan at August 31, 2000 and 1999 were $26,910 and $32,654,
respectively. As of August 31, 2000 the defined benefit pension plan is
funded in accordance with ERISA.
<PAGE> 27
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, 2000 and 1999.
<TABLE>
<CAPTION>
2000 1999
----------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligations: $ 210,533 $ 178,348
------------------------------------------------------------------------------------------------------------------------
Projected benefit obligation for service rendered to date
210,533 178,348
Plan assets at fair value 274,324 229,318
------------------------------------------------------------------------------------------------------------------------
Projected benefit obligation in excess of plan assets
(63,791) (50,970)
Unrecognized net gain from past experience different from that assumed and
effect of changes in assumptions
136,612 127,074
Prior service cost not yet recognized in net periodic pension cost
(20,726) (21,669)
Unrecognized net obligation at date of initial application of FAS-87
(30,645) (32,039)
------------------------------------------------------------------------------------------------------------------------
(Prepaid) accrued cost $ 21,450 $ 22,396
========================================================================================================================
Net pension cost for 1999 and 1998 includes the following components:
Service cost - benefits earned during the period $ 31,720 $ 27,989
Interest cost on projected benefit obligation 11,615 11,020
Actual return on plan assets (41,083) (51,038)
Amortization of Actuarial Gains and Net Transition Asset
23,712 38,277
------------------------------------------------------------------------------------------------------------------------
Net periodic pension costs $ 25,964 $ 26,248
========================================================================================================================
</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.
<PAGE> 28
Note 15. 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 2001.
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, 2000 and 1999 were $146,406
and $88,423, respectively.
Future minimum lease obligations under all operating leases are as follows:
<TABLE>
<S> <C>
August 31, 2000 $ 102,898
August 31, 2001 48,755
August 31, 2002 22,708
August 31, 2003 3,420
August 31, 2004 -0-
--------------
$ 177,781
==============
</TABLE>
Note 16. 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, 2000 AND 1999.
<TABLE>
<CAPTION>
TUBING SEAT TRACK TOTAL
2000 1999 2000 1999 2000 1999
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
External Revenue $ 9,377,630 $ 7,642,471 $ 3,926,990 $ 4,201,377 $13,304,620 $11,843,848
Intersegment Revenue -0- -0- -0- -0- -0- -0-
Interest Revenue -0- -0- -0- -0- -0- -0-
Interest Expense 211,868 162,678 1,266 22,337 213,134 185,015
Depreciation and Amortization 292,804 269,975 59,741 51,102 352,545 321,077
Profit (Loss) (516,097) (378,802) 862,357 713,290 346,260 334,488
Total Assets 4,797,594 4,764,870 1,227,547 1,312,471 6,025,141 6,077,341
Expenditures of Long-Lived Assets $ 303,969 $ 473,665 $ 16,464 $ 27,103 $ 320,433 $ 500,768
</TABLE>
<PAGE> 29
NOTE 16. 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 $7,286,951 and
$5,493,129 of the Company's net sales for the years ended August 31, 2000
and 1999, respectively. Net sales to another customer of its tubing segment
totaled $884,933 and $1,241,679 of the Company's net sales for the years
ended August 31, 2000 and 1999, respectively. Net sales to one customer of
its seat track segment totaled $3,926,990 and $4,183,967 of the Company's
net sales for the years ended August 31, 2000 and 1999, respectively.
Note 17. Subsequent Event
In October 2000, the Company entered into a joint venture (Modular Tubes
Systems S.A.de C.V.) with an unrelated entity in Mexico City, Mexico. The
joint venture will manufacture automotive tubing primarily for Ford Motor
Company. The Company contributed $30,959 via the assignment of its note
receivable from its joint venture partner (see note 5) and will own 50% of
the joint venture.
As discussed in Notes 4,6 and 10, the company had outstanding as of August 31,
2000 principal and accrued interest on notes payable to various directors,
officers, shareholders and their affiliates in the amounts of $407,253 and
$517,927, respectively. On November 13, 2000, the company's board of
directors approved in principle authorization of additional shares of
common stock and issuance of shares to these directors, officers,
shareholders and their affiliates in satisfaction of this indebtedness. The
directors, officers, shareholders and their affiliates have agreed in
principle to the exchange, but agreements providing for the exchange have
not been executed pending shareholder approval of the increased shares (and
the filing of an amended Certificate of Incorporation) and the Board's
determination of a fair rate of exchange (and the directors, officers,
shareholders and their affiliates acceptance of this rate).
<PAGE> 30
Exhibit Index
-------------
Exhibit No. Description
----------- -----------
27 Financial Data Schedule
