FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Attention: Filing Desk
STOP 1-4
450 Fifth Street NW
Washington, DC 20549-1004
Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the quarter ended March 31, 1998
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
(Address of principal executive offices)
56501
(Zip Code)
Registrant's telephone number including area code: (218)-847-2611
Securities registered pursuant to Section 12(g) of the act:
Name of Exchange on
Title of Each Class Which Registered
Common Stock, $.10 par value NASDAQ Small Cap Market
Indicate by check mark whether the registrant (1) has filed all reports
required 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, 1998, 2,240,850 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, 1998, a total of 43,080 shares have been repurchased. During 1996,
the Company approved a new stock option plan and granted 240,000 options to
various officers, directors and employees. The treasury stock and 205,000
available but unexercised options are excluded from the common shares
outstanding.
FORM 10-Q
PART I.
Item 1. Financial Statements
<TABLE>
DYNAMIC HOMES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 1998 & 1997
(Unaudited)
<CAPTION>
Three Months
Dynamic Shagawa
Homes, Inc. Resort, Inc. Consolidated 3/31/97
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues
Single - Family $ 635,000 $ - $ 635,000 $ 1,302,000
Multi - Family / Commercial - - - 239,000
Other 39,000 - 39,000 59,000
Transportation 40,000 - 40,000 92,000
Shagawa Resort, Inc. - 344,000 344,000 56,000
Total Revenues - Net 714,000 344,000 1,058,000 1,748,000
Cost of Sales
Materials 370,000 239,000 609,000 901,000
Labor 55,000 - 55,000 171,000
Overhead 93,000 - 93,000 267,000
Transportation 150,000 - 150,000 184,000
Total Cost of Sales 668,000 239,000 907,000 1,523,000
Gross Profit 46,000 105,000 151,000 225,000
Operating Expenses
Marketing 105,000 19,000 124,000 85,000
Administration 188,000 201,000 389,000 186,000
Other - - - 2,000
Shagawa Resort, Inc. - - - 56,000
Total Operating Expenses 293,000 220,000 513,000 329,000
Operating Income (Loss) (247,000) (115,000) (362,000) (104,000)
Other (Income) Expense
Interest Expense 32,000 37,000 69,000 40,000
Other, Net (23,000) - (23,000) (2,000)
Total Other (Income) Expense 9,000 37,000 46,000 38,000
Income (Loss) Before Taxes (256,000) (152,000) (408,000) (142,000)
Income Tax (Provision) Benefit 102,000 61,000 163,000 57,000
Net Income (Loss) $ (154,000) $ (91,000) $ (245,000) $ (85,000)
Basic Earnings (Loss) Per Common Share $ (0.07) $ (0.04) $ (0.11) $ (0.04)
Diluted Earnings (Loss) Per Common Share $ (0.07) $ (0.04) $ (0.11) $ (0.03)
Weighted Basic Average Number of Shares
Outstanding 2,240,900 2,240,900 2,240,900 2,240,900
Weighted Diluted Average Number of Shares
Outstanding 2,242,000 2,242,000 2,242,000 2,580,600
Dividends per Common Share None None None None
See notes to condensed consolidated financial statements.
</TABLE>
<TABLE>
DYNAMIC HOMES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1998 & DECEMBER 27,1997
(Unaudited)
<CAPTION>
Dynamic Shagawa
Homes, Inc. Resort, Inc. Eliminations Consolidated 12/27/97
------------ ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash & cash equivalents $ 145,000 $ 18,000 $ - $ 163,000 $ 1,330,000
Accounts receivable, less
allowance for doubtful
accounts, pledged 213,000 5,000 - 218,000 784,000
Inventories pledged (Note 2) 3,386,000 32,000 - 3,418,000 1,488,000
Prepaid expenses (Note 5) 106,000 10,000 - 116,000 47,000
Deferred income taxes (Note 4) 99,000 - - 99,000 99,000
Total Current Assets 3,949,000 65,000 - 4,014,000 3,748,000
OTHER ASSETS:
Investments - Affiliates 1,639,000 - (1,639,000) - -
Other assets (Note 8) 26,000 491,000 - 517,000 530,000
Total Other Assets 1,665,000 491,000 (1,639,000) 517,000 530,000
PROPERTY, PLANT & EQUIPMENT, at:
Cost - pledged in part (Note 6) 3,569,000 3,119,000 - 6,688,000 6,588,000
Less - accumulated depreciation (1,808,000) (272,000) - (2,080,000) (1,984,000)
Net Property, Plant & Equipment 1,761,000 2,847,000 - 4,608,000 4,604,000
Total Assets $ 7,375,000 $ 3,403,000 $ (1,639,000) $ 9,139,000 $ 8,882,000
LIABILITIES
CURRENT LIABILITIES:
Payables - Affiliates $ - $ 1,145,000 $ (1,145,000) $ - $ -
Notes payable 75,000 - - 75,000 -
Current portion - long-term debt 120,000 38,000 - 158,000 154,000
Accounts payable 712,000 32,000 - 744,000 261,000
Customer deposits 334,000 - - 334,000 177,000
Accrued expenses
Salaries, wages and vacations 193,000 20,000 - 213,000 221,000
Taxes, other than income 155,000 17,000 - 172,000 96,000
Warranty 76,000 - - 76,000 74,000
Other 11,000 36,000 - 47,000 135,000
Income Taxes (102,000) (61,000) - (163,000) -
Total Current Liabilities 1,574,000 1,227,000 (1,145,000) 1,656,000 1,118,000
LONG-TERM DEBT: (Note 7)
Less current portion included above 1,143,000 1,773,000 - 2,916,000 2,952,000
DEFERRED INCOME TAXES (Note 4) 80,000 - - 80,000 80,000
Total Liabilities 2,797,000 3,000,000 (1,145,000) 4,652,000 4,150,000
STOCKHOLDERS' EQUITY
Investment - Parent - 706,000 (706,000) - -
Common stock, par value $.10 per
share
Authorized, 5,000,000 shares;
issued and outstanding,
2,240,000 in 1998 and 1997 228,000 - - 228,000 228,000
Paid-in capital in excess of par 147,000 - - 147,000 147,000
Retained earnings 4,347,000 (303,000) 212,000 4,256,000 4,501,000
Treasury stock - 43,080 shares (144,000) - - (144,000) (144,000)
Total Stockholders' Equity 4,578,000 403,000 (494,000) 4,487,000 4,732,000
Total Liabilities & Stockholders'
Equity $ 7,375,000 $ 3,403,000 $ (1,639,000) $ 9,139,000 $ 8,882,000
See notes to consolidated financial statements.
</TABLE>
<TABLE>
DYNAMIC HOMES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1998 & 1997
(Unaudited)
<CAPTION>
3/31/98 3/31/97
------------ ------------
<S> <C> <C>
Cash Flows From Operating Activities
Net Income (Loss) $ (245,000) $ (85,000)
Adjust to Reconcile Net Income or Loss
Provided by (Used in) Operating Activities:
Depreciation and Amortization 117,000 95,000
Provision for Doubtful Accounts 2,000 2,000
(Gain) Loss on Sale of Property & Equipment - 6,000
Change in Assets & Liabilities:
(Increase) Decrease in Receivables 565,000 288,000
(Increase) Decrease in Inventories (1,929,000) (505,000)
(Increase) Decrease in Prepaid Expenses (69,000) (345,000)
(Increase) Decrease in Deferred Income Tax - -
(Increase) Decrease in Other Assets (8,000) (8,000)
Increase (Decrease) in Accounts Payable 483,000 417,000
Increase (Decrease) in Customer Deposit 157,000 (42,000)
Increase (Decrease) in Accrued Expenses (18,000) (66,000)
Increase (Decrease) in Income Tax Payable (163,000) (59,000)
Net Cash Provided by (Used in) Operating Activities (1,108,000) (302,000)
Cash Flows From Investing Activities
Asset Purchase - Shagawa Resort - -
Proceeds From Sale of Property & Equipment - -
Purchase of Property & Equipment (102,000) (293,000)
Net Cash Provided by (used in) Investing
Activities (102,000) (293,000)
Cash Flows From Financing Activities
Proceeds from Sale of Common Stock - -
Net Borrowings (Payments) on Revolving Credit
Agreements & Other Short-Term Financing 75,000 125,000
Principal Payments on Long-Term Borrowings
Including Revenue Bonds / Shagawa Resort (32,000) (25,000)
Proceeds From Long-Term Borrowings - -
Net Cash Provided by (Used in) Financing
Activities 43,000 100,000
Increase (Decrease) in Cash and Equivalents (1,167,000) (495,000)
Cash and Equivalents
Beginning 1,330,000 554,000
Ending $ 163,000 $ 59,000
Supplemental Disclosures of Cash Flow
Information
Cash Payments for:
Income Taxes $ 1,000 $ 3,000
Interest 68,000 43,000
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 consolidated
financial statements contain all adjustments necessary to present fairly the
financial position of the Company as of March 31, 1998 and December 27, 1997,
and the results of operations and cash flows for the three months ended March
31, 1998 and March 31, 1997.
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 deter-
mined monthly based on standards for materials, labor and overhead by product.
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 1998. Shagawa Resort, Inc. conducts a
physical inventory at each month-end.
The Breakdown of Inventories is as follows:
<TABLE>
<CAPTION>
3/31/98 3/31/97
------------ ------------
<S> <C> <C>
Finished Goods $ 2,245,000 $ 1,122,000
Work In Process 185,000 134,000
Raw Materials 956,000 844,000
Shagawa Resort, Inc. 32,000 -
Total Inventories $ 3,418,000 $ 2,100,000
</TABLE>
Note 3. BACKLOG OF ORDERS
The Company's order backlog consists of completed units awaiting delivery,
current production and orders scheduled for future production. As of March 31,
1998 and March 31, 1997, the Company's backlog of committed orders was approx-
imately $6,513,000 and $3,604,000, respectively. As of December 27, 1997, the
Company's backlog of orders was $2,285,000. The Company's order backlog at
April 30, 1998, totals $7,419,000 compared to $4,689,000 on April 30, 1997.
The higher 1998 backlog reflects the success of several marketing programs tar-
geting the seasonally slow winter months. The winter promotion unit orders are
scheduled for delivery and set during the second and third quarters of 1998.
Promotional discounts on these units will adversely affect the gross margin at
time of set. In contrast, the Company benefits from increased plant utili-
zation and more favorable overhead and labor absorption during the production
process. The April 30, 1998, backlog also includes an order for 20 multi-
family housing units associated with a Native American community in Minnesota.
This project is scheduled to be produced and delivered during the third quarter
of 1998. In addition to the winter promotional programs, the Company also
completed the construction of 28 inventory units which are available to the
builder / dealer network for immediate sale. As of April 30, 1998, 20 inven-
tory units remain available for sale and have been excluded from the order
backlog value.
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
<TABLE>
<CAPTION>
3/31/98 3/31/97
------------ ------------
<S> <C> <C>
Revenue Bonds - Retirement Escrow $ - $ 83,000
Advertising 7,000 3,000
Insurance 92,000 111,000
Equipment / Supplies / Inventory -
Shagawa Resort, Inc. 10,000 168,000
Other 7,000 9,000
$ 116,000 $ 374,000
</TABLE>
Note 6. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
3/31/98 3/31/97
------------ ------------
<S> <C> <C>
Dynamic Homes, Inc.
Land and Improvements $ 220,000 $ 165,000
Buildings 1,401,000 971,000
Machinery and Equipment 1,870,000 1,629,000
Construction in Progress 78,000 354,000
Shagawa Resort, Inc.
Land and Improvements 341,000 329,000
Buildings 2,105,000 2,098,000
Furniture, Fixtures and Equipment 673,000 617,000
Construction in Progress - -
6,688,000 6,163,000
Less: Accumulated Depreciation -
Dynamic Homes, Inc. (1,808,000) (1,627,000)
Accumulated Depreciation -
Shagawa Resort, Inc. (272,000) (113,000)
$ 4,608,000 $ 4,423,000
</TABLE>
Note 7. LONG-TERM DEBT
<TABLE>
<CAPTION>
Long-term Debt (net of current maturities)
consists of: 3/31/98 3/31/97
------------ ------------
<S> <C> <C>
Detroit Lakes - Plant Expansion $ 878,000 $ -
Industrial Development Bonds
of Detroit Lakes, MN - 45,000
M & I Leasing - Capitalized
Crane / Trailers 218,000 199,000
Term Mortgage Loan Agreement
covering Shagawa Resort
project - (Note 9) 1,773,000 1,810,000
Other Notes and Contracts Payable 47,000 -
$ 2,916,000 $ 2,054,000
</TABLE>
Note 8. OTHER ASSETS - NET
<TABLE>
<CAPTION>
3/31/98 3/31/97
------------ ------------
<S> <C> <C>
Dynamic Homes, Inc.
- Deferred Bond & Maintenance Expense $ - $ 2,000
- Prepaid Debt Expense 20,000 9,000
- Deposits 6,000 6,000
Shagawa Resort, Inc.
- Goodwill 113,000 -
- Prepaid Advertising 5,000 9,000
- Prepaid Legal / Debt Expense 181,000 191,000
- Organization / Start-up 134,000 165,000
- Asset Replacement Escrow 55,000 15,000
- Other 3,000 -
$ 517,000 $ 397,000
</TABLE>
The above referenced Other Assets for Shagawa Resort, Inc. are being amortized
on a straight-line basis over the estimated useful life of the asset as follows:
Advertising 3 years
Organization / Start-up 5 years
Goodwill 15 years
Legal / Debt Expense 20 years
Note 9. SHAGAWA RESORT, INC.
On September 7, 1995, the Company purchased all of the outstanding shares of
Shagawa Resort, Inc., the sole owner of a Holiday Inn Sunspree Motel which was
under construction and located at 400 North Pioneer Road in Ely, Minnesota.
The motel consists of approximately 54,000 square feet of buildings consisting
of 61 units and includes lounge, dining, recreational and meeting facilities on
approximately 25 acres of land. The purchase price consisted of cash and a
construction mortgage assumption to NorWest Bank Minnesota for the financing
of the construction costs associated with completing the Shagawa Resort, Inc.
hotel / resort facility. The hotel / resort remained under construction until
May 1, 1996, when the hotel / resort commenced with normal business operations.
During August 1996, the construction mortgage was finalized and converted to a
long-term mortgage loan which is secured by the assets of Shagawa Resort, Inc.
and a partial guarantee of the Small Business Administration. Monthly install-
ments of principal and interest approximate $16,000 with a blended interest
rate of approximately 8 percent (Note 7).
In conjunction with the purchase of Shagawa Resort, Inc., the Company simultan-
eously entered into a Management Agreement with Northland Adventures Minnesota,
Ltd. to operate and manage the hotel / resort from the opening date (May 1,
1996) until December 15, 1997. The Management Agreement required the Managing
Agent to pay minimum monthly payments of $22,100 to the Company, plus a per-
centage of room and food / beverage receipts when these amounts exceed the
minimum rentals on an annual basis. During the duration of the agreement, the
Managing Agent absorbs or retains any operating profit or loss generated by the
operation of the facility. On March 17, 1997, the Company and Northland Adven-
tures Minnesota, Ltd. collectively reached an Asset Purchase Agreement whereby
the Company purchased substantially all assets of the Business. All prior
agreements pertaining to the management of the hotel / resort facility have
been terminated. Consequently, effective March 17, 1997, the Company assumed
the management obligations and rights associated with the operations of Shagawa
Resort, Inc. Operational results for the period March 17 - 31, 1997, were not
recognized during the first quarter of 1997 but included with the activities
reported during the second quarter of 1997.
MANAGEMENT'S DISCUSSION & ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
Three Months Ended March 31, 1998 and 1997
NET SALES:
The Company's revenue and operating results encompass both the manufacturing
sector (Dynamic Homes, Inc.) and the hospitality sector (Shagawa Resort, Inc.).
The Company's revenue from the manufacturing sector for the three months ended
March 31, 1998, was $714,000 as compared to $1,692,000 for the year earlier
period and represents a decrease of $978,000. Single-family revenues decreased
by $667,000 from $1,302,000 for 1997 to $635,000 for 1998. Likewise, revenues
generated from multi-family / commercial decreased by $239,000. As a result of
lower unit revenue activities, transportation and other (retail) revenue de-
creased from $151,000 in 1997 to $79,000 for 1998. The decrease in revenue
during the first quarter of 1998 reflects the Company's lowered backlog posi-
tion at 1997 year-end and in particular the absence of any single-family or
multi-family / commercial projects. In contrast, approximately 40 percent of
the 1997 single-family revenue was associated with the delivery and setting of
the final phase of a 45 unit housing project affiliated with the Fort Berthold
Housing Authority.
In response to the softening of new orders during the fourth quarter of 1997,
the Company implemented several aggressive marketing programs and recently
also received an order for 20 multi-family housing units (reference Note 3).
On March 17, 1997, the Company assumed the operational obligations associated
with the Shagawa Resort facility dba: Holiday Inn Sunspree Resort (reference
Note 9). During the first quarter of 1998, Shagawa Resort contributed
operating revenues of $344,000 as compared to lease-related revenues of $56,000
for the first quarter of 1997. Due to the location and seasonal nature of the
industry, revenues are anticipated to strengthen during the second quarter of
1998, reach maximum strength during the third quarter and again soften during
the latter stages of 1998. Revenues during the first quarter of 1998 were
adversely affected by the mild winter which curtailed many of the winter
recreational activities.
COST OF SALES:
Dynamic Homes' gross profit (including transportation revenue and expense but
excluding Shagawa Resort, Inc.) was $46,000 for the first quarter of 1998
versus $169,000 for the 1997 period. Gross profit percentage for 1998 is 6.4%
as compared with 10.0% for 1997. When transportation revenues and expense plus
Shagawa Resort are excluded, the gross profit on product changes to 23.1% for
1998 and 16.3% for 1997. The improved gross margin percentage on product
reflects the stronger new order position during the first quarter of 1998. The
increase in new orders allows the manufacturing facility to increase production
which resulted in a more favorable labor and overhead absorption rate.
Shagawa Resort, Inc. recorded a gross profit of $105,000 on operating revenues
of $344,000 during the first quarter of 1998. Due to the leasing arrangement
in affect during the first quarter of 1997, no cost of sales was required.
OPERATING EXPENSES:
Dynamic Homes' 1998 operating expenses, which include transportation, marketing
and administration, decreased $14,000 over the 1997 period. Due to decreased
unit volume, 1998 delivery and setting expense decreased by $34,000. Marketing
related expenses for 1998 increased by $20,000 and are primarily associated
with the winter promotional programs. Administrative expenses remained stable
during the first quarter of each period.
Shagawa Resort, Inc. incurred operating expenses of $220,000 during the first
quarter of 1998. During the first quarter of 1997, Shagawa Resort, Inc.
operated under a management agreement and consequently, incurred only
depreciation and amortization related expenses of $56,000 associated with the
ownership of the property.
OPERATING INCOME (LOSS):
The operating cycle for the first quarter of 1998 resulted in a consolidated
operating loss of $362,000. During the same period of 1997, the consolidated
operating loss was $104,000. The manufacturing facility incurred operating
losses of $247,000 during 1998 and $104,000 for 1997. Shagawa Resort, Inc.
incurred an operating loss of $115,000 for 1998 and break-even status under
the 1997 lease arrangement.
The decrease in 1998 operating results, reflects the reduced revenue base asso-
ciated with the manufacturing facility and the March 17, 1997, status change
associated with the Shagawa Resort facility. During the first quarter of 1998,
the Company owned and operated the facility in contrast to the lease and
management agreement in affect during the first quarter of 1997.
NET NON - OPERATING INCOME / EXPENSE:
Consolidated net, non-operating expense for the first quarter of 1998 was
$46,000 as compared with $38,000 for 1997. Interest related expense for 1998
increased by $29,000 from $40,000 for 1997 to $69,000 for 1998. Interest
expense associated with the financing of the Shagawa Resort property generated
$37,000 of interest expense during the first quarter of 1998. Dynamic Homes
incurred interest expense of $32,000 associated with the capital lease
financing of transportation equipment and a long-term financing package sup-
porting the expansion of the Detroit Lakes, Mn. manufacturing facility. During
1997, Shagawa Resort, Inc. and Dynamic Homes, Inc. incurred interest expense
of $32,000 and $8,000, respectively. Other income for 1998, consists of
investment income realized from the Company's cash and cash equivalents
position.
FEDERAL AND STATE INCOME TAXES:
During the first quarter of both 1998 and 1997, the Company recorded consol-
idated estimated income tax benefits of $163,000 and $57,000, respectively.
Income tax obligations and benefits are estimated at the normal statutory rate.
NET INCOME (LOSS):
The consolidated net loss for the first quarter of 1998 was $245,000 as
compared to a net loss of $85,000 for 1997. Both basic and diluted earnings
per common share outstanding for 1998 resulted in a negative $0.11 per share.
Basic and diluted earnings per common share outstanding for 1997 were a
negative $0.04 and $0.03, respectively. During the first quarter of 1998, the
ownership and operation of the Shagawa Resort property increased the Company's
net loss by approximately $0.04 per common share. During 1997, ownership of
the Shagawa Resort property resulted in a net loss of $0.01 per common share.
Financial Condition
The Company's consolidated working capital at March 31, 1998, was a positive
$2,358,000 as compared with $1,586,000 at March 31, 1997, and $2,630,000 at
1997 year-end. The current ratio for March 31, 1998, was 2.4 to 1.0 as com-
pared to 3.4 to 1.0 at December 27, 1997, and 2.1 to 1.0 at March 31, 1997.
During the first quarter of 1998, cash outflows were required for the build-up
of inventory (finished goods), renewal of the Company's insurance package,
purchase of transportation and computer equipment and for support of the Com-
pany's daily operations. Cash flows to support the referenced activities were
primarily provided by utilizing the Company's year-end cash and cash equiv-
alents position, receivable collections, customer order deposits, non-cash
related depreciation and amortization, supplier payment terms and borrowings
under the Company's credit line.
Long-term debt and capital leases, net of current maturities, decreased from
$2,952,000 at year-end 1997 to $2,916,000 at March 31, 1998. On March 31,
1997, long-term debt and capital leases, net of current maturities, was
$2,054,000. Long-term debt consists primarily of a long-term mortgage loan,
which is secured by substantially all assets of Shagawa Resort, Inc., with a
partial guarantee of the Small Business Administration, two capitalized lease
obligations secured by transportation equipment, a restructured long-term
financing arrangement secured by a mortgage in support of the Detroit Lakes
plant expansion and a contract for deed covering the purchase of land and a
warehouse. On April 1, 1997, the Company retired all outstanding debt associ-
ated with the Industrial Revenue Bonds which initially financed a major portion
of the property and equipment for the Company's manufacturing facility. The
debt retirement was required to provide collateral for the restructured long-
term financing arrangement. The new financing is a composite of three funding
sources which provided the manufacturing facility with $1,000,000 of proceeds
and was used for financing the plant expansion, including equipment and working
capital for additional inventory requirements. Debt retirement associated with
the plant expansion and transportation equipment varies in maturity from five
to fifteen years, dependent on the funding source.
The consolidated ratio of long-term debt to stockholders' equity changed from
.48 to 1.0 at March 31, 1997, to .62 to 1.0 at December 27, 1997, and .65 to
1.0 at March 31, 1998. The change in ratio reflects the debt and capital lease
acquired to finance transportation equipment, plant expansion activities and
the Shagawa Resort facility. Due to the consolidated net loss incurred during
the first quarter of 1998, stockholders' equity, net of treasury stock de-
creased from $4,732,000 at December 27, 1997, to $4,487,000 at March 31, 1998.
Stockholders' equity on March 31, 1997, was $4,318,000.
Dynamic Homes, Inc. has available a line of credit which is collateralized by
inventories and receivables. The credit available is based upon specified per-
centages of inventory and receivables. On May 4, 1998, the Company renewed its
credit line for a period of two years, subject to annual review and without any
compensating balance requirements. The renewed credit line has a maximum
available borrowing of $1,500,000 at an interest rate equal to the bank's prime
rate. As of March 31, 1998, the Company had $75,000 outstanding under the
existing credit line. As of the renewal date, the Company had $575,000
borrowings outstanding which automatically rolled into the new arrangement.
Shagawa Resort, Inc. does not have any operating line of credit available.
Consequently, Shagawa Resort, Inc. is dependent on Dynamic Homes, Inc. (parent)
as its source of additional funds. Periodically, Dynamic Homes, Inc. is re-
quired to advance funds, during the slower winter months, to support the
resort's ongoing operations. However, during the stronger summer months, the
resort generates adequate levels of funds to support its operational require-
ments and reduce the level of these outstanding advances.
The Company continues to market Shagawa Resort, Inc. to prospective buyers
with the ultimate goal of transacting a sale in the short-term future. Al-
though no agreements have been finalized at this time, future opportunities
may surface which deem it to be in the Company's best interest to divest of the
property. Transactions of this type potentially could materially affect the
Company's short-term operating results and capital resources. However, manage-
ment anticipates that the normal operating cycle will generate sufficient cash,
in conjunction with short-term borrowings on its existing credit line and sup-
plemented by long-term financing and capital leases, adequate funds will be
available to support the Company's operations and scheduled capital require-
ments during 1998.
Statements regarding the Company's operations, performance and financial con-
dition are subject to certain risks and uncertainties. These risks and uncer-
tainties 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. Likewise,
future escalating and volatile material costs and unfavorable weather con-
ditions could also affect the Company's profit margins.
PART II.
Items 1, 2, 3, 4, 5 and 6 are omitted as each is either not applicable or the
answer to the item is negative.
Item 7. Exhibits and Reports on Form 8-K:
No reports on Form 8-K have been filed during the quarter ended
March 31, 1998.
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 13, 1998
Dynamic Homes, Inc.
(Registrant)
ELDON MATZ
Eldon Matz
Controller and Treasurer
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONDENSED
CONSOLIDATED INCOME STATEMENTS AND CONDENSED CONSOLIDATED BALANCE SHEETS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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