<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549

                                   FORM 10-K

                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
                      THE SECURITIES EXCHANGE ACT OF 1934

       For fiscal year ended August 31, 1997  Commission File No. 0-7795

                              KNUSAGA CORPORATION
         -----------------------------------------------------------
            (Exact name of Registrant as Specified in its Charter)

             DELAWARE                                     62-1004034
----------------------------------  --------------------------------------------
(State or other jurisdiction of          (I.R.S. Employer Identification Number)
incorporation ororganization)

                       3578 S. Van Dyke, Almont, Michigan 48003
--------------------------------------------------------------------------------
              (Address of Principal Executive Office and Zip Code)

Registrant's telephone number, including area code:  (810) 798-2402
Securities registered pursuant to Section 12(b) of the Act:  None
Securities registered pursuant to Section 12(g) of the Act:

                     Common Stock, Par Value $.01 Per Share
                -----------------------------------------------
                                (Title of Class)

Number of shares outstanding as of August 31, 1997:  7,000,000

Market value of shares held by non-affiliates not available due to lack of
market for stock.

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.

                              Yes  X    No 
                                  ----     ----

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.  [_____]


                                  Page 1 of 37

<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,
1997, Registrant was engaged in the fabrication and sale of steel, aluminum and
copper tubes for use in the truck industry.  During said fiscal year,
Registrant shipped some 800 different parts which consisted of various air
intake, exhaust and radiator tubes for medium and large over-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 1995, Registrant discontinued its business of selling a seat
unit that was convertible into a bed suitable for use in full size automotive
vans as a result of the loss of its business with Chrysler Corporation
("Chrysler"), which was its sole original equipment customer for said item.
The convertible seat unit consisted of two bench seats plus a collapsible
dinette table, and the bench seats were convertible so that in addition to a
forward position they could be adjusted for use as a bed, lounge, or dinette
set.
     Registrant had also previously sold a seat unit convertible to a bed for
use in mini vans.  The unit consisted of a single seat unit which folded out to
a bed by moving one handle.  The Registrant replaced this convertible seat unit
for use in mini vans, which it has supplied to Chrysler since 1985, with a new
design starting in the 1992 model year.  During the 1992 through 1994 model
years. Registrant supplied its new mini van convertible seat unit to Magna
International Company ("Magna"), who completed the trim on each such unit and
then supplied the finished product directly to Chrysler.  Registrant's sale of
this mini van convertible seat ended in June of 1994 with the end of Chrysler's
1994 mini van model year production.
     During its fiscal year ended August 31, 1995, Registrant also received
royalty payments totaling $128,290 from Magna for a component (a seat riser)
which Magna produced and supplied to Chrysler under a patent licensed from the
Registrant, beginning with the 1992 model year.  The royalty payments from
Magna for the use of the patent ended in May of 1995 as a result of Chrysler's
introduction of its redesigned mini vans.

                                  Page 2 of 37

<PAGE>   3


     The principal customer for Registrant's air intake, exhaust and radiator
tubes is Ford Motor Company ("Ford"), which accounted for 87% of Registrant's
sales for said products during its fiscal year ended August 31, 1997.  Of
those sales, 76% were for parts to be used as original equipment on flat bed,
stake and semi tractor trucks and 11% were for parts to be used as replacement
parts.  Registrant's second biggest customer is Nova Bus, which accounted for
7% of Registrant's sales for said products during said fiscal year.
     Service Steel, Michigan Extrude Aluminum and United Industries are
Registrant's three largest suppliers.  Registrant issues periodic purchase
orders to its suppliers for specific quantities on an as needed basis, which
for purchases from Michigan Extrude Aluminum and United Industries are
generally for six to eight week projected requirements.  Such purchase orders
represent the only enforceable formal agreement between the Registrant and its
suppliers.
     The Registrant is a tier one supplier to Ford and deals with Ford on a
just-in-time inventory basis, that is, the Registrant ships daily to Ford's
schedule.  Ford gives the Registrant a rolling ten to fifteen working day firm
shipping schedule.
     Ford and Registrant's other customers issue purchase orders to the
Registrant for specific parts.  As with Registrant's purchase orders to its
vendors, Ford's purchase orders and the purchase orders of Registrant's other
customers represent the only enforceable formal agreement between the
Registrant and each company with respect to Registrant's products.
     Registrant's firm order backlog is just ten to fifteen working days.
     There are several competitors in the truck metal tube fabricating
business, with Northern Tube being Registrant's major competitor for Ford's
medium and large over-the-road truck tube business.  Truck suppliers compete on
the basis of price, quality, technology and on-time delivery.
     Research and development ("R&D") expenditures were made to Travel
Products.  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 1997, $75,000 in 1996, and $75,000 in
1995.
     The Registrant has 107 employees.
     The Registrant does not do any promotional advertising.  The Registrant
does not own any patents or trademarks other than the patent relating to the
seat riser discussed above.  This patent expires in September, 2006.

                                  Page 3 of 37

<PAGE>   4


Item 2. DESCRIPTION OF PROPERTIES
     The Registrant owns a manufacturing building with attached office space
and an attached warehouse located on 10 acres of land at 3578 South Van Dyke
Road, Almont, Michigan.  Registrant had previously been leasing office space in
said facility from Hydraulic Tubes and Fittings, Inc., and acquired ownership
of the entire facility when Hydraulic Tubes and Fittings, Inc., was merged into
the Registrant.
     Registrant owns certain fabricating equipment, which is used for the
fabrication of steel, aluminum, and copper tubes.
Item 3.  LEGAL PROCEEDINGS
     Registrant is not currently involved in any pending material litigation.
Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
     Not applicable.

                                    PART II

Item 5.  MARKET FOR THE REGISTRANT'S COMMON STOCK AND
         --------------------------------------------
         RELATED SECURITY HOLDING MATTERS
         --------------------------------

     5 (a) The principal market for the Registrant's common stock is the
over-the-counter market.  Due to the infrequent trading of Registrant's stock,
no quotations are available.
     5 (b) As of August 31, 1997, there were approximately 1,592 shareholders
of Registrant's common stock.
     5 (c) Registrant has not paid any dividends in the past two (2) years.
This failure to pay dividends is due solely to financial considerations.  The
Registrant is not under any legal restrictions imposed by its Articles of
Incorporation, Bylaws, convenants to loan agreements or other obligations to
third parties with regard to dividend payments.

                                  Page 4 of 37

<PAGE>   5
Item 6.  SELECTED FINANCIAL DATA.
                                                             KNUSAGA CORPORATION
                                             D.B.A. HYDRAULIC TUBES AND FITTINGS
                                                 FIVE YEAR SUMMARY OF OPERATIONS



<TABLE>
<CAPTION>
==========================================================================================================================
                                                       -------------------------------------------------------------------
                                                          1993          1994          1995            1996         1997
                                                       -------------------------------------------------------------------
From Operations
<S>                                                    <C>           <C>           <C>             <C>          <C>
 Net Sales                                             $1,182,305    $1,499,548    $9,566,217      $8,177,943   $9,473,273
 Other Income, Net                                        268,947       377,420        17,703           5,538   $  347,098
 Unusual or Nonrecurring Items                              -0-           -0-           -0-             -0-          -0-
 Cost of Sales                                          1,078,288     1,289,321     8,092,147       7,342,353   $7,443,903
 Selling, General & Administrative Expenses               464,292       324,124       843,211         671,457   $  973,503
 Interest Expense                                          57,872        44,873       157,065         196,346   $  162,191
 Income Taxes                                               -0-         107,000       124,846         (27,733)  $  315,203
 Income (Loss) From Continuing Operations                (149,200)      111,650       366,651           1,058   $  925,571
                                                          
Income (Loss) Before Extraordinary Items                 (149,200)      111,650       349,417           1,058   $  925,571
Extraordinary Items                                         -0-         107,000        24,555           -0-          -0-
Net Income (Loss) Applicable to Common Stock             (149,200)      218,650       373,968           1,058   $  925,571
                                                         
Per Share of Common Stock:                               
 Income (Loss) Before Extraordinary Item                     (.03)          .03           .05             .00          .13
 Extraordinary Item                                           .00           .02           .00             .00           0
 Net Income (Loss)                                     $     (.03)    $     .05    $      .05      $      .00          .13

                                                       -------------------------------------------------------------------
Dividends Per Share Declared on Common Stock (1)            -0-           -0-           -0-             -0-          -0-
Average Number of Common and Common Equivalent         ===================================================================
 Shares Used in Determining per Share Amounts (2)       4,573,247     4,573,247     7,175,000       7,175,000    7,175,000

</TABLE>

(1)  The Company has not paid dividends on its outstanding common stock nor
     Class A preferred stock during the past five years.

(2)  Income (Loss) per share has been calculated based on weighted average
     shares outstanding.  The 4% preferred stock is a common stock equivalent.

                                  Page 5 of 37

<PAGE>   6





     Item 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS  OF FINANCIAL CONDITION
              ------------------------------------------------------------
              AND RESULTS OF OPERATIONS
              ------------------------------------------------------------

     7(a)   Net sales for the fiscal year ended August 31, 1997, increased
$1,295,330, or 15.8% from the year ended August 31, 1996, which sales had
decreased by $1,388,274, or 14.5% from the prior fiscal year.  The increase in
sales for fiscal year 1997 was a result of an increase in the number of heavy
duty trucks manufactured by Registrant's customers.  The decrease in sales for
fiscal year ended 1996 from the previous year is a result of an overall decline
of heavy duty trucks sold in the truck industry.
     Cost of goods sold for sales in fiscal year 1997 decreased to 78.6% as a
percentage of sales as compared to 89.8% in the fiscal year 1996, and 84.6% in
fiscal year 1995 due to a decline in material costs with increased sales volume
with the same fixed costs.  Selling, general, and administrative expenses in
fiscal year 1997 increased by $302,046, and increased as a percentage of sales
to 10.3% as compared to 8.2% in fiscal year 1996 and 8.8% in 1995.  This
increase in expenses is due to the increase in salaries and the 1997 Michigan
Single Business Tax.  Expenses that increased were officers' salaries $124,260,
Single Business Tax $109,300, Legal and Professional $40,499, office supplies
$7,277, property taxes $5,422, depreciation $5,892 and computer operation
expense $6,706.  The Registrant's income of $925,571 in fiscal year of 1997
compared to income of $1,058 in fiscal year 1996 is due to the decline of
variable costs with increased sales volume in 1997.
     For the year ended August 31, 1997, Ford sales of $8,259,061 amounted to
87% of total sales.  This trend is expected to continue in the future.
     7(b)    Liquidity and Capital Resources.  The Registrant's working capital
position improved in fiscal year 1997 to a positive $565,348 on August 31,
1997, from a working capital position of a positive $90,843 on August 31, 1996,
and a negative $602,297 on August 31, 1995.  The increase in working capital
for fiscal 1997 is largely the result of increases in deposits of $242,274 and
accounts receivable of $372,168, and an increase in accounts payable - trade of
$73,718, and prepaid expenses of $24,888.
     A loan payable to Michigan National Bank matured in October of 1994 at
which time the remaining principle was refinanced into two term loans with
maturity dates of October 1998 and October 2001, bearing interest at 1% over
the lender's prime rate and secured by all assets of the Registrant.  At August
31, 1997, the outstanding principal balance of both notes was $446,554 and the
applicable interest rate was 9.25%.
     A third loan payable to Michigan Bank was created on December 6, 1995, to
finance equipment purchases.  Said loan has a maturity date of December 6,
2000, bears interest at 1% over the lender's prime rate and is secured by all
assets of Registrant.  At August 31, 1997, the outstanding principal balance
was $133,334 and the applicable interest rate was 9.25%.

                                  Page 6 of 37

<PAGE>   7




     Registrant has a line of credit with Michigan National Bank with interest
payable in monthly installments at 1% over said bank's prime rate.  The note is
secured by all assets of the Registrant and the principle is due in January of
1998.  At August 31, 1997, the outstanding balance was $630,000 and the
applicable interest rate was 9.25%
     The Registrant does not have any material commitment for capital
expenditures in the current year.

Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
    The report of independent auditors and consolidated financial statements
    included on pages 11 through 37 of the annual financial report for the year
    ended August 31, 1997, 1996, and 1995 are incorporated herein by reference.

Item 9.  DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
     No response required.
                                   PART III.
Item 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.


<TABLE>
<CAPTION>
        NAME          AGE                        POSITION
--------------------  ---  -----------------------------------------------------
<S>                   <C>  <C>
Semon E. Knudsen      85              Director/Chairman of the Board
James G. Musser, Jr.  62                    Director/President
Jerry D. Luptak       75    Director/Vice President Finance and General Counsel
Harold Beznos         59               Director/Secretary-Treasurer
J. Ted Beebe          67                 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. KNUDSEN is, and has been, a Director and Chairman of the Board of
    the Registrant since September 1, 1977.  Mr. Knudsen is also a director of
    First National Bank of Palm Beach.

         MR. MUSSER is, and has been, a Director and President of the
    Registrant since September 1, 1977.  He devotes 100% of his time per month
    to the business affairs of the Registrant.

         MR. LUPTAK has served in his present capacities with the
    Registrant since September 1, 1977.  Currently, and for more than five
    years, he has been Chairman of the Board and Chief Executive Officer
    (formerly President) of Armada Corporation, a manufacturer of metal alloys,
    and has been actively engaged in real estate development including
    multifamily residential, single family residential, retail and office
    buildings.  He devotes approximately ____% of his time per month to the
    business affairs of the Registrant.
        
                                  Page 7 of 37

<PAGE>   8
          MR. BEZNOS has served in his present capacities with the Registrant
     since September 1, 1977.  Currently, and for more than five years, he has
     been actively engaged in real estate development including multifamily,
     residential, single family residential, retail and office buildings.  He
     devotes approximately ____% of his time per month to the business affairs
     of the Registrant.

          MR. BEEBE has been the Executive Vice President of the Registrant
     since November, 1979.  He devotes 8 days per month to the business affairs
     of the Registrant.



Items 11
and 13.   MANAGEMENT REMUNERATIONS AND CERTAIN RELATIONSHIPS
          --------------------------------------------------
          AND RELATED TRANSACTIONS.
          -------------------------

     In the fiscal year ended August 31, 1997, Mr. Musser was paid $97,740 in
salary, a bonus of $62,371, and $243,333 in deferred salary.  Mr. Beebe was
paid $26,994 in salary and a deferred salary of $56,667.  None of the other
directors or officers received any direct or indirect remuneration during the
fiscal year ended  August 31, 1997, and none is anticipated in the fiscal year
ending August 31, 1998.
     Messrs. Beznos, Knudsen, Luptak, and Musser have collectively made working
capital loans to the Corporation.  These loans are payable on demand and are
represented by a noted bearing an annual interest rate of 12%, with principal
and interest originally payable June, 1990.  The outstanding principal balance
on this note at August 31, 1997, was $165,836.  As a result of the merger of
Hydraulic Tubes and Fittings, Inc., into Registrant, it assumed the obligation
for repayment of demand loans payable to Messrs. Beznos, Knudsen, and Luptak
bearing an annual interest rate of 12% and having a combined unpaid principal
balance at August 31, 1997, of $141,417.
     In March and April of 1990, Jay A. Fishman, as Trustee of the Paola M.
Luptak Irrevocable Trust U/A/D August 20, 1970, and Frieda Applebaum, as
Trustee of the Beznos Family Irrevocable Trust U/A/D February 2, 1976, each
loaned $50,000 to the Registrant as working capital in return for which they
each received a note bearing an annual interest rate of 12%, with principal and
interest payable on demand.  The principal balance of these notes at August 31,
1997, was $50,000 each.  The beneficiaries of each trust are beneficial
shareholders of the Registrant and are related to certain officers and
directors of the Registrants.

Item 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGERS.
          -------------------------------------------------------------

        12(a)

<TABLE>
<CAPTION>

Title
  of        Name and Address of      Amount and Nature of
Class        Beneficial Owner        Beneficial Owner                 % of Class
------  ---------------------------  -------------------------------  ----------
<S>     <C>                          <C>                              <C>
Common  James G. Musser, Jr. (1)     726,520 shares                   10.4%
Stock   7475 Pinehurst Circle        Direct        
        Birmingham, MI  48010                                        

Common  Lorraine A. Musser  (1)      722.617 shares                   10.3%
Stock   7475 Pinehurst Circle        Direct
        Birmingham, MI  48010                                        
</TABLE>


                                   Page 8 of 37
<PAGE>   9
       Common    Leslie, Samuel and           1,449,137 shares trust    20.7%
       Stock     Lauren Beznos (2)            beneficiary               
                 31731 Northwestern Hwy.                               
                 Farmington Hills, MI 48334                            
                 Paola M. Luptak (3)                                   
                                                                       
       Common    19115 Fox Landing Drive      1,463,109 shares          20.9%
       Stock     Boca Raton, Florida 33434    Direct                    
                                                                       
       Common    K. Peter Knudsen (4)         562,402 shares             8.0%
       Stock     29757 Somerset Drive         trust beneficiary          
                 Perrysburg, Ohio 43551                                
                                                                       
       Common    J. Ted Beebe                 805,205 shares            11.5%
       Stock     22515 Sunnydale              Direct                    
                 St. Clair Shores, MI  48081                           
                                                                       
                                                                       
       Common    Jerry D. Luptak (3)          1,463,109 shares          20.9%
       Stock     19115 Fox Landing Drive      Indirect                  
                 Boca Raton, Florida 33434                             
                                                                       
       Common    Harold Beznos (2)            1,449,137 shares          20.7%
       Stock     31731 Northwestern Hwy.      Indirect                  
                 Farmington Hills, MI  48334                           
                                                                       
       Common    Semon E. Knudsen (4) (5)     1,449,137 shares          20.7%
       Stock     1965 N. Woodward Ave.        Indirect                  
                 Bloomfield Hills, MI  48304                           
                                                                       
    (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.

    (3)   Paola M. Luptak is the daughter of Jerry D. Luptak, a director
          and officer of the Registrant.

    (4)   These shares are held in a revocable trust with the NBD Bank of
          Detroit, Michigan, as Trustee with voting and investment power for the
          benefit of K. Peter Knudsen.  Mr. Knudsen is the son of Semon E.
          Knudsen, a director and officer of the Registrant.

    (5)   Judith K. Christie, Lisa K. Flint, and Kristina K. Gregg directly
          own 295,245, 295,245, and 296,245 shares of common stock,
          respectively, and are daughters of Semon E. Knudsen, a director and
          officer of the Registrant.

    12(b) No shares of common stock of the Registrant are owned by any
          officers and directors of the Registrant, except Mr. James G. Musser,
          Jr. and Mr. J. Ted Beebe as listed in Item 12(a) above.

As a group, the officers and directors directly and indirectly own 6,615,725
shares of Registrant's common stock, representing 94.5% of all outstanding
common stock.


Item 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON 8-K
          -----------------------------------------------------------

     14a. Financial Statement Schedules

          For Fiscal Years Ended August 31, 1997, 1996, and 1995
          -----------------------------------------------------------

          1)  Accountant's opinion for years ended August 31, 1997, 1996, 
              and 1995.

                                 Page 9 of 37


<PAGE>   10
     2) Balance Sheet for the years ended August 31, 1997, 1996, and 1995.

     3) Statement of Income for years ended August 31, 1997, 1996, and 1995.

     4) Statement of Stockholder's Equity for years ended August 31, 1997,
        1996, and 1995.

     5) Statement of Cash Flows for years ended August 31, 1997, 1996, and
        1995.

     6) Notes to Financial Statements for years ended 1997, 1996, and 1995.

14b. Reports on Form 8-K
     -------------------

     None

14c. Exhibits
     --------
     Article 5 Financial Data Schedule

     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: January 5, 1998
                                                 ---------------

     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:

<TABLE>
<S>                                   <C>
By: Semon E. Knudsen
    -------------------------------         
    Director                          Date: January 5, 1998
    Chairman of the Board                   ---------------

By: James G. Musser                   Date: January 5, 1998
    -------------------------------         ---------------
    Director/President                                     
    (Principal Executive Officer         
    and Controller)                       

By: Jerry D. Luptak                   Date: January 5, 1998
    -------------------------------         ---------------
    Director
    Vice President, Finance and
    General Counsel                   
    (Principal Financial Officer)     

By: Harold Beznos                     Date: January 5, 1998
    -------------------------------         ---------------
    Director Secretary-Treasurer      

By: J. Ted Beebe                      Date: January 5, 1998
    -------------------------------         ---------------
    Executive Vice President          
</TABLE>


                                 Page 10 of 37

<PAGE>   11




                       [FREEDMAN & GOLDBERG LETTERHEAD]















                          INDEPENDENT AUDITORS' REPORT
                          ----------------------------


To the Board of Directors
Knusaga Corporation
D.B.A. Hydraulic Tubes and Fittings
Almont, MI  48003

We have audited the accompanying balance sheets of Knusaga Corporation, D.B.A.
Hydraulic Tubes and Fittings as of August 31, 1997 and 1996 and the related
statement of income, stockholder's equity, and cash flows for the years ended
August 31, 1997 and 1996. These financial statements are the responsibility of
the Company's management.  Our responsibility is to express an opinion on these
financial statements based on our audits.

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, D.B.A.
Hydraulic Tubes and Fittings as of August 31, 1997 and 1996 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
-------------------
Freedman & Goldberg
Certified Public Accountants
Farmington Hills, Michigan
November 5, 1997


                                 Page 11 of 37


<PAGE>   12
                                                             KNUSAGA CORPORATION
                                             D.B.A. HYDRAULIC TUBES AND FITTINGS
                                                                   BALANCE SHEET
================================================================================

                                                  AS OF AUGUST 31, 1997 AND 1996


                                     ASSETS

<TABLE>
<CAPTION>

                                                            1997         1996
                                                        -----------  -----------
<S>                                                     <C>          <C>
Current Assets
  Cash                                                   $  276,294   $   34,020
Accounts Receivable - Trade, Net of Allowance for        
     Doubtful Accounts of $-0-                            1,425,344    1,053,176
  Accounts Receivable - Other                                   200        -0-
  Note Receivable - Officer                                  94,143       50,955
  Accrued Interest Receivable                                 -0-          839
  Inventories                                               573,452      506,203
  Prepaid Expenses                                          185,467      160,579
  Total Current Assets                                    2,554,900    1,805,772
Property and Equipment, Net                               2,091,277    2,097,937
Other Assets
  Deposits                                                    2,646        5,575
  Assets Held for Resale                                      -0-         27,663
  Total Other Assets                                          2,646       33,238
   Total Assets                                          $4,648,823   $3,936,947
================================================================================
</TABLE>



THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

                                Page 12 of 37


<PAGE>   13
                                                             KNUSAGA CORPORATION
                                             D.B.A. HYDRAULIC TUBES AND FITTINGS
                                                                   BALANCE SHEET
================================================================================

                                                  AS OF AUGUST 31, 1997 AND 1996





                      LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>

                                                         1997           1996
                                                      ------------------------ 
<S>                                                   <C>           <C>
Current Liabilities
  Accounts Payable - Trade                            $  693,670    $  619,952
  Current Maturities of Long-Term Debt                   869,611       877,737
  Accrued Expenses                                       426,271       217,241
  Total Current Liabilities                            1,989,552     1,714,930
Other Liabilities
  Accrued Expenses - Non current                         604,900       853,612
  Long-Term Debt - Less Current Maturities               774,762     1,014,367
  Total Other Liabilities                              1,379,662     1,867,979
   Total Liabilities                                   3,369,214     3,582,909
Stockholders' Equity
  Common Stock, $.01 Par Value, 7,000,000 Shares
    Authorized, 7,000,000, Shares Issued and
    Outstanding                                           70,000        70,000
  Preferred Stock, Class A, 4% Non-Cumulative
    Non-Voting, Each 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                               175,000       175,000
  Additional Paid-In Capital                             366,365       366,365
  Retained Earnings (Accumulated Deficit)                668,244      (257,327)
  Total Stockholders' Equity                           1,279,609       354,038
   Total Liabilities and Stockholders' Equity
    (Deficit)                                         $4,648,823    $3,936,947
==============================================================================
</TABLE>



THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

                                Page 13 of 37


<PAGE>   14
                                                             KNUSAGA CORPORATION
                                             D.B.A. HYDRAULIC TUBES AND FITTINGS
                                                             STATEMENT OF INCOME
================================================================================

                                    FOR THE YEARS ENDED AUGUST 31, 1997 AND 1996

<TABLE>
<CAPTION>
                                                                                
                                                          1997         1996     
                                                       -----------------------
<S>                                                    <C>          <C>         
Sales, Net                                             $9,473,273   $8,177,943  
Cost of Sales                                           7,443,903    7,342,353  
Gross Profit                                            2,029,370      835,590  
Selling, General and Administrative Expenses              973,503      671,457  
Operating Income                                        1,055,867      164,133  
Other Income (Expense)                                                          
 Interest Income                                              398          839  
 Interest Expense                                        (162,191)    (196,346) 
 Miscellaneous Income                                     346,048        3,738  
 Gain on Sale of Asset                                        652          961  
  Total Other Income (Expense)                            184,907     (190,808) 
Income Before Income Taxes                              1,240,774      (26,675) 
Income Taxes (Refundable)                                 315,203      (27,733) 
Net Income                                             $  925,571   $    1,058  
==============================================================================


Net Income Per Share                                   $      .13   $    -0-  
==============================================================================
</TABLE>                                                                        
                                                                               
                                                       
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.


                                 Page 14 of 37

<PAGE>   15
                                                             KNUSAGA CORPORATION
                                             D.B.A. HYDRAULIC TUBES AND FITTINGS
                                               STATEMENT OF STOCKHOLDERS' EQUITY
================================================================================

                                    FOR THE YEARS ENDED AUGUST 31, 1997 AND 1996
 



<TABLE>
<CAPTION>  
                                                                    Additional        Retained Earnings  
                                      Common       Preferred         Paid-In            (Accumulated       
                                      Stock          Stock           Capital               Deficit)           
                                     ------------------------------------------------------------------
<S>                                  <C>            <C>              <C>                 <C>                
Balance, September 1, 1995           $70,000        $175,000         $366,365            $(258,385)         
Net Income For the Year                                                                                     
  Ended August 31, 1996                  -0-             -0-              -0-                1,058          
Balance, August 31, 1996              70,000         175,000          366,365             (257,327)         
Net Income for the Year                                                                                     
  Ended August 31, 1997                  -0-             -0-              -0-              925,571          
Balance, August 31, 1997             $70,000        $175,000         $366,365            $ 668,244          
=======================================================================================================     
</TABLE>      
              

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.


                                 Page 15 of 37

<PAGE>   16
                                                             KNUSAGA CORPORATION
                                             D.B.A. HYDRAULIC TUBES AND FITTINGS
                                                         STATEMENT OF CASH FLOWS
================================================================================

                                    FOR THE YEARS ENDED AUGUST 31, 1997 AND 1996

<TABLE>                                                                        
<CAPTION>                                                                      
                                                          1997         1996    
------------------------------------------------------------------------------ 
<S>                                                    <C>          <C>        
Cash Flows From Operations                                                     
 Net Income                                            $  925,571   $    1,058 
 Adjustments to Reconcile Net Income to Net Cash                               
  Provided By Operating Activities                                             
  Depreciation and Amortization                           232,731      194,523 
  (Gain) Loss on Sale of Asset                               (652)        (961)
  (Increase) Decrease In:                                                      
    Accounts Receivable                                  (372,368)     213,065 
    Accrued Interest Receivable                               839         (839)
    Inventories                                           (67,249)      72,509 
    Prepaid Expenses                                      (24,888)     (30,513)
    Asset Held For Resale                                     -0-         (380)
    Deposits                                                2,929          (60)
  Increase (Decrease) In:                                                      
    Accounts Payable                                       73,718     (141,153)
    Accrued Expenses                                      (39,683)     (95,867)
  Net Cash Provided By Operating Activities               730,948      211,382 
Cash Flows From Investing Activities                                           
 Equipment Purchases                                     (199,755)    (360,500)
 Proceeds From Sale of Assets                               2,000        3,500 
 Proceeds From Notes Receivable                            27,955          -0- 
 Payments For Notes Receivable                            (71,143)     (50,955)
   Net Cash Used By Investing Activities                 (240,943)    (407,955)
Cash Flows From Financing Activities                                           
 Proceeds From Debt                                       910,000    1,139,999 
 Principal Payments on Debt                            (1,157,731)  (1,007,808)
  Net Cash Provided By (Used in) Financing                                     
   Activities                                            (247,731)     132,191 
Increase (Decrease) in Cash                               242,274      (64,382)
Balance, September 1                                       34,020       98,402 
Balance, August 31                                     $  276,294   $   34,020 
============================================================================== 
</TABLE>                                                                       
                                                                               

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.


                                       
                                 Page 16 of 37

<PAGE>   17
                                                             KNUSAGA CORPORATION
                                             D.B.A. HYDRAULIC TUBES AND FITTINGS
                                                   NOTES TO FINANCIAL STATEMENTS
================================================================================

                                                        August 31, 1997 and 1996



NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  This summary of significant accounting policies of Knusaga Corporation,
  D.B.A. Hydraulic Tubes and Fittings (the Company) is presented to assist in
  understanding the Company's financial statements.  The financial statements
  and notes are representations of the Company's management who is responsible
  for their integrity and objectivity.  These accounting policies conform to
  generally accepted accounting principles and have been consistently applied
  in the preparation of the financial statements.

     A. Nature of Operations/Major Customers - Knusaga Corporation's operations
     relate mainly to the manufacturing of automotive tubes and fittings for
     the auto industry, with a majority of sales to Ford Motor Company.

     For the years ended August 31, 1997 and 1996 Ford Motor Company sales of
     $8,259,061 and $7,111,000 amounted to 87% and 87% of total sales,
     respectively. This trend is expected to continue in the future.

     Substantially all of the accounts receivable are from the major customers,
     which potentially subjects the Company to concentration of credit risk.
     All receivables are due within thirty days and are unsecured.  It is the
     Company's policy not to require collateral.

     B. Revenues - The Company recognizes revenue from automotive tubes and
     fittings upon shipment.

     C. For purposes of the statement of cash flows, the Company considers all
     short-term debt securities purchased with a maturity of three months or
     less to be cash equivalents.

     D. Property, Equipment and Related Depreciation - Property and equipment
     are recorded at cost.  Depreciation is computed by the straight-line
     method for financial reporting purposes and accelerated methods for tax
     reporting purposes.  Estimated lives range from five to forty years.
     Depreciation charged to operations was $232,731 and $194,523 for the years
     ended August 31, 1997 and 1996, 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.

     E. Inventories - Inventories are stated at lower of cost or market.  Cost
     is determined on the first-in, first-out (FIFO) basis.  Inventory
     classifications as of August 31, 1997 and 1996 consisted of the following:


<TABLE>
<CAPTION>
                                      1997         1996
                                    ---------------------
<S>                                 <C>          <C>
Raw Material                        $350,806     $277,054
Work in Process                      181,481      183,979
Finished Goods                        41,165       45,170

                                    $573,452     $506,203
                                    =====================
</TABLE>




                                 Page 17 of 37

<PAGE>   18
                                                             KNUSAGA CORPORATION
                                             D.B.A. HYDRAULIC TUBES AND FITTINGS
                                                   NOTES TO FINANCIAL STATEMENTS
================================================================================

                                                        August 31, 1997 and 1996


 NOTE 1.  CONTINUED

     F. 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, 1997 and 1996 52% and 58%, respectively
     of the accounts payable - trade was to four major suppliers of aluminum
     and steel tubing.  The Company believes there is no potential credit risk
     pertaining to the major suppliers.

     H. 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.

     I. 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.

     J. Reclassifications - Certain amounts in the 1996 financial statements
     have been reclassified to conform with the 1997 presentation.

NOTE 2.  PREPAID EXPENSES

  The following is a detail of the prepaid expenses as of August 31, 1997 and
  1996:


<TABLE>
<CAPTION>                               1997         1996
                                      ---------------------
<S>                                   <C>          <C>

Prepaid Insurance                     $ 39,617     $ 88,312
Prepaid Taxes                          145,850       72,267
                                 
  Total Prepaid Expenses              $185,467     $160,579
                                      ===================== 
</TABLE>




                                 Page 18 of 37

<PAGE>   19
                                                             KNUSAGA CORPORATION
                                             D.B.A. HYDRAULIC TUBES AND FITTINGS
                                                   NOTES TO FINANCIAL STATEMENTS
================================================================================

                                                        August 31, 1997 and 1996



NOTE 3.  PROPERTY AND EQUIPMENT

  The  major components of property and equipment are as follows:


<TABLE>                                 
<CAPTION>                               
                                              1997         1996   
                                           -----------------------
<S>                                        <C>          <C>        
                                                                   
    Land                                   $   24,847   $   24,847 
    Land Improvements                          10,230       10,230 
    Buildings and Improvements              1,369,011    1,352,872 
    Machinery and Equipment                 1,208,374    1,118,007 
    Furniture and Fixtures                    123,153      111,090 
    Transportation Equipment                  132,245       70,062 
    Obligations Under Capital Leases          207,115      207,115 
    Equipment Under Construction               44,475        -0- 
                                            3,119,450    2,894,223 
    Less:  Accumulated Depreciation         1,028,173      796,286 
    Net Property and Equipment             $2,091,277   $2,097,937 
                                           =======================
</TABLE>                                
                                        
NOTE 4.  ACCRUED EXPENSES               
                                        
  The following is a detail of the curreaccrued expenses as of August 31,
  1997 and 1996.


<TABLE>
<CAPTION>

                                            1997        1996
                                          --------------------
<S>                                       <C>         <C>

    Accrued Insurance                     $  8,319    $ 44,084
    Accrued Interest - Other                 6,101      11,510
    Accrued Payroll                        147,977      82,306
    Accrued and Withheld Payroll Taxes     138,017      10,621
    Accrued Pension                         37,720      22,859
    401K Withholdings                        4,917       4,222
    Accrued Professional Fees               28,200      33,409
    Accrued Taxes                           55,020       8,230
    Total Current Accrued Expenses        $426,271    $217,241
                                          ====================   
</TABLE>

The following is a detail of the non-current accrued expenses as of August 31,
1997 and 1996:


<TABLE>
<CAPTION>
                                              1997       1996
                                            --------------------
<S>                                         <C>         <C>

    Accrued Interest - Shareholders         $371,617    $320,329
    Accrued Payroll - Officers               143,283     443,283
    Accrued Engineering Expenses              90,000      90,000
       Total Non-Current Accrued Expenses   $604,900    $853,612
                                            ====================
                                                                   
</TABLE>

  Per the loan covenants with the bank, the Company cannot pay the accrued
  payroll - officers and engineering expenses shown as non-current without the
  bank's permission.  Management does not anticipate paying the above expenses
  within one year.



                                 Page 19 of 37

<PAGE>   20
                                                             KNUSAGA CORPORATION
                                             D.B.A. HYDRAULIC TUBES AND FITTINGS
                                                   NOTES TO FINANCIAL STATEMENTS
================================================================================

                                                        August 31, 1997 and 1996


NOTE 5.  NOTES RECEIVABLE


<TABLE>
<CAPTION>
                                                              1997        1996
                                                            --------------------
<S>                                                         <C>          <C>
  Non-interest bearing note receivable from an
  officer/stockholder.  The note is unsecured and due on
  demand.                                                   $94,143      $50,955
                                                            ====================
</TABLE>                                                   

The balance of the note receivable from the officer at August 31, 1996 has been
restated at $50,995 versus $27,955 as previously disclosed.  The difference of
$23,000 was previously shown as a note receivable from an unrelated company.

NOTE 6.  NOTES PAYABLE AND OBLIGATIONS UNDER CAPITAL LEASES

  Notes payable and obligations under capital leases consist of the following:


<TABLE>
<CAPTION>
                                                             1997        1996
                                                          ----------  ----------
<S>                                                         <C>         <C>
A. Notes payable -  directors, officers, and
shareholders, bearing interest at 12% per annum. The
notes are payable on demand and are unsecured. Loans
totaling $265,000 have been subordinated to the bank.       $407,253    $407,253

B. Non-interest bearing note payable, replacing prior
years' accrued royalties. Payments on note are
contingent upon the Company reporting a positive net
worth.                                                         -0-        20,284

C. Loan Payable - Bank, payable in monthly installments
of $8,646 plus interest at 1% over the lender's prime
rate, through October, 1998.  The note is secured by
all the assets of the Company. The interest rate at
August 31, 1997 was 9.5%.                                    129,683     233,434

D. 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, 1997 was 9.5%.                                           316,871     391,438

E. 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,
1997 was 9.5%.                                               133,334     173,333

F. Line of Credit - Bank, interest payable in monthly
installments at 1% over lender's prime rate. Principal
is due January 1, 1998.  Note is secured by all assets
of the Company.  The interest rate at August 31, 1997
was 9.5%.                                                    630,000     592,000
</TABLE>




                                 Page 20 of 37

<PAGE>   21
                                                             KNUSAGA CORPORATION
                                             D.B.A. HYDRAULIC TUBES AND FITTINGS
                                                   NOTES TO FINANCIAL STATEMENTS
================================================================================

                                                        August 31, 1997 and 1996



NOTE 6.  CONTINUED


<TABLE>
<S>                                                       <C>         <C>
G.   Obligation Under Capital Lease - equipment, payable
in monthly installments of $187, through February 1997,
including interest at 15.3%.  Secured by the equipment.          -0-          900

H.   Obligation Under Capital Lease - equipment, payable
in monthly installments of $1,292, through July 1997,
including interest at 18.0%.  Secured by the equipment.          -0-       13,096

I.   Obligation Under Capital Lease - equipment, payable
in monthly installments of $331, through July 1997,
including interest at 20.7%.  Secured by the equipment.          -0-        3,038

J.   Obligation Under Capital Lease - equipment, payable
in monthly installments of $363, through July 1997,
including interest at 20.4%.  Secured by the equipment.          -0-        3,339
                                                                           
K.   Obligation Under Capital Lease - machinery, payable
in monthly installments of $532, through April 1997,
including interest at 19.4%.  Secured by the machinery.          -0-        3,031

L.   Obligation Under Capital Lease - machinery, payable
in monthly installments of $573, through November 1998,
including interest at 17.3%.  Secured by the machinery.        7,275       12,518

M.   Obligation Under Capital Lease - machinery, payable
in monthly installments of $444, through September
1997, including interest at 19.2%.  Secured by the
machinery.                                                       -0-        4,477

N.   Obligation Under Capital Lease - improvements,
payable in monthly installments of $628, through
November 1998, including interest at 8.17%.  Secured by
the improvements.                                              8,929       15,445

O.   Loan Payable - Bank, payable in monthly installments
of $731, through December 1998, including interest at
8.49%.  Secured by an automobile.                             11,028       18,518
 Total                                                     1,644,373    1,892,104
 Amounts due within one year                                 869,611      877,737
                                                          $  774,762   $1,014,367
                                                          =======================
</TABLE>




                                 Page 21 of 37

<PAGE>   22
                                                             KNUSAGA CORPORATION
                                             D.B.A. HYDRAULIC TUBES AND FITTINGS
                                                   NOTES TO FINANCIAL STATEMENTS
================================================================================

                                                        August 31, 1997 and 1996



NOTE 6.  CONTINUED

  The  debt and lease maturities for the next five years are as follows:


<TABLE>                                     
                <S>                         <C>
                 August 31, 1998             $  869,611
                 August 31, 1999                553,608
                 August 31, 2000                114,568
                 August 31, 2001                 87,901
                 August 31, 2002                 18,685
                                             $1,644,373
                                             ==========
</TABLE>                 

  Interest expense for the years ended August 31, 1997 and 1996 totaled
  $162,191, and $196,346, respectively.

  Interest expense on obligations under capital leases for the years ended
  August 31, 1997 and 1996 was $4,667 and $11,788, respectively. Depreciation
  expense of equipment held under capital leases for the years ended August 31,
  1997 and 1996 was $26,723 and $26,722, 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

  2.   Maintain a net worth plus subordinated debt of not less than
       $650,000.

  3.   Maintain a ratio of total liabilities to net worth plus subordinated
       debt of not more than 5 to 1.

  4.   Maintain a debt service coverage ratio of not less than 1.25 to 1.

  As of August 31, 1997, 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.




                                 Page 22 of 37

<PAGE>   23
                                                             KNUSAGA CORPORATION
                                             D.B.A. HYDRAULIC TUBES AND FITTINGS
                                                   NOTES TO FINANCIAL STATEMENTS
================================================================================

                                                       August 31, 1997 and 1996



NOTE 9.  INCOME TAXES

  The provision for income taxes consists of the following components:


<TABLE>
<CAPTION>
                                                       1997          1996
                                                     ----------------------
<S>                                                  <C>           <C>
Current:
 Tax Due (Refundable)                                $329,071      $(41,601)
 Tax (Benefit) Recovery of Investment Tax Credits     (13,868)       13,868
  Net Tax Expense (Recovery)                         $315,203      $(27,733)
                                                     ======================
</TABLE>

  Deferred taxes are detailed as follows:


<TABLE>
<CAPTION>
                                                       1997          1996
                                                     ---------------------- 
<S>                                                  <C>           <C>
Deferred Income Tax Liability - Depreciation         $ 41,826      $ 28,492
Deferred Income Tax Assets
    Accrued Expenses                                   64,469       160,443
Valuation Allowance                                   (22,643)     (131,951)
                                                     ======================
Net Deferred Income Tax Asset                          41,826        28,492
Net Deferred Income Taxes                            $  -0-        $  -0-
===========================================================================
</TABLE>

  The valuation allowance was estimated to offset the deferred tax asset
  because it is uncertain that the company will ever realize the tax benefit.

  During the year ended August 31, 1997 the Company utilized investment credits
  totaling $13,868 to offset its current year federal income taxes.

NOTE 10.  RELATED PARTY TRANSACTIONS

 A.  Notes Payable

     As disclosed in Note 6 to the financial statements, certain stockholders
     and officers are major creditors of the Company.  Amounts due to the
     stockholders and officers as of August 31, 1997 and 1996 totaled $407,253.
     Interest accrued on these notes at August 31, 1997 and 1996 totaled
     $371,617 and $320,329, respectively.  Interest expense accrued for the
     years ended August 31, 1997 and 1996 was $51,288 and $48,770,
     respectively.

 B.  Asset Held for Resale

     During the year ended August 31, 1995, the Company purchased an airplane
     for $27,283 from a related party.  It was the Company's intent to sell the
     airplane back to the related party within six months after the year ended
     August 31, 1995.  During the year ended August 31, 1996, the Company
     capitalized $380 of expenses related to the airplane.  During the year
     ended August 31, 1997 the Company decided not to sell the airplane and put
     the asset in service for use by the Company.  $27,633 has been
     reclassified to transportation equipment.




                                 Page 23 of 37

<PAGE>   24
                                                             KNUSAGA CORPORATION
                                             D.B.A. HYDRAULIC TUBES AND FITTINGS
                                                   NOTES TO FINANCIAL STATEMENTS
================================================================================

                                                        August 31, 1997 and 1996



NOTE 11. CASH FLOW DISCLOSURES

  Interest and income taxes paid for the years ended August 31, 1997 and 1996
  were as follows:


<TABLE>
<CAPTION>                                        
             
                                                     1997         1996
                                                  ---------------------
     <S>                                          <C>          <C>
     Interest                                     $116,312     $146,039
                                                  =====================
     Income Taxes                                 $444,300     $ 25,000
                                                  =====================
     Non-Cash Investing Activities        
       Property Acquired Under Capital        
                 Lease                            $    -0-     $ 21,452
                                                  =====================
     Debt Financing For Purchase of        
       Auto                                       $    -0-     $ 23,172
                                                  =====================
</TABLE>

  Income tax refunds received during the years ended August 31, 1997 and 1996
  was $16,647 and $26,845, 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, 1997 and 1996 was $37,720 and
  $22,859, respectively.  Pension contributions due to the plan at August 31,
  1997 and 1996 were $49,460 and $22,859, respectively.  As of August 31, 1997
  the defined benefit pension plan is funded in accordance with ERISA.



                                 Page 24 of 37

<PAGE>   25
                                                             KNUSAGA CORPORATION
                                             D.B.A. HYDRAULIC TUBES AND FITTINGS
                                                   NOTES TO FINANCIAL STATEMENTS
================================================================================

                                                        August 31, 1997 and 1996



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, 1997 and 1996.


<TABLE>
<CAPTION>
                                                                           1997          1996
                                                                         ----------------------
<S>                                                                      <C>           <C>
Actuarial present value of benefit obligations:
    Accumulated benefit obligations, including vested benefits of
        $124,051 and $79,658, respectively.                              $143,126      $ 99,372

Projected benefit obligation for service rendered to date.                182,428        99,704

Plan assets at fair value                                                 135,413        78,264
Projected benefit obligation in excess of plan assets.                     47,015        21,440

Unrecognized net gain from past experience different from that
    assumed and effect of changes in assumptions.                           1,662        21,626

Prior service cost not yet recognized in net periodic pension cost        (11,193)        -0-

Unrecognized net obligation at date of initial application of FAS-87      (34,827)      (36,221)

(Prepaid) accrued cost                                                   $  2,657      $ (6,845)
===============================================================================================
Net pension cost for 1997 and 1996 includes the following components:
    Service cost - benefits earned during the period                     $ 28,692      $ 28,496
    Interest cost on projected benefit obligation                           6,486         5,272
    Interest cost due to late quarterly contributions                       -0-           -0-

    Actual return on plan assets                                          (26,417)       (7,627)
    Amortization of Actuarial Gains and Net Transition Asset               21,649         4,966

Net periodic pension costs                                               $ 30,410      $ 31,107
===============================================================================================
</TABLE>

NOTE 13.  401K PROFIT SHARING PLAN

  The Company sponsors a 401K profit sharing plan that covers all employees of
  the Company.  The plan allows eligible employees to withhold amounts from
  their pay on a pre-tax basis and invest in self directed investment accounts.
  The company has no obligation to make any contributions to the plan.




                                 Page 25 of 37

<PAGE>   26
                                                             KNUSAGA CORPORATION
                                             D.B.A. HYDRAULIC TUBES AND FITTINGS
                                                   NOTES TO FINANCIAL STATEMENTS
================================================================================

                                                        August 31, 1997 and 1996



NOTE 14.  SETTLEMENT AGREEMENT

  During the year ended August 31, 1997, the Company reached a settlement with
  Chrysler Corporation regarding the production of a van seat line which was
  discontinued during the year ended August 31, 1995.  The settlement is for
  reimbursements of costs incurred by the Company in preparation of the
  production volumes promised by Chrysler Corporation which were never
  realized.  The amount of this settlement was $350,000 and is included in
  miscellaneous income on the statement of income for the year ended August 31,
  1997.






                                 Page 26 of 37

<PAGE>   27




                       [FREEDMAN & GOLDBERG LETTERHEAD]


                         INDEPENDENT AUDITORS' REPORT

To the Board of Directors
Knusaga Corporation
D.B.A. Hydraulic Tubes and Fittings
Almont, MI  48003

We have audited the accompanying balance sheet of Knusaga Corporation, D.B.A.
Hydraulic Tubes and Fittings as of August 31, 1995, and the related statement
of income, statement of changes in stockholders' equity and cash flows for the
year then ended. 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 audit.

We conducted our audit 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, D.B.A.
Hydraulic Tubes and Fittings as of August 31, 1995 and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.

Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole.  The supplementary schedules on pages 12 through
17 are presented for purposes of additional analysis and are not a required
part of the basic financial statements.  Such information has been subjected to
the auditing procedures applied in the audit of the basic financial statements
and, in our opinion, is fairly stated in all material respects in relation to
the basic financial statements taken as a whole.

Respectfully,


/s/ Freedman & Goldberg
-----------------------
Freedman & Goldberg
Certified Public Accountants
Farmington Hills, Michigan
November 28, 1995




                                 Page 27 of 37
<PAGE>   28
                                                             KNUSAGA CORPORATION
                                             D.B.A. HYDRAULIC TUBES AND FITTINGS
                                                                   BALANCE SHEET
================================================================================

                                                           AS OF AUGUST 31, 1995


<TABLE>
<CAPTION>

                                    ASSETS               
<S>                                                       <C>         <C>
Current Assets
     Cash                                                 $   98,402
     Accounts Receivable - Trade, Net                      1,246,241
     Accounts Receivable - Other                              20,000
     Inventories                                             578,712
     Prepaid Expenses                                        130,066
          Total Current Assets                                        $2,073,421
Property and Equipment, Net                                            1,874,680
Other Assets
     Deposits                                                 20,710
     Assets Held for Resale                                   27,283
          Total Other Assets                                              47,993
               Total Assets                                           $3,996,094
================================================================================

                     LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities
     Accounts Payable - Trade                             $  761,105
     Current Maturities of Long-Term Debt                    907,893
     Accrued Expenses                                      1,166,720
          Total Current Liabilities                                   $2,835,718
Long-Term Debt - Less Current Maturities                                 807,396
          Total Liabilities                                            3,643,114
Stockholders' Deficit
     Common Stock, $.01 Par Value,
    7,000,000 Shares Authorized,
    7,000,000 Shares Issued and Outstanding                   70,000       
     Preferred Stock, Class A, 4% Non-Cumulative
    Non-Voting, Each 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                    175,000
     Additional Paid-In Capital                              366,365
     Accumulated Deficit                                    (258,385)
          Total Stockholders' Equity                                     352,980
          Total Liabilities and Stockholders' Equity                  $3,996,094
================================================================================
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.


                                 Page 28 of 37
<PAGE>   29
                                                             KNUSAGA CORPORATION
                                             D.B.A. HYDRAULIC TUBES AND FITTINGS
                                                             STATEMENT OF INCOME
================================================================================

                                              FOR THE YEAR ENDED AUGUST 31, 1995

<TABLE>
<CAPTION>

<S>                                                      <C>         <C>
Sales, Net                                                           $9,566,217
Cost of Sales                                                         8,092,147
Gross Profit                                                          1,474,070
Selling, General and Administrative Expenses                            843,211
Operating Income                                                        630,859
Other Income (Expense)
  Interest Expense                                       $(157,065)
  Miscellaneous Income                                      13,516
  Gain on Sale of Asset                                      4,187
   Total Other Income (Expense)                                      $ (139,362)
Income Before Income Taxes                                              491,497
Income Taxes                                                            124,846
Net Income From Continuing Operations                                   366,651
Discontinued Operations:
  Loss from operations of van seat production
  disposed of (net of income tax benefits of $8,900)                    (17,234)
                                                                               
Net Income Before Extraordinary Items                                   349,417
Extraordinary Items:
  Loss of disposal of equipment for van seat
  production (net of income tax benefit of $11,600)         (22,649)
  Utilization of operating loss carryforward                 47,200
Net of Extraordinary Items                                               24,551
Net Income                                                           $  373,968
===============================================================================


Net Income Per Share                                                     $  .05
===============================================================================
</TABLE>


THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

                                 Page 29 of 37

<PAGE>   30
                                                             KNUSAGA CORPORATION
                                             D.B.A. HYDRAULIC TUBES AND FITTINGS
                                    STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
================================================================================

                                              FOR THE YEAR ENDED AUGUST 31, 1995







<TABLE>
<CAPTION>
                                   Common                            Additional Paid-     Accumulated
                                   Stock     Preferred Stock           In Capital           Deficit
                              -----------------------------------------------------------------------
<S>                               <C>             <C>                   <C>                <C>
Balance, September 1,
  1994, as Previously Reported     $43,982         $175,000              $242,384           $(577,576)


Adjustment in Connection
  with Pooling of Interests         26,018              -0-               123,981             (54,777)

Balance, September 1, 1994,
  as Restated                       70,000          175,000               366,365            (632,353)

Net Income                             -0-              -0-                   -0-             373,968

Balance, August 31, 1995           $70,000         $175,000              $366,365           $(258,385)
=====================================================================================================
</TABLE>


THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

                                 Page 30 of 37

<PAGE>   31
                                                             KNUSAGA CORPORATION
                                             D.B.A. HYDRAULIC TUBES AND FITTINGS
                                                         STATEMENT OF CASH FLOWS
================================================================================

                                              FOR THE YEAR ENDED AUGUST 31, 1995

<TABLE>                                                              
<S>                                                   <C>            <C>       
-----------------------------------------------------------------------------  
Cash Flows From Operations                                                     
 Net Income                                           $ 373,968                
 Adjustments to Reconcile Net Income to Net                                    
  Cash Provided By Operating Activities                                        
   Depreciation and Amortization                        161,916                
   Extraordinary Item - Loss on Disposal of                                    
     Equipment                                          34,249                 
   Gain on Sale of Asset                                (4,187)                
   (Increase) Decrease In:                                                     
     Accounts Receivable                                215,117                
     Inventories                                          6,338                
     Prepaid Expenses                                   (70,348)               
     Asset Held For Resale                              (27,283)               
     Deposits                                             2,265                
   Increase (Decrease) In:                                                     
     Accounts Payable                                  (185,041)               
     Accrued Expenses                                  (103,227)               
   Net Cash Provided By Operating                                              
     Activities                                                      $ 403,767 
Cash Flows From Investing Activities                                           
  Equipment Purchases                                  (296,705)               
  Proceeds From Sale of Assets                           55,100                
   Net Cash Used By Investing Activities                              (241,605)
Cash Flows From Financing Activities                                           
  Principal Payments on Debt                                           (83,705)
Increase in Cash                                                        78,457 
Balance, September 1, 1994, as Previously Reported       15,868                
Adjustment in Connection with Pooling of Interests        4,077                
Balance, September 1, 1994, as Restated                                 19,945 
Balance, August 31, 1995                                             $  98,402 
============================================================================== 
</TABLE>                                                                    


THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

                                 Page 31 of 37

<PAGE>   32
                                                             KNUSAGA CORPORATION
                                             D.B.A. HYDRAULIC TUBES AND FITTINGS
                                                   NOTES TO FINANCIAL STATEMENTS
================================================================================

                                                                 AUGUST 31, 1995



NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

This summary of significant accounting policies of Knusaga Corporation, D.B.A.
Hydraulic Tubes and Fittings (the Company) is presented to assist in
understanding the Company's financial statements.  The financial statements and
notes are representations of the Company's management who is responsible for
their integrity and objectivity.  These accounting policies conform to
generally accepted accounting principles and have been consistently applied in
the preparation of the financial statements.

 A.  Nature of Operations/Major Customers - Knusaga Corporation's operations
 relate mainly to the manufacturing of automotive tubes and fittings for the
 auto industry, with a majority of sales to Ford Motor Company.

 For the year ended August 31, 1995, Ford Motor Company sales of $8,715,466
 amounted to 91% of total sales.  This trend is expected to continue in the
 future.

 Substantially all of the accounts receivable are from the major customers,
 which potentially subjects the Company to concentration of credit risk.  All
 receivables are due within thirty days and are unsecured.  It is the Company's
 policy not to require collateral.

 B.  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. Depreciation charged to operations was $161,460 for the year ended
 August 31, 1995.  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.

 C.  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, 1995 consisted of the following:


<TABLE>                                         
                    <S>                         <C>
                     Raw Material                $281,614
                     Work in Process              229,948
                     Finished Goods                67,150
                                                 $578,712
                                                 ========   
</TABLE>                   

 D.  Royalty Income - In January 1991, Knusaga entered into a royalty agreement
 with Integram Seating for patented seat risers.  Integram pays Knusaga
 royalties for seat risers sold by Integram at a rate of 9.46% of each unit
 sold.  The agreement ended on July 31, 1995, or on such date as Integram
 ceases to use the risers.  Integram discontinued the use of the patented seat
 risers in May, 1995.

 Royalty income for the year ended August 31, 1995, was $128,390 which is
 included in the discontinued operations - loss from operations of van seat
 production disposed of.  See Note 13 for details.

 E.  Major Supplier - At August 31, 1995, 61% of the accounts payable - trade,
 was to a major supplier.  The Company believes there is no potential credit
 risk pertaining to the major supplier.



                                 Page 32 of 37

<PAGE>   33
                                                             KNUSAGA CORPORATION
                                             D.B.A. HYDRAULIC TUBES AND FITTINGS
                                                   NOTES TO FINANCIAL STATEMENTS
================================================================================

                                                                 AUGUST 31, 1995



NOTE 2.  LOAN COSTS

 Costs incurred in connection with the Company's securing of a loan from
 Michigan National Bank in October, 1989 are being amortized on a straight line
 basis over the term of the loan.  Amortization expense totaled $456 for the
 year ended August 31, 1995.

NOTE 3.  PREPAID EXPENSES

 The following is a detail of the prepaid expenses as of August 31, 1995:


<TABLE>                                              
       <S>                               <C>          
        Prepaid Insurance                $100,910    
        Prepaid Taxes                      29,156    
         Total Prepaid Expenses          $130,066    
                                         ========    
</TABLE>                                             
                                                          
NOTE 4.  PROPERTY AND EQUIPMENT

The major components of property and equipment are as follows:


<TABLE>
   <S>                                       <C>
    Land                                      $   24,847
    Land Improvements                             10,230
    Buildings                                  1,293,605
    Machinery and Equipment                      846,478
    Furniture and Fixtures                        72,607
    Autos and Truck                               58,909
    Obligations Under Capital Leases             185,663
                                               2,492,339
    Less:  Accumulated Depreciation              617,659
    Net Property and Equipment                $1,874,680
                                              ==========
</TABLE>

NOTE 5.  ACCRUED EXPENSES

 The  following is a detail of the accrued expenses as of August 31, 1995.



<TABLE>
   <S>                                       <C>
    Accrued Insurance                         $   71,845
    Accrued Interest - Shareholders              271,628
    Accrued Interest - Other                       9,904
    Accrued Payroll                              569,860
    Accrued Pension                               12,131
    Accrued Professional Fees                     22,225
    Accrued Research & Development Expenses       90,000
    Accrued Taxes                                119,127
     Total Accrued Expenses                   $1,166,720
                                              ==========
</TABLE>




                                 Page 33 of 37


<PAGE>   34
                                                             KNUSAGA CORPORATION
                                             D.B.A. HYDRAULIC TUBES AND FITTINGS
                                                   NOTES TO FINANCIAL STATEMENTS
================================================================================

                                                                 AUGUST 31, 1995



NOTE 6.  NOTES PAYABLE AND OBLIGATIONS UNDER CAPITAL LEASES

Notes payable and obligations under capital leases consist of the following:


A. Notes payable -  directors, officers, and shareholders, bearing
interest at annual rates of 10% to 12%.  The notes are payable on
demand and are unsecured.                                               $407,253

B. Non-interest bearing note payable, replacing prior years'
accrued royalties. Payments on note are contingent upon the
Company reporting a positive net worth.                                   35,284

C. Loan Payable - Bank, payable in monthly installments of $24,300
through October 1994, including interest at 1 1/2% over Michigan
National Bank's prime rate.  The note matured October, 1994 at
which time the remaining principle was refinanced into two term
loans with maturity dates of October 1998, and October 2001,
including interest at 1% over the lender's prime rate.  The note
is secured by all the assets of the Company.   The interest rate
at August 31, 1995 was 9.75%.                                            803,192

D. Line of Credit - Bank, interest payable in monthly installments
at 1% over Michigan National Bank's prime rate. Principal is due
October, 1995.  Note is secured by all assets of the Company.  The
interest rate at August 31, 1995 was 9.75%.                              390,000

E. Obligation Under Capital Lease - machinery, payable in monthly
installments of $1,395, through November 1995, including interest
at 13.6%.  Secured by the machinery.                                       2,712

F. Obligation Under Capital Lease - equipment, payable in monthly
installments of $187, through February 1997, including interest at
15.3%.  Secured by the equipment.                                          2,842

G. Obligation Under Capital Lease - machinery, payable in monthly
installments of $681, through November 1995, including interest at
15.6%.  Secured by the machinery.                                          1,994

H. Obligation Under Capital Lease - equipment, payable in monthly
installments of $1,292, through July 1997, including interest at
18.0%.  Secured by the equipment.                                         25,287

I. Obligation Under Capital Lease - equipment, payable in monthly
installments of $331, through July 1997, including interest at
20.7%.  Secured by the equipment.                                          6,101

J. Obligation Under Capital Lease - equipment, payable in monthly
installments of $363, through July 1997, including interest at
20.4%.  Secured by the equipment.                                          6,713

K. Obligation Under Capital Lease - machinery, payable in monthly
installments of $532, through April 1997, including interest at
19.4%.  Secured by the machinery.                                          8,325

L. Obligation Under Capital Lease - machinery, payable in monthly
installments of $573, through November 1998, including interest at
17.3%.  Secured by the machinery.                                         16,990




                                 Page 34 of 37

<PAGE>   35
                                                             KNUSAGA CORPORATION
                                             D.B.A. HYDRAULIC TUBES AND FITTINGS
                                                   NOTES TO FINANCIAL STATEMENTS
================================================================================

                                                                AUGUST 31, 1995



M.  Obligation Under Capital Lease - machinery, payable in monthly
installments of $444, through July 1997, including interest at
19.2%.  Secured by the machinery.                                          8,596
 Total                                                                 1,715,289
 Amounts due within one year                                             907,893
                                                                      $  807,396
                                                                      ==========
The  debt and lease maturities for the next five years are as follows:

                                                         
                August 31, 1996               $  907,893 
                August 31, 1997                  352,792 
                August 31, 1998                  184,389 
                August 31, 1999                  180,303 
                August 31, 2000                   89,912 
                                              $1,715,289 
                                              ========== 
                                                         
  Interest expense for the year ended August 31, 1995 totaled $157,065. 
  Interest expense included in the loss from operations of van seat
  production disposed of totaled $33,019 for the year ended August 31, 1995.

  Although notes payable to directors, officers, and shareholders
  totaling $407,253 are due upon demand, $105,836 have been classified as non
  current as the Company does not expect to pay these balances within the next
  fiscal year.

NOTE 7.  PER SHARE COMPUTATION

  Earnings per share for 1995 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 8.  RELATED PARTY TRANSACTIONS

A.   Notes Payable

  As disclosed in Note 6 to the financial statements, certain
  stockholders and officers are major creditors of the Company.  Amounts due to
  the stockholders and officers as of August 31, 1995 totaled $407,253. 
  Interest accrued on these notes at August 31, 1995 totaled $271,559. 
  Interest paid for the year ended August 31, 1995 was $-0-.

B.   Asset Held for Resale

  The Company purchased an airplane for $27,283 from a related party.  It
  is the Company's intent to sell the airplane back to the related party within
  six months after the year ended August 31, 1995.

NOTE 9.  RESEARCH AND DEVELOPMENT EXPENSES

  The amounts expensed as research and development expenses for the year
  ended August 31, 1995 was $75,000.



                                 Page 35 of 37

<PAGE>   36
                                                             KNUSAGA CORPORATION
                                             D.B.A. HYDRAULIC TUBES AND FITTINGS
                                                   NOTES TO FINANCIAL STATEMENTS
================================================================================

                                                                 AUGUST 31, 1995



NOTE 10. CASH FLOW DISCLOSURES

Interest and income taxes paid for the year ended August 31, 1995 were as
follows:


<TABLE>                                                   
<S>                                                       <C>
           Interest                                       $142,840 
                                                          ======== 
           Income Taxes                                   $ 64,000 
                                                          ======== 
                                                                   
           Non-Cash Investing Activities                           
               Property Acquired Under Capital Lease      $ 12,330 
                                                          ======== 
               Proceeds Due From Sale of Asset            $ 20,000 
                                                          ========
</TABLE>   

NOTE 11. DEFINED BENEFIT PENSION PLAN

The Company sponsors a defined benefit pension plan that cover 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 year
ended August 31, 1995 was $12,131.  Pension contributions due to the plan at
August 31, 1995 were $12,131.  As of August 31, 1995 the defined benefit
pension plan is funded in accordance with ERISA.


NOTE 12. COMPANY MERGER

On September 1, 1994, the Company acquired Hydraulic Tubes and Fittings, Inc.
in a business combination accounted for as a pooling of interests.  Hydraulic
Tubes and Fittings, Inc. which engages in the manufacturing of automotive
tubing for the auto industry became a wholly owned subsidiary of the Company
through the exchange of 2,601,753 shares of the Company's common stock for all
of the outstanding stock of Hydraulic Tubes and Fittings, Inc.  Hydraulic Tubes
and Fittings, Inc. outstanding stock was then effectively canceled.  The
accompanying financial statements for the year ended August 31, 1995 are based
on the assumptions that the companies were combined for the full year.

NOTE 13. EXTRAORDINARY ITEMS\DISCONTINUED OPERATIONS

A. As described in Note 12, on September 1, 1994, Hydraulic Tubes and Fittings,
Inc. was acquired in a business combination accounted for as a pooling of
interests.  In January, 1995, the Knusaga Corporation's van seat production was
discontinued by Chrysler Corporation.  The results of operation from the van
seat production is shown as a loss from discontinued operations of $17,234 (net
of income tax benefit of $8,900).

Net sales of the van seat production for the year ended August 31, 1995 were
$203,284.  This amount is not included in net sales in the accompanying income
statement.

B. For the year ended August 31, 1995, the Company reported as an extraordinary
item a loss of $22,649 (net of income tax benefit of $11,600) on disposal of
equipment from van seat production. Equipment was sold for $70,000 and all
other equipment disposed of was scrapped.

C. As of August 31, 1994, the Corporation utilized a net operating loss
carryover of $138,758 available to offset federal taxable income.  The net tax
benefit of $47,200 was reported as an extraordinary item.

In addition, the Corporation utilized investment tax credits aggregating
$23,699 for the year ended August 31, 1995.



                                Page 36 of 37
<PAGE>   37


                              INDEX TO EXHIBITS


EXHIBIT NO.                                     DESCRIPTION
-----------                                     -----------
   27                                           Financial Data Schedule