<PAGE>   1


                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

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

        For fiscal year ended August 31, 1999 Commission File No. 0-7795

                               KNUSAGA CORPORATION
--------------------------------------------------------------------------------
             (Exact name of Registrant as Specified in its Charter)
<TABLE>
<CAPTION>
       DELAWARE                                               62-1004034
<S>                                                 <C>
------------------------------------------          --------------------------------------
(State or other jurisdiction of incorporation or    (I.R.S. Employer Identification Number)
organization)
</TABLE>


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

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

                     Common Stock, Par Value $.01 Per Share

--------------------------------------------------------------------------------
                                (Title of Class)

Number of shares of common stock outstanding as of August 31, 1999:  7,000,000

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

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

                     Yes X                     No
                        -----                    -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
           -----

Registrant's revenue for fiscal year ended August 31, 1999:  $11,843,848.


                                  Page 1 of 28
<PAGE>   2


                                     PART I

Item 1.   DESCRIPTION OF BUSINESS.

       Knusaga Corporation ("Registrant") was originally incorporated in the
State of Delaware on May 28, 1971. As of its fiscal year ended August 31, 1999,
Registrant was engaged in the fabrication and sale of steel, aluminum and copper
tubes for use in the truck industry and power seat tracks for the automotive
aftermarket.

       During said fiscal year, Registrant shipped various air intake, exhaust
and radiator tubes for medium and large over-the-road trucks. Registrant
acquired this line of business on September 1, 1994, from a group of
Registrant's shareholders through an issuance of 2,601,753 shares of its common
stock for all of the issued and outstanding stock of Hydraulic Tubes and
Fittings, Inc., a closely held Michigan corporation, followed by a merger of
Hydraulic Tubes and Fittings, Inc., into Registrant. At the time of said
acquisition, the shareholders of Hydraulic Tubes and Fittings, Inc.,
collectively owned 91.26% of the issued and outstanding common stock of
Registrant. Following said acquisition, said shareholders' ownership of
Registrant's common stock increased to 94.51%.

       In January of 1998, Registrant acquired a power seat track business
from ITT Electric Systems, Inc.. Equipment and tooling was moved from the ITT
facility in Rochester, NY to a facility leased by the Registrant in Imlay City,
MI during January of 1998 and production of the seat track began in February of
1998.

       The principal customer for Registrant's air intake, exhaust and radiator
tubes is Freightliner Corporation (Freightliner), which accounted for 71% of
Registrant's sales for said products during its fiscal year ended August 31,
1999. Registrant's second biggest customer is Ford Motor Company ("Ford"), which
accounted for 15% of Registrant's sales for said products during said fiscal
year.

       Alpha Tube, Michigan Extruded Aluminum and United Industries are
Registrant's three largest suppliers. Registrant issues periodic purchase orders
to its suppliers for specific quantities on an as needed basis, which for
purchases from Michigan Extruded Aluminum and United Industries are generally
for six to eight week projected requirements. Such purchase orders represent the
only enforceable formal agreement between the Registrant and its suppliers.

       The Registrant is a tier one supplier to Ford, Freightliner, Nova Bus,
and Volvo and deals with each on a just-in-time inventory basis from a rolling
ten to fifteen working day firm shipping schedule.

       The Registrant's customers issue purchase orders to the Registrant for
specific parts. As with Registrant's purchase orders to its vendors, customer
purchase orders represent the only enforceable formal agreement between the
Registrant and each company with respect to Registrant's products.

       Registrant's firm order backlog is just ten to fifteen working days.


                                  Page 2 of 28

<PAGE>   3

       There are several competitors in the truck metal tube fabricating
business, with Northern Tube being Registrant's major competitor for Ford's
medium and large over-the-road truck tube business. Truck suppliers compete on
the basis of price, quality, technology and on-time delivery.

       The principal customers for the Registrant's seat tracks are
recreational vehicle manufacturers. The Regstrant uses distributors to market
the product.

       Research and development ("R&D") expenditures were made to Travel
Products. Originally the Registrant paid Travel Products a 3% royalty, but for
the past several years the Registrant has been paying Travel Products a monthly
fee for R&D work with adjustments for extra work. R&D expenditures for the last
three fiscal years were $60,000 in 1999, $185,000 in 1998, and $60,000 in 1997

       The Registrant has 110 employees.

       The Registrant does not do any promotional advertising. The Registrant
does not own any patents or trademarks which are material to its business.

       The Company's computers and computer software have been updated to be Y2K
compliant.


Item 2.DESCRIPTION OF PROPERTY

       The Registrant owns a manufacturing building with attached office space
and an attached warehouse located on 10 acres of land at 3578 South Van Dyke
Road, Almont, Michigan. Registrant had previously been leasing office space in
said facility from Hydraulic Tubes and Fittings, Inc., and acquired ownership of
the entire facility when Hydraulic Tubes and Fittings, Inc., was merged into the
Registrant. The Registrant leases a facility in Imlay City, MI which it uses for
the production of seat tracks. It also leases a building in St. Thomas, Ontario
which it uses to sequence exhaust systems into Freightliner's Sterling truck
plant.

       Registrant owns certain fabricating equipment, which is used for the
fabrication of steel, aluminum, and copper tubes and certain assembly equipment
and tooling which is used for the production of power seat tracks.

Item 3. LEGAL PROCEEDINGS

       Registrant is not currently involved in any pending material litigation.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

       Not applicable.



                                  Page 3 of 28
<PAGE>   4



                                     PART II

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

       5 (a) The principal market for the Registrant's common stock is the
over-the-counter market. Due to the infrequent trading of Registrant's stock, no
quotations are available.

       5 (b) As of August 31, 1999, there were approximately 1,592 shareholders
of Registrant's common stock.

       5 (c) Registrant has not paid any dividends in the past two (2) years.
This failure to pay dividends is due solely to financial considerations. The
Registrant is not under any legal restrictions imposed by its Articles of
Incorporation, Bylaws, express convenants in loan agreements or other
obligations to third parties with regard to dividend payments, although payment
of dividends could not be made if after giving effect to such payment an event
of default would arise by virtue of such payment. The Registrant does not
anticipate the payment of any cash dividends in the foreseeable future.

Item 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS

      6 (a) Net sales for the fiscal year ended August 31, 1999, increased by
$2,952,169 or 33.2% from the year ended August 31, 1998, which sales had
decreased by $581,594 or 6.1% from the prior fiscal year. The change in sales
for fiscal year 1999 was a result of two factors.

     In November of 1997 Ford discontinued production of Medium Trucks at its
Kentucky truck plant. Ford did not resume production of Medium Trucks in Mexico
until March of 1998. In December of 1997 Ford discontinued production of Heavy
Trucks at the plant and sold the Heavy Truck business to Freightliner
Corporation. Freightliner did not resume production of the Heavy Truck at their
St. Thomas, Ontario plant until March of 1998. The Registrant continues to
supply the same parts for the medium and heavy trucks after these changes,
however there was an interruption in production from November 1997 until March
of 1998. During the current fiscal year production returned to normal volume
resulting in $1,080,807 or 16.7% increased volume in fiscal year 1999 over the
fiscal year ending August 31, 1998. The former Ford Heavy Truck is now marketed
by Freightliner under the Sterling brand name.

     The seat track line of business provided $2,410,865 of additional sales in
the February through August 1998 period. In the fiscal year end August 31, 1999,
sales of $4,201,377 in seat tracks representing a full year of production
resulted in increased sales of $1,790,512 or 74.3% over 1998.

     Cost of goods sold in fiscal year 1999 decreased to 86.1% of sales as a
result of improved overhead absorption with the higer sales volume. This
compares to 89.5% in the fiscal year 1998 and 78.6% in the fiscal year 1997.
Selling, general, and administrative expenses in fiscal year 1999 increased by
$215,527 as a result of increased sales activity.


                                  Page 4 of 28

<PAGE>   5


       The events of fiscal 1999 reduced the Registrant's sales concentration
with Ford from 43% in fiscal 1998 to 10% in fiscal 1999. Freightliner sales
increased to 46% in fiscal 1999 versus 14% in fiscal 1998 which reflected only
6 months of shipments. Seat track sales were 36% of sales. Seat tracks are sold
to distributors who in turn sell to end users.

       6(b) Liquidity and Capital Resources. The Registrant's working capital
position increased in fiscal year 1999 to $348,869 on August 31, 1999, from a
working capital position of $313,823 on August 31, 1998. The increase in working
capital during fiscal 1999 is largely the result of increased sales activity in
both the tubing and seat track sections of the business.

       Two loans payable to Michigan National Bank mature in December 2000 and
October 2001, bear interest at 1% over the lender's prime rate and are secured
by all assets of the Registrant. At August 31, 1999, the outstanding aggregate
principal balance of both notes was $221,068 and the applicable interest rate
was 9.5%.

       Six loans payable to Michigan National Bank mature in January 2000,
January 2002, April 2003, August 2003, December 2003 and April 2004, bear
interest at .5% over the lender's prime rate and are secured by all assets of
Registrant. At August 31, 1999, the outstanding aggregate principal balance was
$421,207 and the applicable interest rate was 9.5%.

       Registrant has a line of credit with Michigan National Bank with interest
payable in monthly installments at .5% over said bank's prime rate. The note is
secured by all assets of the Registrant and the principle is due in January of
2000. At August 31, 1999, the outstanding balance was $1,043,761 and the
applicable interest rate was 9.5% The Registrant has no reason to believe the
bank will not extend the maturity of this line of credit at least until January
2001.
       The Registrant does not have any material commitment for capital
expenditures in the current fiscal year.

Item 7.FINANCIAL STATEMENTS

       The report of independent auditors and consolidated financial statements
       included on pages 10 through 29 of the annual financial report for the
       year ended August 31, 1999 and 1998 are incorporated herein by reference.

Item 8.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL

       DISCLOSURE.

       No response required.

                                  Page 5 of 28
<PAGE>   6



                                    PART III.

Item 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT; COMPLIANCE WITH
SECTION 16(a) OF THE EXCHANGE ACT
<TABLE>
<CAPTION>

                     NAME                   AGE                        POSITION
                     ----                   ---                        --------

<S>                                          <C>          <C>
         James G. Musser, Jr.                64                   Director/President
         Jerry D. Luptak                     77           Director/Vice President Finance and
                                                                    General Counsel
         Harold Beznos                       61              Director/Secretary-Treasurer
         J. Ted Beebe                        69                Executive Vice President
</TABLE>


       The directors were elected in March, 1978 at the annual stockholders
meeting to serve until their successors are duly elected and qualified. Because
Registrant has not had another stockholders meeting, the directors have
continued to act in their present capacities as directors of Registrant. The
officers were appointed by the Board of Directors by Unanimous Written Consent
effective March 3, 1997.

     The following outlines the past and present occupations and business
experience of the executive officers of the Registrant.

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

          MR. LUPTAK has served in his present capacities with the Registrant
     since September 1, 1977. Currently, and for more than five years, he has
     been Chairman of the Board and Chief Executive Officer (formerly President)
     of Armada Corporation, a manufacturer of metal alloys, and has been
     actively engaged in real estate development including multifamily
     residential, single family residential, retail and office buildings. He
     devotes approximately 2% of his time per month to the business affairs of
     the Registrant.

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

          MR. BEEBE has been the Executive Vice President of the Registrant
     since November, 1979. He devotes 100% of his time per month to the business
     affairs of the Registrant.


Items 10
and 12.   EXECUTIVE COMPENSATION AND CERTAIN RELATIONSHIPS
          AND RELATED TRANSACTIONS.

       In the fiscal year ended August 31, 1999, Mr. Musser was paid $100,000in
  salary and Mr. Beebe was paid $78,000 in salary. None of the other directors
  or officers received any direct or indirect remuneration during the fiscal
  year ended August 31, 1999, and none is anticipated in the fiscal year endin
  August 31, 2000.

       Messrs. Beznos, Knudsen (estate), Luptak, and Musser have collectively
  made working capital loans to the Corporation. These loans are payable on
  demand and are represented by a single note bearing an annual interest rate of


                                  Page 6 of 28

<PAGE>   7

  12%, with principal and interest originally payable June, 1990. The
  outstanding principal balance on this note at August 31, 1999, was $165,836.
  As a result of the merger of Hydraulic Tubes and Fittings, Inc., into
  Registrant, the Registrant assumed the obligation for repayment of demand
  loans payable to Messrs. Beznos, Knudsen (estate), and Luptak bearing an
  annual interest rate of 12% and having an aggregate unpaid principal balance
  at August 31, 1999, of $141,417. The information set forth under Note 10 in
  the Financial Statements is incorporated by reference.

       In March and April of 1990, Jay A. Fishman, as Trustee of the Paola M.
  Luptak Irrevocable Trust U/A/D August 20, 1970, and Frieda Applebaum, as
  Trustee of the Beznos Family Irrevocable Trust U/A/D February 2, 1976, each
  loaned $50,000 to the Registrant as working capital in return for which they
  each received a note bearing an annual interest rate of 12%, with principal
  and interest payable on demand. The principal balance of these notes at August
  31, 1999, was $50,000 each. The beneficiaries of the Beznos Family Irrevocable
  Trust are beneficial shareholders of the Registrant and are related to Harold
  Beznos, an officer and director of the Registrant. The note originally issued
  to the Paola M. Luptak Irrevocable Trust has been assigned and is presently
  held by Mayfair Associates Limited Partnership.

  Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
<TABLE>
<CAPTION>

       11(a)
             Title
              Of                          Name and Address of           Amount and Nature of
             Class                         Beneficial Owner               Beneficial Owner              % of Class
             -----                         ----------------               ----------------              ----------

<S>                              <C>                                   <C>                                <C>
            Common               James G. Musser, Jr. (1)               726,520 shares                     10.4%
             Stock               7475 Pinehurst Circle                  Direct
                                 Birmingham, MI  48010


            Common               Lorraine A. Musser  (1)                722,617 shares                     10.3%
             Stock               7475 Pinehurst Circle                  Direct
                                 Birmingham, MI  48010

            Common               Leslie, Samuel and                     1,449,137 shares                   20.7%
             Stock               Lauren Beznos (2)                      trust beneficiary
                                 31731 Northwestern Hwy.
                                 Farmington Hills, MI 48334

            Common               Mayfair Associates Limited             1,463,109 shares                   20.9%
             Stock               Partnership (3)                        Direct
                                 c/o 31731 Northwestern Hwy.
                                 Ste. 250W
                                 Farmington Hills, MI  48334

            Common               K. Peter Knudsen (4)                   562,402 shares                     8.0%
             Stock               837 Glen Dr.                           trust beneficiary
                                 Harbor Springs, MI 49740

            Common               J. Ted Beebe                           805,205 shares                     11.5%
             Stock               22515 Sunnydale                        Direct
                                 St. Clair Shores, MI  48081

            Common               Harold Beznos (2)                      1,449,137 shares                   20.7%
             Stock               31731 Northwestern Hwy.                Indirect
                                 Farmington Hills, MI  48334
</TABLE>

                                  Page 7 of 28

<PAGE>   8




       (1)    Lorraine A. Musser is the wife of James G. Musser, Jr.

       (2)    These shares are held in an irrevocable trust with Frieda
              Applebaum as Trustee with voting and investment power for the
              benefit of Leslie Beznos, Samual Beznos and Lauren Beznos, who are
              the daughter, son and niece, respectively, of Harold Beznos, a
              director and officer of the Registrant. Mr. Beznos does not own
              any shares directly.

       (3)    These shares are owned by a Nevada Limited Partnership of which
              Mayfair General Corporation, a Nevada Corporation, is the sole
              general partner. As the sole director of said corporation,
              Virginia Buell has the power to vote the stock.

       (4)    These shares are held in a revocable trust with the NBD Bank of
              Detroit, Michigan, as Trustee with voting and investment power for
              the benefit of K. Peter Knudsen.

       11(b   No shares of common stock of the Registrant are directly owned
              by any officers and directors of the Registrant, except Mr. James
              G. Musser, Jr. and Mr. J. Ted Beebe as listed in Item 11(a)
              above.

  As a group, the officers and directors directly and indirectly own 3,703,479
  shares of Registrant's common stock, representing 52.9% of all outstanding
  common stock.

  Item 13    EXHIBITS AND REPORTS ON FORM 8-K

       13a.  Financial Statement Schedules

             For Fiscal Years Ended August 31, 1999 and 1998

             1) Accountant's opinion for years ended August 31, 1999 and 1998.

             2) Balance Sheet for the years ended August 31, 1999 and 1998.

             3) Statement of Income for years ended August 31, 1999 and 1998.

             4) Statement of Stockholder's Equity for years ended August 31,
                1999 and 1998.

             5) Statement of Cash Flows for years ended August 31, 1999 and
                1998.

             6) Notes to Financial Statements for years ended 1999 and 1998.


       13b.  Reports on Form 8-K

             None

       13c.  Exhibits

             Article 5 Financial Data Schedule




                                  Page 8 of 28
<PAGE>   9



       Pursuant to the requirements of Section 13 or 15(d) of the Securities
  Exchange Act of 1934, the Registrant has duly caused this report to be signed
  on its behalf by the undersigned, thereunto duly authorized.


                                    KNUSAGA CORPORATION



                                    By:       Jerry Luptak
                                       -------------------------------------
                                                Vice President


                                    Dated:    December 27, 1999
                                          ----------------------------------


       Pursuant to the requirements of the Securities Exchange Act of 1934, this
  report has been signed by the following persons on behalf of the Registrant
  and in the capacities and on the date indicated:


By:    James G. Musser                           Date:    December 27, 1999
       -------------------------------------          ------------------------
       Director/President
       (Principal Executive Officer and
       Controller)


By:    Jerry D. Luptak                           Date:    December 27, 1999
       -------------------------------------          ------------------------
       Director
       Vice President, Finance and
       General Counsel
       (Principal Financial Officer)

By:    Harold Beznos                             Date:    December 27, 1999
       -------------------------------------          ------------------------
       Director Secretary-Treasurer

By:    J. Ted Beebe                              Date:    December 27, 1999
       -------------------------------------          ------------------------
       Executive Vice President





                                  Page 9 of 28


<PAGE>   10





                       KNUSAGA CORPORATION AND SUBSIDIARY
                       D.B.A. HYDRAULIC TUBES AND FITTINGS

                        CONSOLIDATED FINANCIAL STATEMENTS

                               FOR THE YEARS ENDED
                            AUGUST 31, 1999 AND 1998






                                 Page 10 of 28


<PAGE>   11




                                              KNUSAGA CORPORATION AND SUBSIDIARY
                                             D.B.A. HYDRAULIC TUBES AND FITTINGS
================================================================================



                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                            PAGE
                                                            ----
<S>                                                        <C>
Independent Auditors' Report..................................12

Consolidated Balance Sheets................................13-14

Consolidated Statements of Income.............................15

Consolidated Statements of Stockholders' Equity...............16

Consolidated Statements of Cash Flows.........................17

Notes to Consolidated Financial Statements.................18-28
</TABLE>


                                 Page 11 of 28

<PAGE>   12










                               FREEDMAN & GOLDBERG

                          CERTIFIED PUBLIC ACCOUNTANTS

                           A PROFESSIONAL CORPORATION
                        ================================

                                    TRI-ATRIA
                      32255 NORTHWESTERN HIGHWAY, SUITE 298
                        FARMINGTON HILLS, MICHIGAN 48334
                                 (248) 626-2400
                               FAX: (248) 626-4298














ERIC W. FREEDMAN
MICHAEL GOLDBERG
DAVID C. GRIEP
JULIE A. CHEEK
WILLIAM  A. MARSHALL
BROCK A. HULER



                          INDEPENDENT AUDITORS' REPORT


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

We have audited the accompanying consolidated balance sheets of Knusaga
Corporation and Subsidiary, D.B.A. Hydraulic Tubes and Fittings as of August 31,
1999 and 1998 and the related consolidated statement of income, stockholder's
equity, and cash flows for the years ended August 31, 1999 and 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessment of the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provide a reasonable basis for our opinion.

In our opinion the financial statements referred to above present fairly, in all
material respects, the financial position of Knusaga Corporation and Subsidiary,
D.B.A. Hydraulic Tubes and Fittings as of August 31, 1999 and 1998 and the
results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.

Respectfully,



----------------------------------
Freedman & Goldberg
Certified Public Accountants

Farmington Hills, Michigan
November 2, 1999



Represented worldwide as a member firm of the International Association of Local
Public Accountants
--------------------------------------------------------------------------------

                                  Page 12 of 28


<PAGE>   13


                                              KNUSAGA CORPORATION AND SUBSIDIARY
                                             D.B.A. HYDRAULIC TUBES AND FITTINGS
                                                     CONSOLIDATED BALANCE SHEETS
================================================================================


                                                  AS OF AUGUST 31, 1999 AND 1998






                                     ASSETS
<TABLE>
<CAPTION>
                                                                                               1999                  1998
                                                                                  ------------------------------------------
<S>                                                                                    <C>                   <C>
Current Assets
     Cash                                                                                $  500,875            $  364,881

     Accounts Receivable - Trade, Net of Allowance for Doubtful Accounts of
       $-0-                                                                               2,092,314             1,029,669
     Note Receivable - Officer                                                              124,143                94,143
     Inventories                                                                            717,066               568,708
     Prepaid Expenses                                                                        37,901               247,009
 ............................................................................................................................
     Total Current Assets                                                                 3,472,299             2,304,410
 ............................................................................................................................
Property and Equipment, Net                                                               2,575,859             2,412,733
 ............................................................................................................................
Other Assets
     Deposits                                                                                18,523                 9,696
     Intangible Assets, Net                                                                  10,660                12,664
 ............................................................................................................................
     Total Other Assets                                                                      29,183                22,360
 ............................................................................................................................
         Total Assets                                                                    $6,077,341            $4,739,503
============================================================================================================================
</TABLE>





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

                                 Page 13 of 28
<PAGE>   14



                                              KNUSAGA CORPORATION AND SUBSIDIARY
                                             D.B.A. HYDRAULIC TUBES AND FITTINGS
                                               CONSOLIDATED STATEMENTS OF INCOME
================================================================================


                                                  AS OF AUGUST 31, 1999 AND 1998




                      LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
                                                                                               1999                  1998
                                                                                  ------------------------------------------
<S>                                                                                   <C>                    <C>
Current Liabilities
     Accounts Payable - Trade                                                           $ 1,377,517             $ 764,882
     Current Maturities of Long-Term Debt                                                 1,307,988             1,026,634
     Accrued Expenses                                                                       437,925               199,071
 ............................................................................................................................
     Total Current Liabilities                                                            3,123,430             1,990,587
 ............................................................................................................................
Other Liabilities
     Accrued Expenses - Non Current Interest and Salary to Officers                         612,440               563,670
     Long-Term Debt - Less Current Maturities                                               871,089               924,111
 ............................................................................................................................
     Total Other Liabilities                                                              1,483,529             1,487,781
 ............................................................................................................................
Deferred Taxes                                                                               11,800                   -0-
 ............................................................................................................................
         Total Liabilities                                                                4,618,759             3,478,368
 ............................................................................................................................
Stockholders' Equity
     Common Stock, $.01 Par Value, 7,000,000 Shares Authorized, 7,000,000,
        Shares Issued and Outstanding
     Preferred Stock, Class A, 4% Non-Cumulative Non-Voting, Each Share                      70,000                70,000
        Convertible into One Share of Common Stock, Par Value $.01, Stated
        Value $1.00, 500,000 Shares Authorized, 175,000 Shares Issued and
        Outstanding
     Additional Paid-In Capital
     Retained Earnings                                                                      175,000               175,000
                                                                                            366,365               366,365
                                                                                            847,217               649,770
 ............................................................................................................................
     Total Stockholders' Equity                                                           1,458,582             1,261,135
 ............................................................................................................................
         Total Liabilities and Stockholders' Equity                                     $ 6,077,341           $ 4,739,503
============================================================================================================================
</TABLE>


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


                                 Page 14 of 28

<PAGE>   15



                                              KNUSAGA CORPORATION AND SUBSIDIARY
                                             D.B.A. HYDRAULIC TUBES AND FITTINGS
                                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
================================================================================


                                    FOR THE YEARS ENDED AUGUST 31, 1999 AND 1998




<TABLE>
<CAPTION>
                                                                                       1999                  1998
                                                                               ---------------------------------------------
<S>                                                                                    <C>                    <C>
Sales, Net                                                                             $11,843,848            $ 8,891,679
Cost of Sales                                                                           10,195,235              7,960,423
 ............................................................................................................................
Gross Profit                                                                             1,648,613                931,256
Selling, General and Administrative Expenses                                             1,134,024                918,497
 ............................................................................................................................
Operating Income                                                                           514,589                 12,759
 ............................................................................................................................
Other Income (Expense)
    Interest Income                                                                             51                    -0-
    Interest Expense                                                                      (185,015)              (153,616)
    Miscellaneous Income                                                                     6,632                  2,265
    Loss on Sale of Asset                                                                   (1,769)                (8,390)
    Forgiveness of Debt                                                                        -0-                 90,000
 ............................................................................................................................
     Total Other Income (Expense)                                                         (180,101)               (69,741)
 ............................................................................................................................
Income Before Income Taxes                                                                 334,488                (56,982)
Income Taxes (Refundable)                                                                  137,041                (38,508)
 ............................................................................................................................
Net Income                                                                             $   197,447            $   (18,474)
============================================================================================================================



Net Income Per Share                                                                   $      .03             $      (.00)
============================================================================================================================
</TABLE>






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



                                 Page 15 of 28

<PAGE>   16


                                              KNUSAGA CORPORATION AND SUBSIDIARY
                                             D.B.A. HYDRAULIC TUBES AND FITTINGS
                                           CONSOLIDATED STATEMENTS OF CASH FLOWS
================================================================================


                                    FOR THE YEARS ENDED AUGUST 31, 1999 AND 1998


<TABLE>
<CAPTION>

                                                                                                                  Retained
                                                                                                                  Earnings
                                                                Common         Preferred       Additional       (Accumulated
                                                                 Stock           Stock       Paid-In Capital      Deficit)
                                                            -------------------------------------------------------------------

<S>                                                             <C>           <C>              <C>               <C>
  Balance, September 1, 1997                                      $70,000       $ 175,000        $ 366,365         $ 668,244

  Net Income (Loss) For the Year Ended August 31, 1998
                                                                      -0-             -0-              -0-          ( 18,474)
  .............................................................................................................................

  Balance, August 31, 1998                                         70,000         175,000          366,365           649,770

  Net Income (Loss) for the Year Ended August 31, 1999
                                                                      -0-             -0-              -0-           197,447
  .............................................................................................................................

  Balance, August 31, 1999                                        $70,000       $ 175,000        $ 366,365         $ 847,217
  =============================================================================================================================

</TABLE>






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


                                 Page 16 of 28
<PAGE>   17

                                              KNUSAGA CORPORATION AND SUBSIDIARY
                                             D.B.A. HYDRAULIC TUBES AND FITTINGS
                                           CONSOLIDATED STATEMENTS OF CASH FLOWS
================================================================================

                                    FOR THE YEARS ENDED AUGUST 31, 1999 AND 1998




<TABLE>
<CAPTION>

                                                                                                1999                  1998
 ----------------------------------------------------------------------------------------------------------------------------
<S>                                                                                      <C>                 <C>
 Cash Flows From Operations
     Net Income (Loss)                                                                   $   197,447           $   (18,474)
     Adjustments to Reconcile Net Income to Net Cash
      Provided By Operating Activities
      Depreciation and Amortization                                                          321,077               263,511
      (Gain) Loss on Sale of Asset                                                             1,769                 8,390
      Forgiveness of Debt                                                                        -0-               (90,000)
      (Increase) Decrease In:
        Accounts Receivable                                                               (1,062,645)              395,875
        Inventories                                                                         (148,358)                4,744
        Prepaid Expenses                                                                     209,108               (61,542)
        Deposits                                                                              (8,827)               (7,050)
      Increase (Decrease) In:
        Accounts Payable                                                                     612,635                71,212
        Accrued Expenses                                                                     287,624              (178,430)
        Deferred Taxes                                                                        11,800                   -0-
 ............................................................................................................................
      Net Cash Provided By Operating Activities                                              421,630               388,236
 ............................................................................................................................
 Cash Flows From Investing Activities
     Equipment Purchases                                                                    (409,277)             (301,519)
     Purchase of Seat Track Business                                                             -0-              (314,000)
     Proceeds From Sale of Assets                                                             16,800                 9,500
     Payments For Notes Receivable                                                           (30,000)                  -0-
 ............................................................................................................................
          Net Cash Used By Investing Activities                                             (422,477)             (606,019)
 ............................................................................................................................
 Cash Flows From Financing Activities
     Proceeds From Debt                                                                      420,223             1,893,328
     Principal Payments on Debt                                                             (283,382)           (1,586,958)
 ............................................................................................................................
      Net Cash Provided By (Used in) Financing
          Activities                                                                         136,841               306,370
 ............................................................................................................................

 Increase (Decrease) in Cash                                                                 135,994                88,587
 Balance, September 1                                                                        364,881               276,294
 ............................................................................................................................
 Balance, August 31                                                                      $   500,875           $   364,881
=============================================================================================================================
</TABLE>


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

                                 Page 17 of 28




<PAGE>   18


                                              KNUSAGA CORPORATION AND SUBSIDIARY
                                             D.B.A. HYDRAULIC TUBES AND FITTINGS
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

                                    FOR THE YEARS ENDED AUGUST 31, 1999 AND 1998


NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

     A.   Nature of Operations - Knusaga Corporation's operations relate mainly
     to the fabrication of tubing for the auto industry. In January, 1998 the
     Company began manufacturing seat tracks for the auto industry.

     B.   Basis of Consolidation - The consolidated financial statements include
     the accounts of HTF, Ltd., a wholly owned subsidiary. All significant
     intercompany accounts and transactions have been eliminated in
     consolidation.

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

     D.   Revenues - The Company recognizes revenue from automotive tubes and
     seat tracks upon shipment.

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

     F.   Property, Equipment and Related Depreciation - Property and equipment
     are recorded at cost. Depreciation is computed by the straight-line method
     for financial reporting purposes and accelerated methods for tax reporting
     purposes. Estimated lives range from three to forty years. Depreciation
     charged to operations was $319,073 and $262,175 for the years ended August
     31, 1999 and 1998, respectively. When properties are disposed of, the
     related costs and accumulated depreciation are removed from the respective
     accounts and any gain or loss on disposition is recognized currently.
     Maintenance and repairs which do not improve or extend the lives of assets
     are expensed as incurred.

     G.   Inventories - Inventories are stated at lower of cost or market. Cost
     is determined on the first-in, first-out (FIFO) basis. Inventory
     classifications as of August 31, 1999 and 1998 consisted of the following

<TABLE>
<CAPTION>


                                           1999                  1998
                             ------------------------------------------
<S>                                  <C>                   <C>
Raw Material                          $ 299,517             $ 371,763
Work in Process                         273,876               123,804
Finished Goods                          143,673                73,141
                             ..........................................
                                      $ 717,066             $ 568,708
                             ==========================================
</TABLE>





                                 Page 18 of 28


<PAGE>   19

                                              KNUSAGA CORPORATION AND SUBSIDIARY
                                             D.B.A. HYDRAULIC TUBES AND FITTINGS
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

                                    FOR THE YEARS ENDED AUGUST 31, 1999 AND 1998



NOTE 1.  CONTINUED

    H. Impairment of Long-Lived Assets - In March 1995, the Financial
    Accounting Standards Board issued Statements of Financial Accounting
    Standards ("SFAS") No. 121, "Accounting For the Impairment of
    Long-Lived Assets and For Long-Lived Assets To Be Disposed Of". SFAS
    No. 121 establishes accounting standards for the impairment of
    long-lived assets, certain identifiable intangibles, and goodwill
    related to those assets to be held and used, and for long-lived assets
    and certain identifiable intangibles to be disposed of.

    In accordance with SFAS No. 121, the Company reviews its long-lived
    assets, including property and equipment, goodwill and other
    identifiable intangibles for impairment whenever events or changes in
    circumstances indicate that the carrying amount of the assets may not
    be fully recoverable. To determine recoverability of its long-lived
    assets, the Company evaluates the probability that future undiscounted
    net cash flows, without interest charges, will be less than the
    carrying amount of the assets. Impairment is measured at fair value.
    The adoption of SFAS No. 121 had no effect on the Company's
    consolidated financial statements.

    G.    Major Suppliers - At August 31, 1999 and 1998 45% and 26%,
          respectively of the accounts payable - trade was to five major
          suppliers of aluminum and steel tubing. The Company believes there is
          no potential credit risk pertaining to the major suppliers.

    At August 31, 1999 and 1998, 53% and 36%, respectively of the accounts
    payable - trade was to two major suppliers of seat track components.

    J.    Use of Estimates - The preparation of financial statements in
    conformity with generally accepted accounting principles requires
    management to make estimates and assumptions that affect the reported
    amounts of assets and liabilities and disclosure of contingent assets
    and liabilities at the date of the financial statements and the
    reported amounts of revenues and expenses during the reporting period.
    Actual results could differ from those estimates.

    K.    Income Taxes - The Company accounts for income taxes under the
    provisions of SFAS No. 109, "Accounting for Income Taxes," which
    requires recognition of deferred tax assets and liabilities for the
    expected future tax consequences of events that have been included in
    the Company's consolidated financial statements or tax returns. Under
    this method, deferred tax assets and liabilities are determined based
    on the differences between the financial accounting and tax basis of
    assets and liabilities using enacted tax rates in effect for the year
    in which the differences are expected to reverse.

    L.    Intangible Assets - Finders fee associated with the acquisition of the
    seat track business amortized over seven years on a straight-line basis. At
    August 31, 1999 and 1998, accumulated amortization is $3,340 and $1,336,
    respectively.






                                 Page 19 of 28

<PAGE>   20


                                              KNUSAGA CORPORATION AND SUBSIDIARY
                                             D.B.A. HYDRAULIC TUBES AND FITTINGS
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

                                    FOR THE YEARS ENDED AUGUST 31, 1999 AND 1998



NOTE 2.  PREPAID EXPENSES

  The following is a detail of the prepaid expenses as of August 31, 1999 and
1998:

<TABLE>
<CAPTION>


                                                             1999                   1998
                                              ---------------------------------------------
<S>                                                     <C>                   <C>
Prepaid Insurance                                        $ 35,587              $  39,173
Prepaid Taxes                                               2,314                207,836
                                              .............................................
         Total Prepaid Expenses                          $ 37,901              $ 247,009
                                              =============================================
</TABLE>


NOTE 3.  PROPERTY AND EQUIPMENT

  The major components of property and equipment are as follows:
<TABLE>
<CAPTION>


                                                                     1999                1998
                                                         ---------------------------------------
<S>                                                          <C>                  <C>
Land                                                          $    24,847          $   24,847
Land Improvements                                                  17,195              10,230
Buildings and Improvements                                      1,459,433           1,436,165
Machinery and Equipment                                         1,958,149           1,673,055
Furniture and Fixtures                                            155,970             131,198
Transportation Equipment                                          214,011             130,446
Obligations Under Capital Leases                                  146,653             207,115
Equipment Under Construction                                      114,459              63,455
                                                         .......................................
                                                                4,090,717           3,676,511
Less:  Accumulated Depreciation                                 1,514,858           1,263,778
                                                         .......................................
Net Property and Equipment                                    $ 2,575,859          $2,412,733
                                                         =======================================
</TABLE>


NOTE 4.  ACCRUED EXPENSES

  The following is a detail of the current accrued expenses as of August 31,
1999 and 1998.

<TABLE>
<CAPTION>


                                                                     1999                1998
                                                         ---------------------------------------
<S>                                                           <C>                  <C>
Accrued Insurance                                               $  29,345            $ 10,762
Accrued Interest - Other                                           11,829              11,289
Accrued Payroll                                                   177,457              98,927
Accrued and Withheld Payroll Taxes                                 26,632              10,553
Accrued Pension                                                    22,396              28,802
Accrued Professional Fees                                          28,881              28,200
Accrued Taxes                                                     141,385              10,538
                                                         .......................................
Total Current Accrued Expenses                                  $ 437,925            $199,071
                                                         =======================================

</TABLE>





                                 Page 20 of 28

<PAGE>   21


                                              KNUSAGA CORPORATION AND SUBSIDIARY
                                             D.B.A. HYDRAULIC TUBES AND FITTINGS
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

                                    FOR THE YEARS ENDED AUGUST 31, 1999 AND 1998



NOTE 4.  CONTINUED

The following is a detail of the non-current accrued expenses as of August 31,
1999 and 1998:

<TABLE>
<CAPTION>


                                                                              1999                1998
                                                                  ---------------------------------------
<S>                                                                     <C>                 <C>
         Accrued Interest - Shareholders                                 $ 469,157            $420,387
         Accrued Payroll - Officers                                        143,283             143,283
                                                                  .......................................
                 Total Non-Current Accrued Expenses                      $ 612,440            $563,670
                                                                  =======================================

</TABLE>


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

NOTE 5.  NOTES RECEIVABLE

<TABLE>
<CAPTION>
                                                                                             1999                1998
                                                                                  ---------------------------------------
<S>                                                                                    <C>                   <C>
 Non-interest bearing note receivable from an officer/stockholder. The note is
 unsecured and due on demand.
                                                                                         $ 124,143            $ 94,143
                                                                                  =======================================
</TABLE>


NOTE 6.  NOTES PAYABLE AND OBLIGATIONS UNDER CAPITAL LEASES

  Notes payable and obligations under capital leases consist of the following:
<TABLE>
<CAPTION>


                                                                                          1999                1998
                                                                                  ---------------------------------------
<S>                                                                                     <C>                 <C>
  A.     Notes payable - directors, officers, and shareholders, bearing interest
  at 12% per annum. The notes are payable on demand and are unsecured. Loans
  totaling $265,000 have been subordinated to the bank.
                                                                                         $ 407,253            $407,253

  B.     Loan Payable - Bank, payable in monthly installments of $8,646 plus
  interest at 1% over the lender's prime rate, through October, 1999. The note
  is secured by all the assets of the Company.
                                                                                               -0-              25,930

  C.     Loan Payable - Bank, payable in monthly installments of $6,214 plus
  interest at 1% over the lender's prime rate through October, 2001. The note is
  secured by all the assets of the Company. The interest rate at August 31, 1999
  was 9.25%.
                                                                                           167,734             242,302

  D.     Loan Payable - Bank, payable in monthly installments of $3,333 plus
  interest at 1% over lender's prime rate through December, 2000. The loan is
  secured by all assets of the Company. The interest rate at August 31, 1999 was
  9.25%.
                                                                                            53,334              93,334


</TABLE>




                                 Page 21 of 28


<PAGE>   22



                                              KNUSAGA CORPORATION AND SUBSIDIARY
                                             D.B.A. HYDRAULIC TUBES AND FITTINGS
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

                                    FOR THE YEARS ENDED AUGUST 31, 1999 AND 1998



NOTE 6.  CONTINUED

<TABLE>

<S>                                                                                    <C>                    <C>
  E.     $1,500,000 Line of Credit - Bank, interest payable in monthly
  installments at .5% over lender's prime rate. Principal is due January 1,
  2000. Note is secured by all assets of the Company. The interest rate at
  August 31, 1999 was 8.75%.

                                                                                         1,043,761             773,762

  F.     Loan Payable - Bank, payable in monthly installments of $6,383 plus
  interest at .5% over lender's prime rate, through January, 2002. The note is
  secured by all the assets of the Company. The interest rate at August 31, 1999
  was 8.75%.
                                                                                           185,086             261,683

  G.     Loan Payable - Bank, payable in monthly installments of $2,249 plus
  interest at .5% over the lender's prime rate through April, 2003. The note is
  secured by all the assets of the Company. The interest rate at August 31, 1999
  was 8.75%.
                                                                                            98,963             125,954

  H.     Loan Payable - Bank, payable in monthly installments of $244 plus
  interest at .5% over lender's prime rate through August, 2003. The loan is
  secured all assets of Company. The interest rate at August 31, 1999 was 8.75%.
                                                                                            11,734              14,667

  I.     Obligation Under Capital Lease - machinery, payable in monthly
  installments of $573, through November 1999, including interest at 17.3%.
  Secured by the machinery.
                                                                                               -0-               1,125

  J.     Obligation Under Capital Lease - improvements, payable in monthly
  installments of $628, through November 1999, including interest at 8.17%.
  Secured by the improvements.
                                                                                               -0-               1,860

  K.     Loan Payable - Bank, payable in monthly installments of $731, through
  December 1999, including interest at 8.49%. Secured by an automobile.

                                                                                               -0-               2,875

  L.     Loan Payable - Bank, payable in monthly installments of $1,438,
  including interest at .5% over lender's prime rate, through December, 2003.
  The note is secured by all the assets of the Company. The interest rate at
  August 31, 1999 was 8.75%.

                                                                                            62,050                 -0-
</TABLE>




                                 Page 22 of 28



<PAGE>   23


                                              KNUSAGA CORPORATION AND SUBSIDIARY
                                             D.B.A. HYDRAULIC TUBES AND FITTINGS
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

                                    FOR THE YEARS ENDED AUGUST 31, 1999 AND 1998



NOTE 6.  CONTINUED

<TABLE>

<S>                                                                                 <C>                       <C>
  M.     Loan Payable - Bank, payable in monthly installments of $1,355
  including interest at .5% over the lender's prime rate through April, 2004.
  The note is secured by all the assets of the Company. The interest rate at
  August 31, 1999 was 8.75%.

                                                                                            63,374                 -0-

  N.     Loan Payable - Chrysler Financial Company, payable in monthly
  installments of $863 including interest at 7.75% through May, 2002. The loan
  is secured by transportation equipment.
                                                                                            24,881                 -0-

  O.     Obligation Under Capital Lease - machinery, payable in monthly
  installments of $1,282 through May, 2004 including interest at 7.88%. Secured
  by the machinery.
                                                                                            60,907                 -0-
                                                                                  ---------------------------------------
     Total                                                                               2,179,077           1,950,745
     Amounts due within one year                                                         1,307,988           1,026,634
                                                                                  .......................................
                                                                                        $  871,089          $  924,111
                                                                                  =======================================
</TABLE>

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

<TABLE>

<S>                                                                            <C>
                                    August 31, 2000                              $ 1,307,988
                                    August 31, 2001                                  241,306
                                    August 31, 2002                                  128,065
                                    August 31, 2003                                   65,340
                                    August 31, 2004                                  436,378
                                                                           .....................
                                                                                 $ 2,179,077
                                                                           =====================
</TABLE>


  Interest expense for the years ended August 31, 1999 and 1998 totaled $185,015
  and $153,616, respectively.

  Interest expense on obligations under capital leases for the years ended
  August 31, 1999 and 1998 was $922 and $1,081, respectively. Depreciation
  expense of equipment held under capital leases for the years ended August 31,
  1999 and 1998 was $21,999 and $26,723, respectively.

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

NOTE 7.  LOAN COVENANTS

  Under the terms of the loan agreement with the bank the Company must maintain
  the following covenants:

  1.   Maintain a current ratio of not less than 1.00 to 1.00








                                 Page 23 of 28


<PAGE>   24


                                              KNUSAGA CORPORATION AND SUBSIDIARY
                                             D.B.A. HYDRAULIC TUBES AND FITTINGS
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

                                    FOR THE YEARS ENDED AUGUST 31, 1999 AND 1998



NOTE 7.  CONTINUED
   2.  Maintain a net worth plus subordinated debt of not less than $1,200,000.

   3.  Maintain a ratio of total liabilities to net worth plus subordinated debt
       of not more than 3.5 to 1.

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

   As of August 31, 1999, the Company was in compliance with its loan covenants.

NOTE 8.  PER SHARE COMPUTATION

   Earnings per share have been calculated based on the weighted average number
   of shares outstanding. The 4% preferred stock is considered a common
   equivalent. The number of shares used in computing net income per share was
   7,175,000.

NOTE 9.  INCOME TAXES

   The provision for income taxes consists of the following components:

<TABLE>
<CAPTION>

                                                                                               1999                  1998
                                                                                  ------------------------------------------
    Current:
<S>                                                                                     <C>                   <C>
         Current Due (Refundable)                                                         $ 125,241            $   (38,508)
         Deferred                                                                            11,800                    -0-
                                                                                  ..........................................
                  Net Tax Expense (Recovery)                                              $ 137,041            $   (38,508)
                                                                                  ==========================================
</TABLE>

    Deferred taxes are detailed as follows:

<TABLE>
<CAPTION>

                                                                                               1999                  1998
                                                                                  ------------------------------------------
<S>                                                                                       <C>                   <C>
  Deferred Income Tax Liability - Depreciation                                             $ 81,218              $ 59,655
 ............................................................................................................................
  Deferred Income Tax Assets
     Accrued Expenses                                                                        69,418                65,221
  Valuation Allowance                                                                           -0-                (5,565)
 ............................................................................................................................
  Net Deferred Income Tax Asset                                                              69,418                59,655
 ............................................................................................................................
  Net Deferred Income Taxes                                                                $ 11,800                $  -0-
============================================================================================================================
</TABLE>


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

NOTE 10.  RELATED PARTY TRANSACTION

     As disclosed in Note 6 to the financial statements, certain stockholders
     and officers are major creditors of the Company. Amounts due to the
     stockholders and officers as of August 31, 1999 and 1998 totaled
     $407,253. Interest accrued on these notes at August 31, 1999 and 1998
     totaled $469,157 and $420,387, respectively. Interest expense accrued for
     the years ended August 31, 1999 and 1998 was $48,770 for each year.




                                 Page 24 of 28

<PAGE>   25



                                              KNUSAGA CORPORATION AND SUBSIDIARY
                                             D.B.A. HYDRAULIC TUBES AND FITTINGS
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

                                    FOR THE YEARS ENDED AUGUST 31, 1999 AND 1998




NOTE 11. CASH FLOW DISCLOSURES

  Interest and income taxes paid for the years ended August 31, 1999 and 1998
were as follows:

<TABLE>
<CAPTION>


                                                                       1999                  1998
                                                          ------------------------------------------
<S>                                                             <C>                     <C>

  Interest                                                        $ 135,705              $ 99,658
                                                          ==========================================
  Income Taxes                                                    $     -0-              $ 21,000
                                                          ==========================================
</TABLE>


  Income tax refunds received during the years ended August 31, 1999 and 1998
  was $199,497 and $-0-, respectively.

  Interest received during the years ended August 31, 1999 and 1998 was $51
  and $-0-, respectively.

  During the year ended August 31, 1999, the Company acquired equipment
  through non-cash financing transactions of $91,491.

NOTE 12. DEFINED BENEFIT PENSION PLAN

  The Company sponsors a defined benefit pension plan that covers substantially
  all employees of the Company. The inception of the plan was January 1, 1992,
  with a fiscal year end of August 31. The plan calls for benefits to be paid to
  eligible employees at retirement based upon years of service with the Company.
  Contributions to the plan reflect benefits attributed to employees' services
  to date, as well as services expected to be earned in the future. Pension
  expense for the years ended August 31, 1999 and 1998 was $22,396 and $28,802,
  respectively. Pension contributions due to the plan at August 31, 1999 and
  1998 were $32,654 and $30,000, respectively. As of August 31, 1999 the defined
  benefit pension plan is funded in accordance with ERISA.

  The following table sets forth the plan's funded and amounts recognized in the
  Company's statement of financial position at August 31, 1999 and 1998.

<TABLE>
<CAPTION>


                                                                                               1999                  1998
                                                                                --------------------------------------------
<S>                                                                                      <C>                    <C>
     Actuarial present value of benefit obligations:                                      $ 178,348             $ 181,450
 ............................................................................................................................
Projected benefit obligation for service rendered to date.
                                                                                            178,348               181,450
Plan assets at fair value                                                                   229,318               172,968
 ...................................................................................................... .....................
Projected benefit obligation in excess of plan assets.
                                                                                            (50,970)                8,482
Unrecognized net gain from past experience different from that assumed and
     effect of changes in assumptions.
                                                                                            127,074                76,365

</TABLE>




                                 Page 25 of 28

<PAGE>   26


                                              KNUSAGA CORPORATION AND SUBSIDIARY
                                             D.B.A. HYDRAULIC TUBES AND FITTINGS
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

                                    FOR THE YEARS ENDED AUGUST 31, 1999 AND 1998




NOTE 12.  CONTINUED

<TABLE>

<S>                                                                                      <C>                   <C>
 Prior service cost not yet recognized in net periodic pension cost
                                                                                          $ (21,669)             $(22,612)
 Unrecognized net obligation at date of initial application of FAS-87
                                                                                            (32,039)              (33,433)
 ............................................................................................................................
(Prepaid) accrued cost                                                                    $  22,396              $ 28,802
============================================================================================================================

Net pension cost for 1999 and 1998 includes the following components:
     Service cost - benefits earned during the period                                     $  27,989              $ 31,725
     Interest cost on projected benefit obligation                                           11,020                 9,173
     Actual return on plan assets                                                           (51,038)                 (597)
     Amortization of Actuarial Gains and Net Transition Asset
                                                                                             38,277               (11,499)
 ............................................................................................................................
Net periodic pension costs                                                                $  26,248              $ 28,802
============================================================================================================================
</TABLE>


NOTE 13.  401K PROFIT SHARING PLAN

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

NOTE 14.  FOREIGN SUBSIDIARY

   In March 1999, the Company established HTF, Ltd., a new subsidiary, located
   in St. Thomas, Ontario, Canada. HTF, Ltd. services its major customer by
   arranging various automotive tubing parts in a specific order as requested by
   its customers. The parts used are manufactured and sold by Knusaga
   Corporation, its parent corporation.

NOTE 15.  PURCHASE OF SEAT TRACK BUSINESS

   In January, 1998, the Company purchased the assets of ITT Automotive Electric
   Systems, Inc.'s seat track business. The total cost of the assets acquired
   was $300,000. In addition, the Company paid a third party $14,000 as a fee
   for organizing the transaction. The purchase price has been allocated to the
   assets purchased on estimated fair market value of assets acquired as
   follows:
<TABLE>

<S>                                                               <C>
                    Equipment                                      $ 100,000
                    Tooling                                          200,000
                    Intangible Assets                                 14,000
                                                          .....................
                                                                   $ 314,000
                                                          =====================
</TABLE>



                                 Page 26 of 28



<PAGE>   27


                                              KNUSAGA CORPORATION AND SUBSIDIARY
                                             D.B.A. HYDRAULIC TUBES AND FITTINGS
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

                                    FOR THE YEARS ENDED AUGUST 31, 1999 AND 1998



NOTE 16.  LEASE OBLIGATION

  The Company leases a facility in Imlay, Michigan for its seat track
  operations. The lease requires minimum monthly payments of $3,721 in
  addition to property taxes, insurance and maintenance. The lease expires
  January, 2003.

  The Company's subsidiary leases a facility in St. Thomas, Ontario for its
  sequencing operations. The lease requires monthly payments of $7,746
  through March 2000.

  The Company's subsidiary has lease agreements to rent forklifts. The leases
  call for monthly payments of $343 through June 2004.

  Total rents paid during the years ended August 31, 1999 and 1998 were
  $88,423 and $25,458, respectively.

  Future minimum lease obligations under all operating leases are as follows:

<TABLE>

<S>                                                                       <C>
                              August 31, 2000                                $ 102,986
                              August 31, 2001                                   48,764
                              August 31, 2002                                   48,764
                              August 31, 2003                                   22,726
                              August 31, 2004                                    3,435
                                                                    .....................
                                                                             $ 226,675
                                                                    =====================
</TABLE>


NOTE 17.  SEGMENTAL DATA

     The Company's operations are classified into two principal reportable
     segments that provide different products or services. Separate management
     of each segment is required because each business unit is subject to
     different marketing, production and technology strategies. Below is
     summarized segmental data for the years ended August 31, 1999 and 1998.

<TABLE>
<CAPTION>


                                                    TUBING                      SEAT TRACK                      TOTAL
                                              1999           1998           1999           1998           1999          1998
                                          -----------------------------------------------------------------------------------------
<S>                                <C>                <C>            <C>            <C>            <C>            <C>
External Revenue                    $ 7,642,471        $ 6,480,814    $ 4,201,377    $ 2,410,865    $11,843,848    $ 8,891,679
Intersegment Revenue                        -0-                -0-           -0-             -0-            -0-            -0-
Interest Revenue                            -0-                -0-           -0-             -0-            -0-            -0-
Interest Expense                        162,678            131,216         22,337         22,400        185,015        153,616
Depreciation and Amortization           269,975            238,869         51,102         24,642        321,077        263,511
Profit (Loss)                          (378,802)          (260,610)       713,290        203,628        334,488        (56,982)
Total Assets                          4,764,870          3,926,718      1,312,471        812,785      6,077,341      4,739,503
Expenditures of Long-Lived Assets   $   473,665        $   272,110    $    27,103    $   343,409    $   500,768    $   615,519

</TABLE>






                                 Page 27 of 28


<PAGE>   28


                                              KNUSAGA CORPORATION AND SUBSIDIARY
                                             D.B.A. HYDRAULIC TUBES AND FITTINGS
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

                                    FOR THE YEARS ENDED AUGUST 31, 1999 AND 1998



NOTE 17.  CONTINUED

  The tubing segment derives its revenues from the sale of automotive tubing
  in the production process of the automobile industry. The seat track
  segment derives its revenues from the sale of adjustable seat tracks to
  recreation vehicle manufacturers and van converters.

  The Company maintains separate records for each segment. The accounting
  policies applied by each of the segments are the same as those used by the
  Company in general.

  Net sales to one customer of its tubing segment totaled $1,241,679 and
  $4,112,714 of the Company's net sales for the years ended August 31, 1999
  and 1998, respectively. Net sales to another customer of its tubing segment
  totaled $5,493,129 and $1,248,991 of the Company's net sales for the years
  ended August 31, 1999 and 1998, respectively. Net sales to one customer of
  its seat track segment totaled $4,183,967 and $2,360,400 of the Company's
  net sales for the years ended August 31, 1999 and 1998, respectively.

NOTE 18.  FORGIVENESS OF DEBT

On August 31, 1998, the Company was forgiven its debt owed to Travel Products in
the amount of $90,000. This amount was for engineering services provided to the
company during the year ended August 31, 1994. This amount was previously shown
as accrued engineering expenses prior to the year ended August 31, 1998.




                                 Page 28 of 28

<PAGE>   29
                                 Exhibit Index
                                 -------------


<TABLE>
<CAPTION>
Exhibit No.              Description
-----------              -----------
<S>                      <C>
     27                  Financial Data Schedule


</TABLE>