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, 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 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
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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, 1997 and 1996
ASSETS 1997 1996
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CURRENT ASSETS
Cash and cash equivalents $ 830,009 $1,653,941
Certificates of deposit 200,000 498,839
Receivables 165,496 41,097
Inventories (Note 2) 2,407,174 1,191,708
Notes receivable, current portion (Note 3) 809,116 813,988
Prepaid expenses 44,764 74,336
Income taxes receivable 0 90,986
Deferred income taxes, current protion 59,215 44,375
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Total current assets 4,515,774 4,409,270
LONG-TERM NOTES RECEIVABLE (Note 3) 179,056 197,958
PROPERTY AND EQUIPMENT, at cost less
accumulated depreciation 1997 $2,268,986;
1996 $1,893,025. (Note 4) 4,012,256 3,555,983
OTHER ASSETS
Deferred income taxes 420,085 455,443
Cash surrender value of life insurance 133,846 112,165
Reimbursement Account (Note 7) 232,287 224,946
Earnings on Unused Bond Proceeds 109,413 97,180
Bond Issue Costs (Note 7) 71,330 75,301
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$9,674,047 $9,128,246
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of L-T liabilities(Note 5 & 6) 219,460 220,429
Accounts payable and other liabilities 607,165 586,494
Accrued compensation 192,930 136,044
Customer deposits 129,496 95,842
Income taxes payable 64,302 0
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Total current liabilities 1,213,353 1,038,809
LONG-TERM DEFERRED COMPENSATION (Note 5) 910,365 974,927
POST RETIREMENT BENEFITS (Note 5) 123,435 120,999
LONG-TERM DEBT (Note 7) 2,639,755 2,373,582
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Total liabilities 4,886,908 4,508,317
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STOCKHOLDERS' EQUITY
Common stock, $1 par value, 2,000,000 shares
authorized: shares issued & outstanding
1997 825,649, 1996 825,649 825,649 825,649
Additional Paid in Capital 459,671 459,671
Retained earnings 3,501,819 3,334,609
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4,787,139 4,619,929
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$9,674,047 $9,128,246
========== ==========
Accompanying notes are an integral part of these financial statements.
3
MOD-U-KRAF HOMES, INC.
Consolidated Balance Sheets
June 30, 1997 and December 31, 1996
ASSETS 1997 1996
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CURRENT ASSETS
Cash and cash equivalents $ 830,009 $1,077,270
Certificates of deposit 200,000 200,000
Receivables 165,496 52,928
Inventories (Note 2) 2,407,174 2,358,346
Notes receivable, current portion (Note 3) 809,116 796,721
Prepaid expenses 44,764 65,940
Income taxes receivable 0 46,123
Deferred income taxes, current protion 59,215 43,255
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Total current assets 4,515,774 4,640,583
LONG-TERM NOTES RECEIVABLE (Note 3) 179,056 192,906
PROPERTY AND EQUIPMENT, at cost less
accumulated depreciation
1997 $2,268,986;1996 $2,085,797.(Note 4) 4,012,256 3,893,831
OTHER ASSETS
Deferred income taxes 420,085 442,884
Cash surrender value of life insurance 133,846 116,227
Reimbursement Account (Note 7) 232,287 152,706
Earnings on Unused Bond Proceeds 109,413 105,474
Bond Issue Costs (Note 7) 71,330 73,310
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$9,674,047 $9,617,921
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of L-T liabilities(Note 5 & 6) 219,460 216,490
Accounts payable and other liabilities 607,165 525,228
Accrued compensation 192,930 201,121
Customer deposits 129,496 293,655
Income taxes payable 64,302 0
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Total current liabilities 1,213,353 1,236,494
LONG-TERM DEFERRED COMPENSATION (Note 5) 910,365 942,108
POST RETIREMENT BENEFITS (Note 5) 123,435 138,588
LONG-TERM DEBT (Note 7) 2,639,755 2,639,755
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Total liabilities 4,886,908 4,956,945
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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 3,501,819 3,375,656
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4,787,139 4,660,976
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$9,674,047 $9,617,921
========== ==========
Accompanying notes are an integral part of these financial statements.
4
MOD-U-KRAF HOMES, INC.
Consolidated Statement of Income
Quarters Ended June 30, 1997 and June 30, 1996
1997 1996
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Net Sales $5,061,167 $3,434,875
Cost of Sales 3,818,873 2,552,378
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1,242,294 882,497
Selling, General and Administrative
Expenses 913,883 635,119
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Income/<Loss> from Operations 328,411 247,378
Deferred Compensation Expense 20,877 22,072
Post Retirement Benefits Expense (2,690) (8,094)
Non-operating Income/<Expenses> 1,614 32,023
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Income/<Loss> Before Income Taxes 311,838 265,423
Federal and State Income Taxes 107,985 81,016
Deferred Income Tax Adjustment 9,896 15,807
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Income Taxes 117,881 96,823
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Net Income / <Loss> $ 193,957 $ 168,600
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Earnings per share:
Net Income / <Loss> $ 0.23 $ 0.20
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Depreciation Included in Above Cost $ 120,275 $ 45,492
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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, 1997 and June 30, 1996
1997 1996
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Net Sales $8,254,265 $5,020,649
Cost of Sales 6,389,450 3,844,968
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1,864,815 1,175,681
Selling, General and Administrative
Expenses 1,538,665 1,063,392
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Income/<Loss> from Operations 326,150 112,289
Deferred Compensation Expense 42,060 44,429
Post Retirement Benefits Expense (5,261) (4,107)
Non-operating Income/<Expenses> (2,342) 62,986
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Income/<Loss> Before Income Taxes 287,009 134,953
Federal and State Income Taxes 104,467 39,455
Deferred Income Tax Adjustment 6,839 8,421
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Income Taxes 111,306 47,876
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Net Income / <Loss> $ 175,703 $ 87,077
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Earnings per share:
Net Income / <Loss> $ 0.21 $ 0.11
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Depreciation Included in Above Cost $ 220,647 $ 91,271
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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, 1997 and 1996
1997 1996
OPERATING ACTIVITIES ---------- ----------
Net Income/<Loss> $ 193,957 $ 168,600
Noncash <income> expenses included
in income or <loss>:
Depreciation and amortization 120,275 45,492
Deferred income taxes 9,896 15,807
Loss (gain) on sale of equipment (6,691) (170)
Increase in cash value of life insurance (16,105) (15,133)
Adjustments to deferred compensation (7,440) (13,540)
Adjustments to post retirement benefits (14,736) (11,361)
<Increase> decrease in:
Trade receivables (90,798) (10,055)
Inventories 689,712 382,440
Prepaid Expenses 25,821 (15,938)
Income taxes receivable 0 (90,986)
<Decrease> increase in:
Accounts payable and other Liabilities (303,932) 165,482
Accrued compensation (67,104) (27,610)
Customer deposits (13,394) 22,960
Income taxes payable 114,830 (49,416)
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Net cash provided by (used in)
operations 634,291 566,572
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INVESTING ACTIVITIES
Proceeds from sale of property & equipment 6,858 875
Purchase of plant & equipment net of
debt incurred 1997 $0, 1996 $499,966 (145,733) (218,736)
<Increase> decrease in notes receivable
arising from sales 129,608 140,588
<Increase> decrease in certificates of deposit 0 195,147
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Net cash provided by (used in)
investing activities (9,267) 117,874
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FINANCING ACTIVITIES
Cash dividends paid (24,769) (24,769)
Debt issue costs, net of debt incurred
1997 $0, 1996 $151 990 (33,318)
Funding of reimbursement account (40,069) (37,500)
Earnings on unused bond proceeds (2,018) (12,951)
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Net cash provided by (used in)
financing activities (65,866) (108,538)
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Net increase (decrease) in cash 559,158 575,908
CASH
Beginning 270,851 1,078,033
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Ending $ 830,009 $1,653,941
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SUPPLEMENTAL DISCOLOSRES OF CASH FLOW INFORMATION
Cash payments for:
Interest $ 27,815 $ 0
Income taxes $ 19,650 $ 122,626
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, 1997 and 1996
1997 1996
OPERATING ACTIVITIES ---------- ----------
Net Income/<Loss> $ 175,703 $ 87,077
Noncash <income> expenses included
in income or <loss>:
Depreciation and amortization 220,647 91,268
Deferred income taxes 6,389 8,421
Loss (gain) on sale of equipment (8,107) (170)
Increase in cash value of life insurance (17,619) (16,725)
Adjustments to deferred compensation (29,165) (26,796)
Adjustments to post retirement benefits (14,761) (13,037)
<Increase> decrease in:
Trade receivables (112,569) 79,129
Inventories (48,828) 177,059
Prepaid Expenses 21,176 (6,831)
Income taxes receivable 0 (90,986)
<Decrease> increase in:
Accounts payable and other Liabilities 83,069 247,737
Accrued compensation (9,324) (113,931)
Customer deposits (164,159) 72,528
Income taxes payable 110,425 (159,196)
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Net cash provided by (used in)
operations 212,877 335,547
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INVESTING ACTIVITIES
Proceeds from sale of property & equipment 5,813 875
Purchase of plant & equipment net of
debt incurred 1997 $0, 1996 $1,141,750 (337,019) (260,078)
<Increase> decrease in notes receivable
arising from sales 1,455 135,998
<Increase> decrease in certificates of deposit 0 190,161
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Net cash provided by (used in)
investing activities (329,751) 66,956
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FINANCING ACTIVITIES
Cash dividends paid (49,539) (49,538)
Debt issue costs, net of debt incurred
1997 $0, 1996 $2,271 1,980 (13,044)
Funding of reimbursement account (79,581) (75,000)
Earnings on unused bond proceeds (4,010) (37,718)
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Net cash provided by (used in)
financing activities (131,150) (175,300)
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Net increase (decrease) in cash (248,024) 227,203
CASH
Beginning 1,078,033 1,426,738
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Ending $ 830,009 $1,653,941
========== ==========
SUPPLEMENTAL DISCOLOSRES OF CASH FLOW INFORMATION
Cash payments for:
Interest $ 53,610 $ 0
Income taxes $ 19,650 $ 190,245
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 1997 were $5,061,167 as compared
to $3,434,875 for the second quarter of 1996, a 47% increase. Sales for
the first six months of 1997 were $8,254,265 as compared to $5,020,649
in 1996 for an increase in sales volume of 64%.
Cost of Sales was 75.45% of net sales for the second quarter of 1997
and 74.31% for the second quarter of 1996. For the first six months
cost of sales was 77.41% for 1997 compared to 76.58% for 1996. 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 18.06% of net sales
for the second quarter of 1997 and 18.49% for the same quarter of 1996.
They were 18.64% for the first six months of 1997 compared to 21.18% for
the same period in 1996.
The net income for the second quarter of 1997 is $193,957 compared
to net income of $168,600 for the second quarter of 1996. This is $0.23
per share for the second quarter of 1997 and $.20 per share for the same
period in 1996. Net income for the first six months is $175,703, $0.21
common share for 1997, compared to $87,077, $0.11 per common share, for
1996.
There are no other significant variances.
There have been no material changes in liquidity and capital
resources for the first six months of 1997.
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, 1997. The
results for the quarter ended June 30, 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 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. Inventories
The components of inventories are as follows 1997 1996
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Raw Materials 1,063,900 677,495
Work-In-Progress 235,857 78,396
Finished Goods 828,340 83,575
Land and Units held for sale 279,077 352,242
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2,407,174 1,191,708
========= =========
3. Notes Receivable 1997 1996
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Various mortgage notes receivable secured by
deeds of trust 165,244 172,795
Various construction loans(all current) 794,476 800,037
Demand note receivabe with interest payable
quarterly at 9%, unsecured 9,125 11,575
Life insurance note receivable from an
officer of the Company(non-interest bearing) 2,452 5,039
Note receivable from the President, payable
in annual principal installments of $5,625
with interest at 5.03% 16,875 22,500
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988,172 1,011,946
Less current portion 809,116 813,988
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179,056 197,958
========= =========
4. Property and Equipment 1997 1996
---- ----
Land and improvements 773,539 270,970
Buildings 2,948,351 1,076,311
Manufacturing equipment 1,981,950 1,076,147
Other furniture, fixtures and equipment 577,402 393,598
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6,281,242 2,817,026
Less accumulated depreciation (2,268,986) (1,893,025)
Construction in progress 0 2,631,982
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4,012,256 3,555,983
========= =========
5. Deferred Compensation, Related Parties 1997 1996
---- ----
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
1997 and 1996. 483,921 516,972
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 1997 and 1996. 488,614 512,683
Present value of estimated post-retirement
benefits other than pensions discounted at
8.50% in 1997 and 1996. 130,725 136,700
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1,103,260 1,166,355
Less Current Maturities 69,460 72,821
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1,033,800 1,093,534
========= =========
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 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 4.25% at June 30, 1997.
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, 1997, the
Reimbursement Account balance was as follows:
Required prepaid interest deposit $ 67,811
Unused monthly principal deposits 150,000
Earnings 14,476
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$232,287
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, 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 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 $106,413 at June 30, 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 August 6, 1997
declared a $.03 per share cash dividend on all shares outstanding
on August 22, 1997 and to be paid on September 5, 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.
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.
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(Registrant)
Date: August 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