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 April 30, 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 June 12, 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
April 30, 2000 and January 31, 2000 3 - 4
Consolidated statements of operations
for the three months ended
April 30, 2000 and 1999 5
Consolidated statements of changes in
stockholders' equity for the three months
ended April 30, 2000 and the twelve months
ended January 31, 2000 6
Consolidated statements of cah flows
for the three months ended
April 30, 2000 and 1999 7
Notes to consolidated financial statements 8 - 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION 12 - 14
PART II. OTHER INFORMATION 15
SIGNATURES 15
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LINCOLN LOGS LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
APRIL 30, 2000 AND JANUARY 31, 2000
ASSETS
------
<CAPTION>
April 30, January 31,
2 0 0 0 2 0 0 0
(Unaudited) (Audited)
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivelants $ 297,978 $ 356,306
Trade accounts receivable, net of $1,963
allowance for doubtful accounts 207,845 150,398
Inventories (principally raw materials) 1,107,438 845,174
Prepaid expenses and other current
assets 525,440 428,350
Prepaid income taxes 469 ---
Note receivable 44,624 ---
Mortgage receivable 2,457 1,922
---------- ----------
Total current assets 2,186,251 1,782,150
---------- ----------
PROPERTY, PLANT AND EQUIPMENT:
Land 784,800 784,800
Buildings and improvements 2,430,110 2,357,822
Machinery and equipment 641,201 637,970
Furniture and fixtures 1,424,597 1,420,446
Transportation equipment 154,602 154,602
---------- ----------
5,435,310 5,355,640
Less: accumulated depreciation (3,528,373) (3,491,173)
---------- ----------
Total property, plant and
equipment - net 1,906,937 1,864,467
---------- ----------
OTHER ASSETS:
Mortgage receivable 68,544 69,553
Assets held for resale 27,314 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 236,867 196,040
---------- ----------
TOTAL ASSETS $4,330,055 $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 )
APRIL 30, 2000 AND JANUARY 31, 2000
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
April 30, January 31,
2 0 0 0 2 0 0 0
(Unaudited) (Audited)
---------- -----------
<S> <C> <C>
CURRENT LIABILITIES:
Current installments of long-term debt $ 5,695 $ 5,706
Trade accounts payable 671,251 558,800
Customer deposits 1,858,762 1,276,963
Accrued payroll, related taxes and
withholdings 64,951 64,508
Accrued income taxes -- 7,700
Due to related parties 197,990 221,449
Accrued expenses 702,891 538,266
---------- ----------
Total current liabilities 3,501,540 2,673,392
LONG-TERM DEBT, net of current installments:
Convertible subordinated debentures:
Related parties 200,000 200,000
Others 20,000 20,000
Other 14,083 15,559
Other long-term liability 96,390 96,390
----------- ----------
Total liabilities 3,832,013 3,005,341
---------- ----------
STOCKHOLDERS' EQUITY:
Preferred stock, $ .01 pare 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 (4,376,670) (4,037,396)
----------- ----------
1,382,477 1,721,751
Less: cost of 504,240 shares of common
stock in treasury (884,435) (884,435)
----------- ------------
Total stockholders' equity 498,042 837,316
---------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $4,330,055 $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 THREE MONTHS ENDED APRIL 30, 2000 AND 1999
(UNAUDITED)
<CAPTION)
Three Months Ended
April 30,
-------------------
2 0 0 0 1 9 9 9
--------- --------
<S> <C> <C>
NET SALES $1,672,691 $1,050,489
COST OF SALES 1,027,138 702,669
---------- ----------
GROSS PROFIT 645,553 347,820
---------- ----------
OPERATING EXPENSES:
Commissions 233,398 164,495
Selling, general and administrative 760,451 612,249
---------- ----------
Total operating expenses 993,849 776,744
---------- ----------
(LOSS) FROM OPERATIONS (348,296) (428,924)
---------- ----------
OTHER INCOME (EXPENSE):
Interest income 6,017 7,147
---------- ----------
Interest expense:
Amortization attributable to
beneficial conversion feature
and warrants --- ( 3,733)
All other (14,843) ( 20,566)
---------- ----------
Total interest expense (14,843) ( 24,299)
---------- ----------
Other 17,848 17,369
---------- ----------
Total other income (expense) - net 9,022 217
---------- ----------
(LOSS) BEFORE INCOME TAXES (339,274) (428,707)
INCOME TAXES --- ---
---------- ----------
NET (LOSS) $(339,274) $(428,707)
========== ==========
PER SHARE DATA :
Basic and diluted (loss) per share $(.05) $(.08)
========== ==========
<FN>
See accompanying notes to consolidated financial statements.
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LINCOLN LOGS LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED APRIL 30, 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(loss)-3 months ended April 30, 2000 --- --- --- ( 339,274) --- (339,274)
---------- ----------- ---------- ------------ ---------- -------------
Balance at April 30, 2000 7,759,299 $ 77,593 $5,681,554 $(4,376,670) $( 884,435) $ 498,042
========== ============ =========== ============ ============= ==============
<FN>
See accompanying notes to consolidated financial statements.
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LINCOLN LOGS LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED APRIL 30, 2000 AND 1999
(UNAUDITED)
<CAPTION>
Three Months Ended
April 30,
----------------------------
2 0 0 0 1 9 9 9
---------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net (loss) $ (339,274) $ (428,707)
Adjustments to reconcile net (loss) to
net cash provided (used) by operating
activities:
Depreciation and amortization 39,050 37,850
Amortization of amounts assigned to
beneficial conversion feature
and warrants --- 3,733
Changes in operating assets and liabilities:
(Increase)decrease in trade
accounts receivable ( 57,447) 213,028
(Increase) in inventories (262,264) (429,617)
(Increase) in prepaid expenses and
other current assets ( 97,559) (172,838)
(Increase) in deposits and
other assets ( 43,686) ---
Increase (decrease) in trade
accounts payable 112,451 ( 50,288)
Increase in customer deposits 581,799 837,651
Increase (decrease) in accrued expenses
and other current liabilities 165,068 ( 38,612)
(Decrease) in due to related parties ( 23,459) ( 1,503)
(Decrease) in accrued income taxes ( 7,700) ( 1,050)
--------- ----------
Net cash provided (used) by
operating activities 66,979 ( 30,353)
--------- ----------
INVESTING ACTIVITIES:
Additions to property, plant and equipment ( 79,670) ( 27,901)
Issuance of note receivable ( 50,000) ---
Payments on note receivable 5,376 ---
Payments on mortgage receivable 474 445
--------- ----------
Net cash (used) by investing activities (123,820) ( 27,456)
--------- ----------
FINANCING ACTIVITIES:
Proceeds from issuance of Debentures --- 310,000
Net increaase in cash surrender value
of insurance policy --- 304
Repayments of notes payable --- ( 47,096)
Repayment of loan against cash surrender
value of life insurance policy
and acrued interest --- ( 13,323)
Repayments of long-term debt ( 1,487) ( 201,618)
----------- -----------
Net cash (used) provided by financing
activities ( 1,487) 48,267
----------- -----------
Net (decrease) in cash and
cash equivelants ( 58,328) ( 9,542)
Cash and cash equivelants at
beginning of period 356,306 223,521
----------- -----------
Cash and cash equivelants at
end of period $ 297,978 $ 213,979
=========== ==========
<FN>
See accompanying notes to consolidated financial statements.
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LINCOLN LOGS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 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 three-month periods ended April 30, 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) LOSS PER SHARE
Basic loss per share is computed by dividing net 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 loss per
share was 7,255,059 and 5,292,059 for the three-month periods ended April 30,
2000 and April 30, 1999, respectively.
Diluted 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 per share under the
treasury stock method if the effect is dilutive. Diluted loss per share is
the same as basic loss per share because the effect of including stock
options, warrants and the assumed conversion of the convertible subordinated
debentures 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 expense or benefit was accrued
in the three months ended April 30, 2000 and 1999.
-8-
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NOTES TO CONSOLIDATED DINANCIAL STATEMENTS - Continued
(4) INDEBTEDNESS
Through January 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, and 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 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 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 detachable stock purchase
warrants, 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 originally subject to warrants was 1,500,000, fifty (50%) percent
of the number of shares subject to conversion. As of April 30, 2000 and
January 31, 2000, there were 812,500 warrants 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
property owned by the Company, which are located in Chestertown, New York and
Auburn, California.
As discussed 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 $250,000 agreed to extend the maturity date to May 15,
2001. $125,000 of B Debentures were repaid during fiscal year 2000.
During fiscal 1999, the Company engaged an independent investment
banker to evaluate the total fair value of the components of the B Debentures.
Based on the report issued, the Company assigned a value of two cents
($.02) to each warrant to purchase one share of common stock, or a total of
$30,000. This amount was 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
- 9 -
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NOTES TO CONSOLIDATED DINANCIAL STATEMENTS - Continued
to the warrants was $-0- and $3,733 for the three month periods ended April 30,
2000 and April 30, 1999, respectively.
On January 16, 1998, certain shareholders who were owners of the A
Debentures exercised their right to convert their holdings into common stock
of the Company. The total amount of 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 these 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' elections to convert, and paid
accrued interest to the date of conversion. Finally, on July 29, 1999, a
shareholder, 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 the 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 three months ended April 30, 2000, cash was paid in the amounts
of $15,681 for interest and $8,169 for income taxes. During the three months
ended April 30, 1999, cash was paid in the amounts of $27,371 for interest
and $1,050 for income taxes.
Non-cash investing and financing activity:
During the first quarter ended April 30, 2000, there were no non-cash
investing and financing activities.
During the first quarters ended April 30, 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 first quarter ended April 30, 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.
- 10 -
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NOTES TO CONSOLIDATED DINANCIAL STATEMENTS - Continued
During the first quarter ended April 30, 1999, the Company recorded an
increase in b Debentures in the amount of $3,733, and a charge to interest
expense in the same amount, related to the amortization of debt discount
attributable to warrants associated with the B Debentures.
(6) CONTINGENCIES AND SUBSEQUENT EVENTS
In March 1999, the Company received a Sales/Use Tax Assessment Summary
from the Commonwealth of Massachusetts Department of Revenue (the "State")
which indicated that the State was contemplating an intent to assess the
Company for saels/use taxes on log home packages sold into the State during
the prior three years. The total potential assessment is approximately
$149,000, plus interest ans penalties. The Company does not believe that it
was responsible for collecting and remitting sales/use taxes on slaes made
into Massachusetts because, among other reasons, it did not have employees
in the State nor did it own or rent tangible property there.
If the Company is unsuccessful in its appeal of the assessment and is
required to pay the State sales/use taxes related to sales made into the State
in prior years, it intends to attempt to collect sales.use taxes paid from the
customers involved because the Company's sales contract requires the customer
to pay such taxes if due. However, due to the timing of the sales and other
factors, the Company may be unsuccessful in collecting all of the sales/use
taxes it pays to the State from the customers. During the fourth quarter
of fiscal year ended January 31, 1999 and throughout the fiscal year ended
January 31, 2000 the Company accrued estimated costs to resolve this matter.
In May 2000 the State conducted and completed a field audit related to this
matter. On June 5, 2000 the State formally notified the Company of the State's
issuance of a Notice Of Intent to Assess. Consequently, the Company accrued
an additional $43,000 in the quarter ended April 30, 2000. Total costs
accrued to date are $149,000. Further, since the Company's sales
contract requires the customer to pay such taxes if due the Company has
recorded a receivable in the amont of $43,000 in the non-current category
of Other Assets at April 30, 2000. This amount represents the estimated amount
the Company believes it will be able to recover from its Massachusetts
customers. The Company intends to vigorously pursue collection efforts from
the customers involved should its appeal of the assessment be unsuccessful.
-11-
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ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION
RESULTS OF OPERATIONS
Three months ended April 30, 2000 vs. April 30, 1999
Net sales were $1,672,691 for the three months ended April 30, 2000 as
compared to $1,050,489 in the same period in 1999, an increase of $622,202,
or 59% When compared with the previous year, there was a 17% increase in the
number of units shipped, and the average sales value per unit shipped
increased 53%. The increase in sales value per unit shipped resulted from
the shipment of homes that were both larger and more expensive than those
shipped in the smae period of the previous year. The increase in units
shipped was due to an increase in the number of customer contracts signed
during the previous fiscal year and favorable spring weather conditions.
Gross profit amounted to $645,553, or 39% of net sales for the three months
ended April 30, 2000 as compared to $347,820, or 33% for the same period in
1999. Gross profit increased for the three months ended April 30, 2000 as
compared to the three months ended April 30, 1999 due to a slight decrease in
sales discounts allowed ans a decrease in mahufacturing overhead expenses, which
include delivery costs, as a percentage of net sales. Discounts allowed were
lower during the three months ended April 30, 2000 due to an effort to be less
reliant on sales discounting in the sales process. Manufacturing overhead
costs decreased as a percentage of net sales because the Company did not
significantly increase its manufacturing overhead expenses to produce the
increased number of units shipped during the three months ended April 30, 2000,
and delivery costs were lower due to a predominance of short-distance
deliveries when compared to the previous year.
Total operating expenses of $993,849, or 59% of net sales, increased
$217,105 from the previous year's amount of $776,744, or 74% of net sales.
The overall increase in total operating expenses was 28%. Sales
commissions were $233,398 for the three months ended April 30, 2000 and
$164,495 for the three months ended April 30, 1999. Commissions were 14% and
16% of sales in 2000 and 1999, respectively. Commissions were lower as a
percentage of sales in 2000 compared to 1999 because proportionately fewer
sales were made by the Company's independent dealers than the Company's
employee salespersons. A higher commission rate is paid to the independent
dealers than the employee salesperson. Selling, general and administrative
expenses were $760,451 for the three months ended April 30, 2000 compared
with $612,249 in the same period in the previous year,an increase of $148,202,
or 24%. Selling, general and administrative expenses were 45% and 58% of net
sales in 2000 and 1999, respectively. The increase in these expenses was
primarily the result of increased spending on advertising,trade show
expositions, marketing salaries and professional fees. The Company also
incurred expenses for a national dealers convention during the three
months ended April 30, 2000 that did not occur during the same period in the
previous year.
- 12 -
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company had a working capital deficiency at both April 30, 2000 and
April 30, 1999 of $1,315,289 and $1,944,425, respectively. For the three
months ended April 30, 2000 working capital decreased $424,047 as compared
to a decrease of $135,449 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 April 30, 2000 the Company's backlog of undelivered
contracts was approximately $13,921,000. Cash was primarily used during
the three-month period ended April 30, 2000 to purchase inventory, to pay
for prepaid expenses, to continue to construct a new sales model, acquire
equipment, and to issue a note receivable. Cash was primarily provided
through the receipt of customer deposits an increase in accounts payable
and an increase in accrued expenses.
For the three months ended April 30, 2000, the Company's operations were
a net provider of cash in the amount of $66,979. Comparatively, the Company's
operations were a net user of cash in the amount of $30,353 for the three
months ended April 30, 1999. Overall, the Company experienced a net decrease
in its cash position of $58,328 during the three months ended April 30, 2000
as compared to a net decrease in its cash position of $9,542 during the three
months ended April 30, 1999.
As shown in the consolidated financial statements, the Company incurred a
net loss during the quarter ended April 30, 2000 of $339,274. As of April 30,
2000, current liabilities exceeded current assets by $1,315,289. However, the
Company had a net stockholders' equity of $498,042 at April 30, 2000. The
Company has principally relied upon funds generated by operations and the
assistance of major vendors who have provided extended payment terms to the
Company to supportthe Company's operations during the past fiscal year. While
the Company's results from operations improved during the past two fiscal 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-
Deferfal of the Efective Date of FASB Statement No. 133-an amendment of FASB
Statement No. 133" which delayed the effective date of SFAS No. 133 to fiscal
years beginning 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.
- 13 -
<PAGE>
OTHER MATTERS
YEAR 2000 ISSUES
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.
-14-
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
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 has 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
June 13, 2000
/ s / William J. Thyne
William J. Thyne
Executive Vice President
Chief Financial Officer and Secretary
June 13, 2000
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