FORM 10-K/A
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 fiscal year ended December 25, 1999
Commission file number 0-8585
Dynamic Homes, Inc.
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Minnesota 41-0960127
--------------------------------------- ---------------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
525 Roosevelt Avenue, Detroit Lakes, MN 56501
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(Address of principal executive offices) (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
registrant 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 14, 2000, 2,240,850 common shares were outstanding, and the
aggregate market value of the common shares (based upon the sales price
information of these shares as compiled by the NASDAQ market) of Dynamic Homes,
Inc., held by non-affiliates was approximately $2,333,000. 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 14, 2000, a total of 43,080 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.
DOCUMENTS INCORPORATED BY REFERENCE
(See following page)
Total number pages, including cover page - __
<PAGE>
Documents Incorporated by Reference
-----------------------------------
Parts I, II, III, and IV of the Company's Annual Report to Shareholders for the
year ended December 25, 1999, except as amended herein.
EXPLANATORY NOTE
The Company filed a preliminary proxy statement (the "Proxy") pursuant to
Section 14(a) of the Securities Exchange Act of 1934 with the Securities and
Exchange Commission on October 6, 2000. The Proxy incorporated the Company's
Annual Report on Form 10-K for the fiscal year ended December 25, 1999 by
reference. In connection with the SEC's review of the Proxy, several comments
were raised by the Staff relative to certain financial disclosures in the
Company's Form 10-K. In response to the SEC's comments, the Company, in
consultation with the Company's accountants, has determined to restate its
financial statements for the fiscal year ended December 25, 1999. This Amendment
includes these restated financial statements, together with the report thereon
of EideBailly LLP dated November 16, 2000.
The restatements relate solely to the SEC's accounting comments regarding
restatement of financial statements for all periods presented prior to the
measurement date in accordance with APB 30. The restatements are necessary due
to the sale of the Company's wholly-owned subsidiary, Shagawa Resort, Inc. and
accordingly, to restate Shagawa Resort, Inc.'s operations as discontinued
operations.
The item(s) amended are as follows:
Part II, Item 6 Selected Financial Data
Part II, Item 8 Financial Statements and Supplementary Data
Part IV, Item 14 Exhibits, Financial Statement Schedules and Reports on
Form 8-K
PART II
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Dec 25, Dec 26, Dec. 27, Dec. 28, Dec. 30,
YEARS ENDED 1999 1998 1997 1996 1995
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 13,158,900 $ 11,969,000 $ 11,236,600 $ 12,172,200 $ 10,849,000
Gross profit 2,389,000 2,412,500 2,183,900 2,965,300 2,351,500
Operating expenses 1,644,700 1,458,300 1,340,900 1,365,000 1,041,100
Operating income 744,300 954,200 843,000 1,600,300 1,310,400
Net loss from operations of
discontinued subsidiary (84,100) (115,300) (131,900) -- --
Net income (See page 14) 347,900 374,300 329,100 908,100 809,100
Basic net income per
common share $ .16 $ .17 $ .15 $ .41 $ .37
Diluted net income per
common share $ .16 $ .17 $ .15 $ .41 $ .37
AT YEAR END
----------------------------------------------------------------------------------------------------------------
Working capital $ 3,344,700 $ 3,035,400 $ 2,630,200 $ 1,895,800 $ 1,746,700
Total assets 9,784,000 9,425,200 8,881,500 7,619,900 5,833,200
Long-term debt, Net 2,752,300 2,852,500 2,951,400 2,077,400 1,066,300
Stockholders' equity 5,454,400 5,106,500 4,732,200 4,403,100 3,479,300
Weighted average number
common shares outstanding 2,241,000 2,241,000 2,241,000 2,223,000 2,209,000
STATISTICAL HIGHLIGHTS
----------------------------------------------------------------------------------------------------------------
Single-family unit sales 224 206 201 219 192
Average square feet per
single-family unit 1,310 1,332 1,330 1,277 1,225
Total sq. feet of production 302,381 331,882 279,878 315,182 308,400
</TABLE>
1
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated Financial Statements of the Company, and its
subsidiaries, together with the reports of the independent auditors thereon,
are presented on pages: 3 through 20 hereof as set forth below:
Page No.
INDEPENDENT AUDITOR'S REPORT 3
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets 4
Consolidated Statements of Operations 5
Consolidated Statements of Stockholders' Equity 6
Consolidated Statements of Cash Flows 7
Notes to Financial Statements 9
2
<PAGE>
INDEPENDENT AUDITOR'S REPORT
--------------------------------------------------------------------------------
The Stockholders and Board of Directors
DYNAMIC HOMES, INC. AND SUBSIDIARIES
Detroit Lakes, Minnesota
We have audited the accompanying consolidated balance sheets of DYNAMIC HOMES,
INC. AND SUBSIDIARIES as of December 25, 1999 and December 26, 1998, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 25, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of DYNAMIC HOMES, INC.
AND SUBSIDIARIES as of December 25, 1999 and December 26, 1998, and the results
of their operations and their cash flows for each of the three years in the
period ended December 25, 1999, in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the consolidated financial statements, the Company
changed its accounting for amortization of start-up activities in 1998.
/s/ Eide Bailly LLP
Fargo, North Dakota
February 11, 2000, except for Note 18
as to which the date is November 16, 2000
3
<PAGE>
DYNAMIC HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 25, 1999 AND DECEMBER 26, 1998
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<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 931,600 $ 312,300
Receivables
Trade, less allowance for doubtful
accounts 1999 $12,300; 1998 $60,000 1,796,900 1,491,500
Refundable income taxes 14,400 --
Other 3,600 33,500
Inventories 1,875,200 2,367,200
Prepaid expenses 69,300 78,100
Deferred income taxes 127,000 143,000
------------ ------------
Total current assets 4,818,000 4,425,600
OTHER ASSETS, net of accumulated amortization 408,600 421,300
PROPERTY AND EQUIPMENT, net of accumulated
depreciation 4,557,400 4,578,300
------------ ------------
$ 9,784,000 $ 9,425,200
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 268,100 $ 196,900
Accounts payable 346,800 350,000
Customer deposits 127,000 199,500
Accrued expenses 731,400 638,900
Income taxes payable -- 4,900
------------ ------------
Total current liabilities 1,473,300 1,390,200
------------ ------------
LONG-TERM DEBT, less current maturities 2,752,300 2,852,500
------------ ------------
DEFERRED INCOME TAXES 104,000 76,000
------------ ------------
STOCKHOLDERS' EQUITY
Common stock, par value $.10 per share
Authorized, 5,000,000 shares
Issued, 2,284,000 shares in 1999 and 1998 228,400 228,400
Additional paid-in capital 147,100 147,100
Retained earnings 5,223,000 4,875,100
------------ ------------
5,598,500 5,250,600
Less treasury stock, at cost (43,080 shares) (144,100) (144,100)
------------ ------------
5,454,400 5,106,500
------------ ------------
$ 9,784,000 $ 9,425,200
============ ============
</TABLE>
See Notes to Consolidated Financial Statements 4
<PAGE>
DYNAMIC HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 25, 1999, DECEMBER 26, 1998, AND DECEMBER 27, 1997
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
SALES $ 13,158,900 $ 11,969,000 $ 11,236,600
COST OF SALES 10,769,900 9,556,500 9,052,700
------------ ------------ ------------
GROSS PROFIT 2,389,000 2,412,500 2,183,900
OPERATING EXPENSES 1,644,700 1,458,300 1,340,900
------------ ------------ ------------
INCOME FROM OPERATIONS 744,300 954,200 843,000
OTHER INCOME (EXPENSES)
Interest expense (125,500) (121,900) (89,400)
Interest income and service charges 39,700 47,100 28,900
Gain (loss) on sale of equipment 8,000 19,400 (8,700)
Other, net 63,500 29,300 2,200
------------ ------------ ------------
INCOME BEFORE INCOME TAXES 730,000 928,100 776,000
INCOME TAXES 298,000 344,900 315,000
------------ ------------ ------------
INCOME FROM CONTINUING OPERATIONS 432,000 583,200 461,000
DISCONTINUED OPERATIONS
Loss from operations of discontinued subsidiary,
Shagawa Resort, Inc., net of income tax benefit (84,100) (115,300) (131,900)
Cumulative effect of accounting change, net of
income tax -- (93,600) --
------------ ------------ ------------
NET INCOME $ 347,900 $ 374,300 $ 329,100
============ ============ ============
BASIC INCOME PER COMMON SHARE
Income from continuing operations $ 0.19 $ 0.26 $ 0.21
Discontinued operations:
Loss from operations of discontinued subsidiary (0.03) (0.05) (0.06)
Cumulative effect of accounting change -- (0.04) --
------------ ------------ ------------
Net income $ 0.16 $ 0.17 $ 0.15
============ ============ ============
DILUTED INCOME PER COMMON SHARE
Income from continuing operations $ 0.19 $ 0.26 $ 0.21
Discontinued operations:
Loss from operations of discontinued subsidiary (0.03) (0.05) (0.06)
Cumulative effect of accounting change -- (0.04) --
------------ ------------ ------------
Net income $ 0.16 $ 0.17 $ 0.15
============ ============ ============
PRO FORMA AMOUNTS ASSUMING RETROACTIVE
APPLICATION OF ACCOUNTING CHANGE
Net income $ 523,900 $ 370,100
Basic income per common share 0.23 0.17
Diluted income per common share 0.23 0.17
============ ============
</TABLE>
See Notes to Consolidated Financial Statements 5
<PAGE>
DYNAMIC HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 25, 1999, DECEMBER 26, 1998, AND DECEMBER 27, 1997
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock Additional
---------------------------- Paid-in Retained Treasury
Shares Amount Capital Earnings Stock Total
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 28, 1996 2,284,000 $ 228,400 $ 147,100 $ 4,171,700 $ (144,100) $ 4,403,100
Net income -- -- -- 329,100 -- 329,100
------------ ------------ ------------ ------------ ------------ ------------
BALANCE, DECEMBER 27, 1997 2,284,000 228,400 147,100 4,500,800 (144,100) 4,732,200
Net income -- -- -- 374,300 -- 374,300
------------ ------------ ------------ ------------ ------------ ------------
BALANCE, DECEMBER 26, 1998 2,284,000 228,400 147,100 4,875,100 (144,100) 5,106,500
Net income -- -- -- 347,900 -- 347,900
------------ ------------ ------------ ------------ ------------ ------------
BALANCE, DECEMBER 25, 1999 2,284,000 $ 228,400 $ 147,100 $ 5,223,000 $ (144,100) $ 5,454,400
============ ============ ============ ============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements 6
<PAGE>
DYNAMIC HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 25, 1999, DECEMBER 26, 1998, AND DECEMBER 27, 1997
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 347,900 $ 374,300 $ 329,100
Charges and credits to net income
not affecting cash
Depreciation 466,200 430,100 376,400
Amortization 30,300 22,900 59,400
(Gain) loss on sale of equipment (8,000) (19,400) 8,700
Deferred income taxes 44,000 (48,000) 42,000
Cumulative effect of accounting change -- 149,600 --
Changes in assets and liabilities
Receivables (275,500) (778,700) (60,500)
Inventories 492,000 (878,900) 107,000
Prepaid expenses 8,800 (30,700) (18,200)
Accounts payable (3,200) 89,000 44,900
Customer deposits (72,500) 22,400 (148,700)
Accrued expenses 92,500 113,300 69,200
Income taxes (19,300) 42,500 4,200
------------ ------------ ------------
NET CASH FROM (USED FOR) OPERATING
ACTIVITIES 1,103,200 (511,600) 813,500
------------ ------------ ------------
INVESTING ACTIVITIES
Proceeds from sale of equipment 8,000 34,100 13,000
Payments for other assets (17,600) (64,100) (187,200)
Purchase of property and equipment (445,300) (353,500) (653,500)
------------ ------------ ------------
NET CASH USED FOR INVESTING ACTIVITIES (454,900) (383,500) (827,700)
------------ ------------ ------------
FINANCING ACTIVITIES
Principal payments on long-term debt (222,000) (171,700) (210,400)
Proceeds from long-term debt borrowings 193,000 49,600 1,000,000
------------ ------------ ------------
NET CASH FROM (USED FOR) FINANCING
ACTIVITIES (29,000) (122,100) 789,600
------------ ------------ ------------
NET CHANGE IN CASH AND CASH
EQUIVALENTS 619,300 (1,017,200) 775,400
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 312,300 1,329,500 554,100
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 931,600 $ 312,300 $ 1,329,500
============ ============ ============
</TABLE>
(continued on next page) 7
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS- PAGE - 2
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash payments for
Income taxes, net of refunds $ 217,300 $ 217,500 $ 180,800
Interest 267,800 254,700 232,000
============ ============ ============
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Capital lease obligation incurred
for use of new equipment $ 65,900 $ 69,000
============ ============
Contract for deed incurred for purchase of land $ 62,500
============
Purchase of assets, net of liabilities assumed, of
Holiday Inn Sunspree Resort:
Fair value of assets acquired $ 156,900
Liabilities assumed (104,300)
------------
Cash paid $ 52,600
============
</TABLE>
See Notes to Consolidated Financial Statements 8
<PAGE>
DYNAMIC HOMES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 25, 1999, DECEMBER 26, 1998, AND DECEMBER 27, 1997
--------------------------------------------------------------------------------
NOTE 1 - PRINCIPAL ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Dynamic Homes,
Inc., its wholly-owned subsidiary, Shagawa Resort, Inc., and three additional
wholly-owned subsidiaries which had no significant operations during 1999, 1998,
and 1997. All significant intercompany accounts and transactions have been
eliminated.
PRINCIPAL BUSINESS ACTIVITY
Dynamic Homes, Inc. manufactures modular, preconstructed buildings for
single-family, multiple-family and commercial use. Commercial operations include
the manufacture of preconstructed office buildings, motels and apartments.
Shagawa Resort, Inc. (a wholly-owned subsidiary) owns a hotel/resort which
opened in May 1996. The resort was managed by an unrelated party through a
management agreement with the Company through March 1997, at which time
management of the resort was assumed by the Company.
CONCENTRATIONS OF CREDIT RISK
In the normal course of business the Company extends credit to its customers.
The Company performs periodic credit evaluations of its customers' financial
condition and generally does not require collateral. Accounts receivable are
primarily due from customers in the Upper Midwest and are not concentrated in a
particular industry.
The Company's cash balances are maintained in several bank deposit accounts.
Periodically, balances in these accounts are in excess of federally insured
limits.
ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
INVENTORIES
Inventories are stated at the lower of cost (standard cost, which approximates
average cost) or market. Cost of work in process and finished goods inventories
includes materials, labor and factory overhead.
REVENUE RECOGNITION
Sales of Dynamic Homes, Inc. including transportation revenues, are recognized
and recorded upon delivery of the finished product. Sales of Shagawa Resort,
Inc. are recognized and recorded upon delivery of service.
(continued on next page) 9
<PAGE>
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost, including the cost of capitalized
leased assets. Depreciation of property and equipment is computed using the
straight-line method over the following estimated useful lives:
Land improvements 7-20 years
Buildings 15-39 years
Machinery and equipment 3-10 years
Capitalized leases 7-10 years
Amortization of the capitalized leased assets is included with depreciation.
CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with a maturity of
three months or less to be cash equivalents.
FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents and accounts receivable
approximate fair value because of the short maturity of these instruments.
The fair value of long-term debt is estimated based on borrowing rates currently
available to the Company for bank loans with similar items and average
maturities. The carrying amount of long-term debt approximates the estimated
fair value at December 25, 1999 and December 26, 1998.
AMORTIZATION
Included in other assets are costs associated with obtaining financing which are
being amortized on the straight-line basis over the life of the loans. Also
included in other assets is goodwill related to the acquisition of Shagawa
Resort, Inc., which is being amortized on the straight-line method over its
estimated useful life.
During 1998, the Company adopted the provisions of Statement of Position 98-5,
"Reporting on the Costs of Start-up Activities', which requires companies to
expense the cost of start-up activities as incurred. In accordance with the
provisions of the statement, unamortized amounts of previously capitalized costs
have been charged to operations as of the beginning of the year in which the
statement was adopted. The provisions of the statement required implementation
for years beginning after December 15, 1998, however, the Company elected to
adopt the statement early.
INCOME TAXES
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes
related primarily to differences between the basis of receivables, property and
equipment, other assets, and accrued expenses, 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 or settled.
(continued on next page) 10
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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ADVERTISING COSTS
Costs incurred for producing and distributing advertising are expensed as
incurred. The Company incurred advertising costs of $157,100 in 1999, $188,300
in 1998, and $148,000 in 1997.
FISCAL YEAR
The reporting period for the Company ends on the last Saturday of December each
year, with the exception of Shagawa Resort, Inc. which has a reporting year
ending on December 31. The year ended December 25, 1999 contained 52 weeks, the
year ended December 26, 1998 contained 52 weeks, and the year ended December 27,
1997 contained 52 weeks.
INCOME PER COMMON SHARE
Basic income per common share is computed by dividing net income by the weighted
average number of common shares outstanding during each year. Weighted average
outstanding common shares were 2,241,000 in 1999, 1998, and 1997.
Diluted income per common share is computed by dividing net income by the
weighted average number of common shares outstanding during the year plus the
incremental shares that are outstanding upon the exercise of dilutive stock
options.
During 1997, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 128, "Earnings Per Share", which requires companies to
present basic earnings per share and diluted earnings per share, instead of
primary earnings per share and fully diluted earnings per share as previously
required.
NOTE 2 - INVENTORIES
1999 1998
------------ ------------
Raw materials $ 853,500 $ 832,000
Work in process 135,100 155,600
Finished goods 886,600 1,379,600
------------ ------------
$ 1,875,200 $ 2,367,200
============ ============
(continued on next page) 11
<PAGE>
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 3 - OTHER ASSETS
1999 1998
------------ ------------
Capitalized debt expense $ 221,700 $ 218,900
Goodwill 119,400 119,400
Replacement reserve account 104,000 100,800
Other 43,700 22,400
------------ ------------
488,800 461,500
Less accumulated amortization (80,200) (40,200)
------------ ------------
$ 408,600 $ 421,300
============ ============
NOTE 4 - PROPERTY AND EQUIPMENT
1999 1998
------------ ------------
Land and improvements $ 426,100 $ 401,500
Buildings 3,756,800 3,700,100
Machinery and equipment 2,932,900 2,660,200
------------ ------------
7,115,800 6,761,800
Less accumulated depreciation (2,558,400) (2,183,500)
------------ ------------
$ 4,557,400 $ 4,578,300
============ ============
NOTE 5 - LEASES
The Company leases equipment under long-term capital lease agreements. The lease
agreements provide for varying monthly payments through July 2003.
1999 1998
------------ ------------
Capitalized leased assets consist of:
Equipment $ 393,100 $ 393,100
Less accumulated amortization (165,800) (109,700)
------------ ------------
$ 227,300 $ 283,400
============ ============
(continued on next page) 12
<PAGE>
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Minimum lease payments for the capital leases in future years are as follows:
Years Ending December
-----------------------
2000 $ 80,500
2001 142,300
2002 41,900
2003 22,700
------------
Total minimum lease payments 287,400
Less interest (48,600)
------------
Present value of minimum lease
payments - Note 6 $ 238,800
============
NOTE 6 - NOTE PAYABLE AND LONG-TERM DEBT
The Company has available a line of credit which is secured by inventories and
receivables. The credit available is based on specified percentages of
inventories and receivables to a maximum of $1,500,000. As of December 25, 1999
and December 26, 1998, there were no borrowings outstanding under the line of
credit. Borrowings under the line of credit bear interest at a variable rate
(8.5% at December 25, 1999) and there are no compensating balance requirements.
Long-term debt consists of:
1999 1998
----------- -----------
Variable rate note payable (8.75% at December
25, 1999), due in monthly installments of
$8,200, including interest, to September
2006, when the remaining balance is due,
secured by substantially all assets of
Shagawa Resort, Inc. $ 861,900 $ 882,900
7.32% note payable, due in monthly installments
of $7,556, including interest, until August
2016, secured by substantially all assets of
Shagawa Resort, Inc., and a partial guarantee
of the Small Business Administration 869,500 895,500
8.25% note payable, due in monthly installments
of $6,000, including interest, to March 2002,
at which time the balance is due, secured by
real estate and equipment 551,100 576,500
Capitalized lease obligations, secured by leased
assets - Note 5 238,800 291,800
(continued on next page) 13
<PAGE>
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
8.25% note payable, due in monthly installments
of $1,819, including interest, to April 2002,
when the remaining balance is due, secured
by second mortgage on building 169,200 176,800
8.5% note payable, due in monthly installments
of $3,302, including interest, to June 2003,
secured by transportation equipment 122,000 --
8% note payable, due in varying monthly
installments, including interest, to March
2002, secured by equipment 96,700 136,900
6.5% contract for deed, due in annual installments
of $10,500, plus interest, to August 2001,
with a final payment of $15,500, plus interest,
due August 2002, secured by land 36,500 47,000
8.25% note payable, due in monthly installments
of $1,892, including interest, to June 2001,
secured by computer equipment 33,600 --
4.9% note payable, due in monthly installments of
$1,479, including interest, to June 2001,
secured by equipment 25,700 41,800
Other 15,400 200
----------- -----------
3,020,400 3,049,400
Less current maturities (268,100) (196,900)
----------- -----------
$ 2,752,300 $ 2,852,500
=========== ===========
Long-term debt maturities are as follows:
Years Ending December
-----------------------
2000 $ 268,100
2001 332,100
2002 802,200
2003 110,200
2004 72,800
Thereafter 1,435,000
-----------
$ 3,020,400
===========
(continued on next page) 14
<PAGE>
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 7 - CUSTOMER DEPOSITS
Customer deposits of $127,000 at December 25, 1999 and $199,500 at December 26,
1998 consisted of advance payments from customers for sales to be recognized in
the following year. Sales to be recognized in 2000 related to customer deposits
at December 25, 1999 are estimated to be $1,645,000.
NOTE 8 - ACCRUED EXPENSES
1999 1998
------------ ------------
Salaries, wages and vacations $ 259,700 $ 259,500
Taxes, other than income taxes 125,300 97,300
Warranty 75,700 72,300
Other 270,700 209,800
------------ ------------
$ 731,400 $ 638,900
============ ============
NOTE 9 - STOCK OPTION PLAN
The Company approved a stock option plan in 1996, authorizing the use of 400,000
shares for the plan. During 1996, 240,000 options were granted; 200,000 to
officers and directors at $2.3125 per share and 40,000 shares to various
employees at $2.1562 per share. No options were exercised during 1999, 1998, or
1997, however during 1997, 25,000 of options to officers and 10,000 of options
to employees were forfeited as a result of the respective individuals'
separation from the Company. Compensation cost related to the options granted in
1996 had no effect on net income or income per share.
The fair value of each option grant was estimated on the date of grant in 1996
using the Black-Scholes option pricing model with the following weighted-average
options: a risk-free interest rate of 6.5 percent, expected volatility of 28.77
percent, and no dividend yield. The assumption regarding the stock options
issued to officers, directors, and employees in 1996 was that 100 percent of
such options vested in 1996.
NOTE 10 - SALES
1999 1998 1997
------------ ------------ ------------
Dynamic Homes, Inc.
Single-family $ 10,904,300 $ 9,924,800 $ 9,681,600
Multi-family/commercial 1,109,000 989,300 617,300
Transportation 703,200 645,000 568,400
Other 442,400 409,900 369,300
------------ ------------ ------------
13,158,900 11,969,000 11,236,600
Shagawa Resort, Inc.,
discontinued subsidiary 2,050,700 1,936,300 1,622,400
------------ ------------ ------------
$ 15,209,600 $ 13,905,300 $ 12,859,000
============ ============ ============
(continued on next page) 15
<PAGE>
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 11 - COST OF SALES
1999 1998 1997
------------ ------------ ------------
Dynamic Homes, Inc.
Single-family $ 7,076,000 $ 6,261,600 $ 5,965,000
Multi-family/commercial 1,088,100 1,073,300 1,001,600
Transportation 1,643,400 1,358,500 1,336,200
Other 962,400 863,100 749,900
------------ ------------ ------------
10,769,900 9,556,500 9,052,700
Shagawa Resort, Inc.,
discontinued subsidiary 1,128,400 1,098,100 951,900
------------ ------------ ------------
$ 11,898,300 $ 10,654,600 $ 10,004,600
============ ============ ============
NOTE 12 - OPERATING EXPENSES
1999 1998 1997
------------ ------------ ------------
Dynamic Homes, Inc.
Marketing $ 619,300 $ 534,900 $ 462,300
Administration 1,025,400 923,400 878,600
------------ ------------ ------------
1,644,700 1,458,300 1,340,900
------------ ------------ ------------
Shagawa Resort, Inc.
Marketing 77,400 68,000 75,100
Administration 846,200 817,700 724,000
------------ ------------ ------------
923,600 885,700 799,100
------------ ------------ ------------
$ 2,568,300 $ 2,344,000 $ 2,140,000
============ ============ ============
NOTE 13 - INCOME TAXES
Net deferred tax assets and liabilities consist of the following components as
of December 25, 1999 and December 26, 1998:
1999 1998
------------ ------------
Deferred tax assets
Receivable allowances $ 5,000 $ 24,000
Book/tax inventory adjustment 26,000 30,000
Intangible and other assets 32,000 53,000
Accrued expenses 96,000 89,000
------------ ------------
$ 159,000 $ 196,000
============ ============
Deferred tax liabilities
Property and equipment $ 136,000 $ 129,000
============ ============
(continued on next page) 16
<PAGE>
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
The deferred tax amounts described above have been included in the accompanying
balance sheets as of December 25, 1999 and December 26, 1998:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Current assets $ 127,000 $ 143,000
Noncurrent liabilities (104,000) (76,000)
------------ ------------
$ 23,000 $ 67,000
============ ============
</TABLE>
The provision for income taxes charged to operations for the years ended
December 25, 1999, December 26, 1998, and December 27, 1997, consists of the
following:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Current expense
Continuing operations $ 254,000 $ 392,900 $ 273,000
Discontinued operations (56,000) (76,900) (88,000)
Cumulative effect of accounting change -- (56,000) --
Deferred tax expense (benefit) 44,000 (48,000) 42,000
------------ ------------ ------------
$ 242,000 $ 212,000 $ 227,000
============ ============ ============
</TABLE>
The income tax provision differs from the amount of income tax determined by
applying the U.S. federal income tax rate to pretax income for the years ended
December 25, 1999, December 26, 1998, and December 27, 1997 due to the
following:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Income tax computed at federal
statutory rates $ 201,000 $ 199,000 $ 189,000
State taxes, net of federal
tax benefit 35,000 35,000 33,000
Change in income taxes resulting
from non-deductible expenses 6,000 (22,000) 5,000
------------ ------------ ------------
$ 242,000 $ 212,000 $ 227,000
============ ============ ============
</TABLE>
NOTE 14 - RELATED PARTY TRANSACTIONS
The Company had sales totaling approximately $2,001,300 in 1999, $868,000 in
1998, and $633,900 in 1997 to members of the board of directors and entities
owned by Board members. At December 25, 1999 and December 26, 1998, the Company
had accounts receivable of $229,000 and $115,100, respectively, relating to
these sales.
(continued on next page) 17
<PAGE>
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 15 - MAJOR CUSTOMER
Dynamic Homes, Inc. and Subsidiaries derived approximately 10 percent of its
revenue from one customer during the year ended December 25, 1999, 15 percent of
its revenue from one customer during the year ended December 26, 1998; and 12
percent of its revenue from one customer during the year ended December 27,
1997.
NOTE 16 - EMPLOYEE BENEFIT PLAN
The Company has a qualified 401(k) plan which covers all employees who meet
eligibility requirements of being actively employed at year end. Under the terms
of the plan, employees may contribute 1 percent to 5 percent of their annual
salary, up to the maximum allowed by Internal Revenue Service regulations. The
Company's contribution to the plan, as determined by the board of directors, is
discretionary but may not exceed 100 percent of the employees' contribution. The
Company contributed $9,700 to the plan for the year ended December 25, 1999,
$8,100 to the plan for the year ended December 26, 1998, and $7,000 for the year
ended December 27, 1997.
NOTE 17 - BUSINESS SEGMENTS
The Company operates in two business segments: Dynamic Homes, Inc, which
manufactures modular, pre-constructed buildings; and Shagawa Resort, Inc., which
owns and operates a hotel/resort in northern Minnesota.
Information concerning the operations, net of eliminations, in these business
segments as of December 25, 1999, December 26, 1998, and December 27, 1997 are
as follows:
<TABLE>
<CAPTION>
Dynamic Shagawa
Homes, Inc. Resort, Inc. Consolidated
------------ ------------ ------------
<S> <C> <C> <C>
Year ended December 25, 1999:
Sales $ 13,158,900 $ 2,050,700 $ 15,209,600
Gross profit 2,389,000 922,300 3,311,300
Income (loss) from operations 744,300 (1,200) 743,100
Interest expense 125,500 141,900 267,400
Net income (loss) 432,000 (84,100) 347,900
Depreciation 298,900 167,300 466,200
Amortization 5,000 25,300 30,300
Total assets 6,644,500 3,139,500 9,784,000
Capital expenditures, including
capital lease obligations 417,600 27,700 445,300
</TABLE>
(continued on next page) 18
<PAGE>
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Dynamic Shagawa
Homes, Inc. Resort, Inc. Consolidated
------------ ------------ ------------
<S> <C> <C> <C>
Year ended December 26, 1998:
Sales $ 11,969,000 $ 1,936,300 $ 13,905,300
Gross profit 2,412,500 838,200 3,250,700
Income (loss) from operations 954,200 (47,500) 906,700
Interest expense 121,900 147,200 269,100
Net income (loss) before cumulative
effect of accounting change 583,200 (115,300) 467,900
Depreciation 266,900 163,200 430,100
Amortization 5,100 17,800 22,900
Total assets 6,124,100 3,301,100 9,425,200
Capital expenditures, including
capital lease obligations 365,500 53,900 419,400
Year ended December 27, 1997:
Sales $ 11,236,600 $ 1,622,400 $ 12,859,000
Gross profit 2,183,900 670,600 2,854,500
Income (loss) from operations 843,000 (128,500) 714,500
Interest expense 89,400 147,900 237,300
Net income (loss) 461,000 (131,900) 329,100
Depreciation 220,600 155,800 376,400
Amortization 5,300 54,100 59,400
Total assets 5,363,400 3,518,100 8,881,500
Capital expenditures, including
capital lease obligations 646,300 76,200 722,500
</TABLE>
(continued on next page) 19
<PAGE>
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 18 - DISCONTINUED OPERATIONS
In May 2000, the Company completed the sale of its wholly-owned subsidiary,
Shagawa Resort, Inc., for which the Company has recorded a loss of approximately
$516,000. As a result of this transaction, the results of operations of Shagawa
Resort, Inc. have been classified as discontinued operations and operating
results for the years ended December 25, 1999, December 26, 1998 and December
27, 1997 have been restated.
Condensed operating results and balance sheets for the discontinued operation
are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
OPERATIONS
Sales $ 2,050,700 $ 1,936,300 $ 1,622,400
Cost of sales and expenses 2,052,000 1,983,800 1,751,000
------------ ------------ ------------
Operating loss (1,300) (47,500) (128,600)
Other income (expense) (138,800) (144,700) (91,300)
------------ ------------ ------------
Loss before income taxes (140,100) (192,200) (219,900)
Income tax benefit 56,000 76,900 88,000
------------ ------------ ------------
Net loss $ (84,100) $ (115,300) $ (131,900)
============ ============ ============
BALANCE SHEETS
Current assets $ 135,600 $ 135,600
Noncurrent assets 3,003,900 3,165,600
------------ ------------
$ 3,139,500 $ 3,301,200
============ ============
Current liabilities $ 1,444,900 $ 1,413,900
Noncurrent liabilities 1,681,600 1,734,400
Stockholders' equity 13,000 152,900
------------ ------------
$ 3,139,500 $ 3,301,200
============ ============
</TABLE>
20
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) 1. FINANCIAL STATEMENTS - Included in Part II, Item 8
Page
----
Independent Auditor's Report 18
Consolidated Balance Sheets at December 25, 1999
and December 26, 1998 19
Consolidated Statements of Operations for the years
ended December 25, 1999, December 26, 1998
and December 27, 1997 20
Consolidated Statements of Stockholders' Equity for
the years ended December 25, 1999, December
26, 1998 and December 27, 1997 21
Consolidated Statements of Cash flows for the years
ended December 25, 1999, December 26, 1998
and December 27, 1997 22-23
Notes to Consolidated Financial Statements 24
2. FINANCIAL STATEMENT SCHEDULE - Included in Part IV
Schedule V - Property and Equipment(1) 39
Schedule VI - Accumulated Depreciation of Property
and Equipment(1) 40
Schedule VIII - Valuation and Qualifying Accounts(1) 41
Schedule IX - Short-term Borrowings(1) 42
Schedule X - Supplementary Income Statement
Information(1) 43
Other schedules are omitted because of the absence of conditions under
which they are required or because the required information is given in
the financial statements or notes thereto.
(1) Documents incorporated by reference to Form 10-K as filed for the year
ended 1999.
(Balance of page left intentionally blank)
21
<PAGE>
3. EXHIBITS:
(3) Articles of Incorporation and Bylaws incorporated by reference
to Form 10-K as filed for the year ended December 27, 1986.**
(13) Annual Report to Security Holders.**
(21) Subsidiaries of Dynamic Homes, Inc.:
21.1 Dynamic Homes of Fargo/Moorhead, Inc. - Inactive
21.2 Dynamic Homes of Dakota, Inc. - Inactive
21.3 Rapid Building Systems, Inc. - Inactive
21.4 Shagawa Resort, Inc.
** - Omitted
(B) REPORTS ON FORM 8-K:
No reports on Form 8-K have been filed by the registrant
during the last quarter of the period covered by this report.
(Balance of page left intentionally blank)
22
<PAGE>
SIGNATURES:
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities on the dates indicated.
/s/ Scott D. Lindemann /s/ Israel Mirviss
----------------------------------- -----------------------------------
SCOTT D. LINDEMANN ISRAEL MIRVISS,
PRESIDENT, CEO CHAIRMAN OF THE BOARD
11/20/00 11/20/00
/s/ Ronald L. Gustafson /s/ Clyde R. Lund, Jr.
----------------------------------- -----------------------------------
RONALD L. GUSTAFSON, CLYDE R. LUND, JR.,
DIRECTOR SECRETARY
11/20/00 11/20/00
/s/ Peter K. Pichetti Eldon R. Matz
----------------------------------- -----------------------------------
PETER K. PICHETTI, ELDON R. MATZ,
DIRECTOR CONTROLLER & TREASURER
11/20/00 11/20/00
DATED: NOVEMBER 20, 2000
23
