FORM 10-K
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.
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(Exact name of registrant as specified in its charter)
Minnesota 41-0960127
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(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
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Common Stock, $.10 par value NASDAQ Small Cap Market
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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 - 44
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Form 10-K
Dynamic Homes, Inc.
Table of Contents
Page No.
Part I --------
Item 1 Business 3
Item 2 Properties 8
Item 3 Legal Proceedings 9
Item 4 Submission of Matters to a Vote of
Security Holders 9
Part II
Item 5 Market for the Registrants' Common
Stock and Related Stockholder Matters 10
Item 6 Selected Financial Data 10
Item 7 Management's Discussion and Analysis of
Results of Operations and Financial Condition 11
Item 8 Financial Statements and Supplementary Data 17
Part III
Item 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 35
Item 10 Directors and Executive Officers of the
Registrant 35
Item 11 Executive Compensation 35
Item 12 Security Ownership of Certain Beneficial
Owners and Management 35
Item 13 Certain Relationships and Related
Transactions 36
Part IV
Item 14 Exhibits, Financial Statement Schedules and
Reports on Form 8-K 37-38
Documents Incorporated by Reference
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PART I
ITEM 1. BUSINESS
GENERAL
Dynamic Homes, Inc. (a Minnesota Corporation) was founded in 1970
and is headquartered in Detroit Lakes, Minnesota. Dynamic Homes, Inc.
(hereinafter together with its subsidiaries, unless the context requires
otherwise, referred to as the "Company") manufactures and markets modular,
preconstructed single-family and multi-family homes and light commercial
buildings in the upper Midwest region of the United States. Auxiliary products
include garages, wood basements and retail sales. During 1995, the Company
purchased all the stock of Shagawa Resort, Inc., a hotel/resort located in Ely,
Minnesota. In conjunction with the stock purchase, the Company also entered into
a management agreement for the operation of the hotel/resort which commenced
operations in May 1996. During March 1997, the management agreement was
terminated and the Company assumed both ownership and operational activities for
the facility.
PRODUCTS
The Company's principal product at its manufacturing facility is
single-family modular homes. Single-family homes currently produced by the
Company are offered in a number of standard designs with various options and
floor plan variations. Even though the Company has standardized plans, the
majority of single-family homes are customized to individual preferences.
Approximately 90-95 percent of single-family units sold are custom built.
Standard models include split entry, rambler, split level, one and
two story homes ranging in size from approximately 864 square feet to
approximately 2,268 square feet of living space. Standard features include 2x6
inch (R-19 insulated) exterior walls, R-44 roof insulation, eight foot ceiling
height, sheetrocked, taped and textured, primed interior walls, cabinets,
finished interior doors and trim, plumbing fixtures, 200 amp electrical service
with all upper level wiring completed, shelving and windows. In addition, the
customers may also choose from available options such as floor coverings,
siding, lighting, roof pitches, vaulted ceilings, dormers and appliances.
As well as its principal single-family modular homes, the Company
produces and markets modular multi-family units ranging in size from
approximately 600 square feet to 1,700 square feet per living unit. During 1999,
the Company's multi-family sales accounted for approximately 6 percent of unit
revenues. During 1998 and 1997, the Company's multi-family segment accounted for
approximately 8 percent and 4 percent of revenues, respectively.
The Company also produces light commercial products including small
offices, motels and other buildings requiring special design. Commercial sales
activity accounted for 2 percent of unit revenues during 1999 and less than 1
percent of 1997 and 1998 unit revenues.
The Company also produces and markets panelized garages and wood
foundations to complement its modular homes. During 1999, these auxiliary
products accounted for approximately 4 percent of total unit revenues, as
compared to 4 percent for 1998 and 3 percent for 1997. In addition, the Company
provides its customers with the opportunity to purchase materials at retail.
Revenues associated with retail sales approximate 3 to 4 percent annually.
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The Company manufactures its products in modular form on an assembly
line basis. Each module is constructed of wood frame and sheathing into which
complete wiring and plumbing are installed. The module is insulated with
fiberglass and blown cellulose insulation and finished with interior sheetrock,
wall covering, windows and shingled roof. Electrical fixtures, kitchen cabinets,
interior doors and trim and appliances are installed during the final phases of
the assembly process.
The modules are transported to the building site and set by the
Company's employees and equipment upon foundations prepared by
factory-authorized builder/dealers and/or contractors. In some cases, distance,
site conditions, and module configurations may require the leasing of equipment
to assist in the setting process.
Shagawa Resort, Inc. d.b.a.: Holiday Sunspree Resort is associated
with the hospitality industry. The resort/motel consists of 61 units on
approximately 12.2 acres of land located in Ely, Minnesota and adjacent to
Shagawa Lake. The facility offers its services to the general public but
specializes as a leisure/vacation destination. The facility offers a wide range
of amenities and services such as restaurants, lounge, meeting rooms, easy
access to local attractions and a diversity of winter and summer recreational
activities.
MARKETING
The Company markets its products within the states of Iowa,
Minnesota, Nebraska, North Dakota, South Dakota and Wisconsin principally
through a network of approximately 53 independent factory authorized
builder/dealers.
The builder/dealers operate in nonexclusive territories and purchase
the Company's products based on dealer price lists for a nominal down payment
with the balance due within 5 working days after setting upon the foundation.
The builder/dealers sell to the ultimate purchaser and may, in
addition, contract with the purchaser for site preparation including foundation
work and for finishing work which must be performed after delivery and erection
of the Company's products. These additional functions are performed
independently of the builder/dealers' relationship with the Company.
The Company has no suggested retail prices for its products to the
ultimate consumer. The builder/dealer realizes as profit the difference between
what is paid the Company, other suppliers and contractors and the payment(s)
received from the purchaser. During 1999, the Company derived approximately 10
percent of its revenues from one customer. During 1998, the Company derived
approximately 15 percent of its revenues from one customer and in 1997, the
Company realized approximately 12 percent of its revenues from one customer.
Sales to customers accounting for more than 10 percent of revenues usually are
of a non-repetitive nature. As a result, the Company does not expect to be
dependent upon the same customers on a year-to-year basis for a significant
portion of future revenues.
In addition to the builder/dealer network, the Company may also
market its products through contractors or developers. Developers operate in
nonexclusive territories and purchase products based on contractual
arrangements. These contractual arrangements may vary from a single-phase
project to a multi-phased project built and delivered over an extended time
interval.
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Shagawa Resort, Inc. markets its services through various
recreational/vacation related shows and publications primarily targeting the
population centers of Minnesota, Wisconsin and Iowa. In addition, the facility
is a member of the Holiday Inns - Holidex Reservation System that administers a
computerized reservation network service.
COMPETITION
There is substantial competition within the Company's market area.
The Company competes in the housing market with other modular and panelized
manufacturers, tract home developers, mobile home manufacturers and traditional
on-site builders of single and multi-family/commercial units.
The Company has several direct competitors marketing modular and
panelized units within its market area. Some of these competitors have
substantially greater assets and gross annual sales than the Company.
Transportation costs significantly increase the cost of housing
units sold by the Company beyond a four hundred-mile radius from its
manufacturing facility. General pricing in the housing market throughout the
United States is sufficiently competitive to somewhat limit the Company's
ability to compete in some areas outside this radius. While this may provide the
Company with some competitive advantage within its immediate market area, it
makes competition outside its market more difficult. The majority of the
Company's sales are concentrated within a two hundred fifty-mile radius of its
manufacturing facility.
The Company competes principally on the basis of quality and design
of product, material, craftsmanship, delivery and service.
Shagawa Resort, Inc. has several competitors within its immediate
market location. The hotel/resort facility competes principally on the basis of
service, amenities and location.
MATERIALS
The principal materials used by the Company in the manufacture of
its products are processed lumber, finished cabinets, floor coverings, windows
and doors, sheetrock, insulation and shingles. Currently, the Company is not
experiencing any difficulty in obtaining adequate supplies of raw materials from
current suppliers and does not anticipate any immediate difficulty in obtaining
adequate supplies. During 1999 and 1997 prices for wood building products
experienced some volatility with average price levels slightly higher than
anticipated. However, during 1998 prices for wood building products remained
relatively stable. The Company monitors its material costs on an on-going basis
and during periods of escalating material costs may impose a temporary surcharge
to prevent the erosion of its profit margin. The Company may periodically adjust
the surcharge level to correlate with the on-going fluctuations in material
costs. While no surcharges were implemented during 1998 or 1997, the volatility
of material costs in 1999 required the company to impose surcharges three times
during the year. Future strong demand for wood and related building products may
not only again support higher price levels but could also decrease availability
through longer lead times and product allocations.
Major raw components are available to the Company from several
vendors, and the Company is not dependent upon any one of these vendors for a
continuous source of supply.
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PATENTS AND TRADEMARKS
The Company's manufacturing facility neither owns nor is a licensee
of any patents, trademarks, licenses, franchises or concessions that are
material to its business. Shagawa Resort, Inc. operates under a franchise
agreement with Bass Hotels & Resorts and markets under the Holiday Inn Sunspree
Resort designation.
RESEARCH AND DEVELOPMENT
The Company has not incurred any research and development cost as
defined by generally accepted accounting principles.
GOVERNMENT REGULATIONS
Throughout the Company's market area, various state laws or local
ordinances regulate materials, equipment and design used in the construction of
housing units. The Company is unaware of any law or ordinance that precludes the
sale and erection of its homes within any governmental unit in its market area
and the Company believes its homes comply with the requirements of such laws and
ordinances. Highway regulations limit the Company's ability to transport and
deliver homes during the annual spring thaw.
No significant amount of any material is discharged by the Company
into the environment and applicable laws and regulations relating to
environmental protection do not require any capital expenditures by the Company
for environmental control facilities at either its manufacturing or hotel/resort
facility.
SEASONAL ASPECT & CURRENT ECONOMIC CONDITIONS
Due to seasonal fluctuations in the housing market, the Company
experiences fluctuations in orders. Orders tend to begin increasing during the
month of March, peak during the months of April through June, gradually diminish
through the early summer, rise again in late summer and fall and diminish again
in the winter months. In order to supplement the traditional periods of
decreased order activity, the Company offers several single-family model and
winter promotional programs and pursues multi-family/commercial projects
utilizing winter promotions and discounts.
The Company experiences seasonal increases in inventory of finished
units in the spring of each year for a period of approximately six to eight
weeks. Local regulations and road conditions restrict usage of roadways during
this season for the delivery of homes and the passage of heavy equipment
necessary for the erection of the Company's units. During the last three years,
because of seasonal fluctuations in orders, the Company determined that it was
advantageous to build some homes for inventory during the winter and early
spring months. This process reduced idle plant capacity overhead and also
provides builder/dealers with immediate product availability. The Company
produced 26 units for inventory in 1999, 28 units in 1998 and 31 units in 1997.
At the end of the year in 1999, the Company had 12 units in ending inventory
compared with 6 units at the end of both 1998 and 1997. Because of the number of
units in inventory at the end of 1999, and because of the strength of winter
program orders, the Company has limited its production of inventory units during
2000. The Company continues to rotate model/display units on its premises that
are used to illustrate construction and design capabilities for potential
customers. As of December 25, 1999, the Company had two model/display units. The
Company's intent is to have two model/display units available and replace them
as needed.
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Historically, the Company's sales volume has been affected by the
difficulty encountered by consumers obtaining mortgage funds and by fluctuating
mortgage interest rates. The Company remains alert to the potential impact of
rising home mortgage rates on home construction if the Federal Reserve Board
continues to raise short-term interest rates to combat inflationary pressures.
Uncertainty in the energy and mining industries and a general weakness in the
agricultural economy also affect the Company's sales volume as these market
segments have made strong contributions to the sales base in past years. To
combat these potential economic conditions, the Company continues to diversify
and modify the product line to meet the changing needs of both the rural and
urban market. The diversity of product availability, structural design and
flexibility, an upgraded builder/dealer network and continued emphasis on
multi-family/commercial sales should contribute to the 2000 revenue base.
However, any additional upward trends in mortgage rates and consumer uncertainty
over the course of the economy and national budgeting policy may place
limitations on potential consumers' willingness to commit to new home purchases
that would adversely affect the revenue base.
In 1999, 100 percent of all production was completed at its only
plant, located in Detroit Lakes, Minnesota. During 1999, the Company operated at
approximately 67% of its practical single-shift production capacity, as compared
with 73% for 1998 and 62% in 1997. Historically, the Company tends to realize a
significant portion of new orders during the spring and early summer months,
lengthening the production cycle and contributing to lost and delayed unit
orders. In order to alleviate this condition, the Company completed two plant
expansion projects, the last project being completed in June 1997. Annual
single-shift plant capacity is now estimated at 450,000 square feet.
Shagawa Resort, Inc. is affected by the seasonal nature of the
tourist industry and to a lesser degree by location. Revenues usually increase
beginning mid-May and continue through the Labor Day weekend when the tourist
season begins to decline. The unusually mild weather and less than ideal snow
conditions during the 1997 - 99 winter seasons, adversely impacted the resort's
performance by curtailing many of the winter sports activities that would
normally bring visitors to Northern Minnesota.
EMPLOYEES
At December 25, 1999, the number of full-time employees at the
Detroit Lakes facility totaled 88 as compared with 95 for the year ending
December 26, 1998. Of these, 5 were in management positions, 9 in supervisory
positions, 54 in manufacturing, 9 in transportation and erection, 2 in sales and
9 in drafting and clerical positions. The Company's manufacturing,
transportation and installation employees located in Detroit Lakes, Minnesota,
are represented by a labor union. The present labor union contract for Detroit
Lakes union employees became effective on March 1, 1998, and expires on February
28, 2001. The three-year contract provides for modest annual wage adjustments
and increases in the benefit package.
Shagawa Resort, Inc. has a full-time staff of 29 employees. The
classification of employees consists of 5 management positions, 5 supervisory
employees, 7 clerical and front-desk positions and 12 service employees. In
addition, the hotel/resort facility may employ upwards to 12 seasonal employees
during the summer tourist season.
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ITEM 2. PROPERTIES
(A) DETROIT LAKES, MINNESOTA
The Company's general business office and main manufacturing
facility is located at 525 Roosevelt Avenue, Detroit Lakes, Minnesota. This
facility consists of eight buildings comprising approximately 119,900 square
feet utilized as follows: production 72,300, warehouse storage and shop 39,900
and offices 7,700. In 1994, the Company expanded the manufacturing facility by
15,000 square feet that increased additional available plant capacity by
approximately 20 - 25%. During the latter stages of 1996, the Company commenced
with an additional 17,000 square foot plant expansion project which was
completed in June, 1997, and increased available single-shift plant capacity by
approximately15 percent. The restructuring and addition of long-term debt funded
the plant expansion. The buildings are situated upon a 27-acre tract of land
that was leased from the City of Detroit Lakes, Minnesota. The lease was
coterminous with industrial revenue bonds issued in April 1973, by the City of
Detroit Lakes in principal amount of $435,000. The Company was given the option
of purchasing this property at any time by paying to the city and the trustee an
amount that is sufficient to discharge the then outstanding bonds. The Company
exercised its option to retire all outstanding Industrial Development Revenue
Bonds on April 1, 1997, obtaining title to said property which was used to
provide collateral for the restructured long-term debt in support of the plant
expansion project. This plant facility currently has the annual single-shift
capacity to produce approximately 450,000 square feet of product. Land not
occupied by buildings is used for storing raw and finished materials.
(B) SHAGAWA RESORT, INC. - ELY, MINNESOTA
On September 7, 1995, the Company purchased all of the outstanding
shares of Shagawa Resort, Inc., which was 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 12.2 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 that is secured by the assets of
Shagawa Resort, Inc. and a partial guarantee of the Small Business
Administration. Monthly installments of principal and interest approximate
$16,000 with a blended interest rate of approximately 8 percent (Note 6).
In conjunction with the purchase of Shagawa Resort, Inc., the
Company simultaneously entered into a Management Agreement with a managing agent
to operate and manage the hotel/resort. On March 17, 1997, the Company and the
managing agent collectively reached an Asset Purchase Agreement whereby the
Company purchased substantially all assets of the Business. Consequently,
effective March 17, 1997, the Company has assumed the management obligations and
rights associated with the Shagawa Resort, Inc. facility.
On March 20, 2000, the Company announced that it has signed a
purchase agreement for the sale of the assets of Shagawa Resort, Inc. The
purchase agreement calls for a purchase price of $2,300,000 plus the assumption
of various obligations of the resort. The sale is expected to close by May 1,
2000, subject to certain contingencies.
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ITEM 3. LEGAL PROCEEDINGS
There are no known legal proceedings pending by or against the Company that may
have a material effect on the financial position of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the fourth
quarter of the fiscal year being reported on.
(Balance of page left intentionally blank)
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The following table sets forth the high and low sales prices of the
Company's stock for the eight quarters of 1999 and 1998. As of March 13, 1995,
the Company's common stock began trading on the NASDAQ Small-Cap Market tier of
the NASDAQ Stock Market under the symbol DYHM.
1999 1998
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Quarter High Low High Low
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First $ 1 7/8 $ 1 3/8 $ 2 7/16 $ 1 3/4
Second 1 11/16 1 1/4 2 1/16 1 3/4
Third 1 11/16 1 5/16 2 1/4 1 9/16
Fourth 1 5/8 1 1/16 1 7/8 1 7/16
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As of March 14, 2000, there were approximately 377 shareholders of
record of common stock, the Company's only outstanding class of stock. The
Company does not pay cash dividends and future dividends would be paid at the
discretion of the Board of Directors and the Company's lenders.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Dec 25, Dec 26, Dec. 27, Dec. 28, Dec. 30,
YEARS ENDED 1999 1998 1997 1996 1995
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<S> <C> <C> <C> <C> <C>
Net sales $15,209,600 $13,905,300 $12,859,000 $12,172,200 $10,849,000
Gross profit 3,311,300 3,250,700 2,854,500 2,965,300 2,351,500
Operating expenses 2,568,200 2,344,000 2,140,000 1,365,000 1,041,100
Operating income 743,100 906,700 714,500 1,600,300 1,310,400
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
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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
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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>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
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 realized revenues of $13,158,900 from the manufacturing
sector for 1999, an increase of $1,189,900 or 10 percent from the $11,969,000
reported for 1998. Revenues for the 1997 period were $11,236,600. Sales of
single-family homes increased by $979,500 from $9,924,800 during 1998 to
$10,904,300 for the current year. Sales of single-family homes during 1997
totaled $9,681,600. The Company sold 224 single-family units during 1999, 206
units during 1998 and 201 units during 1997. Housing units associated with
Native American Communities approached 6 percent of total revenue for both 1999
and 1997. During 1998, Native American projects accounted for 12 percent of the
revenue base. Currently, Dynamic Homes has one contract with a Native American
Community consisting of an assisted living complex.
Sales of multi-family/commercial projects totaled $1,109,000 for
1999, up $119,700 from the 1998 total of $989,300 Multi-family/commercial
projects for 1997 were $617,300. The Company sold 21 multi-family/commercial
units in 1999, 27 units during 1998 and 18 units in l997. New construction sales
through the Company's builder/dealer network increased nearly 14% in 1999 while
single and multi-family/commercial projects associated with non-dealers
(developers) declined. As of March 10, 2000, the Company has two
multi-family/commercial projects under contract consisting of an assisted living
complex and a small resort addition.
Transportation and other (retail) sales totaled $1,145,600 for 1999
compared with $1,054,900 for 1998 and $937,700 for 1997. Transportation revenue
increased each year as did the number of units set. Other or retail sales also
improved over the last three years from $369,300 in 1997 to $409,900 in 1998 and
$442,400 for 1999.
The Company's order backlog consisting of completed units awaiting
delivery, current production and orders scheduled for future production totaled
$1,645,000 at the end of 1999 compared with $2,737,000 for 1998. As of March 1,
2000, the Company's backlog increased to $5,307,000 versus $4,964,000 at March
1, 1999. Approximately 38 percent of the 12/26/98 backlog and 20 percent of the
March 1, 1999, backlog resulted from the failure of a developer to take delivery
of completed units. However, as of 1999 year-end, only one unit remains as
unsold. The order backlog totals for each March 1 period reflect the responses
associated with the completion of winter promotional programs. The recently
completed winter promotion resulted in a 27% increase in new single-family
orders over the 1998 period. Production activities for the new orders should
benefit the Company through better utilization of available plant capacity and
improved manufacturing overhead absorption . As these units are delivered and
set, promotional related discounts will however, reduce the gross margin
percent. During the slower winter months, the Company traditionally constructs
inventory units that are available to the builder/dealer network for immediate
purchase. The Company constructed 3 inventory units during the first two months
of 2000 and 10 units during the same period of 1999. As of March 1, 2000, the
Company's finished goods inventory consisted of 41 units including 14 unsold
inventory units. As of March 1, 1999, the Company's finished goods inventory
consisted of 55 units including 16 unsold inventory units. In addition, a
significant
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portion of the March 1, 1999, finished goods inventory related to a single
customer who delayed the delivery and setting of ordered and completed units.
The Company is again beginning to encounter seasonal road restrictions that
affect the Company's ability to deliver and set units during the first two
quarters of each year.
On March 17, 1997, the Company through an asset purchase agreement,
assumed the management rights and obligations associated with the daily
operations of a hotel/resort facility d.b.a.: Holiday Inn Sunspree Resort,
located in Ely, Minnesota. Revenues associated with the hotel/resort facility
totaled $2,050,700 for 1999 versus $1,936,300 for 1998 and $1,622,400 for the
period March 17, 1997, through December 31, 1997. The increased revenue realized
during 1999 is associated with increases in both room and occupancy rates. Due
to the location and seasonal nature of the resort business, sales are
traditionally soft during the winter and early spring months but strengthen
considerably during the summer tourist season. During the past three years of
operation, mild weather conditions and the absence of sufficient snow cover
discouraged some of the winter recreational guests from using the facility.
GROSS PROFIT
Gross profit from the Company's manufacturing sector totaled
$2,389,000 in 1999 as compared with $2,412,500 for 1998 and $2,183,900 for 1997.
As a percentage of net sales, the gross profit percent decreased by 2.0% from
20.2% during 1998 to 18.2% for 1999. Gross profit percent for 1997 was 19.4%.
The 1999 gross profit percentage was adversely affected by the 1998 year-end
carry-over of inventory units and the failure of a developer to accept delivery
of completed units. The carryover units have been successfully marketed through
the builder/dealer network utilizing discount pricing. However, the availability
of these units resulted in a reduced level of single-family production during
1999 which resulted in an increased level of idle plant capacity and unfavorable
manufacturing variances. In addition, the Company also encountered escalating
material costs on several essential building components. Consequently, the
Company implemented a series of temporary surcharges to avoid additional erosion
of the gross margin percentage.
Shagawa Resort, Inc. recorded a gross profit of $922,300 or 45.0%
for the period ended December 31, 1999. During 1998 and 1997, the resort
recorded gross profits of $838,200 or 43.3% and $670,600 or 41.3%, respectively.
The increase to the gross margin percent reflects the improved occupancy rate
and an increase in the average daily room rate.
OPERATING EXPENSE
Marketing and administrative operating expenses associated with the
manufacturing facility increased from 12.2 percent of net sales for 1998 to 12.5
percent during 1999. Similar expenses in 1997 were 11.9 percent of net sales.
Marketing expenses for 1999 were 4.7 percent of net sales compared with 4.5
percent for 1998 and 4.1 percent for 1997. The 1999 increase in marketing
expenses reflects a higher level of earned incentives by several high volume
customers. Administration expenses remained constant over the three-year
period. Administration expenses were 7.8% of net sales for 1999 and 1997 and
7.7% for 1998.
Shagawa Resort, Inc. incurred 1999 operating expenses of $923,600.
Operating expenses for 1998 were $885,700 and $799,100 for the shorter 1997
period. As a percent of net sales, operating expenses have decreased each year
from 49.3% for 1997, 45.7% for 1998 and 45.0% during 1999.
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OPERATING INCOME (LOSS)
The manufacturing facility realized 1999 income from operations of
$744,300 or 5.7 percent of net sales. Income from operations in 1998 totaled
$954,200 or 8.0 percent of net sales. During 1997, the Company realized income
from operations of $843,000 or 7.5 percent of net sales. Even though the
manufacturing facility improved the revenue base during 1999, unfavorable
variances associated with a lower level of production, higher material costs and
an increase in builder/dealer incentives affected the operating results. At the
conclusion of 1999, the Company had reduced the inventory of unsold carry-over
units that contributed to a reduced level of new order production for 1999.
Shagawa Resort, Inc. almost attained operational break-even status
during 1999 with an operating loss of $1,200. Operating losses for fiscal years
1998 and 1997 were $47,500 and $128,500, respectively. The 1999 and 1998
operating results reflect the Company's adoption of the provisions of Statement
of Position 98-5, "Reporting on the Costs of Start-up Activities", as described
in the Other Income (Expense) section.
OTHER INCOME (EXPENSE)
Net non-operating expense for the manufacturing facility during 1999
totaled $14,500, compared with $26,100 in 1997 and $67,100 in 1997. Interest
expense, primarily related to a 1997 plant expansion, equipment acquisitions and
short-term borrowings increased interest expense from $89,400 in 1997 to
$121,900 for 1998 and $125,500 during 1999. Non-operating income of $111,000
during 1999 primarily consists of investment income realized from the Company's
cash and cash equivalents position, customer service charges and deposit
forfeitures.
Shagawa Resort, Inc. incurred mortgage related interest expense of
$141,900 during 1999, $147,200 during 1998 and $147,900 during 1997. Other
income of $58,700 realized during 1997 primarily relates to lease revenues of
$55,600 recognized prior to the March 17, 1997, asset purchase agreement.
During the fourth quarter of 1998, the Company adopted Statement of
Position 98-5, "Reporting on the Costs of Start-up Activities," which requires
the expensing of start-up activities as incurred and the expensing of previously
capitalized start-up costs. The provisions of the statement required
implementation for years beginning after December 15, 1998, but early adoption
was encouraged. As a result, the Company expensed the remaining unamortized
start-up costs associated with Shagawa Resort, Inc. that were initially
capitalized during the 1995 - 1996 construction and pre-operating period.
Adoption of the accounting change in 1998 resulted in cumulative expenses
totaling $150,000 or $94,000 net of taxes charged to operations as of the
beginning of the year. No further impact is anticipated from the adoption of
this accounting change.
INCOME TAX BENEFIT (PROVISION)
The Company's consolidated provision for income taxes was $242,000
in 1999, $268,000 in 1998 and $227,000 in 1997. Federal and state income tax
obligations and benefits are estimated at the normal statutory rate throughout
the year with a final adjustment at year-end relating to differences between the
basis of receivables, property and equipment, other assets and accrued expenses.
Page 13
<PAGE>
NET INCOME
The Company reported a consolidated 1999 net income of $347,900. The
Company reported a consolidated 1998 net income of $467,900 before the
cumulative effect of the provisions of Statement of Position 98-5, "Reporting on
the Costs of Start-up Activities". and $374,300 after the cumulative effect of
Statement of Position 98-5. Consolidated net income for 1997 was $329,100.
Basic and diluted earnings per common share are $0.16 for 1999, $0.21 for 1998
and $0.15 for 1997. After the adoption of Statement of Position 98-5, the
cumulative effect of the accounting change reduced 1998 net income to $374,300
or $0.17 for both basic and diluted earnings per common share. Considerations
for unexercised stock options granted in 1996 were recognized in arriving at the
diluted shares and earnings per share computations.
Shagawa Resort incurred a net loss of $0.04 per common share for
fiscal 1999. During fiscal years 1998 and 1997, Shagawa Resort, Inc. incurred
net losses of $0.06 per common share. After the adoption of the accounting
change, Shagawa Resort, Inc. recorded a net loss of $0.10 per common share for
1998.
FINANCIAL CONDITION
The Company's consolidated 1999 year-end cash and cash equivalents
position totals $931,600 or $619,300 greater than the $312,300 at 1998 year-end
and $397,900 less than the 1997 year-end total of $1,329,500. Net cash from 1999
operating activities increased by $1,614,800 from 1998 and $289,700 from 1997.
During 1999, cash outflows were required for the purchase of capital assets,
reductions to outstanding customer deposits and a temporary year-end build-up of
customer receivables. Cash flows to support the referenced activities were
provided by utilizing the Company's prior year cash and cash equivalents
position, non-cash related depreciation and amortization, inventory reduction,
long-term financing and internally generated income.
The Company's consolidated working capital increased by $309,300
from $3,035,400 at the end of 1998 to $3,344,700 at 1999 year-end. The current
ratio for December 25, 1999 is 3.3 to 1.0 compared to 3.2 to 1.0 at December 26,
1998. Other assets and property and equipment, net of amortization and
depreciation, decreased by $33,600 during 1998. Current year acquisitions of
capital assets primarily consist of replacement vehicles, computer hardware and
software and plant and office renovations.
Long-term debt and capital leases, net of current maturities,
decreased by $100,200 from $2,852,500 at December 26, 1998 to $2,752,300 at
December 25, 1999. In contrast, the current portion of long-term debt increased
by $71,200 from $196,900 at December 26, 1998 to $268,100 at December 25, 1999.
Long-term debt consists primarily of a long-term mortgage loan, which is secured
by substantially all of the assets of Shagawa Resort, Inc., four capitalized
lease obligations secured by transportation and material handling equipment, a
restructured long-term financing arrangement secured by a real estate mortgage
related to the 1997 plant expansion, a contract for deed covering the purchase
of adjacent land and warehouse and two notes secured by transportation and
computer equipment. Debt retirement associated with the various financing
arrangements varies in maturity from three to fifteen years, dependent on the
funding source.
The consolidated ratio of long-term debt to stockholders' equity
changed from .56 to 1.0 at December 26, 1998 to .50 to 1.0 at December 25, 1999.
The improved ratio reflects the Company's additional consolidated net earnings
for 1999 and the fiscal year payments on the long-term debt. Stockholders'
equity, net of treasury stock, increased from $5,106,500 at December 26, 1998 to
$5,454,500 at December 25, 1999.
Page 14
<PAGE>
Dynamic Homes, Inc. has available a line of credit which is
collateralized by inventories and receivables. The credit available is based
upon specified percentages 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 credit line has a
maximum available borrowing of $1,500,000 at an interest rate equal to the
bank's prime rate. As of December 25, 1999, the Company had no outstanding
balance against the available credit line.
Shagawa Resort, Inc. does not have any operating line of credit.
Consequently, Shagawa Resort, Inc. is dependent on Dynamic Homes, Inc. as its
source of additional funds. Periodically, Dynamic Homes, Inc. is required 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 requirements and
periodically reduces the outstanding advances made by Dynamic Homes, Inc. During
1999, net cash advances to Shagawa Resort, Inc. were approximately $12,000.
The Company continues to pursue the sale of the Shagawa Resort
property since it does not strategically fit with the Company's niche of
residential and commercial construction. The Company has received offers for the
assets of Shagawa Resort. However, as of this date, no final agreement has been
finalized and there is no assurance if or when a sale may be completed. The
Company has also engaged the services of a securities investment firm to explore
alternatives for enhancing shareholder value which may include the sale or
merger of the Company. Again, there is no assurance this exploration will result
in any acceptable proposals or that any type of transaction will be consummated.
The Company is cognizant of the need to accelerate future sales and
earnings. Consequently, the Company has initiated the following potential growth
initiatives:
* Strengthening of the Company's network of builder/dealers,
particularly within the more heavily populated markets. Two
new builder/dealers meeting the criteria have recently been
added to the network.
* Implementation of new and aggressive marketing programs to
heighten the Company's recognition as a builder of affordable
quality homes.
* Pursue additional business with the regions Native American
community by building on past business associations with these
communities.
The Company's management anticipates that the normal operating cycle will
generate sufficient cash, in conjunction with short-term borrowings on the
existing credit line and supplemented by long-term financing will provide
adequate funds to support the Company's operations and scheduled capital asset
requirements during year 2000.
On November 15, 1999, the Company's Board of Directors elected Scott
D. Lindemann to the position of President. Mr. Lindemann was previously named
interim President following a Board of Directors meeting on October 25, 1999.
The Board of Directors accepted the resignation of D. Raymond Madison as Chief
Executive Officer at the February 28, 2000 Board of Directors meeting and
elected Mr. Lindemann to succeed Mr. Madison as Chief Executive Officer.
Statements regarding the Company's operations, performance and
financial condition are subject to certain risks and uncertainties. These risks
and uncertainties include but are not limited to rising mortgage
Page 15
<PAGE>
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
conditions could also affect the Company's profit levels.
(Balance of page left intentionally blank)
Page 16
<PAGE>
ITEM 8. FINANCIAL STATEMENTS
Index to Consolidated Financial Statements and Supplementary Financial Data
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
Page 17
<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.
Fargo, North Dakota
February 11, 2000
Page 18
<PAGE>
DYNAMIC HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 25, 1999 AND DECEMBER 26, 1998
- --------------------------------------------------------------------------------
<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
Page 19
<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 $ 15,209,600 $ 13,905,300 $ 12,859,000
COST OF SALES 11,898,300 10,654,600 10,004,500
------------ ------------ ------------
GROSS PROFIT 3,311,300 3,250,700 2,854,500
OPERATING EXPENSES 2,568,200 2,344,000 2,140,000
------------ ------------ ------------
INCOME FROM OPERATIONS 743,100 906,700 714,500
OTHER INCOME (EXPENSES)
Interest expense (267,400) (269,100) (237,300)
Interest income and service charges 42,900 47,100 28,900
Gain (loss) on sale of equipment 8,000 19,400 (8,700)
Other, net 63,300 31,800 58,700
------------ ------------ ------------
INCOME BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF ACCOUNTING
CHANGE 589,900 735,900 556,100
INCOME TAXES 242,000 268,000 227,000
------------ ------------ ------------
INCOME BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE 347,900 467,900 329,100
CUMULATIVE EFFECT OF ACCOUNTING
CHANGE (net of income tax of $56,000) -- (93,600) --
------------ ------------ ------------
NET INCOME $ 347,900 $ 374,300 $ 329,100
============ ============ ============
BASIC INCOME PER COMMON SHARE
Income before cumulative effect of
accounting change $ 0.16 $ 0.21 $ 0.15
Cumulative effect of accounting change -- (0.04) --
------------ ------------ ------------
Net income $ 0.16 $ 0.17 $ 0.15
============ ============ ============
DILUTED INCOME PER COMMON SHARE
Income before cumulative effect of accounting change $ 0.16 $ 0.21 $ 0.15
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
Page 20
<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
Page 21
<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)
Page 22
<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
Page 23
<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 method) or market.
Cost of work in process and finished goods inventories includes materials, labor
and factory overhead.
REVENUE RECOGNITION
Sales of Dynamic Homes, Inc. 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)
Page 24
<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.
Page 25
<PAGE>
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.
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)
Page 26
<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)
Page 27
<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)
Page 28
<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)
Page 29
<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
------------- ------------- -------------
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
Resort 2,050,700 1,936,300 1,622,400
------------- ------------- -------------
$ 15,209,600 $ 13,905,300 $ 12,859,000
============= ============= =============
(continued on next page)
Page 30
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 11 - COST OF SALES
1999 1998 1997
------------- ------------- -------------
Materials $ 7,076,000 $ 6,261,600 $ 5,964,900
Labor 1,088,100 1,073,300 1,001,600
Overhead 1,643,400 1,358,500 1,336,200
Transportation 962,400 863,100 749,900
Resort 1,128,400 1,098,100 951,900
------------- ------------- -------------
$ 11,898,300 $ 10,654,600 $ 10,004,500
============= ============= =============
NOTE 12 - OPERATING EXPENSES
1999 1998 1997
------------- ------------- -------------
Marketing $ 696,700 $ 602,900 $ 537,400
Administration 1,871,500 1,741,100 1,602,600
------------- ------------- -------------
$ 2,568,200 $ 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
============= =============
The deferred tax amounts described above have been included in the accompanying
balance sheets as of December 25, 1999 and December 26, 1998:
1999 1998
------------- -------------
Current assets $ 127,000 $ 143,000
Noncurrent liabilities (104,000) (76,000)
------------- -------------
$ 23,000 $ 67,000
============= =============
(continued on next page)
Page 31
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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:
1999 1998 1997
-------- --------- --------
Current expense
Continuing operations $198,000 $ 316,000 $185,000
Cumulative effect of accounting
change -- (56,000) --
Deferred tax expense (benefit) 44,000 (48,000) 42,000
-------- --------- --------
$242,000 $ 212,000 $227,000
======== ========= ========
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:
1999 1998 1997
-------- --------- --------
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
======== ========= ========
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.
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.
(continued on next page)
Page 32
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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:
Dynamic Shagawa
Homes, Inc. Resort, Inc. Consolidated
----------- ------------ ------------
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) 487,900 (140,000) 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
(continued on next page)
Page 33
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Dynamic Shagawa
Homes, Inc. Resort, Inc. Consolidated
----------- ------------ ------------
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 928,100 (192,200) 735,900
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) 548,900 (219,800) 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
Page 34
<PAGE>
PART III
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning directors and officers of the Registrant is
incorporated by reference to the Company's definitive proxy statement
for the annual meeting of shareholders to be tentatively held on June
26, 2000.
ITEM 11. EXECUTIVE COMPENSATION
Executive compensation information is incorporated by reference to the
Company's definitive proxy statement for the annual meeting of
shareholders to be tentatively held on June 26, 2000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(A) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Set forth below is certain information concerning persons who are known by the
Company to own beneficially more than 5% of the Company's voting shares on March
14, 2000.
Title Name & Address of Number of Percent
of Class Beneficial Owner Shares Owned of Class(3)
-------- ---------------- ------------ -----------
Common D. Raymond Madison 684,692(1) 27.99
PO Box 6120
Brainerd, Minnesota 56401
Common HCI Investment Company 241,750(2) 9.89
One St. Augustine Drive
Highway 77
Winnebago, Nebraska 68071
(1) Includes 86,309 shares outstanding in the name of Mr.
Madison's wife and options to purchase 50,000 shares
exercisable within 60 days of March 14, 2000.
(2) Information as identified in Schedule 13D as filed by HCI
Investment Company with the Securities and Exchange Commission
on December 15, 1997 and 13D/A filed on March 3, 1999.
(3) Includes 205,000 available but unexercised options available
to officers, directors and various employees.
Page 35
<PAGE>
(B) SECURITY OWNERSHIP OF MANAGEMENT:
The following table sets forth as of March 14, 2000, information
concerning the beneficial ownership of common stock held by all
directors and officers and all directors and officers of the Company as
a group:
Name of Percent
Beneficial Owner Common Shares of Class
---------------- ------------- --------
D. Raymond Madison 684,692 (1) 27.99
Clyde R. Lund, Jr. 64,774 (2) 2.65
Israel Mirviss 49,500 (2) 2.02
Ronald L. Gustafson 50,300 (2) 2.05
Peter K. Pichetti 30,000 (2) 1.23
Eldon R. Matz 9,000 (3) .37
Scott D. Lindemann 2,000 .08
All directors and officers
as a group (7 persons) 890,266 (4) 36.39
(1) Includes 86,309 shares outstanding in the name of Mr.
Madison's wife and options to purchase 50,000 shares
exercisable within 60 days of March 14, 2000.
(2) Includes options to purchase 25,000 shares exercisable within
60 days of March 14, 2000.
(3) Includes options to purchase 5,000 shares exercisable within
60 days of March 14, 2000.
(4) Includes options to purchase 155,000 shares exercisable within
60 days of March 14, 2000.
(C) CHANGES IN CONTROL:
The Company knows of no contractual arrangements that may at a
subsequent date result in a change in control of the Company.
(Reference MD&A Financial Condition.)
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference Notes to Consolidated Financial Statements, Note 14 page 32
of this Form 10-K.
Page 36
<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 39
Schedule VI - Accumulated Depreciation of Property and
Equipment 40
Schedule VIII - Valuation and Qualifying Accounts 41
Schedule IX - Short-term Borrowings 42
Schedule X - Supplementary Income Statement Information 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.
(Balance of page left intentionally blank)
Page 37
<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.
(27) Financial Data Schedule
** - 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)
Page 38
<PAGE>
DYNAMIC HOMES, INC.
SCHEDULE V - PROPERTY AND EQUIPMENT
YEARS ENDED DECEMBER 25, 1999, DECEMBER 26, 1998 AND DECEMBER 27, 1997
<TABLE>
<CAPTION>
Balance Balance
Beginning Additions Retirements End
of Year at Cost and Transfers of Year
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Year Ended December 27, 1997:
Dynamic Homes, Inc.
-------------------
Land and Improvements $ 165,300 $ 54,700 $ -- $ 220,000
Buildings 967,300 438,900 (5,400) 1,400,800
Machinery and Equipment 1,619,300 319,200 (82,300) 1,856,200
Construction in Progress 103,900 (103,900) --
Shagawa Resort, Inc.
--------------------
Land and Improvements 329,200 11,900 (181,300) 159,800
Buildings 2,092,400 187,200 -- 2,279,600
Furniture, Fixtures & Equip 612,800 58,800 (300) 671,300
------------ ------------ ------------ ------------
$ 5,890,200 $ 1,070,700 $ (373,200) $ 6,587,700
============ ============ ============ ============
Year Ended December 26, 1998:
Dynamic Homes, Inc.
-------------------
Land and Improvements $ 220,000 $ 21,700 $ -- $ 241,700
Buildings 1,400,800 2,200 (2,300) 1,400,700
Machinery and Equipment 1,856,200 328,400 (243,100) 1,941,500
Construction in Progress -- 13,100 13,100
Shagawa Resort, Inc.
--------------------
Land and Improvements 159,800 -- -- 159,800
Buildings 2,279,600 19,800 -- 2,299,400
Furniture, Fixtures & Equip 671,300 34,400 (100) 705,600
------------ ------------ ------------ ------------
$ 6,587,700 $ 419,600 $ (245,500) $ 6,761,800
============ ============ ============ ============
Year Ended December 25, 1999
Dynamic Homes, Inc.
-------------------
Land and Improvements $ 241,700 $ 24,600 -- $ 266,300
Buildings 1,400,700 45,900 -- 1,446,600
Machinery and Equipment 1,941,500 240,200 (91,400) 2,090,300
Construction in Progress 13,100 344,500 (237,600) 120,000
Shagawa Resort, Inc.
--------------------
Land and Improvements 159,800 -- -- 159,800
Buildings 2,299,400 10,800 -- 2,310,200
Furniture, Fixtures & Equip 705,600 17,000 -- 722,600
------------ ------------ ------------ ------------
$ 6,761,800 $ 683,000 $ (329,000) $ 7,115,800
============ ============ ============ ============
</TABLE>
Page 39
<PAGE>
DYNAMIC HOMES, INC.
SCHEDULE VI - ACCUMULATED DEPRECIATION OF PROPERTY AND EQUIPMENT
YEARS ENDED DECEMBER 25, 1999, DECEMBER 26, 1998 AND DECEMBER 27, 1997
<TABLE>
<CAPTION>
Balance Balance
Beginning Additions Retirements End
of Year at Cost and Transfers of Year
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Year Ended December 27, 1997:
Dynamic Homes, Inc.
-------------------
Land and Improvements $ 49,600 $ 8,100 $ -- $ 57,700
Buildings 482,400 39,700 (5,400) 516,700
Machinery and Equipment 1,065,800 172,900 (60,400) 1,178,300
Shagawa Resort, Inc.
--------------------
Land and Improvements 5,600 11,700 -- 17,300
Buildings 26,200 52,300 -- 78,500
Furniture, Fixtures & Equip 43,800 91,700 -- 135,500
------------ ------------ ------------ ------------
$ 1,673,400 $ 376,400 $ (65,800) $ 1,984,000
============ ============ ============ ============
Year Ended December 26, 1998:
Dynamic Homes, Inc.
-------------------
Land and Improvements $ 57,700 $ 10,600 $ -- $ 68,300
Buildings 516,700 45,800 (2,300) 560,200
Machinery and Equipment 1,178,300 210,400 (228,300) 1,160,400
Shagawa Resort, Inc.
--------------------
Land and Improvements 17,300 12,200 -- 29,500
Buildings 78,500 52,700 -- 131,200
Furniture, Fixtures & Equip 135,500 98,400 -- 233,900
------------ ------------ ------------ ------------
$ 1,984,000 $ 430,100 $ (230,600) $ 2,183,500
============ ============ ============ ============
Year End December 25, 1999:
Dynamic Homes, Inc.
-------------------
Land and Improvements $ 68,300 $ 13,000 $ -- $ 81,300
Buildings 560,200 46,700 -- 606,900
Machinery and Equipment 1,160,400 239,200 (91,300) 1,308,300
Shagawa Resort, Inc.
--------------------
Land and Improvements 29,500 12,200 -- 41,700
Buildings 131,200 53,200 -- 184,400
Furniture, Fixtures & Equip 233,900 101,900 -- 335,800
------------ ------------ ------------ ------------
$ 2,183,500 $ 466,200 $ (91,300) $ 2,558,400
============ ============ ============ ============
</TABLE>
Page 40
<PAGE>
DYNAMIC HOMES, INC.
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 25, 1999, DECEMBER 26, 1998 AND DECEMBER 27, 1997
Transactions in the allowance for doubtful accounts during the years ended
December 25, 1999 December 26, 1998 and December 27, 1997 were as follows:
<TABLE>
<CAPTION>
Balance Provision Accounts Balance
Beginning Charged to Chgd. Off Net End
of Year Operations of Recoveries of Year
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Year Ended December 27, 1997 $ 40,000 $ 5,000 $ 0 $ 45,000
Year Ended December 26, 1998 $ 45,000 $ 16,000 $ (1,000) $ 60,000
Year Ended December 25, 1999 $ 60,000 $ 73,500 $ (121,200) $ 12,300
</TABLE>
(Balance of page left intentionally blank)
Page 41
<PAGE>
DYNAMIC HOMES, INC.
SCHEDULE IX - SHORT TERM BORROWINGS
YEARS ENDED DECEMBER 25, 1999, DECEMBER 26, 1998 AND DECEMBER 27, 1997
The amounts reported represent amounts owed under a line of credit.
<TABLE>
<CAPTION>
Average Weighted
Weighted Maximum Month End Average
Average Borrowing Borrowing Interest
Balance Interest Outstanding Outstanding Rate
End Rate at During the During the During the
of Year(1) Year End Year Year(2) Year(3)
---------- -------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Year Ended
December 27, 1997 $ -0- 8.50% $360,000 $ 57,000 8.50%
Year Ended
December 26, 1998 $ -0- 7.75% $820,000 $ 153,000 8.50%
Year Ended
December 25, 1999 $ -0- 8.50% $1,070,000 $ 222,900 7.80%
</TABLE>
(1) Dynamic Homes, Inc. has available a line of credit which is
collateralized by inventories and receivables. The credit available is
based on specified percentages of inventories and receivables. On May
1, 1998, the Company renewed its credit line for a period of two years.
The renewed credit line has maximum available borrowings to $1,500,000
at the bank's prime rate (8.50% at December 25, 1999). As of December
25, 1999, the Company did not have any outstanding borrowings under the
line of credit agreement and there are no compensating balance
requirements.
(2) Average amounts outstanding during the period are computed as an
average of the month-end balances.
(3) For the periods presented the interest on the Company's short-term debt
fluctuated with the prime rate. The weighted average interest rate was
computed based upon the effective rate under the loan agreement in
affect.
Page 42
<PAGE>
DYNAMIC HOMES, INC.
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
YEARS ENDED DECEMBER 25, 1999, DECEMBER 26, 1998 AND DECEMBER 27, 1997
<TABLE>
<CAPTION>
Maintenance Taxes, Other Than Advertising/
and Repairs Payroll and Income Promotion Expense
----------- ------------------ -----------------
<S> <C> <C> <C>
Year Ended December 27, 1997 $ 290,700 (1) $ 212,500 (1) $ 353,600
Year Ended December 26, 1998 $ 293,900 (2) $ 250,600 (2) $ 405,900 (2)
Year Ended December 25, 1999 $ 344,400 (3) $ 240,100 (3) $ 470,000 (3)
</TABLE>
Amounts include the following Shagawa Resort, Inc. valuations:
(1) (2) (3)
--- --- ---
Maintenance and Repairs $ 75,900 $ 90,200 $ 100,000
Real Estate Taxes 99,900 123,800 110,600
Advertising and Promotion Expense 90,600 91,900 101,300
Royalties, amortization of intangible assets, pre-operating costs and similar
deferrals are not set forth, as such items do not exceed one percent of net
sales as shown in the consolidated statement of operations (Note 3).
(Balance of page left intentionally blank)
Page 43
<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.
- ----------------------------------- -----------------------------------
SCOTT D. LINDEMANN ISRAEL MIRVISS,
PRESIDENT, CEO DIRECTOR
- ----------------------------------- -----------------------------------
D. RAYMOND MADISON, RONALD L. GUSTAFSON,
CHAIRMAN OF THE BOARD DIRECTOR
- ----------------------------------- -----------------------------------
CLYDE R. LUND JR., PETER K. PICHETTI,
SECRETARY DIRECTOR
- ----------------------------------- -----------------------------------
ELDON R. MATZ, LANCE G. MORGAN
CONTROLLER & TREASURER DIRECTOR
DATED: MARCH 14, 2000
Page 44
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
DYNAMIC HOMES, INC. AND SUBSIDIARIES
TWELVE MONTHS ENDED DECEMBER 25, 1999
FINANCIAL DATA SCHEDULE
EXHIBIT NO. 27
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-25-1999
<PERIOD-END> DEC-25-1999
<CASH> 932,000
<SECURITIES> 0
<RECEIVABLES> 1,803,000
<ALLOWANCES> (12,000)
<INVENTORY> 1,875,000
<CURRENT-ASSETS> 4,789,000
<PP&E> 7,116,000
<DEPRECIATION> (2,558,000)
<TOTAL-ASSETS> 9,761,000
<CURRENT-LIABILITIES> 1,445,000
<BONDS> 2,758,000
0
0
<COMMON> 228,000
<OTHER-SE> 5,226,000
<TOTAL-LIABILITY-AND-EQUITY> 9,761,000
<SALES> 12,459,000
<TOTAL-REVENUES> 15,225,000
<CGS> 9,895,000
<TOTAL-COSTS> 11,874,000
<OTHER-EXPENSES> 4,377,000
<LOSS-PROVISION> 75,000
<INTEREST-EXPENSE> 153,000
<INCOME-PRETAX> 592,000
<INCOME-TAX> 237,000
<INCOME-CONTINUING> 355,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 355,000
<EPS-BASIC> 0.16
<EPS-DILUTED> 0.16
</TABLE>
