U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20546
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, 1997
[ ] 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.
(Exact name of small business issuer as specified in its charter)
VIRGINIA 54-0893908
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
P. O. BOX 573, ROCKY MOUNT, VIRGINIA 24151
(Address of principal executive offices)
(540) 483-0291
(Issuer's telephone number)
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
1
MOD-U-KRAF HOMES, INC.
INDEX
PART 1 - FINANCIAL INFORMATION
Balance Sheets 2 & 3
Statements of Income 4 & 5
Statements of Cash Flow 6 & 7
Managements Discussion & Analysis 8
Notes to Financial Information 9
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a
Vote of Security Holders 10
Signatures 11
2
MOD-U-KRAF HOMES, INC.
Consolidated Balance Sheets
September 30, 1997 and 1996
ASSETS
1997 1996
---- ----
CURRENT ASSETS
Cash and cash equivalents $1,090,705 $1,213,595
Certificates of deposit 100,000 393,853
Receivables 226,043 72,694
Inventories (Note 2) 2,225,002 2,030,337
Notes receivable, current portion (Note 3) 954,878 669,092
Prepaid expenses 106,619 70,783
Income taxes receivable 0 100,803
Deferred income taxes, current protion 72,526 31,704
----------- -----------
Total current assets 4,775,773 4,582,861
LONG-TERM NOTES RECEIVABLE (Note 3) 178,536 194,848
PROPERTY AND EQUIPMENT, at cost less
accumulated depreciation
1996 $2,392,950; 1996 $1,985,726. (Note 4) 4,057,913 3,964,164
OTHER ASSETS
Deferred income taxes 401,112 431,376
Cash surrender value of life insurance 134,973 113,434
Reimbursement Account (Note 7) 121,024 113,633
Earnings on Unused Bond Proceeds 111,507 103,130
Bond Issue Costs (Note 7) 70,340 74,300
----------- -----------
$9,851,178 $9,577,746
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of L-T liabilities
(Note 5 and 6) 220,947 212,705
Accounts payable and other liabilities 850,005 699,600
Accrued compensation 281,788 230,121
Customer deposits 147,728 145,003
Income taxes payable 53,881 0
----------- -----------
Total current liabilities 1,554,349 1,287,429
LONG-TERM DEFERRED COMPENSATION (Note 5) 893,981 959,874
POST RETIREMENT BENEFITS (Note 5) 121,514 140,367
LONG-TERM DEBT (Note 7) 2,489,755 2,680,824
----------- -----------
Total liabilities 5,059,599 5,068,494
----------- -----------
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 3,506,259 3,223,932
----------- -----------
4,791,579 4,509,252
----------- -----------
$9,851,178 $9,577,746
=========== ===========
Accompanying notes are an integral part of these financial statements.
3
MOD-U-KRAF HOMES, INC.
Consolidated Balance Sheets
September 30, 1997 and December 31, 1996
ASSETS 1997 1996
---- ----
CURRENT ASSETS
Cash and cash equivalents $1,090,705 $1,077,270
Certificates of deposit 100,000 200,000
Receivables 226,043 52,928
Inventories (Note 2) 2,225,002 2,358,346
Notes receivable, current portion (Note 3) 954,878 796,721
Prepaid expenses 106,619 65,940
Income taxes receivable 0 46,123
Deferred income taxes, current protion 72,526 43,255
----------- -----------
Total current assets 4,775,773 4,640,583
LONG-TERM NOTES RECEIVABLE (Note 3) 178,536 192,906
PROPERTY AND EQUIPMENT, at cost less
accumulated depreciation
1997 $2,392,950; 1996 $2,085,797. (Note 4) 4,057,913 3,893,831
OTHER ASSETS
Deferred income taxes 401,112 442,884
Cash surrender value of life insurance 134,973 116,227
Reimbursement Account (Note 7) 121,024 152,706
Earnings on Unused Bond Proceeds 111,507 105,474
Bond Issue Costs (Note 7) 70,340 73,310
----------- -----------
$9,851,178 $9,617,921
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of L-T liabilities
(Note 5 and 6) 220,947 216,490
Accounts payable and other liabilities 850,005 525,228
Accrued compensation 281,788 201,121
Customer deposits 147,728 293,655
Income taxes payable 53,881 0
----------- -----------
Total current liabilities 1,554,349 1,236,494
LONG-TERM DEFERRED COMPENSATION (Note 5) 893,981 942,108
POST RETIREMENT BENEFITS (Note 5) 121,514 138,588
LONG-TERM DEBT (Note 7) 2,489,755 2,639,755
----------- -----------
Total liabilities 5,059,599 4,956,945
----------- -----------
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 3,506,259 3,375,656
----------- -----------
4,791,579 4,660,976
----------- -----------
$9,851,178 $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 September 30, 1997 and 1996
1997 1996
---- ----
Net Sales $4,071,833 $2,933,098
Cost of Sales 3,206,096 2,257,980
----------- -----------
865,737 675,118
Selling, General and Administrative
Expenses 807,232 649,520
----------- -----------
Income/<Loss> from Operations 58,505 25,598
Deferred Compensation Expense 20,560 21,782
Post Retirement Benefits Expense 2,765 15,171
Non-operating Income/<Expenses> 8,897 (44,607)
----------- -----------
Income/<Loss> Before Income Taxes 44,077 (55,962)
Federal and State Income Taxes 9,129 (6,792)
Deferred Income Tax Adjustment 5,662 36,738
----------- -----------
Income Taxes 14,791 29,946
----------- -----------
Net Income / <Loss> $29,286 $(85,908)
=========== ===========
Earnings per share:
Net Income / <Loss> $0.04 $(0.10)
=========== ===========
Depreciation Included in Above Cost $123,963 $45,361
=========== ===========
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, 1997 and 1996
1997 1996
---- ----
Net Sales $12,326,097 $7,953,746
Cost of Sales 9,595,623 6,102,948
----------- -----------
2,730,474 1,850,798
Selling, General and Administrative
Expenses 2,345,896 1,712,912
----------- -----------
Income/<Loss> from Operations 384,578 137,886
Deferred Compensation Expense 62,619 66,211
Post Retirement Benefits Expense (2,496) 11,063
Non-operating Income/<Expenses> 6,555 18,379
----------- -----------
Income/<Loss> Before Income Taxes 331,010 78,991
Federal and State Income Taxes 113,597 32,663
Deferred Income Tax Adjustment 12,501 45,159
----------- -----------
Income Taxes 126,098 77,822
----------- -----------
Net Income / <Loss> $204,912 $1,169
=========== ===========
Earnings per share:
Net Income / <Loss> $0.25 $0.00
=========== ===========
Depreciation Included in Above Cost $344,610 $186,632
=========== ===========
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, 1997 and 1996
1997 1996
---- ----
OPERATING ACTIVITIES
Net Income/<Loss> $29,286 ($85,908)
Noncash <income> expenses included
in income or <loss>:
Depreciation and amortization 123,887 97,443
Deferred income taxes 5,662 36,738
Loss (gain) on sale of equipment 0 (1,794)
Increase in cash value of life insurance (1,127) (1,269)
Adjustments to deferred compensation (15,053) (13,830)
Adjustments to post retirement benefits (1,765) 10,421
<Increase> decrease in:
Trade receivables (60,547) (31,597)
Inventories 182,172 (838,629)
Prepaid Expenses (61,855) 3,553
Income taxes receivable 0 (9,817)
<Decrease> increase in:
Accounts payable and other Liabilities 242,840 113,106
Accrued compensation 88,858 94,077
Customer deposits 18,232 49,161
Income taxes payable (10,421) 0
---------- ----------
Net cash provided by (used in) operations 540,169 (578,345)
---------- ----------
INVESTING ACTIVITIES
Proceeds from sale of property & equipment 0 1,794
Purchase of plant & equipment net of
debt incurred 1997 $0, 1996 $457,24 (169,621) (48,382)
<Increase> decrease in notes receivable
arising from sales (145,242) 148,006
<Increase> decrease in certificates
of deposit 100,000 104,986
---------- ----------
Net cash provided by (used in)
investing activities (214,863) 206,404
---------- ----------
FINANCING ACTIVITIES
Cash dividends paid (24,769) (24,769)
Payments on Long-term Debt (150,000) (150,000)
Debt issue costs, net of debt incurred 990 1,001
Funding of reimbursement account 111,263 111,313
Earnings on unused bond proceeds (2,094) (5,950)
---------- ----------
Net cash provided by (used in)
financing activities (64,610) (68,405)
---------- ----------
Net increase (decrease) in cash 260,696 (440,346)
CASH
Beginning 830,009 1,653,941
---------- ----------
Ending $1,090,705 $1,213,595
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest $25,439 $25,027
Income taxes $19,550 $3,025
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, 1997 and 1996
1997 1996
---- ----
OPERATING ACTIVITIES
Net Income/<Loss> $204,912 $1,169
Noncash <income> expenses included
in income or <loss>:
Depreciation and amortization 344,611 190,676
Deferred income taxes 12,051 45,159
Loss (gain) on sale of equipment (8,107) (1,624)
Increase in cash value of life insurance (18,746) (17,994)
Adjustments to deferred compensation (44,218) (40,626)
Adjustments to post retirement benefits (16,526) (2,616)
<Increase> decrease in:
Trade receivables (173,116) 47,532
Inventories 133,344 (661,571)
Prepaid Expenses (40,679) (3,278)
Income taxes receivable 0 (100,803)
<Decrease> increase in:
Accounts payable and other Liabilities 325,909 360,843
Accrued compensation 79,534 (19,854)
Customer deposits (145,927) 121,689
Income taxes payable 100,004 (60,364)
----------- -----------
Net cash provided by (used in) operations 753,046 (141,662)
----------- -----------
INVESTING ACTIVITIES
Proceeds from sale of property & equipment 5,813 1,624
Purchase of plant & equipment net of debt
incurred 1997 $0, 1996 $1,598,992 (506,640) (308,460)
<Increase> decrease in notes receivable
arising from sales (143,787) 183,353
<Increase> decrease in certificates
of deposit 100,000 295,147
----------- -----------
Net cash provided by (used in)
investing activities (544,614) 171,664
----------- -----------
FINANCING ACTIVITIES
Cash dividends paid (74,308) (74,308)
Payments on Long-term Debt (150,000) (150,000)
Debt issue costs, net of debt incurred 2,970 1,270
Funding of reimbursement account 31,682 31,883
Earnings on unused bond proceeds (6,104) (45,006)
----------- -----------
Net cash provided by (used in)
financing activities (195,760) (236,161)
----------- -----------
Net increase (decrease) in cash 12,672 (206,159)
CASH
Beginning 1,078,033 1,426,738
----------- -----------
Ending $1,090,705 $1,220,579
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest $82,346 $25,027
Income taxes $39,200 $193,270
Accompanying notes are an integral part of these financial statements.
8
MOD-U-KRAF HOMES, INC.
Management's Discussion and Analysis
of Nine Months and Quarterly Income Statements
Net sales for the first nine months of 1997 were $12,326,097, as compared
to $7,953,746 for 1996. This represents an increase in sales volume of
54.97%. The third quarter of 1997 produced a sales volume of $4,074,833 as
compared to $2,933,098 for the third quarter of 1996, and increase of 38.82%.
Cost of sales were 77.85% of net sales for the first nine months of 1997
as compared to 76.73% for the same period in 1996. The cost of sales percent
for the third quarter of 1997 were 78.74% compared to 76.98% for the third
quarter of 1996.
Selling, general and administrative expenses were 19.03% of net sales for
the first nine months of 1997 compared to 21.54% of net sales for the first
nine months of 1996. The third quarter of 1997 produced a percent of 19.82%
as compared to 22.14% for the third quarter of 1996.
Income from operations has shown a 178.91% increase for the first nine
months and a 128.55% increase for the third quarter over 1996.
The first nine months of 1997 showed net income of $204,912 compared to
net income of $1,169 for 1996 and the third quarter of 1997 showed net income
of $29,286 compared to a net loss of $85,908 for the third quarter of 1996.
Our revenues have grown as anticipated to put Mod-U-Kraf on target for
its 1997 annual projection of between $16 and $18 million. We are still
adjusting the production process in our new facility to improve the
unfavorable variances we are still experiencing in production labor and
manufacturing expense.
Other than the financing arrangement for our new manufacturing facility
as outlined in Note 7, there are no significant changes in liquidity and
capital resources.
9
MOD-U-KRAF HOMES, INC.
NOTES TO FINANCIAL INFORMATION
1. The financial information furnished herein is not certified, but reflects
all adjustments, consisting only of normal recurring adjustments which
are, in the opinion of management, necessary to a fair statement of the
results for the quarter ended September 30, 1997. The results for the
quarter ended September 30, 1997 are not necessarily indicative of the
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
---- ----
Raw Materials 950,935 1,147,466
Work-In-Progress 312,120 226,991
Finished Goods 598,774 307,508
Land and Units held for sale 363,173 348,372
----------- -----------
2,225,002 2,030,337
=========== ===========
3. Notes Receivable
1997 1996
---- ----
Various mortgage notes receivable secured by
deeds of trust 165,563 171,407
Various construction loans(all current) 940,099 654,119
Demand note receivable with interest payable
quarterly at 9%, unsecured 8,425 10,875
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
----------- -----------
1,133,414 863,940
Less Current Portion 954,878 669,092
----------- -----------
178,536 194,848
=========== ===========
4. Property and Equipment
1997 1996
---- ----
Land and improvements 773,539 756,838
Buildings 2,948,351 2,998,328
Manufacturing equipment 2,089,843 1,799,565
Other furniture, fixtures and equipment 639,130 395,159
----------- -----------
6,450,863 5,949,890
Less accumulated depreciation (2,392,950) (1,985,726)
----------- -----------
4,057,913 3,964,164
=========== ===========
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. 475,211 508,970
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. 482,271 506,855
Present value of estimated post-retirement
benefits other than pensions discounted
at 8.50%. 128,960 147,121
----------- -----------
1,086,442 1,162,946
Less Current Maturities 70,947 62,705
----------- -----------
1,015,495 1,100,241
=========== ===========
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 quarter 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 4.10%
at September 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 $21,000. 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 account equal to 55 days of interest at 15% on the bonds.
As of September 30, 1997 the Reimbursement Account balance was as follows:
Required prepaid interest deposit $67,810
Unused monthly principal deposits 37,500
Earnings 15,714
---------
$121,024
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 Sept 30, 1997, $2,895,322 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. The annual bond payment
of $150,000 was made on July 2, 1997.
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 $109,413 at September 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 November 5, 1997
declared a $.03 per share cash dividend on all shares outstanding on
November 21, 1997 and to be paid on December 5, 1997.
8. The Company uses the annualized method in its computation of Federal
Income Taxes.
9. Revenues are recorded when 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
N O N E
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: November 7, 1997
s/Dale H. Powel
----------------------
Dale H. Powell
President and Chairman of the Board
s/Jeffrey L. Boudreaux
----------------------
Jeffrey L. Boudreaux
Controller