SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 1996
Commission file number 2-82833
Lincoln Logs Ltd.
(Exact name of small business issuer as specified in its charter)
New York 14-1589242
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Riverside Drive, Chestertown, New York 12817
(Address of principal executive offices)
(518) 494-5500
(Issuer's telephone number)
Neither name, address nor fiscal year has changed since last report_
Former name, former address and former fiscal year, if changed since
last report.
Check whether the issuer (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12
months
(or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes_____X______ No____________
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date.
Class Outstanding at June 5, 1996
Common Stock, $ .01 par value 1,039,694
- 1 -
LINCOLN LOGS LTD. AND SUBSIDIARIES
I N D E X
Page Number
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Consolidated balance sheets as of
April 30, 1996 and January 31, 1996 3 - 4
Consolidated statements of operations
for the three months ended
April 30, 1996 and 1995 5
Consolidated statements of cash flows
for the three months ended April 30,
1996 and 1995 6
Notes to consolidated financial statements 7 - 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS 9 - 10
PART II. OTHER INFORMATION 11
SIGNATURES 12
- 2 -
<PAGE>
LINCOLN LOGS LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AS OF APRIL 30, 1996 AND
JANUARY 31, 1996
ASSETS
April 30, January 31,
1 9 9 6 1 9 9 6
(Unaudited) (Audited)
CURRENT ASSETS:
Cash and cash equivalents $ 440,170 $ 373,636
Trade accounts receivable, net of
$9,000 allowance for doubtful
accounts 296,572 258,707
Notes receivable 18,500 18,500
Inventories (principally raw materials) 731,696 827,814
Prepaid expenses and
other current assets 356,953 264,133
Due from related party 1,543 1,543
TOTAL CURRENT ASSETS 1,845,434 1,744,333
PROPERTY, PLANT AND EQUIPMENT:
Land 784,800 784,800
Buildings and improvements 2,118,426 2,118,426
Machinery and equipment 620,967 620,332
Furniture and fixtures 1,244,171 1,227,314
Transportation equipment 142,028 142,028
4,910,392 4,892,900
Less: accumulated depreciation (3,056,576) (3,021,512)
TOTAL PROPERTY, PLANT AND
EQUIPMENT - net 1,853,816 1,871,388
OTHER ASSETS:
Due from related party 75,821 76,072
Assets held for resale 71,825 71,825
Deposits and other assets 988 689
Intangible assets, net of amortization 34,642 37,073
TOTAL OTHER ASSETS 183,276 185,659
TOTAL ASSETS $3,882,526 $3,801,380
See notes to consolidated financial statements.
- 3 -
LINCOLN LOGS LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AS OF APRIL 30, 1996 AND
JANUARY 31, 1996
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
April 30, January 31,
1 9 9 6 1 9 9 6
(Unaudited) (Audited)
CURRENT LIABILITIES:
Current installments of long-term debt $ 114,684 $ 137,873
Notes payable (note 4)
Related parties 315,000 315,000
Others 135,000 115,000
Redeemable common stock, current 94,305 94,305
Trade accounts payable 919,524 1,072,368
Customer deposits 1,371,766 796,407
Accrued payroll and related taxes
and withholdings 75,647 42,786
Accrued income taxes 457 806
Accrued expenses 596,045 555,767
TOTAL CURRENT LIABILITIES 3,622,428 3,130,312
LONG TERM DEBT, net of current
installments:
Convertible subordinated debentures
Related parties 500,000 500,000
Others 200,000 200,000
Other 40,608 39,576
TOTAL LIABILITIES 4,363,036 3,869,888
STOCKHOLDERS' DEFICIENCY:
Preferred stock, $.01 par value;
authorized 1,000,000 shares; issued
and outstanding -0- shares -- --
Common stock, $.01 par value; authorized
5,000,000 shares; issued
1,449,999 shares, less 93,935 shares
subject to redemption agreement at
April 30, 1996 and January 31, 1996 13,561 13,561
Additional paid-in capital 3,800,920 3,800,920
Accumulated deficit (3,504,861) (3,092,859)
309,620 721,622
Less: cost of 410,305 shares of
common stock in treasury at
April 30, 1996 and January 31, 1996 ( 790,130) ( 790,130)
TOTAL STOCKHOLDERS' DEFICIENCY ( 480,510) ( 68,508)
COMMITMENTS AND CONTINGENCIES
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIENCY $3,882,526 $3,801,380
See notes to consolidated financial statements.
- 4 -
LINCOLN LOGS LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED APRIL 30, 1996 AND 1995
(UNAUDITED)
Three Months Ended
April 30,
1 9 9 6 1 9 9 5
SALES, net of commissions of
$124,763 and $151,990 respectively $ 864,504 $ 870,801
COST OF SALES 612,807 652,236
GROSS PROFIT 251,697 218,565
OPERATING EXPENSES:
Selling, general and administrative 632,659 599,428
LOSS FROM OPERATIONS ( 380,962) ( 380,863)
OTHER INCOME (EXPENSE):
Interest income 7,493 7,436
Interest expense ( 46,966) ( 43,518)
Other 8,432 3,809
Total other income (expense) - net ( 31,041) ( 32,273)
LOSS BEFORE INCOME TAXES ( 412,003) (413,136)
INCOME TAXES -- --
NET LOSS $( 412,003) $( 413,136)
PER SHARE DATA (note 2):
Primary loss per common share $ (.44) $ (.44)
See notes to consolidated financial statements.
- 5 -
LINCOLN LOGS LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED APRIL 30, 1996 and 1995
(UNAUDITED)
Three Months Ended
April 30,
1 9 9 6 1 9 9 5
OPERATING ACTIVITIES:
Net loss $( 412,003) $( 413,136)
Adjustments to reconcile net loss
to net cash used by operating
activities:
Depreciation and amortization 37,495 41,657
Changes in operating assets and
liabilities:
Trade accounts receivable ( 37,865) 142,532
Inventories 96,118 ( 75,997)
Prepaid expenses and other current
assets ( 92,820) ( 46,838)
Trade accounts payable ( 152,844) ( 155,120)
Customer deposits 575,359 573,170
Accrued expenses and other operating
activities 73,139 ( 50,903)
Accrued and prepaid income taxes ( 349) ( 366)
Net cash provided by
operating activities 86,230 14,999
INVESTING ACTIVITIES:
Repayments of notes receivable -- 515
Additions to property, plant and equipment ( 12,210) ( 7,555)
Decrease in due from related parties 252 237
(Increase) decrease in deposits
and other assets ( 299) 1,000
Increase in intangible assets -- ( 37,000)
Net cash used by
investing activities ( 12,257) ( 42,803)
FINANCING ACTIVITIES:
Proceeds from notes payable, net 20,000 65,000
Reductions in long-term debt ( 27,439) ( 63,703)
Net cash (used) provided by
financing activities ( 7,439) 1,297
Net increase (decrease) in cash
and cash equivalents 66,534 ( 26,507)
Cash and cash equivalents at beginning of
period 373,636 278,243
Cash and cash equivalents at end of period $ 440,170 $ 251,736
See notes to consolidated financial statements.
- 6 -
LINCOLN LOGS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
APRIL 30, 1996 AND 1995
(1) BASIS OF PRESENTATION
The financial information included herein is unaudited; however,
such information reflects all adjustments (consisting solely of normal
recurring adjustments) which are, in the opinion of management,
necessary for a fair statement of results for the interim periods.
The results of operations for the three month periods ended April
30, 1996 and 1995 are not indicative of the results to be expected for
the full year, due to the seasonal nature of the business.
(2) EARNINGS PER SHARE
Primary earnings per common share is computed by dividing net
earnings by the weighted average number of common shares outstanding
during the respective periods. The weighted average number of common
shares used to compute primary earnings per share was 945,759 for each
of the three month periods ended April 30, 1996 and 1995.
Fully diluted earnings per common and common equivalent share is
computed based on the weighted average number of common and common
equivalent shares outstanding during the respective periods, assuming
the convertible subordinated debentures were converted into common
stock at the beginning of the period after giving retroactive effect
to the elimination of interest expense, net of income tax effect,
applicable to the convertible subordinated debentures. Fully diluted
earnings per share is not presented as it would be anti-dilutive.
(3) INCOME TAXES
The Company accrues income tax expense on an interperiod basis as
necessary, and accrues income tax benefits only when it is more likely
than not that such tax benefits will be realized. No income tax
benefit was accrued in the three month periods ended April 30, 1996
and 1995.
(4) NOTES PAYABLE
During fiscal years 1996 and 1997 the Company continued its Cant
Financing Program , which was initiated in 1994 to raise capital for
the purchase of pine and cedar cants (logs) to be held in inventory
and then used by the Company in the manufacture of its log home
building packages. The notes are generally collateralized by accounts
receivable or the cant inventory thus purchased. Notes issued in the
current Cant Financing Program are for a fixed term and amount and
bear interest at an annual rate of 18% payable monthly. As of April
30, 1996, a total of $450,000 has been loaned to the Company by
- 7 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
various individuals, including directors and shareholders; of this
total, $430,000 is due on June 30, 1996 and $20,000 is due on June 30,
1997.
(5) SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION
During the three months ended April 30, 1996, cash was paid in the
amounts of $50,642 for interest and $349 for income taxes. During the
three months ended April 30, 1995, cash was paid in the amounts of
$32,088 for interest and $366 for income taxes.
Noncash investing and finance activity:
During the three month period ended April 30, 1995, the following
transactions took place:
-The Company financed $27,293 of the purchase of an asset having
a cost of $28,293.
-The Company reclassified a $50,000 accrued liability due to an
officer to a note bearing the terms of the Cant Financing Program.
(6) COMMITMENTS AND CONTINGENCIES
The Company is defendant in a lawsuit claiming breach of contract,
fraudulent misrepresentation, detrimental reliance and violation of
the Connecticut Unfair Trade Practices Act in connection with a
contemplated acquisition. In the opinion of the Company's attorneys
and management, the range of possible loss related to this matter is
$50,000 to $175,000 and it is expected that the amount of the actual
loss will not materially exceed the amount provided for in the
consolidated financial statements.
-8-
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three months ended April 30, 1996 vs. April 30, 1995:
Sales, net of commissions, amounted to $864,504 for the three
months ended April 30, 1996 as compared to $870,801 in the same period
in 1995, a decrease of $6,297, or less than 1%. When compared with
the previous year, there was a 10% decrease in the number of home
units shipped while the average sales value per home unit shipped
increased 11%. The increase in sales value per home unit shipped is
the result of an increase in the number of larger and custom home
packages shipped in the current period and the impact of price
increases put into effect at the beginning of the fiscal year.
Gross profits amounted to $251,697, or 29% of net sales for the
three months ended April 30, 1996 as compared to $218,565, or 25% for
the same period in 1995. In realizing an increase in gross profit,
the Company has benefited from a catalog price increase put into place
at the start of the current fiscal year and larger average sales value
per home shipped during the current period.
Total operating expenses of $632,659, or 73% of sales, have
increased $33,231 from the previous year's amount of $599,428, 69% of
sales. The increase in total operating expenses amounted to 5%, and
was due to the Company's commitment to increase its market share
through an additional sales office as well as increased national
advertising.
LIQUIDITY AND CAPITAL RESOURCES
The Company was in a negative working capital position at both
April 30, 1996 and April 30, 1995 of $1,776,994 and $1,764,123,
respectively. For the three month period ended April 30, 1996,
working capital decreased $391,015 as compared to a decrease of
$462,049 in the same period in 1995. As of the Company's fiscal year
end at January 31, 1996, current liabilities exceeded current assets
by $1,385,979. Working capital was primarily consumed during both
reporting periods by the repayment of long-term debt, purchases of
property, plant and equipment , and, in 1995 by payment for a
trademark agreement.
For the three months ended April 30, 1996 the Company's operations
were a net provider of $86,230 of cash, while in the comparable period
of the previous year it was a net provider of cash in the amount of
$14,999. Overall, the Company experienced a net increase in its cash
position of $66,534 during the three months ended April 30, 1996 as
compared with a decrease in its cash position of $26,507 during the
three months ended April 30, 1995. During the three months ended
-9-
LIQUIDITY AND CAPITAL RESOURCES-continued
April 30, 1996 and 1995, cash provided by operations and additional
short term borrowings was primarily consumed by the repayment of
long-term debt obligations, additions to property, plant and
equipment, and, in 1995, payment for a trademark agreement.
As shown in the financial statements, the Company incurred a net
loss during the quarter ended April 30, 1996 of $412,003. As of April
30, 1996 current liabilities exceeded current assets by $1,776,994
and the Company had a net capital deficiency of $480,510. The Company
has obtained additional funds during the period through its Cant
Financing Program. It has not, however, been successful in securing
working capital through commercial lenders or governmental agency
sources. Funds generated by operations and the Cant Financing
Program, together with the assistance of major vendors who have
provided extended payment terms to the Company are expected to be
sufficient for the remainder of the current fiscal year. There is,
however, no assurance that the Company will be able to generate
adequate financing from these sources. A reduction in the Company's
sales activity, the inability to extend borrowing under the Cant
Financing Program when the notes mature in June 1996, or a reduction
in vendor assistance may further reduce its liquidity and, eventually,
force the Company to cease operations.
OTHER MATTERS
In March 1995, the Financial Accounting Standards Board issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of". This statement has no
impact on the Company's financial statements because the carrying
value of the Company's long-lived assets are considered by management
to be recoverable based upon estimated cash flows in future periods.
- 10 -
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults of Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibit Index
Exhibit 27. Financial Data Schedule
b. Reports on Form 8-K
None
- 11 -
SIGNATURES
Pursuant to the requirements 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.
LINCOLN LOGS LTD.
/s/Richard C. Farr _
Richard C. Farr,
Chairman of the Board, President,
Chief Executive Officer and
Treasurer
Date: June 5, 1996
/s/Peter M. Hart _
Peter M. Hart
Vice President, Finance
Date: June 5, 1996
- 12 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS DATA EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS
AND THE CONSOLIDATED STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000717422
<NAME> LINCOLN LOGS LTD.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> FEB-01-1996
<PERIOD-END> APR-30-1996
<CASH> 440,170
<SECURITIES> 0
<RECEIVABLES> 305,572
<ALLOWANCES> 9,000
<INVENTORY> 731,696
<CURRENT-ASSETS> 1,845,434
<PP&E> 4,910,392
<DEPRECIATION> 3,056,576
<TOTAL-ASSETS> 3,882,526
<CURRENT-LIABILITIES> 3,622,428
<BONDS> 740,608
0
0
<COMMON> 13,561
<OTHER-SE> (494,071)
<TOTAL-LIABILITY-AND-EQUITY> 3,882,526
<SALES> 864,504
<TOTAL-REVENUES> 864,504
<CGS> 612,807
<TOTAL-COSTS> 612,807
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 46,966
<INCOME-PRETAX> (412,003)
<INCOME-TAX> 0
<INCOME-CONTINUING> (412,003)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (412,003)
<EPS-PRIMARY> (.44)
<EPS-DILUTED> (.44)
</TABLE>
