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, 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 December 12, 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 (UNAUDITED)
Consolidated balance sheets as of
October 31, 2001 and January 31, 2001 3 - 4
Consolidated statements of operations
for the nine months ended October 31, 2001 and 2000 5
Consolidated statements of operations
for the three months ended October 31, 2001 and 2000 6
Consolidated statementS of changes in stockholders'
equity for the nine months ended
October 31, 2001 and the twelve months ended
January 31, 2001 7
Consolidated statements of cash flows
for the nine months ended October 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 19
- 2 -
LINCOLN LOGS LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 2001 AND JANUARY 31, 2001
ASSETS
October 31, January 31,
2 0 0 1 2 0 0 1
(Unaudited) (Audited)
---------- -----------
CURRENT ASSETS:
Cash and cash equivelants $ 557,142 $ 286,226
Trade accounts receivable, net of
allowance for doubtful accounts of
$20,199 at October 31, 2001 and
$16,000 at January 31, 2001 93,001 140,440
Other receivable 132,969 ---
Inventories (principally raw materials) 1,059,060 1,148,453
Prepaid expenses and other current assets 602,641 548,952
Prepaid income taxes 1,035 ---
Mortgage and note receivable 17,324 18,758
---------- ----------
Total current assets 2,463,172 2,142,829
------------ -----------
PROPERTY, PLANT AND EQUIPMENT:
Land 835,241 835,241
Buildings and improvements 2,399,243 2,338,757
Machinery and equipment 879,910 703,197
Furniture and fixtures 1,618,896 1,471,850
Transportation equipment 149,277 149,277
----------- ---------
5,882,567 5,498,322
Less: accumulated depreciation (3,534,314) (3,422,714)
---------- ---------
Total property, plant and
equipment - net 2,348,253 2,075,608
---------- ----------
OTHER ASSETS:
Mortgage receivable 65,342 70,409
Assets held for resale 27,028 113,298
Cash surrender value of life insurance 98,348 98,348
Deposits and other assets 20,437 136,389
--------- ---------
Total other assets 211,155 418,444
--------- ---------
TOTAL ASSETS $5,022,580 $4,636,881
========== ==========
<FN>
See accompanying notes to consolidated financial statements.
( continued )
- 3 -
LINCOLN LOGS LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS ( continued )
OCTOBER 31, 2001 AND JANUARY 31, 2001
LIABILITIES AND STOCKHOLDERS' EQUITY
October 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 89,013 26,046
Trade accounts payable 702,442 1,003,098
Customer deposits 2,028,793 1,511,860
Accrued payroll, related taxes and
withholdings 45,104 103,659
Accrued income taxes -- 1,374
Due to related parties 11,061 97,802
Accrued expenses 741,087 685,844
---------- ----------
Total current liabilities 3,667,500 3,429,683
LONG-TERM DEBT, net of current installments:
Convertible subordinated debentures:
Related parties 170,000 200,000
Others --- 10.000
Notes payable-related parties 45,000 183,349
Mortgage payable 187,500 ---
Other 125,165 45,736
Other long-term liability 98,348 98,348
----------- ----------
Total liabilities 4,293,513 3,967,116
---------- ----------
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 (4,145,645) (4,204,947)
----------- ----------
1,613,502 1,554,200
Less: cost of 504,240 shares of common
stock in treasury (884,435) (884,435)
----------- ------------
Total stockholders' equity 729,067 669,765
---------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $5,022,580 $4,636,881
============== ============
<FN>
See accompanying notes to consolidated financial statements.
- 4 -
LINCOLN LOGS LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED OCTOBER 31, 2001 AND 2000
(UNAUDITED)
<CAPTION)
Nine Months Ended
October 31,
-------------------
2 0 0 1 2 0 0 0
--------- --------
NET SALES $7,922,181 $8,253,066
COST OF SALES 4,470,165 4,957,430
---------- ----------
GROSS PROFIT 3,452,016 3,295,636
---------- ----------
OPERATING EXPENSES:
Commissions 1,027,285 1,081,624
Selling, general and administrative 2,422,360 2,199,329
---------- ----------
Total operating expenses 3,449,645 3,280,953
---------- ----------
INCOME FROM OPERATIONS 2,371 14,683
---------- ----------
OTHER INCOME (EXPENSE):
Interest income 13,441 21,664
Interest expense ( 80,222) ( 39,775)
Other 123,712 61,940
---------- ----------
Total other income (expense) - net 56,931 43,829
---------- ----------
INCOME BEFORE INCOME TAXES 59,302 58,512
INCOME TAXES --- 10,428
---------- ----------
NET INCOME $ 59,302 $ 48,084
========== ==========
PER SHARE DATA:
Basic earnings per share $.01 $ .01
========== ==========
Diluted earnings per share $.01 $ .01
========== ==========
<FN>
See accompanying notes to consolidated financial statements.
- 5 -
LINCOLN LOGS LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED OCTOBER 31, 2001 AND 2000
(UNAUDITED)
<CAPTION)
Three Months Ended
October 31,
-------------------
2 0 0 1 2 0 0 0
--------- --------
NET SALES $3,386,337 $2,646,119
COST OF SALES 1,818,112 1,608,235
---------- ----------
GROSS PROFIT 1,568,225 1,037,884
---------- ----------
OPERATING EXPENSES:
Commissions 429,933 358,323
Selling, general and administrative 818,721 741,827
---------- ----------
Total operating expenses 1,248,654 1,100,150
---------- ----------
INCOME (LOSS) FROM OPERATIONS 319,571) (62,266)
---------- ----------
OTHER INCOME (EXPENSE):
Interest income 3,818 7,953
Interest expense (32,590) (12,139)
Other 78,089 23,886
---------- ----------
Total other income (expense) - net 49,317 19,700
---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES 368,888) (42,566)
INCOME TAXES --- ---
---------- ----------
NET INCOME (LOSS) $ 368,888) $ (42,566)
========== ==========
PER SHARE DATA:
Basic earnings and loss per share $.05 $(.01)
========== ==========
Diluted earnings and loss per share $.04 $(.01)
========== ==========
<FN>
See accompanying notes to consolidated financial statements.
- 6 -
LINCOLN LOGS LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED OCTOBER 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 income-9 months
ended October 31, 2001 --- --- --- 59,302 --- 59,302
---------- ----------- ---------- ------------ ---------- -------------
Balance at October 31, 2001 7,759,299 $ 77,593 $5,681,554 $(4,145,645) $( 884,435) $ 729,067
========== ============ =========== ============ ============= ==============
<FN>
See accompanying notes to consolidated financial statements.
- 7 -
LINCOLN LOGS LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED OCTOBER 31, 2001 AND 2000
(UNAUDITED)
Nine Months Ended
October 31,
----------------------------
2 0 0 1 2 0 0 0
---------- ---------
OPERATING ACTIVITIES:
Net income $ 59,302 $ 48,084
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 111,990 95,340
(Gain) on sale of assets held
for resale (46,698) (9,714)
Changes in operating assets and liabilities:
Decrease in trade accounts receivable 47,439 120,153
Decrease (increase) in inventories 89,393 (270,566)
(Increase) in prepaid expenses
and other current assets (53,689) (149,000)
(Increase) in prepaid income taxes (1,035) (409)
Decrease (increase) decrease in deposits
and other assets 120,761 (43,686)
(Decrease)in trade accounts payable (300,656) (377)
Increase in customer deposits 516,933 522,365
(Decrease) increase increase in accrued
expenses payroll and withholdings (3,312) 86,877
(Decrease) increase in due to
related parties (86,741) (115,601)
(Decrease) in accrued income taxes (1,374) (7,700)
---------- ----------
Net cash provided by
operating activities 452,313 275,706
---------- ----------
INVESTING ACTIVITIES:
Additions to property, plant
and equipment (209,422) (209,653)
Proceeds from sale of assets
held for resale --- 10,000
Issuance of note receivable --- (50,000)
Repaymentsof note receivable 5,501 50,000
Payments received on mortgage receivable 1,000 1,435
---------- ----------
Net cash (used) by investing activities (202,921) (198,218)
----------- ----------
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 225,000 ---
Loan origination fees (5,199) ---
Repayments of long-term debt (198,277) (6,403)
---------- ----------
Net cash provided (used) by financing
activities 21,524 (6,403)
---------- ----------
Net increase in cash and cash equivalents 270,916 71,085
Cash and cash equivalents at
beginning of period 286,226 356,306
----------- ----------
Cash and cash equivalents at
end of period $557,142 $427,391
=========== ==========
<FN>
See accompanying notes to consolidated financial statements.
- 8 -
LINCOLN LOGS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 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 nine-month periods and three-month periods
ended October 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
nine-month periods ended October 31, 2001 and 2000, respectively, and
7,255,059 and 7,255,059 for the three-month periods ended October 31, 2001
and 2000, respectively.
Diluted earnings (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 (loss)
per share under the treasury stock method if the effect is dilutive. Dilutive
loss per share is the same as basic loss per share for the nine-month period
ended October 31, 2000 because the effect of including stock options, warrants
and the assumed conversion of the convertible subordinated debentures would
be anti-dilutive.
The numerator in the calculation of diluted earnings (loss) per share
for the nine-month periods ended October 31, 2001 and 2000 was determined as
follows:
2001 2000
----- -----
Net income used to calculate basic earnings
per share $ 59,302 $ 48,084
Add back interest expense related to convertible
debentures 19,800 19,800
--------- ---------
Numerator for calculation of diluted earnings
per share $ 79,102 $ 67,884
========= ========
- 9 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
The denominator in the calculation of diluted earnings (loss) per share
for the nine-month periods ended October 31, 2001 and 2000 was determined as
follows:
2001 2000
----- -----
Weighted average outstanding shares used to calculate
basic earnings (loss) 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 --- 135,416
Add shares issuable assuming exercise of outstanding
stock options 63,522 207,734
-------- --------
Denominator for calculation of diluted earnings
(loss) per share 8,481,081 8,760,709
========== =========
Basic earnings (loss) per share $ 0.01 $ 0.01
======== ========
Diluted earnings (loss) per share $ 0.01 $ 0.01
======== ========
There were 812,500 stock purchase warrants outstanding at October 31, 2000
that were not included in the computation of diluted earnings (loss) per share
for the nine-month period as their effect was anti-dilutive.
The numerator in the calculation of diluted earnings (loss) per share for
the three-month periods ended October 31, 2001 and 2000 was determined as
follows:
2001 2000
----- -----
Net income (loss) used to calculate basic earnings
(loss) per share $368,888 $(42,566)
Add back interest expense related to convertible
debentures 6,600 ---
--------- ---------
Numerator for calculation of diluted earnings
(loss) per share $375,488 $(42,566)
========= =========
The denominator in the calculation of diluted earnings (loss) per share
for the three-month periods ended October 31, 2001 and 2000 was determined
as follows:
2001 2000
----- -----
Weighted average outstanding shares used to calculate
basic eranings (loss) 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 --- ---
Add shares issuable assuming exercise of outstanding
stock options --- ---
-------- --------
Denominator for calculation of diluted earnings
(loss0 per share 8,417,559 7,255,059
========== =========
Basic earnings (loss0 per share $ 0.05 $(0.01)
======== =======
Diluted earnings (loss) per share $ 0.04 $(0.01)
======= =======
- 10 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
There were 812,500 stock purchase warrants outstanding at both
October 31, 2001 and October 31, 2000 that were not included in the
computation of diluted earnings (loss) per share for the three-month periods
ended October 31, 2001 and October 31, 2000 as their effect was anti-dilutive.
Further, shares issuable assuming conversion of convertible debentures at
October 31, 2000 and shares issuable assuming exercise of outstanding
stock options at October 31, 2001 and October 31, 2000 were not
included in the computation of diluted earnings (loss) per share for the
three-month period ended October 31, 2001 and 2000, resprectively, 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 nine-months ended October 31, 2001. 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 began doing cusiness in a new state and did not have any Net Operating
Losses attributable to that state to offset apportioned taxable income.
(4) INDEBTEDNESS
Through October 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 originally subject to warrants was 1,500,000, fifty
(50%) percent of the number of shares subject to conversion. As of October 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 above, 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 October 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 October 31, 2001, $55,000 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 nine months ended October 31, 2001, cash was paid in the amounts
of $84,030 for interest and $2,409 for income taxes. 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.
- 12 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Non-cash investing and financing activity:
During the nine months ended October 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 nine months ended October 31, 2001, the Company recorded
an increase in data processing equipment of $44,824 and a related increase
in long-term debt in the same amount representing a capital lease.
During the nine months ended October 31, 2001, the Company sold its
former Northeast Regional Sales Model located in Wevertown, New York.
As part of this transaction the Company recorded a decrease in Assets Held
for Resale in the amount of $86,270 representing the net book value of the
property, an Other Reveivable in the amount of $132,969 representing the
balance due upon sale and a corresponding Gain on Sale in the amount of
$46,698 representing the net gain after related expenses on this
transaction.
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.
(7) RECLASSIFICATIONS
Certain amounts in the Consolidated Statements of Operations for the
three months and nine months ended october 31, 2000 have been reclassified
to conform to the presentation for the three months and nine months ended
October 31, 2001.
-13-
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION
RESULTS OF OPERATIONS
Nine months ended October 31, 2001 vs. October 31, 2000
Net sales were $7,922,181 for the nine months ended October 31, 2001 as
compared to $8,253,066 in the same period in 2000, a decrease of $330,885,
or 4%. When compared to the previous year, there was a 5% decrease in the
number of housing units shipped, and the average sales value per housing unit
shipped increased 1%. 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 portions of the United States), and unfavorable
weather conditions during the first three months of the period. The increase
in the average sales value per unit shipped resulted from the shipment of
homes that were relatively the same size, but were slightly more expensive
when compared to the same period in the previous year.
Gross profit amounted to $3,452,016, or 44% of net sales for the nine months
ended October 31, 2001 as compared to $3,295,636, 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 lower indirect manufacturing costs. material
costs decreased 3% which was reflective of lower material costs during the
period compared to the same period of the previous year. Indirect
manufacturing costs, in absolute dolars, decreased 11% between periods. As a
percentage of sales, indirect manufacturing costs were 1% lower than the
previous year. Lower indirect costs were the result of lower design &
engineering costs and decreased delivery costs related to the lower number
of shipments.
Total operating expenses of $3,449,645, or 44% of net sales, increased
$168,692 from the previous year's amount of $3,280,953, or 40% of net sales.
The overall decrease in total operating expenses was 5%. Sales commissions
were $1,027,285 for the nine months ended October 31, 2001 and $1,081,624
for the nine months ended October 31, 2000. Commissions were 13% of net sales
in both 2001 and 2000, respectively. Selling, general and administrative
expenses were $2,422,360 for the nine months ended October 31, 2001 compared
with $2,199,329 in the same period of the previous year, an increase of
$223,031, or 10%. Selling, general and administrative expenses were 31% and
27% of net sales for the nine months ended October 31, 2001 and 2000,
respectively. The increase in selling, general and administrative expenses
was primarily the result of increased spending on advertising, trade show
expositions, salaries, financial reporting fees and national dealer convention
costs. Offsetting the aforesaid increases were decreases in professional
service fees and sales promotions. Commissions were lower in absolute
dollars during the same period due to decreased sales volume.
- 14 -
Three months ended October 31, 2001 vs. October 31, 2000
Net sales for the three month periods ended October 31, 2001 and 2000 were
$3,386,337 and $2,646,119, respectively. Net sales increased $740,218, or
28% in the three month period ended October 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 29% increase in housing units delivered. The average
value per housing unit shipped decreased by 1%. The increase in sales during
this period was caused by favorable weather conditions in the eastern United
States during the Company's third fiscal quarter and the availability of
contractors that allowed many customers to accept scheduled deliveries.
The decrease in value per housing unit shipped was primarily the result of
an increase in discounts; the size of the housing units shippedt was
approximately the same in the respective periods.
Gross profit was $1,568,225, or 46% of net sales, for the three months
ended October 31, 2001 as compared to $1,037,884, or 39% for the same period
in 2000. The increase in gross profit was the result of lower material costs,
and indirect manufacturing costs. Material costs decreased 3% which was
reflective of lower material costs during the period compared to the same
period of the previous year. Direct labor costs as a percentage of sales
decreased by 1%. In absolute dollars, direct labor costs remained virtually
unchanged. Thus, the 1% decrease in direct labor is reflective of similar
staffing levels between the two periods with a corresponding increase in
sales between the two periods. Indirect manufacturing costs as a percentage
of sales decreased by 3% which is attributable to decreased costs of
design & engineering and lower delivery costs.
Total operating expenses of $1,248,654, or 37% of net sales, increased
$148,504 from the previous year's amount of $1,100,150, or 42% of net sales.
The overall increase in total operating expenses was 13%. Sales commissions
were $429,933 in the three-month period ended October 31, 2001 and $358,323 in
the three-month period ended October 31, 2000. Commissions were 13% and 14% of
net sales, respectively. Selling, general and administrative expenses were
$818,721 for the three months ended October 31, 2001 compared with $741,827 in
the same period of the previous year, an increase of $76,894, or 10%.
Selling, general and administrative expenses were 24% and 28% of net sales
for the three-month period ended October 31, 2001 and 2000, respectively. The
increase in selling, general and administrative costs was the result of
increased spending on advertising, trade shows expositions, salaries and
achievement awards. Offsetting the aforesaid increases were decreases in
professional service fees and sales promotions. Commissions were lower
as a percentage of sales during the same period due to a higher percentage
of sales attributable to the Company's employee-salespersons for the
three month period ended October 31, 2001 as compared to the same period
in the prior year. Employee-salespersons receive lower commission rates
than the Company's independent dealers.
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LIQUIDITY AND CAPITAL RESOURCES
The Company had a working capital deficiency at both October 31, 2001 and
October 31, 2000 of $1,204,328 and $1,182,435, respectively. For the nine
months ended October 31, 2001 working capital increased by $82,526
as compared to a decrease of $291,193 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 October 31, 2001 the Company's backlog of
undelivered contracts was approximately $16,672,000. During the nine-month
period ended October 31, 2001, cash was primarily provided by the receipt of
customer deposits and the proceeds of the issuance of long-term debt. Cash
was primarily used to pay trade payables, to repay amounts due to related
parties, to service debt, to continue the construction of a new sales
model and to acquire equipment.
For the nine months ended October 31, 2001 and October 31, 2000 the
Company's operations provided cash in the amounts of $452,313 and
$275,706, respectively. Overall, the Company experienced a net increase in
its cash position of $270,916 during the nine months ended October 31, 2001
as compared with an increase in its cash position of $71,085 during the nine
months ended October 31, 2000.
As shown in the consolidated financial statements, the Company realized
a net profit during the nine months ended October 31, 2001 of $59,302. As of
October 31, 2001, current liabilities exceeded current assets by $1,204,328.
However, the Company has net stockholders' equity of $729,067 as of October 31,
2001. 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.
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RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement No. 141, "Accounting for Business Combinations" and Statement
No. 142, "Goodwill and Other Intangible Assets." These statements modify
accounting for business combinations after June 30, 2001. The statements
require that goodwill existing at the date of adoption be reviewed for
possible impairment and that impairment tests be performed periodically,
with impaired assets written-down to fair value. Additionally, existing
goodwill and intangible assets must be assessed and classified consistent
with the statements' criteria. Intangible assets with estimated useful
lives will continue to be amortized over those periods. Amortization
of goodwill and intangible assets with indeterminable lives will cease.
The Company does not believe that these statements will have a material
impact on its financial statements.
In August 2001, the FASB issued Statement No. 143, "Accounting for
Asset Retirement Obligations." Statement No. 143 requires the fair value
of a liability for an asset retirement obligation to be recognized in the
period in which it is incurred if a reasonable estimate of fair value
can be made. The associated asset retirement costs are capitalized as part
of the carrying amount of the long-lived asset. Statement No. 143 is
effective for fiscal years beginning after June 15, 2001. The Company
does not believe this statement will have a material impact on its
financial statements.
In August 2001, The FASB issued Statement No. 144, "Accounting for the
Impairment of Long-Lived Assets, " which supercedes Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," and the reporting provisions of Accounting
Principles Board ("APB") No. 30. This statement addresses financial
accounting and reporting for the impairment or disposal of long-lived
assets and will be adopted February 1, 2001. This statement specifies how
impairment will be measured and how impaired assets will be classified in
the financial statements. The Company does not believe this statement
will have a material impact on its financial statements.
- 17 -
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
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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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
December 12, 2001
/ s / William J. Thyne
William J. Thyne
Executive Vice President, Treasurer
Chief Financial Officer, Principal Financial
Officer and Secretary
December 12 2001
- 19 -