ROTTLUND CO INC, 10-K405, 1999-06-29

ROTTLUND CO INC
10-K405, 1999-06-29
OPERATIVE BUILDERS

Previous: STERLING FINANCIAL CORP /WA/, 11-K, 1999-06-29

Next: RECONDITIONED SYSTEMS INC, 10KSB, 1999-06-29

<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------

FORM 10-K
(Mark One)

/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the fiscal year ended March 31, 1999

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from _______________ to _______________

Commission File No. 0-20614

THE ROTTLUND COMPANY, INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1228259
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

3065 CENTRE POINTE ROAD
ROSEVILLE, MINNESOTA 55113
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (651) 638-0500

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the
Act: Common Stock, par value $.10

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, and (2) has been subject to such filing requirements
for the past 90 days. Yes X No___

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/

The aggregate market value of voting stock held by nonaffiliates of the
registrant as of June 18, 1999 was approximately $6,750,000.

As of June 18, 1999, there were 5,804,283 shares of Common Stock of the
registrant issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Certain portions of the documents listed below have been incorporated by
reference into the indicated part of this Form 10-K.

DOCUMENT INCORPORATED PART OF FORM 10-K
Proxy Statement for 1999 Annual Meeting of Shareholders Part III
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>

FORM 10-K INDEX

<TABLE>
<CAPTION>
PAGE

<S> <C>
PART I............................................................................................................1
Item 1. BUSINESS.............................................................................................1
Item 2. PROPERTIES...........................................................................................7
Item 3. LEGAL PROCEEDINGS....................................................................................7
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS DURING FOURTH QUARTER OF FISCAL YEAR.............7

PART II...........................................................................................................8
Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.................................8
Item 6. SELECTED FINANCIAL DATA AND STATISTICAL COMPARISON...................................................9
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION...............10
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.........................................13
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.........................................................13
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES...............13

PART III.........................................................................................................29
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.................................................29
Item 11. EXECUTIVE COMPENSATION.............................................................................29
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.....................................29
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.....................................................30

PART IV..........................................................................................................30
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K...................................30

</TABLE>

<PAGE>

PART I

ITEM 1. BUSINESS

GENERAL

The Rottlund Company, Inc. ("Rottlund" or the "Company"), through
its subsidiaries, designs, builds and markets attached and detached townhomes
and condominiums, and detached single family homes in the Minneapolis-St.
Paul, Minnesota, Des Moines, Iowa, Indianapolis, Indiana, Southern New Jersey
and Naples-Ft. Myers, Orlando and Tampa, Florida metropolitan areas. Rottlund
was founded in 1973, and until 1993, all of the Company's developments were
located in the Minneapolis-St. Paul market where Rottlund has maintained the
largest market share of any builder in nine of the last ten years.
Nationally, Rottlund ranks as the ninth largest attached, for sale,
homebuilder and has been ranked in among the top 100 homebuilders since 1991.
During the year ended March 31, 1994 ("fiscal 1994") the Company began home
building operations in Naples-Ft. Myers, Florida and Des Moines, Iowa and,
during the first quarter of the year ended March 31, 1995 ("fiscal 1995"),
began home building operations in Indianapolis, Indiana and Orlando and
Tampa, Florida and during the year ended March 31, 1996 ("fiscal 1996") the
Company acquired certain assets and assumed certain liabilities of Kevin
Scarborough, Inc., a residential homebuilder operating in Southern New
Jersey. All references to the Company contained herein, unless the context
indicates otherwise, include its wholly owned subsidiaries Rottlund Homes of
Iowa, Inc., Rottlund Homes of Florida, Inc., Rottlund Homes of Indiana, Inc.,
Rottlund Homes of New Jersey, Inc., and Rottlund Homes of Indiana Limited
Partnership.

As of March 31, 1999, the Company owned or controlled through
options over 2,300 home sites in communities under development and land for
the development of over 3,500 additional planned home sites in proposed
communities.

The Company's homes are sold primarily through its own staff of
sales personnel. The Company markets its homes to a wide range of buyers,
emphasizing high quality construction and customer satisfaction. Its
promotional efforts include advertisements in newspapers and other printed
media, radio and television, illustrated brochures, billboards, on-site
displays and model homes. Purchasers of the Company's homes are given the
opportunity to select, at additional cost, various optional amenities such as
upgraded carpet, fireplaces, varied interior and exterior color schemes,
lighting and upgraded appliances. The Company offers a diverse product line
ranging from townhomes to single-family homes at prices generally ranging
from $80,000 to $300,000. The average price of the Company's homes delivered
in fiscal 1999 was approximately $156,000.

The Company has focused on the implementation of a Product
Leadership Strategy as reflected by the diversity of its product offerings.
This strategy has been paramount in its quest to maintain its No. 1 market
leadership position in the Minneapolis-St. Paul market. Management believes
that the Company's Product Leadership Strategy has also provided a
competitive advantage in the Des Moines and Southern New Jersey markets.
Rottlund's Product Leadership Strategy emphasizes the Company's design
capabilities, enabling it to offer quality homes at all price levels at which
the Company competes. The Company markets its homes to a wide range of buyers
including entry level, first and second time move-up, active adults and
retirees. Furthermore, management believes the Company has been particularly
effective marketing to non-traditional families, such as single parent
households. Product offerings such as attached villas and townhomes have been
designed with specific amenities to fill the needs of these unique market
niches while maintaining the affordability required by single parents. Other
attached, for sale communities use design characteristics, such as enhanced
security features, that appeal to single female buyers and have enabled
Rottlund to secure increased market share in this growing niche.

OPERATING STRATEGY

Set forth below are the major elements of the Company's operating
strategy:

<PAGE>

MARKETS. The Minneapolis-St. Paul metropolitan area has been the
Company's primary market and has accounted for the majority of revenues since
the Company's inception. The Company has built and delivered more homes in
this market over the last five years than has any other home builder. The
Company's marketing strategy in the Minneapolis-St. Paul market has been to
establish itself as a name brand builder. Management believes this strategy
has helped Rottlund to build and deliver more homes in this market than any
other builder during the last five years. The Company presently accounts for
approximately 4.0% of all homes sold in this market. The Company does not
presently intend to increase its share of the Minneapolis-St. Paul market,
but rather to expand its operations in the Des Moines, Iowa, Indianapolis,
Indiana, Southern New Jersey and Naples-Ft. Myers, Tampa, and Orlando,
Florida markets. Rottlund is implementing its name brand builder strategy in
these markets.

PRODUCTS. The Company markets its homes to a wide range of buyers,
including entry level, move-up and retirees. Accordingly, the Company offers
a number of home styles and price ranges at various locations. The Company's
product offerings include villas, townhomes and detached single family homes.
Sales prices presently range from approximately $80,000 to $300,000, and the
average sales price of homes being delivered during fiscal 1999 was
approximately $156,000. Management believes the Company's ability and
willingness to build homes in accordance with home buyers' needs will enable
the Company to continue to grow. Management believes that the Company's
long-standing strategy of product diversification enables it to respond
rapidly to changing market conditions and the cyclical nature of the
home-building industry.

COST CONTROL. The Company controls the cost of construction through
the efficient design of its homes and favorable pricing from subcontractors
due to the high volume of work performed for the Company. Rottlund uses an
advanced, industry-specific management information system to control
construction costs. This system allows the Company to monitor subcontractor
performance and expenditures for each home built. All subcontracted work is
authorized through the generation of purchase orders which are approved for
payment by the Company's on-site construction supervisors upon completion of
work. Any additional costs require authorization through the issuance of
variance purchase orders which require reporting of the reason for the
variance and measures taken to eliminate further variances. This strategy
permits the Company to monitor gross margins on each individual home from the
time a purchase agreement is signed through the building process to closing.
The Company requires all subcontractors to perform all home construction and
site improvement work on a fixed price basis. In addition, management
continually monitors selling, general and administrative expenses in an
effort to control overhead and improve efficiency.

INVENTORY MANAGEMENT. Two of the major risks in the home-building
industry are excessive home site inventory and inventory of completed homes.
The Company attempts to reduce its vulnerability to these risks by (i)
acquiring control of improved home sites through option contracts which allow
the Company to build homes with relatively minimal capital expenditures and
limited risks, (ii) acquiring land for development with seller financing,
(iii) acquiring land through purchase agreements on a nonrecourse basis which
enables the Company to obtain necessary governmental approvals before the
acquisition of the land (generally, the down payment on a land purchase or
option agreement will be returned to the Company if all approvals are not
obtained, although pre-development costs may not be recoverable), (iv)
beginning construction of a single family home only after execution of a
sales contract, receipt of satisfactory earnest money and, where applicable,
a tentative mortgage approval, and (v) controlling the number of finished
homes held in inventory.

LAND ACQUISITION AND DEVELOPMENT

The Company generally follows a policy of acquiring options to
purchase land for future community developments. The Company attempts to
acquire land with a minimum cash investment and the maximum degree of
purchase money financing that the Company is able to obtain from sellers. The
purchase money financing and purchase agreements are generally on a
nonrecourse basis, thereby limiting the Company's financial exposure to the
amounts invested in property and predevelopment costs. This policy may raise
the cost of land the Company acquires somewhat, but significantly reduces
risk to the Company. In addition, this policy allows the Company to obtain
necessary development approvals prior to acquisition of land.

<PAGE>

The Company's purchase agreements are typically subject to numerous
conditions including, but not limited to, the Company's ability to obtain
necessary zoning and other governmental approvals for the proposed
development. The Company believes it has been successful in obtaining local
governmental approvals through proactive interaction with neighborhood and
citizen groups. The Company maintains a policy of holding neighborhood
meetings to gain support for its development activities. During the initial
municipal approval process, the Company confirms the availability of
utilities, conducts environmental reviews, arranges acquisition development
and financing, and completes its marketing construction feasibility studies.
As a result, the Company is generally able to begin marketing immediately
after closing the land purchase. This results in reduced carrying costs and
increased liquidity for future development opportunities.

The Company has been able to acquire control of improved single
family detached home sites through option contracts which enables the Company
to build in an area if it purchases a specified number of home sites each
month. Contracts of this nature enable the Company to begin offering homes
for sale in a new community with relatively minimal capital expenditures and
limited risk. Accordingly, the Company has adopted a strategy of acquiring
control of single family detached home sites through option contracts when
appropriate opportunities exist which meet the Company's marketing strategy.
The Company expects the availability of such contracts to satisfy the
majority of the Company's requirements for detached single family home sites.
Due to the product-specific nature of the Company's attached home sites, the
Company expects limited opportunities for option contracts for this portion
of its developed home site requirements. Accordingly, the continuation of the
Company's development activities to satisfy its land inventory requirements
will depend upon its continued ability to locate, enter into contracts to
acquire, obtain governmental approvals for, obtain acquisition and
development financing for, consummate the acquisition of, and improve,
suitable parcels of land.

AVAILABLE HOME SITE INVENTORY (ALL CITIES)

The following table sets forth information with respect to the
Company's available lot inventory by state as of March 31, 1999.

<TABLE>
<CAPTION>
Homes Under Construction
Total ------------------------------------------------- Unsold Sites Available
Market Available Sold (1) Models Inventory (2) for Future Construction
- ------ --------- -------- ------ ------------- -----------------------
<S> <C> <C> <C> <C> <C>
Minnesota.................. 982 290 13 93 586
Florida.................... 725 115 4 28 578
Iowa....................... 350 85 9 26 270
Indiana.................... 266 38 8 16 204
New Jersey................. 626 89 0 6 531
----- --- -- --- -----
Total...................... 2,949 567 34 179 2,169
===== === == === =====
</TABLE>

- ----------------------
(1) Under contract and under construction but not yet closed.
(2) Inventory are homes which are unsold that are completed or in various stages
of construction.

Although the Company does not purchase land for speculation, the
Company has and will purchase land with the intent of selling home sites
within developments to other builders. Additionally, the Company has
attempted to manage the risk of home building in particular areas through
cooperation with other builders, such as Centex Homes Corporation, by
building in the same subdivision. This arrangement provides for a diversity
of types of homes in the Company's communities and the advantages of joint
marketing.

Rottlund strives to maintain a supply of developed home sites to
meet anticipated homebuilding requirements for not more than 24 months. As of
March 31, 1999 the Company had an aggregate of 2,169 home sites available for
future construction which represents approximately a 14-month supply based on
actual deliveries anticipated in fiscal 2000. The Company believes there is
an adequate supply of undeveloped land in all metropolitan areas where it
conducts business to maintain adequate home site inventories.

<PAGE>

Detached single family homes sold by the Company are marketed to
move-up and entry-level buyers. Move-up homes are sold in the $170,000 to
$300,000 price range while entry level homes are sold in the $110,000 to
$160,000 price range. Detached single family homes are offered by the Company
in a variety of floor plans and exterior styles with two, three and four
bedrooms, two or more bathrooms and a two-car attached garage.

The Company also offers attached product lines which offer a variety
of floor plans and provide for certain options. Entry-level townhomes are
sold in the $70,000 to $105,000 price range, and the balance of townhome
sales are sold in the $100,000 to $200,000 price range. The Company believes
that the fastest growing segments of the home buying market are singles and
couples without children. The Company has adopted a strategy to capture these
segments by developing expertise in the design, marketing, financing and
construction of alternative or attached housing types which appeal to these
segments.

Contracts for the sale of homes are at fixed retail prices. The
prices at which homes are offered have generally increased from time to time
during the sellout period for each community and in response to cost
increases, however, there can be no assurance that sales prices will increase
in the future.

All of the attached home communities are governed by a homeowner's
association (the "Association"). The Company, acting as declarant, is
responsible for the management of the Association until 75% of the homes
within the Association are closed.

The Company's line of homes is designed to promote efficient use of
space and materials to minimize construction costs and time, thereby
maximizing the value of the homes in the marketplace. The Company is
continually developing new home designs to replace or augment existing home
designs in an effort to assure that the Company's homes are responsive to
current consumer preferences and are unique in the marketplace. In order to
respond to consumer preferences the Company relies primarily upon its
internal marketing department to analyze information gathered from buyer
profiles, focus groups, exit interviews at model sites, telephone surveys and
demographic data bases. For new designs, the Company has engaged a number of
unaffiliated architectural firms in addition to its in-house architectural
staff. All home designs are copyrighted by the Company. The Company does not
license its home designs to other builders and vigorously pursues infringers.

The Company expends considerable effort in developing a design and
marketing concept for each of its communities. This includes determination of
product line, layout of streets, layout of individual home sites or
structures and overall community design. The communities have attractive
entrances with distinctive signage and landscaping. The Company recognizes
the importance of the sense of "neighborhood" and strives to create this
feeling within its communities to preserve and enhance the investment of its
home buyers.

CONSTRUCTION

Rottlund acts as the general contractor for the construction of its
residential communities. The Company's construction supervisors monitor the
construction of each home, participate in design and building decisions,
coordinate the activities of subcontractors and suppliers, maintain quality
and cost controls and monitor compliance with zoning and building codes.

The Company maintains a strategy of subcontracting all home
construction at a fixed cost basis. The Company believes this strategy limits
its financial exposure during downturns in the housing market. All
subcontracted work is authorized by purchase orders which require approval
for payment by the construction supervisor upon completion. Any additional
costs require authorization through the issuance of variance purchase orders.
All variances require reporting of the reason therefor, and measures taken to
eliminate further variances.

Subcontractors typically are retained by the Company for a specific
time period or project pursuant to a contract which obligates the
subcontractor to complete its duties at a fixed price. Contracts with the
Company's subcontractors and material suppliers are entered into after
competitive bidding during predetermined time periods or on a project by
project basis.

<PAGE>

The construction of detached single family homes is generally tied
to home buyer sales contracts to minimize the costs and risks of completed
but unsold inventory.

Construction time for each home is tied to a construction schedule
established for each of the Company's home types. Variances from the schedule
are infrequent but may occur due to weather conditions or availability of
labor, materials and supplies. The Company's line of homes is designed to
promote efficient use of space and materials to minimize construction costs
and time. The Company's construction schedules are typically from three to
six months.

The personnel of the Company's corporate headquarters are
responsible for architectural design, home site planning, accounting and
closing, among other responsibilities. The Company's management information
system is designed to monitor the progress of each home built by the Company,
from acceptance of a sales contract to delivery of a completed home to the
buyer. At any time after contract acceptance the Company can provide the home
buyer with the construction status of its home and the anticipated delivery
date.

The Company historically has maintained its construction schedule
throughout the entire year, despite seasonal climate changes in the
Minneapolis-St. Paul and Des Moines metropolitan areas. However, additional
winter construction charges are incurred due to propane heating costs, frost
ripping charges, utility construction charges and special footing designs.
The Company is also required to put into escrow at closing amounts to cover
items which cannot be installed in the winter which may include driveways,
sidewalks and air conditioning.

MARKETING AND SALES

In Minnesota, Indiana, New Jersey and Florida, the Company sells its
homes through commissioned employees who work from sales offices in model
homes located in each Rottlund community. In addition, the Company cooperates
with outside independent brokers on approximately 33% of all of its sales.
The Company utilizes independent realtors for home sales in Iowa. In all
instances, Company sales employees assist prospective buyers through the home
buying process by providing information on the Company's line of homes,
pricing, options and upgrades, mortgage financing, warranties, construction,
and information regarding the Company itself. The Company provides a Home
Buyer's Guide to all prospective customers. The Home Buyer's Guide highlights
the steps and process of buying a new home in an effort to accurately set the
expectations of the Company's customers. Sales personnel are trained by the
Company and attend periodic meetings where they are updated on current
financing, construction schedules, marketing and advertising plans.

Rottlund has adopted a strategy of becoming a "name brand" builder
in the Minneapolis-St. Paul market. This strategy has been implemented
through its visible support of public television, Fraser Community Services
and other community organizations. Rottlund also advertises through
newspaper, radio, TV and a billboard campaign. In its expansion to new
markets, the Company over time will attempt to utilize this same strategy of
advertising to increase customer awareness of the Company's products. In
order to respond to consumer preferences, the Company relies upon its
internal marketing department to analyze information which is gathered from
buyer profiles, focus groups, exit interviews at model sites, telephone
surveys, and demographic data bases. The Company's comprehensive marketing
program also includes direct mail, participation in home tour events and use
of fully merchandised model homes. Management believes model homes play an
important role in demonstrating the functional use of space in the Company's
homes and in allowing prospective buyers to experience the emotional aspects
of the home buying process. The Company attempts to create attractive model
homes and chooses interior merchandising for each type of home based upon the
lifestyles of targeted customers.

The Company builds a portion of its homes under the guidelines and
specifications of the Federal Housing Administration (FHA) and the Veterans
Administration (VA), thereby providing eligible prospective buyers the added
benefit of the availability of FHA/VA-insured mortgages. The Company may also
from time to time help its customers secure below market interest rates by
contributing points to buy-down the existing mortgage rates.

<PAGE>

CUSTOMER SERVICE AND QUALITY CONTROL

Rottlund is committed to providing a high level of customer service
as an important component of its competitive strategy. The Company, through
its on-site team of a sales representative and a construction supervisor
maintains personalized contact with its customers.

The Company's construction supervisors follow an inspection process
on each home the Company builds. This process is followed to ensure each home
meets or exceeds the Company's performance standards for its homes.

Upon completion of construction of each home and prior to closing,
an employee of the Company's Customer Care Department conducts a quality
control inspection of the completed home. From this inspection, a list is
created which sets forth those areas which do not meet the Company's
performance standards and require correction by the contract builder. Also
prior to closing, the Customer Care Department accompanies the buyer on a
customer orientation of their home to demonstrate the proper use and care of
the home including the mechanical equipment and other components of the home.
At the customer orientation, the buyer is also familiarized with the service
warranty process following closing on its home.

The Company's Customer Care Department handles all service and
warranty requests following the closing of each home. Management believes the
participation of Customer Care personnel prior to and after closing reduces
post-closing service costs, fosters the Company's reputation for service, and
ultimately leads to the building of a referral base of business.

The Company provides all home owners with a one-year comprehensive
warranty and a two-year warranty on all mechanical systems and provides, from
an unaffiliated insurance company, a ten-to fifteen-year structural warranty.

COMPETITION AND MARKET FACTORS

The development and sale of residential properties is highly
competitive and fragmented. The Company competes on the basis of a number of
interrelated factors, including location, product design, perceived value,
price and reputation in the marketplace with a number of national home
builders and numerous local builders. The Company's homes must also compete
with resale of existing homes and available rental housing. Management
believes Rottlund's primary competitive advantages are based upon the
following strengths: (i) product innovation, (ii) offering homes with the
highest perceived value, (iii) product diversification which enables the
Company to offer homes to all segments of the population, (iv) marketing
programs and community involvement programs which have established Rottlund
as a "name brand" builder in the Minneapolis-St. Paul market, (v) the
location of its communities, and (vi) its reputation for superior customer
service and quality.

Rottlund maintains a strong position in its markets due in part to
product innovation. The Company's ability to respond to the changing needs of
home buyers has allowed it to continue to grow despite declining demand for
previously popular products. The Company continuously examines its markets to
determine if certain housing needs are not being met and attempts to design
and build homes to meet such needs. Management believes this is one of the
primary reasons for its long-term success. The Company's years of experience
provide it with expertise in the area of design, construction and financing
of attached housing. The Company believes that this experience is especially
important in the attached home market which is subject to stricter regulation
than the detached home market.

The housing industry is cyclical and affected by consumer confidence
levels, prevailing economic conditions and interest rate levels. Other
factors affecting the industry include increases in construction costs,
increases in costs associated with home ownership such as property taxes,
changes in consumer preferences and demographic trends. The Company believes
its experience provides a sound understanding of the nature of the industry
which enables it to base its strategic planning on such cyclical conditions.

<PAGE>

EMPLOYEES

As of March 31, 1999, the Company employed 275 persons, 80 as
on-site sales personnel, 91 involved in construction, 22 as customer care
personnel, 22 as product development personnel and 60 as executive,
administrative and clerical personnel. The Company's employees are not
covered by a collective bargaining agreement and the Company believes its
relationships with its employees are good.

GOVERNMENTAL REGULATION

The Company's business is subject to regulation by a variety of
state and federal laws and regulations relating to, among other things,
advertising, charging, collection of state sales and use taxes, zoning and
product safety. While the Company believes it is presently in material
compliance with such regulations, in the event that it should be determined
that the Company is not in compliance with all such laws and regulations, the
Company could become subject to cease and desist orders, injunctive
proceedings, civil fines and other penalties.

ITEM 2. PROPERTIES

The Company's principal offices are located at 3065 Centre Pointe
Road, Roseville, Minnesota 55113. The offices total 10,000 square feet, and
are leased from an unrelated party through March 31, 2006, at a base annual
rent of $94,000. Various computer equipment and office furniture are also
leased by the Company.

ITEM 3. LEGAL PROCEEDINGS

The Company is not currently a party to any material pending legal
proceedings. From time to time the Company may become involved in routine
litigation incidental to its business.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS DURING FOURTH
QUARTER OF FISCAL YEAR

There were no matters submitted to a vote of the Company's
shareholders during the three-month period ended March 31, 1999.

<PAGE>

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS

On February 19, 1998, the Company's Common Stock was listed on the
American Stock Exchange ("AMEX") under the symbol "RH". Also on that date,
the Company's Common Stock ceased trading on the NASDAQ National Market
System.

The following table sets forth the range of high and low sale prices
for the Company's Common Stock for each of the fiscal quarters of the two
years ended March 31, 1998 and 1999.

STOCK QUOTATIONS

<TABLE>
<CAPTION>
HIGH LOW
<S> <C> <C>
Fiscal 1999
First Quarter................................... 4 7/8 3 3/4
Second Quarter.................................. 4 5/8 3 5/8
Third Quarter................................... 4 1/2 3
Fourth Quarter.................................. 5 3/4 4

Fiscal 1998
First Quarter................................... 5 1/4 4 1/4
Second Quarter.................................. 5 1/4 4 1/2
Third Quarter................................... 4 3/4 3 1/8
Fourth Quarter.................................. 4 3/4 3

</TABLE>

As of June 18, 1999, the Company had approximately 150 holders of
record of its Common Stock.

The transfer agent for the Company's Common Stock is Norwest Bank
Minnesota, N.A., 161 North Concord Exchange, South St. Paul, Minnesota,
55075-0738, telephone: (651) 450-4064.

The Company has not paid any dividends on its Common Stock since its
initial public offering in October 1992 and expects that for the foreseeable
future it will follow a policy of retaining earnings in order to finance the
continued development of its business. Payment of dividends is within the
discretion of the Company's Board of Directors and will depend upon the
earnings, capital requirements and operating and financial condition of the
Company, among other factors. In addition, the terms of the Company's 9.42%
Senior Notes Due December 1, 2004 and the 12.11% Senior Notes Due December 1,
2003 contain restrictions on the ability of the Company to pay dividends. The
Company has not made any sales of restricted stock during the previous three
fiscal years.

<PAGE>

ITEM 6. SELECTED FINANCIAL DATA AND STATISTICAL COMPARISON

The following table sets forth selected financial data with respect
to the Company for the periods indicated. This information should be read in
conjunction with the Financial Statements and related notes appearing
elsewhere herein and "Management's Discussion and Analysis of Results of
Operations and Financial Conditions." The Company's Statement of Operations
and Balance Sheet data as of and for each of the years set forth below have
been derived from financial statements which have been audited by Arthur
Andersen LLP, independent public accountants.

<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND UNIT DATA)
<S> <C> <C> <C> <C> <C>

STATEMENT OF OPERATIONS DATA:
Net sales................................ $252,675 $160,830 $180,457 $131,583 $116,520
Cost of sales............................ 215,074 139,284 156,332 110,589 96,344
-------- -------- -------- -------- --------
Gross profit............................. 37,601 21,546 24,125 20,994 20,176
Selling, general and administrative
expenses................................. 26,112 20,541 19,569 13,671 13,307
Write-down of land(1) - - 1,500 - -
-------- ------- -------- -------- --------
Operating income......................... 11,489 1,005 3,056 7,323 6,869
Interest expense......................... 2,714 2,018 958 153 295
-------- -------- -------- -------- --------
Income (loss) before provision (benefit)
for income taxes......................... 8,775 (1,013) 2,098 7,170 6,574
Provision (benefit) for income taxes..... 3,598 (415) 862 2,928 2,695
-------- -------- -------- -------- --------
Net income (loss)...................... $ 5,177 $ (598) $ 1,236 $ 4,242 $ 3,879
======== ======== ======== ======== ========

Basic earnings (loss) per share.......... $ .90 $ (0.10) $ 0.22 $ 0.75 $ 0.69
======== ======== ======== ======== ========
Diluted earnings (loss) per share........ $ .90 $ (0.10) $ 0.22 $ 0.74 $ 0.68
======== ======== ======== ======== ========
Weighted average shares outstanding...... 5,773 5,745 5,735 5,749 5,661
======== ======== ======== ======== ========

OPERATING DATA:
Number of home sales closed.............. 1,684 1,092 1,346 1,187 1,003
Average sales price...................... $ 156 $ 146 $ 134 $ 111 $ 116
======== ======== ======== ======== ========

BALANCE SHEET DATA:
Inventories and properties held for
development or sale...................... $ 70,042 $ 74,379 $ 81,825 $ 74,650 $ 60,450
Total assets............................. 89,365 88,281 96,234 83,756 68,549
Notes and mortgage notes payable......... 38,467 47,907 54,137 40,584 33,746
Shareholders' equity..................... $ 31,598 $ 26,315 $ 26,819 $ 25,396 $ 21,033

- ------------------------

(1) The Company recorded a noncash write-down of land development costs and
finished lots at development sites in Florida and Indiana in fiscal
1997. See Note 1 of the Notes to Consolidated Financial Statements.

</TABLE>

<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION

GENERAL

The following table sets forth, for the periods indicated, unit
activity, average sales price and revenue from home sales:

<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Homes closed:
Single family........... 688 431 397
Multi-family............ 936 661 949
Average sales price:
Single family........... $ 180,000 $ 186,000 $ 199,000
Multi-family............ 138,000 122,000 107,000
Net sales:
Single family........... $123,700,000 $ 80,370,000 $ 79,083,000
Multi-family............ 128,975,000 80,460,000 101,374,000
------------ ------------ ------------
Total net sales $252,675,000 $160,830,000 $180,457,000
============ ============ ============

</TABLE>

The following table sets forth the Company's backlog (homes under
contract but not closed):

MARCH 31 NUMBER OF HOMES SALES VALUE
-------- --------------- -----------
<S> <C> <C>
1999......................... 567 $99,562,000
1998......................... 631 $98,380,000
1997......................... 409 $60,908,000

</TABLE>

The Company estimates that the period between receipt of sales
contracts and delivery of completed homes to the purchasers is generally four
to six months. The Company's backlog historically tends to increase between
January and April. Trends in the Company's backlog are subject to change from
period to period based upon economic conditions including consumer confidence
levels, interest rates and the availability of mortgages.

RESULTS OF OPERATIONS

YEAR ENDED MARCH 31, 1999 COMPARED TO YEAR ENDED MARCH 31, 1998

The Company's home sales increased $91.8 million or 57% during
fiscal 1999 as compared to fiscal 1998 as a result of a 48.6% increase in the
number of homes closed and a 3.2% increase in the average sales price of
homes closed. This increase was due to an overall increase in prices for
homes sold by the Company.

Gross profit increased by $16.1 million or 75% during fiscal 1999 as
compared to fiscal 1998. The gross profit margin increased to 14.9% during
fiscal 1999 as compared to 13.4% in fiscal 1998. The increase in gross profit
was primarily due to strength in the overall homebuilding industry combined
with higher revenues which decreased fixed costs as a percentage of revenue.

Selling, general and administrative expenses increased by $5.6
million to $26.1 million in fiscal 1999 from $20.5 million in fiscal 1998. As
a percentage of net sales, selling, general and administrative expenses
decreased to 10.3% in fiscal 1999 from 12.8% in fiscal 1998. This decrease
was primarily due to the increase in home sales during fiscal 1999.

<PAGE>

Interest expense was $2.7 million in fiscal 1999 as compared to $2.0
million in fiscal 1998. The increase in interest expense is primarily due to
an increase in borrowings under the Company's revolving credit facility used
to fund the increased level of business activity. The Company capitalizes
certain interest costs for land development and includes such capitalized
interest in cost of sales when the related homes are delivered to purchasers.
Total interest incurred by the Company was approximately $5.2 million for
fiscal 1999 and $5.1 million for fiscal 1998.

The Company's tax rate was approximately 41% in fiscal 1999 and 1998
which reflects the federal statutory rate plus the effect of state taxes, net
of federal benefit.

Net income increased from a net loss of $598,000 in fiscal 1998 to a
net gain of $5,177,000 in fiscal 1999. This increase was primarily due to the
increase in home sales during fiscal 1999.

YEAR ENDED MARCH 31, 1998 COMPARED TO THE YEAR ENDED MARCH 31, 1997

The Company's home sales decreased $19.6 million or 11% during
fiscal 1998 as compared to fiscal 1997 as a result of a 18.9% decrease in the
number of homes closed which was partially offset by a 9% increase in the
average sales price of homes closed. The decrease in the number of homes
closed was principally due to delays in opening new communities for sales in
New Jersey, Minneapolis and Iowa which resulted in those projected closings
being pushed to fiscal 1999. This also accounts for a portion of the increase
in backlog at March 31, 1998.

Gross profit decreased by $2.6 million or 11% during fiscal 1998 as
compared to fiscal 1997. Gross profit margins remained constant at 13% during
both years. The decrease in gross profit was primarily due to the decrease in
home sales during fiscal 1998.

Selling, general and administrative expenses increased by $972,000
to $20.5 million in fiscal 1998 from $19.6 million in fiscal 1997. As a
percentage of net sales, selling, general and administrative expenses
increased to 12.8% in fiscal 1998 from 10.8% in fiscal 1997. This increase
was primarily due to the decrease in home sales during fiscal 1998.

Interest expense was $2.0 million in fiscal 1998 as compared to
$958,000 in fiscal 1997. The increase in interest expense is primarily due to
the Company terminating capitalizing interest on a piece of commercial land
that it has held for approximately ten years. This land is currently for sale
and has a book value of about $9.0 million. The Company capitalizes certain
interest costs for land development and includes such capitalized interest in
cost of sales when the related homes are delivered to purchasers.
Accordingly, total interest incurred by the Company was approximately $5.1
million for fiscal 1998 and $5.2 million for fiscal 1997.

The Company's tax rate was approximately 41% in fiscal 1998 and 1997
which reflects the federal statutory rate plus the effect of state taxes, net
of federal benefit.

Net income decreased from $1.2 million in fiscal 1997 to a net loss
of $598,000 in fiscal 1998. This decrease was primarily due to the decrease
in home sales, increased interest expense and a slight increase in selling,
general and administrative expenses for which the Company invested in
increased advertising and overhead to fund an expected increase in home sales
in fiscal 1999 as witnessed by the large increase in backlog at March 31,
1998.

LIQUIDITY AND CAPITAL RESOURCES

Cash flows provided by operating activities increased $7.6 million
from $4.4 million in fiscal 1998 to $12.0 million in fiscal 1999. This
increase was primarily due to increased income. Cash flows used for investing
activities were not significant. Cash flows used for financing activities
increased by $3.2 million from $6.1 million in fiscal 1998 to $9.3 million in
fiscal 1999.

Cash flows provided by (used for) operating activities increased
$14.2 million from ($9.8) million in fiscal 1997 to $4.4 million for fiscal
1998. This increase was primarily due to decreased investments in residential
housing completed

<PAGE>

and under construction resulting from the decrease in sales activity,
combined with the lower level of inventory homes at March 31, 1998. Cash
flows used for investing activities were not significant. Cash flows provided
by (used for) financing activities decreased by $19.9 million from $13.7
million in fiscal 1997 to ($6.1) million in fiscal 1998. This decrease was
primarily due to reduced borrowings under the company's revolving credit
facility to finance the lower levels of land inventory and residential
housing completed and under construction.

The Company's financing needs depend primarily upon sales volume,
asset turnover, land acquisition and inventory balances. In December 1994,
the Company issued $25 million of 12.11% Senior Notes payable and in February
1996, the Company issued an additional $10 million of 9.42% Senior Notes
payable (collectively referred to as the "Senior Notes"). Proceeds were used
to retire certain mortgage notes payable and for working capital purposes.
Principal and interest payments of approximately $552,000 are due monthly
through December 2003.

At March 31, 1999, the Company also had a $30.0 million unsecured
revolving credit facility from a commercial lender. Borrowings under this
facility totaled $10.3 million at March 31, 1999. The Company believes that
amounts available under its existing borrowing arrangements (assuming
extensions and renewals of debt in the ordinary course of business) and
amounts generated from operations will provide funds adequate for its
home-building activities and debt service. The Company had no significant
commitments as of March 31, 1999 requiring the use of funds.

Due to lower than expected financial results for the fiscal year
ended March 31, 1998, the Company was not in compliance with certain
financial covenants under both its Senior Note agreements and its revolving
credit facility. All of the Company's lenders agreed to waive the violations
and in addition the agreements were amended. The Company will pay an
additional $100,000 principal per month amortization on the Senior Notes for
the remaining life of the notes.

The Company has generally been able to secure financing for its
acquisition, development and construction activities, and management believes
that such arrangements will continue to be available on terms satisfactory to
the Company. There can be no assurance, however, that continued financing for
land acquisitions will be available or, if available, will be on terms
satisfactory to the Company.

INFLATION AND EFFECTS OF CHANGING PRICES

Real estate and residential housing prices are affected by
inflation, which can cause increases in the price of land, raw materials and
subcontracted labor. Unless such costs are recovered through higher sales
prices, gross profit margins will decrease. As interest rates increase,
construction and financing costs, as well as the cost of borrowing funds,
also increase which can result in lower gross profits. High mortgage interest
rates would make it more difficult for the Company's customers to qualify for
home mortgage loans. These factors have a much more significant effect on the
Company's operations than does seasonality, in part because homes can be
constructed year-round.

YEAR 2000 CONSIDERATIONS

Management believes that the Company's core selling and construction
operations are largely unautomated and would continue uninterrupted even in
the event of Year 2000 problems. As for accounting and administration, the
Company has already upgraded its software, which has been tested and found to
be Year 2000 compliant.

The manufacturer of the computer system on which Rottlund central
accounting and management information systems resides has certified that its
hardware and operating system software are Year 2000 compliant. The Company's
applications software has been tested in the course of normal maintenance.
Equipment and software peripheral to Rottlund's central system are being
tested for Year 2000 compliance. Any replacements or upgrades required are
expected to be complete by mid-1999.

<PAGE>

The cost and timing of upgrades to hardware and software corrections
are not deemed to be materially different than normally scheduled upgrades.
Expenditures to date and future expenditures are not expected to exceed
$100,000.

Management's contingency plans, which are intended to enable the
Company to continue to operate normally, include performing some procedures
manually, changing suppliers, if necessary, and repairing or obtaining
replacement systems.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's exposure to market risk for changes in interest rates
relates primarily to the Company's short-term borrowings and long-term debt
obligations.

The Company's credit facility carries interest rate risk that is
generally related to the federal funds rate. If that rate were to change
while the Company was borrowing under the facility, interest expense would
increase or decrease accordingly. As of March 31, 1999, there was $10.3
million under this facility.

The Company has no earnings or cash flow exposure due to market risks
on its Senior Notes payable as a result of the fixed-rate nature of the debt.
However, interest rate changes would affect the fair market value of the debt.
At March 31, 1999, the Company had fixed rate debt of $26.7 million maturing
in December 2003.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements of the Company as of March 31, 1999 and
1998 and for the years then ended together with the Report of Independent
Public Accountants are included in this Form 10-K on the pages indicated
below.

THE ROTTLUND COMPANY, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Public Accountants.................................................................. 14

Consolidated Balance Sheets as of March 31, 1999 and 1998................................................. 15

Consolidated Statements of Operations for the Years Ended March 31, 1999, 1998 and 1997................... 16

Consolidated Statements of Shareholders' Equity for the Years Ended March 31, 1999, 1998 and 1997......... 17

Consolidated Statements of Cash Flows for the Years Ended March 31, 1999, 1998 and 1997................... 18

Notes to Consolidated Financial Statements................................................................ 19

</TABLE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES

None.

<PAGE>

ARTHUR ANDERSEN LLP

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To The Rottlund Company, Inc.:

We have audited the accompanying consolidated balance sheets of The Rottlund
Company, Inc. (a Minnesota corporation) and Subsidiaries as of March 31, 1999
and 1998, and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the three years in the period
ended March 31, 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 financial statements referred to above present fairly, in
all material respects, the financial position of The Rottlund Company, Inc.
and Subsidiaries as of March 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period
ended March 31, 1999, in conformity with generally accepted accounting
principles.

ARTHUR ANDERSEN LLP

Minneapolis, Minnesota,
May 12, 1999

<PAGE>

THE ROTTLUND COMPANY, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

As of March 31

(In Thousands, Except Per Share Data)

<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
ASSETS

CASH AND CASH EQUIVALENTS $ 6,558 $ 4,247

ESCROW AND OTHER RECEIVABLES 2,607 2,520

LAND, DEVELOPMENT COSTS AND FINISHED LOTS 46,315 47,247

RESIDENTIAL HOUSING COMPLETED AND UNDER CONSTRUCTION 23,727 27,132

PROPERTY AND EQUIPMENT, net 941 1,251

DEFERRED INCOME TAXES 1,605 1,164

OTHER ASSETS, net 7,612 4,720
------- -------
$89,365 $88,281
------- -------
------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY

LIABILITIES:
Revolving credit facility $10,285 $15,010
Senior notes payable 26,731 30,925
Mortgage notes payable 1,451 1,972
Accounts payable 8,905 11,553
Accrued liabilities 6,132 2,506
Income taxes payable 4,263 -
------- -------
Total liabilities 57,767 61,966
------- -------
------- -------

COMMITMENTS AND CONTINGENCIES (Note 6)

SHAREHOLDERS' EQUITY:
Preferred stock, $.10 par value, 10,000 shares authorized;
none issued - -
Common stock, $.10 par value, 40,000 shares authorized; 5,773 and
5,745 shares issued and outstanding 143 141
Paid-in capital 11,851 11,747
Retained earnings 19,604 14,427
------- -------
Total shareholders' equity 31,598 26,315
------- -------
$89,365 $88,281
------- -------
------- -------

</TABLE>

The accompanying notes are an integral part of these consolidated balance
sheets.

<PAGE>

THE ROTTLUND COMPANY, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

For the Years Ended March 31

(In Thousands, Except Per Share Data)

<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
NET SALES $252,675 $160,830 $180,457

COST OF SALES 215,074 139,284 156,332
-------- -------- --------
Gross profit 37,601 21,546 24,125

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 26,112 20,541 19,569

WRITE-DOWN OF LAND - - 1,500
-------- -------- --------
Operating income 11,489 1,005 3,056

INTEREST EXPENSE 2,714 2,018 958
-------- -------- --------
Income (loss) before provision (benefit) for income taxes 8,775 (1,013) 2,098

PROVISION (BENEFIT) FOR INCOME TAXES 3,598 (415) 862
-------- -------- --------
Net income (loss) $ 5,177 $ (598) $ 1,236
-------- -------- --------
-------- -------- --------
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE $ 0.90 $ (0.10) $ 0.22
-------- -------- --------
-------- -------- --------

</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

<PAGE>

THE ROTTLUND COMPANY, INC. AND SUBSIDIARIES

Consolidated Statements of Shareholders' Equity

For the Years Ended March 31

(In Thousands)

<TABLE>
<CAPTION>
Common Stock
-------------------- Paid-In Retained
Shares Amount Capital Earnings Total
------ ------ ------- --------- -------
<S> <C> <C> <C> <C> <C>
BALANCE, March 31, 1996 5,683 $134 $11,473 $13,789 $25,396
Net income - - - 1,236 1,236
Stock issued under employee stock purchase plan 22 3 125 - 128
Stock options exercised 11 1 58 - 59
----- ---- ------- ------- -------
BALANCE, March 31, 1997 5,716 138 11,656 15,025 26,819
Net loss - - - (598) (598)
Stock issued under employee stock purchase plan 29 3 91 - 94
----- ---- ------- ------- -------
BALANCE, March 31, 1998 5,745 141 11,747 14,427 26,315
Net income - - - 5,177 5,177
Stock issued under employee stock purchase plan 28 2 104 - 106
----- ---- ------- ------- -------
BALANCE, March 31, 1999 5,773 $143 $11,851 $19,604 $31,598
----- ---- ------- ------- -------
----- ---- ------- ------- -------
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

<PAGE>

THE ROTTLUND COMPANY, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

For the Years Ended March 31

(In Thousands)

<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 5,177 $ (598) $ 1,236
Adjustments to reconcile net income (loss) to net cash provided by
(used for) operating activities-
Depreciation and amortization 790 626 479
Write-down of land - - 1,500
Deferred income taxes (441) 186 (833)
Change in operating items:
Escrow and other receivables (87) (1,008) 483
Land, development costs and finished lots 932 1,989 (1,797)
Residential housing completed and under construction 3,405 5,457 (6,878)
Other assets (3,002) (1,012) (1,457)
Accounts payable (2,648) 2,264 (1,475)
Accrued liabilities 3,626 (1,573) 158
Income taxes payable 4,263 (1,910) (1,181)
------- ------- -------
Net cash provided by (used for) operating activities 12,015 4,421 (9,765)
------- ------- -------
INVESTING ACTIVITIES:
Purchase of property and equipment, net (370) (1,054) (383)
Other - - (13)
------- ------- -------
Net cash used for investing activities (370) (1,054) (396)
------- ------- -------
FINANCING ACTIVITIES:
Proceeds from (repayments of) revolving credit facility, net (4,725) (175) 14,685
Repayments of senior notes payable (4,194) (2,943) (1,132)
Proceeds from issuance of mortgage notes payable 1,094 174 5,205
Repayments of mortgage notes payable (1,615) (3,286) (5,205)
Proceeds from stock options exercised - - 59
Proceeds from stock issued under employee stock purchase plan 106 94 128
------- ------- -------
Net cash provided by (used for) financing activities (9,334) (6,136) 13,740
------- ------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,311 (2,769) 3,579

CASH AND CASH EQUIVALENTS:
Beginning of year 4,247 7,016 3,437
------- ------- -------
End of year $ 6,558 $ 4,247 $ 7,016
------- ------- -------
------- ------- -------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest, net of amounts capitalized $ 2,714 $2,025 $ 906
------- ------- -------
------- ------- -------
Cash paid for income taxes $ - $2,022 $ 2,948
------- ------- -------
------- ------- -------
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

<PAGE>

THE ROTTLUND COMPANY, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

March 31, 1999 and 1998

1. BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

NATURE OF BUSINESS

The Rottlund Company, Inc. (a Minnesota corporation) and its subsidiaries,
collectively referred to as the Company, are engaged in the design,
construction, marketing and sale of residential real estate. The Company's
primary developments are in Minnesota, with additional development sites in
Iowa, Florida, Indiana and New Jersey; accordingly, the Company's operations
can be impacted significantly by the residential real estate market
conditions in each of these geographic areas.

During fiscal year 1998, the Company disposed of a wholly owned subsidiary
which was engaged in the business of originating residential mortgage loans
as a correspondent for various mortgage banking companies. Through the date
of disposal, such mortgage activity was not significant. The reserves the
Company established in fiscal year 1997 were adequate to cover the costs the
Company incurred to dispose of this subsidiary.

The Company has generally been able to secure financing for its acquisition,
development and construction activities, and management believes that such
arrangements will continue to be available on terms satisfactory to the
Company. However, there can be no assurance that continued financing for land
acquisitions will be available or, if available, will be on terms
satisfactory to the Company.

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of
The Rottlund Company, Inc. and its wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.

USE OF 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 revenues and expenses during the reporting period.
Ultimate results could differ from those estimates.

REVENUE RECOGNITION

Revenue from sales of properties is recognized upon a formal closing and
conveyance of title to the buyer. Escrow receivables represent funds held in
escrow because the Company is obligated to perform minor activities
subsequent to a formal closing. Customer earnest money deposits received
under binding purchase agreements are reflected as accrued liabilities until
a formal closing.

<PAGE>

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents. As of March 31,
1999 and 1998, approximately $900,000 and $811,000, respectively, of cash and
cash equivalents was restricted for customer earnest money deposits.

LAND, DEVELOPMENT COSTS AND FINISHED LOTS

Direct costs related to land development, including land acquisition costs,
improvement and construction costs for clearing and grading, roads and
utility systems, architectural, surveying, engineering and legal fees, and
real estate taxes, are capitalized as costs of land. The Company also
capitalizes interest incurred in connection with land held for development up
to the point it is deemed fully realizable upon sale. Interest of
approximately $2,400,000, $2,942,000 and $4,196,000 was capitalized in fiscal
years 1999, 1998 and 1997, respectively. Aggregate development costs are
allocated to finished lots and charged to cost of sales upon a formal closing
and conveyance of title to the buyer.

During fiscal year 1997, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 121
requires that long-lived assets be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of the assets may
not be recoverable, and that impairment losses be recorded on long-lived
assets when indications of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. Prior to the adoption of SFAS No. 121, inventories were
recorded at the lower of cost or net realizable value for each parcel or
subdivision. Under SFAS No. 121, inventories to be held and used are stated
at cost unless a subdivision is determined to be impaired, in which case the
impaired inventories are written down following the provisions of SFAS No.
121. Write-downs of impaired inventories are recorded as adjustments to the
cost basis of the respective inventory.

The Company recorded a noncash write-down of land, development costs and
finished lots at development sites in Florida and Indiana of $1,500,000 in
fiscal year 1997. The impairment was determined by the Company's management
based on decreases in the market value of the sites as well as development
costs which were in excess of management's original estimates. Management
determined the fair value of these development sites based on various
methods, including discounted cash flow projections and evaluations of
comparable market prices of land, as appropriate. The write-down for
impairment of long-lived assets was calculated in accordance with the
requirements of SFAS No. 121, but was not necessitated by the implementation
of SFAS No. 121. Had the Company not adopted SFAS No. 121, a similar
write-down would have been required.

The estimation process involved in determining if assets have been impaired
and in determining fair value is inherently uncertain since it requires
estimates of current market yields, as well as future events and conditions.
Such future events and conditions include economic and market conditions, as
well as the availability of suitable financing to fund development and
construction activities. The realization of the estimates applied to the
Company's real estate projects is dependent upon future uncertain events and
conditions and, accordingly, the actual timing and amounts realized by the
Company may differ materially from the estimated fair values, as described
herein.

<PAGE>

RESIDENTIAL HOUSING COMPLETED AND UNDER CONSTRUCTION

Residential housing completed and under construction represents the direct
costs of construction of single-family and multifamily home projects,
excluding land costs. Residential housing is valued at the lower of cost or
estimated fair value.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Additions and major renewals are
capitalized, while maintenance and repairs are charged to expense as
incurred. Depreciation is provided using accelerated methods, principally
over three to five years for model home furnishings and five to seven years
for furniture and equipment. Accumulated depreciation totaled $878,000 and
$780,000 as of March 31, 1999 and 1998, respectively.

OTHER ASSETS

Other assets consists primarily of the excess of the purchase price paid for
business acquisitions over the net assets acquired, deferred financing costs
and deposits for the option to acquire land. The excess of the purchase price
paid for business acquisitions over the net assets acquired is being
amortized over 20 years, with accumulated amortization of $220,000 and
$147,000 as of March 31, 1999 and 1998, respectively. Deferred financing
costs are amortized over the lives of the respective financing agreements,
with accumulated amortization of $163,000 and $125,000 as of March 31, 1999
and 1998, respectively. Deposits for the option to acquire land are
capitalized as land, development costs and finished lots at the time of
exercise or are charged to expense upon expiration.

INCOME TAXES

The Company recognizes deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax liabilities and
assets are determined based on the difference between the financial statement
and tax bases of assets and liabilities using currently enacted tax rates.

PRODUCT WARRANTY

The Company warrants its residential housing for periods of 10 and 15 years.
The Company purchases insurance coverage for periods after two years.
Warranty costs are estimated at the time of sale and adjusted annually to
reflect ultimate experience. Product warranty costs are included in cost of
sales in the accompanying consolidated statements of operations.

ADVERTISING

The Company's advertising expense amounted to $1,848,000, $2,316,000 and
$1,795,000 in fiscal years 1999, 1998 and 1997, respectively.

NET EARNINGS (LOSS) PER SHARE

The Company adopted SFAS No. 128, "Earnings per Share," effective December
31, 1997. As a result, all prior periods presented have been restated to
conform to the provisions of SFAS No. 128, which requires presentation of
basic and diluted earnings per share. Basic earnings per share is computed by
dividing net income available to common shareholders by the

<PAGE>

weighted average number of common shares outstanding during the year. Diluted
earnings per share is computed under the treasury stock method and is
calculated to reflect the dilutive effect of the Company's stock option
plans. A reconciliation of these amounts is as follows (in thousands, except
per share and antidilutive stock options data):

1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Net income (loss) $ 5,177 $ (598) $ 1,236
------- ------- -------
------- ------- -------
Weighted average number of common
shares outstanding:
Basic 5,773 5,745 5,712
Dilutive effect of stock options - - 23
------- ------- -------
Common and potential common
shares outstanding:
Diluted 5,773 5,745 5,735
------- ------- -------
------- ------- -------
Basic earnings (loss) per share $ 0.90 $ (0.10) $ 0.22
------- ------- -------
------- ------- -------
Diluted earnings (loss) per share $ 0.90 $ (0.10) $ 0.22
------- ------- -------
------- ------- -------
Antidilutive stock options 838,102 535,102 484,734
------- ------- -------
------- ------- -------

</TABLE>

Stock options were antidilutive because they had an exercise price greater
than the average market price during the year or due to the net loss.

The adoption of SFAS No. 128 had no effect on the Company's previously
reported earnings per share (EPS) for fiscal year 1997.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In 1998, the American Institute of Certified Public Accountants issued
Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use," and SOP 98-5, "Reporting on
the Costs of Start-up Activities." Additionally, SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information," were issued in
1998. The Company adopted these pronouncements in fiscal year 1999 as
required. The adoptions did not have a material effect on the Company's
financial position or results of operations.

2. DEBT:

REVOLVING CREDIT FACILITY

In March 1998, the Company entered into an unsecured revolving credit
agreement (the Credit Facility) with a group of banks that provides
borrowings of up to $30 million, of which $5 million may be used for letters
of credit. Borrowings under the Credit Facility are subject to a borrowing
base calculation based on a defined percentage of land, development costs,
finished lots and the working capital of the Company. Borrowings under the
Credit Facility bear interest at the federal funds rate plus 0.5% (8.25% as
of March 31, 1999). As of March 31, 1999, borrowings outstanding under the
Credit Facility's line of credit totaled $10,285,000, and

<PAGE>

$19,715,000 was available for borrowing under the calculation described
above. The Credit Facility expires in March 2002.

During fiscal years 1999, 1998 and 1997, the maximum balance outstanding
under current and former revolving credit facilities was $21,835,000,
$20,860,000 and $16,585,000, and the average balance was $18,151,000,
$12,359,000 and $9,507,000, respectively. The weighted average interest rate
during such years was 8.7%, 9.5% and 8.9%, respectively. The carrying amount
of borrowings outstanding under the Credit Facility as of March 31, 1999 and
1998 approximates its fair value due to its current maturities and/or
variable interest rates.

SENIOR NOTES PAYABLE

In December 1994, the Company issued $25 million of 12.1% senior notes
payable, and in February 1996, the Company issued an additional $10 million
of 9.4% senior notes payable (collectively, the Senior Notes). Proceeds were
used to retire certain mortgage notes payable and for working capital
purposes. During fiscal year 1999, the Company paid an additional 0.5% of
interest on each of the senior notes. Subsequent to March 31, 1999, the rates
returned to their original rates (12.1% and 9.4%). Monthly payments of
varying amounts are due on the Senior Notes through December 2003. As of
March 31, 1999 and 1998, the fair value of the Senior Notes was approximately
$28,914,000 and $32,800,000, respectively.

MORTGAGE NOTES PAYABLE

Mortgage notes payable are primarily for the acquisition and development of
land, with fixed interest rates ranging from 8.0% to 9.0% and variable
interest rates at prime plus 1.0%. These nonrecourse notes are collateralized
by land, with a carrying cost of approximately $3,813,000 as of March 31,
1999, and mature at various dates through December 2001. The carrying amounts
of mortgage notes payable approximate their fair value due to their current
maturities and/or variable interest rates.

Scheduled annual maturities of the Senior Notes and mortgage notes payable as
of March 31, 1999 are as follows (in thousands):

Fiscal Year Amount
----------- -------
<S> <C>
2000 $ 6,077
2001 5,455
2002 5,948
2003 6,371
2004 4,331
-------
$28,182
-------
-------

</TABLE>

The Senior Notes and the Credit Facility contain various restrictive
covenants including, among others, certain financial covenants relating to
minimum consolidated tangible net worth and earnings levels, as well as
funding, borrowing base requirements, payment of dividends and maximum land
and construction limitations. The Company was in compliance with all
financial covenants as of March 31, 1999.

<PAGE>

Additionally, the Company has a separate agreement that provides letters of
credit. As of March 31, 1999 outstanding letters of credit totaled $1,600,000.

3. INCOME TAXES:

The following summarizes the provision (benefit) for income taxes for the
years ended March 31 (in thousands):

<TABLE>
<CAPTION>
1999 1998 1997
------ ----- ------
<S> <C> <C> <C>
Current:
Federal $3,575 $(606) $1,346
State 464 5 349
Deferred (441) 186 (833)
------ ----- ------
Provision (benefit) for income taxes $3,598 $(415) $ 862
------ ----- ------
------ ----- ------
</TABLE>

The components of deferred income taxes consist of the following as of March
31 (in thousands):

<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Inventory $ 904 $ 606
Warranty reserves 396 144
Other accrued liabilities 171 93
State--net operating loss carryforward - 191
Other 134 130
------ ------
Deferred income tax asset $1,605 $1,164
------ ------
------ ------

</TABLE>

A reconciliation of the Company's statutory federal income tax rate to the
effective tax rate is as follows for the years ended March 31:

1999 1998 1997
------ ----- ------
<S> <C> <C> <C>

Statutory federal rate 34.0% 34.0% 34.0%
State income taxes, net of federal benefit 6.0 6.0 5.8
Other 1.0 1.0 1.3
------ ----- ------
Effective tax rate 41.0% 41.0% 41.1%
------ ----- ------
------ ----- ------
</TABLE>

4. EMPLOYEE STOCK PLANS:

STOCK OPTION PLANS

The Company has a stock option plan (the Plan) which provides for the
granting of options to designated employees, nonemployees and consultants of
the Company to purchase up to an aggregate of 1,300,000 shares of common
stock at an exercise price not less than the fair market value of the common
stock on the dates the options are granted. The options become exercisable in
equal amounts over a five-year period from the date of grant and expire ten
years

<PAGE>

from the date of grant. Certain options granted during fiscal year 1999 have
a vesting period of seven years, yet are accelerated if certain financial
targets are met each year.

The Company also has a director stock option plan (DSOP), pursuant to which
100,000 shares of common stock have been reserved for the granting of stock
options to the Company's outside directors. Under the DSOP, the Company
granted initial options for the purchase of 1,000 shares to each of the two
outside directors and thereafter will grant stock options for the purchase of
1,000 additional shares of common stock annually for each year of continued
service on the board. Each option is granted at fair market value on the date
of grant and is exercisable for a period of four years, commencing one year
after the date of grant.

The following table summarizes activity in the stock option plans:

Weighted
Average
Number of Shares Exercise
-------------------
The Plan DSOP Price
------- ------ -----
<S> <C> <C> <C>
Balance, March 31, 1996 428,340 5,000 $6.59
Granted 166,196 2,000 5.38
Exercised (10,420) - 5.62
Canceled (8,480) (3,000) 5.87
------- ------ -----
Balance, March 31, 1997 575,636 4,000 6.26
Canceled (40,534) - 6.37
------- ------ -----
Balance, March 31, 1998 535,102 4,000 5.55
Granted 303,000 2,000 4.56
------- ------ -----
Balance, March 31, 1999 838,102 6,000 $5.31
------- ------ -----
------- ------ -----
Options exercisable as of March 31, 1999 456,179 6,000 $5.96
------- ------ -----
------- ------ -----
Shares available for future grants 442,998 90,000
------- ------
------- ------

</TABLE>

Shares outstanding under the stock option plans as of March 31, 1999 have
exercise prices ranging from $4.00 to $8.53 and a weighted average remaining
contractual life of 7.9 years.

<PAGE>

The Company follows the provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation." As permitted by SFAS No. 123, the Company has
elected to continue to account for its stock option plans under the
provisions of APB Opinion No. 25, under which no compensation costs have been
recognized. Because the measurement provisions of SFAS No. 123 have not been
applied to options granted prior to April 1, 1995, the resulting pro forma
compensation costs may not be representative of those to be expected in
future years. Had compensation costs for these plans been recorded at fair
value consistent with the provisions of SFAS No. 123, the Company's net
income (loss) and earnings (loss) per share would have been as follows:

<TABLE>
<CAPTION>
1999 1998
------ -----
<S> <C> <C>
Net income (loss) (in thousands):
As reported $5,177 $(598)
Pro forma 4,959 (713)

Basic and diluted earnings (loss) per share:
As reported $ 0.90 $(.10)
Pro forma 0.86 (.12)

</TABLE>

The weighted average fair value of stock options granted in fiscal 1999 was
$1.72.

The fair value of each option is estimated on the date of grant using the
Black-Scholes option pricing model. The following assumptions were used to
estimate the fair value of options granted in the fiscal years (no options
were granted in 1998):

1999 1997
----------- -----------
<S> <C> <C>
Risk-free interest rate 4.33%-6.74% 5.97%-6.11%
Expected life 5-10 years 5-10 Years
Expected volatility 42% 34%-36%
Expected dividend yield None None

</TABLE>

EMPLOYEE STOCK PURCHASE PLAN

The Company sponsors an employee stock purchase plan (the Purchase Plan). A
total of 250,000 shares of common stock are reserved for issuance under the
Purchase Plan. The Purchase Plan permits eligible employees to purchase
common stock at 85% of the lower fair market value of the common stock at
certain dates. During the years ended March 31, 1999, 1998 and 1997, employee
contributions of approximately $106,000, $94,000 and $128,000, respectively,
were used to purchase common stock under the terms of the Purchase Plan.

5. RETIREMENT SAVINGS PLAN:

The Company sponsors a 401(k) profit-sharing plan which covers all employees
over the age of 20 1/2 years who elect to participate. The Company may, at
its discretion, make contributions to the 401(k) plan. All plan contributions
vest in equal installments over a five-year period. The Company contributed
$191,000, $80,000 and $83,000 to the 401(k) plan in fiscal years 1999, 1998
and 1997, respectively.

<PAGE>

6. COMMITMENTS AND CONTINGENCIES:

LETTERS OF CREDIT AND BONDS

Letters of credit are issued by banks, and bonds are issued by insurance
companies on behalf of the Company during the ordinary course of business, as
required by certain development agreements with municipalities. As of March
31, 1999, the Company had outstanding letters of credit totaling $1,600,000
and outstanding bonds totaling $5,000,000.

LITIGATION

The Company is party to certain claims arising in the ordinary course of
business. In the opinion of management, based upon the advice of legal
counsel, the outcomes of such claims are not expected to be material to the
Company's financial position, results of operation or cash flows.

LEASES

The Company is obligated under various noncancelable operating leases for
office facilities and certain equipment. Rental expense under these
agreements, excluding leaseback of model homes, was approximately $728,000,
$714,000 and $866,000 in fiscal years 1999, 1998 and 1997, respectively.

Future minimum lease payments required under noncancelable operating lease
agreements are as follows (in thousands):

Fiscal Year Amount
----------- ------
<S> <C>
2000 $ 604
2001 413
2002 274
2003 231
2004 205
Thereafter 312
------
$2,039
------
------
</TABLE>

During fiscal years 1999 and 1998, the Company entered into three agreements
for the sale and leaseback of 21 and 10, respectively, of its model homes in
Minnesota and New Jersey for approximately $3,602,000 and $1,400,000,
respectively, which resulted in the recognition of an approximately $518,000
gain in fiscal year 1999. The lease term on the individual model homes is
month-to-month, and rental expense for fiscal year 1999 was approximately
$335,000.

EMPLOYMENT AGREEMENTS

The Company has entered into employment agreements with certain members of
management which expire on January 31, 2000. The agreements provide for,
among other things, compensation and benefits, termination of employment,
severance payments and the employment term under a change in control.

<PAGE>

7. QUARTERLY FINANCIAL INFORMATION (UNAUDITED):

The following is a condensed summary of quarterly results of operations for
fiscal years 1999 and 1998 (in thousands, except per share data):

Basic and
Diluted
Net Earnings
Gross Income (Loss) Per
Net Sales Profit (Loss) Share
--------- ------- ------ ----------
<S> <C> <C> <C> <C>
Fiscal year 1999:
First quarter $ 51,355 $ 6,870 $ 347 $ 0.06
Second quarter 63,782 9,700 1,318 0.23
Third quarter 58,786 8,729 1,023 0.18
Fourth quarter 78,752 12,302 2,489 0.43
-------- ------- ------ ------
$252,675 $37,601 $5,177 $ 0.90
-------- ------- ------ ------
-------- ------- ------ ------
Fiscal year 1998:
First quarter $ 42,704 $ 6,076 $ 454 $ 0.08
Second quarter 41,674 5,642 94 0.02
Third quarter 32,008 4,082 (732) (0.13)
Fourth quarter 44,444 5,746 (414) (0.07)
-------- ------- ------ ------
$160,830 $21,546 $ (598) $(0.10)
-------- ------- ------ ------
-------- ------- ------ ------
</TABLE>

<PAGE>

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information regarding the directors of the Company is incorporated
herein by reference to the descriptions set forth under the caption "Election
of Directors" in the Proxy Statement for Annual Meeting of Shareholders to be
held September 10, 1998 (the "1998 Proxy Statement"). Set forth below are the
names, ages and positions of the executive officers of the Company.

<TABLE>

<S> <C> <C>
David H. Rotter 52 President, Secretary and Director
Bernard J. Rotter 56 Vice President, Treasurer and Director
Todd M. Stutz 41 Executive Vice President and Director
John J. Dierbeck, III 53 Executive Vice President and Director
Lawrence B. Shapiro 43 Chief Financial Officer and Director

</TABLE>

The officers of the Company are elected annually and serve at the
discretion of the Board of Directors. None of the Company's officers is
employed pursuant to a written employment contract.

BACKGROUND OF EXECUTIVE OFFICERS

DAVID H. ROTTER is a founder of the Company and has been a member of
its Board of Directors since its inception. He served as the Company's Vice
President for 1973 through March 1990 and has served as its President from
April 1990 through the present. He has also served as the Company's secretary
since its inception. He is the brother of Bernard J. Rotter.

BERNARD J ROTTER has served as a Director, Vice President and
Treasurer of the Company since July 1984. He is the brother of David H.
Rotter.

TODD M. STUTZ was elected a Director of the Company in August 1992
and has served as Executive Vice President since June 1991. He joined the
Company in April 1989 and served as its Land Development Manager until June
1991. Between April 1980 and March 1989 he was employed by the Housing and
Redevelopment Authority of the City of Columbia Heights, Minnesota as
Executive Director.

JOHN J. DIERBECK, III was elected Executive Vice President in May
1996. He was elected a Director of the Company in August 1992. He served as
the Company's sales manager for more than five years prior to becoming an
Executive Vice President.

LAWRENCE B. SHAPIRO was elected Chief Financial Officer and a
Director of the Company in August 1992. Prior to that time, he served as the
Company's Controller.

ITEM 11. EXECUTIVE COMPENSATION

Information regarding executive compensation is incorporated herein
by reference to the information set forth under the caption "Executive
Compensation" in the 1999 Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information regarding security ownership of certain beneficial
owners and management of the Company is incorporated herein by reference to
the information set forth under the caption "Security Ownership of Certain
Beneficial Owners and Management" in the 1999 Proxy Statement.

<PAGE>

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information regarding certain relationships and related transactions
with the Company is incorporated herein by reference to the information set
forth under the caption "Certain Transactions" in the 1999 Proxy Statement.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) DOCUMENTS FILED WITH THIS REPORT.

(1) See index to consolidated financial statements on
page 13 of this report.

(2) All supplemental schedules are omitted because of the
absence of conditions under which they are required
or because the information is shown in the
Consolidated Financial Statements or notes thereto.

(b) REPORTS ON FORM 8-K. During the quarter ended March 31, 1999,
the Company filed no reports on Form 8-K with the Securities
and Exchange Commission.

Exhibit
Number Description
- ------- -----------
<S> <C>
3.1 The Company's Restated Articles of Incorporation.(1)
3.2 The Company's Bylaws.(1)
10.1 The Rottlund Company, Inc. 1992 Stock Option Plan.(1)
10.2 The Rottlund Company, Inc. 1992 Director Stock Option Plan.(1)
10.3 The Rottlund Company, Inc. Employee Stock Purchase Plan.(1)
10.4 Form of Shareholders Agreement.(1)
10.5 Note Agreement, dated as of December 2, 1994, by and among the Company
and the purchasers listed therein.(2)
10.6 Note Agreement, dated as of February 15, 1996, by and among the Company
and the purchasers listed therein.(3)
10.7 Letter Amendment, dated December 30, 1996, by and among the Company and
the note purchasers listed therein.(5)
10.8 Waiver and Amendment, dated March 31, 1997, by and among the Company
and the note purchasers listed therein.(5)
10.9 Waiver and Amendment, dated December 31, 1997, by and among the Company
and the note purchasers listed therein.(5)
10.10 Waiver and Amendment, dated as of March 31, 1998, by and among the Company and the note
purchasers listed therein.(5)
10.11 Credit Facility, dated October 23, 1996 with First National Bank of Boston.(4)
10.12 First Modification of Credit Agreement, dated November 19, 1996.(5)
10.13 Second Modification of Credit Agreement, dated December 24, 1996.(5)
10.14 Third Modification of Credit Agreement, dated January 18, 1997.(5)
10.15 Fourth Modification of Credit Agreement, dated June 25, 1997.(5)
10.16 Fifth Modification of Credit Agreement, dated January 15, 1998.(5)
10.17 Sixth Modification of Credit Agreement, dated July 10, 1998.(5)
10.18 Employment Agreement with John J. Dierbeck, dated February 1, 1999.
10.19 Change in Control Agreement with John J. Dierbeck, dated February 1, 1999.

<PAGE>

10.20 Employment Agreement with Todd M. Stutz, dated February 1, 1999.
10.21 Change in Control Agreement with Todd M. Stutz, dated February 1, 1999.
10.22 Employment Agreement with Lawrence B. Shapiro, dated February 1, 1999.
10.23 Change in Control Agreement with Lawrence B. Shapiro, dated February 1, 1999.
11 Computation of Per Share Earnings.
22 Subsidiaries of the Company.
23 Consent of Arthur Andersen LLP.
27.1 Financial Data Schedule.

- ------------------------
(1) Incorporated by reference to the Company's Registration Statement on
Form S-1, Registration No. 33-51726 (the "Form S-1").
(2) Incorporated by reference to the Company's filing on Form 10-K for the year
ended March 31, 1995.
(3) Incorporated by reference to the Company's filing on Form 10-K for the year
ended March 31, 1996.
(4) Incorporated by reference to the Company's filing on Form 10-Q for the
three month period ending December 31, 1996.
(5) Incorporated by reference to the Company's filing on Form 10-K for the year
ended March 31, 1998.

</TABLE>

<PAGE>

SIGNATURES

Pursuant to the requirements of section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.

THE ROTTLUND COMPANY. INC.
Dated: June 25, 1999
By /s/ David H. Rotter
------------------------
David H. Rotter
PRESIDENT, CHIEF EXECUTIVE
OFFICER AND DIRECTOR

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 and on the dates indicated.

SIGNATURE TITLE DATE

/s/ David H. Rotter President, Chief Executive Officer June 25, 1999
- -------------------------- and Director
David H. Rotter

/s/ Bernard J. Rotter Vice President, Treasurer and June 25, 1999
- -------------------------- Chairman of the Board
Bernard J. Rotter

/s/ John J. Dierbeck, III Executive Vice President and June 25, 1999
- -------------------------- Director
John J. Dierbeck, III

/s/ Lawrence B. Shapiro Chief Financial Officer and June 25, 1999
- -------------------------- Director (Principal Financial
Lawrence B. Shapiro and Accounting Officer)

/s/ Todd M. Stutz Executive Vice President and June 25, 1999
- -------------------------- Director
Todd M. Stutz

- -------------------------- Director
Dennis Doyle

- -------------------------- Director
Scott D. Rued

<PAGE>

EXHIBIT INDEX

Exhibit No. Exhibit
- ----------- -------
<S> <C>
10.18 Employment Agreement with John J. Dierbeck

10.19 Change in Control Agreement of John J. Dierbeck

10.20 Employment Agreement with Todd M. Stutz

10.21 Change in Control Agreement of Todd M. Stutz

10.22 Employment Agreement with Lawrence B. Shapiro

10.23 Change in Control Agreement of Lawrence B. Shapiro

11 Computation of Per Share Earnings

22 Subsidiaries of The Rottlund Company, Inc.

23 Consent of Arthur Andersen LLP

27.1 Financial Data Schedule

</TABLE>

<PAGE>

EXHIBIT 10.18

EMPLOYMENT AGREEMENT

EMPLOYMENT AGREEMENT ("Agreement") made effective February 1, 1999,
between THE ROTTLUND COMPANY, INC., a Minnesota corporation ("Company"), and
JOHN J. DIERBECK ("Executive").

W I T N E S S E T H

WHEREAS, the Executive is currently employed by the Company; and

WHEREAS, the Company desires to retain the unique experience, ability and
services of the Executive; and

WHEREAS, the terms, conditions and undertakings of this Agreement have
been duly approved and authorized by the Board of Directors of the Company;

NOW, THEREFORE, it is mutually agreed as follows:

1. EMPLOYMENT. The Company agrees to employ the Executive, and the
Executive agrees to be employed by the Company for the period stated in
paragraphs 4.1 or 4.2, as applicable, and upon the other terms and conditions
set forth in this Agreement.

2. SERVICE AND DUTIES. During the term of his employment under this
Agreement, the Executive agrees to perform the duties of his position or office
and such other duties of a similar nature as the Company or its Board of
Directors may from time to time assign to him. The Executive agrees to serve
the Company faithfully and to the best of his ability, and to devote his working
time, attention and efforts to the business and affairs of the Company. The
Executive's services will be rendered primarily at the Company's principal
executive offices in Minneapolis, Minnesota. The Executive may be required to
travel to other locations where the

<PAGE>

Company may have offices or conduct its business, as necessary to the proper
conduct of his duties.

3. COMPENSATION.

3.1. SALARY/BONUSES. For all services to be rendered by the Executive
under this Agreement, the Company agrees to pay, or cause to be paid, to the
Executive during the term of his employment under this Agreement a base salary
in an amount equal to the base salary the Executive was receiving immediately
prior to the effective date of this Agreement. In addition, the Executive shall
be entitled to receive a bonus in an amount per fiscal year not less than the
amount established according to the Company's bonus programs and practices that
are in effect immediately prior to the effective date of this Agreement.

3.2. EMPLOYEE BENEFIT PLANS/VACATION. In addition to the salary and
bonus provided in paragraph 3.1, the Executive shall be entitled during the term
of his employment under this Agreement to participate in the employee benefit
plans or programs of the Company to the extent that his position, title, tenure,
salary, age, health and other qualifications make him eligible to participate,
including, without limitation, in any retirement, pension, profit-sharing, stock
option, incentive compensation, bonus or similar plans or programs, and in any
insurance, hospital or other employee benefit plans which may now be in effect
or which may hereafter be adopted. The Executive shall be entitled to vacation
pursuant to the Company's vacation policy in effect immediately prior to the
effective date of this Agreement. The Company does not guarantee the adoption
or continuance of any particular employee benefit plans or programs, and the
Executive's participation in any such plan or program shall be subject to the
provisions, rules and regulations applicable thereto.

2
<PAGE>

4. TERM AND TERMINATION.

4.1 BASE TERM. Unless this paragraph is superseded by paragraph 4.2,
the term of the Executive's employment under this Agreement shall be for twelve
(12) months commencing on February 1, 1999 and ending on January 31, 2000,
except if his employment is terminated on or prior to January 31, 2000 for Good
Cause. If the Executive's employment is terminated under this section for Good
Cause, the Company will pay his salary under Section 3.1 pro rated through the
date of termination, plus any benefits due under Section 3.2 as of the date of
termination; the Executive, however, shall not receive any bonus under Section
3.1 if he is terminated for Good Cause. If the Executive's employment is
terminated under this section without Good Cause, or as a result of a
Constructive Discharge by the Company, the Company will pay the Executive: (a)
the full salary he otherwise would have received under Section 3.1 had he
remained employed by the Company through January 31, 2000; (b) any benefits due
the Executive under Section 3.2 as of the date of termination; and (c) a pro
rata portion of the bonus due the Executive under Section 3.1 for the
then-current fiscal year, calculated as of the date of the Executive's
termination, but not finally determined or payable until the 90th day following
the end of the then-current fiscal year.

4.2 TERM UPON A CHANGE IN CONTROL. If a Change in Control occurs
prior to January 31, 2000, and ultimately becomes effective through a closing of
the Change in Control transaction, the provisions of paragraph 4.1 shall be
superseded by this paragraph 4.2. If this section becomes effective, the
Executive's employment under the Agreement shall continue from the date the
Change in Control occurs until the first anniversary of the date the transaction
contemplated by the Change in Control is closed, unless the Executive's
employment is

3
<PAGE>

terminated for Good Cause on or prior to that anniversary date. If the
Executive's employment is terminated under this section for Good Cause, the
Company will pay him his salary under Section 3.1 pro rated through the date of
termination, plus any benefits due under Section 3.2 as of the date of
termination; the Executive, however, shall not receive any bonus under Section
3.1 if he is terminated for Good Cause. If the Executive's employment is
terminated under this section without Good Cause, or as a result of a
Constructive Discharge by the Company, the Company will pay him: (a) severance
of $120,000 within 30 days of such termination; (b) any benefits due the
Executive under Section 3.2 as of the date of termination; and (c) a pro rata
portion of the bonus due the Executive under Section 3.1 for the then-current
fiscal year, calculated as of the date of the Executive's termination, but not
finally determined or payable until June 30 of the then-current fiscal year.

4.3 TERMINATION UPON DEATH OR DISABILITY. If the Executive dies or
becomes Disabled during the term of this Agreement, his employment with the
Company shall terminate immediately upon his death or Disability, and the
Executive (or his personal representative) shall be entitled to receive his
salary through the date of his death or the first day of his Disability, plus
any benefits due the Executive under Section 3.2 as of the date of termination,
but shall be entitled to receive a bonus under Section 3.1 only if he meets the
requirements of the Company's bonus programs and practices as of the date of
death or Disability.

4.4 STOCK OPTIONS.

(a) If a Change in Control occurs, any stock options held by the
Executive (with the exception of Vision 2000 stock options) shall fully vest 30
days prior to the proposed closing date of the transaction contemplated by the
Change in Control.

4
<PAGE>

(b) With respect to any Vision 2000 stock options held by the
Executive:

(i) If the Executive's employment is terminated without
Good Cause or as the result of a Constructive Discharge prior to a
Change in Control, the Executive shall receive a pro rata portion
of the Vision 2000 stock options due to him in the fiscal year in
which the termination occurs; the number of Vision 2000 options to
which the Executive is entitled under this section shall be
determined, fully vested and exercisable 90 days following the end
of the fiscal year in which the termination occurs;

(ii) If a Change in Control occurs, the Executive shall
receive from the acquiror replacement options for the Vision 2000
stock options due him in the year the Change in Control occurs or,
if the acquiror's common stock is not publicly traded, the right
to earn the cash equivalent of those options. The replacement
options or the cash equivalent shall be provided to the Executive
within 90 days of the end of the fiscal year in which the Change
in Control occurs.

4.5. SURRENDER OF RECORDS AND PROPERTY. Upon termination of his
employment under this Agreement for any reason, the Executive agrees to deliver
promptly to the Company (or have his representative deliver promptly to the
Company) all records, manuals, books, blank forms, documents, letters,
memoranda, notes, notebooks, reports, data, tables, calculations or other
documents, or copies thereof, which are the property of the Company or which
relate in any way to the business, products, practices or techniques of the
Company, and all other property, trade secrets and confidential information of
the Company, including, but not limited to, all documents which in whole or in
part contain any trade secrets or confidential information of the Company,

5
<PAGE>

which in any of these cases are in his possession or under his control. The
Executive shall be permitted to retain personal correspondence, documents and
items which contain no trade secrets or confidential information.

5. DEFINITIONS.

5.1. CHANGE IN CONTROL. A "Change in Control" will occur under this
Agreement if 50% or more of the stock or assets of the Company is acquired by a
third party on or before January 31, 2000, or if the families of Bernard Rotter
and David Rotter (including all common stock held by Shirley Ann Rotter) do not
collectively own (either directly or beneficially) in excess of 50% of the
voting capital stock of the Company during this same time period. For purposes
of this Agreement, a Change in Control will be deemed to have occurred on the
date a contemplated transaction is executed by all parties to the transaction.

5.2. GOOD CAUSE. The Company may terminate the Executive's employment
for "Good Cause" in the event the Executive:

(a) is convicted, by a court of competent jurisdiction,
of a felony committed during the term of this Agreement
which adversely affects the Company; or

(b) confesses in writing to the commission of felony
during the term of this Agreement which adversely affects
the Company; or

(c) is convicted of, or confesses in writing to, the
embezzlement or misappropriation of funds of the Company,
which embezzlement or misappropriation was committed during
the term of this Agreement.

6
<PAGE>

5.3. CONSTRUCTIVE DISCHARGE. A "Constructive Discharge" will be deemed
to have occurred if, after a Change in Control: (1) the Company assigns you a
position, duties, responsibilities or status that are inconsistent with your
position, duties, responsibilities and/or status immediately prior to the Change
in Control; (2) there is a change in the titles or offices you held immediately
prior to the Change in Control; (3) the Company relocates you to a location that
is more than fifty (50) miles from the Company's current headquarters in
Roseville, Minnesota; (4) the Company reduces your base salary or fails to pay
you any compensation or benefits to which you are entitled within ten (10) days
of the date due; or (5) the Company breaches any of its obligations under this
Employment Agreement.

5.4. DISABILITY. The Executive shall be deemed to have become
Disabled, for purposes of this Agreement, in the event that he cannot, because
of illness, injury, or incapacity, render any services of the character
contemplated by this Agreement over a continuous period of 120 days.

5.5. SUCCESSORS AND ASSIGNS. For purposes of this Agreement,
"Successors and Assigns" shall mean a corporation or other entity acquiring all
or substantially all the stock, assets, and/or business of the Company
(including this Agreement) whether by agreement, operation of law, or otherwise.

6. MISCELLANEOUS.

6.1. GOVERNING LAW. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Minnesota without
giving effect to the conflict of laws principles thereof. Any action brought by
any party to this Agreement shall be

7
<PAGE>

brought and maintained in a court of competent jurisdiction in Hennepin County
in the State of Minnesota.

6.2. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto and supersedes all prior agreements, understandings,
and arrangements, oral or written, between the parties hereto with respect to
the subject matter covered by this Agreement.

6.3. SUCCESSORS/ASSIGNS. This Agreement shall be binding upon and
shall inure to the benefit of the Company, its Successors and Assigns, and the
Company shall require any Successors and Assigns to expressly assume and agree
to perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession or assignment had
taken place. Neither this Agreement nor any right or interest thereunder shall
be assignable or transferable by the Executive, his beneficiaries or legal
representatives, except by will or by the laws of descent and distribution.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's legal personal representative.

6.4. WITHHOLDING TAXES. The Company may withhold from any amounts
payable under this Agreement all federal, state, city or other taxes as may be
required pursuant to any law, governmental regulation or ruling, or which the
Company in good faith believes are required to be held pursuant to any law,
governmental regulation or ruling.

6.5. NO WAIVER. No provision of this Agreement may be modified,
waived, or discharged unless such modification, waiver, or discharge is agreed
to in writing and signed by the Executive and the Company. No waiver by either
party hereto at any time of any breach by the other party hereto or compliance
with, any condition or provision of this Agreement to be

8
<PAGE>

performed by such other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time.

6.6. NOTICES. For purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, to the recipient at
the address indicated below:

(a) If to the Company, to

The Rottlund Company, Inc.
2681 Long Lake Road
Roseville, Minnesota 55113
Attn: ___________________

(b) If to the Executive, to

_____________________
_____________________
_____________________

or such other address or to the attention of such other persons as the recipient
party shall have specified by prior written notice to the sending party.

6.7. SEVERABILITY. To the extent any provision of this Agreement shall
be found to be invalid or unenforceable, it shall be considered deleted from
this Agreement and the remainder of such provision and of this Agreement shall
be unaffected and shall continue in full force and effect. The Executive
acknowledges the uncertainty of the law in this respect and expressly stipulates
that this Agreement be given the construction which renders its provisions valid
and enforceable to the maximum extent (not exceeding its express terms) possible
under applicable law.

9
<PAGE>

THE ROTTLUND COMPANY, INC.

By: /s/ Bernard J. Rotter
----------------------------
Vice President

/s/ John J. Dierbeck
----------------------------
EXECUTIVE

<PAGE>

EXHIBIT 10.19

CHANGE IN CONTROL AGREEMENT

JOHN J. DIERBECK

This Change in Control Agreement (the "Agreement") between The Rottlund
Company, Inc., a Minnesota corporation (the "Company"), and JOHN J. DIERBECK
(the "Executive") is effective February 1, 1999.

WHEREAS, it is in the best interests of the Company and its stockholders
to retain the services of the Executive in the event of a threat or occurrence
of a Change in Control and to ensure his continued dedication and efforts in
such event without undue concern for his personal financial and employment
security; and

WHEREAS, in order to induce the Executive to remain in the employ of the
Company, particularly in the event of a threat or the occurrence of a Change in
Control, the Company desires to enter into this Agreement with the Executive to
provide the Executive with certain benefits if a Change in Control occurs;

NOW, THEREFORE, in consideration of the foregoing premises and the
covenants contained herein, the parties hereby agree as follows:

1. TERM OF AGREEMENT. Subject to the conditions set forth in Section
4, this Agreement shall continue in effect until January 31, 2000, unless a
Change in Control occurs on or prior to January 31, 2000, in which case this
Agreement shall continue in effect for six months after the closing of the
transaction constituting a Change in Control.

2. DEFINITIONS.

2.1 GOOD CAUSE. For purposes of this Agreement, "Good Cause"
means: (a) the conviction of the Executive, by a court of competent
jurisdiction, of a felony committed by the executive during the term of this
Agreement; (b) the written confession by the Executive of a felony committed
during the term of this Agreement; or (c) the conviction of or written
confession by the Executive to the embezzlement or misappropriation of funds of
the Company, which embezzlement or misappropriation was committed by the
Executive during the term of this Agreement.

2.2 CHANGE IN CONTROL. A "Change in Control" will occur under
this Agreement if 50% or more of the stock or assets of the Company is acquired
by a third party on or before January 31, 2000, or if the families of Bernard
Rotter and David Rotter (including all common stock held by Shirley Ann Rotter)
do not collectively own (either directly or beneficially) in excess of 50% of
the voting capital stock of the Company during this same time

<PAGE>

period. For purposes of this Agreement, a Change in Control will be deemed to
have occurred on the date a Sale Agreement is executed by all parties to the
transaction.

2.3 DISABILITY. The Executive shall be deemed to have become
"Disabled," for purposes of this Agreement, in the event that he cannot, because
of illness, injury, or incapacity, render any services of the character
contemplated by this Agreement over a continuous period of 120 days.

2.4 CONSTRUCTIVE DISCHARGE. A "Constructive Discharge" will be
deemed to have occurred if, after a Change in Control: (1) the Company assigns
the Executive a position, duties, responsibilities or status that are
inconsistent with the Executive's position, duties, responsibilities and/or
status immediately prior to the Change in Control; (2) there is a change in the
titles or offices the Executive held immediately prior to the Change in Control;
(3) the Company relocates the Executive to a location that is more than fifty
(50) miles from the Company's current headquarters in Roseville, Minnesota; (4)
the Company reduces the Executive's base salary or fails to pay the Executive
any compensation or benefits to which the Executive are entitled within ten (10)
days of the date due; or (5) the Company breaches any of its obligations under
this Agreement.

2.5. SUCCESSORS AND ASSIGNS. For purposes of this Agreement,
"Successors and Assigns" shall mean a corporation or other entity acquiring all
or substantially all the stock, assets, and/or business of the Company
(including this Agreement) whether by agreement, operation of law, or otherwise.

3. COMPENSATION UPON CHANGE IN CONTROL. If a Change in Control
occurs, the Company will pay the Executive a bonus of $125,000 six months after
the closing of the transaction constituting a Change in Control occurs, subject
to fulfillment of all the conditions described in Section 4.

4. CONDITIONS PRECEDENT TO PAYMENT OF BONUS. Payment of the bonus
under Section 3 is contingent on the Executive satisfying all of the following
conditions: (i) the Executive participates enthusiastically in any process to
sell the Company or substantially all of its assets; (ii) the Executive does not
voluntarily resign his employment (absent a Constructive Discharge) for six
months after the closing of the transaction constituting a Change in Control;
(iii) the Executive does not have his employment terminated for Good Cause;
(iv) the Executive keeps confidential all information relating to any sale
process (this confidentiality obligation means, among other things, that the
Executive will not discuss the amount or existence of the Executive's bonus
under this Agreement or any amounts payable under his Employment Agreement with
any other employee of the Company, other than Bud Rotter or David Rotter); and
(v) the Executive: (A) at or immediately before the signing of any definitive
purchase and sale agreement relating to the Change in Control (the "Sale
Agreement") and at or immediately before the closing of such Change in Control
transaction, delivers a certificate to the Company and its shareholders
certifying to the best of the Executive's knowledge that the representations and
warranties relating to the Company made in the Sale Agreement are true and
correct in all material respects on and as of the date of execution of the Sale
Agreement and on and as of such

<PAGE>

closing with the same force and effect as though made on and as of such closing
or, if the Executive has knowledge that such representations and warranties are
not true and correct in all material respects at the relevant times, certifying
to the best of the Executive's knowledge in which respects such representations
and warranties are not true and correct; and (B) at or immediately before such
closing delivers a certificate to the Company and its shareholders certifying to
the best of the Executive's knowledge that the Company has performed in all
material respects all of the covenants contained in the Sale Agreement required
to be performed by the Company by the time of such closing, or if the Executive
has knowledge that the Company has not performed such covenants in all material
respects by the time of such closing, certifying to the best of the Executive's
knowledge in which respects such covenants have not been performed.

5. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
shall inure to the benefit of the Company, its Successors and Assigns, and the
Company shall require any Successors and Assigns to expressly assume and agree
to perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession or assignment had
taken place. Neither this Agreement nor any right or interest thereunder shall
be assignable or transferable by the Executive, his beneficiaries or legal
representatives, except by will or by the laws of descent and distribution.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's legal personal representative.

6. NOTICES. For purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, to the recipient at
the address indicated below:

To the Company:

The Rottlund Company, Inc.

2681 Long Lake Road
Roseville, Minnesota 55113
Attn: __________________

To the Executive:

_______________________________
_______________________________
_______________________________

or such other address or to the attention of such other persons as the recipient
party shall have specified by prior written notice to the sending party.

7. WAIVER. No provision of this Agreement may be modified, waived,
or discharged unless such modification, waiver, or discharge is agreed to in
writing and signed by the Executive and the Company. No waiver by either party
hereto at any time of any breach by the

3
<PAGE>

other party hereto or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time.

8. GOVERNING LAW. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Minnesota without
giving effect to the conflict of laws principles thereof. Any action brought by
any party to this Agreement shall be brought and maintained in a court of
competent jurisdiction in Hennepin County in the State of Minnesota.

9. SEVERABILITY. To the extent any provision of this Agreement shall
be invalid or unenforceable, it shall be considered deleted from this Agreement
and the remainder of such provision and of this Agreement shall be unaffected
and shall continue in full force and effect. The Executive acknowledges the
uncertainty of the law in this respect and expressly stipulates that this
Agreement be given the construction which renders its provisions valid and
enforceable to the maximum extent (not exceeding its express terms) possible
under applicable law.

10. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto and supersedes all prior agreements, if any,
understandings, and arrangements, oral or written, between the parties hereto
with respect to the subject matter covered by this Agreement.

IN WITNESS WHEREOF, the parties have executed this Agreement effective as
of the day and year first above written.

THE COMPANY:

THE ROTTLUND COMPANY, INC.

By: /s/ Bernard J. Rotter
-----------------------------------
Chairman of the Board

THE EXECUTIVE:

/s/ John J. Dierbeck
--------------------------------------

<PAGE>

EXHIBIT 10.20
EMPLOYMENT AGREEMENT

EMPLOYMENT AGREEMENT ("Agreement") made effective February 1, 1999,
between THE ROTTLUND COMPANY, INC., a Minnesota corporation ("Company"), and
TODD M. STUTZ ("Executive").

W I T N E S S E T H

WHEREAS, the Executive is currently employed by the Company; and

WHEREAS, the Company desires to retain the unique experience, ability and
services of the Executive; and

WHEREAS, the terms, conditions and undertakings of this Agreement have
been duly approved and authorized by the Board of Directors of the Company;

NOW, THEREFORE, it is mutually agreed as follows:

2
<PAGE>

Company may have offices or conduct its business, as necessary to the proper
conduct of his duties.

3. COMPENSATION.

2
<PAGE>

4. TERM AND TERMINATION.

3
<PAGE>

terminated for Good Cause on or prior to that anniversary date. If the
Executive's employment is terminated under this section for Good Cause, the
Company will pay him his salary under Section 3.1 pro rated through the date of
termination, plus any benefits due under Section 3.2 as of the date of
termination; the Executive, however, shall not receive any bonus under Section
3.1 if he is terminated for Good Cause. If the Executive's employment is
terminated under this section without Good Cause, or as a result of a
Constructive Discharge by the Company, the Company will pay him: (a) severance
of $140,000 within 30 days of such termination; (b) any benefits due the
Executive under Section 3.2 as of the date of termination; and (c) a pro rata
portion of the bonus due the Executive under Section 3.1 for the then-current
fiscal year, calculated as of the date of the Executive's termination, but not
finally determined or payable until June 30 of the then-current fiscal year.

4.4 STOCK OPTIONS.

4
<PAGE>

(b) With respect to any Vision 2000 stock options held by the
Executive:

5
<PAGE>

5. DEFINITIONS.

5.2. GOOD CAUSE. The Company may terminate the Executive's employment
for "Good Cause" in the event the Executive:

(a) is convicted, by a court of competent jurisdiction,
of a felony committed during the term of this Agreement
which adversely affects the Company; or

(b) confesses in writing to the commission of felony
during the term of this Agreement which adversely affects
the Company; or

(c) is convicted of, or confesses in writing to, the
embezzlement or misappropriation of funds of the Company,
which embezzlement or misappropriation was committed during
the term of this Agreement.

6
<PAGE>

6. MISCELLANEOUS.

7
<PAGE>

brought and maintained in a court of competent jurisdiction in Hennepin County
in the State of Minnesota.

8
<PAGE>

performed by such other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time.

(a) If to the Company, to

The Rottlund Company, Inc.
2681 Long Lake Road
Roseville, Minnesota 55113
Attn:
----------------------

(b) If to the Executive, to

---------------------
---------------------
---------------------

or such other address or to the attention of such other persons as the recipient
party shall have specified by prior written notice to the sending party.

9
<PAGE>

THE ROTTLUND COMPANY, INC.

By: /s/ Bernard J. Rotter
---------------------------------
Vice President
------------------------------------

/s/ Todd M. Stutz
------------------------------------
EXECUTIVE

<PAGE>

EXHIBIT 10.21

CHANGE IN CONTROL AGREEMENT

TODD M. STUTZ

This Change in Control Agreement (the "Agreement") between The
Rottlund Company, Inc., a Minnesota corporation (the "Company"), and TODD M.
STUTZ (the "Executive") is effective February 1, 1999.

WHEREAS, it is in the best interests of the Company and its
stockholders to retain the services of the Executive in the event of a threat or
occurrence of a Change in Control and to ensure his continued dedication and
efforts in such event without undue concern for his personal financial and
employment security; and

WHEREAS, in order to induce the Executive to remain in the employ
of the Company, particularly in the event of a threat or the occurrence of a
Change in Control, the Company desires to enter into this Agreement with the
Executive to provide the Executive with certain benefits if a Change in Control
occurs;

NOW, THEREFORE, in consideration of the foregoing premises and the
covenants contained herein, the parties hereby agree as follows:

1. TERM OF AGREEMENT. Subject to the conditions set forth in
Section 4, this Agreement shall continue in effect until January 31, 2000,
unless a Change in Control occurs on or prior to January 31, 2000, in which case
this Agreement shall continue in effect for six months after the closing of the
transaction constituting a Change in Control.

2. DEFINITIONS.

2.1 GOOD CAUSE. For purposes of this Agreement, "Good
Cause" means: (a) the conviction of the Executive, by a court of competent
jurisdiction, of a felony committed by the executive during the term of this
Agreement; (b) the written confession by the Executive of a felony committed
during the term of this Agreement; or (c) the conviction of or written
confession by the Executive to the embezzlement or misappropriation of funds of
the Company, which embezzlement or misappropriation was committed by the
Executive during the term of this Agreement.

2.2 CHANGE IN CONTROL. A "Change in Control" will occur
under this Agreement if 50% or more of the stock or assets of the Company is
acquired by a third party on or before January 31, 2000, or if the families of
Bernard Rotter and David Rotter (including all common stock held by Shirley Ann
Rotter) do not collectively own (either directly or beneficially) in excess of
50% of the voting capital stock of the Company during this same time

<PAGE>

period. For purposes of this Agreement, a Change in Control will be deemed to
have occurred on the date a Sale Agreement is executed by all parties to the
transaction.

2.3 DISABILITY. The Executive shall be deemed to have
become "Disabled," for purposes of this Agreement, in the event that he cannot,
because of illness, injury, or incapacity, render any services of the character
contemplated by this Agreement over a continuous period of 120 days.

2.4 CONSTRUCTIVE DISCHARGE. A "Constructive Discharge"
will be deemed to have occurred if, after a Change in Control: (1) the Company
assigns the Executive a position, duties, responsibilities or status that are
inconsistent with the Executive's position, duties, responsibilities and/or
status immediately prior to the Change in Control; (2) there is a change in the
titles or offices the Executive held immediately prior to the Change in Control;
(3) the Company relocates the Executive to a location that is more than fifty
(50) miles from the Company's current headquarters in Roseville, Minnesota; (4)
the Company reduces the Executive's base salary or fails to pay the Executive
any compensation or benefits to which the Executive are entitled within ten (10)
days of the date due; or (5) the Company breaches any of its obligations under
this Agreement.

2.5. SUCCESSORS AND ASSIGNS. For purposes of this
Agreement, "Successors and Assigns" shall mean a corporation or other entity
acquiring all or substantially all the stock, assets, and/or business of the
Company (including this Agreement) whether by agreement, operation of law, or
otherwise.

3. COMPENSATION UPON CHANGE IN CONTROL. If a Change in Control
occurs, the Company will pay the Executive a bonus of $150,000 six months after
the closing of the transaction constituting a Change in Control occurs, subject
to fulfillment of all the conditions described in Section 4.

4. CONDITIONS PRECEDENT TO PAYMENT OF BONUS. Payment of the bonus
under Section 3 is contingent on the Executive satisfying all of the following
conditions: (i) the Executive participates enthusiastically in any process to
sell the Company or substantially all of its assets; (ii) the Executive does not
voluntarily resign his employment (absent a Constructive Discharge) for six
months after the closing of the transaction constituting a Change in Control;
(iii) the Executive does not have his employment terminated for Good Cause; (iv)
the Executive keeps confidential all information relating to any sale process
(this confidentiality obligation means, among other things, that the Executive
will not discuss the amount or existence of the Executive's bonus under this
Agreement or any amounts payable under his Employment Agreement with any other
employee of the Company, other than Bud Rotter or David Rotter); and (v) the
Executive: (A) at or immediately before the signing of any definitive purchase
and sale agreement relating to the Change in Control (the "Sale Agreement") and
at or immediately before the closing of such Change in Control transaction,
delivers a certificate to the Company and its shareholders certifying to the
best of the Executive's knowledge that the representations and warranties
relating to the Company made in the Sale Agreement are true and correct in all
material respects on and as of the date of execution of the Sale Agreement and
on and as of such

2
<PAGE>

5. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
shall inure to the benefit of the Company, its Successors and Assigns, and the
Company shall require any Successors and Assigns to expressly assume and agree
to perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession or assignment had
taken place. Neither this Agreement nor any right or interest thereunder shall
be assignable or transferable by the Executive, his beneficiaries or legal
representatives, except by will or by the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal personal representative.

To the Company:

The Rottlund Company, Inc.
2681 Long Lake Road
Roseville, Minnesota 55113
Attn: __________________

To the Executive:

-------------------------------
-------------------------------
-------------------------------

or such other address or to the attention of such other persons as the recipient
party shall have specified by prior written notice to the sending party.

3
<PAGE>

9. SEVERABILITY. To the extent any provision of this Agreement
shall be invalid or unenforceable, it shall be considered deleted from this
Agreement and the remainder of such provision and of this Agreement shall be
unaffected and shall continue in full force and effect. The Executive
acknowledges the uncertainty of the law in this respect and expressly stipulates
that this Agreement be given the construction which renders its provisions valid
and enforceable to the maximum extent (not exceeding its express terms) possible
under applicable law.

10. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties hereto and supersedes all prior agreements, if
any, understandings, and arrangements, oral or written, between the parties
hereto with respect to the subject matter covered by this Agreement.

IN WITNESS WHEREOF, the parties have executed this Agreement
effective as of the day and year first above written.

THE COMPANY:

THE ROTTLUND COMPANY, INC.

By /s/ Bernard J. Rotter
--------------------------------------
Chairman of the Board

THE EXECUTIVE:

By /s/ Todd M. Stutz
--------------------------------------

<PAGE>

EXHIBIT 10.22

EMPLOYMENT AGREEMENT

EMPLOYMENT AGREEMENT ("Agreement") made effective February 1, 1999,
between THE ROTTLUND COMPANY, INC., a Minnesota corporation ("Company"), and
LAWRENCE B. SHAPIRO ("Executive").

W I T N E S S E T H

WHEREAS, the Executive is currently employed by the Company; and

WHEREAS, the Company desires to retain the unique experience,
ability and services of the Executive; and

WHEREAS, the terms, conditions and undertakings of this Agreement
have been duly approved and authorized by the Board of Directors of the Company;

NOW, THEREFORE, it is mutually agreed as follows:

2. SERVICE AND DUTIES. During the term of his employment under this
Agreement, the Executive agrees to perform the duties of his position or office
and such other duties of a similar nature as the Company or its Board of
Directors may from time to time assign to him. The Executive agrees to serve the
Company faithfully and to the best of his ability, and to devote his working
time, attention and efforts to the business and affairs of the Company. The
Executive's services will be rendered primarily at the Company's principal
executive offices in Minneapolis, Minnesota. The Executive may be required to
travel to other locations where the

5
<PAGE>

Company may have offices or conduct its business, as necessary to the proper
conduct of his duties.

3. COMPENSATION.

3.1. SALARY/BONUSES. For all services to be rendered by the
Executive under this Agreement, the Company agrees to pay, or cause to be paid,
to the Executive during the term of his employment under this Agreement a base
salary in an amount equal to the base salary the Executive was receiving
immediately prior to the effective date of this Agreement. In addition, the
Executive shall be entitled to receive a bonus in an amount per fiscal year not
less than the amount established according to the Company's bonus programs and
practices that are in effect immediately prior to the effective date of this
Agreement.

3.2. EMPLOYEE BENEFIT PLANS/VACATION. In addition to the salary and
bonus provided in paragraph 3.1, the Executive shall be entitled during the term
of his employment under this Agreement to participate in the employee benefit
plans or programs of the Company to the extent that his position, title, tenure,
salary, age, health and other qualifications make him eligible to participate,
including, without limitation, in any retirement, pension, profit-sharing, stock
option, incentive compensation, bonus or similar plans or programs, and in any
insurance, hospital or other employee benefit plans which may now be in effect
or which may hereafter be adopted. The Executive shall be entitled to vacation
pursuant to the Company's vacation policy in effect immediately prior to the
effective date of this Agreement. The Company does not guarantee the adoption or
continuance of any particular employee benefit plans or programs, and the
Executive's participation in any such plan or program shall be subject to the
provisions, rules and regulations applicable thereto.

6
<PAGE>

4. TERM AND TERMINATION.

4.1 BASE TERM. Unless this paragraph is superseded by paragraph
4.2, the term of the Executive's employment under this Agreement shall be for
twelve (12) months commencing on February 1, 1999 and ending on January 31,
2000, except if his employment is terminated on or prior to January 31, 2000 for
Good Cause. If the Executive's employment is terminated under this section for
Good Cause, the Company will pay his salary under Section 3.1 pro rated through
the date of termination, plus any benefits due under Section 3.2 as of the date
of termination; the Executive, however, shall not receive any bonus under
Section 3.1 if he is terminated for Good Cause. If the Executive's employment is
terminated under this section without Good Cause, or as a result of a
Constructive Discharge by the Company, the Company will pay the Executive: (a)
the full salary he otherwise would have received under Section 3.1 had he
remained employed by the Company through January 31, 2000; (b) any benefits due
the Executive under Section 3.2 as of the date of termination; and (c) a pro
rata portion of the bonus due the Executive under Section 3.1 for the
then-current fiscal year, calculated as of the date of the Executive's
termination, but not finally determined or payable until the 90th day following
the end of the then-current fiscal year.

7
<PAGE>

terminated for Good Cause on or prior to that anniversary date. If the
Executive's employment is terminated under this section for Good Cause, the
Company will pay him his salary under Section 3.1 pro rated through the date of
termination, plus any benefits due under Section 3.2 as of the date of
termination; the Executive, however, shall not receive any bonus under Section
3.1 if he is terminated for Good Cause. If the Executive's employment is
terminated under this section without Good Cause, or as a result of a
Constructive Discharge by the Company, the Company will pay him: (a) severance
of $110,000 within 30 days of such termination; (b) any benefits due the
Executive under Section 3.2 as of the date of termination; and (c) a pro rata
portion of the bonus due the Executive under Section 3.1 for the then-current
fiscal year, calculated as of the date of the Executive's termination, but not
finally determined or payable until June 30 of the then-current fiscal year.

4.4 STOCK OPTIONS.

8
<PAGE>

(b) With respect to any Vision 2000 stock options held by the
Executive:

(ii) If a Change in Control occurs, the Executive shall
receive from the acquiror replacement options for the Vision 2000
stock options due him in the year the Change in Control occurs or,
if the acquiror's common stock is not publicly traded, the right to
earn the cash equivalent of those options. The replacement options
or the cash equivalent shall be provided to the Executive within 90
days of the end of the fiscal year in which the Change in Control
occurs.

9
<PAGE>

5. DEFINITIONS.

5.2. GOOD CAUSE. The Company may terminate the Executive's
employment for "Good Cause" in the event the Executive:

(a) is convicted, by a court of competent jurisdiction,
of a felony committed during the term of this Agreement
which adversely affects the Company; or

(b) confesses in writing to the commission of felony
during the term of this Agreement which adversely
affects the Company; or

(c) is convicted of, or confesses in writing to, the
embezzlement or misappropriation of funds of the
Company, which embezzlement or misappropriation was
committed during the term of this Agreement.

10
<PAGE>

5.3. CONSTRUCTIVE DISCHARGE. A "Constructive Discharge" will be
deemed to have occurred if, after a Change in Control: (1) the Company assigns
you a position, duties, responsibilities or status that are inconsistent with
your position, duties, responsibilities and/or status immediately prior to the
Change in Control; (2) there is a change in the titles or offices you held
immediately prior to the Change in Control; (3) the Company relocates you to a
location that is more than fifty (50) miles from the Company's current
headquarters in Roseville, Minnesota; (4) the Company reduces your base salary
or fails to pay you any compensation or benefits to which you are entitled
within ten (10) days of the date due; or (5) the Company breaches any of its
obligations under this Employment Agreement.

6. MISCELLANEOUS.

6.1. GOVERNING LAW. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Minnesota
without giving effect to the conflict of laws principles thereof. Any action
brought by any party to this Agreement shall be

11
<PAGE>

brought and maintained in a court of competent jurisdiction in Hennepin County
in the State of Minnesota.

6.2. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties hereto and supersedes all prior agreements,
understandings, and arrangements, oral or written, between the parties hereto
with respect to the subject matter covered by this Agreement.

6.3. SUCCESSORS/ASSIGNS. This Agreement shall be binding upon and
shall inure to the benefit of the Company, its Successors and Assigns, and the
Company shall require any Successors and Assigns to expressly assume and agree
to perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession or assignment had
taken place. Neither this Agreement nor any right or interest thereunder shall
be assignable or transferable by the Executive, his beneficiaries or legal
representatives, except by will or by the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal personal representative.

12
<PAGE>

performed by such other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time.

(a) If to the Company, to

The Rottlund Company, Inc.
2681 Long Lake Road
Roseville, Minnesota 55113
Attn: ___________________

(b) If to the Executive, to

---------------------
---------------------
---------------------

or such other address or to the attention of such other persons as the recipient
party shall have specified by prior written notice to the sending party.

6.7. SEVERABILITY. To the extent any provision of this Agreement
shall be found to be invalid or unenforceable, it shall be considered deleted
from this Agreement and the remainder of such provision and of this Agreement
shall be unaffected and shall continue in full force and effect. The Executive
acknowledges the uncertainty of the law in this respect and expressly stipulates
that this Agreement be given the construction which renders its provisions valid
and enforceable to the maximum extent (not exceeding its express terms) possible
under applicable law.

13
<PAGE>

THE ROTTLUND COMPANY, INC.

By: /s/ Bernard J. Rotter
---------------------------
Vice President
---------------------------

/s/ Lawrence B. Shapiro
------------------------------
EXECUTIVE

<PAGE>

EXHIBIT 10.23

CHANGE IN CONTROL AGREEMENT

LAWRENCE B. SHAPIRO

This Change in Control Agreement (the "Agreement") between The Rottlund
Company, Inc., a Minnesota corporation (the "Company"), and LAWRENCE B. SHAPIRO
(the "Executive") is effective February 1, 1999.

NOW, THEREFORE, in consideration of the foregoing premises and the
covenants contained herein, the parties hereby agree as follows:

2. DEFINITIONS.

<PAGE>

period. For purposes of this Agreement, a Change in Control will be deemed to
have occurred on the date a Sale Agreement is executed by all parties to the
transaction.

2
<PAGE>

To the Company:

The Rottlund Company, Inc.

2681 Long Lake Road
Roseville, Minnesota 55113
Attn: __________________

To the Executive:

-------------------------------
-------------------------------
-------------------------------

or such other address or to the attention of such other persons as the recipient
party shall have specified by prior written notice to the sending party.

3
<PAGE>

IN WITNESS WHEREOF, the parties have executed this Agreement effective as
of the day and year first above written.

THE COMPANY:

THE ROTTLUND COMPANY, INC.

By /s/ Bernard J. Rotter
Chairman of the Board
--------------------------------------

THE EXECUTIVE:

By /s/ Lawrence B. Shapiro
--------------------------------------

<PAGE>

EXHIBIT 11

COMPUTATION OF PER SHARE EARNINGS

Income per common share amounts are computed by dividing net income by the
weighted average number of common shares outstanding. Common stock equivalents
related to stock options which would have a dilutive effect based upon the
initial public offering price or current market prices had no material effect on
net income per share in each of the years presented in the Company's
Consolidated Statements of Operations and, accordingly, this exhibit is not
applicable to the Company.

<PAGE>

EXHIBIT 22

SUBSIDIARIES OF THE ROTTLUND COMPANY, INC.

North Coast Mortgage, Inc.

Rottlund Homes of Florida, Inc.

Rottlund Homes of Iowa, Inc.

Rottlund Homes of Indiana, Inc.

Rottlund Homes of New Jersey, Inc.

Rottlund Homes of Indiana Limited Partnership

<PAGE>

EXHIBIT 23

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation of our
report dated May 12, 1999 included in this Form 10-K, into the Company's
previously filed Registration Statements File Nos. 33-54862 and 333-31589.

ARTHUR ANDERSEN LLP

Minneapolis, Minnesota,
June 28, 1999

<PAGE>
<ARTICLE> 5

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 6,558,000
<SECURITIES> 0
<RECEIVABLES> 2,607,000
<ALLOWANCES> 0
<INVENTORY> 70,042,000
<CURRENT-ASSETS> 79,207,000
<PP&E> 1,819,000
<DEPRECIATION> 878,000
<TOTAL-ASSETS> 89,365,000
<CURRENT-LIABILITIES> 31,036,000
<BONDS> 26,731,000
0
0
<COMMON> 143,000
<OTHER-SE> 31,455,000
<TOTAL-LIABILITY-AND-EQUITY> 89,365,000
<SALES> 252,675,000
<TOTAL-REVENUES> 252,675,000
<CGS> 215,074,000
<TOTAL-COSTS> 215,074,000
<OTHER-EXPENSES> 26,112,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,714,000
<INCOME-PRETAX> 8,775,000
<INCOME-TAX> 3,598,000
<INCOME-CONTINUING> 5,177,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,177,000
<EPS-BASIC> .90
<EPS-DILUTED> .90

</TABLE>