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, 1997
Commission file number 0-12172
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 6, 1997
Common Stock, $ .01 par value 945,759
- 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, 1997 and January 31, 1997 3 - 4
Consolidated statements of operations
for the three months ended
April 30, 1997 and 1996 5
Consolidated statements of cash flows
for the three months ended April 30,
1997 and 1996 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, 1997 AND
JANUARY 31, 1997
ASSETS
April 30, January 31,
1 9 9 7 1 9 9 7
(Unaudited) (Audited)
----------- ----------
CURRENT ASSETS:
Cash and cash equivalents $ 455,569 $ 359,107
Trade accounts receivable, net of
$9,000 allowance for doubtful
accounts 188,694 319,846
Notes receivable 18,500 18,500
Inventories (principally raw materials) 860,225 618,248
Prepaid expenses and
other current assets 506,043 431,824
Due from related party 1,779 1,779
--------- ---------
TOTAL CURRENT ASSETS 2,030,810 1,749,304
--------- ---------
`
PROPERTY, PLANT AND EQUIPMENT:
Land 784,800 784,800
Buildings and improvements 2,125,626 2,125,626
Machinery and equipment 623,777 623,777
Furniture and fixtures 1,254,380 1,252,156
Transportation equipment 146,218 146,218
--------- ---------
4,934,801 4,932,577
Less: accumulated depreciation (3,186,499) (3,154,499)
--------- ---------
TOTAL PROPERTY, PLANT AND
EQUIPMENT - net 1,748,302 1,778,078
--------- ---------
OTHER ASSETS:
Due from related party 74,026 74,425
Assets held for resale 38,189 38,189
Cash surrender value of life
insurance, net of loan of $80,000 9,321 9,321
Deposits and other assets 988 988
Intangible assets, net of amortization 24,915 27,345
------ -------
TOTAL OTHER ASSETS 147,439 150,268
------- -------
TOTAL ASSETS $3,926,551 $3,677,650
--------- ---------
See notes to consolidated financial statements.
- 3 -
LINCOLN LOGS LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AS OF APRIL 30, 1997 AND
JANUARY 31, 1997
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
April 30, January 31,
1 9 9 7 1 9 9 7
(Unaudited) (Audited)
--------- --------
CURRENT LIABILITIES:
Current installments of long-term debt $ 18,084 $ 18,084
Notes payable (note 5)
Related parties 335,000 335,000
Others 175,000 175,000
Trade accounts payable 1,243,570 940,598
Customer deposits 1,207,335 987,268
Accrued payroll and related taxes
and withholdings 13,592 36,426
Accrued income taxes -- 769
Due to related parties 134,113 108,820
Accrued expenses 432,059 314,391
--------- ---------
TOTAL CURRENT LIABILITIES 3,558,753 2,916,356
LONG TERM DEBT, net of current
installments:
Convertible subordinated debentures
Related parties 500,000 500,000
Others 200,000 200,000
Other 19,883 25,283
Other liabilities 89,321 89,321
--------- ---------
TOTAL LIABILITIES 4,367,957 3,730,960
--------- ---------
STOCKHOLDERS' EQUITY(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 14,500 14,500
Additional paid-in capital 3,894,286 3,894,286
Accumulated deficit (3,465,757) (3,077,661)
--------- ---------
443,029 831,125
Less cost of 504,240 shares of
common stock in treasury at
April 30, 1997 and January 31, 1997 ( 884,435) ( 884,435)
-------- ---------
TOTAL STOCKHOLDERS' DEFICIENCY ( 441,406) ( 53,310)
-------- --------
COMMITMENTS AND CONTINGENCIES
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIENCY $3,926,551 $3,677,650
--------- ---------
See notes to consolidated financial statements.
- 4 -
LINCOLN LOGS LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED APRIL 30, 1997 AND 1996
(UNAUDITED)
Three Months Ended
April 30,
1 9 9 7 1 9 9 6
--------- ----------
SALES, net of commissions of
$232,293 and $124,763 respectively $ 1,208,502 $ 864,504
COST OF SALES 956,514 612,807
--------- ---------
GROSS PROFIT 251,988 251,697
OPERATING EXPENSES:
Selling, general and administrative 601,155 632,659
---------- ---------
LOSS FROM OPERATIONS ( 349,167) ( 380,962)
--------- ----------
OTHER INCOME (EXPENSE):
Interest income 13,490 7,493
Interest expense ( 54,983) ( 46,966)
Other 2,564 8,432
---------- ----------
Total other income (expense) - net ( 38,929) ( 31,041)
--------- ---------
LOSS BEFORE INCOME TAXES ( 388,096) ( 412,003)
INCOME TAXES -- --
---------- ---------
NET LOSS $( 388,096) $( 412,003)
--------- ---------
PER SHARE DATA (note 2):
Primary loss per common share $ (.41) $ (.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, 1997 and 1996
(UNAUDITED)
Three Months Ended
April 30,
1 9 9 7 1 9 9 6
------- -------
OPERATING ACTIVITIES:
Net loss $( 388,096) $( 412,003)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Depreciation and amortization 34,430 37,495
Changes in operating assets and
liabilities:
Trade accounts receivable 131,152 ( 37,865)
Inventories (241,977) 96,118
Prepaid expenses and other current
assets ( 74,219) ( 92,820)
Trade accounts payable 302,972 ( 152,844)
Customer deposits 220,067 575,359
Accrued expenses and other operating
activities 94,834 45,212
Due to related parties 25,293 27,927
Accrued and prepaid income taxes ( 769) ( 349)
--------- --------
Net cash provided by
operating activities 103,687 86,230
-------- --------
INVESTING ACTIVITIES:
Additions to property, plant and equipment ( 2,224) ( 12,210)
Decrease in due from related parties 399 252
Increase in deposits
and other assets -- ( 299)
---------- ---------
Net cash used by
investing activities ( 1,825) ( 12,257)
-------- ---------
FINANCING ACTIVITIES:
Proceeds from notes payable, net -- 20,000
Reductions in long-term debt ( 5,400) ( 27,439)
--------- --------
Net cash used by
financing activities ( 5,400) ( 7,439)
--------- --------
Net increase in cash
and cash equivalents 96,462 66,534
Cash and cash equivalents at beginning of
period 359,107 373,636
---------- --------
Cash and cash equivalents at end of period $ 455,569 $ 440,170
--------- --------
See notes to consolidated financial statements.
- 6 -
LINCOLN LOGS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
APRIL 30, 1997 AND 1996
(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
presentation of results for the interim periods.
The results of operations for the three-month periods ended April 30, 1997
and 1996 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, 1997 and 1996.
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
months ended April 30, 1997 and 1996.
(4) RECLASSIFICATIONS
Certain amounts in the April 30, 1996 financial statements have been
reclassified to conform with the presentation in the April 30, 1997 financial
statements.
(5) NOTES PAYABLE
During fiscal years 1998 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
- 7 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
30, 1997, a total of $510,000 has been loaned to the Company by various
individuals, including directors and shareholders, and is due on June 30, 1997.
(5) SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION
During the three months ended April 30, 1997, cash was paid in the amounts of
$54,983 for interest and $769 for income taxes. During the three months ended
April 30, 1996, cash was paid in the amounts of $50,642 for interest and $349
for income taxes.
-8-
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three months ended April 30, 1997 vs. April 30, 1996:
Sales, net of commissions, amounted to $1,208,502 for the three months ended
April 30, 1997 as compared to $864,504 in the same period in 1996, an increase
of $343,998, or 40%. When compared with the previous year, there was a 31%
increase in the number of home units shipped and the average sales value per
home unit shipped increased 9%. 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 $251,988, or 21% of net sales for the three
months ended April 30, 1997 as compared to $251,697, or 29% for the same
period in 1996. The decrease in gross profit was the result of an increase
in commissions. This increase was due to a higher percentage of sales made
by independent dealer/distributors who earn a higher commission rate than
the Company's in-house sales representatives.
Total operating expenses of $601,155, or 50% of net sales, have decreased
$31,504 from the previous year's amount of $632,659, 73% of sales. The decrease
in total operating expenses amounted to 5%. This was due to the successful
recruitment of a dealer for the Company's test market sales office, resulting in
the elimination of the expenses for that office, offset by an increase in
national advertising.
LIQUIDITY AND CAPITAL RESOURCES
The Company was in a negative working capital position at both April 30,
1997 and April 30, 1996 of $1,527,943 and $1,776,994, respectively. For the
three months ended April 30, 1997, working capital decreased $360,891 as
compared to a decrease of $391,015 in the same period in 1996. As of the
Company's fiscal year end at January 31, 1997, current liabilities exceeded
current assets by $1,167,052. Working capital was primarily consumed during
both reporting periods by the repayment of long-term debt and purchases of
property, plant and equipment. .
For the three months ended April 30, 1997, the Company's operations were a
net provider of $103,687 of cash, while in the comparable period of the previous
year it was a net provider of cash in the amount of $86,230. Overall, the
Company experienced a net increase in its cash position of $96,462 during the
three months ended April 30, 1997, as compared with an increase in its cash
position of $66,534 during the three months ended April 30, 1996. During the
three months
ended April 30, 1997 and 1996, cash provided by operations and, in 1996,
additional short term borrowings, was primarily consumed by the repayment of
long-term debt obligations and additions to property, plant and equipment.
-9-
LIQUIDITY AND CAPITAL RESOURCES-continued
As shown in the consolidated financial statements, the Company incurred a
net loss during the quarter ended April 30, 1997 of $388,096. As of April 30,
1996, current liabilities exceeded current assets by $1,527,943 and the Company
had a net capital deficiency of $441,406. The Company has not been successful
in securing working capital through commercial lenders or governmental agency
sources. Funds generated by operations and the renewal of 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 renew
borrowings under the Cant Financing Program when the notes mature in
June 1997, or a reduction in vendor assistance may further reduce its
liquidity and, eventually, force the Company to cease operations.
OTHER MATTERS
In January 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share", which is effective for the Company in fiscal
1998. This Statement, which modifies computation, presentation and disclosure
requirements for earnings per share, does not have a material impact on the
Company's calculation of earnings per share.
- 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
On May 28, 1997, Form 8-K was filed, incorporated herein by
reference, where the Company reported the replacement of the Chief
Executive Officer with a new position, The Office of the Chief
Executive.
- 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
Chairman of the Board, Member of The
Office of the Chief Executive and
Treasurer
Date: June 6, 1997
/s/Pauline A. Shumek
Manager of Accounting
Date: June 6, 1997
- 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>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> APR-30-1997
<CASH> 455,569
<SECURITIES> 0
<RECEIVABLES> 197,694
<ALLOWANCES> 9,000
<INVENTORY> 860,225
<CURRENT-ASSETS> 2,030,810
<PP&E> 4,934,801
<DEPRECIATION> 3,186,499
<TOTAL-ASSETS> 3,926,551
<CURRENT-LIABILITIES> 3,558,753
<BONDS> 719,883
0
0
<COMMON> 14,500
<OTHER-SE> (455,906)
<TOTAL-LIABILITY-AND-EQUITY> 3,926,551
<SALES> 1,208,502
<TOTAL-REVENUES> 1,208,502
<CGS> 956,514
<TOTAL-COSTS> 956,514
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 54,983
<INCOME-PRETAX> (388,096)
<INCOME-TAX> 0
<INCOME-CONTINUING> (388,096)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (388,096)
<EPS-PRIMARY> (.41)
<EPS-DILUTED> (.41)
</TABLE>
