<
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, 1999
------------------------
[ ] 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 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 3 & 4
Statements of Income 5 & 6
Statements of Cash Flows 7 & 8
Management's Discussion and Analysis 9
Notes to Financial Information 10
PART II - OTHER INFORMATION 11
2
MOD-U-KRAF HOMES, INC.
Consolidated Balance Sheets
June 30, 1999 and 1998
ASSETS 1999 1998
---------- ----------
CURRENT ASSETS
Cash and cash equivalents $1,638,374 $ 815,286
Receivables 192,190 556,507
Cost and estimated earnings in excess
of billings on uncompleted contracts 126,537 181,577
Inventories (Note 4) 3,114,526 2,067,848
Notes receivable, current portion (Note 5) 437,791 613,889
Prepaid expenses 330 20,136
Income taxes receivable 9,870 11,218
---------- ----------
Total current assets 5,519,618 4,266,461
LONG-TERM NOTES RECEIVABLE (Note 5) 155,481 165,146
PROPERTY AND EQUIPMENT, at cost less
accumulated depreciation 1999 $3,142,092;
1998 $2,749,016. (Note 6) 3,421,178 3,778,832
OTHER ASSETS
Deferred income taxes 416,381 439,912
Cash surrender value of life insurance 165,959 155,915
Reimbursement Account (Note 8) 246,353 239,762
Earnings on Unused Bond Proceeds 739 117,890
Bond Issue Costs (Note 8) 63,410 67,370
Model homes 468,971 379,225
---------- ----------
$10,458,090 $9,610,513
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of L-T liabilities(Note 7 & 8) 231,563 225,118
Line of credit 0 400,000
Accounts payable and other liabilities 958,001 418,480
Accrued compensation 214,334 214,390
Customer deposits 245,392 135,283
Income taxes payable 317,605 0
---------- ----------
Total current liabilities 1,966,895 1,393,271
LONG-TERM DEFERRED COMPENSATION (Note 7) 883,421 964,984
LONG-TERM DEBT (Note 8) 2,400,000 2,489,755
---------- ----------
Total liabilities 5,250,316 4,848,010
---------- ----------
STOCKHOLDERS' EQUITY
Common stock, $1 par value, 2,000,000 shares
authorized: shares issued & outstanding
1999 825,649, 1998 825,649 825,649 825,649
Additional Paid in Capital 459,671 459,671
Retained earnings 3,922,454 3,477,183
---------- ----------
5,207,774 4,762,503
---------- ----------
$10,458,090 $9,610,513
========== ==========
Accompanying notes are an integral part of these financial statements.
3
MOD-U-KRAF HOMES, INC.
Consolidated Balance Sheets
June 30, 1999 and December 31, 1998
ASSETS 1999 1998
---------- ----------
CURRENT ASSETS
Cash and cash equivalents $1,638,374 $1,653,742
Receivables 192,190 351,972
Inventories (Note 4) 3,114,526 1,618,016
Cost & estimated earnings in excess
of billings on uncompleted contracts 126,537 0
Notes receivable, current portion (Note 5) 437,791 645,962
Prepaid expenses 330 34,627
Income taxes receivable 9,870 76,900
---------- ----------
Total current assets 5,519,618 4,381,219
LONG-TERM NOTES RECEIVABLE (Note 5) 155,481 7,663
PROPERTY AND EQUIPMENT, at cost less
accumulated depreciation
1999 $3,142,092;1998 $2,931,084.(Note 6) 3,421,178 3,574,488
OTHER ASSETS
Deferred income taxes 416,381 416,381
Cash surrender value of life insurance 165,959 157,732
Reimbursement Account (Note 8) 247,092 155,160
Bond Issue Costs (Note 8) 63,410 65,390
Model homes 468,971 477,257
---------- ----------
$10,458,090 $9,235,290
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of L-T liabilities(Note 7 & 8) 231,563 228,279
Accounts payable and other liabilities 958,001 545,378
Accrued compensation 214,334 220,408
Customer deposits 245,392 157,200
Income taxes payable 317,605 0
---------- ----------
Total current liabilities 1,966,895 1,151,265
LONG-TERM DEFERRED COMPENSATION (Note 7) 883,421 925,123
LONG-TERM DEBT (Note 8) 2,400,000 2,400,000
---------- ----------
Total liabilities 5,250,316 4,476,388
---------- ----------
STOCKHOLDERS' EQUITY
Common stock, $1 par value, 2,000,000 shares
authorized: shares issued & outstanding
1999 825,649, 1998 825,649 825,649 825,649
Additional Paid in Capital 459,671 459,671
Retained earnings 3,922,454 3,473,582
---------- ----------
5,207,774 4,758,902
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$10,458,090 $9,235,290
========== ==========
Accompanying notes are an integral part of these financial statements.
4
MOD-U-KRAF HOMES, INC.
Consolidated Statement of Income
Quarters Ended June 30, 1999 and June 30, 1998
1999 1998
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Net Sales $5,232,332 $4,280,350
Cost of Sales 4,051,689 3,204,176
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1,180,643 1,076,174
Selling, General and Administrative
Expenses 898,632 791,662
---------- ----------
Income/<Loss> from Operations 282,011 284,512
Deferred Compensation Expense 18,302 19,573
Post Retirement Benefits Expense 2,649 2,782
Non-operating Income/<Expenses> (6,664) (54,368)
---------- ----------
Income/<Loss> Before Income Taxes 254,396 207,789
Income Taxes 99,215 90,801
---------- ----------
Net Income / <Loss> $ 155,181 $ 116,988
========== ===========
Earnings per share:
Net Income / <Loss> $ 0.19 $ 0.14
========== ===========
Depreciation Included in Above Cost $ 116,876 $ 123,339
========== ===========
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, 1999 and June 30, 1998
1999 1998
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Net Sales $10,022,590 $6,622,001
Cost of Sales 7,527,560 5,028,783
---------- ----------
2,495,030 1,593,218
Selling, General and Administrative
Expenses 1,626,962 1,369,177
---------- ----------
Income/<Loss> from Operations 868,068 224,041
Deferred Compensation Expense 36,600 39,482
Post Retirement Benefits Expense 5,268 5,599
Non-operating Income/<Expenses> (9,184) (50,111)
----------- ----------
Income/<Loss> Before Income Taxes 817,016 128,849
Income Taxes 318,636 59,390
---------- ----------
Net Income / <Loss> $ 498,380 $ 69,459
========== ==========
Earnings per share:
Net Income / <Loss> $ 0.60 $ 0.08
========== ==========
Depreciation Included in Above Cost $ 233,898 $ 249,642
========== ==========
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, 1999 and 1998
1999 1998
OPERATING ACTIVITIES ---------- ----------
Net Income/<Loss> $ 155,183 $ 116,988
Noncash <income> expenses included
in income or <loss>:
Depreciation and amortization 116,877 123,339
Deferred income taxes 0 20,876
Loss (gain) on sale of equipment 0 0
Increase in cash value of life insurance (5,455) (15,949)
Adjustments to post retirement benefits (19,193) (17,789)
<Increase> decrease in:
Trade receivables 174,554 (136,195)
Cost and estimated earnings in excess
of billings on uncompleted contracts (31,659) 256,911
Inventories (511,934) 212,301
Prepaid Expenses 32,776 22,326
Model placement costs 2,910 (98,874)
Income taxes receivable 67,110 26,251
<Decrease> increase in:
Accounts payable and other Liabilities 16,770 159,558
Accrued compensation (101,167) (29,271)
Customer deposits 86,870 (28,670)
Income taxes payable 99,214 0
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Net cash provided by (used in)
operations 82,856 611,802
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INVESTING ACTIVITIES
Proceeds from sale of property & equipment 0 0
Purchase of plant & equipment net of
debt incurred 1999 $0, 1998 $0 (29,946) (34,630)
<Increase> decrease in notes receivable
arising from sales 7,848 10,255
<Increase> decrease in certificates of deposit 0 0
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Net cash provided by (used in)
investing activities (22,098) (24,375)
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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
1999 $0, 1998 $0 990 990
Funding of reimbursement account (39,654) (39,976)
Earnings on unused bond proceeds (7) (2,160)
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Net cash provided by (used in)
financing activities (63,440) (65,915)
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Net increase (decrease) in cash (2,682) 521,512
CASH
Beginning 1,641,056 293,774
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Ending $1,638,374 $ 815,286
========== ==========
SUPPLEMENTAL DISCOLOSRES OF CASH FLOW INFORMATION
Cash payments for:
Interest $ 22,447 $ 30,714
Income taxes $ 7,391 $ 43,675
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, 1999 and 1998
1999 1998
OPERATING ACTIVITIES ---------- ----------
Net Income/<Loss> $ 498,381 $ 69,459
Noncash <income> expenses included
in income or <loss>:
Depreciation and amortization 233,898 248,640
Deferred income taxes 0 24,361
Loss (gain) on sale of equipment (5,000) 0
Increase in cash value of life insurance (8,227) (18,037)
Adjustments to post retirement benefits (38,418) (35,205)
<Increase> decrease in:
Trade receivables 83,578 (411,063)
Cost and estimated earnings in excess
of billings on uncompleted contracts (50,333) (135,569)
Inventories (1,496,510) 185,215
Prepaid Expenses 34,327 24,750
Model placement cost 8,286 (143,209)
Income taxes receivable 67,030 (11,218)
<Decrease> increase in:
Accounts payable and other Liabilities 412,623 52,170
Accrued compensation (6,073) 52,878
Customer deposits 88,192 51,556
Income taxes payable 317,605 (5,847)
---------- ----------
Net cash provided by (used in)
operations 139,359 (51,119)
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INVESTING ACTIVITIES
Proceeds from sale of property & equipment 5,000 0
Purchase of plant & equipment net of
debt incurred 1999 $0, 1998 $0 (80,588) (51,125)
<Increase> decrease in notes receivable
arising from sales 60,353 58,895
<Increase> decrease in certificates of deposit 0 0
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Net cash provided by (used in)
investing activities (15,235) 7,770
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FINANCING ACTIVITIES
Short-term borrowings 0 400,000
Cash dividends paid (49,539) (49,539)
Debt issue costs, net of debt incurred
1999 $0, 1998 $0 1,980 1,980
Funding of reimbursement account (91,918) (79,520)
Earnings on unused bond proceeds (15) (4,278)
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Net cash provided by (used in)
financing activities (139,492) 268,643
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Net increase (decrease) in cash (15,368) 225,294
CASH
Beginning 1,653,742 589,992
---------- ----------
Ending $1,638,374 $ 815,286
========== ==========
SUPPLEMENTAL DISCOLOSRES OF CASH FLOW INFORMATION
Cash payments for:
Interest $ 41,474 $ 56,967
Income taxes $ 7,391 $ 52,094
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 1999 were $5,232,332 as compared
to $4,280,350 for the second quarter of 1998, a 22% increase. Sales for
the first six months of 1999 were $10,022,590 as compared to $6,622,001
in 1998 for a increase in sales volume of 51%.
Cost of Sales was 77.44% of net sales for the second quarter of 1999
and 74.86% for the second quarter of 1998. For the first six months
cost of sales was 75.11% for 1999 compared to 75.94% for 1998.
Selling, General and Administrative expenses was 17.17% of net sales
for the second quarter of 1999 and 18.50% for the same quarter of 1998.
They were 16.23% for the first six months of 1999 compared to 20.68% for
the same period in 1998.
The net income for the second quarter of 1999 is $155,181 compared
to net income of $116,988 for the second quarter of 1998. This is $0.19
per share for the second quarter of 1999 and $0.14 per share for the same
period in 1998. Net income for the first six months is $498,381, $0.60
common share for 1999, compared to $69,459, $0.08 per common share, for
1998.
There was no significant changes in liquidity and capital resources
during the second quarter of the year. Production resumed in the Highway
40 facility on January 4, 1999 and is expected to remain operating for
the foreseeable future. Production at this facility had been suspended
December 18, 1997 because of the adverse weather conditions. It remained
idle through all of 1998. By December of 1998, demand for our houses had
reached a level necessitating starting preparations to re-open the facility.
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 year 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.
The year 2000 assessment of our internal computer systems has been
completed. We believe our computer systems and software are year 2000
compliant. Certain key vendors have informed us that they do not expect
disruptions of services relating to the year 2000 problem. A survey was
sent to our remaining key vendors in May of 1999 to try to determine
if they were year 2000 compliant. To date, all responses to the survey
have been positive. In the event we do get a negative respone to the
survey, a substitute vendor will be lined up. Our current telephone
system is not year 2000 compliant and will be replaced in mid-August
of 1999 at an approxiate cost of $24,000. We do not foresee a significat
impact on our financial position as a result of this issue.
<PAGE>
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, 1999. The
results for the quarter ended June 30, 1999 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
1999 1998
---- ----
Costs incurred on uncompleted contracts 852,160 1,171,435
Estimated earings 87,797 680,936
--------- -------
939,957 1,852,371
Less billings to date 813,420 1,670,794
----------- -------
Costs and estimated earnings in excess
of billings on uncompleted contracts 126,537 181,577
=========== =======
4. Inventories
The components of inventories are as follows 1999 1998
---- ----
Raw Materials 1,255,175 732,508
Work-In-Progress 320,608 105,970
Finished Goods 1,246,827 1,085,514
Land and Units held for sale 291,916 143,856
--------- ---------
3,114,526 2,067,848
========= =========
5. Notes Receivable 1999 1998
---- ----
Various mortgage notes receivable secured by
deeds of trust 154,289 160,859
Various construction loans(all current) 424,520 599,497
Demand note receivabe with interest payable
quarterly at 9%, unsecured 1,175 5,391
Life insurance note receivable from an
officer of the Company(non-interest bearing) 2,038 2,038
Note receivable from the President, payable
in annual principal installments of $5,625
with interest at 5.03% 11,250 11,250
--------- ---------
593,272 779,035
Less current portion 437,791 613,889
--------- ---------
155,481 165,146
========= =========
6. Property and Equipment 1999 1998
---- ----
Land and improvements 775,724 775,724
Buildings 2,926,754 2,883,912
Manufacturing equipment 2,308,165 2,233,455
Other furniture, fixtures and equipment 552,627 634,757
--------- ---------
6,563,270 6,527,848
Less accumulated depreciation (3,142,092) (2,749,016)
--------- ---------
3,421,178 3,778,832
========= =========
7. Deferred Compensation, Related Parties 1999 1998
---- ----
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
1999 and 1998. 408,773 447,948
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 1999 and 1998. 433,879 462,417
Present value of estimated post-retirement
benefits other than pensions discounted at
8.50% in 1999 and 1998. 122,332 129,737
--------- ---------
964,984 1,040,102
Less Current Maturities 81,563 75,118
--------- ---------
883,421 964,984
========= =========
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 3.85% at June 30, 1999.
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, 1999, the
Reimbursement Account balance was as follows:
Required prepaid interest deposit $ 67,810
Unused monthly principal deposits 150,000
Earnings 28,543
--------
$246,353
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, 1999, $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. Any unused proceeds will be for early retirement of bonds.
In July 1998, all of the remaining bond proceeds were 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 less
cululative payments of $450,000. The unused proceeds and related
earnings at July 1998 were used to complete additions to the new
manufacturing facility and for bond related expenses.
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 4, 1999
declared a $.03 per share cash dividend on all shares outstanding
on August 20, 1999 and to be paid on September 10, 1999.
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 4, 1999
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-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 1638374
<SECURITIES> 0
<RECEIVABLES> 192190
<ALLOWANCES> 0
<INVENTORY> 3114526
<CURRENT-ASSETS> 5519618
<PP&E> 6563270
<DEPRECIATION> 3142092
<TOTAL-ASSETS> 10458090
<CURRENT-LIABILITIES> 1966895
<BONDS> 0
0
0
<COMMON> 825649
<OTHER-SE> 4382125
<TOTAL-LIABILITY-AND-EQUITY> 10458090
<SALES> 10022590
<TOTAL-REVENUES> 10022590
<CGS> 7527560
<TOTAL-COSTS> 9154522
<OTHER-EXPENSES> 9578
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 41474
<INCOME-PRETAX> 817016
<INCOME-TAX> 318636
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 498380
<EPS-BASIC> 0.60
<EPS-DILUTED> 0.60
</TABLE>
