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, 1997
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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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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
2
MOD-U-KRAF HOMES, INC.
Consolidated Balance Sheets
March 31, 1997 and 1996
ASSETS 1997 1996
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CURRENT ASSETS
Cash and cash equivalents $ 270,851 $1,078,033
Certificates of deposit 200,000 693,986
Receivables 74,698 31,042
Inventories (Note 2) 3,096,886 1,574,148
Notes receivable, current portion (Note 3) 926,442 888,451
Prepaid expenses 70,585 58,398
Deferred income taxes, current portion 45,909 66,969
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Total current assets 4,685,371 4,391,027
LONG-TERM NOTES RECEIVABLE (Note 3) 191,338 163,432
PROPERTY AND EQUIPMENT, at cost less
accumulated depreciation
1997 $2,168,963; 1996 $1,848,511. (Note 4) 3,986,965 2,858,205
OTHER ASSETS
Deferred income taxes 443,287 448,656
Cash surrender value of life insurance 117,741 97,032
Reimbursement Account (Note 7) 192,219 183,016
Earnings on unused Bond proceeds 107,395 82,891
Bond Issue Costs (Note 7) 72,320 75,150
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$9,796,636 $8,299,409
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of post-retirement (Note 6) 68,411 76,521
Current maturities of long-term debt(Note 7) 150,000 150,000
Accounts payable and other liabilities 911,097 421,012
Accrued compensation 260,034 163,654
Customer deposits 142,890 72,882
Income taxes payable (50,528) (49,416)
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Total current liabilities 1,481,904 834,653
LONG-TERM POST RETIREMENT BENEFITS (Note 6) 1,057,025 1,114,735
LONG-TERM DEBT (Note 7) 2,639,755 1,873,646
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Total liabilities 5,178,684 3,823,034
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STOCKHOLDERS' EQUITY
Common stock, $1 par value, 2,000,000
shares authorized: shares issued and
outstanding 1997 825,649, 1996 825,649 825,649 825,649
Additional Paid in Capital 459,671 459,671
Retained earnings 3,332,632 3,191,055
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4,617,952 4,476,375
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$9,796,636 $8,299,409
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Accompanying notes are an important part of these financial statements.
3
MOD-U-KRAF HOMES, INC.
Consolidated Statement of Income
Quarters Ended March 31, 1997 and March 31, 1996
1997 1996
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Net Sales $3,193,098 $1,585,773
Cost of Sales 2,570,577 1,292,454
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622,521 293,319
Selling, General and Administrative Expenses 624,782 428,132
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Income/<Loss> from Operations (2,261) (134,813)
Deferred Compensation Expense 21,183 22,356
Post Retirement Benefits Expense (2,571) 3,987
Non-operating Income/<Expenses> (3,956) 30,963
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Income/<Loss> Before Income Taxes (24,829) (130,193)
Federal and State Income Taxes (3,518) (41,561)
Deferred Income Tax Adjustment (3,057) (7,386)
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Income Taxes (6,575) (48,947)
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Net Income / <Loss> (18,254) (81,246)
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Earnings per share:
Net Income / <Loss> (0.02) (0.10)
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Depreciation Included in Above Cost 100,372 45,779
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Accompanying notes are an important part of these financial statements.
4
MOD-U-KRAF HOMES, INC.
Consolidated Statement of Cash Flows
Quarters Ended March 31, 1997 and 1996
1997 1996
OPERATING ACTIVITIES ---------- ----------
Net Income/<Loss> $ (18,254) $ (81,246)
Noncash <income> expenses included
in income or <loss>:
Depreciation and amortization 100,372 45,776
Deferred income taxes (3,507) (7,386)
Loss (gain) on sale of equipment (1,416) 0
Increase in cash value of life insurance (1,514) (1,592)
Adjustments to post retirement benefits (21,750) (14,931)
<Increase> decrease in:
Trade receivables (21,771) 89,184
Inventories (738,540) (205,381)
Prepaid Expenses (4,645) 9,107
<Decrease> increase in:
Accounts payable and other Liabilities 387,001 82,255
Accrued compensation 57,780 (86,321)
Customer deposits (150,765) 49,568
Income taxes payable (4,405) (109,780)
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Net cash provided by (used in)
operations (421,414) (230,747)
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INVESTING ACTIVITIES
Proceeds from sale of equipment (2,012) 0
Purchase of property & equipment net of
debt incurred 1997 $0 ;1996 $641,784. (196,835) (41,342)
<Increase> decrease in notes receivable
arising from sales (128,153) (4,590)
<Increase> decrease in certificates
of deposit 0 (4,986)
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Net cash provided by (used in)
investing activities (327,000) (50,918)
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FINANCING ACTIVITIES
Cash dividends paid (18,254) (24,769)
Debt issue costs, net of debt incurred
1997 $0 : 1996 $2,120. 990 19,996
Funding of reimbursement account (39,512) (37,500)
Earnings on unused bond proceeds (1,992) (24,767)
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Net cash provided by (used in)
financing activities (58,768) (67,040)
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Net increase (decrease) in cash (807,182) (348,705)
CASH
Beginning 1,078,033 1,426,738
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Ending $ 270,851 $1,078,033
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest $ 27,074 $ 0
Income taxes $ 0 $ 67,619
Accompanying notes are an important part of these financial statements.
5
MOD-U-KRAF HOMES, INC
Management's Discussion and Analysis
of the First Quarter Statements
Net sales for the first quarter of 1997 were $3,193,098 as compared
to $1,585,773 for the first quarter of 1996, a 101.36% increase. Due to
the extremely wet winter, the Company ended the quarter with 39 units in
inventory; a retail value of $1,700,000. Our builders could not complete
foundations or find enough dry days to set their homes; a typical first
quarter for our industry.
Cost of Sales was 80.50% of net sales for the first quarter of 1997
and 81.50% for the first quarter of 1996. Gross profit was 19.50% for
the first quarter of 1997 and 18.50% for the first quarter of 1996.
Selling, General and Administrative expenses was 19.57% of net sales
for the first quarter of 1997 and 27.00% for the first quarter of 1996.
We had a net loss for the first quarter 1997 of $18,254 compared to
a net loss of $81,246 for the first quarter of 1996. This is <$0.02>
per share for the first quarter of 1997 and <$0.10> per share for the
same period in 1996.
With our busiest season just starting, and having eliminated most
of the "bugs" in our new facility, we should see good growth in our
revenues and profits for the second quarter and the remaining year. We
have been able to keep our operating margins in line with last year in
our new facility. Second quarter results should give us a better
picture of the potential of our new facility. Since bringing our new
facility on line, there have been no material changes in liquidity and
capital resources.
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, 1997. The
results for the quarter ended March 31, 1997 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. Inventories
The components of inventories are as follows 1997 1996
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Raw Materials 1,143,319 654,547
Work-In-Progress 337,932 74,693
Finished Goods 1,336,558 471,411
Land and Units held for sale 279,077 373,497
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3,096,886 1,574,148
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3. Notes Receivable 1997 1996
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Various mortgage notes receivable secured by
deeds of trust 168,544 132,741
Various construction loans(all current) 911,928 872,392
Demand note receivable with interest payable
quarterly at 9%, unsecured 10,175 12,275
Life insurance note receivable from an
officer of the Company(non-interest bearing) 4,633 6,350
Note receivable from the President, payable
in annual principal installments of$5,625
interest at 5.03% 22,500 28,125
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1,117,780 1,051,883
Less current portion 926,442 888,451
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191,338 163,432
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4. Property and Equipment 1997 1996
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Land and improvements 773,539 275,590
Buildings 2,942,338 1,076,311
Manufacturing equipment 1,919,371 1,035,503
Other furniture, fixtures and equipment 520,680 376,075
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6,155,928 2,763,479
Less accumulated depreciation (2,168,963) (1,848,511)
Construction in progress 0 1,943,237
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3,986,965 2,858,205
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5. Deferred Compensation, Related Parties 1997 1996
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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. 492,448 524,807
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. 494,823 518,388
Present value of estimated post-retirement
benefits other than pensions discounted at
8.50% 138,165 148,061
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1,125,436 1,191,256
Less Current Maturities 68,411 76,521
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1,057,025 1,114,735
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6. Long-Term Debt
On July 12, 1995, the IDA of Franklin County, VA issued bonds in the
amount of $3,000,000 to finance the construction of a manufacturing
facility. The Series 1995 Variable Rate Demand Industrial Revenue
Bonds are secured by the Company's Irrevocable Letter of Credit with
Crestar Bank. The letter of credit agreement subjects the Company to
certain financial and operating covenants, all of which the Company
was in compliance with at year end. Crestar Bank holds a first lien
and security interest on the facility. The bonds are payable in
annual principal amounts of $150,000 through 2015. The interest rate
was 3.50% at March 31, 1997.
The Company has entered an agreement of sale to purchase the
facility from the IDA. The Company's obligation under the Agreement
of Sale is equal to the required principal and interest payments on
the bonds and is payable in monthly installments currently estimated
at $22,000. The monthly payments are deposited into a Reimbursement
Account with Crestar Bank and used to pay all principal, interest
and fees related to the Bonds. The Company also agreed to maintain
an additional required deposit in the reimbursement account equal to
55 days of interest at 15.0% on the bonds. As of March 31, 1997, the
Reimbursement Account balance was as follows:
Required prepaid interest deposit $ 67,810
Unused monthly principal deposits 112,500
Earnings 11,909
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$192,219
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, 1997, $2,939,755 of the bond proceeds have been
drawn from the trustee. The Company's obligation under the asset
sale agreement is reflected at the amount of bond proceeds that have
been drawn. Any unused proceeds will be used for early retirement
of bonds.
Amounts earned on bond proceeds prior to their being drawn from the
trustee are to be applied to principal reduction in the future.
These earnings amounted to $107,395 at March 31, 1997.
Debt issue costs will be amortized over the life of the bonds.
7. The Board Of Directors of Mod-U-Kraf Homes, Inc. on May 7, 1997 de-
clared a $.03 per share cash dividend on all shares outstanding on
May 24, 1997 and to be paid on June 6, 1997.
8. The Company uses the annualized method in its computation of Federal
Income Taxes.
9. Revenues are recorded when the houses are delivered for sales made
on account. Cash sales paid in advance are recorded when produced.
7
MOD-U-KRAF HOMES, INC.
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
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Mod-U-Kraf Homes, Inc. held its annual meeting of shareholders
on March 26, 1997 The following were elected to the Board of
Directors: Dale H. Powell, Edwin J. Campbell, J Dillard Powell,
W. Curtis Carter, Bobbie L. Oliver and Mary L. Fitts. Following
the meeting the following were elected officers: Dale H Powell,
President, Edwin J Campbell, Vice President, Jeffrey D Powell,
Treasurer, and Jeffrey L Boudreaux, Controller.
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.
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(Registrant)
Date: May 8, 1997
s\Dale H. Powell
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Dale H. Powell
President and Chairman of the Board
s\Jeffrey L. Boudreaux
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Jeffrey L. Boudreaux
Controller