UNITED STATES
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 October 31, 2000
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.)
5 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 December 13, 2000
Common Stock, $ .01 par value 7,255,059
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LINCOLN LOGS LTD. AND SUBSIDIARIES
INDEX
<CAPTION>
Page number
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Consolidated balance sheets as of
October 31, 2000 and January 31, 2000 3 - 4
Consolidated statements of operations
for the nine months ended October 31, 2000 and 1999 5
Consolidated statements of operations
for the three months ended October 31, 2000 and 1999 6
Consolidated statementS of changes in stockholders'
equity for the nine months ended
October 31, 2000 and the twelve months ended
January 31, 2000 7
Consolidated statements of cash flows
for the nine months ended October 31, 2000 and 1999 8
Notes to consolidated financial statements 9 - 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION 14 - 17
PART II. OTHER INFORMATION 18
SIGNATURES 18
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LINCOLN LOGS LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 2000 AND JANUARY 31, 2000
ASSETS
<CAPTION>
October 31, January 31,
2 0 0 0 2 0 0 0
(Unaudited) (Audited)
---------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivelants $ 427,391 $ 356,306
Trade accounts receivable, net of $1,963
allowance for doubtful accounts 30,245 150,398
Inventories (principally raw materials) 1,115,740 845,174
Prepaid expenses and other current assets 577,350 428,350
Prepaid income taxes 469 ---
Mortgage receivable 2,532 1,922
---------- ----------
Total current assets 2,153,727 1,782,150
------------ -----------
PROPERTY, PLANT AND EQUIPMENT:
Land 784,800 784,800
Buildings and improvements 2,508,694 2,357,822
Machinery and equipment 703,198 637,970
Furniture and fixtures 1,455,701 1,420,446
Transportation equipment 149,277 154,602
----------- ---------
5,601,670 5,355,640
Less: accumulated depreciation (3,578,338) (3,491,173)
---------- ---------
Total property, plant and
equipment - net 2,023,332 1,864,467
---------- ----------
OTHER ASSETS:
Mortgage receivable 67,508 69,553
Assets held for resale 27,028 27,314
Cash surrender value of life insurance 96,390 96,390
Deposits and other assets 44,619 933
Intangible assets, net of amortization --- 1,850
--------- ---------
Total other assets 235,5454 196,040
--------- ---------
TOTAL ASSETS $4,412,604 $3,842,657
========== ==========
<FN>
See accompanying notes to consolidated financial statements.
( continued )
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LINCOLN LOGS LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS ( continued )
OCTOBER 31, 2000 AND JANUARY 31, 2000
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
October 31, January 31,
2 0 0 0 2 0 0 0
(Unaudited) (Audited)
---------- -----------
<S> <C> <C>
CURRENT LIABILITIES:
Current installments of long-term debt:
Related parties $ 150,000 $ ---
Others 32,912 5,706
Trade accounts payable 558,423 558,800
Customer deposits 1,799,328 1,276,963
Accrued payroll, related taxes and
withholdings 73,855 64,508
Accrued income taxes -- 7,700
Due to related parties 105,848 221,449
Accrued expenses 615,796 538,266
---------- ----------
Total current liabilities 3,336,162 2,673,392
LONG-TERM DEBT, net of current installments:
Convertible subordinated debentures:
Related parties 50,000 200,000
Others --- 20.000
Other 44,652 15,559
Other long-term liability 96,390 96,390
----------- ----------
Total liabilities 3,527,204 3,005,341
---------- ----------
STOCKHOLDERS' EQUITY:
Preferred stock, $ .01 par value;
authorized 1,000,000 shares; issued
and outstanding - 0 - shares -- --
Common stock, $ .01 par value; authorized
10,000,000 shares; issued 7,759,299 77,593 77,593
Additional paid-in capital 5,681,554 5,681,554
Accumulated deficit (3,989,312) (4,037,396)
----------- ----------
1,769,835 1,721,751
Less: cost of 504,240 shares of common
stock in treasury (884,435) (884,435)
----------- ------------
Total stockholders' equity 885,400 837,316
---------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $4,412,604 $3,842,657
============== ============
<FN>
See accompanying notes to consolidated financial statements.
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LINCOLN LOGS LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED OCTOBER 31, 2000 AND 1999
(UNAUDITED)
<CAPTION)
Nine Months Ended
October 31,
-------------------
2 0 0 0 1 9 9 9
--------- --------
<S> <C> <C>
NET SALES $8,253,066 $9,041,956
COST OF SALES 4,845,417 5,090,065
---------- ----------
GROSS PROFIT 3,407,649 3,951,891
---------- ----------
OPERATING EXPENSES:
Commissions 1,117,863 1,330,337
Selling, general and administrative 2,275,103 2,091,757
---------- ----------
Total operating expenses 3,392,966 3,422,094
---------- ----------
INCOME FROM OPERATIONS 14,683 529,797
---------- ----------
OTHER INCOME (EXPENSE):
Interest income 21,664 23,404
---------- ----------
Interest expense:
Amortization attributable to
beneficial conversion feature
and warrants --- ( 4,547)
All other ( 39,775) ( 54,700)
---------- ----------
Total interest expense ( 39,775) ( 59,247)
---------- ----------
Other 61,940 37,126
---------- ----------
Total other income (expense) - net 43,829 1,283
---------- ----------
INCOME BEFORE INCOME TAXES 58,512 531,080
INCOME TAXES 10,428 236
---------- ----------
NET INCOME $ 48,084 $ 530,844
========== ==========
PER SHARE DATA:
Basic earnings per share $.01 $ .09
========== ==========
Diluted earnings per share $.01 $ .07
========== ==========
<FN>
See accompanying notes to consolidated financial statements.
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LINCOLN LOGS LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED OCTOBER 31, 2000 AND 1999
(UNAUDITED)
<CAPTION)
Three Months Ended
October 31,
-------------------
2 0 0 0 1 9 9 9
--------- --------
<S> <C> <C>
NET SALES $2,646,119 $3,499,708
COST OF SALES 1,571,348 1,949,064
---------- ----------
GROSS PROFIT 1,074,771 1,550,644
---------- ----------
OPERATING EXPENSES:
Commissions 366,375 518,566
Selling, general and administrative 770,662 715,136
---------- ----------
Total operating expenses 1,137,037 1,233,702
---------- ----------
INCOME (LOSS) FROM OPERATIONS (62,266) 316,942
---------- ----------
OTHER INCOME (EXPENSE):
Interest income 7,953 7,611
---------- ----------
Interest expense:
Amortization attributable to
beneficial conversion feature
and warrants --- ---
All other (12,139) ( 8,618)
---------- ----------
Total interest expense (12,139) ( 8,638)
---------- ----------
Other 23,886 11,632
---------- ----------
Total other income (expense) - net 19,700 10,605
---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES (42,566) 327,547
INCOME TAXES --- 236
---------- ----------
NET INCOME (LOSS) $ (42,566) $ 327,311
========== ==========
PER SHARE DATA:
Basic earnings and loss per share $(.01) $.05
========== ==========
Diluted earnings and loss per share $(.01) $.04
========== ==========
<FN>
See accompanying notes to consolidated financial statements.
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<TABLE>
LINCOLN LOGS LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED OCTOBER 31, 2000 (UNAUDITED) AND
THE TWELVE MONTHS ENDED JANUARY 31, 2000
<CAPTION>
Total
Number Par Additional stockholders'
of value paid-in (Accumulated Treasury equity
shares amount capital deficit) stock (deficiency)
--------- --------- ---------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 31, 1999 6,046,299 $ 60,463 $5,418,104 $(4,848,565) $( 884,435) $( 254,433)
Common stock issued upon exercise
of stock options 500 5 75 --- --- 80
Debt converted to commom stock 1,712,500 17,125 262,875 --- --- 280,000
Amount assigned to subordinated debenture
warrants --- --- 500 --- --- 500
Net income - 2000 --- --- --- 811,169 --- 811,169
---------- ---------- ---------- ---------- ------------- ------------
Balance at January 31, 2000 7,759,299 $ 77,593 $5,681,554 $(4,037,396) $( 884,435) $ 837,316
Net income-9 months ended
October 31, 2000 --- --- --- 48,084 --- 48,084
---------- ----------- ---------- ------------ ---------- -------------
Balance at October 31, 2000 7,759,299 $ 77,593 $5,681,554 $(3,989,312) $( 884,435) $ 885,400
========== ============ =========== ============ ============= ==============
<FN>
See accompanying notes to consolidated financial statements.
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<TABLE>
LINCOLN LOGS LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED OCTOBER 31, 2000 AND 1999
(UNAUDITED)
<CAPTION>
Nine Months Ended
October 31,
----------------------------
2 0 0 0 1 9 9 9
---------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 48,084 $ 530,844
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 95,340 113,550
Amortization of amounts assigned to
beneficial conversion feature
and warrants --- 4,547
(Gain) on sale of assets held for resale (9,714) ---
Changes in operating assets and liabilities:
Decrease in trade accounts receivable 120,153 111,490
(Increase) in inventories (270,566) (222,561)
(Increase) in prepaid expenses
and other current assets (149,000) (93,942)
(Increase) in prepaid income taxes (409) ---
(Increase) decrease in deposits
and other assets (43,686) 689
(Decrease)in trade accounts payable (377) (320,795)
Increase in customer deposits 522,365 521,107
Increase (decrease) increase in accrued
expenses payroll and withholdings 86,877 (31,043)
(Decrease) increase in due to
related parties (115,601) 47,150
(Decrease) in accrued income taxes (7,700) (1,050)
---------- ----------
Net cash provided by
operating activities 275,706 659,986
---------- ----------
INVESTING ACTIVITIES:
Additions to property, plant
and equipment (209,653) (176,304)
Proceeds from sale of assets
held for resale 10,000 ---
Issuance of note receivable (50,000) ---
Repaymentsof note receivable 50,000 ---
Payments received on mortgage receivable 1,435 1,205
---------- ----------
Net cash (used) by investing activities (198,218) (175,099)
---------- ----------
FINANCING ACTIVITIES:
Proceeds from issuance of debentures --- 310,000
Proceeds from issuance of common stock
upon exercise of stock options --- 80
Repayments of notes payable --- (125,435)
Net increase in cash surrender value of
insurance policy --- 304
Repayment of loan against cash surrender
value of life insurance policy and
accrued interest --- (83,574)
Repayments of long-term debt (6,403) (205,654)
---------- ----------
Net cash (used) by financing
activities (6,403) (104,279)
---------- ----------
Net increase in cash and cash equivalents 71,085 380,608
Cash and cash equivalents at
beginning of period 356,306 223,521
---------- ----------
Cash and cash equivalents at
end of period $427,391 $604,129
========== ==========
<FN>
See accompanying notes to consolidated financial statements.
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LINCOLN LOGS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2000 AND 1999
(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 nine-month periods and three-month periods
ended October 31, 2000 and 1999 are not indicative of the results to be expected
for the full year, due to the seasonal nature of the business.
These unaudited consolidated financial statements should be read in
conjunction with the audited consolidated financial statements included
in the Company's Annual Report on Form 10-KSB for the fiscal year ended
January 31, 2000.
(2) EARNINGS PER SHARE
Basic earnings and loss per share is computed by dividing net earnings or
loss by the weighted average number of common shares outstanding during the
respective periods. The weighted average number of common shares used to
compute basic earnings and loss per share was 7,255,059 and 6,131,836 for the
nine-month periods ended October 31, 2000 and 1999, respectively, and
7,255,059 and 7,254,929 for the three-month periods ended October 31, 2000
and 1999, respectively.
Diluted earnings and loss per share is computed based on the weighted
average number of common shares outstanding during the respective periods.
When the effects are dilutive, the convertible subordinated debentures are
assumed to have been 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.
Stock options and warrants are included in the computation of earnings and loss
per share under the treasury stock method if the effect is dilutive.
The numerator in the calculation of diluted earnings and loss per share
for the nine-month periods ended October 31, 2000 and 1999 was determined as
follows:
2000 1999
----- -----
Net income used to calculate basic earnings
and loss per share $ 48,084 $530,844
Add back interest expense related to convertible
debentures 19,800 24,347
--------- ---------
Numerator for calculation of diluted earnings
and loss per share $ 67,884 $555,191
========= ========
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
The denominator in the calculation of diluted earnings and loss per share
for the nine-month periods ended October 31, 2000 and 1999 was determined as
follows:
2000 1999
----- -----
Weighted average outstanding shares used to calculate
basic earnings and loss per share 7,255,059 6,131,836
Add shares issuable assuming conversion of
convertible debentures 1,162,500 1,162,500
Add shares issuable assuming exercise of outstanding
stock purchase warrants 135,416 -0-
Add shares issuable assuming exercise of outstanding
stock options 207,734 198,829
-------- --------
Denominator for calculation of diluted earnings
and loss per share 8,760,709 7,493,165
========== =========
Basic earnings per share $ 0.01 $ 0.09
======== ========
Diluted earnings per share $ 0.01 $ 0.07
======== ========
There were warrants to purchase 812,500 shares of stock outstanding at
October 31, 2000 that were not included in the computation of diluted earnings
and loss per share for the nine-month period ended October 31, 1999 as their
effect was anti-dilutive.
The numerator in the calculation of diluted earnings and loss per share for
the three-month periods ended October 31, 2000 and 1999 was determined as
follows:
2000 1999
----- -----
Net income (loss) used to calculate basic earnings
(loss) per share $(42,566) $327,311
Add back interest expense related to convertible
debentures --- 6,600
--------- ---------
Numerator for calculation of diluted earnings
(loss) per share $(42,566) $333,911
========= =========
The denominator in the calculation of diluted earnings (loss) per share
for the three-month periods ended October 31, 2000 and 1999 was determined
as follows:
2000 1999
----- -----
Weighted average outstanding shares used to calculate
basic eranings (loss) per share 7,255,059 7,254,929
Add shares issuable assuming conversion of
convertible debentures --- 1,162,500
Add shares issuable assuming exercise of outstanding
stock purchase warrants --- 103,923
Add shares issuable assuming exercise of outstanding
stock options --- 235,419
-------- --------
Denominator for calculation of diluted earnings
(loss0 per share 7,255,059 8,756,771
========== =========
Basic earnings (loss0 per share $ (0.01) $ 0.05
======== =======
Diluted earnings (loss) per share $ (0.01) $ 0.04
======= =======
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
There were warrants to purchase 812,500 shares of stock outstanding at
October 31, 2000 that were not included in the computation of diluted loss
per share for the three-month period ended October 31, 2000 as their effect
was anti-dilutive. Further, shares issuable assuming conversion of
convertible debentures and shares issuable assuming exercise of outstanding
stock options and stock purchase warrants at October 31, 2000 were not
included in the computation of diluted loss per share for the three-month
period as their effect was 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. Income tax expense in the
amount of $236 was paid in the nine months ended October 31, 1999 as the
result of an under-accrual of state minimum taxes for the year ended
January 31, 1999. During the nine months ended October 31, 2000 the
Company accrued income tax expense related to federal Alternative Minimum
Tax and state income tax in one state. The Company recently began doing
business in a new state and does not have any Net Operating Losses
attributable to that state to offset apportioned taxable income.
(4) INDEBTEDNESS
Through Janaury 31, 1998, the Company had authorized and issued $700,000
of Series A Convertible Subordinated Debentures (the "A Debentures"), and
authorized $600,000 and issued $340,000 of Series B Convertible Subordinated
Debentures (the "B Debentures"). An additional $250,000 of B Debentures were
issued during the first quarter of fiscal 1999. The remaining $10,000 of B
Debentures were issued during the first quarter of fiscal 2000. In February
1999, the Company authorized and issued $300,000 of Series C Convertible
Subordinated Debentures (the "C Debentures")(all of the aforementioned series
of convertible debentures are collectively known as the "Debentures"). The
Debentures bear interest, payable quarterly, at an annual rate of 12%. The
A Debentures were due on June 30, 1998, the B Debentures were originally due
on May 15, 1999, and the C Debentures are due on February 25, 2002. In
February 1999, $200,000 of A Debentures outstanding were repaid, including
interest through the date of repayment, with the proceeds of the C Debentures.
The B Debentures may be redeemed by the Company at its option, in whole or in
part, at any time on or after January 30, 1998. The C Debentures may be
redeemed by the Company at its option, in whole or in part, at any time on or
after April 25, 1999. The holders of the B Debentures have the right, upon
appropriate notice, to convert the B Debentures, in $10,000 units, into
shares of the Company's common stock at the rate of one (1) share for each
$.20 of principal amount. The holders of the C Debentures have the right,
upon appropriate notice, to convert the C Debentures, in $10,000 units, into
shares of the Company's common stock at the rate of one (1) share for each
$.16 of principal amount. The B Debentures also have a detachable stock
purchase warrant, giving the holder the right, over a five year period, to
purchase shares of the Company's common stock at the quoted market price of
the Company's common stock, $.375, on the commitment date. The total number
of shares of common stock subject to warrants was 1,500,000, fifty (50%) of
the number subject to conversion. As of October 31, 2000 and January 31, 2000,
there were warrants to purchase 812,500 shares of stock outstanding,
respectively. The Debentures are collateralized by a security interest granted
by the Company in the assets of the Company and by mortgages on certain parcels
of real estate owned by the Company, which are located in Chestertown, New York
and Auburn, California.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
As disclosed in the above paragraph, the original maturity date of the B
Debentures was May 15, 1999. Prior to May 15, 1999, holders of B Debentures
with a face amount of $200,000 agreed to extend the maturity date to May 15,
2001. $125,000 of B Debentures were repaid during fiscal year 2000.
During fiscal 1999 the Company engaged an independent investment
banker to evaluate the fair value of the components of the B Debentures.
Based on the report issued, the Company assigned a value of two ($.02) cents
to each warrant to purchase one share of common stock, or a total of $30,000.
This amount has been recorded as a debt discount and as an increase to
additional paid-in capital. This amount was amortized to interest
expense over the original life of the B Debentures. Total amortization
related to the warrants was $-0- and $-0- for the three month periods ended
October 31, 2000 and October 31, 1999, respectively. Total amortization
related to the warrants was $-0- ans $4,547 for the nine month periods
ended October 31, 2000 and October 31, 1999, respectively.
On January 16, 1998, certain shareholdrs who were owners of the A
Deventures exercised their right to convert their holdings into common
stock of the Company. The total amount of the A Debentures converted
into the common stock of the Company was $450,000. The Company issued
2,250,000 shares of common stock pursuant to the owners election to
convert, and paid accrued interest to the shareholders to the date of
conversion. On April 20, 1998 a shareholder, officer and director, who
owned B Debentures exercised his right to convert his holdings into common
stock of the Company. The face amount of B Debentures converted into common
stock of the Company was $275,000. This individual also exercised the warrants
he held related to the debentures. The Company issued 2,062,500 shares
(1,375,000 shares related to the conversion and 687,500 shares related to the
warrants) and paid accrued interest to the date of conversion. Further, on
June 30, 1998, the maturity date of the A Debentures, holders of $50,000 of A
Debentures exercised their right to convert their holdings into common stock of
the Company. The Company issued 250,000 shares of common stock pursuant to the
owners' election to convert, and paid accrued interest to the date of
conversion. Finally, on July 29, 1999, a shareholer, officer and director, who
owned B Debentures and C Debentures exercised his right to convert his holdings
into common stock of the Company. The face amount of the B Debentures converted
into common stock of the Company was $30,000 (carrying amount of $30,000). The
face amount of C Debentures converted into common stock of the Company was
$250,000. The Company issued 1,712,500 shares (150,000 shares related to the
conversion of the B Debentures and 1,562,500 shares related to the conversion
of the C Debentures) and paid accrued interest to the date of conversion.
(5) SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION
During the nine months ended October 31, 2000, cash was paid in the amounts
of $41,277 for interest and $18,597 for income taxes. During the nine months
ended October 31, 1999, cash was paid in the amounts of $65,100 for interest
and $1,286 for income taxes.
- 12 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Non-cash investing and financing activity:
During the nine months ended October 31, 2000, the Company entered into a
capital lease for certain machinery and equipment in the amount of $42,700.
During the nine months ended October 31, 1999, the Company recorded an
increase in the cash surrender value of an insurance policy on the life of
the Company's founder and also recorded an increase in the related liability
in the same amount.
During the nine months ended October 31, 1999, the Company recorded an
increase in transportation equipment of $20,040 and a related increase
in long-term debt in the same amount representing the financed portion
of the purchase of a new truck.
During the nine months ended October 31, 1999, the Company recorded an
increase in B Debentures in the amount of $4,047, an increase in additional
paid-in-capital of $500 and a charge to interest expense of $4,547 related
to the amortization of debt discount attributable to warrants associated
with the B Debentures.
During the nine months ended October 31, 1999, the Company recorded an
increase of $17,125 in common stock, an increase of $262,875 in additional
paid-in-capital and a corresponding reduction of debt of $280,000 as the
result of the exercise of the right of conversion of certain B Debentures
and C Debentures.
-13-
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION
RESULTS OF OPERATIONS
Nine months ended October 31, 2000 vs. October 31, 1999
Net sales were $8,253,066 for the nine months ended October 31, 2000 as
compared to $9,041,956 in the same period in 1999, a decrease of $788,890,
or 9%. When compared to the previous year, there was a 24% decrease in the
number of housing units shipped, and the average sales value per housing unit
shipped increased 20%. The increase in sales value per housing unit shipped
resulted from the shipment of homes that were both larger and more expensive
than those shipped in the same period of the previous year. The decrease in
housing units shipped was primarily due to unfavorable weather conditions
caused by persistent heavy rain in the eastern United States during the
Company's second fiscal quarter that precluded many customers from accepting
scheduled deliveries. Also contributing to the postponement of deliveries
was the lack of available contractors during the period, which was
principally caused by the weather-postponed deliveries of the previous
quarter that caused contractors to find other building assignments.
Gross profit amounted to $3,407,649, or 41% of net sales for the nine months
ended October 31, 2000 as compared to $3,951,891, or 44% for the same period in
1999. The decrease in gross profit percentage was due to higher material costs,
labor costs and indirect manufacturing costs. The increase in material costs
was related to rising prices of certain raw materials. The increase in labor
and indirect manufacturing costs was due to increased employment, increased
design and engineering expenses related to the larger homes being sold and a
re-alignment of certain costs to the manufacturing process that previously
were designated as administrative expenses.
Total operating expenses of $3,392,966, or 41% of net sales, decreased
$29,128 from the previous year's amount of $3,422,094, or 38% of net sales.
The overall decrease in total operating expenses was 1%. Sales commissions
were $1,117,863 for the nine months ended October 31, 2000 and $1,330,337
for the nine months ended October 31, 1999. Commissions were 14% and 15%
of sales in 2000 and 1999, respectively. Selling, general and administrative
expenses were $2,275,103 for the nine months ended October 31, 2000 compared
with $2,091,757 in the same period of the previous year, an increase of
$183,346, or 9%. Selling, general and administrative expenses were 27% and
23% of net sales for the nine months ended October 31, 2000 and 1999,
respectively. The increase in selling, general and administrative expenses
was primarily the result of increased spending on advertising, trade show
expositions and sales and marketing salaries. The Company also incurred
expenses for a national dealer convention during the nine months ended
October 31, 2000 that did not occur during the same period of the previous
year. Offsetting the aforesaid increases was a decrease in professional
service fees and the re-alignment of certain administrative costs to the
manufacturing process. Commissions were lower during the same period due
to decreased sales volume and a proportionately fewer number of shipments
being made to customers of the Company's independent dealers, who are paid
a higher commission rate than the Company's employee-sales representatives,
than in the prior year's comparable period.
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<PAGE>
Three months ended October 31, 2000 vs. October 31, 1999
Net sales for the three month periods ended October 31, 2000 and 1999 were
$2,646,119 and $3,499,708, respectively. Net sales decreased $853,589, or
24% in the three month period ended October 31, 2000 compared to the same
period of the previous year. When compared to the same period in the prior
fiscal year, there was a 34% decrease in housing units delivered. The average
value per housing unit shipped increased by 16%. The decrease in sales during
this period was caused by unfavorable weather conditions in the eastern United
States during the Company's second fiscal quarter and a lack of available
contractors that precluded many customers from accepting scheduled deliveries.
The increase in value per housing unit shipped was primarily the result of the
shipment of units that were larger and more expensive than those shipped in the
same period of the previous year.
Gross profit was $1,074,771, or 41% of net sales, for the three months
ended October 31, 2000 as compared to $1,550,644, or 44% for the same period
in 1999. The decrease in gross profit was the result of higher material costs,
labor costs and indirect manufacturing costs. The increase in material costs
was related to rising prices of certain raw materials. The increase in labor
and indirect manufactuirng costs was due to increased employment, increased
design and engineering expenses related to the larger homes being sold and a
re-alignment of certain costs to the manufacturing process that previously
were designated as administrative expenses.
Total operating expenses of $1,137,037, or 43% of net sales, decreased
$96,665 from the previous year's amount of $1,233,702, or 35% of net sales.
The overall decrease in total operating expenses was 8%. Sales commissions
were $366,375 in the three-month period ended October 31, 2000 and $518,566 in
the three-month period ended October 31, 1999. Commissions were 14% and 15% of
net sales, respectively. Selling, general and administrative expenses were
$770,662 for the three months ended October 31, 2000 compared with $715,136 in
the same period of the previous year, an increase of $55,526, or 8%.
Selling, general and administrative expenses were 29% and 20% of net sales
for the three-month period ended October 31, 2000 and 1999, respectively. The
increase in selling, general and administrative costs was the result of an
increase in professional service fees, salaries, increased spending on
advertising, trade shows and expositions and sales promotions. Commissions
were lower during the same period due to decreased sales volume and a
proportionately fewer number of shipments being made to customers of the
Company's independent dealers, who are paid a higher commission rate than the
Company's employee-sales representatives, than in the prior year's
comparable period.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a working capital deficiency at both October 31, 2000 and
October 31, 1999 of $1,182,435 and $1,128,204, respectively. For the nine
months ended October 31, 2000 working capital deficiency worsened by $291,193
as compared to an improvement of $680,772 in the same period in 1999. As of
the Company's fiscal year end at January 31, 2000 current liabilities exceeded
current assets by $891,242. At October 31, 2000 the Company's backlog of
undelivered contracts was approximately $13,069,000. During the nine-month
period ended October 31, 2000, cash was primarily provided by the receipt of
customer deposits, collection of trade receivables, repayment of a note
receivable and the net income generated during the period. Cash was
primarily used to purchase inventory, to pay for prepaid expenses, to repay
amounts due to related parties, to continue to construct a new sales
model, acquire equipment and to issue a note receivable.
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<PAGE>
For the nine months ended October 31, 2000 and October 31, 1999 the
Company's operations were a provider of cash in the amounts of $275,706 and
$659,986, respectively. Overall, the Company experienced a net increase in
its cash position of $71,085 during the nine months ended October 31, 2000 as
compared with an increase in its cash position of $380,608 during the nine
months ended October 31, 1999.
As shown in the consolidated financial statements, the Company realized
a net profit during the nine months ended October 31, 2000 of $48,084. As of
October 31, 2000, current liabilities exceeded current assets by $1,182,435.
However, the Company has net stockholders' equity of $885,400, and in August
2000 the Company accepted a term loan commitment from a commercial bank for
financing of the construction of its new sales model home. For the past
nine years, the Company has principally rellied upon funds generated by
operations and the assistance of major vendors who have provided extended
payments terms to the Company to support the Company's operations.
While the Company's results from operations improved during the past two
years, there is, however, no assurance that the Company will be able to
generate adequate funds from these sources. A reduction in the Company's
sales activity or a reduction in vendor assistance could further reduce its
liquidity and make it difficult for the Company to continue its operations.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Financial Accounting Standards Board Statement ("FASB") No. 133,
"Accounting for Derivative Instruments and Hedging Activities", issued in
June 1998 and effective for all fiscal quarters of fiscal years beginning
after June 15, 1999, with earlier application permitted, requires companies
to recognize all derivatives as either assets or liabilities in the statement
of financial position and measure those instruments at fair value. In June
1999, FASB issued Statement of Financial Accounting Standards ("SFAS") No. 137,
"Accounting for Derivative Instruments and Hedging Activities-Deferral of the
Effective Date of FASB Statement No. 133-an amendemnt of FASB Statement No. 133"
which delayed the effective date of Statement No. 133 to fiscal years beginning
after June 15, 2000. Management has evaluated the impact of the application of
the new rules on the Company's Consolidated Financial Statements and concluded
that there will be no impact on its results of operations or its financial
position.
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<PAGE>
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in
Financial Statements", issued in December 1999 by the Securities and Exchange
Commission summarizes certain of the SEC's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
SAB No. 101A , issued in March 2000, and SAB No. 101B, issues in June 2000, both
delay the implementation of SAB No. 101. The Company is required to implement
SAB No. 101 no later than the fourth fiscal quarter of the current fiscal year.
Management haas evaluated the impact of the application of the new rules on
the Company's Consolidated Financial Statements and concluded that there will
be no impact on its results of operations or its financial position.
Financial Accounting Standards Interpretation No. 44 ("FIN 44"),
"Accounting for Certain Transactions Involving Stock Compensation - an
Interpretation of APB Opinion No. 25", issued in March 2000 and effective
July 1, 2000, but certain conclusions in FIN 44 cover specific events that
occurred after either December 15, 1998 or January 12,2000, clarifies the
application of APB Opinion No. 25. and, among other issues, clarifies the
definition of an employee for purposes of applying APB Opinion No. 25; the
criteria for determining whether a plan qualifies as a non-compensatory
plan; the accounting consequences of various modifications to the terms
of previously fixed stock options or awards; and the accounting for an
exchange of stock compensation awards in a business combination. The
Company has applied applicable provisions of FIN 44, which did not have
a material effect on the Company's Consolidated Financial Statements.
OTHER MATTERS
DELISTING AND LIQUIDITY OF COMMON STOCK
Due to the late filing of a quarterly report pursuant to the Securities
Exchange Act of 1934, as amended, the Company failed to comply with continued
listing requirements for listing on the over-the-counter bulletin board (the
"OTCBB"). Accordingly, on October 25, 2000 the Company's common stock was
delisted from the OTCBB (the "Delisting Date"). The Comapany's stock became
tradeable over-the-counter.
The delisting of the Company's common stock may result in limited
availability of information relative to the Company's common stock and
limited news coverage of the Company which could restrict investors'
interest in the Company's common stock and could materially and adversely
affect the trading market and prices of the Company's common stock. The
Company's ability to issue additional securities or to secure additional
financing may also be impaired as a result of delisting from the OTCBB.
All such factors coulds severely limit the liquidity of the Company's
common stock.
Subsequent to the Delisting Date, the Company filed such late quarterly
report and, to the best of its knowledge, was otherwise in compliance
with the applicable OTCBB listing requirements. The Company has
contacted all necessary persons and has initiated all processes to once
again be listed on the OTCBB. Based on such efforts, the Company
expects that its common stock wil be re-listed on the OTCBB.
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<PAGE>
YEAR 2000
The Company's information technology systems successfully completed the
"roll over" to the year 2000. The transition resulted in no adverse or
negative impact on operations. The Company believes that the risk
associated with the Year 2000 problem has been identified and, to the extent
present, eliminated. The Company will continue to evaluate the Year 2000
readiness of its business systems and significant vendors to ensure a
complete transition throughout the year 2000. The estimated total cost
of the Year 2000 assessment and remediation plan has been less than $10,000.
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<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of proceeds
None
Item 3. Defaults Upon 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
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
LINCOLN LOGS LTD.
/ s / John D. Shepherd
John D. Shepherd
Chairman of the Board, President, Chief
Executive Officer and Treasurer
December 13, 2000
/ s / William J. Thyne
William J. Thyne
Executive Vice President
Chief Financial Officer, Principal Financial
Officer and Secretary
December 13 2000
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