U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1998
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _____________ to ______________
Commission file number 0 - 7 0 9 3
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MOD-U-KRAF HOMES, INC.
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(Exact name of small business issuer as
specified in its charter)
VIRGINIA 54-0893908
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(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
P. O. BOX 573, ROCKY MOUNT, VIRGINIA 24151
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(Address of principal executive offices)
(540) 483-0291
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(Issuer's telephone number)
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(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for 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 _____
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date: 825,649
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<PAGE>
1
MOD-U-KRAF HOMES, INC.
INDEX
PART I - FINANCIAL INFORMATION
Balance Sheets 2
Statements of Income 3
Statements of Cash Flows 4
Management's Discussion and Analysis 5
Notes to Financial Information 6
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of
Security Holders 7
<PAGE>
2
MOD-U-KRAF HOMES, INC.
Consolidated Balance Sheets
March 31, 1998 and 1997
ASSETS 1998 1997
---------- ----------
CURRENT ASSETS
Cash and cash equivalents $ 293,774 $ 270,851
Certificates of deposit - 200,000
Receivables 420,312 74,698
Cost and estimated earnings in excess
of billings on uncompleted contracts 438,488 -
Inventories (Note 2) 2,280,149 3,096,886
Notes receivable, current portion (Note 3) 614,172 926,442
Prepaid expenses 42,492 70,585
Income taxes receivable 37,469 50,528
Deferred income taxes, current portion - 45,909
---------- ----------
Total current assets 4,126,856 4,735,899
LONG-TERM NOTES RECEIVABLE (Note 3) 175,118 191,338
PROPERTY AND EQUIPMENT, at cost less
accumulated depreciation
1998 $2,625,677; 1997 $2,168,963. (Note 4) 3,867,511 3,986,965
OTHER ASSETS
Deferred income taxes 460,788 443,287
Cash surrender value of life insurance 139,966 117,741
Reimbursement Account (Note 6) 199,786 192,219
Earnings on unused Bond proceeds 115,730 107,395
Bond Issue Costs (Note 6) 68,360 72,320
Model homes 280,352 -
---------- ----------
$9,434,467 $9,847,164
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of post-retirement (Note 5) 73,714 68,411
Current maturities of long-term debt(Note 6) 150,000 150,000
Line of credit 400,000 -
Accounts payable and other liabilities 258,922 911,097
Accrued compensation 243,661 260,034
Customer deposits 163,953 142,890
---------- ----------
Total current liabilities 1,290,250 1,532,432
LONG-TERM POST RETIREMENT BENEFITS (Note 5) 984,177 1,057,025
LONG-TERM DEBT (Note 6) 2,489,755 2,639,755
---------- ----------
Total liabilities 4,764,182 5,229,212
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STOCKHOLDERS' EQUITY
Common stock, $1 par value, 2,000,000
shares authorized: shares issued and
outstanding 1998 825,649, 1997 825,649 825,649 825,649
Additional Paid in Capital 459,671 459,671
Retained earnings 3,384,965 3,332,632
---------- ----------
4,670,285 4,617,952
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$9,434,467 $9,847,164
========== ==========
Accompanying notes are an important part of these financial statements.
<PAGE>
3
MOD-U-KRAF HOMES, INC.
Consolidated Statement of Income
Quarters Ended March 31, 1998 and March 31, 1997
1998 1997
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Net Sales $2,341,651 $3,193,098
Cost of Sales 1,824,607 2,570,577
---------- ----------
517,044 622,521
Selling, General and Administrative Expenses 577,515 624,782
---------- ----------
Income/<Loss> from Operations (60,471) (2,261)
Deferred Compensation Expense 19,909 21,183
Post Retirement Benefits Expense 2,817 (2,571)
Non-operating Income/<Expenses> 4,257 (3,956)
---------- ----------
Income/<Loss> Before Income Taxes (78,940) (24,829)
Federal and State Income Taxes (31,411) (6,575)
---------- ----------
Net Income / <Loss> (47,529) (18,254)
========== ==========
Earnings per share:
Net Income / <Loss> (0.06) (0.02)
========== ==========
Depreciation Included in Above Cost 125,260 100,372
========== ==========
Accompanying notes are an important part of these financial statements.
<PAGE>
4
MOD-U-KRAF HOMES, INC.
Consolidated Statement of Cash Flows
Quarters Ended March 31, 1998 and 1997
1998 1997
OPERATING ACTIVITIES ---------- ----------
Net Income/<Loss> $ (47,529) $ (18,254)
Noncash <income> expenses included
in income or <loss>:
Depreciation and amortization 125,260 100,372
Deferred income taxes 3,485 (3,507)
Loss (gain) on sale of equipment - (1,416)
Increase in cash value of life insurance (2,088) (1,514)
Adjustments to post retirement benefits (17,416) (21,750)
<Increase> decrease in:
Trade receivables (274,868) (21,771)
Cost and estimated earnings in excess
of billings on uncompleted contracts (392,480) -
Inventories (27,086) (738,540)
Prepaid Expenses 2,394 (4,645)
Model placement costs (44,335) -
Income taxes receivable (37,469) -
<Decrease> increase in:
Accounts payable and other Liabilities (107,388) 387,001
Accrued compensation 82,149 57,780
Customer deposits 80,266 (150,765)
Income taxes payable (5,847) (4,405)
---------- ----------
Net cash provided by (used in)
operations (662,952) (421,414)
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INVESTING ACTIVITIES
Proceeds from sale of equipment - (2,012)
Purchase of property & equipment net of
debt incurred 1998 $0 ;1997 $0. (16,465) (196,835)
<Increase> decrease in notes receivable
arising from sales 48,640 (128,153)
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Net cash provided by (used in)
investing activities 32,175 (327,000)
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FINANCING ACTIVITIES
Short-term borrowings 400,000 -
Cash dividends paid (24,769) (18,254)
Debt issue costs, net of debt incurred
1998 $0 : 1997 $0. 990 990
Funding of reimbursement account (39,544) (39,512)
Earnings on unused bond proceeds (2,118) (1,992)
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Net cash provided by (used in)
financing activities 334,559 (58,768)
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Net increase (decrease) in cash (296,218) (807,182)
CASH
Beginning 589,992 1,078,033
---------- ----------
Ending $ 293,774 $ 270,851
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest $ 26,253 $ 27,074
Income taxes $ - $ -
Accompanying notes are an important part of these financial statements.
<PAGE>
5
MOD-U-KRAF HOMES, INC
Management's Discussion and Analysis
of the First Quarter Statements
Net sales for the first quarter of 1998 were $2,341,650 as compared
to $3,193,098 for the first quarter of 1997, a 26.67% decrease. Due to
the extremely wet winter, the Company ended the quarter with 37 units in
inventory; a retail value of $1,585,000. Our builders could not complete
foundations or find enough dry days to set their homes. Although this
situation is not unusual for a first quarter, it has been compounded by
untimely and record rain fall.
Cost of Sales was 77.92% of net sales for the first quarter of 1998
and 80.50% for the first quarter of 1997. Gross profit was 22.08% for
the first quarter of 1998 and 19.50% for the first quarter of 1997.
Selling, General and Administrative expenses was 24.66% of net sales
for the first quarter of 1998 and 19.57% for the first quarter of 1997.
We had a net loss for the first quarter 1998 of $47,529 compared to
a net loss of $18,254 for the first quarter of 1997. This is <$0.06>
per share for the first quarter of 1998 and <$0.02> per share for the
same period in 1997.
The only change in liquidity and capital resources is the $400,000
draw on our line of credit to assist us with our short-term monetary needs
until the weather allows us to set the houses we have in inventory.
Production is still suspended at the Highway 40 facilty because of the
delivery backlog. The Company continues production at its new facility.
Management does not believe that the suspension will have a material effect
on the company's results of operations for 1998, although recognition of
income may be delayed from quarter to quarter.
The Company started a turnkey division a few years ago, which would
give individual Mod-U-Kraf Homes customers the option to have the Company
finish the entire project at the job site. In the past individual
customers would have to hire a contractor to dig out the basement, pour
the foundation, dig the well, put in a driveway, put the siding on the
house, etc to finish zipping up the house once it is set on the foundation.
Initially this was an immaterial part of our business and did not require
any special accounting procedures. Over the past three months the Company's
Turnkey division has become a material source of revenue because of the
increased number of turnkey contracts in progress at the end of the quarter.
As a result, management has elected to recognize revenue from fixed-price
and modified fixed-price construction contracts on the percentage-of-
completion method, measured by the cost to cost method. This is reflected
on the Balance Sheet in "Costs and estimated earnings in excess of
billings on uncompleted contracts", which represents revenues recognized
in excess of amounts billed.
<PAGE>
6
MOD-U-KRAF HOMES, INC.
NOTES TO FINANCIAL INFORMATION
1. The financial information furnished herein is not certified, but re-
flects all adjustments, consisting only of normal recurring adjust-
ments which are, in the opinion of management, necessary to a fair
statement of the results for the quarter ended March 31, 1998. The
results for the quarter ended March 31, 1998 are not necessarily in-
dicative of results to be expected for the entire year. The housing
industry is seasonal in nature and revenues to the Company during
the period April 1 to September 30 are normally greater than revenues
during the balance of the year.
Both primary & fully diluted net income per common share are based
on the weighted average number of shares of common stock outstanding
during each year and common stock equivalents of dilutive stock
options.
2. Revenue and cost recognition
Revenues from fixed-price and modified fixed-price construction
contracts are recognized on the percentage-of-completion method,
measured by the cost-to-cost method. Revenues from cost-plus
contracts are recognized on the basis of costs incurred during the
period plus the fee earned.
Contract costs include all direct material and labor costs. General,
administrative, and indirect costs are charged to expense as incurred.
Provisions for estimated losses on uncompleted contracts are made
in the period in which such losses are determined. Changes in job
performance, job conditions, and estimated profitability are
recognized in the period in which the revisions are determined.
The asset, "Costs and estimated earnings in excess of billings on
uncompleted contracts," represents revenues recognized in excess
of amounts billed.
3. Cost and estimated earnings on uncompleted contracts
1998 1997
---- ----
Costs incurred on uncompleted contracts 750,858 -
Estimated earings 332,574 -
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1,083,432 -
Less billings to date 644,944 -
--------- -------
Costs and estimated earnings in excess
of billings on uncompleted contracts 438,488 -
========= =======
4. Inventories
The components of inventories are as follows 1998 1997
---- ----
Raw Materials 680,736 1,143,319
Work-In-Progress 148,434 337,932
Finished Goods 1,035,121 1,336,558
Land and Units held for sale 415,858 279,077
----------- -----------
2,280,149 3,096,886
=========== ===========
5. Notes Receivable 1998 1997
---- ----
Various mortgage notes receivable secured by
deeds of trust 164,172 168,544
Various construction loans(all current) 599,780 911,928
Demand note receivable with interest payable
quarterly at 9%, unsecured 6,425 10,175
Life insurance note receivable from an
officer of the Company(non-interest bearing) 2,038 4,633
Note receivable from the President, payable
in annual principal installments of$5,625
interest at 5.03% 16,875 22,500
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789,290 1,117,780
Less current portion 614,172 926,442
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175,118 191,338
=========== ===========
6. Property and Equipment 1998 1997
---- ----
Land and improvements 775,724 773,539
Buildings 2,883,912 2,942,338
Manufacturing equipment 2,199,272 1,919,371
Other furniture, fixtures and equipment 634,280 520,680
----------- -----------
6,493,188 6,155,928
Less accumulated depreciation (2,625,677) (2,168,963)
----------- -----------
3,867,511 3,986,965
=========== ===========
7. Deferred Compensation, Related Parties 1998 1997
---- ----
Present Value of deferred compensation
benefits payable to the widow of O.Z. Oliver
at $6,311 monthly until the earlier of her
death or Sept. 2006, discounted at 8.50% in
1995 and 1994. 457,229 492,448
Present Value of deferred compensation
benefits payable to Robert K. Fitts at $5,560
monthly until his death after which the
benefits are payable to his spouse until the
earlier of her death or July 2007, discounted
at 8.50% in 1995 and 1994. 469,176 494,823
Present value of estimated post-retirement
benefits other than pensions discounted at
8.50% 131,486 138,165
----------- -----------
1,057,891 1,125,436
Less Current Maturities 73,714 68,411
----------- -----------
984,177 1,057,025
=========== ===========
8. Long-Term Debt
On July 12, 1995, the IDA of Franklin County, VA issued bonds in the
amount of $3,000,000 to finance the construction of a manufacturing
facility. The Series 1995 Variable Rate Demand Industrial Revenue
Bonds are secured by the Company's Irrevocable Letter of Credit with
Crestar Bank. The letter of credit agreement subjects the Company to
certain financial and operating covenants, all of which the Company
was in compliance with at year end. Crestar Bank holds a first lien
and security interest on the facility. The bonds are payable in
annual principal amounts of $150,000 through 2015. The interest rate
was 3.80% at March 31, 1998.
The Company has entered an agreement of sale to purchase the
facility from the IDA. The Company's obligation under the Agreement
of Sale is equal to the required principal and interest payments on
the bonds and is payable in monthly installments currently estimated
at $22,000. The monthly payments are deposited into a Reimbursement
Account with Crestar Bank and used to pay all principal, interest
and fees related to the Bonds. The Company also agreed to maintain
an additional required deposit in the reimbursement account equal to
55 days of interest at 15.0% on the bonds. As of March 31, 1998, the
Reimbursement Account balance was as follows:
Required prepaid interest deposit $ 67,810
Unused monthly principal deposits 112,500
Earnings 19,476
-----------
$199,786
The Company's policy is to reflect the balance of the reimbursement
account as an asset until the funds are used by the trustee for
payment of bond obligations, at which time the Company reduces its
obligations under the asset sale agreement.
As of March 31, 1998, $2,939,755 of the bond proceeds have been
drawn from the trustee. The Company's obligation under the asset
sale agreement is reflected at the amount of bond proceeds that have
been drawn. Any unused proceeds will be used for early retirement
of bonds.
Amounts earned on bond proceeds prior to their being drawn from the
trustee are to be applied to principal reduction in the future.
These earnings amounted to $115,730 at March 31, 1998.
Debt issue costs will be amortized over the life of the bonds.
9. The Board Of Directors of Mod-U-Kraf Homes, Inc. on May 6, 1998 de-
clared a $.03 per share cash dividend on all shares outstanding on
May 22, 1998 and to be paid on June 12, 1998.
10. The Company uses the annualized method in its computation of Federal
Income Taxes.
11. Revenues are recorded when the houses are delivered for sales made
on account. Cash sales paid in advance are recorded when produced.
<PAGE>
7
MOD-U-KRAF HOMES, INC.
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Mod-U-Kraf Homes, Inc. held its annual meeting of shareholders
on March 25, 1998 The following were elected to the Board of
Directors: Dale H. Powell, Edwin J. Campbell, W. Curtis Carter,
Bobbie L. Oliver and Mary L. Fitts. Following the meeting the
following were elected officers: Dale H Powell, President,
Edwin J Campbell, Vice President, Jeffrey D Powell, Treasurer,
and Steven T. Montgomery, Controller.
<PAGE>
8
MOD-U-KRAF HOMES, INC.
SIGNATURES
Pursuant to the requirements 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.
MOD-U-KRAF HOMES, INC.
----------------------------------
(Registrant)
Date: May 13, 1998
----------------------------------
Dale H. Powell
President and Chairman of the Board
----------------------------------
Steven T. Montgomery
Controller
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 293774
<SECURITIES> 0
<RECEIVABLES> 420312
<ALLOWANCES> 0
<INVENTORY> 2280149
<CURRENT-ASSETS> 4126856
<PP&E> 6493188
<DEPRECIATION> 2625677
<TOTAL-ASSETS> 9434467
<CURRENT-LIABILITIES> 1290250
<BONDS> 0
0
0
<COMMON> 825649
<OTHER-SE> 3844636
<TOTAL-LIABILITY-AND-EQUITY> 9434467
<SALES> 2341650
<TOTAL-REVENUES> 2341650
<CGS> 1824607
<TOTAL-COSTS> 2402120
<OTHER-EXPENSES> (7784)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26253
<INCOME-PRETAX> (78940)
<INCOME-TAX> (31411)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (47529)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
