FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549-1004
Quarterly Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For The Quarter Year Ended March 31, 1996
Commission File Number 0-8585
Dynamic Homes, Inc. (Exact name of registrant as specified in its charter)
Minnesota (State or Other Jurisdiction of Incorporation or Organization)
41-0960127 (IRS Employer Identification No.)
525 Roosevelt Avenue, Detroit Lakes, MN 56501 (Address of principal executive
offices)
(218) 847-2611 (Registrant's Telephone Number Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports re-
quired to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the regi-
strant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
As of March 31, 1996, 2,215,850 common shares, par value, $.10 per share, were
outstanding. On January 7, 1995 the Company implemented a six month plan to
repurchase up to 100,000 shares of its outstanding common stock. As of March
31, 1996, a total of 43,080 shares have been repurchased and excluded from the
common shares outstanding.
PART I.
Item 1. Financial Statements
<TABLE>
DYNAMIC HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 1996 & 1995
(Unaudited)
<CAPTION> 3/31/96 3/31/95
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Revenues
Single - Family 993,000 832,000
Multi - Family / Commercial 0 851,000
Other 49,000 32,000
Transportation 67,000 129,000
Total Revenues - Net 1,109,000 1,844,000
Cost of Sales
Materials 557,000 909,000
Labor 93,000 195,000
Overhead 136,000 190,000
Transportation 145,000 167,000
Total Cost of Sales 931,000 1,461,000
Gross Profit 178,000 383,000
Operating Expenses
Marketing 93,000 78,000
Administration 174,000 157,000
Total Operating Expenses 267,000 235,000
Operating Income (89,000) 148,000
Other (Income) Expense
Interest Expense 3,000 3,000
Other, Net (4,000) (5,000)
Total Other (Income) Expense (1,000) (2,000)
Income Before Taxes (88,000) 150,000
Income Tax (Provision) Benefit 35,000 (60,000)
Net Income (53,000) 90,000
Earnings Per Common Share (0.02) 0.04
Weighted Average Number of Shares
Outstanding per Period 2,215,900 2,212,100
Dividends per Common Share None None
See notes to consolidated financial statements.
</TABLE>
<TABLE>
DYNAMIC HOMES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1996 & DECEMBER 30,1995
(Unaudited)
<CAPTION>
3/31/96 12/30/95
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ASSETS
CURRENT ASSETS:
Cash & cash equivalents 59,000 543,000
Accounts receivable, less allowance for
doubtful accounts, pledged 238,000 699,000
Inventories pledged (Note 2) 2,547,000 1,638,000
Prepaid expenses (Note 5) 216,000 39,000
Deferred income taxes (Note 4) 90,000 90,000
Total Current Assets 3,150,000 3,009,000
OTHER ASSETS:
Other assets 67,000 38,000
Total Other Assets 67,000 38,000
PROPERTY, PLANT & EQUIPMENT, at:
Cost - pledged in part (Note 6) 5,027,000 4,256,000
Less - accumulated depreciation (1,503,000) (1,470,000)
Net Property, Plant & Equipment 3,524,000 2,786,000
Total Assets 6,741,000 5,833,000
LIABILITIES
CURRENT LIABILITIES:
Notes payable 0 0
Current portion - long-term debt 62,000 62,000
Accounts payable 612,000 216,000
Customer deposits 1,016,000 408,000
Accrued expenses
Salaries, wages and vacations 145,000 183,000
Taxes, other than income 108,000 50,000
Warranty 72,000 71,000
Other 42,000 89,000
Income Taxes (111,000) 184,000
Total Current Liabilities 1,946,000 1,263,000
LONG-TERM DEBT: (Note 7)
Less current portion included above 1,343,000 1,066,000
DEFERRED INCOME TAXES (Note 4) 25,000 25,000
Total Liabilities 3,314,000 2,354,000
STOCKHOLDERS' EQUITY
Common stock, par value $.10 per share
Authorized, 5,000,000 shares; issued
and outstanding, 2,215,850 in 1996;
2,190,850 in 1995 226,000 226,000
Paid-in capital in excess of par 134,000 134,000
Retained earnings 3,211,000 3,263,000
Treasury stock - 43,080 shares (144,000) (144,000)
Total Stockholders' Equity 3,427,000 3,479,000
Total Liabilities & Stockholders' Equity 6,741,000 5,833,000
See notes to consolidated financial statements.
</TABLE>
<TABLE>
DYNAMIC HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1996 & 1995
(Unaudited)
<CAPTION>
3/31/96 3/31/95
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Cash Flows From Operating Activities
Net Income (Loss) (53,000) 90,000
Adjust to Reconcile Net Income or Loss
Provided by (Used in) Operating Activities:
Depreciation 35,000 31,000
Provision for Doubtful Accounts 2,000 2,000
(Gain) Loss on Sale of Property & Equipment 0 0
Change in Assets & Liabilities:
(Increase) Decrease in Receivables 459,000 196,000
(Increase) Decrease in Inventories (909,000) (652,000)
(Increase) Decrease in Prepaid Expenses (177,000) (86,000)
(Increase) Decrease in Deferred Income Tax 0 0
(Increase) Decrease in Other Assets (29,000) 0
Increase (Decrease) in Accounts Payable 396,000 59,000
Increase (Decrease) in Customer Deposit 608,000 (48,000)
Increase (Decrease) in Accrued Expenses (26,000) (90,000)
Increase (Decrease) in Income Tax Payable (295,000) (14,000)
Net Cash Provided by (Used in) Operating Activities 11,000 (512,000)
Cash Flows From Investing Activities
Proceeds From Sale of Property & Equipment 0 0
Purchase of Property & Equipment (771,000) (35,000)
Purchase of Treasury Stock 0 (144,000)
Net Cash Provided by (used in) Investing
Activities (771,000) (179,000)
Cash Flows From Financing Activities
Proceeds from Sale of Common Stock 0 4,000
Net Borrowings (Payments) on Revolving Credit
Agreements & Other Short-Term Financing 0 202,000
Principal Payments on Long-Term Borrowings
Including Industrial Revenue Bonds (1,000) 0
Proceeds From Long-Term Borrowings 278,000 0
Net Cash Provided by (Used in) Financing
Activities 277,000 206,000
Increase (Decrease) in Cash and Equivalents (483,000) (485,000)
Cash and Equivalents
Beginning 543,000 607,000
Ending 60,000 122,000
Supplemental Disclosures of Cash Flow
Information
Cash Payments for:
Income Taxes 260,000 74,000
Interest 0 0
See notes to condensed consolidated financial statements.
</TABLE>
DYNAMIC HOMES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. UNAUDITED STATEMENTS
In the opinion of management, the accompanying unaudited condensed con-
solidated financial statements contain all adjustments necessary to present
fairly the financial position of the Company as March 31, 1996 and December 30,
1995, and the results of operations and cash flows for the three months ended
March 31, 1996 and March 31, 1995.
Note 2. INVENTORIES
During interim accounting periods, the Company uses the standard cost
method of determining cost of sales and inventory levels. Cost of sales values
are determined monthly based on standards for materials, labor and overhead by
product mix. Deviations from these standards result in adjustments of the
monthly cost of sales amount. Periodic physical inventories are taken during
the fiscal year to determine actual inventory and cost of sales. No physical
inventory was taken during the first quarter of 1996.
The Breakdown of Inventories is as follows:
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<CAPTION>
3/31/96 3/31/95
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Finished Goods 1,641,000 1,170,000
Work In Process 136,000 171,000
Raw Materials 770,000 775,000
Total Inventories 2,547,000 2,116,000
</TABLE>
Note 3. BACKLOG OF ORDERS
As of March 31, 1996 and March 31, 1995, the Company's backlog of unfilled
orders was approximately $4,866,000 and $2,934,000, respectively. As of Decem-
ber 30, 1995, the Company's backlog of unfilled orders was $2,595,000. The
March 31, 1996, backlog consists of approximately $1,770,000 of finished
single-family housing units and $435,000 of finished commercial product. How-
ever, due to inclement weather and road restrictions, the majority of finished
product can not be delivered and set until the latter stages of the second
quarter and early stages of the third quarter of 1996. In contrast, the March
31, 1995, backlog consisted of approximately $895,000 of finished single-family
housing units and $680,000 of finished commercial product.
Note 4. DEFERRED INCOME TAXES
Deferred income taxes relate primarily to differences between the basis of
receivables, property and equipment, accrued expenses and book / tax inventory
adjustments for financial and income tax reporting. The deferred tax assets
and liabilities represent future tax return consequences of those differences,
which will either be taxable or deductible when the assets and liabilities are
recovered and settled.
Note 5. PREPAID EXPENSES
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<CAPTION>
3/31/96 3/31/95
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Advertising 25,000 1,000
Insurance 145,000 65,000
Other 46,000 44,000
Total Prepaid Expenses 216,000 110,000
</TABLE>
Note 6. PROPERTY AND EQUIPMENT
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<CAPTION>
3/31/96 3/31/95
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Land and Improvements 130,000 117,000
Buildings 977,000 954,000
Machinery and Equipment 1,312,000 1,312,000
Construction in Progress, Shagawa
Resort, Inc. (Note 8) 2,608,000 0
Less: Accumulated Depreciation (1,503,000) (1,421,000)
Total Property and Equipment 3,524,000 962,000
</TABLE>
Note 7. LONG-TERM DEBT
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<CAPTION>
Long-term Debt (net of current
maturities) consists of: 3/31/96 3/31/95
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Industrial Development Bonds
of Detroit Lakes, MN 80,000 115,000
Other Notes & Contracts Payable 7,000 0
Construction Loan Agreement
covering Shagawa Resort Project (Note 8) 1,256,000 0
Total Long-Term Debt 1,343,000 115,000
</TABLE>
Note 8. SHAGAWA RESORT, INC.
During 1995, Dynamic Homes, Inc. purchased 100% of the common stock of
Shagawa Resort, Inc., a hotel/resort in northern Minnesota. The stock was ex-
changed for an account receivable in the amount of $628,100. At the date of
purchase and at March 31, 1996, the hotel was under construction. The total
estimated cost of completing the project is $2,750,000 with an estimated com-
pletion cost of $150,000 at March 31, 1996. The total cost of the project is
estimated at $4,455,000 which has been reduced by approximately $1,705,000 in
existing equity and various economic incentives. The hotel has been completed
and opened on May 1, 1996.
The Company entered into a long-term debt agreement whereby the balance of
the construction loan, up to a maximum of $1,850,000 will be financed. This
agreement calls for an interest rate of 8.75% to be adjusted every three years,
with monthly principal and interest payments based upon a 20-year amortization
with a 10-year balloon payment. The debt is secured by the assets of Shagawa
Resort, Inc. and a partial guarantee of the Small Business Administration. Due
to the project completion of May 1, 1996, the construction mortgage loan is
currently in the process of being converted to long-term financing.
In conjunction with the purchase of Shagawa Resort, Inc., the Company also
entered into a management agreement for the operation of the hotel/resort. The
management agreement calls for the managing agent to pay minimum monthly pay-
ments of $22,100 to the Company plus a percentage of room and food/beverage re-
ceipts when these exceed the minimum rentals on an annual basis. The minimum
monthly payments are structured to cover the monthly long-term loan mortgage
payments. It is anticipated that the Company's ownership of Shagawa Resort,
Inc. will have a minimum impact on the Company's earnings during 1996.
DYNAMIC HOMES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION & ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
Three Months Ended March 31, 1996 and 1995
NET SALES:
The Company's revenue for the three months ended March 31, 1996 was
$1,109,000 as compared to $1,844,000 for the year earlier period. Even though
1996 single-family revenues increased by $ 161,000 or 19%, overall sales for
the first quarter of 1996 decreased by $735,000. The first quarter of 1996 was
significantly impacted by the absence of any multi-family/commercial sales ac-
tivity. In contrast, multi-family/commercial contributed $851,000 to the 1995
first quarter sales base. Due to the reduced sales base for 1996, transport-
ation revenues also decreased by $62,000 from 1995. Other revenues for 1996
increased by $17,000 over 1995. Single-family unit deliveries during the first
quarter of 1996 were hampered by adverse weather conditions and related delays
in customer site preparations which prevented the delivery and setting of addi-
tional finished units. Sales are not recognized or recorded by the Company
until a unit has been delivered and set.
The Company's order backlog at March 31, 1996 was $4,866,000 or an in-
crease of $1,932,000 over the March 31, 1995 backlog of $2,934,000. The Com-
pany's order backlog consists of completed units awaiting delivery, current
production and orders scheduled for future production. In addition, the Com-
pany recently entered into an agreement in excess of $2.0 million for the con-
struction of 47 single-family housing units for the Fort Berthold Indian Reser-
vation in North Dakota. Even though the current level of orders is encour-
aging, the Company is still cautious about the impact of the continued in-
creases in home mortgage rates and the overall direction the economy may have
on new housing starts. Also reference Note 3 for additional backlog
discussion.
COST OF SALES:
The Company's gross profit (including transportation revenue and expense)
for the first quarter of 1996 is down $205,000 from the same period of 1995.
During the first quarter of 1996, the gross profit percent declined to 16.1%
from 20.8% for 1995. However, during the 1996, the gross profit percent on
product increased slightly to 24.6% as compared to 24.5% for the 1995 period.
In each period, transportation revenue and expense was excluded in arriving at
the gross margin calculation. The small 1996 improvement in product gross mar-
gin is attributed to the stability of material costs for wood-related
materials. However, during the second quarter of 1996, wood-related materials
have begun to escalate. Continued escalation of these costs may again require
the Company to implement a surcharge to offset rising material costs and mini-
mize potential gross margin reductions.
OPERATING EXPENSES:
The Company's 1996 operating expenses, which include transportation,
marketing and administrative costs, increased by $ 10,000 over the 1995 level.
Even though total revenues decreased during the first quarter of 1996, fixed
costs associated with the transportation sector, increased marketing-related
advertising costs and administrative changes in several compensation structures
contributed to the increase for 1996.
OPERATING INCOME (LOSS):
The operating cycle for the first three months of 1996 resulted in a loss
of $89,000 as compared to an operating income of $148,000 for 1995. The de-
crease in operating results of $237,000 reflects the impact of a lower sales
base and small cost increases in the transportation, marketing and administra-
tive sectors.
NET NON - OPERATING INCOME / EXPENSE:
Non-operating income for the first quarters of 1996 and 1995 were similar
at $1,000 and $2,000, respectively. Reflecting the Company's strong cash po-
sition at each year-end, interest costs remained constant at $3,000 for both
first quarters.
FEDERAL AND STATE INCOME TAXES:
Due to the loss incurred during the first quarter of 1996, the Company re-
corded a tax benefit of $35,000 versus a tax provision of $60,000 for the first
quarter of 1995. Since the Company utilized the available loss carryforwards
during 1994, income tax obligations and benefits are estimated at the normal
statutory rate.
NET INCOME (LOSS):
The net loss for the first quarter of 1996 was $53,000 or $.02 per share.
In contrast, the first quarter of 1995 resulted in net income of $90,000 or
$.04 per share.
Financial Condition
As of March 31, 1996
The Company's working capital was a positive $1,204,000 at March 31, 1996
versus $1,913,000 at March 31, 1995. The working capital at December 30, 1995
was a positive $1,747,000. The current ratio for March 31, 1996 was 1.6 to 1.0
as compared to 2.4 to 1.0 at December 30, 1995 and 2.5 to 1.0 at March 31,
1995. The Company's 1996 cash flow from operations was a positive $11,000 as
compared to a negative cash flow of $512,000 for the 1995 period.
During the first quarter of 1996, cash outflows were required for the
build-up of inventory (finished goods), renewal of the Company's insurance
package, payments on Federal and State income tax liabilities and the Company's
investment interests in completing the Shagawa Resort project. Cash flows to
support the above referenced activities were provided by utilizing the Com-
pany's 1995 year-end cash and cash equivalents position in conjunction with
cash flows provided by customer deposits and unit prepayments, supplier payment
terms and long-term borrowings associated with the construction activities at
the Shagawa Resort project.
Long-term debt, net of current maturities, increased from $115,000 at
March 31, 1995 to $1,343,000 at March 31, 1996. Long-term debt consists pri-
marily of Industrial Revenue Bonds related to the Detroit Lakes, Minnesota
facility and the Shagawa Resort project (Notes 7 and 8). Since the Shagawa
Resort opened on May 1 , 1996, the existing construction mortgage loan is in
the process of conversion to long-term financing. The ratio of long-term debt
to stockholders' equity changed from .04 to 1.0 at March 31, 1995 to .3 to 1.0
at December 30, 1995 and to .4 to 1.0 at March 31, 1996. Stockholders' equity
(net of treasury stock) decreased $53,000 to $3,427,000 at March 31, 1996 from
$3,480,000 at December 30, 1995 but up $683,000 from the $2,744,000 at March
31, 1995.
Dynamic Homes, Inc. has available a short-term line of credit which is
collateralized by inventories and receivables. The credit available is based
on specified percentages of inventories and receivables to a maximum of
$1,000,000. As of March 31, 1996, the Company did not have any outstanding
borrowings under its line of credit agreement. However, the Company had one
standby letter of credit totaling $187,230 which reduced the available line of
credit accordingly. On May 1, 1996, the Company renewed its line of credit for
an additional period of one year. The renewed credit line increased the max-
imum available borrowings to $1,100,000 and exempts the existing letter of
credit from reducing the available line of credit.
The Company has continued to meet its obligations in a timely manner.
Management believes internally generated cash and short-term borrowings on its
existing credit line should provide adequate funds to support the Company
operations and scheduled capital additions during the remainder of 1996.
Statements regarding the Company's operations, performance and financial
condition for 1996 are subject to certain risks and uncertainties. These risks
and uncertainties include but are not limited to: rising mortgage interest
rates and/or weakness in regional and national economic conditions that could
have an adverse impact on new home and multi-family/commercial sales. Like-
wise, escalating and volatile material costs could also affect the Company's
profit margins.
SIGNATURE
Pursuant to the requirements of the Securities Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Dated: May 12, 1996
Dynamic Homes, Inc.
(Registrant)
VERN MUZIK
Vern Muzik
President
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONDENSED
CONSOLIDATED INCOME STATEMENTS AND CONDENSED CONSOLIDATED INCOME STATEMENTS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-END> MAR-31-1996
<CASH> 59000
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<RECEIVABLES> 274500
<ALLOWANCES> 36500
<INVENTORY> 2547000
<CURRENT-ASSETS> 3150000
<PP&E> 5027000
<DEPRECIATION> (1503000)
<TOTAL-ASSETS> 6741000
<CURRENT-LIABILITIES> 1042000
<BONDS> 1343000
0
0
<COMMON> 226000
<OTHER-SE> 3201000
<TOTAL-LIABILITY-AND-EQUITY> 6741000
<SALES> 1042000
<TOTAL-REVENUES> 1109000
<CGS> 786000
<TOTAL-COSTS> 931000
<OTHER-EXPENSES> 267000
<LOSS-PROVISION> 1500
<INTEREST-EXPENSE> 3000
<INCOME-PRETAX> (88000)
<INCOME-TAX> (35000)
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<NET-INCOME> (53000)
<EPS-PRIMARY> (.02)
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</TABLE>
