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 July 31, 1996
Commission file number 2-82833
Lincoln Logs Ltd.
(Exact name of small business issuer as specified in its charter)
New York 14-1589242
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Riverside Drive, Chestertown, New York 12817
(Address of principal executive offices)
(518) 494-5500
(Issuer's telephone number)
Neither name, address nor fiscal year has changed since last report
(Former name, former address and former fiscal year, if changed since last
report.)
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes_____X______ No____________
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date.
Class Outstanding at Sept. 10, 1996
Common Stock, $ .01 par value 945,759
- 1 -
LINCOLN LOGS LTD. AND SUBSIDIARIES
I N D E X
Page Number
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Consolidated balance sheets as of
July 31, 1996 and January 31, 1996 3 - 4
Consolidated statements of operations
for the six months ended
July 31, 1996 and 1995 5
Consolidated statements of operations
for the three months ended
July 31, 1996 and 1995 6
Consolidated statements of cash flows
for the six months ended July 31,
1996 and 1995 7
Notes to consolidated financial statements 8 - 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS 10 - 12
PART II. OTHER INFORMATION 13
SIGNATURES 14
- 2 -
LINCOLN LOGS LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AS OF JULY 31, 1996 AND
JANUARY 31, 1996
ASSETS
July 31, January 31,
1 9 9 6 1 9 9 6
(Unaudited) (Audited)
----------- ----------
CURRENT ASSETS:
Cash and cash equivalents $ 352,112 $ 373,636
Trade accounts receivable, net of
$9,000 allowance for doubtful
accounts 542,059 258,707
Notes receivable 18,500 18,500
Inventories (principally raw materials) 744,099 827,814
Prepaid expenses and
other current assets 314,116 264,133
Due from related party 1,543 1,543
Income taxes receivable and prepaid 800 --
--------- ---------
TOTAL CURRENT ASSETS 1,973,229 1,744,333
--------- ---------
PROPERTY, PLANT AND EQUIPMENT:
Land 784,800 784,800
Buildings and improvements 2,118,426 2,118,426
Machinery and equipment 620,967 620,332
Furniture and fixtures 1,257,039 1,227,314
Transportation equipment 142,028 142,028
4,923,260 4,892,900
--------- ---------
Less: accumulated depreciation (3,091,651) (3,021,512)
--------- ---------
TOTAL PROPERTY, PLANT AND
EQUIPMENT - net 1,831,609 1,871,388
--------- ---------
OTHER ASSETS:
Due from related party 75,440 76,072
Assets held for resale 71,825 71,825
Deposits and other assets 988 689
Intangible assets, net of amortization 32,210 37,073
--------- --------
TOTAL OTHER ASSETS 180,463 185,869
--------- --------
TOTAL ASSETS $3,985,301 $3,801,380
--------- ---------
See notes to consolidated financial statements.
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LINCOLN LOGS LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AS OF JULY 31, 1996 AND
JANUARY 31, 1996
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
July 31, January 31,
1 9 9 6 1 9 9 6
(Unaudited) (Audited)
----------- -----------
CURRENT LIABILITIES:
Current installments of long-term debt $ 16,579 $ 137,873
Notes payable (note 4)
Related parties 315,000 315,000
Others 185,000 115,000
Other credit - redeemable
common stock, current -- 94,305
Trade accounts payable 1,315,623 1,072,368
Customer deposits 937,928 796,407
Accrued payroll and related taxes
and withholdings 43,874 42,786
Accrued income taxes -- 806
Accrued expenses 472,595 555,767
--------- ---------
TOTAL CURRENT LIABILITIES 3,286,599 3,130,312
LONG-TERM DEBT, net of current
installments:
Convertible subordinated debentures
Related parties 500,000 500,000
Others 200,000 200,000
Other 35,825 39,576
--------- ---------
TOTAL LIABILITIES 4,022,424 3,869,888
--------- ---------
STOCKHOLDERS' DEFICIENCY:
Preferred stock, $.01 par value;
authorized 1,000,000 shares; issued
and outstanding -0- shares -- --
Common stock, $.01 par value;
authorized 5,000,000 shares; issued
and outstanding 1,449,999 shares, less
93,935 shares subject to redemption
agreement at January 31, 1996 14,500 13,561
Additional paid-in capital 3,894,286 3,800,920
Accumulated deficit (3,061,474) (3,092,859)
--------- ---------
847,312 721,622
Less: cost of 504,240 shares and
410,305 shares of common stock
in treasury at July 31, 1996 and
January 31, 1996 ( 884,435) ( 790,130)
-------- ---------
TOTAL STOCKHOLDERS' DEFICIENCY ( 37,123) ( 68,508)
--------- ---------
COMMITMENTS AND CONTINGENCIES
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIENCY $3,985,301 $3,801,380
--------- ---------
See notes to consolidated financial statements.
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LINCOLN LOGS LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JULY 31, 1996 AND 1995
(UNAUDITED)
Six Months Ended
July 31,
1 9 9 6 1 9 9 5
---------- ----------
SALES, net of commissions of
$584,900 and $579,662 respectively $ 3,848,693 $ 3,596,433
COST OF SALES 2,432,555 2,377,059
--------- ---------
GROSS PROFIT 1,416,138 1,219,374
OPERATING EXPENSES:
Selling, general and administrative 1,300,588 1,133,894
--------- ---------
INCOME FROM OPERATIONS 115,550 85,480
OTHER INCOME (EXPENSE):
Interest income 21,500 18,588
Interest expense ( 116,792) ( 94,152)
Other 11,127 13,826
--------- ---------
Total other income (expense) - net ( 84,165) ( 61,738)
--------- ---------
INCOME BEFORE INCOME TAXES 31,385 23,742
INCOME TAXES -- --
---------- ----------
NET INCOME $ 31,385 $ 23,742
---------- ----------
PER SHARE DATA (note 2):
Primary earnings per common share $ .03 $ .03
---------- -----------
Fully diluted earnings per common
and common equivalent share $ .02 $ .01
---------- ----------
See notes to consolidated financial statements.
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LINCOLN LOGS LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JULY 31, 1996 AND 1995
(UNAUDITED)
Three Months Ended
July 31,
1 9 9 6 1 9 9 5
---------- ----------
SALES, net of commissions of
$415,058 and $427,672 respectively $ 2,984,189 $ 2,725,632
COST OF SALES 1,819,748 1,724,823
--------- ---------
GROSS PROFIT 1,164,441 1,000,809
OPERATING EXPENSES:
Selling, general and administrative 667,929 534,466
--------- ---------
INCOME FROM OPERATIONS 496,512 466,343
OTHER INCOME (EXPENSE):
Interest income 14,007 11,152
Interest expense ( 69,826) ( 50,634)
Other 2,695 10,017
--------- ---------
Total other income (expense) - net ( 53,124) ( 29,465)
--------- ---------
INCOME (LOSS) BEFORE INCOME TAXES 443,388 436,878
INCOME TAXES -- --
--------- ---------
NET INCOME $ 443,388 $ 436,878
--------- ---------
PER SHARE DATA (note 2):
Primary earnings per common share $ .47 $ .46
--------- ---------
Fully diluted earnings per common
and common equivalent share $ .10 $ .10
--------- ---------
See notes to consolidated financial statements.
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LINCOLN LOGS LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JULY 31, 1996 and 1995
(UNAUDITED)
Six Months Ended
July 31,
1 9 9 6 1 9 9 5
---------- ---------
OPERATING ACTIVITIES:
Net income $ 31,385 $ 23,742
Adjustments to reconcile net income
to net cash used by operating activities:
Depreciation and amortization 75,002 85,162
Changes in operating assets and
liabilities:
Trade accounts receivable ( 283,352) 126,304
Inventories 83,715 ( 121,116)
Prepaid expenses and other current
assets ( 49,983) ( 30,278)
Trade accounts payable 243,255 ( 110,528)
Customer deposits 141,521 327,115
Accrued expenses and other operating
activities ( 82,084) ( 60,312)
Accrued and prepaid income taxes ( 1,606) ( 1,166)
--------- ---------
Net cash provided by
operating activities 157,853 238,923
INVESTING ACTIVITIES:
Repayments of notes receivable -- 1,042
Additions to property, plant and equipment ( 25,078) ( 18,649)
Decrease in due from related parties 633 717
(Increase) Decrease in deposits and
other assets ( 299) 452
Increase in intangible assets -- ( 37,000)
--------- ---------
Net cash used by
investing activities ( 24,744) ( 53,438)
FINANCING ACTIVITIES:
Proceeds from notes payable, net 70,000 80,000
Reduction of other credit - redeemable
common stock ( 94,305) ( 62,500)
Reductions in long-term debt ( 130,328) ( 119,335)
--------- ---------
Net cash provided (used) by
financing activities ( 154,633) ( 101,835)
--------- ---------
Net increase in cash and cash
equivalents ( 21,524) 83,650
Cash and cash equivalents at beginning of
period 373,636 278,243
---------- ---------
Cash and cash equivalents at end of period $ 352,112 $ 361,893
---------- ----------
See notes to consolidated financial statements.
- 7 -
LINCOLN LOGS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JULY 31, 1996 AND 1995
(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 statement of results for the interim periods.
The results of operations for the six month periods ended July 31,
1996 and 1995 are not indicative of the results to be expected for the
full year, due to the seasonal nature of the business.
(2) EARNINGS PER SHARE
Primary earnings per common share is computed by dividing net earnings
by the weighted average number of common shares outstanding during the
respective periods. The weighted average number of common shares used to
compute primary earnings per share was 945,759 for each of the six month
periods and three month periods ended July 31, 1996 and 1995,
respectively.
Fully diluted earnings per common and common equivalent share is
computed based on the weighted average number of common and common
equivalent shares outstanding during the respective periods, assuming the
convertible subordinated debentures were converted into common stock at
the beginning of the period after giving retroactive effect to the
elimination of interest expense, net of income tax effect, applicable to
the convertible subordinated debentures. The fully diluted weighted
average number of common and common equivalent shares was 4,445,759 for
each of the six month and three month periods ended July 31, 1996 and
1995.
(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.
(4) NOTES PAYABLE
During fiscal years 1996 and 1997 the Company continued its Cant
Financing Program, which was initiated in 1994 to raise capital for the
purchase of pine and cedar cants (logs) to be held in inventory and then
used by the Company in the manufacture of its log home building packages.
- 8 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
The notes are generally collateralized by accounts receivable or the cant
inventory thus purchased. Notes issued in the Cant Financing Program are
for a fixed term and amount and bear interest at an annual rate of 18%
payable monthly. As of July 31, 1996, a total of $500,000 has been loaned
to the Company by various individuals, including directors and
shareholders and is due on June 30, 1997.
(5) SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION
During the six months ended July 31, 1996, cash was paid in the amounts of
$119,475 for interest and $1,606 for income taxes. During the six months
ended July 31, 1995, cash was paid in the amounts of $81,393 for interest
and $1,166 for income taxes.
Noncash investing and financing activity:
During the six month period ended July 31, 1996, the following
transaction took place:
- The Company entered into a capital lease for a piece of office
equipment having a total cost of $5,282.
During the six month period ended July 31, 1995, the following
transactions took place:
- The Company financed $37,988 of the purchase of assets having a
total cost of $38,988.
- The Company reclassified $75,000 of accrued liabilities due to
various individuals, including an officer and a director, to notes bearing
the terms of the Cant Financing Program.
(6) COMMITMENTS AND CONTINGENCIES
The Company is defendant in a lawsuit claiming breach of contract,
fraudulent misrepresentation, detrimental reliance and violation of the
Connecticut Unfair Trade Practices Act in connection with a contemplated
acquisition. In the opinion of the Company's attorneys and management,
the range of the possible loss related to this matter is $50,000 to
$100,000 and it is expected that the amount of the actual loss will not
materially exceed the amount provided for in the consolidated financial
statements.
- 9 -
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Six months ended July 31, 1996 vs. July 31, 1995:
The Company's revenues, net of sales commissions, for the six months
ended July 31, 1996 were $3,848,693 as compared to $3,596,433 for the six
months ended July 31, 1995, an increase of $252,260 or 7%. There was a 9%
decrease in the number of home units shipped during the current six month
period as compared to the previous year while the average sales value per
home unit shipped was 15% higher than in the previous year. The increase
in sales value per home unit shipped is the result of an increase in the
number of larger and custom home packages shipped in the current period
and the impact of price increases put into effect at the beginning of the
fiscal year.
Gross profits amounted to $1,416,138 or 37% of net sales for the six
months ended July 31, 1996 as compared to $1,219,374 or 34% for the same
period in 1995. In realizing an increase in gross profit, the Company has
benefited from a catalog price increase put into place at the start of the
current fiscal year and larger average sales value per home shipped during
the current period.
Total operating expenses of $1,300,588, or 34% of net sales, have
increased $166,694 from the previous year's amount of $1,133,894, or 32%
of sales. The increase in total operating expenses was 15%, and was due
to the Company's commitment to increase its market share through an
additional sales office, increased national advertising, and, conducting a
national dealer conference to introduce product improvements and
innovations.
Three months ended July 31, 1996 vs. July 31, 1995:
Sales, net of commissions, amounted to $2,984,189 for the three months
ended July 31, 1996 as compared to $2,725,632 in the same period in 1995,
an increase of $258,557, or 9%. When compared with the previous year,
there was a 9% decrease in the number of home units shipped while the
average sales value per home unit shipped increased 9%. The increase in
net sales and sales value per home unit shipped is the result of an
increase in the number of larger and custom home packages shipped in the
current period. Shipments in the Company's solarium product line amounted
to 9 units in the current period, an increase of one unit over the prior
year's second quarter.
Gross profits amounted to $1,164,441 or 39% of net sales for the three
months ended July 31, 1996 as compared to $1,000,809 or 37% for the same
period in 1995. In realizing an increase in gross profit, the Company has
benefited from a catalog price increases put into place at the start of
the current fiscal year.
Total operating expenses of $667,929, or 22% of sales, have increased
- 10 -
RESULTS OF OPERATIONS - continued
$133,463 from the previous year's amount of $534,466, or 20% of sales.
The increase in total operating expenses amounted to 25%, and was due to
the Company's commitment to increase its market share through an
additional sales office, increased national advertising, and, conducting a
national dealer conference to introduce product improvements and
innovations.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a negative working capital position at both July 31,
1996 and July 31, 1995 of $1,313,370 and $1,478,985, respectively. For
the six month period ended July 31, 1996, working capital increased
$72,609 as compared to a decrease of $176,911 in the same period in 1995.
As of the Company's fiscal year end at January 31, 1996, current
liabilities exceeded current assets by $1,385,979. Working capital was
primarily consumed during both reporting periods by the repayment of long-term
debt, including obligations related to the retirement of the
Company's founder, purchases of property, plant and equipment, and, in
1995 by payment for a trademark agreement.
For the six months ended July 31, 1996 the Company's operations were a
net provider of $157,853 of cash, while in the comparable period of the
previous year it was a net provider of cash in the amount of $238,923.
Overall, the Company experienced a net decrease in its cash position of
$21,524 at July 31, 1996 as compared with an increase in its cash position
of $83,650 at July 31, 1995. During the six months ended July 31, 1996
and 1995, cash provided by operations was primarily consumed by the
repayment of long-term debt obligations, including obligations related to
the retirement of the Company's founder, additions to property plant and
equipment, and, in 1995, payment for a trademark agreement.
Although the Company realized a profit of $31,385 for the six months
ended July 31, 1996, current liabilities exceeded current assets by
$1,313,370 as of that date, and the Company had a net capital deficiency
of $37,123. The Company has obtained additional funds during the period
through its Cant Financing Program. It has not, however, been successful
in securing working capital through commercial lenders or governmental
agency sources. Funds generated by operations and the Cant Financing
Program, together with the assistance of major vendors who have provided
extended payment terms to the Company are expected to be sufficient for
the remainder of the current fiscal year. There is, however, no assurance
that the Company will be able to generate adequate financing from these
sources. A reduction in the Company's sales activity, the inability to
extend borrowing under the Cant Financing Program when the notes mature in
June 1997, or a reduction in vendor assistance may further reduce its
liquidity and, eventually, force the Company to cease operations.
OTHER MATTERS
In March 1995, the Financial Accounting Standards Board issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of." This statement has no impact on
the Company's financial statements because the carrying value of the
Company's long-lived assets are considered by management to be recoverable
based upon estimated cash flows in future periods.
- 11 -
RESULTS OF OPERATIONS - continued
In October 1995, the Financial Accounting Standards Board issued
Statement No, 123, "Accounting for Stock-Based Compensation," (SFAS No.
123) which is effective for the Company in fiscal 1997. As permitted
under SFAS No. 123, the Company intends to elect not to adopt the fair
value based method of accounting for any stock-based compensation plan it
may implement, but will account for such compensation under the provisions
of APB Opinion No. 25. The Company will comply with the disclosure
requirements of SFAS No. 123 in 1997.
- 12 -
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults of Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Shareholders held on June 19, 1996,
two proposals were presented and approved by the shareholders. They were
the re-election of the Company's existing directors and the approval of
the independent accounting firm of KPMG Peat Marwick LLP to continue as
auditors for the Company.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 27. Financial Data Schedule
b. Reports on Form 8-K
None
- 13 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
LINCOLN LOGS LTD.
/s/Richard C. Farr _
Richard C. Farr,
Chairman of the Board, President,
Chief Executive Officer and
Treasurer
Date: September 10, 1996
/s/Peter M. Hart _
Peter M. Hart
Vice President, Finance, Planning
and Administration
Date: September 10, 1996
- 14 -