FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549-1004
Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the fiscal year ended December 30, 1995
Commission File Number 0-8585
Dynamic Homes, Inc. (Exact name of registrant as specified in its charter)
Minnesota (State or other jurisdiction of incorporation or organization)
41-0960127 (IRS employer identification number)
525 Roosevelt Avenue, Detroit Lakes, MN 56501 (Address of principal executive
offices)
(218)-847-2611 (Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing require-
ments for the past 90 days.
YES X NO
As of March 20, 1996, 2,218,850 common shares were outstanding and the aggregate
market value of the common shares (based upon the average closing bid and ask
prices of these shares as compiled by the NASDAQ market) of Dynamic Homes, Inc.,
held by non-affiliates was approximately $2,871,710. On January 7, 1995, the
Company implemented a six month plan to repurchase up to 100,000 shares of its
outstanding common stock. As of March 20, 1996, a total of 43,080 shares have
been repurchased and excluded from the common shares outstanding.
Table of Contents
Part I
Item 1 Business
Item 2 Properties
Item 3 Legal Proceedings
Item 4 Submission of Matters to a Vote of Security Holders
Part II
Item 5 Market for the Registrants' Common Stock and Related Stockholder
Matters
Item 6 Selected Financial Data
Item 7 Managements' Discussion and Analysis of Results of Operations and
Financial Condition
Item 8 Financial Statements and Supplementary Data
Part III
Item 9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Item 10 Directors and Executive Officers of the Registrant
Item 11 Executive Compensation
Item 12 Security Ownership of Certain Beneficial Owners and Management
Item 13 Certain Relationships and Related Transactions
Part IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K
Documents Incorporated by Reference
Part III
Item 10 Directors and Executive Officers of the Registrant
Item 11 Executive Compensation
PART I
Item 1. Business
General
Dynamic Homes, Inc. (a Minnesota Corporation) was founded in 1970 and is
head-quartered in Detroit Lakes, Minnesota. Dynamic Homes, Inc. (hereinafter
together with its subsidiaries, unless the context requires otherwise, referred
to as the "Company") manufactures and markets modular, preconstructed single-
family and multi-family homes and light commercial buildings in the upper mid-
west region of the United States. Auxiliary products include garages, wood
basements and retail sales.
Products
The Company's principal product is single-family modular homes. Single-
family homes currently produced by the Company are offered in 60 basic designs
with various options and floor plan variations. In addition to the Company's
standard model line-up, it builds custom homes which accounted for more than
95% of its single-family business in 1995.
Home models include split entry, rambler, split level, one and two story
types ranging in size from approximately 864 square feet to approximately 2268
square feet of living space. Each living unit includes a living room, dining
room, bathroom(s) and bedrooms and has complete electrical wiring and plumbing
as standard features. Other standard features include interior sheetrocked
walls, cabinets, finished interior doors and trim, shelving and windows. In
addition, the customers may also choose from available options such as floor
coverings, siding, lighting, roof pitches and appliances.
As well as its principal single-family modular homes, the Company produces
and markets modular multi-family units ranging in size from approximately 600
square feet to 1,300 square feet per living unit. During 1995, the Company's
multi-family sales accounted for 2 percent of its revenues. During both 1994
and 1993, multi-family units accounted for approximately 3 and 7 percent of the
sales revenues, respectively.
The Company also produces light commercial products including small
offices, motels and other buildings requiring special design. Commercial sales
activity accounted for approximately 15 percent of the 1995 sales base. Cor-
responding sales volumes for 1994 and 1993 were approximately 20 and 18 per-
cent, respectively.
The Company also produces and markets panelized garages and wood foun-
dations to complement its modular homes. During 1995 these auxiliary products
accounted for approximately 2 percent of total sales revenue, as compared to 3
and 2 percent for 1994 and 1993, respectively.
The Company manufactures its products in modular form on an assembly line
basis. Each module is constructed of wood frame and sheathing into which com-
plete wiring and plumbing are installed. The module is insulated with fiber-
glass and blown cellulose insulation and finished with interior sheetrock, wall
covering, windows and shingled roof. Electrical fixtures, kitchen cabinets,
interior doors and trim and appliances are installed during the final phases of
the assembly process. The modules are transported to the building site and set
by the Company's employees and equipment upon foundations prepared by factory
authorized builder/dealers and/or contractors. In some cases, distance, site
conditions, and module configurations may require the leasing of equipment to
assist in the setting process.
Marketing
The Company markets its products within the states of Iowa, Minnesota,
North Dakota, South Dakota, Wisconsin and Wyoming principally through a network
of approximately 65 independent factory authorized builder/dealers.
The builder/dealers operate in nonexclusive territories and purchase the
Company's products based on dealer price lists for a nominal down payment with
the balance due within 5 working days after setting upon the foundation.
The builder/dealers sell to the ultimate purchaser and may, in addition,
contract with the purchaser for site preparation including foundation work and
for finishing work which must be performed after delivery and erection of the
Company's products. These additional functions are performed independently of
the builder/dealers' relationship with the Company.
The Company has no suggested retail prices for its products to the ulti-
mate consumer. The builder/dealer realizes as profit the difference between
what is paid the Company, other suppliers and contractors and the payment(s)
received from the purchaser. During 1995, the Company derived approximately
14 percent of its revenues from one customer. During 1994, the Company derived
approximately 11 percent of its revenues from one developer. In 1993, the Com-
pany did not have any individual customers exceeding 10 percent of its revenue
base. Sales to builder/dealers accounting for more than 10 percent of sales
are usually non-recurring single project sales. As a result, the Company does
not expect to be dependent upon the same builder/dealers or developers on a
year-to-year basis for a significant portion of future sales.
In addition to the builder/dealer network, the Company may also market its
products through contractors or developers. Developers operate in nonexclusive
territories and purchase products based on contractual arrangements. These con-
tractual arrangements may vary from a single-phase project to a multi-phased
project built and delivered over an extended time interval.
Competition
There is substantial competition within the Company's market area. The
Company competes in the housing market with other modular and panelized manu-
facturers, tract home developers, mobile home manufacturers and traditional on-
site builders of single and multi-family/com-mercial units.
The Company has several direct competitors marketing modular and panelized
units within its market area. Some of these competitors have substantially
greater assets and gross annual sales than the Company.
Transportation costs significantly increase the cost of housing units sold
by the Company beyond a four-hundred mile radius from its manufacturing facil-
ity. General pricing in the housing market throughout the United States is
sufficiently competitive to somewhat limit the Company's ability to compete in
some areas outside this radius. While this may provide the Company with some
competitive advantage within its immediate market area, it makes competition
outside its market more difficult. The majority of the Company's sales are
concentrated within a two-hundred-fifty mile radius of its manufacturing
facility.
The Company competes principally on the basis of quality and design of
product, material, craftsmanship, delivery and service.
Materials
The principal materials used by the Company in the manufacture of its pro-
ducts are processed lumber, finished cabinets, floor coverings, windows, sheet-
rock, insulation and shingles. Currently, the Company is not experiencing any
difficulty in obtaining adequate supplies of raw materials from current sup-
pliers and does not anticipate any immediate difficulty in obtaining adequate
supplies. During 1995 prices for wood building products were relatively stable
with average price levels producing less volatility than the corresponding per-
iods of 1994 and 1993. The Company monitors its material costs on an on-going
basis and during periods of escalating material costs, may impose a temporary
surcharge to prevent the erosion of its profit margin. The Company may peri-
odically adjust the surcharge level to correlate with the on-going fluctuations
in material costs. Surcharges were initially imposed during the latter stages
of 1992, again during portions of the second and third quarters of 1993 and for
the duration of 1994. However, during 1994, the effective surcharge rates were
not sufficient to cover the escalating material costs which resulted in a lower
than anticipated gross margin percent. During 1995, no surcharges were re-
quired. The lessened volatility of material costs in conjunction with a re-
vised cost monitoring system contributed to an improvement in 1995 gross margin
of approximately 1.2 percent.
During the second quarter of 1995, the Company implemented a revised cost
monitoring procedure to allow for better identification and quicker response to
changing material costs. During 1995, material costs associated with wood
building products moderately decreased from their previous record levels. How-
ever, future strong demand for wood building products would not only again sup-
port higher price levels but may also decrease availability through longer lead
times and product allocations.
Major raw components are available to the Company from several vendors,
and the Company is not dependent upon any one of these vendors for a conti-
nuous source of supply.
Backlog
At December 30, 1995, the Company's backlog of orders believed to be firm
was $2,595,000 compared with $3,238,000 at December 31, 1994, and $2,759,000
at December 25, 1993. As of March 8, 1996, the Company's backlog was
$4,384,000 as compared to $2,717,000 for the same period in 1995.
Due to seasonal fluctuations in the housing market, the Company exper-
iences fluctuations in orders. Orders tend to begin increasing during the
month of March, peak during the months of April through June, gradually dimi-
nish through the early summer, rise again in late summer and fall and diminish
again in the winter months. Accordingly, with the Company's production capa-
bilities, the backlog of orders generally tends to be the lowest during the
first fiscal quarter (January - March) and highest during the third quarter
(July - September). In order to supplement the traditional periods of de-
creased single-family order activity, the Company aggressively pursues multi-
family/commercial projects utilizing winter promotions and discounts.
Patents and Trademarks
The Company neither owns nor is a licensee of any patents, trademarks,
licenses, franchises or concessions that are material to its business.
Research and Development
The Company has not incurred any research and development cost as defined
by generally accepted accounting principles.
Government Regulations
Throughout the Company's market area, various state laws or local ordi-
nances regulate materials, equipment and design used in the construction of
housing units. The Company is unaware of any law or ordinance which precludes
the sale and erection of its homes within any governmental unit in its market
area and the Company believes its homes comply with the requirements of such
laws and ordinances. Highway regulations limit the Company's ability to tran-
sport and deliver homes during the annual spring thaw.
No significant amount of any material is discharged by the Company into
the environment and applicable laws and regulations relating to environmental
protection do not require any capital expenditures by the Company for environ-
mental control facilities.
Seasonal Aspect & Current Economic Conditions
Sales are subject to seasonal variations as described under the "Backlog"
caption. During the winter months the Company employs sales stimulating meth-
ods such as additional dealer and homeowner incentives, model home and multi-
family/commercial sales discounts to stimulate sales.
The Company experiences seasonal increases in inventory of finished units
in the spring of each year for a period of approximately six to eight weeks.
Local regulations and road conditions restrict usage of roadways during this
season for the delivery of homes and the passage of heavy equipment necessary
for the erection of the Company's units. Due to seasonal fluctuations in or-
ders, the Company has determined that it is advantageous to build some homes
for inventory during the winter and early spring months. This process contri-
butes to reductions in idle plant capacity overhead and also provides builder/
dealers with immediate product availability. The Company had three inventory
units available for sale at December 30, 1995. The Company had two inventory
units available for sale at year-end 1994 and no units at 1993 year-end. The
Company continues to rotate model/display units on its premises which are used
to illustrate construction and design capabilities for potential customers. As
of December 30, 1995, the Company had sold all of the existing display units.
The Company's intent is to have two model/display units available and replace
them as needed. As of this date, the Company has two models in place for
display.
The availability and cost of mortgage financing to the ultimate purchasers
of the Company's product affects the volume of sales. During prior years, the
Company's sales volume has been affected by the difficulty encountered by con-
sumers obtaining mortgage funds and from fluctuating mortgage interest rates.
Also in prior years, the Company has experienced uncertainty in the energy and
mining industries and a general weakness in the agricultural economy. Tradi-
tionally, these market segments have made strong contributions to the sales
base. In response to these economic conditions, the Company continues to ex-
pand and modify the product line to meet the changing needs of both the rural
and urban market. The expanded product availability, an upgraded builder/
dealer network and continued emphasis on multi-family/commercial sales should
contribute to the 1996 revenue base. However, any upward trends in mortgage
rates and continued consumer uncertainty over the course of the economy and
national budgeting policy may place limitations on potential consumers' will-
ingness to commit to new home purchases which would adversely affect the re-
venue base.
In 1995, 100 percent of all production was completed at its only plant,
located in Detroit Lakes, Minnesota. During 1995, the Company operated at ap-
proximately 72% of its practical single-shift production capacity. However,
during the third quarter of 1993, order backlog increased to the extent that
the lengthened production cycle contributed to lost and delayed sales. In
order to alleviate this occurrence, the Company completed a plant expansion
project in April, 1994. The expansion project added an additional 15,000
square feet to the manufacturing facility. This expansion became operable du-
ring May, 1994 and increased available plant capacity by approximately 25%.
During 1994, the Company operated at approximately 80% of its single-shift
plant capacity.
Employees
At December 30, 1995, the number of full-time employees totaled 94 as com-
pared with 128 for the year ending December 31, 1994. Of these, 5 were in man-
agement positions, 12 in supervisory positions, 58 in manufacturing, 8 in
transportation and erection, 3 in sales and 8 in drafting and clerical posi-
tions. The Company's manufacturing, transportation and installation employees
located in Detroit Lakes, Minnesota, are represented by a labor union. The
present labor union contract for Detroit Lakes union employees became effective
on March 1, 1995 and expires on February 28, 1998. The three-year contract
provides for modest annual wage adjustments and increases in the benefit
package.
Item 2. Properties
(A) Detroit Lakes, Minnesota
The Company's general business office and main manufacturing facility is
located at 525 Roosevelt Avenue, Detroit Lakes, Minnesota. This facility con-
sists of seven buildings comprising approximately 92,400 square feet utilized
as follows: production 57,300, warehouse and storage 27,400 and offices 7,700.
During 1993, the Company completed a plant renovation project which replaced an
older section of the manufacturing facility and added approximately 5,000
square feet which provides for additional material storage capacity in closer
proximity to the production line. In 1994, the Company expanded the manufac-
turing facility by 15,000 square feet which increased additional available
plant capacity by approximately 25%. The buildings are situated upon a 26-acre
tract of land leased from the City of Detroit Lakes, Minnesota. The lease is
coterminous with industrial revenue bonds issued in April, 1973, by the City of
Detroit Lakes in principal amount of $435,000, bearing interest at a rate of 8%
per annum and maturing from 4 to 25 years from date of issuance. Pursuant to
the terms of the Company's contract with the city and terms of the bond inden-
ture, the city took title to the existing land and buildings and to the build-
ings consequently constructed thereon and the Company leases same from the city
paying a variable rent sufficient to convert the interest due on the bonds and
principal amounts due in that rental period, plus property taxes and inciden-
tals. The Company is given the option of purchasing this property at any time
by paying to the city and the trustee an amount that is sufficient to discharge
the then outstanding bonds. The lease has been capitalized for financial state-
ment purposes and when all bonds have been paid at maturity, the Company has
the option of then purchasing this property from the city for the sum of $1.00.
This plant facility currently has the annual capacity to produce approximately
425,000 square feet of product. Land not occupied by buildings is used for
storing raw and finished materials.
B) Shagawa Resort, Inc. - Ely, Minnesota
On September 28, 1995, the Company purchased all of the outstanding shares
of Shagawa Resort, Inc., which was the sole owner of a Holiday Inn Sunspree
Motel which was under construction and located at 400 North Pioneer Road in
Ely, Minnesota. The motel will consist of approximately 54,000 square feet of
buildings consisting of 61 units and includes lounge, dining, recreational and
meeting facilities on approximately 25 acres of land. The purchase price con-
sisted of cash and a mortgage assumption to NorWest Bank Minnesota Mesabi N.A.
of which a significant portion is guaranteed by a Small Business loan PFA
debenture.
The Company simultaneously entered into a Management Agreement with
Northland Adventures Ltd., to manage the motel from the scheduled opening date
of May 1, 1996 until December 15, 1997. The Company also entered into a Stock
Purchase and Sale Agreement and Option to Repurchase Stock with Northland
Adventures Ltd. that may be exercised on or before December 25, 1997. If the
repurchase is not exercised or the managing agent becomes in default, the Com-
pany would retain all rights of ownership. Also reference Notes 4 and 14 under
Notes to Consolidated Financial Statements.
Item 3. Legal Proceedings
There are no legal proceedings presently pending by or against the Company
that management believes the outcome of which may have a material adverse af-
fect on the financial position of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the
fourth quarter of the fiscal year being reported on.
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters
The following table sets forth the high and low bid prices of the Com-
pany's stock for the eight quarters of 1995 and 1994. Subsequent to the end of
1989, the Company's capital condition fell below the minimum requirements set
by NASDAQ to remain trading on the national over-the-counter market. As of
March 13, 1995, the Company's common stock began trading on the NASDAQ Small-
Cap Market tier of the NASDAQ Stock Market under the symbol DYHM.
1995 1994
- -------------------------------------------------------------------------
Quarter High Low High Low
First $ 3 7/16 $ 2 1/2 $ 3 3/8 $ 2 1/4
Second 3 1/8 2 3/8 2 1/2 2
Third 2 5/8 2 1/8 3 2 3/8
Fourth 2 3/8 1 7/8 2 5/8 2 1/8
- -------------------------------------------------------------------------
As of March 20, 1996, there were 452 shareholders of record of common
stock, the Company's only outstanding class of stock. The Company does not pay
cash dividends and future dividends would be paid at the discretion of the
Board of Directors and the Company's lenders.
Item 6. Selected Financial Data
Dec. 30, Dec. 31, Dec. 25, Dec. 26, Dec. 28,
Years Ended 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------
Net sales $10,849,000 $11,973,600 $ 9,754,600 $ 7,742,000 $ 7,310,600
Gross profit 2,351,500 2,453,800 2,049,600 1,414,600 1,287,100
Operating expenses 1,041,100 1,051,100 969,800 985,300 1,094,800
Operating income 1,310,400 1,402,700 1,079,800 430,300 192,300
Net income $ 809,100 $ 905,100 $ 1,447,600 $ 271,800 $ 112,300
Net income per share $ .37 $ .41 $ .68 $ .13 $ .05
At Year End
- --------------------------------------------------------------------------------
Working capital $ 1,746,700 $ 1,967,500 $ 1,029,700 $ 190,600 $ 75,100
Total assets 5,833,200 4,080,900 2,830,600 1,945,100 1,663,700
Long-term debt 1,066,300 115,600 145,900 448,900 593,200
Stockholders' equity 3,479,300 2,794,200 1,832,700 371,000 99,200
Weighted ave. no.
common shares
outstanding 2,209,000 2,191,000 2,113,000 2,109,000 2,109,000
Statistical Highlights
- --------------------------------------------------------------------------------
Single-family unit sales 192 202 165 148 144
Ave. sq. ft. per
single-family unit 1,225 1,245 1,255 1,236 1,220
Total square feet of
production 308,400 351,432 295,998 245,068 235,061
Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Results of Operations
Net Sales
Net sales declined to $10,849,000 in 1995 from $11,973,600 in 1994 but
were up from $9,754,600 in 1993. Reflecting uncertainty about the general
health of the economy and the course of the federal budgetary policy, many po-
tential customers elected to defer their new home plans during the past year.
As a result, sales of single-family homes decreased to $7,962,300 in 1995 from
$8,327,500 in 1994 but were up from $6,462,400 in 1993. The Company sold 192
single-family units in 1995, compared to 202 in 1994 and 165 in 1993. Sales of
multi-family/commercial projects totaled $1,918,800 in 1995, down from
$2,668,300 in 1994 and $2,489,000 in 1993. The Company built 52 multi-family/
commercial units in 1995, compared to 77 in 1994 and 71 in 1993. The Company's
construction backlog totaled $2,595,000 at the end of 1995, compared to
$3,238,000 at the end of 1994. However, as of March 8, 1996, the Company's
backlog of orders was $4,384,000 as compared to $2,717,000 for the same period
in 1995. Due to very unfavorable weather conditions which hampered delivery
and setting activities during the first quarter of 1996, the 1996 backlog in-
cludes approximately 40 finished units as compared to approximately 20 finished
units for the same period of 1995. In addition, road restrictions on specified
thoroughfares may also restrict the delivery and setting activities during the
early stages of the second quarter.
Gross Profit
The Company's gross profit, including transportation revenue and expense,
totaled $2,351,500 in 1995, down from $2,453,800 in 1994 but up from $2,049,600
in 1993. As a percentage of net sales, the gross profit increased to 21.7% in
1995 from 20.5% in 1994 and 21.0% in 1993. Excluding transportation revenue
and expense, the gross profit on products increased to 24.0% from 22.7% in 1994
and 23.9% in 1993. The 1995 margin increase, which partially offset the impact
of the reduced sales volume, resulted from improved inventory and pricing man-
agement as well as relatively stable costs for lumber and other wood building
products during the year. As a result of this price stability, the Company did
not impose any surcharges on home prices during 1995. The Company continues to
monitor and evaluate material costs on an ongoing basis and may again implement
a surcharge to protect its gross margin if material costs again escalate from
current levels.
Operating Expense
Operating expenses increased to 9.6% of net sales in 1995 from 8.8% in
1994 but was down from 9.9% in 1993. The 1995 increase was due primarily to
the reduced sales volume, which offset the impact of ongoing cost containment
efforts.
Operating Income
Operating income declined to $1,310,400 in 1995 from $1,402,700 but was up
from $1,079,800 in 1993. As a percentage of net sales, the operating margin
rose to 12.1% in 1995 from 11.7% in 1994 and 11.1% in 1993. The 1995 operating
margin improvement reflected the increase in the gross margin for the year.
Other Income (Expense)
Other income totaled $43,700 in 1995, compared to other income of $2,400
in 1994 and other expense of $6,700 in 1993. The increased level of other in-
come in 1995 reflected the receipt of premium returns on two workers' compensa-
tion insurance policies for the years of 1993 and 1994.
Income Tax Benefit (Provision)
The Company's provision for income taxes was $545,000 in 1995 and $500,000
in 1994. The Company realized an income tax benefit of $374,500 in 1993, re-
flecting adoption of a change in accounting principle for income taxes (SFAS
109) and recognition of tax loss carryforwards from prior years for financial
statement purposes.
Net Income
The Company reported net income of $809,100 or $.37 per share in 1995,
compared to $905,100 or $.41 per share in 1994 and $1,447,600 or $.68 per share
in 1993. The change in accounting principle for income taxes and the recogni-
tion of the net operating loss carryforwards increased 1993 earnings per share
by $.38. The Company's 1995 net income was not affected by the September ac-
quisition of all of the stock of Shagawa Resort, Inc.
Financial Condition
Cash and cash equivalents for fiscal years ending 1995 and 1994 were rela-
tively unchanged at $543,000 and $606,800 respectively. In contrast, the cash
balance of $52,600 for year-end 1993 was affected by substantial pay-downs of
long-term debt and short-term financing. Net cash from operating activities
decreased $509,400 during 1995 from $926,000 to $416,600. The Company's net
income, depreciation, customer deposits and deferred income taxes provided ap-
proximately $1,279,000 of operating cash. However, the year-end build-up of
finished goods inventory (due to weather related conditions affecting unit de-
liveries) and reductions to accounts payable, accrued expenses and the acqui-
sition of treasury stock required approximately $556,000 of cash outflows. In
addition, cash activity was also affected by the satisfaction of an account re-
ceivable in the amount of $628,141 used to purchase all the outstanding shares
of Shagawa Resort, Inc.
Net cash used for investing activities increased $982,200 in 1995 to
$1,337,600 due primarily to the on-going construction at the Shagawa Resort
project. On-site construction is anticipated to be completed during April 1996
with an anticipated opening date of May 1, 1996. Total cost of the project is
estimated at $4,345,000 which has been reduced by approximately $1,705,000 in
existing equity and economic incentives for a final estimated net cost of
$2,640,000.
Working capital decreased $220,800 from $1,967,500 in 1994 to $1,746,700
at the end of 1995. The current ratio decreased from 2.7 to 1 at December 31,
1994 to 2.4 to 1 at December 30, 1995.
Long-term debt, net of current maturities, increased from $115,600 at
year-end 1994 to $1,066,300 at year-end 1995. Long-term debt consists primar-
ily of Industrial Development Revenue Bonds, which financed the purchase of
property and equipment for the Company's only manufacturing facility and a re-
cently entered into construction mortgage loan agreement covering the financing
of the construction costs for the Shagawa Resort project. The Company entered
into a long-term debt agreement during September, 1995 whereby the balance of
the construction loan for Shagawa Resort, Inc. up to a maximum of $1,850,000
will be financed. The construction loan bears an interest rate of 8.75%, to be
adjusted every three years, with monthly principal and interest payments based
upon a 20 year amortization and 10 year balloon payment. The debt is secured
by the assets of Shagawa Resort, Inc. and a partial guarantee by the Small
Business Administration.
In conjunction with the purchase of Shagawa Resort, Inc., the Company also
entered into a management agreement for the operation of the hotel/resort. The
management agreement calls for the managing agent to pay minimum monthly pay-
ments of $22,100 to the Company plus a percentage of room and food/beverage re-
ceipts when these amounts exceed the minimum rentals on an annual basis. The
minimum monthly payments are structured to cover the monthly construction loan
mortgage payments. It is anticipated that the Company's ownership of Shagawa
Resort, Inc. will have a minimum impact on the Company's earnings during 1996.
Stockholders' equity, after the purchase of 43,080 shares of treasury
stock at a cost of $144,100, increased $685,100 to $3,479,300 at December 30,
1995. Reflecting increased equity and the addition of long-term debt, the
ratio of long-term debt to stockholders' equity decreased to .30 to 1 at year-
end 1995 from .04 to 1 at year-end 1994.
At December 30, 1995, the Company had no outstanding borrowings on its
$1,000,000 line of bank credit. However, the Company had two outstanding
standby letters of credit totaling $262,230 which reduced the available bank
line of credit accordingly. One standby letter of credit in the amount of
$75,000 expired during January, 1996 with the remaining standby letter of
credit expiring in July, 1996.
Management believes internally-generated cash, short-term borrowings on
its existing credit line and cost controls should provide adequate funds for
supporting Company operations and scheduled capital investments in 1996.
Statements regarding the Company's operations, performance and financial
condition for 1996 are subject to certain risks and uncertainties. These risks
and uncertainties include but are not limited to: rising mortgage interest
rates and/or weakness in regional and national economic conditions that could
have an adverse impact on new home and multi-family/commercial sales. Like-
wise, escalating and volatile material costs could also affect the Company's
profit margins.
Item 8. Financial Statements
Index to Consolidated Financial Statements and Supplementary Financial
Data
- Report of Independent Auditors
Financial Statements:
- Consolidated Balance Sheet, December 30, 1995 and December
31, 1994
- Consolidated Statements of Operations, Years Ended December
30, 1995, December 31, 1994 and December 25, 1993
- Consolidated Statements of Stockholders' Equity, Years Ended
December 30, 1995, December 31, 1994 and December 25, 1993
- Consolidated Statements of Cash Flows, Years Ended December
30, 1995, December 31, 1994 and December 25, 1993
- Notes to Consolidated Financial Statements
INDEPENDENT AUDITOR'S REPORT
The Stockholders and Board of Directors
Dynamic Homes, Inc. And Subsidiaries
Detroit Lakes, Minnesota
We have audited the accompanying consolidated balance sheets of Dynamic Homes,
Inc. and Subsidiaries as of December 30, 1995 and December 31, 1994, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 30, 1995. 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 stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of mate-
rial misstatement. An audit includes examining, on a test basis, evidence sup-
porting 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 pre-
sentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Dynamic Homes, Inc.
and Subsidiaries as of December 30, 1995 and December 31, 1994, and the results
of their operations and their cash flows for each of the three years in the pe-
riod ended December 30, 1995, in conformity with generally accepted accounting
principles.
Charles Bailly and Company, P.L.L.P
Fargo, North Dakota
February 26, 1996
DYNAMIC HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 30, 1995 AND DECEMBER 31, 1994
1995 1994
---------- ----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 543,000 $ 606,800
Account receivable, less allowance for doubt-
ful account 1995 $ 35,000; 1994 $ 30,700 698,600 933,400
Inventories - Note 2 1,638,300 1,464,600
Prepaid expenses 39,400 23,800
Deferred income taxes - Note 10 90,000 80,000
--------- ---------
Total Current Assets 3,009,300 3,108,600
OTHER ASSETS 37,900 13,700
PROPERTY AND EQUIPMENT, net of accumulated
depreciation - Notes 3 and 14 2,786,000 958,600
--------- ---------
$ 5,833,200 $ 4,080,900
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ - $ 1,600
Current maturities of long-term debt - Note 4 62,300 30,200
Accounts payable 215,900 407,000
Customer deposits - Note 5 407,400 247,500
Accrued expenses - Note 6 393,000 440,700
Income taxes payable 184,000 14,100
--------- ---------
Total Current Liabilities 1,262,600 1,141,100
--------- ---------
LONG-TERM DEBT, less current maturities - Note 4 1,066,300 115,600
--------- ---------
DEFERRED INCOME TAXES - Note 10 25,000 30,000
--------- ---------
COMMITMENTS AND CONTINGENCIES - Note 14
STOCKHOLDERS' EQUITY - Note 7
Common stock, par value $.10 per share
Authorized 5,000,000 shares
Issued, 2,259,000 in 1995;
2,226,000 in 1994 225,900 222,600
Additional paid-in capital 133,900 117,100
Retained earnings 3,263,600 2,454,500
--------- ---------
3,623,400 2,794,200
Less treasury stock, at cost (43,080 shares) (144,100) -
--------- ---------
3,479,300 2,794,200
--------- ---------
$ 5,833,200 $ 4,080,900
========= =========
See notes to consolidated financial statements.
DYNAMIC HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 30, 1995, DECEMBER 31, 1994 AND DECEMBER 25, 1993
1995 1994 1993
---------- ---------- ----------
SALES - Notes 11 and 12
Single-family $ 7,962,300 $ 8,327,500 $ 6,462,400
Multi-family/commercial 1,918,800 2,668,300 2,489,000
Other 346,600 314,600 281,400
Transportation 621,300 663,200 521,800
--------- --------- ---------
10,849,000 11,973,600 9,754,600
COST OF SALES - Note 8 8,497,500 9,519,800 7,705,000
--------- --------- ---------
GROSS PROFIT 2,351,500 2,453,800 2,049,600
OPERATING EXPENSES - Note 9 1,041,100 1,051,100 969,800
--------- --------- ---------
INCOME FROM OPERATIONS 1,310,400 1,402,700 1,079,800
OTHER INCOME (EXPENSES)
Interest expense (20,700) (30,300) (55,400)
Interest income and service charges 30,900 14,100 26,200
Gain (loss) on sale of prop. and eqpt. - 5,400 (2,200)
Other, net 33,500 13,200 24,700
--------- --------- ---------
INCOME BEFORE INCOME TAX
(PROVISION) BENEFIT 1,354,100 1,405,100 1,073,100
INCOME TAX (PROVISION) BENEFIT - Note 10 (545,000) (500,000) 374,500
--------- --------- ---------
NET INCOME $ 809,100 $ 905,100 $ 1,447,600
========= ========= =========
INCOME PER COMMON SHARE $ 0.37 $ 0.41 $ 0.68
====== ====== ======
See notes to consolidated financial statements.
DYNAMIC HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 30, 1995, DECEMBER 31, 1994 AND DECEMBER 25, 1993
Add'l.
Common Stock Paid-in Retained Treasury
Shares Amount Capital Earnings Stock Total
--------- -------- -------- ---------- ---------- ----------
BALANCE, DECEMBER
26, 1992 2,109,000 $210,900 $ 58,300 $ 101,800 $ - $ 371,000
Common Stock
Options Exer-
cised - Note 7 25,000 2,500 11,600 - - 14,100
Net Income - - - 1,447,600 - 1,447,600
--------- -------- -------- ---------- --------- ----------
BALANCE, DECEMBER
25, 1993 2,134,000 213,400 69,900 1,549,400 - 1,832,700
Common Stock
Options Exer-
cised - Note 7 92,000 9,200 47,200 - - 56,400
Net Income - - - 905,100 - 905,100
--------- -------- -------- ---------- --------- ----------
BALANCE, DECEMBER
31, 1994 2,226,000 222,600 117,100 2,454,500 - 2,794,200
Common Stock
Options Exer-
cised - Note 7 33,000 3,300 16,800 - - 20,100
Treasury Stock
Purchased - - - - (144,100) (144,100)
Net Income - - - 809,100 - 809,100
--------- -------- -------- ---------- --------- ----------
BALANCE, DECEMBER
30, 1995 2,259,000 $225,900 $133,900 $3,263,600 $(144,100) $3,479,300
========= ======== ======= ========== ========= ==========
See notes to consolidated financial statements.
DYNAMIC HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 30, 1995, DECEMBER 31, 1994 AND DECEMBER 25, 1993
1995 1994 1993
--------- --------- ---------
OPERATING ACTIVITIES
Net income $ 809,100 $ 905,100 $1,447,600
Charges and credits to net income not
affecting cash
Deprecation and amortization 140,100 123,200 108,600
Provision for doubtful accounts 6,100 6,000 27,200
(Gain) loss on sale of prop. and eqpt. - (5,400) 2,200
Deferred income taxes (15,000) 350,000 (400,000)
Changes in assets and liabilities
Accounts receivable (399,400) (222,500) (212,200)
Inventories (173,700) (558,300) (195,000)
Prepaid expenses (15,600) (2,100) 25,600
Prepaid income taxes - 4,200 (4,200)
Other assets (26,000) (5,800) 500
Accounts payable (191,100) 155,800 (98,000)
Customer deposits 159,900 106,600 11,200
Accrued expenses (47,700) 55,100 22,700
Income tax payable 169,900 14,100 -
--------- --------- ---------
NET CASH FROM OPERATING ACTIVITIES 416,600 926,000 736,200
INVESTING ACTIVITIES
Proceeds from sale of prop. and eqpt. 3,300 38,400 1,300
Purchase of property and equipment (1,340,900) (393,800) (212,200)
--------- --------- ---------
NET CASH (USED FOR) INVESTING ACTIVITIES (1,337,600) (355,400) (210,900)
--------- --------- ---------
FINANCING ACTIVITIES
Net payments on revolving credit agree-
ments and other short-term financing (1,600) (5,500) (132,000)
Proceeds from construction mortgage loan 999,300 - -
Principal payments on long-term debt (33,500) (67,300) (380,100)
Proceeds from long-term debt borrowings 17,000 - -
Proceeds from issuance of common stock 20,100 56,400 14,100
Payments for purchase of treasury stock (144,100) - -
--------- --------- ---------
NET CASH FROM (USED FOR) FINANCING
ACTIVITIES 857,200 (16,400) (498,000)
--------- --------- ---------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (63,800) 554,200 27,300
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 606,800 52,600 25,300
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 543,000 $ 606,800 $ 52,600
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash payments for
Income taxes paid $ 390,100 $ 136,680 $ 29,700
Interest, less capitalized interest
of $ 17,649 in 1995 16,100 30,600 58,500
========= ========= =========
SUPPLEMENTAL SCHEDULE OF NONCASH INVEST-
ING AND FINANCING ACTIVITIES
Purchase of stock of Shagawa Resort,
Inc. - Note 14:
Fair Value of assets acquired $ 653,700
Satisfaction of accounts receivable (628,100)
---------
Cash paid $ 25,600
=========
See notes to consolidated financial statements.
DYNAMIC HOMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 30, 1995, DECEMBER 31, 1994 AND DECEMBER 25, 1993
1. BUSINESS ACTIVITY, SIGNIFICANT ACCOUNTING POLICIES AND USE OF ESTIMATES
Principles of Consolidation
The consolidated financial statements include the accounts of Dynamic
Homes, Inc., and its wholly-owned subsidiaries. Shagawa Resort, Inc. had no
activity other than the construction of a hotel and resort. The remaining
three wholly-owned subsidiaries had no significant operations during 1995, 1994
and 1993. All significant intercompany accounts and transactions have been
eliminated.
Principal Business Activity
The Company manufactures modular, preconstructed buildings for single-
family, multiple-family and commercial use. Commercial operations include the
manufacture of preconstructed office buildings, motels and apartments.
Shagawa Resort, Inc. (a wholly-owned subsidiary) owns a hotel/resort which
was under construction at December 30, 1995.
Concentrations of Credit Risk
In the normal course of business the Company extends credit to its cus-
tomers. The Company performs periodic credit evaluations of its' customers
financial condition and generally does not require collateral. Accounts re-
ceivable are primarily due from customers in the Upper Midwest and are not con-
centrated in a particular industry.
The Company's cash balances are maintained in several bank deposit ac-
counts. Periodically, balances in these accounts are in excess of federally
insured limits.
Estimates
The preparation of financial statements in conformity with generally ac-
cepted accounting principles requires management to make estimates and assump-
tions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenue and expense during the reporting period.
Actual results could differ from those estimates.
Inventories
Inventories are stated at the lower of cost (first-in, first-out method)
or market. Cost of work in process and finished goods inventories includes
materials, labor and factory overhead.
Revenue Recognition
Sales are recognized and recorded upon delivery of the finished product.
Depreciation
Property and equipment is stated at cost. Depreciation of property and
equipment is computed using the straight-line method over the following esti-
mated useful lives:
Land Improvements 7 - 20 years
Buildings 15 - 39 years
Machinery and equipment 3 - 10 years
Cash Equivalents
The Company considers all highly liquid investments purchased with a ma-
turity of three months or less to be cash equivalents.
Financial Instruments
The carrying amount of cash and cash equivalents and accounts receivable
approximate fair market value because of the short maturity of these in-
struments.
The fair value of long-term debt is estimated based on borrowing rates
currently available to the Company for bank loans with similar items and ave-
rage maturities. The carrying amount of long term debt approximates the esti-
mated fair value at December 30, 1995 and December 31, 1994.
Amortization
Included in other assets are costs associated with obtaining financing
which are being amortized on the straight-line basis over the life of the
loans. Also included are organization and start-up costs of Shagawa Resort,
Inc. which will be amortized on the straight-line method over their estimated
useful lives.
Income Taxes
Income taxes are provided for the tax effects on transactions reported in
the financial statements and consist of taxes currently due plus deferred taxes
related primarily to differences between the basis of receivables, property and
equipment, accrued expenses, tax credit carryforwards and net operating loss
carryforwards for financial and income tax reporting. The deferred tax assets
and liabilities represent future tax return consequences of those differences,
which will either be taxable or deductible when the assets and liabilities are
recovered or settled.
Advertising Costs
Costs incurred for producing and distributing advertising are expensed as
incurred.
Fiscal Year
The Company's fiscal year ends on the last Saturday of December each year.
The year ended December 30, 1995 contained 52 weeks, with December 31, 1994
containing 53 weeks, and December 25, 1993, containing 52 weeks.
Income Per Common Share
Income per share has been computed using weighted average outstanding
common shares of 2,209,000 for 1995, 2,191,000 for 1994 and 2,113,000 for 1993.
Common stock equivalents represented by stock options have not been included
in the income per share computation since their effect was anti-dilutive.
2. INVENTORIES
1995 1994
--------- ---------
Raw Materials $ 660,200 $ 707,600
Work in Process 112,800 116,100
Finished Goods 865,300 640,900
--------- ---------
$ 1,638,300 $ 1,464,600
========= =========
3. PROPERTY AND EQUIPMENT
1995 1994
--------- ---------
Land and Improvements $ 289,700 $ 116,600
Buildings 961,900 953,900
Machinery and equipment 1,305,100 1,278,500
Construction in pro-
gress - Note 14 1,699,000 -
--------- ---------
4,255,700 2,349,000
Less accumulated
depreciation (1,469,700) (1,390,400)
--------- ---------
$ 2,786,000 $ 958,600
========= =========
4. LONG-TERM DEBT
The Company has available a line of credit which is collateralized by in-
ventories and receivables. The credit available is based upon specified per-
centages of inventories and receivables to a maximum of $1,000,000 in 1995 and
1994. Borrowings under the line of credit bear maximum interest at one-half
percent over the bank's prime rate (9% at December 30, 1995) and there are no
compensating balance requirements.
Long-term debt consists of:
1995 1994
--------- ---------
8.75% construction mortgage loan (A) $ 999,300 $ -
8% Industrial Development Revenue Bonds of
Detroit Lakes, Minnesota, due in varying
annual installments, including interest,
through April 1998, secured by property
and equipment (B) 115,000 145,000
9.95% note payable, due in monthly install-
ments of $ 550, including interest, to
April, 1998, secured by vehicle 13,600 -
Other notes and contracts payable 700 800
--------- ---------
1,128,600 145,800
Less current maturities (62,300) (30,200)
--------- ---------
$ 1,066,300 $ 115,600
========= =========
(A) The Company has entered into a construction mortgage loan agreement
for the financing of construction costs of the Shagaw Resort, Inc.
hotel/resort facility (Note 14). The construction mortgage loan
required an initial bank deposit of $50,000 to be available and
utilized for unpaid cost overruns. The loan agreement calls for
the balance of the account to remain greater than $5,000 until
completion of the project and payment of all costs of completion.
The construction mortgage loan is due March, 1996, and secured by
assets of Shagawa Resort, Inc. As discussed below, the Company
has entered into a long-term debt agreement whereby the construc-
tion mortgage loan will be converted to long-term financing upon
maturity. Accordingly, this debt has been classified as long-term.
The Company has entered into a long-term debt agreement whereby
the balance of the construction loan, up to a maximum of
$1,850,000, will be financed. This agreement calls for an inter-
est rate of 8.75% to be adjusted every three years, with monthly
principal and interest payments based upon a 20-year amortization
with a 10-year balloon payment. This debt is to be secured by the
assets of Shagawa Resort, Inc. and a partial guarantee of the
Small Business Administration.
(B) The Company financed the purchase of property and equipment through
the sale of 8% Industrial Development Revenue Bonds by the City of
Detroit Lakes, Minnesota. The Company has leased the property
from the city for rental equal to the sum of the annual principal
payment and the semiannual interest payments on the bonds. The
leased property is included with property and equipment and the
bonds have been recorded as a direct obligation of the Company.
There are no significant restrictive covenants with respect to
this bond issue.
Long-term debt maturities are as follows:
Years Ending December
---------------------
1996 $ 62,300
1997 76,000
1998 85,400
1999 41,400
2000 45,200
Thereafter 818,300
---------
$ 1,128,600
=========
5. CUSTOMER DEPOSITS
Customer deposits of $407,400 at December 30, 1995 and $247,500 at Decem-
ber 31, 1994 consisted of advance payments from customers for sales to be re-
cognized in the following year. Sales to be recognized in 1996 related to cus-
tomer deposits at December 30, 1995 are estimated to be $2,595,000.
6. ACCRUED EXPENSES
1995 1994
--------- ---------
Salaries, wages and vacations $ 183,000 $ 212,300
Taxes, other than income taxes 49,600 52,900
Warranty 70,900 64,900
Other 89,500 110,600
--------- ---------
$ 393,000 $ 440,700
========= =========
7. STOCK OPTION PLAN
The Company has a stock option plan in which options on 400,000 shares of
common stock are available to be issued to officers, directors and key employ-
ees. Options may be granted at a price determined under provisions of the
plan. 175,000 shares have been granted as disclosed below.
In 1991, the Company's board of directors granted options to five members
of the Board of Directors for 25,000 each at an option price of $ .625 per
share. As of December 30, 1995, 100,000 shares have been exercised, and op-
tions for 25,000 shares remain outstanding.
In 1992, the Company's board of directors granted options to the president
of the Company for 50,000 shares at an option price of $ .562 per share. As of
December 30, 1995, all 50,000 shares have been exercised.
8. COST OF SALES
1995 1994 1993
--------- --------- ---------
Materials $ 5,526,700 $ 6,553,600 $ 5,149,100
Labor 946,600 966,400 809,000
Overhead 1,300,300 1,225,800 1,065,400
Transportation 723,900 774,000 681,500
--------- --------- ---------
$ 8,497,500 $ 9,519,800 $ 7,705,000
========= ========= =========
9. OPERATING EXPENSES
1995 1994 1993
--------- --------- --------
Marketing $ 351,000 $ 402,900 $ 405,800
Administration 690,000 648,200 564,000
--------- --------- ---------
$ 1,041,000 $ 1,051,100 $ 969,800
========= ========= =========
10. INCOME TAXES
Net deferred tax assets and liabilities consist of the following compo-
nents as of December 30, 1995 and December 31, 1994:
1995 1994
--------- ---------
Deferred tax assets:
Receivable allowances $ 15,000 $ 12,500
Accrued expenses 70,000 65,500
Book/tax inventory adjustment 5,000 2,000
--------- ---------
$ 90,000 $ 80,000
========= =========
Deferred tax liabilities:
Property and equipment $ 25,000 $ 30,000
========= =========
The deferred tax amounts described above have been included in the accom-
panying balance sheets as of December 30, 1995 and December 31, 1994 as
follows:
1995 1994
--------- ---------
Current assets $ 90,000 $ 80,000
Current liabilities ( 25,000) ( 30,000)
--------- ---------
$ 65,000 $ 50,000
========= =========
The (provision) benefit for income taxes charged to operations for the
years ended December 30, 1995, December 31, 1994 and December 25, 1993 consist
of the following:
1995 1994 1993
--------- --------- ---------
Current expense $ (560,000) $ (575,000) $ (431,500)
Benefit of operating loss
and tax credit carry-
forwards - 425,000 406,000
Deferred taxes 15,000 (350,000) 400,000
--------- --------- ---------
$ (545,000) $ (500,000) $ 374,500
========= ========= =========
The income tax (provision) benefit differs from the amount of income tax
determined by applying the U.S. federal income tax rate to pretax income for
the years ended December 30, 1995, December 31, 1994 and December 25, 1994 due
to the following:
1995 1994 1993
--------- --------- ---------
Income tax computed at
federal statutory rates $ (460,000) $ (480,000) $ (365,000)
State tax provision (100,000) ( 85,000) ( 64,300)
Change in income taxes
resulting from:
Benefit of operating
loss carryforwards - - 803,800
Non-deductible expenses 7,000 - -
Book/tax inventory
adjustment 3,000 - -
Book/tax property and
equipment adjustment 5,000 - -
Tax rate deduction on
reversing timing
differences - 65,000 -
--------- --------- ---------
$ (545,000) $ (500,000) $ 374,500
========= ========= =========
11. RELATED PARTY TRANSACTIONS
The Company had a note payable with a member of the Company's board of di-
rectors of $35,700 at December 25, 1993. Interest expense of $800 and $13,300
was incurred during the years ended December 31, 1994 and December 25, 1993,
respectively.
The Company had sales totaling approximately $399,400 in 1995, $599,500 in
1994, and $707,700 in 1993 to members of the board of directors and entities
owned by Board members. At December 30, 1995 and December 31, 1994, the Com-
pany had accounts receivable of $12,600 and $6,300, respectively, relating to
these sales.
12. MAJOR CUSTOMERS
The Company derived approximately 14% of its revenue from one customer
during the year ended December 30, 1995 and 11% from one developer during the
year ended December 31, 1994. There was no customer responsible for more than
10% of the revenue during the year ended December 25, 1993.
13. PROFIT SHARING PLAN
The Company has a qualified profit sharing plan which covers all employees
who meet eligibility requirements. Under the terms of the plan, employees may
contribute 1% to 5% of their annual salary, up to the maximum allowed by Inter-
nal Revenue Service regulations. The Company's contribution to the plan, as
determined by the board of directors, is discretionary but may not exceed 100%
of the employees' contribution. The Company contributed $5,595 to the plan for
the year ended December 30, 1995, $5,625 for the year ended December 31, 1994
and no contributions were made for the year ended December 25, 1993.
14. COMMITMENTS AND CONTINGENCIES
Purchase of Shagawa Resort, Inc.
During 1995, Dynamic Homes, Inc. purchased 100% of the common stock of
Shagawa Resort, Inc., a hotel/resort in northern Minnesota. The stock was ex-
changed for an account receivable in the amount of $628,100. The Company in-
curred costs to acquire the stock totaling $25,600. Push-down accounting was
used to establish the cost basis of the assets acquired.
At the date of the purchase, and at December 30, 1995, the hotel was under
construction. The total estimated cost of the project is $2,640,000, with an
estimated cost to complete at December 30, 1995 of $800,000. The hotel is ex-
pected to open May 1, 1996.
The total estimated cost of the project is estimated at $4,345,000. This
cost has been reduced by approximately $605,000 related to the push down ac-
counting adjustment and approximately $1,100,000 in economic incentives for a
final net cost of $2,640,000.
Shagawa Resort, Inc. Management Agreement
In conjunction with the purchase, the Company has entered into a manage-
ment agreement for the operation of the hotel/resort. The management agreement
calls for the managing agent to pay minimum monthly payments of $22,100 to the
Company, plus a percentage of room receipts and food/beverage receipts when
these amounts exceed the minimum rentals on an annual basis. The agreement
calls for the managing agent to retain or absorb any operating profit or loss
generated by the facility.
The Company also entered into an option agreement with the managing agent
which will allow the managing agent to purchase the stock of Shagawa Resort,
Inc. at a price determined by the agreement. The option agreement expires in
December 1997.
Stock Option Plan
The Company's board of directors has approved an additional stock option
plan granting options for a total of 175,000 shares of stock to several offi-
cers and directors, subject to approval at the Company's next annual shareholder
meeting.
Letter of Credit
At December 30, 1995, the Company had outstanding two standby letters of
credit totaling $262,230. The letters of credit expire in January 1996 and
July 1996. The letters of credit are available to customers to draw on in the
event of default by the Company on contracts to deliver a predetermined number
of units.
PART III
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
Item 10. Directors and Executive Officers of the Registrant
Information concerning directors and officers of the Registrant is incor-
porated by reference to the Company's definitive proxy statement. Annual meet-
ing date to be determined.
Item 11. Executive Compensation
Executive compensation information is incorporated by reference to the
Company's definitive proxy statement. Annual meeting date to be determined.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(A) Security Ownership of Certain Beneficial Owners
Set forth below is certain information concerning
persons who are known by the Company to own benefi-
cially more than 5% of the Company's voting shares on
March 20, 1996.
Title Name & Address of Number of Percent
of Class Beneficial Owner Shares Owned of Class
-------- ----------------- ------------ --------
Common D. Raymond Madison 542,784 (1) 24.22
PO Box 612
Brainard, MN 56401
(1) Includes 78,199 shares outstanding in the name
of Mr. Madison's wife.
(B) Security Ownership of Management:
The following table sets forth as of March 20, 1996,
information concerning the beneficial ownership of
common stock held by all directors and officers and
all directors and officers of the Company as a group:
Name of Percent
Beneficial Owner Common Shares of Class
---------------- ------------- --------
D. Raymond Madison 542,784 (1) 24.22
Gordon H. Lund 89,995 4.01
Vern Muzik 65,246 (2) 2.91
Israel Mirviss 29,896 (3) 1.34
Clyde R. Lund Jr. 39,774 1.78
Ronald L. Gustafson 25,300 1.13
Peter K. Pichetti 5,000 .22
Glenn R. Anderson 5,000 .22
Eldon R. Matz 2,000 .09
All directors and
officers as a group 804,995 (4) 35.92
(1) Includes 78,199 shares outstanding in the name
of Mr. Madison's wife.
(2) Includes 246 shares outstanding in the name of
Mr. Muzik's wife.
(3) Includes options to purchase 25,000 shares exer-
cisable within 60 days of March 20, 1996.
(4) Includes options to purchase 25,000 shares exer-
cisable within 60 days of March 20, 1996.
(C) Changes in Control:
The Company knows of no contractual arrangements
which may at a subsequent date result in a change in
control of the Company.
Item 13. Certain Relationships and Related Transactions:
Reference Notes to Consolidated Financial Statements, Note 11 of this Form 10-K.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(A) 1. Financial Statements - Included in Part II, Item 8
Independent Auditor's Report
Consolidated Balance Sheets at December 30, 1995 and December 31,
1994
Consolidated Statements of Operations for the years ended December
30, 1995, December 31, 1994 and December 25, 1993
Consolidated Statements of Stockholders' Equity for the years ended
December 30, 1995, December 31, 1994 and December 25, 1993
Consolidated Statements of Cash Flows for the years ended
December 30, 1995, December 31, 1994 and December 25, 1993
Notes to Consolidated Financial Statements
(B) 2. Financial Statement Schedule - Included in Part IV
Schedule IV - Related Party Debt
Schedule V - Property and Equipment
Schedule VI - Accumulated Depreciation of Property and Equipment
Schedule VIII - Valuation and Qualifying Accounts
Schedule IX - Short-term Borrowings
Schedule X - Supplementary Income Statement Information
Other schedules are omitted because of the absence of conditions
under which they are required or because the required information
is given in the financial statements or notes thereto.
(B) Reports on Form 8-K:
During the fourth quarter, Form 8-K was filed on October 12, 1995,
regarding the acquisition of the outstanding shares of Shagawa
Resort, Inc., who was the sole owner of a Holiday Inn Sunspree
Motel which was under construction and located in Ely, Minnesota.
(C) Exhibits:
(3) Articles of Incorporation and Bylaws incorporated by refer-
ence to Form 10-K as filed for the year ended December
27, 1986. **
(10) Material Contract - Loan and Security Agreement between
Dynamic Homes, Inc. and D. Raymond Madison incorpor-
ated by reference to Form 10-K as filed for the year
ended December 29, 1990. **
Material Contract - Loan and Security Agreement between
Dynamic Homes, Inc. and Detroit Lakes Development
Authority incorporated by reference to Form 10-K as
filed for the year ended December 29, 1990. **
(13) Annual Report to Security Holders. **
(21) Subsidiaries of Dynamic Homes, Inc.:
21.1 Dynamic Homes of Fargo/Moorhead, Inc.
21.2 Dynamic Homes of Dakota, Inc.
21.3 Rapid Building Systems, Inc.
21.4 Shagawa Resort, Inc.
** - Omitted
DYNAMIC HOMES, INC.
SCHEDULE IV - INDEBTEDNESS TO RELATED PARTIES - NON-CURRENT
Years Ended December 30, 1995, December 31, 1994 and December 25, 1993
Balance Balance
Beginning End
of Year Additions Deductions Year
--------- --------- ---------- ---------
Year Ended
December 25, 1993:
D. Raymond Madison $ 194,100 $ -0- $ 158,400 $ 35,700
Year Ended
December 31, 1994:
D. Raymond Madison $ 35,700 $ -0- $ 35,700 $ -0-
Year Ended
December 30, 1995:
D. Raymond Madison $ -0- $ -0- $ -0- $ -0-
DYNAMIC HOMES, INC.
SCHEDULE V - PROPERTY AND EQUIPMENT
Years Ended December 30, 1995, December 31, 1994 and December 25, 1993
Balance Balance
Beginning Additions End of
of Year at Cost Retirements Year
--------- --------- ----------- ---------
Year Ended
December 25, 1993:
Land and Improv. $ 108,100 $ 800 $ -0- $ 108,900
Buildings 586,100 144,600 -0- 730,700
Machinery and Eqpt. 1,301,100 66,800 ( 35,200) 1,332,700
--------- --------- --------- ---------
$ 1,995,300 $ 212,200 $ ( 35,200) $ 2,172,300
========= ========= ========== ==========
Year Ended
December 31, 1994:
Land and Improv. $ 108,900 $ 7,700 $ -0- $ 116,600
Buildings 730,700 223,200 -0- 953,900
Machinery and Eqpt. 1,332,700 162,900 (217,100) 1,278,500
--------- --------- --------- ---------
$ 2,172,300 $ 393,800 $ (217,100) $ 2,349,000
========= ========= ========= =========
Year Ended
December 30, 1995:
Land and Improv. $ 116,600 $ 173,100 $ -0- $ 289,700
Buildings 953,900 8,000 -0- 961,900
Machinery and Eqpt. 1,278,500 88,800 ( 62,200) 1,305,100
Const. in Progress
- Note 14 -0- 1,699,000 -0- 1,699,000
--------- --------- --------- ---------
$ 2,349,000 $ 1,968,900 $ ( 62,200) $ 4,255,700
========= ========= ========= =========
DYNAMIC HOMES, INC.
SCHEDULE VI - ACCUMULATED DEPRECIATION OF PROPERTY AND EQUIPMENT
Years Ended December 30, 1995, December 31, 1994 and December 25, 1993
Provisions
Balance Charged to
Beginning Costs and Balance
of Year Expenses Retirements End of Year
--------- ---------- ----------- ----------
Year Ended
December 25, 1993:
Land and Improv. $ 40,300 $ 1,300 $ -0- $ 41,600
Buildings 384,600 17,600 -0- 402,200
Mach. and Eqpt. 970,300 76,600 (31,700) 1,015,200
--------- --------- --------- ---------
$ 1,395,200 $ 95,500 $ (31,700) $ 1,459,000
========= ========= ========= =========
Year Ended
December 31, 1994:
Land and Improv. $ 41,600 $ 1,800 $ -0- $ 43,400
Buildings 402,200 24,300 -0- 426,500
Mach. and Eqpt. 1,015,200 89,600 (184,300) 920,500
--------- --------- --------- ---------
$ 1,459,000 $ 115,700 $ (184,300) $ 1,390,400
========= ========= ========= =========
Year Ended
December 30, 1995:
Land and Improv. $ 43,400 $ 2,500 $ -0- $ 45,900
Buildings 426,500 31,500 -0- 458,000
Mach. and Eqpt. 920,500 104,200 (58,900) 965,800
--------- --------- --------- ---------
$ 1,390,400 $ 138,200 $ (58,900) $ 1,469,700
========= ========= ========= =========
DYNAMIC HOMES, INC.
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 30, 1995, December 31, 1994 and December 25, 1993
Transactions in the allowance for doubtful accounts during the years ended
December 30, 1995, December 31, 1994 and December 25, 1993 were as follows:
Balance Provision Accounts
Beginning Charged to Chgd. off Net Balance
of Year Operations of Recoveries End of Year
--------- ---------- ------------- -----------
Year Ended
December 25, 1993 $ 28,500 $ 3,300 $ ( 1,800) $ 30,000
Year Ended
December 31, 1994 $ 30,000 $ 6,000 $ ( 5,300) $ 30,700
Year Ended
December 30, 1995 $ 30,700 $ 6,100 $ ( 1,800) $ 35,000
DYNAMIC HOMES, INC.
SCHEDULE IX - SHORT TERM BORROWINGS
Years Ended December 30, 1995, December 31, 1994 and December 25, 1993
The amounts reported represent amounts owed under a line of credit.
Weighted
Average Average
Weighted Maximum Month End Interest
Average Borrowing Borrowing Rate
Balance Interest Outstanding Outstanding During
End Rate at During the During the the
of Year (1) Year End Year Year (2) Year (3)
----------- -------- ----------- ----------- --------
Year Ended
December 25, 1993: $ -0- 8.00% $ 408,712 $ 68,700 8.00%
Year Ended
December 31, 1994: $ -0- 9.50% $ 831,548 $ 185,800 8.40%
Year Ended
December 30, 1995: $ -0- 9.00% $ 446,767 $ 69,659 9.50%
(1) The Company has available a line of credit which is collateralized by
inventories and receivables. The credit available is based on spec-
ified percentages of inventories and receivables to a maximum of
$1,000,000 for both 1995 and 1994. Borrowings under the current
line of credit bear maximum interest at one-half percent over the
prime interest rate. As of December 30, 1995, the Company did not
have any outstanding borrowings under its line of credit. However,
as of December 30, 1995, the Company had two standby letters of
credit totaling $262,230 which reduced the available line of credit
accordingly. As of January 19, 1996, one of the outstanding let-
ters of credit matured and reduced the standby letter of credit
value to $187,230.
(2) Average amounts outstanding during the period are computed as an ave-
rage of the month-end balances.
(3) For the periods presented the interest on the Company's short-term
debt fluctuated with the prime rate. The weighted average interest
rate was computed based upon the effective rate under the loan
agreements.
DYNAMIC HOMES, INC.
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
Years Ended December 30, 1995, December 31, 1994 and December 25, 1993
Maintenance Taxes, Other Than Advertising
and Repairs Payroll and Income Cost
----------- ------------------ -----------
Year Ended
December 25, 1993 $ 155,000 $ 84,500 $ 144,400
Year Ended
December 31, 1994 $ 184,515 $ 111,603 $ 133,156
Year Ended
December 30, 1995 $ 208,210 $ 94,823 $ 105,733
There were no royalties paid or amortization of intangible assets, pre-
operating cost or similar deferrals requiring disclosure.
SIGNATURES:
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Reg-
istrant and in the capacities on the dates indicated.
VERN MUZIK, ISRAEL MIRVISS,
President Director
D. RAYMOND MADISON, RONALD L. GUSTAFSON,
Chairman of the Board Director
CLYDE R. LUND JR., PETER K. PICHETTI,
Secretary Director
G. HOWARD LUND, GLENN R. ANDERSON,
Treasurer Director
ELDON R. MATZ,
Controller & Ass't Treasurer
Dated: March 26, 1996