-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UFpr4mvAJy3djmajNLxmb/AyC2pCLoU1G9UaUEJznno06SjEP9gzdoZpSYQ/dAd/ 9cKtld9HnFN7YGUppyq9Mw== 0000950124-99-006654.txt : 19991231 0000950124-99-006654.hdr.sgml : 19991231 ACCESSION NUMBER: 0000950124-99-006654 CONFORMED SUBMISSION TYPE: 10KSB40 PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990831 FILED AS OF DATE: 19991230 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KNUSAGA CORP CENTRAL INDEX KEY: 0000225544 STANDARD INDUSTRIAL CLASSIFICATION: PUBLIC BUILDING AND RELATED FURNITURE [2531] IRS NUMBER: 621004034 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10KSB40 SEC ACT: SEC FILE NUMBER: 000-07795 FILM NUMBER: 99783486 BUSINESS ADDRESS: STREET 1: 3578 S VAN DYKE HWY CITY: ALMONT STATE: MI ZIP: 48003 BUSINESS PHONE: 8107988567 FORMER COMPANY: FORMER CONFORMED NAME: AMERICANADA LTD DATE OF NAME CHANGE: 19600201 10KSB40 1 FORM 10KSB 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)
DELAWARE 62-1004034 - ------------------------------------------ -------------------------------------- (State or other jurisdiction of incorporation or (I.R.S. Employer Identification Number) 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, 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 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 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 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 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 6 PART III. Item 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
NAME AGE POSITION ---- --- -------- 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
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 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.
11(a) Title Of Name and Address of Amount and Nature of Class Beneficial Owner Beneficial Owner % of Class ----- ---------------- ---------------- ---------- 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
Page 7 of 28 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 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 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 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.................18-28
Page 11 of 28 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 - -------------------------------------------------------------------------------- Page 12 of 28 13 KNUSAGA CORPORATION AND SUBSIDIARY D.B.A. HYDRAULIC TUBES AND FITTINGS CONSOLIDATED BALANCE SHEETS ================================================================================ AS OF AUGUST 31, 1999 AND 1998 ASSETS
1999 1998 ------------------------------------------ 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 ============================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. ================================================================================ Page 13 of 28 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
1999 1998 ------------------------------------------ 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 ============================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. ================================================================================ Page 14 of 28 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
1999 1998 --------------------------------------------- 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) ============================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. ================================================================================ Page 15 of 28 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
Retained Earnings Common Preferred Additional (Accumulated Stock Stock Paid-In Capital Deficit) ------------------------------------------------------------------- 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 =============================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. ================================================================================ Page 16 of 28 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
1999 1998 ---------------------------------------------------------------------------------------------------------------------------- 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 =============================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. ================================================================================ Page 17 of 28 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
1999 1998 ------------------------------------------ Raw Material $ 299,517 $ 371,763 Work in Process 273,876 123,804 Finished Goods 143,673 73,141 .......................................... $ 717,066 $ 568,708 ==========================================
Page 18 of 28 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 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:
1999 1998 --------------------------------------------- Prepaid Insurance $ 35,587 $ 39,173 Prepaid Taxes 2,314 207,836 ............................................. Total Prepaid Expenses $ 37,901 $ 247,009 =============================================
NOTE 3. PROPERTY AND EQUIPMENT The major components of property and equipment are as follows:
1999 1998 --------------------------------------- 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 =======================================
NOTE 4. ACCRUED EXPENSES The following is a detail of the current accrued expenses as of August 31, 1999 and 1998.
1999 1998 --------------------------------------- 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 =======================================
Page 20 of 28 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:
1999 1998 --------------------------------------- Accrued Interest - Shareholders $ 469,157 $420,387 Accrued Payroll - Officers 143,283 143,283 ....................................... Total Non-Current Accrued Expenses $ 612,440 $563,670 =======================================
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
1999 1998 --------------------------------------- Non-interest bearing note receivable from an officer/stockholder. The note is unsecured and due on demand. $ 124,143 $ 94,143 =======================================
NOTE 6. NOTES PAYABLE AND OBLIGATIONS UNDER CAPITAL LEASES Notes payable and obligations under capital leases consist of the following:
1999 1998 --------------------------------------- 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
Page 21 of 28 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 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-
Page 22 of 28 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 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 =======================================
The debt and lease maturities for the next five years are as follows: 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 =====================
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 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:
1999 1998 ------------------------------------------ Current: Current Due (Refundable) $ 125,241 $ (38,508) Deferred 11,800 -0- .......................................... Net Tax Expense (Recovery) $ 137,041 $ (38,508) ==========================================
Deferred taxes are detailed as follows:
1999 1998 ------------------------------------------ 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- ============================================================================================================================
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 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:
1999 1998 ------------------------------------------ Interest $ 135,705 $ 99,658 ========================================== Income Taxes $ -0- $ 21,000 ==========================================
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.
1999 1998 -------------------------------------------- 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
Page 25 of 28 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 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 ============================================================================================================================
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: Equipment $ 100,000 Tooling 200,000 Intangible Assets 14,000 ..................... $ 314,000 =====================
Page 26 of 28 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: 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 =====================
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.
TUBING SEAT TRACK TOTAL 1999 1998 1999 1998 1999 1998 ----------------------------------------------------------------------------------------- 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
Page 27 of 28 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 29 Exhibit Index -------------
Exhibit No. Description - ----------- ----------- 27 Financial Data Schedule
EX-27 2 FINANCIAL DATA SCHEDULE
5 YEAR AUG-31-1999 AUG-31-1999 500,875 0 2,216,457 0 717,066 3,472,299 4,090,717 1,514,858 6,077,341 3,123,430 871,089 176,000 0 70,000 1,213,582 6,077,341 11,843,848 0 10,195,235 11,329,259 0 0 185,015 334,488 137,041 197,447 0 0 0 197,447 .03 .03
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