RESTATED - SEE "INTRODUCTORY NOTE"
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB-A
QUARTERLY REPORT UNDER SECTION 13 or 15 (d)
OR THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 1997 - as amended
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.)
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 April 30, 1997
Common Stock, $ .01 par value 945,759
- 1 -
RESTATED - SEE "INTRODUCTORY NOTE"
LINCOLN LOGS LTD. AND SUBSIDIARIES
INTRODUCTORY NOTE
THE INFORMATION CONTAINED HEREIN HAS BEEN RESTATED IN APRIL
1998 TO REFLECT ADJUSTMENTS RESULTING FROM THE DISCOVERY OF
ERRORS IN THE COMPANY'S ACCOUNTING PROCEDURES (SEE NOTE 2 OF
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS).
INDEX
Page Number
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Consolidated balance sheets as of April 30, 1997 (restated)
and January 31, 1997 (restated) 3 - 4
Consolidated statements of operations for the
three months ended April 30, 1997 (restated)
and April 30, 1996 5
Consolidated statements of cash flows for the
three months ended April 30, 1997 (restated)
and April 30, 1996 6
Notes to consolidated financial statements 7 - 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS 10 -11
PART II. OTHER INFORMATION 12
SIGNATURES 13
- - 2 -
RESTATED - SEE "INTRODUCTORY NOTE"
LINCOLN LOGS LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, RESTATED,
AS OF APRIL 30, 1997 AND JANUARY 31, 1997
ASSETS
R e s t a t e d
April 30, January 31,
1 9 9 7 1 9 9 7
(Unaudited) (Audited)
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents $ 455,569 $ 359,107
Trade accounts receivable,
net of $9,000 allowance for
doubtful accounts 143,758 274,910
Notes receivable 18,500 18,500
Inventories (principally raw materials) 784,700 623,075
Prepaid expenses and other current assets508,766 426,131
Due from related party 1,779 1,779
-------- --------
TOTAL CURRENT ASSETS 1,913,072 1,703,502
PROPERTY, PLANT AND EQUIPMENT:
Land 784,800 784,800
Buildings and improvements 2,125,626 2,125,626
Machinery and equipment 623,777 623,777
Furniture and fixtures 1,254,380 1,252,156
Transportation equipment 146,218 146,218
--------- --------
4,934,801 4,932,577
Less: accumulated depreciation (3,186,499) ( 3,154,499)
---------- ----------
TOTAL PROPERTY, PLANT AND
EQUIPMENT - net 1,748,302 1,778,078
OTHER ASSETS:
Due from related party 74,026 74,425
Assets held for resale 38,189 38,189
Cash surrender value of life insurance,
net of loan of $80,000 9,321 9,321
Deposits and other assets 988 988
Intangible assets, net of amortization 24,915 27,345
------- ------
TOTAL OTHER ASSETS 147,439 150,268
------- -------
TOTAL ASSETS $ 3,808,813 $ 3,631,848
========== ==========
See notes to consolidated financial statements.
- - 3 -
RESTATED - SEE "INTRODUCTORY NOTE"
LINCOLN LOGS LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, RESTATED,
AS OF APRIL 30, 1997 AND JANUARY 31, 1997
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
R e s t a t e d
April 30, January 31,
1 9 9 7 1 9 9 7
(Unaudited) (Audited)
---------- ---------
CURRENT LIABILITIES:
Current installments of long-term debt $ 18,084 $ 18,084
Notes payable (note 5):
Related parties 335,000 335,000
Others 175,000 175,000
Trade accounts payable 1,243,570 940,598
Customer deposits 1,210,803 1,151,439
Accrued payroll, related taxes and withholdings 13,592 43,428
Accrued income taxes --- 769
Due to related parties 134,113 108,820
Accrued expenses 464,983 366,395
---------- --------
TOTAL CURRENT LIABILITIES 3,595,145 3,139,533
LONG-TERM DEBT, net of current installments:
Convertible subordinated debentures:
Related parties 500,000 500,000
Others 200,000 200,000
Other 19,883 25,283
Other long-term liability 89,321 89,321
-------- --------
TOTAL LIABILITIES 4,404,349 3,954,137
STOCKHOLDERS' EQUITY (DEFICIENCY):
Preferred stock, $ .01 pare value;
Authorized 1,000,000 shares; issued
and outstanding - 0 - shares --- ---
Common stock, $ .01 par value; authorized
5,000,000 shares; issued 1,449,999 shares 14,500 14,500
Additional paid-in capital 3,894,286 3,894,286
Accumulated deficit (3,619,887) (3,346,640)
----------- ----------
288,899 562,146
Less: cost of 504,240 shares of common
stock in treasury at April 30,1997
and January 31, 1997 ( 884,435) ( 884,435)
---------- ---------
TOTAL STOCKHOLDERS' DEFICIENCY ( 595,536) ( 322,289)
----------- --------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIENCY) $ 3,808,813 $ 3,631,848
============ =========
See notes to consolidated financial statements.
- - 4 -
RESTATED - SEE "INTRODUCTORY NOTE"
LINCOLN LOGS LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED APRIL 30, 1997, RESTATED, AND 1996
(UNAUDITED)
Three Months Ended
April 30,
1997 - Restated 1 9 9 6
SALES, net of commissions of $208,920
and $124,763, respectively $ 1,392,578 $ 864,504
COST OF SALES 1,032,743 612,807
--------- -------
GROSS PROFIT 359,835 251,697
OPERATING EXPENSES:
Selling, general and administrative 594,153 632,659
---------- --------
(LOSS) FROM OPERATIONS ( 234,318) ( 380,962)
OTHER INCOME (EXPENSE):
Interest income 13,490 7,493
Interest expense ( 54,983) ( 46,966)
Other 2,564 8,432
----------- ----------
Total other income (expense) - net ( 38,929) ( 31,041)
----------- ----------
(LOSS) INCOME BEFORE INCOME TAXES ( 273,247) ( 412,003)
INCOME TAXES --- ---
---------- -------------
NET (LOSS) INCOME $ ( 273,247) $( 412,003)
============= =========
PER SHARE DATA (note 3):
Primary (loss) earnings per
common share $ ( .29) $ ( .44)
============ =============
See notes to consolidated financial statements.
- - 5 -
RESTATED - SEE "INTRODUCTORY NOTE"
LINCOLN LOGS LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED APRIL 30, 1997, RESTATED, AND 1996
(UNAUDITED)
Three Months Ended
April 30,
1997 - Restated 1 9 9 6
---------------- ----------
OPERATING ACTIVITIES:
Net income $ ( 273,247) $ ( 412,003)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 34,430 37,495
Changes in operating assets and liabilities:
Trade accounts receivable 131,152 ( 37,865)
Inventories ( 161,625) 96,118
Prepaid expenses and other current assets ( 82,635) ( 92,820)
Trade accounts payable 302,972 ( 152,844)
Customer deposits 59,364 575,359
Accrued expenses and other current liabilities 68,752 45,212
Due to related parties 25,293 27,927
Accrued and prepaid income taxes ( 769) ( 349)
-------------- ------------
Net cash provided by operating activities 103,687 86,230
INVESTING ACTIVITIES:
Additions to property, plant and equipment ( 2,224) ( 12,210)
Increase in deposits and other assets --- ( 299)
Decrease in due from related parties 399 252
-------------- ------------
Net cash (used) by investing activities ( 1,825) ( 12,257)
------------ ----------
FINANCING ACTIVITIES:
Proceeds from notes payable, net --- 20,000
Reductions in long-term debt ( 5,400) ( 27,439)
-------------- -----------
Net cash (used) by financing activities ( 5,400) ( 7,439)
------------- -----------
Net increase in cash and cash equivalents 96,462 66,534
Cash and cash equivalents at beginning of period 359,107 373,636
------------ ----------
Cash and cash equivalents at end of period $ 455,569 $ 440,170
============= ==============
See notes to consolidated financial statements.
- 6 -
RESTATED - SEE "INTRODUCTORY NOTE"
LINCOLN LOGS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1997 AND 1996
(1) BASIS OF PRESENTATION
The financial statements as of and for the year ended January 31, 1997 ("the
fiscal 1997 financial statements") and the interim financial information as of
and for the three-month period ended April 30, 1997("the fiscal 1998 first
quarter financial information") have been restated to reflect the correction
of errors that have been detected in the fiscal 1997 financial statements
included in the 1997 Annual Report on Form 10-KSB and the fiscal 1998 first
quarter financial information included in the April 30, 1997 Form 10-QSB
filed with the Securities and Exchange Commission. The effect of the
correction of these errors on information previously reported is summarized
in Note 2 below. The correction of the errors in the fiscal 1997 financial
statements resulted in changes to the interim financial information
originally reported on Form 10-QSB as of and for the three-month period
ended April 30, 1997. Accordingly, the Company has filed this Amended
Form 10-QSB-A as of and for the three-month period ended April 30, 1997
with the Securities and Exchange Commission.
The results of operations for the three-month periods ended April 30, 1997 and
1996 are not indicative of the results to be expected for the full year, due
to the seasonal nature of the business.
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 financial statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the Company's financial
statements as of and for the year ended January 31, 1997 included in Form
10-KSB-A filed on May 1, 1998.
(2) RESTATEMENT OF PRIOR PERIOD RESULTS
The Company has restated previously issued financial results for the year
ended January 31, 1997 and the three-month period ended April 30, 1997. The
restated financial results reflect the correction of errors in the Company's
accounting procedures related to sales cut-off, commission expense, recording
of certain accruals and inventory reconciliation. The following summarizes
the impact of the restatement:
--- April 30, 1997 --- --- January 31, 1997 ---
As Reported Restated As Reported Restated
Sales, net of commissions $ 1,208,502 $ 1,392,578 $ 7,505,032 $ 7,270,228
Cost of sales $ 956,514 $ 1,032,743 $ 5,020,538 $ 5,015,711
Gross profit $ 251,988 $ 359,835 $ 2,484,494 $ 2,254,517
Selling, general and
administrative expenses $ 601,155 $ 594,153 $ 2,367,040 $ 2,406,042
Net (loss) earnings $ ( 388,096) $ ( 273,247) $ 15,198 $ ( 253,781)
Net (loss) earnings per share $ ( .41) $ ( .29) $ .02 $ ( .27)
Trade accounts receivable $ 188,694 $ 143,758 $ 318,846 $ 274,910
Inventories $ 860,225 $ 784,700 $ 618,248 $ 623,075
Prepaid expenses and other
current assets $ 506,043 $ 508,766 $ 431,824 $ 426,131
Customer deposits $ 1,207,335 $ 1,210,803 $ 987,268 $ 1,151,439
Accrued salaries and wages $ 13,592 $ 13,592 $ 36,426 $ 43,428
Accrued expenses $ 432,059 $ 464,983 $ 314,391 $ 366,395
Accumulated deficit $(3,465,757) $(3,619,887) $(3,077,661) $(3,346,640)
(3) EARNINGS (LOSS) 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 three-month periods ended
April 30, 1997 and 1996.
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. Fully diluted earnings per share is not presented as it would
be anti-dilutive.
(4) INCOME TAXES
The Company accrues income tax expense on an inter-period 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 benefit was accrued in
the three months ended April 30, 1997 and 1996.
- 8 -
RESTATED - SEE "INTRODUCTORY NOTE"
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(5) NOTES PAYABLE
During fiscal years 1998 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. The notes are generally
collateralized by accounts receivable or the cant inventory thus purchased.
Notes issued in the current Cant Financing Program are for a fixed term and
amount and bear interest at an annual rate of 18% payable monthly. As of
April 30, 1997, a total of $510,000 has been loaned to the Company by various
individuals, including directors and shareholders, and is due on June
30, 1997.
(6) SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION
During the three months ended April 30, 1997, cash was paid in the amounts of
$54,983 for interest and $769 for income taxes. During the three months ended
April 30, 1996, cash was paid in the amounts of $50,642 for interest and $349
for income taxes.
- 9 -
RESTATED - SEE "INTRODUCTORY NOTE"
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three months ended April 30, 1997, Restated, vs. April 30, 1996
Sales, net of commissions, amounted to $1,392,578 for the three months ended
April 30, 1997 as compared to $864,504 in the same period in 1996, an increase
of $528,074, or 61%. When compared with the previous year, there was a 42%
increase in the number of home units shipped, and the average sales value per
home unit shipped increased 8%. The increase in sales value per home unit
shipped resulted from the shipment of homes that were both larger and more
expensive per square foot than those shipped in the same period of the
previous year.
Gross profits amounted to $359,835, or 26% of net sales for the three months
ended April 30, 1997 as compared to $251,697, or 29% for the same period in
1996. The decrease in gross profit percentage was the result of both an
increase in commissions and an increase in cost of materials contained in the
home packages delivered. The increase in commissions was due to a larger
number of sales made by independent dealer/distributors versus sales made
by the Company's employee sales representatives. Independent
dealer/distributors earn a higher commission rate than the Company's
employee sales representatives. The increase in the cost of materials is due
to purchasing of component materials in smaller quantities in the winter months
which results in higher unit costs per component.
Total operating expenses of $594,153, or 43% of net sales, have decreased
$38,506 from the previous year's amount of $632,659, or 73% of net sales.
The decrease in total operating expenses amounted to 6% . This was due to
the successful recruitment of a dealer for the Company's test market sales
office, resulting in the elimination of the Company's expenses for that
office, offset partially by an increase in national advertising.
LIQUIDITY AND CAPITAL RESOURCES
The Company was in a negative working capital position at both April 30, 1997
and April 30, 1996 of $1,682,073 and $1,776,994, respectively. For the three
months ended April 30, 1997 working capital decreased $246,042 as compared to a
decrease of $391,015 in the same period in 1996. As of the Company's fiscal
year end at January 31, 1997 current liabilities exceeded current assets by
$1,436,031. Working capital was primarily consumed during the three-month
period ended April 30, 1997 by the net loss incurred for the period.
- 10 -
RESTATED - SEE "INTRODUCTORY NOTE"
For the three months ended April 30, 1997 the Company's operations were a net
provider of $103,687 of cash, while in the comparable period of the previous
year it was a net provider of cash in the amount of $86,230. Overall, the
Company experienced a net increase in its cash position of $96,462 during
the three months ended April 30, 1997 as compared with an increase in its
cash position of $66,534 during the three months ended April 30, 1996.
As shown in the consolidated financial statements, the Company incurred a net
loss during the quarter ended April 30, 1997 of $273,247. As of April 30, 1997
current liabilities exceeded current assets by $1,682,073 and the Company had a
net capital deficiency of $595,536. The Company has not been successful in
securing working capital through commercial lenders or governmental agency
sources. Funds generated by operations and the renewal of 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 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 renew borrowings
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 January 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share", which is effective for the Company in fiscal
1998. This Statement, which modifies computation, presentation and disclosure
requirements for earnings per share, will not have a material impact on the
Company's calculation of earnings per share.
- 11 -
RESTATED - SEE "INTRODUCTORY NOTE"
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
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibit Index
Exhibit 27, Financial Data Schedule
b. Reports on Form 8-K
On May 28, 1997, Form 8-K was filed, incorporated herein by
reference, where the Company reported the replacement of the Chief
Executive Officer with a new position, The Office of the Chief
Executive.
- 12 -
RESTATED - SEE "INTRODUCTORY NOTE"
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has fully caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
LINCOLN LOGS LTD.
/ s / John D. Shepherd
John D. Shepherd
Chairman of the Board, President, Chief
Executive Officer and Treasurer
April 30, 1998
/ s / William J. Thyne
William J. Thyne
Chief Financial Officer, Principal Financial
Officer and Secretary
April 30, 1998
- 13 -