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, 2000
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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, 2000 and 1999
ASSETS 2000 1999
---------- ----------
CURRENT ASSETS
Cash and cash equivalents $1,692,374 $1,641,056
Certificates of Deposits 400,000 -
Receivables 194,433 366,744
Cost and estimated earnings in excess
of billings on uncompleted contracts 2,191 94,878
Inventories (Note 4) 2,713,039 2,602,592
Notes receivable, current portion (Note 5) 503,975 444,068
Prepaid expenses 25,924 33,106
Income taxes receivable - 76,980
---------- ----------
Total current assets 5,531,936 5,259,424
LONG-TERM NOTES RECEIVABLE (Note 5) 139,801 157,052
PROPERTY AND EQUIPMENT, at cost less
accumulated depreciation
2000 $3,468,671; 1999 $3,358,433. (Note 6) 3,278,785 3,508,109
OTHER ASSETS
Deferred income taxes 344,810 416,381
Cash surrender value of life insurance 175,882 160,504
Reimbursement Account (Note 8) 213,790 206,700
Eminent Domain Deposit 175,596 -
Bond Issue Costs (Note 8) 60,440 65,132
Model homes 446,419 471,881
---------- ----------
$10,367,459 $10,245,182
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of post-retirement (Note 7) 87,165 79,788
Current maturities of long-term debt(Note 8) 150,000 150,000
Accounts payable and other liabilities 601,320 941,231
Accrued compensation 432,739 315,501
Customer deposits 119,844 158,522
Income Taxes Payable 76,227 218,391
---------- ----------
Total current liabilities 1,467,323 1,863,433
LONG-TERM POST RETIREMENT BENEFITS (Note 7) 817,224 904,389
LONG-TERM DEBT (Note 8) 2,250,000 2,400,000
---------- ----------
Total liabilities 4,534,547 5,167,822
---------- ----------
STOCKHOLDERS' EQUITY
Common stock, $1 par value, 2,000,000
shares authorized: shares issued and
outstanding 2000 825,649, 1999 825,649 825,649 825,649
Additional Paid in Capital 459,671 459,671
Retained earnings 4,547,592 3,792,040
---------- ----------
5,832,912 5,077,360
---------- ----------
$10,367,459 $10,245,182
========== ==========
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, 2000 and March 31, 1999
2000 1999
---------- ----------
Net Sales $4,412,021 $4,790,258
Cost of Sales 3,277,881 3,475,871
---------- ----------
1,134,140 1,314,387
Selling, General and Administrative Expenses 878,012 728,330
---------- ----------
Income from Operations 256,128 586,058
Deferred Compensation Expense 16,920 18,298
Post Retirement Benefits Expense 2,489 2,619
Non-operating Income/<Expenses> 1,545 (2,520)
---------- ----------
Income Before Income Taxes 238,264 562,619
Federal and State Income Taxes 83,393 219,422
---------- ----------
Net Income 154,872 343,198
========== ==========
Earnings per share:
Net Income 0.19 0.42
========== ==========
Depreciation Included in Above Cost 110,238 117,021
========== ==========
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, 2000 and 1999
2000 1999
OPERATING ACTIVITIES ---------- ----------
Net Income/<Loss> $ 154,872 $ 343,198
Noncash <income> expenses included
in income or <loss>:
Depreciation and amortization 110,238 117,021
Deferred income taxes - -
Loss (gain) on sale of equipment (1,000) (5,000)
Increase in cash value of life insurance (8,109) (2,772)
Adjustments to post retirement benefits (20,734) (19,225)
<Increase> decrease in:
Trade receivables 215,988 (90,976)
Cost and estimated earnings in excess
of billings on uncompleted contracts 251,010 (18,674)
Inventories (498,555) (984,576)
Prepaid Expenses 633 1,551
Model placement costs (1,673) 5,376
Income taxes receivable - (80)
<Decrease> increase in:
Accounts payable and other Liabilities (175,586) 395,853
Accrued compensation 65,858 95,094
Customer deposits (144,809) 1,322
Income taxes payable (495,823) 218,391
---------- ----------
Net cash provided by (used in)
operations (547,690) 56,503
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INVESTING ACTIVITIES
Proceeds from sale of equipment 1,000 5,000
Purchase of property & equipment net of
debt incurred 2000 $0 ;1999 $0. (38,774) (50,642)
<Increase> decrease in notes receivable
arising from sales 46,564 52,505
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Net cash provided by (used in)
investing activities 8,790 6,863
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FINANCING ACTIVITIES
Cash dividends paid (24,769) (24,769)
Debt issue costs, net of debt incurred
2000 $0 : 1999 $0. 990 990
Funding of reimbursement account (39,641) (52,265)
Earnings on unused bond proceeds (8)
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Net cash provided by (used in)
financing activities (63,420) (76,052)
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Net increase (decrease) in cash (602,320) (12,686)
CASH
Beginning 2,694,694 1,653,742
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Ending $2,092,374 $1,641,056
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest $ 23,088 $ 19,027
Income taxes $ 23,010 $ -
Accompanying notes are an important part of these financial statements.
<PAGE>
5
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, 2000. The
results for the quarter ended March 31, 2000 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.
Revenues are recorded when the houses are delivered for sales made
on account. Cash sales paid in advance are recorded when produced.
3. Cost and estimated earnings on uncompleted contracts
2000 1999
---- ----
Costs incurred on uncompleted contracts $ 803,755 $ 713,502
Estimated earnings 80,057 276,309
------- -------
883,812 989,811
Less billings to date 881,621 894,933
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Costs and estimated earnings in excess
of billings on uncompleted contracts $ 2,191 $ 94,878
========= =======
4. Inventories
The components of inventories are as follows 2000 1999
---- ----
Raw Materials $1,115,985 $1,120,300
Work-In-Progress 317,377 267,772
Finished Goods 1,316,399 922,104
Land and Units held for sale 287,278 292,416
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$2,713,039 $2,602,592
=========== ===========
5. Notes Receivable 2000 1999
---- ----
Various mortgage notes receivable secured by
deeds of trust $ 148,056 $ 155,860
Various construction loans(all current) 488,057 429,747
Demand note receivable with interest payable
quarterly at 9%, unsecured - 2,225
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$5,625
interest at 5.03% 5,625 11,250
----------- -----------
643,776 601,120
Less current portion 503,975 444,068
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$ 139,801 $ 157,052
=========== ===========
6. Property and Equipment 2000 1999
---- ----
Land and improvements $ 777,724 $ 775,724
Buildings 2,934,429 2,926,755
Manufacturing equipment 2,445,620 2,279,180
Other furniture, fixtures and equipment 589,683 551,666
----------- -----------
6,747,456 6,533,325
Less accumulated depreciation (3,468,671) (3,025,216)
----------- -----------
$3,278,785 $3,508,109
=========== ===========
7. Deferred Compensation, Related Parties 2000 1999
---- ----
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. $ 377,158 $ 418,803
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. 410,857 441,160
Present value of estimated post-retirement
benefits other than pensions discounted at
8.50% 116,374 124,214
----------- -----------
904,389 984,177
Less Current Maturities 87,165 79,788
----------- -----------
$ 817,224 $ 904,389
=========== ===========
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 4.15% at March 31, 2000.
The Company has entered an agreement to purchase the facility
through the IDA. The Company's obligation under the agreement 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, 2000, the
Reimbursement Account balance was as follows:
Required prepaid interest deposit $ 67,810
Unused monthly principal deposits 112,500
Earnings 33,480
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$213,790
===========
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, 2000, $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 used 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 $600,000. 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 Company uses the annualized method in its computation of Federal
Income Taxes.
10. Related Party Transactions
In the normal course of busines, the Company makes purchases from a
supplier formerly owned by the estate of a director of the Company.
The supplier is no longer a related party.
The Company is obligated under deferred compensation agreements to
two former officers (Note 7).
MOD-U-KRAF HOMES, INC
Management's Discussion and Analysis
of the First Quarter Statements
Net sales for the first quarter of 2000 were $4,412,021 as compared
to $4,790,258 for the first quarter of 1999, a 7.89% decrease. The
Company ended the quarter with 27 units in inventory; a retail value of
$1,445,674. The weather was not as cooperative the first quarter of
2000 as it was the first quarter of 1999. Snow and rain slowed demand
slightly and prevented the setting of houses resulting in increased
inventory and decreased sales.
Management believes that the market for its modular housing is likely
to remain strong for the foreseeable future because of the continued
strength of the economy and the current historically low interest rates
available to home buyers. The Company intends to capitalize on this
anticipated demand by improving its production capacities and efficiency,
resulting in improved revenues and gross profit margins. The Company's
success in realizing these goals will be affected by weather conditions
in its market and its ability to effectively control manufacturing
costs, both of which may negatively impact performance. Demand for
the Company's products also is sensitive to general economic
conditions in its market and would be negatively affected by any
economic downturn.
Cost of Sales was 74.29% of net sales for the first quarter of 2000
and 72.56% for the first quarter of 1999. Gross profit margin was
25.71% for the first quarter of 2000 and 27.44% for the first quarter
of 1999.
Selling, General and Administrative expenses were 19.90% of net sales
for the first quarter of 2000 and 15.20% for the first quarter of 1999.
This increase is due to decreased sales volume for the first quarter
of 2000. Sales commissions and builder discounts accounted for much
of the increase in expense.
We had a net income for the first quarter 2000 of $154,872 compared to
a net income of $343,198 for the first quarter of 1999. This is $0.19
per share for the first quarter of 2000 and $0.42 per share for the
same period in 1999.
There was no significant changes in liquidity and capital resources
during the first quarter of the year.
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, install the siding and
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>
7
MOD-U-KRAF HOMES, INC.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
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As reported in the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1999, a suit against the Company
is pending in the United States District Court by a former
employee who is seeking damages for unlawful termination.
The Company is vigorously contesting the suit. The
ultimate outcome of the litigation is unknown at this time.
However, potential losses, including fees and costs, could reach
$300,000.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Mod-U-Kraf Homes, Inc. held its annual meeting of shareholders
on March 22, 2000 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, Executive Vice President, Jeffrey D Powell,
Vice President of Operations, George Scott, Vice President of
Administration, Steven T. Montgomery, Controller and R.
Franklin Hodges, Vice President of Sales and Marketing.
The votes cast in the election of directors were as follows:
Name For Against/Withheld
--------- --------- ----------------
W. Curtis Carter 530,436 6,118
Mary L. Fitts 530,436 6,118
Dale H. Powell 530,436 6,118
Bobbie L. Oliver 530,436 6,118
Edwin J. Campbell 530,436 6,118
Item 5. Miscellaneous - Definitive Agreement with Coachmen
--------------------------------------------------
On May 1, 2000, the Company and Coachmen Industries, Inc.
announced the execution of an Agreement and Plan of Merger
dated as of May 1, 2000 (the "Merger Agreement"), by and
among the Company, Coachmen and a wholly owned subsidary of
Coachmen. The Merger Agreement provides for the statutory
merger of the Coachmen subsidiary with and into the Company
(the "Merger") pursuant to which each share of common stock
of the Company shall be automatically converted into the
right to receive from Coachmen $11.75 in cash. Following
the consummation of the Merger, the Company will continue
to operate as a separate subsidary under the Coachmen
Housing Group.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) The following documents are filed as part of this report:
Exhibit 3.2(e) Amendment to Bylaws dated April 28, 2000
<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 1, 2000
----------------------------------
Dale H. Powell
President and Chairman of the Board
----------------------------------
Steven T. Montgomery
Controller
EXHIBIT INDEX
Exhibit 3.2(e) Amendment to Bylaws dated April 28, 2000
Exhibit 3.2(e)
Pursuant to a resolution passed by the Board of Directors of
Mod-U-Kraf Homes, Inc. (the "Corporation") on April 28, 2000, the
Bylaws of the Corporation are amended to add a new Article X as
follows:
ARTICLE X
Control Share Acquisition Statute
---------------------------------
Article 14.1 of the Virginia Stock Corporation Act shall
not apply to acquisitions of shares of capital stock of the
Corporation.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 2092374
<SECURITIES> 0
<RECEIVABLES> 194433
<ALLOWANCES> 0
<INVENTORY> 2713039
<CURRENT-ASSETS> 5531936
<PP&E> 6747456
<DEPRECIATION> 3468671
<TOTAL-ASSETS> 10367459
<CURRENT-LIABILITIES> 1467323
<BONDS> 0
0
0
<COMMON> 825649
<OTHER-SE> 5007263
<TOTAL-LIABILITY-AND-EQUITY> 10367459
<SALES> 4412021
<TOTAL-REVENUES> 4412021
<CGS> 3277881
<TOTAL-COSTS> 4155893
<OTHER-EXPENSES> 17864
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23088
<INCOME-PRETAX> 238264
<INCOME-TAX> 83393
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 343198
<EPS-BASIC> 0.19
<EPS-DILUTED> 0.19
</TABLE>
