Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549-1004
Quarterly Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For The Quarter Year Ended September 30, 2000
-----------------------------------
Commission File Number 0-8585
-----------------------------------
Dynamic Homes, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Minnesota 41-0960127
- ------------------------------- ---------------------------------
(State of Other Jurisdiction of (IRS Employer Identification No.)
Incorporation of Organization)
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
requirements for the past 90 days.
YES [X] NO [ ]
As of September 30, 2000, 2,240,850 common shares, par value, $.10 per share,
were outstanding. On January 7, 1995, the Company implemented a plan to
repurchase up to 100,000 shares of its outstanding common stock. As of September
30, 2000, a total of 43,080 shares have been repurchased. During 1996, the
Company approved a new stock option plan and granted 240,000 options to various
officers, directors and employees. The treasury stock and 155,000 available
unexercised options have been excluded from the common shares outstanding.
Page 1
PART I.
Item 1. Financial Statements
FORM 10-Q
DYNAMIC HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(Unaudited)
Three Months
Dynamic Shagawa
Homes, Inc. Resort, Inc. Consolidated 9/30/1999
----------- ----------- ----------- -----------
Sales (Note 11) $ 4,244,000 $ -- $ 4,244,000 $ 4,635,000
Cost of Sales (Note 12) 3,393,000 -- 3,393,000 3,606,000
----------- ----------- ----------- -----------
Gross Profit 851,000 -- 851,000 1,029,000
Operating Expenses (Note 13) 430,000 -- 430,000 419,000
----------- ----------- ----------- -----------
Operating Income (Loss) 421,000 -- 421,000 610,000
Other (Income) Expense
Interest Expense 26,000 -- 26,000 34,000
Other, Net (27,000) -- (27,000) (18,000)
----------- ----------- ----------- -----------
Total Other (Income) Expense (1,000) -- (1,000) 16,000
Income (Loss) Before Taxes 422,000 -- 422,000 594,000
Income Tax (Provision) Benefit (169,000) -- (169,000) (237,000)
----------- ----------- ----------- -----------
Income (Loss) from Continuing Operations 253,000 -- 253,000 357,000
Discontinued Operations (Note 2)
Income(Loss)from operations of discontinued
subsidiary, Shagawa Resort, Inc., net of
of income tax provision of $59,000 for 1999 -- 2,000 2,000 88,000
Income(Loss)on disposal of Shagawa
Resort, Inc. (111,000) 111,000 -- --
----------- ----------- ----------- -----------
Net Income (Loss) $ 142,000 $ 113,000 $ 255,000 $ 445,000
----------- ----------- ----------- -----------
Basic Income (Loss) Per Common Share
Income (Loss) from continuing operations $ 0.11 -- $ 0.11 $ 0.16
Income(Loss)from discontinued operations:
Income(Loss)from operations of discontinued
subsidiary -- -- -- 0.04
Income(Loss)on disposal of subsidiary (0.05) 0.05 -- --
----------- ----------- ----------- -----------
Basic net income (loss) $ 0.06 $ 0.05 $ 0.11 $ 0.20
----------- ----------- ----------- -----------
Diluted Income (Loss) Per Common Share
Income (Loss) from continuing operations $ 0.11 $ -- $ 0.11 $ 0.16
Income(Loss)from discontinued operations:
Income(Loss)from operations of discontinued
subsidiary -- -- -- 0.04
Income(Loss)on disposal of subsidiary -- -- -- --
----------- ----------- ----------- -----------
Basic net income (loss) $ 0.11 $ -- $ 0.11 $ 0.20
----------- ----------- ----------- -----------
Weighted Basic Average Number of
Shares Outstanding 2,240,900 2,240,900 2,240,900 2,240,900
----------- ----------- ----------- -----------
Weighted Diluted Average Number of
Shares Outstanding 2,240,900 2,240,900 2,240,900 2,240,900
----------- ----------- ----------- -----------
Dividends per Common Share None None None None
----------- ----------- ----------- -----------
See notes to condensed consolidated financial statements.
Page 2
PART I.
Item 1. Financial Statements
FORM 10-Q
DYNAMIC HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(Unaudited)
Nine Months
-----------
Dynamic Shagawa
Homes, Inc. Resort, Inc. Consolidated 9/30/1999
----------- ----------- ----------- -----------
Sales (Note 11) $ 8,977,000 $ -- $ 8,977,000 $ 9,200,000
Cost of Sales (Note 12) 7,468,000 -- 7,468,000 7,647,000
----------- ----------- ----------- -----------
Gross Profit 1,509,000 -- 1,509,000 1,553,000
Operating Expenses (Note 13) 1,064,000 -- 1,064,000 1,085,000
----------- ----------- ----------- -----------
Operating Income (Loss) 445,000 -- 445,000 468,000
Other (Income) Expense
Interest Expense 84,000 -- 84,000 104,000
Other, Net (64,000) -- (64,000) (42,000)
----------- ----------- ----------- -----------
Total Other (Income) Expense 20,000 -- 20,000 62,000
Income (Loss) Before Taxes 425,000 -- 425,000 406,000
Income Tax (Provision) Benefit (170,000) -- (170,000) (162,000)
----------- ----------- ----------- -----------
Income (Loss) from Continuing Operations 255,000 -- 255,000 244,000
Discontinued Operations (Note 2)
Loss from operations of discontinued
subsidiary, Shagawa Resort, Inc., net of
of income tax benefit of $83,000 and $17,000 -- (123,000) (123,000) (26,000)
Income(Loss)on disposal of Shagawa Resort,
Inc., net of income taxes of $11,000 (715,000) 199,000 (516,000) --
----------- ----------- ----------- -----------
Net Income (Loss) $ (460,000) $ 76,000 $ (384,000) $ 218,000
----------- ----------- ----------- -----------
Basic Income (Loss) Per Common Share
Income (Loss) from continuing operations $ 0.11 $ -- $ 0.11 $ 0.11
Loss from discontinued operations:
Loss from operations of discontinued
subsidiary -- (0.06) (0.06) (0.01)
Income(Loss)on disposal of subsidiary (0.32) 0.09 (0.23) --
----------- ----------- ----------- -----------
Basic net income (loss) $ (0.21) $ 0.03 $ (0.18) $ 0.10
----------- ----------- ----------- -----------
Diluted Income (Loss) Per Common Share
Income (Loss) from continuing operations $ 0.11 $ -- $ 0.11 $ 0.11
Loss from discontinued operations:
Loss from operations of discontinued
subsidiary -- (0.06) (0.06) (0.01)
Income(Loss)on disposal of subsidiary (0.32) 0.09 (0.23) --
----------- ----------- ----------- -----------
Basic net income (loss) $ (0.21) $ 0.03 $ (0.18) $ 0.10
----------- ----------- ----------- -----------
Weighted Basic Average Number of
Shares Outstanding 2,240,900 2,240,900 2,240,900 2,240,900
----------- ----------- ----------- -----------
Weighted Diluted Average Number of
Shares Outstanding 2,240,900 2,240,900 2,240,900 2,240,900
----------- ----------- ----------- -----------
Dividends per Common Share None None None None
----------- ----------- ----------- -----------
See notes to condensed consolidated financial statements.
Page 3
FORM 10-Q
DYNAMIC HOMES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 2000 AND DECEMBER 25, 1999
(Unaudited)
Dynamic Shagawa
Homes, Inc. Resort, Inc. Eliminations Consolidated 12/25/99
----------- ----------- ------------ ------------ -----------
ASSETS
Current Assets:
Cash & cash equivalents $ 2,139,000 $ -- $ -- $ 2,139,000 $ 932,000
Accounts receivable, less allowance
for doubtful accounts, pledged 774,000 -- -- 774,000 1,815,000
Inventories pledged (Note 3) 2,389,000 -- -- 2,389,000 1,875,000
Prepaid expenses (Note 6) 80,000 -- -- 80,000 69,000
Deferred income taxes (Note 5) 127,000 -- -- 127,000 127,000
----------- ----------- ------------ ----------- -----------
Total Current Assets 5,509,000 -- -- 5,509,000 4,818,000
Other Assets:
Other assets (Note 9) 19,000 -- -- 19,000 409,000
----------- ----------- ------------ ----------- -----------
Total Other Assets 19,000 -- -- 19,000 409,000
Property, Plant, & Equipment, at:
Cost - pledged in part (Note 7) 4,084,000 -- -- 4,084,000 7,116,000
Less - accumulated depreciation (2,204,000) -- -- (2,204,000) (2,559,000)
----------- ----------- ------------ ----------- -----------
Net Property, Plant & Equipment 1,880,000 -- -- 1,880,000 4,557,000
----------- ----------- ------------ ----------- -----------
Total Assets $ 7,408,000 $ -- $ -- $ 7,408,000 $ 9,784,000
=========== =========== ============ =========== ===========
LIABILITIES
Current Liabilities:
Notes payable -- -- -- -- --
Current portion - long-tern debt 222,000 -- -- 222,000 268,000
Accounts payable 183,000 -- -- 183,000 347,000
Customer deposits 157,000 -- -- 157,000 127,000
Accrued expenses
Salaries, Wages and vacations 339,000 -- -- 339,000 260,000
Taxes, other than income 115,000 -- -- 115,000 125,000
Warranty 80,000 -- -- 80,000 76,000
Other 147,000 -- -- 147,000 271,000
Income taxes 92,000 -- -- 92,000 --
----------- ----------- ----------- ----------- -----------
Total Current Liabilities 1,335,000 -- -- 1,335,000 1,474,000
Long-Term Debt: (Note 8)
Less current portion included above 899,000 -- -- 899,000 2,752,000
----------- ----------- ----------- ----------- -----------
Deferred Income Taxes (Note 5) 104,000 -- -- 104,000 104,000
----------- ----------- ----------- ----------- -----------
Total Liabilities 2,338,000 -- -- 2,338,000 4,330,000
STOCKHOLDERS' EQUITY
Common Stock, par value, $.10 per share
Authorized, 5,000,000 shares; issued
and outstanding, 2,284,000 in 2000
and 1999 228,000 -- -- 228,000 228,000
Paid-in capital in excess of par 147,000 -- -- 147,000 147,000
Retained earnings 4,839,000 -- -- 4,839,000 5,223,000
Less Treasury stock - (43,080) shares (144,000) -- -- (144,000) (144,000)
----------- ----------- ------------ ----------- -----------
Total Stockholders' Equity 5,070,000 -- -- 5,070,000 5,454,000
----------- ----------- ------------ ----------- -----------
Total Liabilities & Stockholders' Equity $ 7,408,000 $ -- $ -- $ 7,408,000 $ 9,784,000
=========== =========== ============ =========== ===========
See notes to consolidated financial statements.
Page 4
FORM 10-Q
DYNAMIC HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(Unaudited)
09/30/00 09/30/99
------------ -----------
Cash Flows From Operating Activities
Net Income (Loss) $ (384,000) $ 218,000
Adjust to Reconcile Net Income or Loss
Provided by (Used In) Operating Activities:
Depreciation / Amortization 306,000 355,000
Provision for Doubtful Accounts 20,000 41,000
(Gain) Loss on Sales of Property & Equipment (5,000) (8,000)
(Gain) Loss on Sale of Assets of Shagawa Resort, Inc. 516,000 --
Change in Assets & Liabilities:
(Increase) Decrease in Receivables 996,000 180,000
(Increase) Decrease in Inventories (514,000) (845,000)
(Increase) Decrease in Prepaid Expenses (11,000) (46,000)
(Increase) Decrease in Deferred Income Tax -- --
(Increase) Decrease in Other Assets 123,000 3,000
Increase (Decrease) in Accounts Payable (164,000) 239,000
Increase (Decrease) in Customer Deposits 54,000 82,000
Increase (Decrease) in Accrued Expenses (52,000) 75,000
Increase (Decrease) in Income Tax Payable 92,000 143,000
------------ -----------
Net Cash Provided by (Used in) Operating Activities 977,000 437,000
Cash Flows From Investing Activities
Proceeds From Sale of Property & Equipment 15,000 8,000
Proceeds From Sale of Shagawa Resort, Inc. 2,300,000 --
Purchase of Property & Equipment (186,000) (321,000)
------------ -----------
Net Cash Provided by (Used in) Investing Activities 2,129,000 (313,000)
Cash Flows From Financing Activities
Net Borrowings (Payments) on Revolving Credit Agreements
And Other Short-Term Financing -- --
Principal Payments on Long-Term Borrowings Including
Shagawa Resort (1,899,000) (160,000)
Proceeds From Long-Term Borrowings / Leases -- 176,000
------------ -----------
Net Cash Provided (Used in) Financing Activities (1,899,000) 16,000
Increase (Decrease) in Cash and Equivalents $ 1,207,000 $ 140,000
------------ -----------
Cash and Equivalents
Beginning $ 932,000 $ 313,000
Ending $ 2,139,000 $ 453,000
Supplemental Disclosures of Cash Flow Information
Cash Payments for:
Income Taxes $ 2,000 $ 10,000
Interest $ 131,000 $ 211,000
See notes to condensed consolidated financial statements.
Page 5
FORM 10-Q
DYNAMIC HOMES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. UNAUDITED STATEMENTS
In the opinion of management, the accompanying unaudited condensed consolidated
financial statements contain all adjustments necessary to present fairly the
financial position of the Company as of September 30, 2000 and December 25, 1999
and the results of operations and cash flows for the three and nine months ended
September 30, 2000 and September 30, 1999.
Note 2. DISCONTINUED OPERATIONS
In May, 2000, the Company completed the sale of its Shagawa Resort, Inc.
subsidiary. The Company has recorded an after-tax loss of $516,000 on the sale.
Dynamic Homes, Inc. recorded a loss on the sale of subsidiary due to a write off
of an inter-company receivable and Shagawa Resort, Inc. recorded a gain on the
sale of its assets due to the forgiveness of inter-company debt. Shagawa Resort,
Inc.'s results of operations have been classified as discontinued operations and
prior periods have been restated.
Operating results from discontinued operations are as follows:
Three Months Ended Nine Months Ended
Sept 30, Sept 30,
2000 1999 2000 1999
------- ---------- ---------- ----------
Sales $ - $ 798,000 $ 530,000 $1,646,000
Cost of sales and expenses (2,000) 616,000 690,000 1,585,000
------ ---------- ---------- ----------
Operating income (loss) 2,000 182,000 (160,000) 61,000
Other income (expense) - 0- (35,000) (46,000) (104,000)
------ ---------- ---------- ----------
Income(loss)before income taxes 2,000 147,000 (206,000) (43,000)
Income tax benefit -0- 59,000 83,000 17,000
------ ---------- ---------- ----------
Net Income (loss) $2,000 $ 88,000 $ (123,000) $ (26,000)
====== ========== ========== ==========
Note 3. INVENTORIES
During interim accounting periods, the Company uses the standard cost method of
determining cost of sales and inventory levels at its manufacturing facility.
Cost of sales value is determined monthly based on standards for materials,
labor and overhead by product mix. Deviations from these standards result in
adjustments of the monthly cost of sales amount. Periodic physical inventories
may be taken during the fiscal year to determine actual inventory and cost of
sales. No physical inventory was taken during the first nine months of 2000.
Shagawa Resort, Inc. conducted a final physical inventory on April 30, 2000.
The breakdown of inventories is as follows:
9/30/00 9/30/99
----------- -----------
Finished Goods (Note 4) $ 1,029,000 $ 1,890,000
Work In Process 153,000 171,000
Raw Materials 1,207,000 1,115,000
Shagawa Resort, Inc. - 36,000
----------- -----------
Total Inventories $ 2,389,000 $ 3,212,000
=========== ===========
Note 4. BACKLOG OF ORDERS
The Company's order backlog consists of completed units awaiting delivery,
current production and orders scheduled for future production. As of September
30, 2000 and September 30, 1999, the Company's backlog of committed orders was
approximately $3,577,000 and $3,529,000 respectively. As of December 25, 1999,
the Company's backlog of orders was $1,645,000. The September 30, 1999 backlog
included an order for 17 single-family units for a Native American Community in
Central Minnesota which was delivered and set during the fourth quarter of 1999.
During periods of excess plant capacity, the Company supplements its production
through the building of inventory units. As of September 30, 2000, the Company
had 8 inventory and 17 finished units available
Page 6
for immediate sale as compared with 16 inventory and 37 finished units at
September 30, 1999. All inventory units have been excluded from the backlog
values. The Company does not have any multi-family/commercial projects under
contract as of September 30, 2000. The Company has recently introduced several
marketing programs to assist Builder/Dealers in securing new orders during the
remainder of 2000.
Note 5. DEFERRED INCOME TAXES
Deferred income taxes relate primarily to differences between the basis of
receivables, property and equipment, accrued expenses and book / tax inventory
adjustments for financial and income tax reporting. The deferred tax assets and
liabilities represent future tax return consequences of those differences, which
will either be taxable or deductible when the assets and liabilities are
recovered and settled.
Note 6. PREPAID EXPENSES
9/30/00 9/30/99
----------- -----------
Advertising $ 21,000 $ 2,000
Insurance 55,000 52,000
Equipment, Supplies Inventory-Shagawa Resort, Inc. - 12,000
Other 4,000 58,000
$ 80,000 $ 124,000
=========== ===========
Note 7. PROPERTY AND EQUIPMENT
9/30/00 9/30/99
------------- ------------
Dynamic Homes, Inc.
Land and Improvements $ 266,000 $ 266,000
Buildings 1,456,000 1,444,000
Machinery and Equipment 2,223,000 1,987,000
Construction in Process 139,000 103,000
Shagawa Resort, Inc.
Land and Improvements - 343,000
Buildings - 2,127,000
Machinery and Equipment - 720,000
Construction in Process - -
------------- ------------
4,084,000 6,990,000
Less: Accumulated Depreciation-Dynamic Homes, Inc. (2,204,000) (1,910,000)
Accumulated Depreciation-Shagawa Resort, Inc. - (520,000)
------------- ------------
$ 1,880,000 $ 4,560,000
============= ===========
Note 8. LONG-TERM DEBT
9/30/00 9/30/99
------------- ------------
Long-term debt consists of:
Detroit Lakes-Plant Expansion $ 759,000 $ 837,000
Leasing-Capitalized Cranes, Trailers & Equipment 322,000 446,000
Term Mortgage Agreement covering Shagawa
Resort Project (Note 10) - 1,743,000
Other Notes and Contracts Payable 40,000 53,000
------------- ------------
1,121,000 3,079,000
Less: Current Maturities (222,000) (257,000)
------------- ------------
$ 899,000 $ 2,822,000
============= ===========
Page 7
Note 9. OTHER ASSETS - NET
9/30/00 9/30/99
------------- ------------
Dynamic Homes, Inc.
- -Deferred Maintenance Expense $ 4,000 $ 5,000
- -Prepaid Debt Expense 8,000 13,000
- -Deposits 7,000 19,000
Shagawa Resort, Inc.
- -Goodwill - 102,000
- -Prepaid Legal/Debt Expense - 168,000
- -Asset Replacement Escrow - 103,000
- -Other - 8,000
------------- ------------
$ 19,000 $ 418,000
============= ============
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 costs associated with goodwill and a mortgage asset replacement
convenant related to the September 30, 1999 ownership of Shagawa Resort, Inc.
Note 10. SHAGAWA RESORT, INC.
On September 7, 1995 Dynamic Homes, Inc. purchased all of the outstanding shares
of Shagawa Resort, Inc. The purchase price consisted of cash and a construction
mortgage assumption to Norwest Bank Minnesota for the financing of the
construction costs associated with completing the Shagawa Resort, Inc. hotel and
resort facility. The hotel and resort remained under construction until May 1,
1996, when the hotel and resort commenced with normal business operations.
During August 1996, the construction mortgage was finalized and converted to a
long-term mortgage loan that is secured by the assets of Shagawa Resort, Inc.
and a partial guarantee of the Small Business Administration. Monthly
installments of principal and interest approximate $16,000 with a blended
interest rate of approximately 8 percent (Note 8). On May 1, 2000, the Company
completed the sale of the assets of Shagawa Resort, Inc. (Note 2).
Note 11. - Sales
2000 1999
---- ----
3 months 9 months 3 months 9 months
------------ ------------ ------------ ------------
Single-family $ 3,418,000 $ 7,480,000 $ 4,283,000 $ 7,697,000
Multi-family 488,000 706,000 -0- 670,000
Transportation 223,000 475,000 237,000 501,000
Other 115,000 316,000 115,000 332,000
------------ ------------ ------------ ------------
$ 4,244,000 $ 8,977,000 $ 4,635,000 $ 9,200,000
============ ============ ============ ============
Note 12 - Cost of Sales
2000 1999
---- ----
3 months 9 months 3 months 9 months
------------ ------------ ------------ ------------
Materials $ 2,166,000 $ 4,706,000 $ 2,446,000 $ 4,998,000
Labor 379,000 825,000 387,000 808,000
Overhead 561,000 1,203,000 512,000 1,134,000
Transportation 287,000 734,000 261,000 707,000
------------ ------------ ------------ ------------
$ 3,393,000 $ 7,468,000 $ 3,606,000 $ 7,647,000
============ ============ ============ ============
Page 8
Note 13- Operating Expenses
2000 1999
---- ----
3 months 9 months 3 months 9 months
------------ ------------ ------------ ------------
Marketing $ 137,000 $ 293,000 $ 168,000 $ 385,000
Administration 293,000 771,000 251,000 700,000
------------ ------------ ------------ ------------
$ 430,000 $ 1,064,000 $ 419,000 $ 1,085,000
============ ============ ============ ============
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Page 9
DYNAMIC HOMES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
Three months ended September 30, 2000
-------------------------------------
NET SALES:
As a result of the sale of the assets of the hospitality sector (Shagawa Resort,
Inc.) on May 1, 2000, the Company's revenue and operating results encompass only
the manufacturing sector (Dynamic Homes, Inc.).
The Company's revenue from the manufacturing sector for the three months ended
September 30, 2000 was $4,244,000. This represents a decrease of $391,000 or 8
percent from the $4,635,000 reported during the same period of 1999.
Single-family revenue decreased $865,000 from $4,283,000 during 1999 to
$3,418,000. In contrast, multi-family revenue was $488,000 during fiscal 2000
versus the absence of any multi-family revenue during 1999. The majority of the
third quarter multi-family revenue relates to the completion of a 10 unit family
living center. Transportation and other (retail) revenue was similar for each
period at $338,000 for year 2000 and $352,000 during 1999. Unit activity for
single-family housing is again showing signs of the traditional seasonal
slowdown. In response, the Company implemented several promotional marketing
programs to stimulate winter production.
COST OF SALES:
Dynamic Homes realized a gross profit of $851,000 during the third quarter of
2000. The same period of 1999 produced a gross profit of $1,029,000 or $178,000
higher than the current year. The gross profit percentage for 2000 is 20.0
percent versus 22.2 percent for 1999. Promotional discounts affected each of the
quarters, however promotional discounts realized during the third quarter of
2000 were 1.2 percent of net sales greater than the prior year period. The
Company also experienced a higher level of unfavorable production variances
during the third quarter of 2000 due to the under utilization of available
production capacity. However, better than anticipated material acquisition costs
helped offset the affects of discounts and production variances. Transportation
related expenses increased by $26,000 from $261,000 during 1999 to $287,000 for
the current year. The increase during 2000 is a combination of increased
depreciation on equipment additions and crane services associated with the
setting of larger units and travel distance.
OPERATING EXPENSES:
Dynamic Homes, Inc. operating expenses, which include marketing and
administration, increased by $11,000 from $419,000 during 1999 to $430,000 for
2000. Overall, operating expenses for years 2000 and 1999 approximated 10 and 9
percent of net sales, respectively. Marketing related expenses for year 2000
decreased by $31,000, while administration expenses increased $42,000. The
reduction in marketing expenses reflects a decrease in the placement of media
advertising, rescheduling of the Builder/Dealer meeting and the consolidation of
several marketing activities. Administration expense for the third quarter of
2000 totaled $293,000 or $42,000 more than the $251,000 reported during 1999.
The increase in current year administration expenses is associated with
technical consulting services supporting the implementation of a new management
information system and legal and consulting services associated with the
exploration of various merger/acquisition alternatives surrounding an
acquisition letter of intent and the eventual agreement and Plan of Merger which
was finalized on September 25, 2000. It is anticipated that similar expense
levels for these professional services will continue during the fourth quarter
of 2000.
OPERATING INCOME (LOSS):
The operating cycle for the third quarter of 2000 resulted in operating income
of $421,000. During 1999, the higher revenue base produced an operating income
of $610,000. Corresponding operating income levels are 9.9 percent for year 2000
and 13.2 percent for 1999. The lower operating income percentage during 2000
reflects the combination of a lower gross profit and higher operating expenses.
Page 10
NET NON-OPERATING INCOME AND EXPENSE:
The net non-operating cycle for the third quarter of 2000 resulted in an
operating income of $1,000 versus operating expense of $16,000 for 1999.
Interest expense, primarily related to long-term financing, decreased from
$34,000 during 1999 to $26,000 for fiscal 2000. Other income increased from
$18,000 during 1999 to $27,000 for the current year. The majority of the current
year income is attributed to the Company's improved cash position.
FEDERAL AND STATE INCOME TAXES:
During the third quarters of both 2000 and 1999, the Company recorded estimated
income tax obligations of $169,000 and $237,000, respectively. Income tax
obligations and benefits are estimated at the normal statutory rates.
NET INCOME:
The net income from continuing operations (manufacturing facility) for the third
quarter of 2000 was $253,000. Net income from continuing operations for 1999
totaled $357,000. Both basic and diluted earnings per common share outstanding
from continuing operations resulted in net income levels of $0.11 per share
during 2000 and $0.16 per share for 1999. Considerations for unexercised stock
options were recognized as diluted shares outstanding for each of the periods.
DISCONTINUED OPERATIONS:
Shagawa Resort, Inc. did not recognize any revenue during the third quarter of
2000. During the 1999 period, third quarter revenue was $798,000 and resulted in
a gross profit of $440,000. During the 1999 period, Shagawa Resort incurred
operating expenses of $258,000, net interest expense of $35,000 and a before tax
income of $147,000. Net income after taxes was $88,000 or $0.04 per share.
During the third quarter of 2000, Shagawa Resort reported a $2,000 reduction in
operating expenses associated with an insurance refund.
(Balance of page left intentionally blank.)
Page 11
DYNAMIC HOMES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
Nine months ended September 30, 2000 and 1999
---------------------------------------------
NET SALES:
As a result of the sale of the assets of the hospitality sector (Shagawa Resort,
Inc.) on May 1, 2000, the Company's revenue and operating results encompass only
the manufacturing sector (Dynamic Homes, Inc.).
The Company's revenue from the manufacturing sector for the nine-month period
ending September 30, 2000 was $8,977,000. During the nine-month period ending
September 30, 1999, the Company reported revenues of $9,200,000 or $233,000 more
than the 2000 total. Single-family revenue decreased by $217,000 from $7,697,000
during 1999 to $7,480,000 for year 2000. However, the decrease in single-family
activity was partially offset by a $36,000 increase in multi-family/commercial
activity. Multi-family/Commercial revenue for the current year totaled $706,000
versus $670,000 for 1999. Volume based transportation and other (retail) revenue
for year 2000 was $791,000 or $42,000 less than the $833,000 reported during
1999. Due to the reduction in available inventory units and the uneven receipt
of new orders during year 2000, both the number of units produced and set
decreased from the prior year level.
COST OF SALES:
Dynamic Homes, Inc. gross profit for the nine-month period ending September 30,
2000 was $1,509,000. During 1999, the gross profit for the period was
$1,553,000. The gross profit percentage for the first nine months of each year
were similar at 16.8 percent for year 2000 and 16.9 percent for 1999. The
Company benefited from favorable raw material costs throughout the latter stages
of 2000 which neutralized a higher level of unfavorable variances resulting from
the under utilization of plant production capacity.
OPERATING EXPENSES:
Dynamic Homes, Inc. operating expenses, which include marketing and
administration, decreased by $21,000 from the 1999 level of $1,085,000 to
$1,064,000 for the current year. Overall operating expenses remained constant at
approximately 11.8 percent of net sales for each period. During the first nine
months of 2000, marketing related expenses decreased by $92,000 from $385,000
for 1999 to $293,000 for 2000. The expense reduction is primarily attributed to
a reduction in media placement costs, the consolidation of marketing activities
and rescheduling of the Builder/Dealer meeting. In contrast, administration
related expenses for the first nine-months of 2000 total $771,000 or $71,000
greater than the $700,000 incurred during 1999. The major expense increases
relate to professional services associated with the implementation and updating
of the Company's administrative technology and the solicitation, evaluation and
acceptance of a letter of intent by a group of investors in acquiring ownership
of the Company.
OPERATING INCOME
The operating cycle for the first nine months of 2000 resulted in an operating
income of $445,000 or $23,000 less than the $468,000 reported during 1999.
Operating income as a percent of net sales was 5.0 percent for year 2000 and 5.1
percent for 1999.
NET NON-OPERATING INCOME AND EXPENSE:
Net non-operating expense was $20,000 or $42,000 less than the $62,000 reported
during 1999. Interest costs associated with capital leases and long and short
term financing totaled $84,000 during year 2000 and $104,000 for the 1999
period. Other income of $64,000 during the current year and $42,000 for 1999
consists mainly of interest income and gains from the sale of capital assets.
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FEDERAL AND STATE INCOME TAXES:
The Company recorded an income tax provision of $170,000 for the first nine
months of year 2000. During the corresponding period of 1999, the Company
recorded an income tax provision of $162,000. Income tax benefits and
obligations are estimated at the normal statutory rate.
NET INCOME (LOSS):
The current year's continuing operations resulted in a reportable income of
$255,000, which represents a modest increase from the $244,000 reported during
1999. Basic and diluted earnings per common share outstanding were $0.11 per
share for each of the periods. Considerations for unexercised stock options were
recognized as diluted common shares outstanding for each of the periods.
DISCONTINUED OPERATIONS:
The Shagawa Resort facility was sold on May 1, 2000. Consequently, the
activities reported represent the operational results for only the first four
months of year 2000. Shagawa Resort realized revenues of $530,000 during the
shortened 2000 year period as compared with $1,646,000 during the nine month
operating cycle for 1999.
Shagawa Resort, Inc. recorded a gross profit of $188,000 during the current
period and $767,000 for 1999. The resort incurred operating expenses of $348,000
for year 2000 and $706,000 during 1999. Interest expenses totaled $46,000 for
the current year and $104,000 during 1999. Shagawa Resort incurred a net after
tax loss of $26,000 or $0.01 per share during 1999 and a net after tax loss of
$123,000 or $0.06 per share for the current period (reference Note 2).
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DYNAMIC HOMES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION & ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Financial Condition
As of September 30, 2000
------------------------
The Company's working capital at September 30, 2000 was a positive $4,174,000 as
compared to positive working capital positions of $3,244,000 at September 30,
1999 and $3,344,000 at December 25, 1999. The current ratio for September 30,
2000 is 4.1 to 1.0 as compared with 2.6 to1.0 at September 30, 1999 and 3.3 to
1.0 at December 25, 1999. The working capital position at September 30, 2000
recognizes the sale of the assets of Shagawa Resort, Inc. on May 1, 2000.
During the first nine months of 2000, cash outflows were required for the
build-up of inventory, acquisition of capital assets, reductions to current
payables and pay-downs on long-term debt. Cash flows to support the referenced
activities were primarily provided by utilizing the Company's year-end cash
position, receivable collections, non-cash related depreciation and
amortization, proceeds from the sale of Shagawa Resort, Inc., internally
generated income and tax deferrals.
Long-term debt and capital leases, net of current maturities, decreased from
$2,752,000 at December 25, 1999 to $899,000 at September 30, 2000. On September
30, 1999, long-term debt and capital leases, net of current maturities was
$2,822,000. The major component contributing to the decrease in long-term debt
relates to the pay-off of a long-term mortgage loan associated with the May 1,
2000 sale of the Shagawa Resort property. The remaining long-term debt consists
of six capitalized lease obligations secured by transportation vehicles,
material handling and computer equipment, a restructured long-term financing
arrangement secured by a real estate mortgage related to a prior year plant
expansion and a contract for deed covering the purchases of adjacent land and
warehouse. Debt retirement associated with the plant expansion and equipment
leases varies in maturity from three to fifteen years, dependent on the funding
source (reference Note 8).
The ratio of long-term debt to stockholders' equity changed from .53 to 1.0 at
September 30, 1999, to .50 to 1.0 at December 25, 1999. Due to the retirement of
debt associated with the May 1 sale of Shagawa Resort, Inc. and current year
earnings, the ratio of long-term debt to stockholders' equity improved to .18 to
1.0 at September 30, 2000. Stockholders' equity, net of treasury stock,
increased from $5,324,000 at September 30, 1999 to $5,454,000 at December 25,
1999. Due to the loss associated with the disposal of Shagawa Resort, Inc.,
stockholders' equity decreased to $5,070,000 at September 30, 2000.
On May 1, 2000, Dynamic Homes, Inc. closed on the sale of assets of Shagawa
Resort, Inc. to Grand Ely Lodge, LLC. The selling price was $2,300,000 plus the
assumption of various obligations of the resort which operated and will continue
to operate under the license of a Holiday Inn Sunspree Resort. The disposal of
the assets of Shagawa Resort, Inc. resulted in a net after tax loss of $516,000.
Dynamic Homes, Inc. recorded a loss on the sale of the subsidiary due to a write
off of an inter-company receivable and Shagawa Resort, Inc. recorded a gain on
the sale of its assets due to the forgiveness of inter-company debt.
Dynamic Homes, Inc. has available a line of credit which is collateralized by
inventories and receivables. The credit available is based upon specified
percentages of inventory and receivables. On May 2, 2000, the Company renewed
its credit line for a period of one year and without any compensating balance
requirements. The credit line has a maximum available borrowing of $1,500,000 at
an interest rate equal to the bank's prime rate. As of September 30, 2000, the
Company did not have any borrowings outstanding against the available credit
line.
On September 25, 2000, Dynamic Homes announced that it had entered into an
Agreement and Plan of Merger with Dynamic Homes, LLC and its wholly-owned
subsidiary. Dynamic Acquisition, Inc. The merger is pursuant to a letter of
intent dated June 21, 2000 and announced in a press release on that date.
Dynamic Homes, LLC will pay $2.55 in cash for each share of Dynamic Homes, Inc.
stock outstanding as of the closing date. Consummation of the merger is subject
to a number of conditions, including the approval of the Agreement and Plan of
Merger by the stockholders of Dynamic Homes, Inc. and certain other customary
conditions. Dynamic Homes, Inc. anticipates that
Page 14
a special meeting of its stockholders to consider and approve the Agreement and
Plan of Merger will be held during the first weeks of December with the closing
to be held shortly thereafter. Dynamic Homes, Inc. has submitted to the
Securities and Exchange Commission a proxy statement relating to the special
meeting of stockholders.
The Company's management anticipates that the normal operating cycle and cash
position will be sufficient to provide adequate funds to support the Company's
ongoing operations during the remainder of fiscal year 2000 and early stages of
2001.
Statements regarding the Company's operations, performance and financial
condition are subject to certain risks and uncertainties. These risks and
uncertainties include but are not limited to: rising mortgage interest rates and
/ or weakness in regional and national economic conditions that could have an
adverse impact on new home and multi-family and commercial sales. Likewise,
future escalating and volatile material costs and unfavorable weather conditions
could also affect the Company's profit levels.
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PART II.
Items 1, 2, 3, 4 and 5 are omitted as each is not applicable or the answer to
the item is negative.
Item 6. Exhibits and Reports on Form 8 - K:
On September 26, 2000, a report on Form 8-K was filed announcing the Company had
entered into an Agreement and Plan of Merger with Dynamic Homes, LLC and its
wholly-owned subsidiary, Dynamic Acquisition, Inc. The merger is pursuant to a
letter of intent dated June 21, 2000 and reported on Form 8-K dated June 22,
2000.
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Page 16
SIGNATURE
---------
Pursuant to the requirements of the Securities Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
Dated: November 10, 2000 Dynamic Homes, Inc.
----------------- -----------------------------
(Registrant)
-----------------------------
Eldon Matz
Controller
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