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 September 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
September 30, 1998 and 1997
ASSETS 1998 1997
---------- ----------
CURRENT ASSETS
Cash and cash equivalents $ 733,178 $1,090,705
Certificates of deposit 0 100,000
Receivables 900,229 226,043
Cost and estimated earnings in excess
of billings on uncompleted contracts 163,224 0
Inventories (Note 4) 2,049,755 2,225,002
Notes receivable, current portion (Note 5) 510,038 954,878
Prepaid expenses 51,483 106,619
Income taxes receivable 129,495 0
Deferred income taxes, current protion 0 72,526
---------- ----------
Total current assets 4,537,402 4,775,773
LONG-TERM NOTES RECEIVABLE (Note 5) 162,215 178,536
PROPERTY AND EQUIPMENT, at cost less
accumulated depreciation 1998 $2,869,390;
1997 $2,392,950. (Note 6) 3,705,389 4,057,913
OTHER ASSETS
Deferred income taxes 422,644 401,112
Cash surrender value of life insurance 156,821 134,973
Reimbursement Account (Note 8) 128,450 121,024
Earnings on Unused Bond Proceeds 716 111,507
Bond Issue Costs (Note 8) 66,380 70,340
Model homes 370,531 0
---------- ----------
$9,550,548 $9,851,178
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of L-T liabilities(Note 7 & 8) 226,559 220,947
Accounts payable and other liabilities 753,891 850,005
Accrued compensation 279,772 281,788
Customer deposits 178,903 147,728
Income taxes payable 0 53,881
---------- ----------
Total current liabilities 1,439,125 1,554,349
LONG-TERM DEFERRED COMPENSATION (Note 7) 945,372 1,015,495
LONG-TERM DEBT (Note 8) 2,400,000 2,489,755
---------- ----------
Total liabilities 4,784,497 5,059,599
---------- ----------
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 3,480,731 3,506,259
---------- ----------
4,766,051 4,791,579
---------- ----------
$9,550,548 $9,851,178
========== ==========
Accompanying notes are an integral part of these financial statements.
3
MOD-U-KRAF HOMES, INC.
Consolidated Balance Sheets
September 30, 1998 and December 31, 1997
ASSETS 1998 1997
---------- ----------
CURRENT ASSETS
Cash and cash equivalents $ 733,178 $ 589,992
Receivables 900,229 145,444
Inventories (Note 4) 2,049,755 2,253,063
Cost & estimated earnings in excess
of billings on uncompleted contracts 163,224 46,008
Notes receivable, current portion (Note 5) 510,038 661,762
Prepaid expenses 51,483 44,886
Income taxes receivable 129,495 0
---------- ----------
Total current assets 4,537,402 3,741,155
LONG-TERM NOTES RECEIVABLE (Note 5) 162,215 176,168
PROPERTY AND EQUIPMENT, at cost less
accumulated depreciation
1998 $2,869,390;1997 $2,268,986.(Note 6) 3,705,389 3,976,346
OTHER ASSETS
Deferred income taxes 422,644 464,273
Cash surrender value of life insurance 156,821 137,878
Reimbursement Account (Note 8) 128,450 160,242
Earnings on Unused Bond Proceeds 716 113,612
Bond Issue Costs (Note 8) 66,380 69,350
Model homes 370,531 236,017
---------- ----------
$9,550,548 $9,075,041
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of L-T liabilities(Note 7 & 8) 226,559 221,933
Accounts payable and other liabilities 753,891 366,310
Accrued compensation 279,772 161,512
Customer deposits 178,903 83,727
Income taxes payable 0 5,847
---------- ----------
Total current liabilities 1,439,125 839,329
LONG-TERM DEFERRED COMPENSATION (Note 7) 945,372 1,003,374
LONG-TERM DEBT (Note 8) 2,400,000 2,489,755
---------- ----------
Total liabilities 4,784,497 4,332,458
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STOCKHOLDERS' EQUITY
Common stock, $1 par value, 2,000,000 shares
authorized: shares issued & outstanding
1996 825,649, 1995 825,649 825,649 825,649
Additional Paid in Capital 459,671 459,671
Retained earnings 3,480,731 3,457,263
---------- ----------
4,766,051 4,742,583
---------- ----------
$9,550,548 $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 September 30, 1998 and September 30, 1997
1998 1997
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Net Sales $4,207,328 $4,071,833
Cost of Sales 3,364,320 3,206,096
---------- ----------
843,008 865,737
Selling, General and Administrative
Expenses 856,195 807,232
---------- ----------
Income/<Loss> from Operations (13,187) 58,505
Deferred Compensation Expense 19,228 20,560
Post Retirement Benefits Expense 2,743 2,765
Non-operating Income/<Expenses> (15,963) 8,897
---------- ----------
Income/<Loss> Before Income Taxes (51,121) 44,077
Federal and State Income Taxes (96,677) 9,129
Deferred Income Tax Adjustment 17,268 5,662
---------- ----------
Income Taxes (79,409) 14,791
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Net Income / <Loss> $ 28,288 $ 29,286
========== ===========
Earnings per share:
Net Income / <Loss> $ 0.03 $ 0.04
========== ===========
Depreciation Included in Above Cost $ 120,373 $ 123,963
========== ===========
Accompanying notes are an integral part of these financial statements.
5
MOD-U-KRAF HOMES, INC.
Consolidated Statement of Income
Nine Months Ended September 30, 1998 and September 30, 1997
1998 1997
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Net Sales $10,829,329 $12,326,097
Cost of Sales 8,393,103 9,595,623
---------- ----------
2,436,226 2,730,474
Selling, General and Administrative
Expenses 2,225,373 2,345,896
---------- ----------
Income/<Loss> from Operations 210,853 384,578
Deferred Compensation Expense 58,710 62,619
Post Retirement Benefits Expense 8,342 (2,496)
Non-operating Income/<Expenses> (66,074) 6,555
---------- ----------
Income/<Loss> Before Income Taxes 77,727 331,010
Federal and State Income Taxes (61,648) 113,597
Deferred Income Tax Adjustment 41,629 12,501
---------- ----------
Income Taxes (20,019) 126,098
---------- ----------
Net Income / <Loss> $ 97,746 $ 204,912
========== ==========
Earnings per share:
Net Income / <Loss> $ 0.12 $ 0.25
========== ==========
Depreciation Included in Above Cost $ 370,015 $ 344,610
========== ==========
Accompanying notes are an integral part of these financial statements.
6
MOD-U-KRAF HOMES, INC.
Consolidated Statement of Cash Flows
Quarters Ended September 30, 1998 and 1997
1998 1997
OPERATING ACTIVITIES ---------- ----------
Net Income/<Loss> $ 28,288 $ 29,286
Noncash <income> expenses included
in income or <loss>:
Depreciation and amortization 120,373 123,887
Deferred income taxes 17,268 5,662
Loss (gain) on sale of equipment 0 0
Increase in cash value of life insurance (906) (1,127)
Adjustments to post retirement benefits (18,171) (16,818)
<Increase> decrease in:
Trade receivables (343,720) (60,547)
Cost and estimated earnings in excess
of billings on uncompleted contracts 18,353 0
Inventories 18,093 182,172
Prepaid Expenses (31,347) (61,855)
Model placement costs 8,695 0
Income taxes receivable (118,277) 0
<Decrease> increase in:
Accounts payable and other Liabilities 335,411 242,840
Accrued compensation 65,382 88,858
Customer deposits 43,620 18,232
Income taxes payable 0 (10,421)
---------- ----------
Net cash provided by (used in)
operations 143,062 540,169
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INVESTING ACTIVITIES
Proceeds from sale of property & equipment 0 0
Purchase of plant & equipment net of
debt incurred 1998 $0, 1997 $0 (46,904) (169,621)
<Increase> decrease in notes receivable
arising from sales 106,782 (145,242)
<Increase> decrease in certificates of deposit 0 100,000
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Net cash provided by (used in)
investing activities 59,878 (214,863)
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FINANCING ACTIVITIES
Cash dividends paid (24,769) (24,769)
Payments on short-term borrowings (400,000) 0
Payments on Long-term Debt (150,000) (150,000)
Debt issue costs, net of debt incurred
1998 $60,245, 1997 $0 61,235 990
Funding of reimbursement account 111,312 111,263
Earnings on unused bond proceeds 117,174 (2,094)
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Net cash provided by (used in)
financing activities (285,048) (64,610)
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Net increase (decrease) in cash (82,108) 260,696
CASH
Beginning 815,286 830,009
---------- ----------
Ending $ 733,178 $1,090,705
========== ==========
SUPPLEMENTAL DISCOLOSRES OF CASH FLOW INFORMATION
Cash payments for:
Interest $ 22,601 $ 25,439
Income taxes $ 21,600 $ 19,550
Accompanying notes are an integral part of these financial statements.
7
MOD-U-KRAF HOMES, INC.
Consolidated Statement of Cash Flows
Nine Months Ended September 30, 1998 and 1997
1998 1997
OPERATING ACTIVITIES ---------- ----------
Net Income/<Loss> $ 97,746 $ 204,912
Noncash <income> expenses included
in income or <loss>:
Depreciation and amortization 370,015 344,611
Deferred income taxes 41,629 12,051
Loss (gain) on sale of equipment 0 (8,107)
Increase in cash value of life insurance (18,943) (18,746)
Adjustments to post retirement benefits (53,376) (60,744)
<Increase> decrease in:
Trade receivables (754,783) (173,116)
Cost and estimated earnings in excess
of billings on uncompleted contracts (117,216) 0
Inventories 203,308 133,344
Prepaid Expenses (6,597) (40,679)
Model placement cost (134,514) 0
Income taxes receivable (129,495) 0
<Decrease> increase in:
Accounts payable and other Liabilities 387,581 325,909
Accrued compensation 118,260 79,534
Customer deposits 95,176 (145,927)
Income taxes payable (5,847) 100,004
---------- ----------
Net cash provided by (used in)
operations 92,944 753,046
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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 (99,060) (506,640)
<Increase> decrease in notes receivable
arising from sales 165,677 (143,787)
<Increase> decrease in certificates of deposit 0 100,000
---------- ----------
Net cash provided by (used in)
investing activities 66,617 (544,614)
---------- ----------
FINANCING ACTIVITIES
Short-term borrowings 400,000 0
Cash dividends paid (74,278) (74,308)
Payments on Short-term borrowings (400,000) 0
Payments on Long-term Debt (150,000) (150,000)
Debt issue costs, net of debt incurred
1998 $60,245, 1997 $0 63,215 2,970
Funding of reimbursement account 31,792 31,682
Earnings on unused bond proceeds 112,896 (6,104)
---------- ----------
Net cash provided by (used in)
financing activities (16,375) (195,760)
---------- ----------
Net increase (decrease) in cash 143,186 12,672
CASH
Beginning 589,992 1,078,033
---------- ----------
Ending $ 733,178 $1,090,705
========== ==========
SUPPLEMENTAL DISCOLOSRES OF CASH FLOW INFORMATION
Cash payments for:
Interest $ 79,567 $ 82,346
Income taxes $ 73,654 $ 39,200
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 third quarter of 1998 were $4,207,328 as compared
to $4,071,833 for the third quarter of 1997, a 3% increase. Sales for
the first nine months of 1998 were $10,829,329 as compared to $12,326,097
in 1997 for a decrease in sales volume of 12%.
Cost of Sales was 79.96% of net sales for the third quarter of 1998
and 78.74% for the third quarter of 1997. For the first nine months
cost of sales was 77.50% for 1998 compared to 77.85% 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 20.35% of net sales
for the third quarter of 1998 and 19.82% for the same quarter of 1997.
They were 20.55% for the first nine months of 1998 compared to 19.03% for
the same period in 1997.
The net income for the third quarter of 1998 is $28,288 compared
to net income of $29,286 for the third quarter of 1997. This is $0.03
per share for the third quarter of 1998 and $0.04 per share for the same
period in 1997. Net income for the first nine months is $97,746, $0.12
common share for 1998, compared to $204,912, $0.25 per common share, for
1997.
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 September 30, 1998.
The results for the quarter ended September 30, 1998 are not necessarily
indicative 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 1,744,395 -
Estimated earings 649,624 -
--------- -------
2,394,019 -
Less billings to date 2,230,795 -
----------- -------
Costs and estimated earnings in excess
of billings on uncompleted contracts 163,224 -
========= =======
4. Inventories
The components of inventories are as follows 1998 1997
---- ----
Raw Materials 858,597 950,935
Work-In-Progress 195,732 312,120
Finished Goods 573,366 598,774
Land and Units held for sale 422,060 363,173
--------- ---------
2,049,755 2,225,002
========= =========
5. Notes Receivable 1998 1997
---- ----
Various mortgage notes receivable secured by
deeds of trust 159,381 165,563
Various construction loans(all current) 495,646 940,099
Demand note receivabe with interest payable
quarterly at 9%, unsecured 3,938 8,425
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
--------- ---------
672,253 1,133,414
Less current portion 510,038 954,878
--------- ---------
162,215 178,536
========= =========
6. Property and Equipment 1998 1997
---- ----
Land and improvements 775,724 773,539
Buildings 2,918,912 2,948,351
Manufacturing equipment 2,237,585 2,089,843
Other furniture, fixtures and equipment 642,558 639,130
--------- ---------
6,574,779 6,450,863
Less accumulated depreciation (2,869,390) (2,392,950)
--------- ---------
3,705,389 4,057,913
========= =========
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. 438,467 475,211
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. 455,514 482,271
Present value of estimated post-retirement
benefits other than pensions discounted at
8.50% in 1998 and 1997. 127,950 128,960
--------- ---------
1,021,931 1,086,442
Less Current Maturities 76,559 70,947
--------- ---------
945,372 1,015,495
========= =========
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 4.00% at September 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 September 30, 1998, the
Reimbursement Account balance was as follows:
Required prepaid interest deposit $ 67,810
Unused monthly principal deposits 37,500
Earnings 23,140
--------
$128,450
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 September 30, 1998, $3,000,000 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. Unused bond proceeds of $60,245 at June 30, 1998 were used for
building improvements and working capital during the third quarter.
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 $716 at September 30, 1998. This reflects
the July withdrawal of $112,896 of earnings along with the above
mentioned bond proceeds to be used as working capital.
Debt issue costs will be amortized over the life of the bonds.
9. The Board Of Directors of Mod-U-Kraf Homes, Inc. on November 4, 1998
declared a $.03 per share cash dividend on all shares outstanding
on November 20, 1998 and to be paid on December 4, 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 733178
<SECURITIES> 0
<RECEIVABLES> 900229
<ALLOWANCES> 0
<INVENTORY> 2049755
<CURRENT-ASSETS> 4537402
<PP&E> 6574779
<DEPRECIATION> 2869390
<TOTAL-ASSETS> 9550548
<CURRENT-LIABILITIES> 1439125
<BONDS> 0
0
0
<COMMON> 825649
<OTHER-SE> 3940402
<TOTAL-LIABILITY-AND-EQUITY> 9550548
<SALES> 10829329
<TOTAL-REVENUES> 10829329
<CGS> 8393103
<TOTAL-COSTS> 10618476
<OTHER-EXPENSES> 133126
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 79567
<INCOME-PRETAX> 77727
<INCOME-TAX> (20019)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 97746
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