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 JUNE 30, 1998
------------------------
[ ] 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
------------------
MOD-U-KRAF HOMES, INC.
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(Exact name of small business issurer 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 issure (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
----------
1
MOD-U-KRAF HOMES, INC.
INDEX
PART I - FINANCIAL INFORMATION
Balance Sheets 2 & 3
Statements of Income 4 & 5
Statements of Cash Flows 6 & 7
Management's Discussion and Analysis 8
Notes to Financial Information 9
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of
Security Holders 10
2
MOD-U-KRAF HOMES, INC.
Consolidated Balance Sheets
June 30, 1998 and 1997
ASSETS 1998 1997
---------- ----------
CURRENT ASSETS
Cash and cash equivalents $ 815,286 $ 830,009
Certificates of deposit 0 200,000
Receivables 556,507 165,496
Cost and estimated earnings in excess
of billings on uncompleted contracts 181,577 0
Inventories (Note 4) 2,067,848 2,407,174
Notes receivable, current portion (Note 5) 613,889 809,116
Prepaid expenses 20,136 44,764
Income taxes receivable 11,218 0
Deferred income taxes, current protion 0 59,215
---------- ----------
Total current assets 4,266,461 4,515,774
LONG-TERM NOTES RECEIVABLE (Note 5) 165,146 179,056
PROPERTY AND EQUIPMENT, at cost less
accumulated depreciation 1998 $2,749,016;
1997 $2,268,986. (Note 6) 3,778,832 4,012,256
OTHER ASSETS
Deferred income taxes 439,912 420,085
Cash surrender value of life insurance 155,915 133,846
Reimbursement Account (Note 8) 239,762 232,287
Earnings on Unused Bond Proceeds 117,890 109,413
Bond Issue Costs (Note 8) 67,370 71,330
Model homes 379,225 0
---------- ----------
$9,610,513 $9,674,047
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of L-T liabilities(Note 7 & 8) 225,118 219,460
Line of credit 400,000 0
Accounts payable and other liabilities 418,480 607,165
Accrued compensation 214,390 192,930
Customer deposits 135,283 129,496
Income taxes payable 0 64,302
---------- ----------
Total current liabilities 1,393,271 1,213,353
LONG-TERM DEFERRED COMPENSATION (Note 7) 964,984 1,033,800
LONG-TERM DEBT (Note 8) 2,489,755 2,639,755
---------- ----------
Total liabilities 4,848,010 4,886,908
---------- ----------
STOCKHOLDERS' EQUITY
Common stock, $1 par value, 2,000,000 shares
authorized: shares issued & outstanding
1998 825,649, 1997 825,649 825,649 825,649
Additional Paid in Capital 459,671 459,671
Retained earnings 3,477,183 3,501,819
---------- ----------
4,762,503 4,787,139
---------- ----------
$9,610,513 $9,674,047
========== ==========
Accompanying notes are an integral part of these financial statements.
3
MOD-U-KRAF HOMES, INC.
Consolidated Balance Sheets
June 30, 1998 and December 31, 1997
ASSETS 1998 1997
---------- ----------
CURRENT ASSETS
Cash and cash equivalents $ 815,286 $ 589,992
Receivables 556,507 145,444
Inventories (Note 4) 2,067,848 2,253,063
Cost & estimated earnings in excess
of billings on uncompleted contracts 181,577 46,008
Notes receivable, current portion (Note 5) 613,889 661,762
Prepaid expenses 20,136 44,886
Income taxes receivable 11,218 0
---------- ----------
Total current assets 4,266,461 3,741,155
LONG-TERM NOTES RECEIVABLE (Note 5) 165,146 176,168
PROPERTY AND EQUIPMENT, at cost less
accumulated depreciation
1998 $2,749,016;1997 $2,268,986.(Note 6) 3,778,832 3,976,346
OTHER ASSETS
Deferred income taxes 439,912 464,273
Cash surrender value of life insurance 155,915 137,878
Reimbursement Account (Note 8) 239,762 160,242
Earnings on Unused Bond Proceeds 117,890 113,612
Bond Issue Costs (Note 8) 67,370 69,350
Model homes 379,225 236,017
---------- ----------
$9,610,513 $9,075,041
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of L-T liabilities(Note 7 & 8) 225,118 221,933
Accounts payable and other liabilities 418,480 366,310
Line of credit 400,000 0
Accrued compensation 214,390 161,512
Customer deposits 135,283 83,727
Income taxes payable 0 5,847
---------- ----------
Total current liabilities 1,393,271 839,329
LONG-TERM DEFERRED COMPENSATION (Note 7) 964,984 1,003,374
LONG-TERM DEBT (Note 8) 2,489,755 2,489,755
---------- ----------
Total liabilities 4,848,010 4,332,458
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STOCKHOLDERS' EQUITY
Common stock, $1 par value, 2,000,000 shares
authorized: shares issued & outstanding
1998 825,649, 1997 825,649 825,649 825,649
Additional Paid in Capital 459,671 459,671
Retained earnings 3,477,183 3,457,263
---------- ----------
4,762,503 4,742,583
---------- ----------
$9,610,513 $9,075,041
========== ==========
Accompanying notes are an integral part of these financial statements.
4
MOD-U-KRAF HOMES, INC.
Consolidated Statement of Income
Quarters Ended June 30, 1998 and June 30, 1997
1998 1997
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Net Sales $4,280,350 $5,061,167
Cost of Sales 3,204,176 3,818,873
---------- ----------
1,076,174 1,242,294
Selling, General and Administrative
Expenses 791,662 913,883
---------- ----------
Income/<Loss> from Operations 284,512 328,411
Deferred Compensation Expense 19,573 20,877
Post Retirement Benefits Expense 2,782 (2,690)
Non-operating Income/<Expenses> (54,368) 1,614
---------- ----------
Income/<Loss> Before Income Taxes 207,789 311,838
Federal and State Income Taxes 69,925 107,985
Deferred Income Tax Adjustment 20,876 9,896
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Income Taxes 90,801 117,881
---------- ----------
Net Income / <Loss> $ 116,988 $ 193,957
========== ===========
Earnings per share:
Net Income / <Loss> $ 0.14 $ 0.23
========== ===========
Depreciation Included in Above Cost $ 123,339 $ 120,275
========== ===========
Accompanying notes are an integral part of these financial statements.
5
MOD-U-KRAF HOMES, INC.
Consolidated Statement of Income
Six Months Ended June 30, 1998 and June 30, 1997
1998 1997
---------- ----------
Net Sales $6,622,001 $8,254,265
Cost of Sales 5,028,783 6,389,450
---------- ----------
1,593,218 1,864,815
Selling, General and Administrative
Expenses 1,369,177 1,538,665
---------- ----------
Income/<Loss> from Operations 224,041 326,150
Deferred Compensation Expense 39,482 42,060
Post Retirement Benefits Expense 5,599 (5,261)
Non-operating Income/<Expenses> (50,111) (2,342)
----------- ----------
Income/<Loss> Before Income Taxes 128,849 287,009
Federal and State Income Taxes 35,029 104,467
Deferred Income Tax Adjustment 24,361 6,839
---------- ----------
Income Taxes 59,390 111,306
---------- ----------
Net Income / <Loss> $ 69,459 $ 175,703
========== ==========
Earnings per share:
Net Income / <Loss> $ 0.08 $ 0.21
========== ==========
Depreciation Included in Above Cost $ 249,642 $ 220,647
========== ==========
Accompanying notes are an integral part of these financial statements.
6
MOD-U-KRAF HOMES, INC.
Consolidated Statement of Cash Flows
Quarters Ended June 30, 1998 and 1997
1998 1997
OPERATING ACTIVITIES ---------- ----------
Net Income/<Loss> $ 116,988 $ 193,957
Noncash <income> expenses included
in income or <loss>:
Depreciation and amortization 123,339 120,275
Deferred income taxes 20,876 9,896
Loss (gain) on sale of equipment 0 (6,691)
Increase in cash value of life insurance (15,949) (16,105)
Adjustments to post retirement benefits (17,789) (22,176)
<Increase> decrease in:
Trade receivables (136,195) (90,798)
Cost and estimated earnings in excess
of billings on uncompleted contracts 256,911
Inventories 212,301 689,712
Prepaid Expenses 22,326 25,821
Model placement costs (98,874)
Income taxes receivable 26,251 0
<Decrease> increase in:
Accounts payable and other Liabilities 159,558 (303,932)
Accrued compensation (29,271) (67,104)
Customer deposits (28,670) (13,394)
Income taxes payable 0 114,830
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Net cash provided by (used in)
operations 611,802 634,291
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INVESTING ACTIVITIES
Proceeds from sale of property & equipment 0 6,858
Purchase of plant & equipment net of
debt incurred 1998 $0, 1997 $0 (34,630) (145,733)
<Increase> decrease in notes receivable
arising from sales 10,255 129,608
<Increase> decrease in certificates of deposit 0 0
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Net cash provided by (used in)
investing activities (24,375) (9,267)
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FINANCING ACTIVITIES
Short-term borrowings 0 0
Cash dividends paid (24,769) (24,769)
Debt issue costs, net of debt incurred
1998 $0, 1997 $0 990 990
Funding of reimbursement account (39,976) (40,069)
Earnings on unused bond proceeds (2,160) (2,018)
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Net cash provided by (used in)
financing activities (65,915) (65,866)
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Net increase (decrease) in cash 521,512 559,158
CASH
Beginning 293,774 270,851
---------- ----------
Ending $ 815,286 $ 830,009
========== ==========
SUPPLEMENTAL DISCOLOSRES OF CASH FLOW INFORMATION
Cash payments for:
Interest $ 30,714 $ 27,815
Income taxes $ 43,675 $ 19,650
Accompanying notes are an integral part of these financial statements.
7
MOD-U-KRAF HOMES, INC.
Consolidated Statement of Cash Flows
Six Months Ended June 30, 1998 and 1997
1998 1997
OPERATING ACTIVITIES ---------- ----------
Net Income/<Loss> $ 69,459 $ 175,703
Noncash <income> expenses included
in income or <loss>:
Depreciation and amortization 248,640 220,647
Deferred income taxes 24,361 6,389
Loss (gain) on sale of equipment 0 (8,107)
Increase in cash value of life insurance (18,037) (17,619)
Adjustments to post retirement benefits (35,205) (43,926)
<Increase> decrease in:
Trade receivables (411,063) (112,569)
Cost and estimated earnings in excess
of billings on uncompleted contracts (135,569) 0
Inventories 185,215 (48,828)
Prepaid Expenses 24,750 21,176
Model placement cost (143,209) 0
Income taxes receivable (11,218) 0
<Decrease> increase in:
Accounts payable and other Liabilities 52,170 83,069
Accrued compensation 52,878 (9,324)
Customer deposits 51,556 (164,159)
Income taxes payable (5,847) 110,425
---------- ----------
Net cash provided by (used in)
operations (51,119) 212,877
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INVESTING ACTIVITIES
Proceeds from sale of property & equipment 0 5,813
Purchase of plant & equipment net of
debt incurred 1998 $0, 1997 $0 (51,125) (337,019)
<Increase> decrease in notes receivable
arising from sales 58,895 1,455
<Increase> decrease in certificates of deposit 0 0
---------- ----------
Net cash provided by (used in)
investing activities 7,770 (329,751)
---------- ----------
FINANCING ACTIVITIES
Short-term borrowings 400,000 0
Cash dividends paid (49,539) (49,539)
Debt issue costs, net of debt incurred
1998 $0, 1997 $0 1,980 1,980
Funding of reimbursement account (79,520) (79,581)
Earnings on unused bond proceeds (4,278) (4,010)
---------- ----------
Net cash provided by (used in)
financing activities 268,643 (131,150)
---------- ----------
Net increase (decrease) in cash 225,294 (248,024)
CASH
Beginning 589,992 1,078,033
---------- ----------
Ending $ 815,286 $ 830,009
========== ==========
SUPPLEMENTAL DISCOLOSRES OF CASH FLOW INFORMATION
Cash payments for:
Interest $ 56,967 $ 53,610
Income taxes $ 52,094 $ 19,650
Accompanying notes are an integral part of these financial statements.
8
MOD-U-KRAF HOMES, INC
Management's Discussion and Analysis
of the Second Quarter Statements
Net sales for the second quarter of 1998 were $4,280,350 as compared
to $5,061,167 for the second quarter of 1997, a 15% decrease. Sales for
the first six months of 1998 were $6,622,001 as compared to $8,254,265
in 1997 for a decrease in sales volume of 20%.
Cost of Sales was 74.86% of net sales for the second quarter of 1998
and 75.47% for the second quarter of 1998. For the first six months
cost of sales was 75.94% for 1998 compared to 77.41% for 1997. We are
experiencing unfavorable variances in our production labor and manu-
facturing expense in our new production facility. We are still working
to stabilize our production crews and raise our production volume to
absorb the additional overhead.
Selling, General and Administrative expenses was 18.50% of net sales
for the second quarter of 1998 and 18.06% for the same quarter of 1997.
They were 20.68% for the first six months of 1998 compared to 18.64% for
the same period in 1997.
The net income for the second quarter of 1998 is $116,988 compared
to net income of $193,957 for the second quarter of 1997. This is $0.14
per share for the second quarter of 1998 and $.23 per share for the same
period in 1997. Net income for the first six months is $69,459, $0.08
common share for 1998, compared to $175,703, $0.21 per common share, for
1997.
The only change in liquidity and capital resources was the $400,000
draw on our line of credit to assist us with our short-term monetary needs
until the weather allowed us to set the houses we have in inventory. This
line has been paid-off since the end of the second quarter.
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.
9
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 June 30, 1998. The
results for the quarter ended June 30, 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 revenue
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 1,171,435 -
Estimated earings 680,936 -
--------- -------
1,852,371 -
Less billings to date 1,670,794 -
----------- -------
Costs and estimated earnings in excess
of billings on uncompleted contracts 181,577 -
========= =======
4. Inventories
The components of inventories are as follows 1998 1997
---- ----
Raw Materials 732,508 1,063,900
Work-In-Progress 105,970 235,857
Finished Goods 1,085,514 828,340
Land and Units held for sale 143,856 279,077
--------- ---------
2,067,848 2,407,174
========= =========
5. Notes Receivable 1998 1997
---- ----
Various mortgage notes receivable secured by
deeds of trust 160,859 165,244
Various construction loans(all current) 599,497 794,476
Demand note receivabe with interest payable
quarterly at 9%, unsecured 5,391 9,125
Life insurance note receivable from an
officer of the Company(non-interest bearing) 2,038 2,452
Note receivable from the President, payable
in annual principal installments of $5,625
with interest at 5.03% 11,250 16,875
--------- ---------
779,035 988,172
Less current portion 613,889 809,116
--------- ---------
165,146 179,056
========= =========
6. Property and Equipment 1998 1997
---- ----
Land and improvements 775,724 773,539
Buildings 2,883,912 2,948,351
Manufacturing equipment 2,233,455 1,981,950
Other furniture, fixtures and equipment 634,757 577,402
--------- ---------
6,527,848 6,281,242
Less accumulated depreciation (2,749,016) (2,268,986)
--------- ---------
3,778,832 4,012,256
========= =========
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
1998 and 1997. 447,948 483,921
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 1998 and 1997. 462,417 488,614
Present value of estimated post-retirement
benefits other than pensions discounted at
8.50% in 1998 and 1997. 129,737 130,725
--------- ---------
1,040,102 1,103,260
Less Current Maturities 75,118 69,460
--------- ---------
964,984 1,033,800
========= =========
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 constructin of a manufacturing
facility. The Series 1995 variable Rate Demand Indutrial 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 wiht 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 3.60% at June 30, 1998.
The Company has entered into 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 June 30, 1998, the
Reimbursement Account balance was as follows:
Required prepaid interest deposit $ 67,810
Unused monthly principal deposits 150,000
Earnings 21,951
--------
$239,761
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 June 30, 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 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 $117,890 at June 30, 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 August 5, 1998
declared a $.03 per share cash dividend on all shares outstanding
on August 21, 1998 and to be paid on September 11, 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.
10
MOD-U-KRAF HOMES, INC.
OTHER INFORMATION
NONE
11
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: August 8, 1998
s/Dale H. Powell
------------------------------------
Dale H. Powell
President and Chairman of the Board
s/Steven T. Montgomery
------------------------------------
Steven T. Montgomery
Controller
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 815286
<SECURITIES> 0
<RECEIVABLES> 556507
<ALLOWANCES> 0
<INVENTORY> 2067848
<CURRENT-ASSETS> 4266461
<PP&E> 6527848
<DEPRECIATION> 2749016
<TOTAL-ASSETS> 9610513
<CURRENT-LIABILITIES> 1393271
<BONDS> 0
0
0
<COMMON> 825649
<OTHER-SE> 3936854
<TOTAL-LIABILITY-AND-EQUITY> 9610513
<SALES> 6622001
<TOTAL-REVENUES> 6622001
<CGS> 5028783
<TOTAL-COSTS> 6397960
<OTHER-EXPENSES> 38444
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 56967
<INCOME-PRETAX> 128849
<INCOME-TAX> 59390
<INCOME-CONTINUING> 0
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 69459
<EPS-PRIMARY> 0.08
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</TABLE>
