UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D. C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 or 15 (d)
OF THE SECURITIES ACT OF 1934
For the quarterly period ended July 31, 2001
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 September 13, 2001
Common Stock, $ .01 par value 7,255,059
- 1 -
LINCOLN LOGS LTD. AND SUBSIDIARIES
INDEX
Page number
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated balance sheets as of
July 31, 2001 and January 31, 2001 3 - 4
Consolidated statements of operations
for the six months ended July 31, 2001 and 2000 5
Consolidated statements of operations
for the three months ended July 31, 2001 and 2000 6
Consolidated statements of changes in stockholders'
equity for the six months ended July 31, 2001
and the twelve months ended January 31, 2001 7
Consolidated statements of cash flows
for the six months ended July 31, 2001 and 2000 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
- 2 -
LINCOLN LOGS LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JULY 31, 2001 AND JANUARY 31, 2001
ASSETS
July 31, January 31,
2 0 0 1 2 0 0 1
(Unaudited) (Audited)
---------- -----------
CURRENT ASSETS:
Cash and cash equivelants $ 301,425 $ 286,226
Trade accounts receivable, net of $16,000
allowance for doubtful accounts 113,647 140,440
Inventories (principally raw materials) 1,240,940 1,148,453
Prepaid expenses and other current assets 606,763 548,952
Prepaid income taxes 1,035 ---
Mortgage and note receivable 18,827 18,758
---------- ----------
Total current assets 2,282,637 2,142,829
------------ -----------
PROPERTY, PLANT AND EQUIPMENT:
Land 835,241 835,241
Buildings and improvements 2,389,878 2,338,757
Machinery and equipment 879,910 703,197
Furniture and fixtures 1,537,678 1,471,850
Transportation equipment 149,277 154,602
----------- ---------
5,791,984 5,498,322
Less: accumulated depreciation (3,497,114) (3,422,714)
---------- ---------
Total property, plant and
equipment - net 2,294,870 2,075,608
---------- ----------
OTHER ASSETS:
Mortgage receivable 65,895 70,409
Assets held for resale 113,298 113,298
Cash surrender value of life insurance 98,348 98,348
Deposits and other assets 10,863 136,389
--------- ---------
Total other assets 288,404 418,444
--------- ---------
TOTAL ASSETS $4,865,911 $4,636,881
========== ==========
<FN>
See accompanying notes to consolidated financial statements.
( continued )
- 3 -
LINCOLN LOGS LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS ( continued )
JULY 31, 2001 AND JANUARY 31, 2001
LIABILITIES AND STOCKHOLDERS' EQUITY
July 31, January 31,
2 0 0 1 2 0 0 1
(Unaudited) (Audited)
---------- -----------
CURRENT LIABILITIES:
Current installments of long-term debt:
Related parties $ 50,000 $ ---
Others 80,106 26,046
Trade accounts payable 890,108 1,003,098
Customer deposits 1,920,714 1,511,860
Accrued payroll, related taxes and
withholdings 104,568 103,659
Accrued income taxes --- 1,374
Due to related parties 53,115 97,802
Accrued expenses 749,939 685,844
---------- ----------
Total current liabilities 3,848,550 3,429,683
LONG-TERM DEBT, net of current installments:
Convertible subordinated debentures:
Related parties 160,000 200,000
Others 10,000 10.000
Notes payable-related parties 90,000 183,349
Mortgage payable 193,125 ---
Other 105,709 45,736
Other long-term liability 98,348 98,348
----------- ----------
Total liabilities 4,505,732 3,967,116
---------- ----------
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 (4,514,533) (4,204,947)
----------- ----------
1,244,614 1,554,200
Less: cost of 504,240 shares of common
stock in treasury (884,435) (884,435)
----------- ------------
Total stockholders' equity 360,179 669,765
---------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $4,865,911 $4,636,881
============ ============
<FN>
See accompanying notes to consolidated financial statements.
- 4 -
LINCOLN LOGS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JULY 31, 2001 AND 2000
(UNAUDITED)
Six Months Ended
July 31,
-------------------
2 0 0 1 2 0 0 0
--------- --------
NET SALES $4,535,844 $5,606,947
COST OF SALES 2,652,053 3,349,192
---------- ----------
GROSS PROFIT 1,883,791 2,257,755
---------- ----------
OPERATING EXPENSES:
Commissions 597,352 723,301
Selling, general and administrative 1,603,639 1,457,505
---------- ----------
Total operating expenses 2,200,991 2,180,806
---------- ----------
(LOSS) INCOME FROM OPERATIONS (317,200) 76,949
---------- ----------
OTHER INCOME (EXPENSE):
Interest income 9,623 13,711
Interest expense ( 47,632) ( 27,636)
Other 45,623 38,054
---------- ----------
Total other income (expense) - net 7,614 24,129
---------- ----------
(LOSS) INCOME BEFORE INCOME TAXES (309,586) 101,078
INCOME TAXES --- 10,428
---------- ----------
NET (LOSS) INCOME $(309,586) $ 90,650
========== ==========
PER SHARE DATA:
Basic (loss) earnings per share $(.04) $.01
========== ==========
Diluted (loss) earnings per shsre $(.04) $.01
========== ==========
<FN>
See accompanying notes to consolidated financial statements.
- 5 -
LINCOLN LOGS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JULY 31, 2001 AND 2000
(UNAUDITED)
Three Months Ended
July 31,
-------------------
2 0 0 1 2 0 0 0
--------- --------
NET SALES $3,412,935 $3,934,256
COST OF SALES 1,886,136 2,283,117
---------- ----------
GROSS PROFIT 1,526,799 1,651,139
---------- ----------
OPERATING EXPENSES:
Commissions 444,015 500,820
Selling, general and administrative 734,813 725,074
---------- ----------
Total operating expenses 1,178,828 1,225,894
---------- ----------
INCOME FROM OPERATIONS 347,971 425,245
---------- ----------
OTHER INCOME (EXPENSE):
Interest income 4,795 7,694
Interest expense (22,864) (12,793)
Other 25,703 20,206
---------- ----------
Total other income (expense) - net 7,634 15,107
---------- ----------
INCOME BEFORE INCOME TAXES 355,605 440,352
INCOME TAXES --- 10,428
---------- ----------
NET INCOME $ 355,605 $ 429,924
========== ==========
PER SHARE DATA:
Basic earnings per share $.05 $.06
========== ==========
Diluted earnings per share $.04 $.05
========== ==========
<FN>
See accompanying notes to consolidated financial statements.
- 6 -
LINCOLN LOGS LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JULY 31, 2001 (UNAUDITED) AND
THE TWELVE MONTHS ENDED JANUARY 31, 2001
Number Par Additional Total
of value paid-in (Accumulated Treasury stockholders'
shares amount capital deficit) stock equity
--------- --------- ---------- ------------ ------------ -------------
Balance at January 31, 2000 7,759,299 $ 77,593 $5,681,554 $(4,037,396) $( 884,435) $ 837,316
Net (loss) - 2001 --- --- --- (167,551) --- (167,551)
---------- ---------- ---------- ---------- ------------- ------------
Balance at January 31, 2001 7,759,299 $ 77,593 $5,681,554 $(4,204,947) $( 884,435) $ 669,765
Net(loss)-6 months ended July 31, 2001 --- --- --- (309,586) --- (309,586)
---------- ----------- ---------- ------------ ---------- -------------
Balance at July 30, 2001 7,759,299 $ 77,593 $5,681,554 $(4,514,533) $( 884,435) $ 360,179
========== ============ =========== ============ ============= ==============
<FN>
See accompanying notes to consolidated financial statements.
- 7 -
LINCOLN LOGS LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JULY 31, 2001 AND 2000
(UNAUDITED)
Six Months Ended
July 31,
----------------------------
2 0 0 1 2 0 0 0
---------- ---------
OPERATING ACTIVITIES:
Net (loss) income $ (309,586) $ 90,650
Adjustments to reconcile net (loss)
income to net cash provided by
operating activities:
Depreciation and amortization 74,660 58,140
Changes in operating assets and liabilities:
Decrease (increase) in trade
accounts receivable 26,793 ( 76,220)
(Increase) in inventories ( 92,487) (118,147)
(Increase) in prepaid expenses
and other current assets ( 57,811) ( 72,382)
(Increase) in prepaid income taxes ( 1,035) ( 885)
Decrease (increase) in deposits
and other assets 130,465 ( 43,686)
(Decrease) increasein trade
accounts payable (112,990) 72,433
Increase in customer deposits 408,854 382,408
Increase in accrued expenses
and other current liabilities 65,004 259,045
(Decrease) in due to related parties ( 44,687) ( 76,760)
(Decrease) increase in accrued
income taxes ( 1,374) 3,144
---------- ----------
Net cash provided by
operating activities 85,806 477,740
---------- ----------
INVESTING ACTIVITIES:
Additions to property, plant
and equipment (163,662) (140,519)
Issuance of note receivable --- ( 50,000)
Repayments on note receivable 3,614 42,662
Payments received on mortgage receivable 831 1,111
---------- ----------
Net cash (used) by investing activities (159,217) (146,746)
---------- ----------
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 225,000 ---
Loan origination fees ( 5,199) ---
Repayments of long-term debt (131,191) ( 3,385)
---------- ----------
Net cash provided (used) by financing
activities 88,610 ( 3,385)
---------- ----------
Net increase in cash and cash equivalents 15,199 327,609
Cash and cash equivalents at
beginning of period 286,226 356,306
---------- ----------
Cash and cash equivalents at
end of period $301,425 $683,915
========== ==========
<FN>
See accompanying notes to consolidated financial statements.
- 8 -
LINCOLN LOGS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2001 AND 2000
(1) BASIS OF PRESENTATION
The interim 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 six-month periods and three-month periods
ended July 31, 2001 and 2000 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, 2001.
(2) EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is computed by dividing net earnings (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 (loss) per share was 7,255,059 and 7,255,059 for the
six-month periods ended July 31, 2001 and 2000, respectively, and 7,255,059
and 7,255,059 for the three-month periods ended July 31, 2001 and 1999,
respectively.
Diluted earnings 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 for the six-month period ended July 31, 2001
because the effect of including stock options, warrants and the assumed
conversion of the convertible subprdinated debentures would be anti-dilutive.
The numerator in the calculation of diluted earnings (loss) per share for
the six-month periods ended July 31, 2001 and 2000 was determined as
follows:
2001 2000
----- -----
Net income (loss) used to calculate basic earnings
(loss0 per share $(309,586) $90,650
Add back interest expense related to convertible
debentures --- 13,200
--------- ---------
Numerator for calculation of diluted earnings
(loss) per share $(309,586) $103,850
========== ========
- 9 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
The denominator in the calculation of diluted earnings (loss) per share
for the six-month periods ended July 31, 2001 and 2000 was determined as
follows:
2001 2000
----- -----
Weighted average outstanding shares used to calculate
basic earnings per share 7,255,059 7,255,059
Add shares issuable assuming conversion of
convertible debentures --- 1,162,500
Add shares issuable assuming exercise of outstanding
stock purchase warrants --- 215,073
Add shares issuable assuming exercise of outstanding
stock options --- 226,215
-------- --------
Denominator for calculation of diluted earnings
(loss) per share 7,255,059 8,858,847
========== =========
Basic earnings (loss) per share $ (0.04) $ 0.01
======== ========
Diluted earnings (loss) per share $ (0.04) $ 0.01
======== ========
There were 812,500 stock purchase warrants outstanding at July 31, 2001
that were not included in the computation of diluted earnings (loss) per share
for the six-month period as their effect was anti-dilutive. Furhter, shares
issuable assuming conversion of convertible debentures and shares issuable
assuming exercise of outstanding stock options at July 31, 2001 were not
included in the computation of diluted (loss) per share for the six-month
period as their effect was anti-dilutive.
The numerator in the calculation of diluted earnings per share for
the three-month periods ended July 31, 2001 and 2000 was determined as
follows:
2001 2000
----- -----
Net income used to calculate basic earnings
per share $355,605 $429,924
Add back interest expense related to convertible
debentures 6,600 6,600
--------- ---------
Numerator for calculation of diluted earnings
per share $362,205 $436,524
========= =========
The denominator in the calculation of diluted earnings per share
for the three-month periods ended July 31, 2001 and 2000 was determined as
follows:
2001 2000
----- -----
Weighted average outstanding shares used to calculate
basic eranings per share 7,255,059 7,255,059
Add shares issuable assuming conversion of
convertible debentures 1,162,500 1,162,500
Add shares issuable assuming exercise of outstanding
stock purchase warrants --- 164,228
Add shares issuable assuming exercise of outstanding
stock options 108,442 216,064
-------- --------
Denominator for calculation of diluted earnings
per share 8,526,001 8,797,851
========== =========
Basic earnings per share $ 0.05 $ 0.06
======== =======
Diluted earnings per share $ 0.04 $ 0.05
======= =======
- 10 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
There were 812,500 stock purchase warrants outstanding at July 31, 2001 that
were not included in the computation of diluted earnings per share for the
three-month period ended July 31, 2001 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. No income tax expense or
benefit was accrued in the six months ended July 31, 2001. During the
six months ended July 31, 2000 the Company accrued income tax expense related
to federal Alternative Minimum Tax and state income tax in one state. The
Company began doing business in a new state and did not have any
Net Operating Losses attributable to that state to offset apportioned taxable
income.
(4) INDEBTEDNESS
Through July 31, 2001, the Company had authorized and issued $600,000
of Series B Convertible Subordinated Debentures (the "B Debentures"), and
$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 B Debentures were originally due on May 15, 1999,
and the C Debentures are due on February 25, 2002.
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 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 subject to warrants was 1,500,000, fifty (50%) of
the number subject to conversion. As of July 31, 2001 and January 31, 2001,
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 estate owned by
the Company, which are located in Chestertown, New York and Auburn,
California.
-11-
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. In February 2001, holders of B Debentures with a face amount of $160,000
agreed to extend the maturity date to May 15, 2003. In May 2001, holders of
B Debentures with a face amount of $10,000 agreed to extend the maturity
date to May 15, 2003. During fiscal year 1999, $275,000 of B Debentures
were converted into common stock of the Company, and 687,500 shares of
the Company's common stock were issued upon the exercise of warrants related
to the $275,000 of B Debentures that were converted. In January 2000, $125,000
of B Debentures were repaid.
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. 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.
In December 2000, the Company issued a Note Payable to an officer,
director and shareholder of the Company in the amont of $83,349 bearing
interest, payable monthly, at a rate of 12% and due on August 15, 2002.
The note is unsecured. As of July 31, 2001, this Note Payable has been
repaid in full.
In December 2000, the Company issued a Note Payable to an officer,
director and shareholder of the Company in the amount of $100,000 bearing
interest, payable monthly, at a rate of 12% and due August 15, 2003. The
note is unsecured. The proceeds of the note were used to acquire a parcel
of real property. As of July 31, 2001, $10,000 of this Note Payable has
been repaid.
In February 2001, the Company issued a Note Payable to a commercial
bank in the amount of $225,000 bearing interest at prime plus 2%. The
terms of the note call for monthly payments of $1,875 plus interest. The
note matures in March 2011. The note is collateralized by a mortgage on
the Company's Northern Regional Sales Office.
(5) SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION
During the six months ended July 31, 2001, cash was paid in the amounts
of $48,405 for interest and $2,409 for income taxes. During the six months
ended July 31, 2000, cash was paid in the amounts of $28,759 for interest
and $8,169 for income taxes.
- 12 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Non-cash investing and financing activity:
During the six months ended July 31, 2001, the Company recorded an
increase in machinery and equipment of $130,000 and a related increase
in long-term debt in the same amount representing a capital lease.
During the six months ended July 31, 2000, the Company entered into a
capital lease for certain machinery and equipment in the amount of $42,700.
(7) RECLASSIFICATIONS
Certain amounts in the Consolidated Statements of Operations for the
three months and six months ended July 31, 2000 have been reclassified to
conform with the presentation for the three months and six months ended
July 31, 2001.
-13-
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION
RESULTS OF OPERATIONS
Six months ended July 31, 2001 vs. July 31, 2000
Net sales were $4,535,844 for the six months ended July 31, 2001 as
compared to $5,606,947 in the same period in 2000, a decrease of $1,071,103,
or 19%. When compared to the previous year, there was a 20% decrease in the
number of housing units shipped, and the average sales value per housing unit
shipped increased 1%. 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 same period of the previous year. The decrease in sales and in
the number of housing units shipped was due to a combination of factors, which
when taken together had a negative impact on deliveries. Among these factors
were the continued scarcity of construction personnel, a slowing national
economy, the difficulty of processing construction plans for building permits
by municipalities (particularly in the western portion of the United States),
and in the first three months of the period unfavorable weather conditions.
Gross profit amounted to $1,883,791, or 42% of net sales for the six months
ended July 31, 2001 as compared to $2,257,755, or 40% for the same period in
2000. The increase in gross profit percentage was due to a combination of
lower material costs and slightly higher direct labor costs. Material costs
decreased 3%, which was reflective of lower material costs during the period
compared to the previous period. Direct labor costs increased 1% from the
previous year due principally to slightly increased wage and benefit costs.
Total operating expenses of $2,200,991, or 49% of net sales, increased
$20,185 from the previous year's amount of $2,180,806, or 39% of net sales.
The overall increase in total operating expenses was 1%. Sales commissions
were $597,352 for the six months ended July 31, 2001 and $723,301 for the six
months ended July 31, 2000. Commissions were 13% of net sales in both 2001
and 2000, respectively. While commissions decreased in absolute dollars as a
result of the decreased sales volume, they remained constant as a percentage
of sales. Selling, general and administrative expenses were $1,603,639 for
the six months ended July 31, 2001 compared with $1,457,505 in the same period
of the previous year, an increase of $146,134, or 10%. The increase in
expenses was primarily the result of increased spending on advertising, trade
show expositions, salaries and professional fees.
- 14 -
Three months ended July 31, 2001 vs. July 31, 2000
Net sales for the three month periods ended July 31, 2001 and 2000 were
$3,412,935 and $3,934,256, respectively. Net sales decreased $521,321, or
13% in the three month period ended July 31, 2001 compared to the same period
of the previous year. When compared to the same period in the prior fiscal
year, there was a 14% decrease in housing units delivered. The average value
per housing unit shipped increased by 1%. There were several factors that
contributed to the decrease in sales during this this period. Among them were
the difficulty of getting construction plans through the municipal permitting
process, particularly in the western region of the United States, the continued
lack of availability of construction personnel and the effect of the slowing
national economy. No one item was a principal cause of the shipping decline,
but together they had a deleterious effect on shipments. 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 $1,526,799, or 45% of net sales, for the three months
ended July 31, 2001 as compared to $1,651,139, or 42% for the same period in
2000. The increase in gross profit percentage was due to a combination of
lower material costs that were offset by slightly higher direct labor costs.
Material costs decreased 4%, which was reflective of lower material costs
when compared to the same period of the previous year. Direct labor costs
increased by 1% from the previous year due principally to a minimal increase
of employment coupled with slightly increased wage and benefit costs.
Total operating expenses of $1,178,828, or 35% of net sales, decreased
$47,066 from the previous year's amount of $1,225,894, or 31% of net sales.
The overall decrease in total operating expenses was 4%. Sales commissions
were $444,015 in the three-month period ended July 31, 2001 and $500,820 in
the three-month period ended July 31, 2000. Commissions were 13% of net
sales in each respective period. While commissions decreased in absolute
dollars as a result of the decreased sales volume, they remained constant
as a percentage of sales. Selling, general and administrative expenses were
$734,813 for the three months ended July 31, 2001 compared with $725,074 in
the same period of the previous year, an increase of $9,739, or 1%.
The net increase in selling, general and administrative costs was the result
of numereous increases and decreases in various cost categories none of which
were significant. The Company continues to monitor its cost containment
efforts.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a working capital deficiency at both July 31, 2001 and
July 31, 2000 of $1,565,913 and $1,105,381, respectively. For the six months
ended July 31, 2001 working capital decreased by $279,059 as compared to
a decrease of $214,139 in the same period in 2000. As of the Company's
fiscal year end at January 31, 2001 current liabilities exceeded
current assets by $1,286,854. At July 31, 2001 the Company's backlog of
undelivered contracts was approximately $17,109,000. During the six-month
period ended July 31, 2001, cash was primarily provided by the receipt of
customer deposits and the proceeds from the issuance of long-term debt.
Cash was primarily used to purchase inventory, to pay trade payables, to
repay amounts due to related parties, to service debt, to continue to
construct a new sales model, and acquire equipment.
- 15 -
For the six months ended July 31, 2001 and July 31, 2000 the Company's
operations provided cash in the amounts of $85,806 and $477,740, respectively.
Overall, the Company experienced a net increase in its cash position of $15,199
during the six months ended July 31, 2001 as compared with an increase in its
cash position of $327,609 during the six months ended July 31, 2000.
As shown in the consolidated financial statements, the Company incurred
a net loss during the six months ended July 31, 2001 of $309,586. As of
July 31, 2001, current liabilities exceeded current assets by $1,565,913.
However, the company has net stockholders' equity of $360,179. Over the
past several 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 operations have shown improvement over the past several 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.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
It should be noted that in this Management's Discussion and Analysis or Plan
of Operations contians "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended, and are made pursuant to
the safe harbor provisions of the Private Securities Litigation Reform
Act of 1995. The terms "believe", "anticipate", "intend", "goal",
"ex[ect" and similar expressions may identify forward-looking statements.
These forward-looking statements represent the Company's current expectations
or beliefs concerning future events. The matters covered by these statements
are subject to certain risks and uncertainties that could cause actual results
to differ materially from those set forth in the forward-looking statements,
including the Company;s dependence on weather-related factors, introduction
and customer acceptance of new products, the impact of competition and price
erosion, as well as supply and manufacturing constraints and other risks and
uncertainties. The foregoing list should not be construed as exhaustive, and
the Company disclaims any obligation subsequently to revise any forward-looking
statements to reflect events or circumstances after the date of such statements,
or to reflect the occurrence of anticipated or unanticipated events. The
Company wishes to caution reasers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Financial Accounting Standards Board ("FASB")Statement 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 applicaion 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 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 is no impact on its results of
operations or its financial position.
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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 implemented SAB No. 101
and the application of the new rules had no impact on the results of operations
or the financial position on the Company's Consolidated Financial Statements.
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.
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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
The Company held its Annual Meeting of Shareholders on
August 22, 2001. At the Annual Meeting of Shareholders,
the shareholders elected all seven members of the Board of
Directors to serve until the 2002 Annual Meeting of Shareholders.
The following sets forth the number of votes for and withheld
from each of the seven directors:
Name For Withheld
---- --- --------
John D. Shepherd 6,631,106 1,811
Richard C. Farr 6,630,900 2,017
Samuel J. Padula 6,630,994 1,923
Steven Patlin 6,631,194 1,723
Reginald W. Ray, Jr. 6,631,194 1,723
William J. Thyne 6,631,194 1,723
Leslie M. Apple 6,631,194 1,723
The only other item of business at the Company's Annual meeting
of Shareholders was to ratify the appointment of
PricewaterhouseCoopers LLP to serve as the Company's independent
auditors for the fiscal year ending January 31, 2002. The
proposal was passed by the following vote: For - 6,631,382,
Against - 701, Abstain - 834.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibit Index
None
b. Reports on form 8-K
None
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<Page>
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 and
Chief Executive Officer
September 14, 2001
s/ William J. Thyne
William J. Thyne
Executive Vice President
Chief Financial Officer, Secretary
and Treasurer
September 14, 2001
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