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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                              --------------------

                                    FORM 10-K
(Mark One)

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

For the fiscal year ended March 31, 1998

                                       OR

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

For the transition period from _______________ to _______________

Commission File No.  0-20614


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

                               2681 LONG LAKE ROAD
                          MINNEAPOLIS, MINNESOTA 55113
               (Address of principal executive offices) (Zip Code)

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

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

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

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes  X  No
                          ---    ---

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

The aggregate market value of voting stock held by nonaffiliates of the
registrant as of June 30, 1998 was approximately $5,900,000.

As of June 30, 1998, there were 5,772,913 shares of Common Stock of the
registrant issued and outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

Certain portions of the documents listed below have been incorporated by
reference into the indicated part of this Form 10-K.
    DOCUMENT INCORPORATED                                      PART OF FORM 10-K
    ---------------------                                      -----------------
       Proxy Statement for 1998 Annual Meeting of Shareholders    Part III

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<PAGE>

                                 FORM 10-K INDEX

<TABLE>
<CAPTION>

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

PART II........................................................................................................8
      Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.............................8
      Item 6. SELECTED FINANCIAL DATA AND STATISTICAL COMPARISON...............................................9
      Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION...........10
      Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.....................................13
      Item 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA......................................................14
      Item 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES............14


<PAGE>

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

PART IV.......................................................................................................31
      Item 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K...............................31

</TABLE>

<PAGE>

                                     PART I

ITEM 1.      BUSINESS

GENERAL

           The Rottlund Company, Inc. ("Rottlund" or the "Company"), through its
subsidiaries, designs, builds, and markets detached single family homes and
attached townhomes and villas in the Minneapolis-St. Paul, Minnesota, Des
Moines, Iowa, Indianapolis, Indiana, Southern New Jersey and Naples-Ft. Myers,
Orlando and Tampa, Florida metropolitan areas. The Company began operations in
1973 and, through February 1993, had built all of its developments in the
Minneapolis-St. Paul metropolitan area. Rottlund is currently ranked among the
top 100 builders in the nation by two leading trade publications. Since 1973,
the Company has built and sold over 8,900 homes. During the year ended March 31,
1994 ("fiscal 1994") the Company began home building operations in Naples-Ft.
Myers, Florida and Des Moines, Iowa and, during the first quarter of the year
ended March 31, 1995 ("fiscal 1995"), began home building operations in
Indianapolis, Indiana and Orlando and Tampa, Florida and during the year ended
March 31, 1996 ("fiscal 1996") the Company acquired certain assets and assumed
certain liabilities of Kevin Scarborough, Inc., a residential homebuilder
operating in Southern New Jersey. All references to the Company contained
herein, unless the context indicates otherwise, include its wholly owned
subsidiaries Rottlund Homes of Iowa, Inc., Rottlund Homes of Florida, Inc.,
Rottlund Homes of Indiana, Inc., Rottlund Homes of New Jersey, Inc., and
Rottlund Homes of Indiana Limited Partnership.

           As of March 31, 1998, the Company owned or controlled through options
over 2,100 home sites in communities under development and land for the
development of over 2,000 additional planned home sites in proposed communities.

           The Company's homes are sold primarily through its own staff of sales
personnel. The Company markets its homes to a wide range of buyers, emphasizing
high quality construction and customer satisfaction. Its promotional efforts
include advertisements in newspapers and other printed media, radio and
television, illustrated brochures, billboards, on-site displays and model homes.
Purchasers of the Company's homes are given the opportunity to select, at
additional cost, various optional amenities such as upgraded carpet, fireplaces,
varied interior and exterior color schemes, lighting and upgraded appliances.
The Company offers a diverse product line ranging from townhomes to
single-family homes at prices generally ranging from $70,000 to $300,000. The
average price of the Company's homes delivered in fiscal 1998 was approximately
$146,000.

           The Company believes that its success has been due to its strategy of
(i) marketing the Company's homes to many segments of the home-buying public,
which enables the Company to respond rapidly to changing market conditions and
the cyclical nature of the home-building industry, (ii) controlling costs by
closely monitoring the construction process through the use of an advanced,
industry-specific, management information system, (iii) controlling the
Company's inventory of home sites and unsold homes, and (iv) emphasizing the
Company's design capabilities that enable it to offer quality homes at all price
levels in the markets in which the Company competes. Further, the Company
generally attempts to reduce the effect of certain risks in the home-building
industry by purchasing land through options whenever possible, beginning
construction of multi-family buildings only after contracts for sales of
approximately 75% of units have been executed and of single family homes only
after an agreement of sale has been executed by a purchaser, and by using
subcontractors to perform all site improvement and construction work on a
fixed-price basis.

OPERATING STRATEGY

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

           MARKETS. The Minneapolis-St. Paul metropolitan area has been the
Company's primary market and has accounted for the majority of revenues since
the Company's inception. The Company has built and delivered more homes in this
market over the last five years than has any other home builder. The Company's
marketing strategy in the Minneapolis-St. Paul market has been to establish
itself as a name brand builder. Management believes this 


                                      1

<PAGE>

strategy has helped Rottlund to build and deliver more homes in this market 
than any other builder during the last five years. The Company presently 
accounts for approximately 4.0% of all homes sold in this market. The Company 
does not presently intend to increase its share of the Minneapolis-St. Paul 
market, but rather to expand its operations in the Des Moines, Iowa, 
Indianapolis, Indiana, Southern New Jersey and Naples-Ft. Myers, Tampa, and 
Orlando, Florida markets. Rottlund is implementing its name brand builder 
strategy in these markets.

           PRODUCTS. The Company markets its homes to a wide range of buyers,
including entry level, move-up and retirees. Accordingly, the Company offers a
number of home styles and price ranges at various locations. The Company's
product offerings include villas, townhomes and detached single family homes.
Sales prices presently range from approximately $70,000 to $300,000, and the
average sales price of homes being delivered during fiscal 1998 was
approximately $146,000. Management believes the Company's ability and
willingness to build homes in accordance with home buyers' needs will enable the
Company to continue to grow. Management believes that the Company's
long-standing strategy of product diversification enables it to respond rapidly
to changing market conditions and the cyclical nature of the home-building
industry.

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

           INVENTORY MANAGEMENT. Two of the major risks in the home-building
industry are excessive home site inventory and inventory of completed homes. The
Company attempts to reduce its vulnerability to these risks by (i) acquiring
control of improved home sites through option contracts which allow the Company
to build homes with relatively minimal capital expenditures and limited risks,
(ii) acquiring land for development with seller financing, (iii) acquiring land
through purchase agreements on a nonrecourse basis which enables the Company to
obtain necessary governmental approvals before the acquisition of the land
(generally, the down payment on a land purchase or option agreement will be
returned to the Company if all approvals are not obtained, although
pre-development costs may not be recoverable), (iv) beginning construction of a
single family home only after execution of a sales contract, receipt of
satisfactory earnest money and, where applicable, a tentative mortgage approval,
(v) minimizing inventory homes by requiring contracts for at least 75% of the
units in attached buildings to be executed prior to construction, and (vi)
controlling the number of finished homes held in inventory.

LAND ACQUISITION AND DEVELOPMENT

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

           The Company's purchase agreements are typically subject to numerous
conditions including, but not limited to, the Company's ability to obtain
necessary zoning and other governmental approvals for the proposed development.
The Company believes it has been successful in obtaining local governmental
approvals through proactive interaction with neighborhood and citizen groups.
The Company maintains a policy of holding 


                                      2

<PAGE>

neighborhood meetings to gain support for its development activities. During 
the initial municipal approval process, the Company confirms the availability 
of utilities, conducts environmental reviews, arranges acquisition 
development and financing, and completes its marketing construction 
feasibility studies. As a result, the Company is generally able to begin 
marketing immediately after closing the land purchase. This results in 
reduced carrying costs and increased liquidity for future development 
opportunities.

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


                   AVAILABLE HOME SITE INVENTORY (ALL CITIES)

           The following table sets forth information with respect to the
Company's available lot inventory by state as of March 31, 1998.

<TABLE>
<CAPTION>

                                                               Homes Under Construction
                                    Total      ----------------------------------------------------------    Unsold Sites Available
Market                            Available         Sold (1)            Models          Inventory (2)        for Future Construction
------                            ---------         --------            ------          -------------        -----------------------
<S>                               <C>               <C>                 <C>             <C>                  <C>
Minnesota.....................      1,339               350                  26                 52                     911
Florida.......................        662               117                  21                 10                     514
Iowa..........................        240                50                   8                 12                     170
Indiana.......................        140                35                   6                  9                      90
New Jersey....................        545                79                   9                  0                     457
                                      ---                --                   -                  -                     ---
Total.........................      2,926               631                  70                 83                   2,142
                                    -----               ---                  --                 --                   -----
                                    -----               ---                  --                 --                   -----

</TABLE>

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

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

           Rottlund strives to maintain a supply of developed home sites to meet
anticipated homebuilding requirements for not more than 24 months. As of March
31, 1998 the Company had an aggregate of 2,142 home sites available for future
construction which represents approximately a 16-month supply based on actual
deliveries anticipated in fiscal 1999. The Company believes there is an adequate
supply of undeveloped land in all metropolitan areas where it conducts business
to maintain adequate home site inventories.

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


                                      3

<PAGE>

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

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

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

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

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

CONSTRUCTION

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

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

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

           The construction of detached single family homes is generally tied to
home buyer sales contracts to minimize the costs and risks of completed but
unsold inventory. Similarly, the Company's policy is to require 75% of the units
on attached home buildings having executed sales contracts prior to
construction.


                                      4

<PAGE>

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

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

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

MARKETING AND SALES

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

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

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


                                      5

<PAGE>

CUSTOMER SERVICE AND QUALITY CONTROL

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

           The Company's construction supervisors follow a 14-step inspection
process on each home the Company builds. This process is followed to ensure each
home meets or exceeds the Company's performance standards for its homes.

           Upon completion of construction of each home and prior to closing, an
employee of the Company's Customer Care Department conducts a quality control
inspection of the completed home. From this inspection, a list is created which
sets forth those areas which do not meet the Company's performance standards and
require correction by the contract builder. Also prior to closing, the Customer
Care Department accompanies the buyer on a customer orientation of their home to
demonstrate the proper use and care of the home including the mechanical
equipment and other components of the home. At this time, additional items which
do not meet the Company's performance standards may be added to the quality
control inspection list. All such items are repaired or replaced within 15 days
of being added to the quality control inspection list. At the customer
orientation, the buyer is also familiarized with the service warranty process
following closing on its home.

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

           The Company provides all home owners with a one-year comprehensive
warranty and a two-year warranty on all mechanical systems and provides, from an
unaffiliated insurance company, a five-year warranty on appliances
(single-family product) and a ten-to fifteen-year structural warranty. The
five-year appliance warranty and fifteen-year structural warranty are unique in
the Minneapolis-St. Paul market and help to distinguish the Company from its
competitors.

COMPETITION AND MARKET FACTORS

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

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

           The housing industry is cyclical and affected by consumer confidence
levels, prevailing economic conditions and interest rate levels. Other factors
affecting the industry include increases in construction costs, 


                                      6

<PAGE>

increases in costs associated with home ownership such as property taxes, 
changes in consumer preferences and demographic trends. The Company believes 
its experience provides a sound understanding of the nature of the industry 
which enables it to base its strategic planning on such cyclical conditions.

EMPLOYEES

           As of March 31, 1998, the Company employed 248 persons, 56 as on-site
sales personnel, 70 involved in construction, 17 as customer care personnel, 18
as estimating, drafting and architectural design personnel and 87 as executive,
administrative and clerical personnel. The Company's employees are not covered
by a collective bargaining agreement and the Company believes its relationships
with its employees are good.

GOVERNMENTAL REGULATION

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

ITEM 2.      PROPERTIES

           The Company's principal offices are located at 2681 Long Lake Road,
Minneapolis, Minnesota 55113. The offices total 10,000 square feet, and are
leased from an unrelated party through March 31, 1999, at a base annual rent of
$94,000. Various computer equipment and office furniture are also leased by the
Company.

ITEM 3.      LEGAL PROCEEDINGS

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

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

           There were no matters submitted to a vote of the Company's
shareholders during the three-month period ended March 31, 1998.


                                      7

<PAGE>

                                     PART II

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

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

           The following table sets forth the range of high and low sale prices
for the Company's Common Stock for each of the fiscal quarters of the two years
ended March 31, 1997 and 1998.

STOCK QUOTATIONS

<TABLE>
<CAPTION>

                                                                    HIGH      LOW
                                                                    ----      ---
<S>                                                                 <C>       <C>
Fiscal 1998
     First Quarter...........................................       5 1/4     4 1/4
     Second Quarter..........................................       5 1/4     4 1/2
     Third Quarter...........................................       4 3/4     3 1/8
     Fourth Quarter..........................................       4 3/4     3
Fiscal 1997
     First Quarter...........................................       8 1/2     6 1/2
     Second Quarter..........................................       8         5
     Third Quarter...........................................       7 1/4     4 1/2
     Fourth Quarter..........................................       6         4 5/8

</TABLE>

           As of June 30, 1998, the Company had approximately 150 holders of
record of its Common Stock.

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

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


                                      8

<PAGE>

ITEM 6.      SELECTED FINANCIAL DATA AND STATISTICAL COMPARISON

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

<TABLE>
<CAPTION>

                                                         1998             1997            1996             1995            1994
                                                         ----             ----            ----             ----            ----
                                                                 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND UNIT DATA)
<S>                                                 <C>              <C>             <C>              <C>             <C>
STATEMENT OF OPERATIONS DATA:
   Net sales......................................      $160,830         $180,457        $131,583          $116,520        $ 94,076
   Cost of sales..................................       139,284          156,332         110,589            96,344          78,292
                                                    ------------     ------------    ------------     -------------   -------------
   Gross profit...................................        21,546           24,125          20,994            20,176          15,784
   Selling, general and administrative expenses...        20,541           19,569          13,671            13,307           9,469
   Write-down of land(1)                                       -            1,500               -                 -               -
                                                    ------------     ------------    ------------     -------------   -------------
   Operating income...............................         1,005            3,056           7,323             6,869           6,315
   Interest expense...............................         2,018              958             153               295             198
   Income (loss) before provision for income
    taxes.........................................       (1,013)            2,098           7,170             6,574           6,117
   Provision for income taxes.....................         (415)              862           2,928             2,695           2,500
                                                    ------------     ------------    ------------     -------------   -------------
      Net income (loss)...........................         (598)       $    1,236      $    4,242        $    3,879       $   3,617
                                                    ------------     ------------    ------------     -------------   -------------
                                                    ------------     ------------    ------------     -------------   -------------

   Basic earnings (loss) per Share................  $     (0.10)     $       0.22    $       0.75      $       0.69     $      0.64
                                                    ------------     ------------    ------------     -------------   -------------
                                                    ------------     ------------    ------------     -------------   -------------
   Diluted earnings (loss) per Share..............  $     (0.10)     $       0.22    $       0.74      $       0.68     $      0.63
                                                    ------------     ------------    ------------     -------------   -------------
                                                    ------------     ------------    ------------     -------------   -------------
   Weighted average shares outstanding............         5,745            5,735           5,749             5,661           5,645
                                                    ------------     ------------    ------------     -------------   -------------
                                                    ------------     ------------    ------------     -------------   -------------

OPERATING DATA:
   Number of home sales closed....................         1,092            1,346           1,187             1,003             867
   Average sales price............................    $      146      $       134     $       111       $       116      $      108
                                                    ------------     ------------    ------------     -------------   -------------
                                                    ------------     ------------    ------------     -------------   -------------

BALANCE SHEET DATA:
   Inventories and properties held for
   development or sale............................     $  74,379        $  81,825       $  74,650         $  60,450        $ 42,604
   Total assets...................................        88,281           96,234          83,756            68,549          50,330
   Notes and mortgage notes payable...............        47,907           54,137          40,584            33,746          18,673
   Shareholders' equity...........................     $  26,315        $  26,819       $  25,396         $  21,033        $ 17,030

</TABLE>

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


                                      9

<PAGE>

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

GENERAL

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

<TABLE>
<CAPTION>

                                                                        YEARS ENDED MARCH 31
                                             1998                              1997                               1996
                                         ------------                     ------------                        ------------
<S>                                      <C>                              <C>                                 <C>
Homes closed:
   Single family..............                    431                              397                                 181
   Multi-family...............                    661                              949                               1,006
Average sales price:
   Single family..............           $    186,000                     $    199,000                        $    154,000
   Multi-family...............                122,000                          107,000                             103,000
Net sales:
   Single family..............           $ 80,370,000                     $ 79,083,000                        $ 27,916,000
   Multi-family...............             80,460,000                      101,374,000                         103,667,000
                                         ------------                     ------------                        ------------
Total net sales                          $160,830,000                     $180,457,000                        $131,583,000
                                         ------------                     ------------                        ------------
                                         ------------                     ------------                        ------------

</TABLE>

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


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

<TABLE>
<CAPTION>

MARCH 31                                                NUMBER OF HOMES             SALES VALUE
--------                                                ---------------             -----------
<S>                                                     <C>                         <C>
1998..............................................            631                      $98,380,000
1997..............................................            409                      $60,908,000
1996..............................................            533                      $69,319,000

</TABLE>

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

RESULTS OF OPERATIONS

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

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

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

           Selling, general and administrative expenses increased by $972,000 to
$20.5 million in fiscal 1998 from $19.6 million in fiscal 1997. As a percentage
of net sales, selling, general and administrative expenses increased to 


                                      10

<PAGE>

12.8% in fiscal 1998 from 10.8% in fiscal 1997. This increase was primarily 
due to the decrease in home sales during fiscal 1998.

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

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

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

           YEAR ENDED MARCH 31, 1997 COMPARED TO YEAR ENDED MARCH 31, 1996

           The Company's home sales increased $48.9 million or 37% during fiscal
1997 as compared to fiscal 1996 as a result of a 13.4% increase in the number of
homes closed combined with an 29% increase in the average sales price of single
family homes closed and a 4% increase in the average sales price of multifamily
homes closed. The increase in the average sales price of single family homes was
principally due to a greater number of homes closed in Tampa, Orlando and New
Jersey where the products are larger and sold at higher price levels than those
achieved historically in single family developments.

           Gross profit increased by $3.1 million or 15% during fiscal 1997 as
compared to fiscal 1996. Gross profit margins decreased to 13% in fiscal 1997
from 16% in fiscal 1996. This decrease was primarily due to rising material and
labor costs caused by the strength in the homebuilding industry as well as tight
labor markets in many of the Company's markets, and slower sales than
anticipated in some of the Company's newer markets.

           Selling, general and administrative expenses increased by 43.0% to
$19.6 million in fiscal 1997 from $13.7 million in fiscal 1996. As a percentage
of net sales, selling, general and administrative expenses increased to 10.8% in
fiscal 1997 from 10.4% in fiscal 1996.

           Interest expense was $958,000 in fiscal 1997 as compared to $153,000
in fiscal 1996 due to an increased percentage of borrowings under the Company's
credit facility. The Company capitalizes certain interest costs for land
development and includes such capitalized interest in cost of sales when the
related homes are delivered to purchasers. Accordingly, total interest incurred
by the Company was approximately $5.2 million for fiscal 1997 and $3.9 million
for fiscal 1996. This increase was primarily due to increased borrowings to fund
the Company's increased business level.

     The Company's tax rate was approximately 41% in fiscal 1997 and 1996 which
reflects the federal statutory rate plus the effect of state income taxes, net
of federal benefit.

           Net income decreased from $4.2 million in fiscal 1996 to $1.2 million
in fiscal 1997. This decrease was primarily due to a noncash write-down of $1.5
million, representing an inventory valuation adjustment of certain land for
approximately 250 unsold lots located in Orlando and Indianapolis, and an
overall decline in the gross profit margin partially offset by an increase in
home sales.


                                      11

<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

           Cash flows provided by operating activities increased $14.2 million
from ($9.8) million in fiscal 1997 to $4.4 million in fiscal 1998. This increase
was primarily due to decreased investments in residential housing completed and
under construction resulting from the decrease in sales activity, combined with
the lower level of inventory homes at March 31, 1998. Cash flows used for
investing activities were not significant. Cash flows provided by (used for)
financing activities decreased by $19.9 from $13.7 in fiscal 1997 to ($6.1) in
fiscal 1998. This decrease was primarily due to reduced borrowings under the
company's revolving credit facility to finance the lower levels of land
inventory and residential housing completed and under construction.

           Cash flows used for operating activities increased $7.5 million from
($2.3) million in fiscal 1996 to ($9.8) million for fiscal 1997. This increase
was primarily due to increased investments in residential housing completed and
under construction resulting from the Company's expansion to additional
geographic regions, combined with an increase in sales activity. Cash flows used
for investing activities were not significant. Cash flows provided by financing
activities increased by $13.4 million from $336,000 in fiscal 1996 to $13.7
million in fiscal 1997. This increase was primarily due to increased borrowings
under the Company's revolving credit facility to finance the increased level of
business over the previous year, and the resulting higher levels of land
inventory and residential housing completed and under construction.

           The Company's financing needs depend primarily upon sales volume,
asset turnover, land acquisition and inventory balances. In December 1994, the
Company issued $25 million of 12.11% Senior Notes payable and in February 1996,
the Company issued an additional $10 million of 9.42% Senior Notes payable
(collectively referred to as the "Senior Notes"). Proceeds were used to retire
certain mortgage notes payable and for working capital purposes. Principal and
interest payments of approximately $552,000 are due monthly through December
2004.

           At March 31, 1998, the Company also had a $23.0 million unsecured
revolving credit facility from a commercial lender. Borrowings under this
facility totaled $15.0 million at March 31, 1998. The Company believes that
amounts available under its existing borrowing arrangements (assuming extensions
and renewals of debt in the ordinary course of business) and amounts generated
from operations will provide funds adequate for its home-building activities and
debt service. The Company has no significant commitments as of March 31, 1998
requiring the use of funds.

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

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

INFLATION AND EFFECTS OF CHANGING PRICES

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


                                      12

<PAGE>

YEAR 2000 CONSIDERATIONS

           The Company has reviewed the implications of year 2000 compliance and
has taken steps designed to ensure that the Company's computer systems and
applications will manage dates beyond 1999. The Company believes that it has
allocated adequate resources for this purpose and that planned software
upgrades, which are underway and in the normal course of business, will address
the Company's internal year 2000 needs. While the Company expects that efforts
on the part of current employees of the company will be required to monitor year
2000 issues, no assurances can be given that these efforts will be successful.
The Company does not expect the cost of addressing any year 2000 issue to be a
material event or uncertainty that would have a material adverse effect on
future operating results or financial condition.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Not applicable.
























                                       13

<PAGE>

ITEM 8    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The financial statements of the company as of March 31, 1998 and 1997 
together with the Report of Independent Public Accountants are included in 
this Form 10-K on the pages indicated below.


                   THE ROTTLUND COMPANY, INC. AND SUBSIDIARIES

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
                                                                                                           Page
                                                                                                           ----
<S>                                                                                                        <C>

Report of Independent Public Accountants.................................................................   14

Consolidated Balance Sheets as of March 31, 1998 and 1997................................................   15

Consolidated Statements of Operations for the Years Ended March 31,1998, 1997 and 1996...................   16

Consolidated Statements of Shareholders' Equity for the Years Ended March 31,1998, 1997 and 1996.........   17

Consolidated Statements of Cash Flows for the Years Ended March 31, 1998, 1997 and 1996..................   18

Notes to Consolidated Financial Statements...............................................................   19
</TABLE>

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

     None.





















                                       14

<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To The Rottlund Company, Inc.:

We have audited the accompanying consolidated balance sheets of The Rottlund 
Company, Inc. (a Minnesota corporation) and Subsidiaries as of March 31, 1998 
and 1997, and the related consolidated statements of operations, 
shareholders' equity and cash flows for each of the three years in the period 
ended March 31, 1998. These financial statements are the responsibility of 
the Company's management. Our responsibility is to express an opinion on 
these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing 
standards. Those standards require that we plan and perform the audit to 
obtain reasonable assurance about whether the financial statements are free 
of material misstatement. An audit includes examining, on a test basis, 
evidence supporting the amounts and disclosures in the financial statements. 
An audit also includes assessing the accounting principles used and 
significant estimates made by management, as well as evaluating the overall 
financial statement presentation. We believe that our audits provide a 
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in 
all material respects, the financial position of The Rottlund Company, Inc. 
and Subsidiaries as of March 31, 1998 and 1997, and the results of their 
operations and their cash flows for each of the three years in the period 
ended March 31, 1998, in conformity with generally accepted accounting 
principles.

                                                           ARTHUR ANDERSEN LLP



Minneapolis, Minnesota,
  May 15, 1998 (except for Note 3
  which date is July 10, 1998)





















                                       15

<PAGE>

                   THE ROTTLUND COMPANY, INC. AND SUBSIDIARIES

                           Consolidated Balance Sheets

                                 As of March 31

                      (In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
                                                                  1998     1997
                                                                -------   -------
<S>                                                             <C>       <C>
                                    ASSETS

CASH AND CASH EQUIVALENTS                                       $ 4,247   $ 7,016

ESCROW AND OTHER RECEIVABLES                                      2,520     1,512

LAND, DEVELOPMENT COSTS AND FINISHED LOTS                        47,247    49,236

RESIDENTIAL HOUSING COMPLETED AND UNDER CONSTRUCTION             27,132    32,589

PROPERTY AND EQUIPMENT, net                                       1,251       710

DEFERRED INCOME TAXES                                             1,164     1,350

INTANGIBLE AND OTHER ASSETS, net                                  4,720     3,821

                                                                $88,281   $96,234
                                                                -------   -------
                                                                -------   -------

LIABILITIES AND SHAREHOLDERS' EQUITY

LIABILITIES:
Revolving credit facility                                       $15,010   $15,185
Senior notes payable                                             30,925    33,868
Mortgage notes payable                                            1,972     5,084
Accounts payable                                                 11,553     9,289
Accrued liabilities                                               2,506     4,079
Income taxes payable                                                  -     1,910
Total liabilities                                                61,966    69,415
                                                                -------   -------

COMMITMENTS AND CONTINGENCIES (Note 7)
SHAREHOLDERS' EQUITY:

Preferred stock, $.10 par value, 10,000 shares authorized;
none issued                                                           -         -
Common stock, $.10 par value, 40,000 shares authorized;
5,745 and 5,716 shares issued and outstanding                       141       138
Paid-in capital                                                  11,747    11,656
Retained earnings                                                14,427    15,025

Total shareholders' equity                                       26,315     6,819

                                                                $88,281   $96,234
                                                                -------   -------
                                                                -------   -------
</TABLE>



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


                                       16
<PAGE>

                   THE ROTTLUND COMPANY, INC. AND SUBSIDIARIES

                      Consolidated Statements of Operations

                          For the Years Ended March 31

                      (In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
                                                               1998        1997       1996
<S>                                                          <C>         <C>        <C>
NET SALES                                                    $160,830    $180,457   $131,583
                                                                                            
COST OF SALES                                                139,284     156,332    110,589
                                                                                            
GROSS PROFIT                                                 21,546      24,125     20,994
                                                                                            
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE                  20,541      19,569     13,671
                                                                                            
WRITE-DOWN OF LAND                                           -           1,500      -
                                                                                            
Operating income                                             1,005       3,056      7,323
                                                                                            
INTEREST EXPENSE                                             2,018       958        153
                                                                                            
Income (loss) before provision (benefit) for income taxes                                   
                                                             (1,013)     2,098      7,170
                                                                                            
PROVISION (BENEFIT) FOR INCOME TAXES                         (415)       862        2,928
                                                                                            
Net income (loss)                                            $(598)      $1,236     $4,242
                                                                                            
BASIC EARNINGS (LOSS) PER SHARE                              $(0.10)     $0.22      $0.75
                                                                                            
DILUTED EARNINGS (LOSS) PER SHARE                            $(0.10)     $0.22      $0.74
</TABLE>

                  THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
                     OF THESE CONSOLIDATED BALANCE SHEETS.













                                      17

<PAGE>

                   THE ROTTLUND COMPANY, INC. AND SUBSIDIARIES

                 Consolidated Statements of Shareholders' Equity

                          For the Years Ended March 31

                                 (In Thousands)

<TABLE>
<CAPTION>

                                                       Common Stock                    Paid-In         Retained
                                                       Shares            Amount        Capital         Earnings         Total
<S>                                                    <C>               <C>           <C>             <C>             <C>
BALANCE, March 31, 1995                                 5,661             $132         $11,354          $ 9,547        $21,033
Net income                                                  -                -               -            4,242          4,242
Stock issued under employee stock purchase plan            22                2             119                -            121

BALANCE, March 31, 1996                                 5,683              134          11,473           13,789         25,396
Net income                                                  -                -               -            1,236          1,236
Stock issued under employee stock purchase plan            22                3             125                -            128
Stock options exercised                                    11                1              58                -             59

BALANCE, March 31, 1997                                 5,716              138          11,656           15,025         26,819
Net loss                                                    -                -               -            (598)          (598)
Stock issued under employee stock purchase plan            29                3              91                -             94

BALANCE, March 31, 1998                                 5,745             $141         $11,747          $14,427        $26,315

</TABLE>

     THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
                           FINANCIAL STATEMENTS.

                                      18

<PAGE>

                   THE ROTTLUND COMPANY, INC. AND SUBSIDIARIES

                      Consolidated Statements of Cash Flows
                          For the Years Ended March 31
                                 (In Thousands)

<TABLE>
<CAPTION>

                                                                                            1998        1997        1996
<S>                                                                                      <C>          <C>          <C>
OPERATING ACTIVITIES:
Net income (loss)                                                                         $ (598)     $ 1,236      $ 4,242
Adjustments to reconcile net income (loss) to net cash provided by (used for) operating 
activities-
Depreciation and amortization                                                                 626         479          233
Write-down of land                                                                              -       1,500            -
Deferred income taxes                                                                         186       (833)        (186)
Change in operating items:
Escrow and other receivables                                                              (1,008)         483        (848)
Land, development costs and finished lots                                                   1,989     (1,797)      (2,193)
Residential housing completed and under construction                                        5,457     (6,878)      (3,137)
Intangible and other assets                                                               (1,012)     (1,457)      (1,199)
Accounts payable                                                                            2,264     (1,475)      (2,196)
Accrued liabilities                                                                       (1,573)         158          789
Income taxes payable                                                                      (1,910)     (1,181)        2,218

Net cash provided by (used for) operating activities                                        4,421     (9,765)      (2,277)

INVESTING ACTIVITIES:
Purchase of property and equipment, net                                                   (1,054)       (383)        (307)
Net cash received from acquisition (Note 2)                                                     -           -          109
Other                                                                                           -        (13)         (19)

Net cash used for investing activities                                                    (1,054)       (396)        (217)

FINANCING ACTIVITIES:
Proceeds from (repayments of) revolving credit facility, net                                (175)      14,685          500
Proceeds from issuance of senior notes payable                                                  -           -       10,000
Proceeds from issuance of mortgage notes payable                                              174       5,205        1,117
Repayments of senior notes payable                                                        (2,943)     (1,132)            -
Repayments of mortgage notes payable                                                      (3,286)     (5,205)     (11,402)
Proceeds from stock options exercised                                                           -          59            -
Proceeds from stock issued under employee stock purchase plan                                  94         128          121

Net cash provided by (used for) financing activities                                      (6,136)      13,740          336

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                      (2,769)       3,579      (2,158)

CASH AND CASH EQUIVALENTS:
Beginning of year                                                                           7,016       3,437        5,595

End of year                                                                               $ 4,247     $ 7,016      $ 3,437


SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest, net of amounts capitalized                                        $ 2,025     $   906      $   153

Cash paid for income taxes                                                                $ 2,022     $ 2,948      $ 1,010

</TABLE>

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


                                      19

<PAGE>

                   THE ROTTLUND COMPANY, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                             March 31, 1998 and 1997


1.     BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

NATURE OF BUSINESS

The Rottlund Company, Inc. (a Minnesota corporation) and its subsidiaries,
collectively referred to as the Company, are engaged in the design,
construction, marketing and sale of residential real estate. The Company's
primary developments are in Minnesota, with additional development sites in
Iowa, Florida, Indiana and New Jersey; accordingly, the Company's operations can
be impacted significantly by the residential real estate market conditions in
each of these geographic areas.
During fiscal 1998, the Company disposed of a wholly owned subsidiary which 
was engaged in the business of originating residential mortgage loans as a 
correspondent for various mortgage banking companies. Through the date of 
disposal, such mortgage activity was not significant. The reserves the 
Company established in fiscal 1997 were adequate to cover the costs the 
Company incurred to dispose of this subsidiary. The Company has generally 
been able to secure financing for its acquisition, development and 
construction activities, and management believes that such arrangements will 
continue to be available on terms satisfactory to the Company. However, there 
can be no assurance that continued financing for land acquisitions will be 
available or, if available, will be on terms satisfactory to the Company. 
PRINCIPLES OF CONSOLIDATION

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

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Ultimate results could differ from those estimates.
REVENUE RECOGNITION

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

The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents. As of March 31, 1998
and 1997, approximately $811,000 and $597,000, respectively, of cash and cash
equivalents was restricted for customer earnest money deposits.


                                      20
<PAGE>

LAND, DEVELOPMENT COSTS AND FINISHED LOTS

Direct costs related to land development, including land acquisition costs; 
improvement and construction costs for clearing and grading, roads and 
utility systems; architectural, surveying, engineering and legal fees; and 
real estate taxes, are capitalized as costs of land. The Company also 
capitalizes interest incurred in connection with land held for development up 
to the point it is deemed fully realizable upon sale. Interest of 
approximately $2,942,000, $4,196,000 and $3,698,000 was capitalized in fiscal 
1998, 1997 and 1996, respectively. Aggregate development costs are allocated 
to finished lots and charged to cost of sales upon a formal closing and 
conveyance of title to the buyer.
During fiscal 1997, the Company adopted Statement of Financial Accounting 
Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets 
and for Long-Lived Assets to Be Disposed Of." SFAS No. 121 requires that 
long-lived assets be reviewed for impairment whenever events or changes in 
circumstances indicate that the carrying amount of the assets may not be 
recoverable and that impairment losses be recorded on long-lived assets when 
indications of impairment are present and the undiscounted cash flows 
estimated to be generated by those assets are less than the assets' carrying 
amount. Prior to the adoption of SFAS No. 121, inventories were recorded at 
the lower of cost or net realizable value for each parcel or subdivision. 
Under SFAS No. 121, inventories to be held and used are stated at cost unless 
a subdivision is determined to be impaired, in which case the impaired 
inventories are written down following the provisions of SFAS No. 121. 
Write-downs of impaired inventories are recorded as adjustments to the cost 
basis of the respective inventory. The Company recorded a noncash write-down 
of land, development costs and finished lots at development sites in Florida 
and Indiana of $1,500,000 in fiscal 1997. The impairment was determined by 
the Company's management based on decreases in the market value of the sites 
as well as development costs which were in excess of management's original 
estimates. Management determined the fair value of these development sites 
based on various methods, including discounted cash flow projections and 
evaluations of comparable market prices of land, as appropriate. The 
write-down for impairment of long-lived assets was calculated in accordance 
with the requirements of SFAS No. 121 but was not necessitated by the 
implementation of SFAS No. 121. Had the Company not adopted SFAS No. 121, a 
similar write-down would have been required.
The estimation process involved in determining if assets have been impaired 
and in determining fair value is inherently uncertain since it requires 
estimates of current market yields, as well as future events and conditions. 
Such future events and conditions include economic and market conditions, as 
well as the availability of suitable financing to fund development and 
construction activities. The realization of the estimates applied to the 
Company's real estate projects is dependent upon future uncertain events and 
conditions and, accordingly, the actual timing and amounts realized by the 
Company may differ materially from the estimated fair values, as described 
herein.
RESIDENTIAL HOUSING COMPLETED AND UNDER CONSTRUCTION

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

Property and equipment are stated at cost. Additions and major renewals are
capitalized, while maintenance and repairs are charged to expense as incurred.
Depreciation is provided using accelerated methods, principally over three to
five years for model home furnishings and five to seven years for furniture and
equipment. Accumulated depreciation totaled $780,000 and $725,000 as of March
31, 1998 and 1997, respectively.
INTANGIBLE AND OTHER ASSETS

Intangible and other assets consist primarily of the excess of the purchase
price paid for business acquisitions over the net assets acquired, deferred
financing costs and deposits for the option to acquire land. The excess of the
purchase price paid for business acquisitions over the net assets acquired is
being amortized over 20 years, with accumulated amortization of $147,000 and
$73,000 as of March 31, 1998 and 1997, respectively. Deferred financing costs
are amortized over the lives of the respective financing agreements, with
accumulated amortization of $125,000 and $87,000 as of March 31, 1998 and 1997,
respectively. Deposits for the option to acquire land are capitalized as land,
development costs and finished lots at the time of exercise or are charged to
expense upon expiration.

                                      21
<PAGE>

INCOME TAXES

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

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

The Company's advertising expense amounted to $2,316,000, $1,795,000 and
$1,352,000 in fiscal 1998, 1997 and 1996, respectively.
NET EARNINGS (LOSS) PER SHARE

The Company adopted SFAS No. 128, "Earnings per Share," effective December 31,
1997. As a result, all prior periods presented have been restated to conform to
the provisions of SFAS No. 128, which requires presentation of basic and diluted
earnings per share. Basic earnings per share is computed by dividing net income
available to common shareholders by the weighted average number of common shares
outstanding during the year. Diluted earnings per share is computed under the
treasury stock method and is calculated to reflect the dilutive effect of the
Company's stock option plans. A reconciliation of these amounts is as follows
(in thousands, except for per share data):

<TABLE>
<CAPTION>

                                                                               1998          1997          1996
<S>                                                                            <C>           <C>           <C>
Net income                                                                     $ (598)       $1,236        $4,242

Weighted average number of common shares outstanding:
Basic                                                                          5,745         5,712         5,684
Dilutive effect of stock options                                               -             23            69

Common and potential common shares outstanding:
Diluted                                                                        5,745         5,735         5,753

Basic earnings (loss) per share                                                $(0.10)       $ 0.22        $ 0.75

Diluted earnings (loss) per share                                              $(0.10)       $ 0.22        $ 0.74

</TABLE>


                                      22

<PAGE>


As a result of the adoption of SFAS No. 128, the Company's reported earnings per
share (EPS) for fiscal 1997 and 1996 have been restated as follows:

<TABLE>
<CAPTION>
                                               1977         1996
<S>                                            <C>          <C>
Primary EPS as reported                        $ 0.22       $ 0.74
Effect of SFAS No. 128                              -         0.01

Diluted EPS as reported                        $ 0.22       $ 0.74
Effect of SFAS No. 128                              -            -

Diluted EPS as restated                        $ 0.22       $ 0.74
</TABLE>

NEW ACCOUNTING PRONOUNCEMENTS

      SFAS NO. 130

      On March 31, 1998 the Company adopted SFAS No. 130, "Reporting
      Comprehensive Income," which requires companies to report all changes in
      equity during a period, except those resulting from investment by owners
      and distribution to owners, in a financial statement for the period in
      which they are recognized. The Company has no other elements of
      comprehensive income outside its reported net loss; thus, net loss is
      equivalent to comprehensive income for all periods presented.

      SFAS NO. 131

      The Financial Accounting Standards Board issued SFAS No. 131, "Disclosures
      About Segments of an Enterprise and Related Information," in June, 1997.
      SFAS No. 131 requires that public business enterprises report information
      about operating segments in annual financial statements and requires
      selected information in interim financial reports issued to shareholders.
      It also establishes standards for related disclosures about products and
      services, geographic areas and major customers, and is effective for
      fiscal years beginning after December 15, 1997. The Company believes
      adoption will not have a significant impact on the consolidated financial
      statements.

2.    ACQUISITION:

On February 20, 1996, the Company acquired certain assets, including land, work
in process and contractual rights, and assumed certain liabilities of Kevin
Scarborough, Inc. (Scarborough), a residential home builder operating in New
Jersey. The purchase price, which included liabilities assumed by the Company,
was approximately $9,800,000. The acquisition was accounted for using the
purchase method of accounting, which resulted in an excess of the purchase price
over the net assets acquired of approximately $1,000,000. In connection with the
acquisition, the Company entered into employment agreements with certain key
employees who were former shareholders of Scarborough. These agreements have
five-year terms and provide for compensation based in part on earnings of the
acquired Scarborough operations. Results of operations of Scarborough have been
included in the accompanying consolidated financial statements from the date of
acquisition.
The following unaudited pro forma financial data gives effect to the 
Scarborough acquisition as if it had occurred on the first day of each period 
presented. This pro forma information has been prepared utilizing the 
historical consolidated financial statements of the Company and Scarborough. 
The pro forma financial data is provided for comparative purposes only and 
does not purport to be indicative of the results which would have been 
obtained if the acquisition had been effected during the periods presented. 
The pro forma financial information reflects adjustments to record the excess 
purchase price over the fair value of net assets acquired and adjusts income 
taxes for the pro forma adjustments (in thousands, except per share data):

<TABLE>
<CAPTION>
                                                                      March 31,1996
      <S>                                                             <C>
      Net sales                                                            $147,467
</TABLE>

                                      23

<PAGE>

<TABLE>
      <S>                                                             <C>
      Net income                                                           3,405
      Basic earnings per share                                             0.60
      Diluted earnings per share                                           0.59
</TABLE>

3.    DEBT:

REVOLVING CREDIT FACILITY

In October 1996, the Company entered into an unsecured revolving credit
agreement (the Credit Facility) with a group of banks that provides borrowings
of up to $23 million, of which $5 million may be used for letters of credit.
Borrowings under the Credit Facility are subject to a borrowing base calculation
based on a defined percentage of land, development costs, finished lots,
residential housing completed and under construction, and the working capital of
the Company less amounts outstanding under the Senior Notes, as defined herein.
Borrowings under the Credit Facility bear interest at the greater of the agent
bank's base rate or the federal funds rate plus 1.0% (9.5% as of March 31,
1998). As of March 31, 1998, borrowings outstanding under the Credit Facility's
line of credit totaled $15,010,000, outstanding letters of credit totaled
$646,000 and $7,344,000 was available for borrowing under the calculation
described above. The Credit Facility expires in October 1999.

During fiscal 1998, 1997 and 1996, the maximum balance outstanding under 
current and former revolving credit facilities was $20,860,000, $16,585,000 
and $6,500,000, and the average balance was $12,359,000, $9,507,000 and 
$1,464,000, respectively. The weighted average interest rate during such 
years was 9.5%, 8.9% and 9.6%, respectively. The carrying amount of 
borrowings outstanding under the Credit Facility as of March 31, 1998 and 
1997 approximates their fair value due to their current maturities and/or 
variable interest rates.
SENIOR NOTES PAYABLE

In December 1994, the Company issued $25 million of 12.1% senior notes payable,
and in February 1996, the Company issued an additional $10 million of 9.4%
senior notes payable (collectively, the Senior Notes). Proceeds were used to
retire certain mortgage notes payable and for working capital purposes. Interest
on the Senior Notes was due monthly through November 1996, with monthly
principal and interest payments of approximately $552,000 due from December 1996
through December 2004. As of March 31, 1998 and 1997, the fair value of the
Senior Notes was approximately $32,800,000 and $35,690,000, respectively.
MORTGAGE NOTES PAYABLE

Mortgage notes payable are primarily for the acquisition and development of
land, with fixed interest rates ranging from 8.0% to 9.0% and variable interest
rates at prime plus 1.0%. These nonrecourse notes are collateralized by land,
with a carrying cost of approximately $2,379,000 as of March 31, 1998, and
mature at various dates through December 2001. The carrying amounts of mortgage
notes payable approximate their fair value due to their current maturities
and/or variable interest rates. Scheduled annual maturities of the Senior Notes
and mortgage notes payable as of March 31, 1998 are as follows (in thousands):

<TABLE>
<CAPTION>
                Fiscal Year
                <S>                                                   <C>
                1999                                                  $ 3,996
                2000                                                    4,695
                2001                                                    4,256
                2002                                                    4,748
                2003                                                    5,171
                Thereafter                                             10,031

                                                                      $32,897
</TABLE>

The Senior Notes and the Credit Facility contain various restrictive covenants
including, among others, certain financial covenants relating to minimum
consolidated tangible net worth and earnings levels, as well as funding,

                                      24

<PAGE>

borrowing base requirements, payment of dividends and maximum land and
construction limitations. The Company was in compliance with, or had obtained
waivers for, all covenants as of March 31, 1998. 
4. INCOME TAXES:

The following summarizes the provision (benefit) for income taxes 
(in thousands):

<TABLE>
<CAPTION>
                                                            Years Ended March 31
                                                            1998           1997            1996
                <S>                                        <C>             <C>             <C>
                Current:
                Federal                                    $(606)          $1,346          $2,424
                State                                          5              349             690
                Deferred                                     186             (833)           (186)

                Provision (benefit) for income taxes       $(415)          $  862          $2,928
</TABLE>

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

<TABLE>
<CAPTION>
                                                                          1998         1997
                <S>                                                       <C>          <C>
                Inventory                                                 $  606       $  493
                State--net operating loss carryforward                       191            -
                Warranty reserves                                            144          554
                Other accrued liabilities                                     93          217
                Other                                                        130           86

                Deferred income tax asset                                 $1,164       $1,350
</TABLE>

A reconciliation of the Company's statutory federal income tax rate to the 
effective tax rate is as follows:
<TABLE>
<CAPTION>
                                                           Years Ended March 31
                                                           1998            1997        1996
                <S>                                        <C>             <C>         <C>
                Statutory federal rate                        34.0%        34.0%       34.0%
                State income taxes, net of federal benefit     6.0          5.8         6.3
                Other                                          1.0          1.3         0.5

                Effective tax rate                            41.0%        41.1%       40.8%
</TABLE>


5.         EMPLOYEE STOCK PLANS:
STOCK OPTION PLANS

The Company has a stock option plan (the Plan) which provides for the granting
of options to designated employees, nonemployees and consultants of the Company
to purchase up to an aggregate of one million shares of common stock at an
exercise price not less than the fair market value of the common stock on the
dates the options are granted. The options become exercisable in equal amounts
over a five-year period from the date of grant and expire ten years from the
date of grant.
The Company also has a director stock option plan (DSOP), pursuant to which 
100,000 shares of common stock have been reserved for the granting of stock 
options to the Company's outside directors. Under the DSOP, the Company 
granted an initial option for the purchase of 1,000 shares to each of the two 
outside directors and thereafter will grant stock options for the purchase of 
1,000 additional shares of common stock annually for each year of continued 
service on the board. Each option is granted at fair market value on the date 
of grant and is exercisable for a period of four years, commencing one year 
after the date of grant. 

                                      25

<PAGE>

The following table summarizes activity in the stock option plans:

<TABLE>
<CAPTION>
                                                                                        Weighted
                                                                                         Average 
                                                               Number of Shares          Exercise 
                                                             The Plan        DSOP         Price
                <S>                                          <C>             <C>         <C>
                Balance, March 31, 1995                       299,872        3,000         $5.91
                Granted                                       128,468        2,000          8.12

                Balance, March 31, 1996                       428,340        5,000          6.59
                Granted                                       166,196        2,000          5.38
                Exercised                                     (10,420)           -          5.62
                Canceled                                       (8,480)      (3,000)         5.87

                Balance, March 31, 1997                       575,636        4,000          6.26
                Canceled                                      (40,534)           -          6.37

                Balance, March 31, 1998                       535,102        4,000         $5.55

                Options exercisable as of March 31, 1998      329,073        4,000         $6.08

                Shares available for future grants            445,998       92,000
</TABLE>

Shares outstanding under the stock option plans as of March 31, 1998 have
exercise prices ranging from $5.13 to $8.87 and a weighted average remaining
contractual life of 6.8 years.
The Company follows the provisions of SFAS No. 123, "Accounting for 
Stock-Based Compensation." As permitted by SFAS No. 123, the Company has 
elected to continue to account for its stock option plans under the 
provisions of APB Opinion No. 25, under which no compensation costs have been 
recognized. Because the measurement provisions of SFAS No. 123 have not been 
applied to options granted prior to April 1, 1995, the resulting pro forma 
compensation costs may not be representative of those to be expected in 
future years. Had compensation costs for these plans been recorded at fair 
value consistent with the provisions of SFAS No. 123, the Company's net 
income (loss) and earnings (loss) per share would have been as follows:

<TABLE>
<CAPTION> 
                                                                     1998          1997

                <S>                                                  <C>            <C>
                Net income (loss) (in thousands):
                As reported                                           $(598)        $1,236
                Pro forma                                             (713)         1,168

                Basic and diluted earnings (loss) per share:
                As reported                                           $(.10)        $ 0.22
                Pro forma                                             $(.12)        $ 0.20

</TABLE>

The weighted average fair value of stock options granted in fiscal 1997 was
$2.64.The fair value of each option is estimated on the date of grant using the
Black-Scholes option pricing model. The following assumptions were used to
estimate the fair value of options granted in fiscal 1997:
<TABLE>
<CAPTION>
                <S>                                    <C>
                Risk-free interest rate                5.97%-6.11%
                Expected life                          5-10 Years
                Expected volatility                    34%-36%
                Expected dividend yield                None
</TABLE>

EMPLOYEE STOCK PURCHASE PLAN

The Company sponsors an employee stock purchase plan (the Purchase Plan). A
total of 125,000 shares of common stock are reserved for issuance under the
Purchase Plan. The Purchase Plan permits eligible employees to purchase 



                                      26

<PAGE>


common stock at 85% of the lower fair market value of the common stock at 
certain dates. During the years ended March 31, 1998, 1997 and 1996, employee 
contributions of approximately $94,000, $128,000 and $121,000, respectively, 
were used to purchase common stock under the terms of the Purchase Plan. 
6. RETIREMENT SAVINGS PLAN:

The Company sponsors a 401(k) profit-sharing plan which covers all employees
over the age of 20 1/2 who elect to participate. The Company may, at its
discretion, make contributions to the 401(k) plan. All plan contributions vest
in equal installments over a five-year period. The Company contributed $80,000,
$83,000 and $53,000 to the 401(k) plan in fiscal 1998, 1997 and 1996,
respectively. 
7. COMMITMENTS AND CONTINGENCIES:

LETTERS OF CREDIT AND BONDS

Letters of credit are issued by banks, and bonds are issued by insurance
companies on behalf of the Company during the ordinary course of business, as
required by certain development agreements with municipalities. As of March 31,
1998, the Company had outstanding letters of credit totaling $2,200,000 and
outstanding bonds totaling $944,000. 
LITIGATION

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

The Company is obligated under various noncancelable operating leases for office
facilities and certain equipment. Rental expense under these agreements,
excluding leaseback of model homes, was approximately $714,000, $866,000 and
$600,000 in fiscal 1998, 1997 and 1996, respectively.
Future minimum lease payments required under noncancelable operating lease 
agreements are as follows (in thousands):

<TABLE>
<CAPTION>
                    Fiscal Year                                              Amount
                -------------------                                       ------------
                <S>                                                       <C>
                1999                                                              $575
                2000                                                               271
                2001                                                                57
                2002                                                                16

                                                                                  $919
</TABLE>

On March 29, 1998, the Company entered into an agreement for the sale and
leaseback of ten of its model homes in Minnesota and New Jersey for
approximately $1,400,000. The lease term on individual model homes is 11 months.
Total lease payments are based on LIBOR plus 5.0%, and no rental expense was
incurred in fiscal 1998. Additional future rental commitments approximate
$155,000 in fiscal 1999. 
8. QUARTERLY FINANCIAL INFORMATION (UNAUDITED):

The following is a condensed summary of quarterly results of operations for
fiscal 1998 and 1997 (in thousands, except per share data):
                                                                    Basic and
                                                                     Diluted
                                                        Net          Earnings 
                                         Gross        Income        (Loss) Per
                        Net Sales        Profit       (Loss)          Share
                       -----------      --------     --------      ------------
                       -----------      --------     --------      ------------
                                      
                                      27


<PAGE>
<TABLE>
<S>                          <C>              <C>             <C>          <C>
Fiscal 1998:
First quarter                $ 42,704         $ 6,076         $  454       $ 0.08
Second quarter                 41,674           5,642             94         0.02
Third quarter                  32,008           4,082           (732)       (0.13)
Fourth quarter                 44,444           5,746           (414)       (0.07)

                             $160,830         $21,546         $ (598)      $(0.10)

Fiscal 1997:
First quarter                $ 38,074         $ 5,572         $  652       $ 0.11
Second quarter                 46,669           5,971            429         0.08
Third quarter                  49,614           6,412            823         0.14
Fourth quarter*                46,100           6,170           (668)       (0.11)

                             $180,457         $24,125         $1,236       $ 0.22

</TABLE>

*Fourth quarter of fiscal 1997 reflects adjustments relating to land impairment
that reduced income before provision (benefit) for income taxes by $1,500,000.


                                      28

<PAGE>

                                    PART III

ITEM 10.     DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

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

<TABLE>
<S>                                <C>    <C>
David H. Rotter                    51     President, Secretary and Director
Bernard J. Rotter                  55     Vice President, Treasurer and Director
Todd M. Stutz                      40     Executive Vice President and Director
John J. Dierbeck, III              52     Executive Vice President and Director
Lawrence B. Shapiro                42     Chief Financial Officer and Director

</TABLE>

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

BACKGROUND OF EXECUTIVE OFFICERS

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

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

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

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

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

ITEM 11.     EXECUTIVE COMPENSATION

Information regarding executive compensation is incorporated herein by reference
to the information set forth under the caption "Executive Compensation" in the
1998 Proxy Statement.

ITEM 12.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

           Information regarding security ownership of certain beneficial owners
and management of the Company is incorporated herein by reference to the
information set forth under the caption "Security Ownership of Certain
Beneficial Owners and Management" in the 1998 Proxy Statement.


                                      29

<PAGE>

ITEM 13.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

           Information regarding certain relationships and related transactions
with the Company is incorporated herein by reference to the information set
forth under the caption "Certain Transactions" in the 1998 Proxy Statement.


                                      30

<PAGE>

                                     PART IV

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

           (a)       DOCUMENTS FILED WITH THIS REPORT.

                     (1)       See index to consolidated financial statements 
                               on page 14 of this report.

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

           (b)       REPORTS ON FORM 8-K. During the quarter ended March 31,
                     1998, the Company filed no reports on Form 8-K with the
                     Securities and Exchange Commission.

           (c)       EXHIBITS

<TABLE>
<CAPTION>

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

</TABLE>

------------------------
(1)   Incorporated by reference to the Company's Registration Statement on 
      Form S-1, Registration No. 33-51726 (the "Form S-1").
(2)   Incorporated by reference to the Company's filing on Form 10-K for the 
      year ended March 31, 1995.
(3)   Incorporated by reference to the Company's filing on Form 10-K for the 
      year ended March 31, 1996.


                                      31

<PAGE>

(4)   Incorporated by reference to the Company's filing on Form 10-Q for the 
      three month period ending December 31, 1996.


                                      32

<PAGE>



                                   SIGNATURES

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


                                          THE ROTTLUND COMPANY.  INC.
Dated:  July 13, 1998
                                          By     /s/ DAVID H. ROTTER
                                            ------------------------------------
                                                      David H. Rotter
                                             PRESIDENT, CHIEF EXECUTIVE OFFICER
                                                        AND DIRECTOR


           Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>

          SIGNATURE                              TITLE                                     DATE
<S>                               <C>                                              <C>
     /s/ DAVID H. ROTTER           President, Chief Executive Officer                  July 13, 1998
------------------------------     and Director
       David H. Rotter        

    /s/ BERNARD J. ROTTER          Vice President, Treasurer and Chairman              July 13, 1998
------------------------------     of the Board
      Bernard J. Rotter       

  /s/ JOHN J. DIERBECK, III        Executive Vice President and Director               July 13, 1998
------------------------------
    John J. Dierbeck, III

   /s/ LAWRENCE B. SHAPIRO         Chief Financial Officer and Director                July 13, 1998
------------------------------     (Principal Financial and Accounting Officer)
     Lawrence B. Shapiro      

      /s/ TODD M. STUTZ            Executive Vice President and Director               July 13, 1998
------------------------------
        Todd M. Stutz

                                   Director
         Dennis Doyle
------------------------------
                                   Director
        Scott D. Rued
------------------------------

</TABLE>

                                      33
<PAGE>

                                EXHIBIT INDEX

<TABLE>
<CAPTION>
                                                                             Manually
                                                                           Numbered Page
Exhibit No.                              Exhibit                             References
-----------                             ---------                         ---------------
<S>            <C>
10.7             Letter Amendment, dated December 30, 1996, by and among the Company and the note purchasers
                 listed therein.

10.8             Waiver and Amendment, dated March 31, 1997, by and among the Company and the note
                 purchasers listed therein.

10.9             Waiver and Amendment, dated December 31, 1997, by and among the Company and the note
                 purchasers listed therein.

10.10            Waiver and Amendment, dated as of March 31, 1998, by and among the Company and the note
                 purchasers listed therein.

10.12            First Modification of Credit Agreement, dated November 19, 1996.

10.13            Second Modification of Credit Agreement, dated December 24, 1996.

10.14            Third Modification of Credit Agreement, dated January 18, 1997.

10.15            Fourth Modification of Credit Agreement, dated June 25, 1997.

10.16            Fifth Modification of Credit Agreement, dated January 15, 1998.

10.17            Sixth Modification of Credit Agreement, dated July 10, 1998.

11               Computation of Per Share Earnings

22               Subsidiaries of The Rottlund Company, Inc.

23               Consent of Arthur Andersen LLP

27.1             Financial Data Schedule

</TABLE>