UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D. C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934 For the quarterly period ended October 31, 2003
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _______ to _______
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 [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
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, 2003
Common Stock, $0.01 par value 9,234,299
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
- 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, 2003 and January 31, 2003 3 - 4
Consolidated statements of operations for the
nine months ended October 31, 2003 and 2002 5
Consolidated statements of operations for the
three months ended October 31, 2003 and 2002 6
Consolidated statements of changes in stockholders'
equity for the nine months ended October 31, 2003
and the twelve months ended January 31, 2003 7
Consolidated statements of cash flows for the
nine months ended October 31, 2003 and 2002 8
Notes to consolidated financial statements 9 - 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 15 - 21
ITEM 3. CONTROLS AND PROCEDURES 21
PART II. OTHER INFORMATION 22
SIGNATURES 23
- 2 -
LINCOLN LOGS LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 2003 AND JANUARY 31, 2003
ASSETS
October 31, January 31,
2 0 0 3 2 0 0 3
(Unaudited) (Audited)
---------- -----------
CURRENT ASSETS:
Cash and cash equivalents $1,077,538 $1,885,931
Trade accounts receivable, net of
allowance for doubtful accounts of
$20,199 248,050 207,692
Inventories (raw materials) 2,022,117 1,277,804
Work in process 257,543 228,076
Prepaid expenses and other current assets 564,649 416,404
Prepaid income taxes 64,207 ---
Mortgage and note receivable 2,592 2,592
Due from related parties 43,427 10,141
---------- ----------
Total current assets 4,280,123 4,028,640
------------ -----------
PROPERTY, PLANT AND EQUIPMENT:
Land 888,506 835,241
Buildings and improvements 3,017,245 2,479,801
Machinery and equipment 2,469,176 881,674
Furniture and fixtures 2,201,705 1,683,446
Transportation equipment 617,764 262,216
----------- ---------
9,194,396 6,142,378
Less: accumulated depreciation (4,497,629) (3,667,143)
---------- ---------
Total property, plant and
equipment - net 4,696,767 2,475,235
---------- ----------
OTHER ASSETS:
Mortgage receivable 60,450 63,304
Assets held for resale 6,466 11,802
Deposits and other assets 64,007 58,894
Goodwill 731,809 ---
Other intangible assets, net of accumulated
amortization of $86,627 at October 31, 2003
and $78,174 at January 31, 2003 302,515 4,159
--------- ---------
Total other assets 1,165,247 138,159
--------- ---------
TOTAL ASSETS $10,142,137 $6,642,034
=========== ==========
See accompanying notes to consolidated financial statements.
( continued )
- 3 -
LINCOLN LOGS LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS ( continued )
OCTOBER 31, 2003 AND JANUARY 31, 2003
LIABILITIES AND STOCKHOLDERS' EQUITY
October 31, January 31,
2 0 0 3 2 0 0 3
(Unaudited) (Audited)
---------- -----------
CURRENT LIABILITIES:
Current installments of long-term debt:
Related parties $ 57,566 $ 210,000
Other 205,740 121,678
Bank loans, current 39,460 ---
Trade accounts payable 1,398,699 347,520
Accrued payroll, related taxes and
withholdings 197,630 129,607
Accrued income taxes 140,157 23,100
Due to related parties 34,651 ---
Accrued expenses 686,902 662,906
Customer deposits 2,575,448 2,817,188
---------- ----------
Total current liabilities 5,336,253 4,311,999
LONG-TERM DEBT, net of current installments:
Notes payable, related parties 167,130 ---
Bank debt, long-term 1,190,537 ---
Mortgage and notes payable 571,216 159,375
Other 47,934 64,362
---------- ----------
Total liabilities 7,313,070 4,535,736
---------- ----------
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 9,234,299 shares
at October 31, 2003 and 7,759,299 at January
31, 2003 92,443 77,593
Additional paid-in capital 6,022,092 5,681,554
Accumulated deficit (2,458,584) (2,768,414)
Accumulated other comprehensive income:
Foreign currency translation adjustment 57,551 ---
----------- ----------
3,713,502 2,990,733
Less: cost of 504,240 shares of common
stock in treasury (884,435) (884,435)
----------- ----------
Total stockholders' equity 2,829,067 2,106,298
----------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $10,142,137 $6,642,034
=========== ===========
See accompanying notes to consolidated financial statements.
- 4 -
LINCOLN LOGS LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED OCTOBER 31, 2003 AND 2002
(UNAUDITED)
Nine Months Ended
October 31,
----------------------
2 0 0 3 2 0 0 2
--------- ---------
NET SALES $11,723,296 $10,818,914
COST OF SALES 6,680,135 5,645,083
---------- ----------
GROSS PROFIT 5,043,161 5,173,831
---------- ----------
OPERATING EXPENSES:
Commissions 1,312,836 1,320,062
Selling, general and administrative 3,352,034 2,774,540
---------- ----------
Total operating expenses 4,664,870 4,094,602
---------- ----------
INCOME FROM OPERATIONS 378,291 1,079,229
---------- ----------
OTHER INCOME (EXPENSE):
Interest income 12,826 12,197
Interest expense ( 25,366) ( 44,603)
Other 107,928 65,537
---------- ----------
Total other income (expense) - net 95,388 33,131
---------- ----------
INCOME BEFORE INCOME TAXES 473,679 1,112,360
INCOME TAXES 163,849 15,000
---------- ----------
NET INCOME $ 309,830 $ 1,097,360
========== ==========
PER SHARE DATA:
Basic earnings per share $ .04 $ .15
========== ==========
Diluted earnings per share $ .04 $ .13
========== ==========
See accompanying notes to consolidated financial statements.
- 5 -
LINCOLN LOGS LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED OCTOBER 31, 2003 AND 2002
(UNAUDITED)
Three Months Ended
October 31,
----------------------
2 0 0 3 2 0 0 2
--------- ---------
NET SALES $ 5,281,849 $ 5,555,171
COST OF SALES 3,143,840 2,742,432
---------- ----------
GROSS PROFIT 2,138,009 2,812,739
---------- ----------
OPERATING EXPENSES:
Commissions 568,169 748,172
Selling, general and administrative 1,167,039 997,660
---------- ----------
Total operating expenses 1,735,208 1,745,832
---------- ----------
INCOME FROM OPERATIONS 402,801 1,066,907
---------- ----------
OTHER INCOME (EXPENSE):
Interest income 3,592 3,659
Interest expense ( 6,639) ( 12,975)
Other 6,104 25,551
---------- ----------
Total other income (expense) - net 3,057 16,235
---------- ----------
INCOME BEFORE INCOME TAXES 405,858 1,083,142
INCOME TAXES 143,849 15,000
---------- ----------
NET INCOME $ 262,009 $ 1,068,142
========== ==========
PER SHARE DATA:
Basic earnings per share $ .03 $ .15
========== ==========
Diluted earnings per share $ .03 $ .13
========== ==========
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, 2003 (UNAUDITED) AND
THE TWELVE MONTHS ENDED JANUARY 31, 2003
Accum-
ulated Other
Other Comp-
Number Par Additional Compre- Total rehen-
of value paid-in (Accumulated hensive Treasury stockholders' sive
shares amount capital deficit) Income stock equity Income
---------- ---------- ---------- ----------- -------- ---------- ------------ --------
Balance at January 31, 2002 7,759,299 $ 77,593 $5,681,554 $(3,968,567) --- $( 884,435) $ 906,145 ---
Net income - 2003 --- --- --- 1,200,153 --- --- 1,200,153 ---
---------- ---------- ---------- ----------- -------- ---------- ------------ --------
Balance at January 31, 2003 7,759,299 $ 77,593 $5,681,554 $(2,768,414) --- $( 884,435) $ 2,106,298 ---
Debt converted to common stock 1,162,500 11,625 208,375 --- --- --- 220,000 ---
Common stock issued upon
exercise of stock options 35,000 350 5,663 --- --- --- 6,013 ---
Common stock issued upon purchase
of True-Craft Log Structures
Ltd. and Hart and Son
Industries Ltd. 287,500 2,875 126,500 --- --- --- 129,375 ---
Foreign currency translation
adjustment --- --- --- --- 57,551 --- 57,551 57,551
Net income - 9 months
ended October 31, 2003 --- --- --- 309,830 --- --- 309,830 309,830
---------- ---------- ---------- ----------- -------- ---------- ------------ --------
Balance at October 31, 2003 9,244,299 $ 92,443 $6,022,092 $(2,458,584) $ 57,551 $( 884,435) $ 2,829,067 $367,381
========== ========== ========== =========== ======== ========== ============ ========
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, 2003 AND 2002
(UNAUDITED)
Nine Months Ended
October 31,
----------------------------
2 0 0 3 2 0 0 2
----------- -----------
OPERATING ACTIVITIES:
Net income $ 309,830 $ 1,097,360
Adjustments to reconcile net income
to net cash (used) provided by
operating activities:
Depreciation and amortization 214,896 125,551
(Gain) on sale of assets held for resale ( 4,664) ( 7,740)
Changes in operating assets and liabilities:
(Increase) in trade accounts receivable ( 40,358) ( 610,489)
(Increase) in inventories ( 773,780) ( 329,379)
(Increase) decrease in prepaid expenses
and other current assets ( 148,245) 51,361
(Increase) in prepaid income taxes ( 64,207) ---
(Increase) in deposits and
other assets ( 4,768) ( 12,312)
Increase in trade accounts payable 1,051,179 268,946
(Decrease) in customer deposits ( 241,740) ( 63,626)
Increase in accrued expenses
and other current liabilities 75,591 498,695
Increase in due to related parties 34,651 ---
(Increase) in due from related parties ( 33,286) ( 19,433)
(Decrease) increase in accrued
income taxes 117,057 10,610
---------- ----------
Net cash provided by operating activities 492,156 1,009,544
---------- ----------
INVESTING ACTIVITIES:
Payments on mortgage receivable 2,854 2,123
Acquisition of businesses (1,100,840) ---
Proceeds on assets held for resale 10,000
Additions to property, plant
and equipment ( 619,596) ( 196,986)
---------- ----------
Net cash (used) by investing activities (1,707,582) ( 194,863)
---------- ----------
FINANCING ACTIVITIES:
Proceeds from the issuance of long-term debt 1,768,036 ---
Capital received on incentive options 6,013 ---
Repayments of long-term debt (1,424,567) ( 75,000)
---------- ----------
Net cash (used) by financing
activities 349,482 ( 75,000)
---------- ----------
Effect of foreign currency on cash 57,551 ---
---------- ----------
Net increase (decrease) in cash and cash
equivalents ( 808,393) 739,681
Cash and cash equivalents at
beginning of period 1,885,931 502,397
---------- ----------
Cash and cash equivalents at
end of period $1,077,538 $1,242,078
========== ==========
See accompanying notes to consolidated financial statements.
- 8 -
LINCOLN LOGS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2003 AND 2002
(1) BASIS OF PRESENTATION
The financial information included herein is unaudited; however, such
information reflects all adjustments (consisting solely of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
presentation of results for the interim periods.
The results of operations for the nine-month and three-month periods ended
October 31, 2003 and 2002 are not necessarily indicative of the results to be
expected for the full year due to the seasonal nature of the business. The
Company operates in the housing industry whose activity pattern is more active
during the months of late-spring through late-autumn, and less active during the
winter months of the year.
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, 2003.
(2) ACQUISITION
On August 29, 2003, the Company, through its wholly owned Canadian subsidiary
Lincoln Logs Canada Ltd., acquired both True-Craft Log Structures Ltd. and
Hart & Son Industries Ltd., two affiliated companies with common ownership, in
Maple Ridge, British Columbia, Canada (collectively known as "Lincoln Canada").
Similar to the Company, these companies manufacture log home component kits and
related accessories. The transaction was accounted for using the purchase
method of accounting. The combined purchase had an aggregate consideration of
approximately $1,980,000, including transaction costs, and consisted of
approximately $890,000 in cash paid from the Company's existing cash balances,
$960,000 in subordinated notes payable and the issuance of restricted shares of
the Company's common stock with a fair market value of $130,000. The purchase
was allocated to fixed assets acquired of approximately $1,200,000 and to
identifiable intangible assets of approximately $260,000. The amount allocated
to fixed assets was based on an independent appraisal of those assets; the
amount allocated to identifiable intangible assets was based on preliminary
assessments of estimated usefulness, which valuation is subject to a final
valuation assessment from an independent valuation consultant.
Set forth below is the un-audited pro-forma combined results of operations
of the Company and Lincoln Canada for the year ended January 31, 2003 as if the
acquisition had been completed at the beginning of the year presented. Due to
the poor condition of the acquired business' historical financial information,
it was not practicable to bring the acquired business' statements of operations
to within 93 days of the Company's fiscal year end, as prescribed by Article 11
- 9 -
of Registration S-X. For purposes of consolidating the un-audited statement of
operations of the Company and the acquired businesses for the year ended January
31, 2003, the un-audited statements of operations of the acquired businesses for
their year ended June 30, 2003 have been used to approximate the results of
their operations as of January 31, 2003. The pro forma combined information set
forth below is not necessarily indicative of future results of the operations or
results of operations that would have been reported for the period indicated had
the acquisition of Lincoln Canada been combined as of February 1, 2002 (amounts
in thousands, except earnings per share data).
Pro Forma Year
ended January 31, 2003
----------------------
Net revenues $ 16,394
Net income $ 979
Earnings per share - basic $ 0.13
Earnings per share - diluted $ 0.11
On October 7, 2003, the Company, through its sole membership limited
liability company AFI Acquisition Company LLC, purchased the assets of
Adirondack Forest Industries, Inc. ("AFI"). The acquired assets were used by
AFI in the production of dimensional lumber, timbers, and other wood products
from soft and hard wood species of trees. The purchase had an aggregate
consideration of approximately $950,000, including transaction costs, and
consisted of the assumption of debt of approximately $865,000, cash of
approximately $70,000 from the Company's existing cash balances and
approximately $15,000 of accrued liability. Approximately all of the
consideration paid was allocated to the assets acquired.
(3) EARNINGS PER SHARE
Basic earnings per 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 basic earnings per
share was 8,059,867 and 7,255,059 for the nine-month periods ended October 31,
2003 and 2002, respectively, and 8,651,146 and 7,255,059 for the three-month
periods ended October 31, 2003 and 2002, 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.
- 10 -
The numerator in the calculation of diluted earnings per share for the nine-
month periods ended October 31, 2003 and 2002 was determined as follows:
2003 2002
Net income used to calculate basic earnings per share $ 309,830 $1,097,360
Add back interest expense related to convertible
debentures 7,408 19,133
-------- ---------
Numerator for calculation of diluted earnings per share $ 317,238 $1,116,493
======== =========
The denominator in the calculation of diluted earnings per share for the
nine-month periods ended October 31, 2003 and 2002 was determined as follows:
2003 2002
Weighted average outstanding shares used to calculate
basic earnings per share 8,059,867 7,255,059
Add shares issuable assuming conversion of
convertible debentures 442,858 1,162,500
Add shares issuable assuming exercise of
outstanding stock purchase warrants -0- -0-
Add shares issuable assuming exercise of
outstanding stock options 192,644 70,334
--------- ---------
Denominator for calculation of diluted earnings
per share 8,695,389 8,487,893
========= =========
Basic earnings per share $ 0.04 $ 0.15
===== =====
Diluted earnings per share $ 0.04 $ 0.13
===== =====
There were 812,500 stock purchase warrants outstanding at October 31, 2002 that
were not included in the computation of diluted earnings per share for that
nine-month period as their effect was anti-dilutive. All stock purchase
warrants expired on January 31, 2003 without any warrants being exercised.
The numerator in the calculation of diluted earnings per share for the three-
month periods ended October 31, 2003 and 2003 was determined as follows:
2003 2002
Net income used to calculate basic earnings per share $ 262,009 $1,068,142
Add back interest expense related to convertible
debentures -0- 6,350
--------- ---------
Numerator for calculation of diluted earnings per share $ 262,009 $1,074,492
========= =========
The denominator in the calculation of diluted earnings per share for the
three-month periods ended October 31, 2003 and 2002 was determined as follows:
2003 2002
Weighted average outstanding shares used to calculate
basic earnings per share 8,651,146 7,255,059
Add shares issuable assuming conversion of
convertible debentures -0- 1,162,500
- 11 -
Add shares issuable assuming exercise of
outstanding stock purchase warrants -0- -0-
Add shares issuable assuming exercise of
outstanding stock options 208,904 89,388
--------- ---------
Denominator for calculation of diluted earnings
per share 8,860,050 8,506,947
========= =========
Basic earnings per share $ 0.03 $ 0.15
===== =====
Diluted earnings per share $ 0.03 $ 0.13
===== =====
There were 812,500 stock purchase warrants outstanding at October 31, 2002 that
were not included in the computation of diluted earnings per share for that
three-month period as their effect was anti-dilutive. All stock purchase
warrants expired on January 31, 2003 without any warrants being exercised. No
shares were included in the three-month period ended October 31, 2003 assuming
conversion of convertible debentures as all holders of convertible debentures
elected to convert their holdings to common stock on May 15, 2003, the maturity
date of the debentures.
(4) 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. For the nine-month period and
three-month period ended October 31, 2003, a provision for income taxes was
provided in the amounts of $163,849 and $143,849, respectively. An income tax
expense was accrued in the nine-month and three-month periods ended October
31, 2002 of $15,000.
(5) INDEBTEDNESS
On October 7, 2003, the Company entered into a multi-faceted credit facility
with First Pioneer Farm Credit, ACA totaling $3,650,000. The facility consists
of a 10-year term loan in the amount of $1,735,000, the first year interest
only, then principal and interest payments made monthly with a balloon payment
of the principal at the end of the tenth year; a 5-year term loan in the amount
of $1,065,000 with principal and interest paid monthly; a 4-year term loan in
the amount of $100,000 with principal and interest paid monthly; and a $750,000
revolving line of credit that is renewable annually. The interest rate on all
of the aforementioned loans is the prime lending rate as listed in the Wall
Street Journal, which is currently 4%. The Company has collateralized the term
loans with all of the Company's real property, machinery, equipment and
fixtures. The revolving line of credit is collateralized by the Company's
inventory and accounts receivable. At October 31, 2003, the Company has drawn a
total of $1,140,000 against the credit facility.
The Company had two series of subordinated convertible debentures outstanding
during the past four years, Series B Convertible Subordinated Debentures and
- 12 -
Series C Convertible Subordinated Debentures (collectively the "Debentures").
At January 31, 2003, the total amount of Debentures outstanding equaled
$220,000. The Debentures had a maturity date of May 15,2003. On May 15, 2003,
all holders of the Debentures elected to convert their respective holdings into
common stock of the Company. The Debentures were converted into 1,162,500
shares of common stock. At October 31, 2003, the outstanding balance of the
Debentures was zero.
In February 2003, the Company purchased a new pickup truck having a total
value of $41,611. The Company took advantage of special financing offered by
the truck manufacturer and financed the total amount of the purchase with an
interest rate of 0%. The borrowing has a maturity date of March 2006,
requires equal monthly payments and is collateralized by the truck purchased.
The Company also has other debt outstanding consisting of a mortgage on owned
real property, automotive equipment loans, and certain assets under capital
leases collateralized by copiers, facsimile machines, computers, blueprinting
equipment and milling equipment.
(6) RECLASSIFICATIONS
Certain amounts in the Consolidated Statement of Operations for the nine
months and three months ended October 31, 2002 have been reclassified to
conform with the presentation for the nine months and three months ended
October 31, 2003. None of the reclassifications had the effect of changing the
net income as previously reported.
(7) STOCK OPTIONS
During the nine-month period ended October 31, 2003, stock options were
exercised by various holders and a stock option grant was made. Stock options
activity for the nine-month period ended October 31, 2003 and the fiscal year
ended January 31, 2003 is summarized as follows:
Weighted Average
Number of shares Option Price Per Share
Qualified Non-Qualified Qualified Non-Qualified
Balance at January 31, 2002 130,500 182,000 $ .16 $ .19
Granted during year --- --- --- ---
Cancelled during year ( 12,000) --- .16 ---
Exercised during year --- --- --- ---
-------- -------- ----- -----
Balance at January 31, 2003 118,500 182,000 $ .16 $ .19
Granted during year 50,000 --- .50 ---
Cancelled during year --- --- --- ---
Exercised during year ( 35,000) --- ( .18) ---
-------- -------- ----- -----
Balance at October 31, 2003 133,500 182,000 $ .29 $ .19
======== ======== ===== =====
All outstanding stock options are exercisable as of October 31, 2003. Stock
options expire 10 years from the date they are granted (except in the case of
an incentive stock option awarded to a person owning 10% or more of the
- 13 -
Company's stock, in which case the term is limited to five years) and vest upon
grant. The weighted average remaining contractual life of the outstanding
options as of October 31, 2003 is 4.5 years.
(8) SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION
During the nine months ended October 31, 2003, cash was paid in the amounts
of $24,322 for interest and $75,280 for income taxes. During the nine months
ended October 31, 2002, cash was paid in the amounts of $39,800 for interest
and $4,403 for income taxes.
Non-cash investing and financing activities:
In connection with its acquisition of True-Craft Log Structures Ltd. and Hart
& Son Industries Ltd. on August 29, 2003, the Company issued notes to the
sellers of those entities in the aggregate amount of approximately $959,300, and
issued 287,500 shares of restricted stock with a fair market value of
approximately $129,400.
In connection with its purchase of the assets of Adirondack Forest
Industries, Inc. on October 7, 2003, the Company assumed debt related to the
assets purchases of approximately $865,600.
On May 15, 2003, all holders of Series B Convertible Subordinated Debentures
and Series C Convertible Subordinated Debentures (collectively called the
"Debentures") elected to convert their respective holdings into common stock of
the Company. At May 15, 2003, the total amount of the Debentures outstanding
equaled $220,000. The Debentures were converted into 1,162,500 shares of common
stock. At October 31, 2003, the outstanding balance of the Debentures was zero.
During the nine months ended October 31, 2003, a new truck was purchased for
$41,611. The Company took advantage of special financing offered by the truck
manufacturer and financed the total amount of the purchase with an interest
rate of 0%. The borrowing has a maturity date of March 2006.
During the nine months ended October 31, 2002 the Company recorded an
increase in transportation equipment of $15,704 and a related increase in
long-term debt in the amount of $11,080, which represented the financed portion
of the purchase.
(9) SUBSEQUENT EVENT
On November 17, 2003, the Company completed its purchase acquisition of a
company in Rigby, Idaho. Similar to the Company, this company markets and sells
log home component kits and related accessories. The sources of the acquisition
price of $1,663,500 were as follows: Cash of $491,500; Issuance of Debt of
$832,000; assumption of debt of $100,000; and issuance of 300,000 shares of
restricted common stock of the Company.
- 14 -
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Nine months ended October 31, 2003 vs. October 31, 2002:
Net sales were $11,723,296 for the nine months ended October 31, 2003 as
compared to $10,818,914 in the same period in 2002, an increase of $904,382,
or 8%. Comparing the net sales for the nine months ended October 31, 2003
with the same nine-month period in the previous year, there was an 11% increase
in the number of units shipped, and the average sales value per unit shipped
decreased by 3%. The increase in units shipped was attributable in part to the
14% increase in the number of customer contracts in the backlog of undelivered
contracts at the beginning of the nine-month period ended October 31, 2003, as
compared to the beginning of the same period of the previous year. Additional
factors that led to the increase in units shipped include the inclusion of
homes shipped by the Company's newly acquired subsidiary, and continued
strong demand in the housing sectors. The Company believes that the current
residential mortgage interest rate environment has also been a contributing
factor to the increase of units shipped during the nine months ended October 31,
2003. The decrease in the average sales value per unit shipped for the nine
months ended October 31, 2003 is attributable to shipment of slightly smaller
homes than those shipped in the comparable period of the previous year.
Gross profit, as a percentage of net sales, was 43% in the nine-month period
ended October 31, 2003, as compared to 48% for the nine-month period ended
October 31, 2002. Gross profit amounted to $5,043,161 and $5,173,831 for the
nine-month periods ended October 31, 2003 and October 31, 2002, respectively.
The total cost of materials increased by 1.5%, as compared with the same period
for the previous year. The Company continued to experience increases in
commodity lumber prices during the nine months ended October 31, 2003, in some
cases reaching historically high levels, during the summer building season.
Some prices increased in a pattern that resembles historical pricing trends with
price increases during the high demand months of the building season. In
contrast, the Company did not experience comparable price increases in the
previous year. Labor costs increased 1% principally reflecting increased
employment and wage and benefit cost increases. Manufacturing overhead
increased by 2.5%, which was attributable to increased cost of design and
engineering, increases in costs of operations and increased costs related to
delivery. All of the cost increases experienced by the Company in the areas of
labor and manufacturing overhead during the nine months ended October 31, 2003,
when compared against the same period of the previous year, are related to the
increased volume of shipments.
Total operating expenses for the nine-month period ended October 31, 2003
were $4,664,870, an amount equal to 40% of net sales for such period. The
preceding amount represents an increase of $570,268 from the amount of
$4,094,602 for the same nine-month period of the previous year. The total
operating expenses for the nine-month period ended October 31, 2002 constituted
38% of net sales for such period. The overall increase in total operating
expenses for the nine months ended October 31, 2003, as compared to the nine
- 15 -
months ended July 31, 2002 was 14%. Sales commissions were $1,312,836 for the
nine months ended October 31, 2003 and $1,320,062 for the nine months ended
October 31, 2002. Commissions were 11% and 12% of net sales in the nine months
ended October 31, 2003 and 2002, respectively. Selling, general and
administrative expenses were $3,352,034 for the nine months ended October 31,
2003 compared with $2,774,540 in the same period of the previous year, an
increase of $577,494, or 21%. Selling, general and administrative expenses
were 29% and 26% of net sales at October 31, 2003 and 2002, respectively.
Although net sales increased by 8% in the first nine months ended October
31, 2003 total sales commissions decreased by .5% during the same period.
During the nine-month period ended October 31, 2003, 31% of the shipments were
sold by the Company's employee sales persons as compared with 26% of the
shipments made during the nine-month period ended October 31, 2002. Because
the Company compensates its employee sales persons at a lower commission rate
than its independent dealer representatives, total commissions expense will
fluctuate depending upon the total composition of home sales by employee sales
persons and independent dealer representatives. In this instance, the
increase in the number of homes sold by the Company's independent dealers
resulted in increased commissions expense.
Several specific items contributed to the bulk of the increase in selling,
general, and administrative expenses during the nine-month period ended October
31, 2003 as measured against the nine-month period ended October 31, 2002. The
principal items include increased expenses attributable to an expanded and more
comprehensive annual sales convention, additional expenses relating to an
increase in Company staff particularly in the area of sales support, added
expenses attributable to an increase in achievement awards for management, and
an additional expenses relating to an increase in the number of national trade
show exhibitions that the Company representatives attended. Many other
expenses had modest increases as the Company prepares itself to support the
higher sales level anticipated for the remainder of the fiscal year and the
next fiscal year.
Three months ended October 31, 2003 vs. October 31, 2002:
Net sales were $5,281,849 for the three months ended October 31, 2003 as
compared to $5,555,171 in the same period in 2002, a decrease of $273,322, or
5%. Comparing the three months ended October 31, 2003 with the same three-
month period of the previous year, there was a 10% increase in the number of
units shipped, and the average sales value per unit shipped decreased 15%. The
increase in units shipped was due in part to a backlog of undelivered contracts
at the beginning of the quarter ended October 31, 2003 that was 15% larger than
the comparable backlog of undelivered contracts at the beginning of the third
quarter of the previous fiscal year. Other factors that led to an increase in
units shipped include the inclusion of homes shipped by the Company's newly
acquired subsidiary, and the continued strong demand in the housing sector of
the economy. The Company believes that the current residential interest rate
- 16 -
environment has also had a favorable effect on the Company's selling activity.
The decrease in the average sales value per unit shipped during the quarter is
attributable to shipment of slightly smaller homes than those shipped in the
comparable quarter of the previous year. The decrease in average sales value
per unit shipped is exaggerated, in part, because of the shipment of one
extraordinarily large home shipped during the quarter ended October 31, 2002.
Excluding the sale of that home from the previous year's sales, the average
sales value per unit shipped during the third quarter ended October 31, 2003
decreased 10% when compared to the comparable third quarter of the previous
year. During the quarter ended October 31, 2003, discounts offered customers
related to shipped homes increased 8% when compared to the third quarter ended
October 31, 2002.
Gross profit for the three months ended October 31, 2003 amounted to
$2,138,009, or 41% of net sales for such period, as compared to gross profit for
the three months ended October 31, 2002 of $2,812,739, or 51% of net sales for
such period. The decrease in gross profit was due to costs increases in
material, labor, and manufacturing overhead. The total cost of materials
increased by 4% as compared with the same period for the previous year.
The Company continued to experience increases in commodity lumber prices during
the three months ended October 31, 2003, in some cases reaching historically
high levels, during the summer building season. Some prices increased in a
pattern that resembles historical pricing trends with price increases during
the high demand months of the building season. In contrast, the Company did
not experience comparable price increases in the previous year. Labor costs
increased 2% principally reflecting increased employment and wage and benefit
cost increases. Manufacturing overhead increased by 4%. This increase is
attributable to increased cost of design and engineering, increases in costs of
operations and increased costs related to delivery. All of the cost increases
experienced by the Company in the areas of labor and manufacturing overhead
during the three months ended October 31, 2003, when compared against the same
period for the previous year, are related to the increased volume of shipments.
Total operating expenses of $1,735,208 for the three-month period ended
October 31, 2003 decreased $10,624, or .5%, from the amount for the three-month
period ended October 31, 2002 of $1,745,832. Total operating expenses were 33%
and 31%, respectively, of net sales for the three-month periods presented.
Sales commissions were $568,169 for the three months ended October 31, 2003 and
$748,172 for the three months ended October 31, 2002. Commissions were 11% of
net sales for the three months ended October 31, 2003, a decrease of 3% from the
same period for the prior year when commissions were 14% of net sales. Selling,
general and administrative expenses were $1,167,039 for the three months ended
October 31, 2003 compared with $997,660 in the same period of the previous year,
an increase of $169,379, or 20%. Selling, general and administrative expenses
were 22% and 18% of net sales for the third quarters ended October 31, 2003 and
2002, respectively. The increase in selling, general and administrative
expenses was primarily due to increased personnel costs and increased spending
on the number of national trade shows attended by Company representatives.
- 17 -
LIQUIDITY AND CAPITAL RESOURCES
The Company had a working capital deficiency at both October 31, 2003 and
October 31, 2002 of $1,056,130 and $347,985, respectively. For the nine months
ended October 31, 2003, working capital decreased $708,145, as compared to an
increase of $710,253 in the same period in 2002. As of the Company's fiscal
year end at January 31, 2003, current liabilities exceeded current assets by
$283,359. At October 31, 2003 the Company's backlog of undelivered contracts
was approximately $19,825,000.
For the nine months ended October 31, 2003, the Company's operations provided
cash in the amount of $492,156 while the Company's operations for the nine
months ended October 31, 2002 provided funds of $1,009,544. Overall, the
Company experienced a net decrease in its cash position of $808,393 for the
nine-month period ended October 31, 2003, and a net increase in its cash
position of $739,681 for the nine-month periods ended October 31, 2002. In the
nine-month period ended October 31, 2003, cash was primarily provided from net
income and by an increase in accounts payable. During the same period, cash
decreased principally through the use of funds to increase accounts receivable,
to purchase inventory, to pay for pre-acquisition costs, to acquire businesses,
to acquire new equipment, for repayments of long-term debt, and from a decrease
in customer deposits. In the nine-month period ended October 31, 2002, cash was
provided principally from net income, and increases in accounts payable and
accrued expenses. Cash was primarily used to purchase inventory, to acquire new
equipment, for repayment of long-term debt, and by increases in trade accounts
receivable.
On October 7, 2003, the Company entered into a multi-faceted credit
arrangement with First Pioneer Farm Credit, ACA totaling $3,650,000. The
facility consists of a 10-year term loan in the amount of $1,735,000, a
5-year term loan in the amount of $1,065,000, a 4-year term loan in the amount
of $100,000, and a $750,000 revolving line of credit that is renewable annually.
The interest rate on all of the aforementioned loans is the prime lending rate
as listed in the Wall Street Journal, which is currently 4%. The Company has
collateralized the term loans with all of the Company's real property,
machinery, equipment and fixtures. The revolving line of credit is
collateralized by the Company's inventory and accounts receivable. At October
31, 2003, the Company has drawn a total of $1,140,000 against the credit
facility.
The Company had two series of convertible subordinated debentures outstanding
during the past four years, Series B Convertible Subordinated Debentures (the
"Series B Debentures") and Series C Convertible Subordinated Debentures (the
"Series C Debentures") (collectively the "Debentures"). At January 31, 2003, the
total amount of Debentures outstanding equaled $220,000. The Debentures had a
maturity date of May 15, 2003. On May 15, 2003, all holders of the Debentures
elected to convert their respective holdings into common stock of the Company.
- 18 -
The Series B Debentures were converted at a rate of one share for each $0.20 of
principal, or 850,000 shares, and the Series C Debentures were converted at a
rate of one share for each $0.16 of principal, or 312,500 shares. A total of
1,162,500 were issued pursuant to the conversion of the Debentures. As of
October 31, 2003, all of the Debentures have been converted into common stock of
the Company, and the outstanding balance of the debentures is zero.
The Company's backlog of undelivered contracts at October 31, 2003 and
October 31, 2002 was approximately $19,825,000 and $15,000,000, respectively.
The Company's backlog of undelivered customer contracts at January 31, 2003 was
approximately $20,100,000. A contract is considered to be part of the Company's
backlog when the contract is signed by the customer, is accompanied by a deposit
and is countersigned by an officer of the Company. It has been the Company's
experience over the past three years that an average of approximately 44% of
its backlog at the conclusion of its fiscal year will result in shipment in the
following fiscal year. Seventy six percent of the shipments that occurred in
the nine months ended October 31, 2003 were contained in the Company's backlog
at its fiscal year end date of January 31, 2003. In the comparable nine-month
period of the previous year, 65% of the shipments were contained in the
Company's backlog at its fiscal year end date of January 31, 2002. The net
decrease in the backlog of undelivered contracts from January 31, 2003 resulted
from shipments and cancellations that were in excess of new contract signings.
Each year the Company experiences contract cancellations. The reasons for
cancellations are varied and no one particular reason is dominant over the
population of reasons given by the Company's customers. The Company's history
over the past three years reveals that an average of approximately 24% of the
customer contracts contained in the backlog at the beginning of the fiscal year
cancelled in the subsequent fiscal year. Contract cancellations in the first
nine months ended October 31, 2003 and 2002 were approximately $3,942,000 and
$3,696,500, respectively. For the nine-month periods ended October 31, 2003
and 2002, 86% and 90% of the cancellations for the respective periods were
contained in the backlog of undelivered contracts at January 31, 2003 and
January 31, 2002, respectively.
The Company realizes a certain amount of revenue for work performed on most
cancelled contracts in connection with the performance of drafting and
engineering services. After deduction of the charges for services performed,
the balance of the customer's deposit is returned to the customer. During the
nine months ended October 31, 2003 and 2002, the Company realized revenues of
$115,751 and $93,645, respectively, for performance of drafting and engineering
services.
ACQUISITIONS
The Company completed the purchase of True-Craft Log Structures Ltd. and
Hart & Son Industries Ltd., two companies affiliated through common ownership
and located in Maple Ridge, British Columbia, Canada, on August 29, 2003. The
Company filed a Current Report on Form 8-K on September 15, 2003 and filed an
amendment to such Current Report on Form 8-K on November 13, 2003.
- 19 -
On October 7, 2003, the Company purchased the assets of Adirondack Forest
Industries Inc., which assets are used in the production of dimensional lumber,
timbers and other wood products.
The Company completed the purchase of Snake River Log Homes LLC, which is
based in Rigby, Idaho, on November 17, 2003. The Company has filed a Current
Report on Form 8-K with respect to the acquisition on November 20, 2003.
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS
It should be noted that in this Management's Discussion and Analysis of
Financial Condition and Results of Operations contains "forward-looking
statements." The terms "believe", "anticipate", "intend", "goal", "expect" 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 to subsequently 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. In light of the significant
uncertainties inherent in the forward-looking information included herein, the
inclusion of such information should not be regarded as a representation that
the strategy, objectives or other plans of the Company will be achieved. The
Company wishes to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
On July 30, 2002, the Financial Accounting Standards Board ("FASB") issued
Statement No 146, "Accounting for Costs Associated with Exit or Disposal
Activities" ("SFAS No. 146"). This standard requires companies to recognize
costs associated with exit or disposal activities when they are incurred rather
than at the date of a commitment to an exit or disposal plan. Examples of costs
covered by the standard include lease termination costs and certain employee
severance costs that are associated with a restructuring, discontinued
operation, plant closing, or other exit or disposal activity. SFAS No. 146 is
to be applied prospectively to exit or disposal activities initiated after
January 31, 2003, at which time the Company will adopt SFAS No. 146. The
Company does not believe this statement will have a material impact on its
financial statements.
In December 2002, FASB issued Statement No. 148, "Accounting for Stock-Based
Compensation-Transaction and Disclosure" ("SFAS No. 148"). The standard amends
SFAS No. 123, "Accounting for Stock-Based Compensation," to provide alternative
methods for voluntary transition to SFAS No. 123's fair value method of
accounting for stock-based employee compensation ("the fair value method").
SFAS No. 148 also requires disclosure of the effects of an entity's accounting
policy with respect to stock-based employee compensation on reported net income
(loss) and earnings (loss) per share in annual and interim financial statements.
The transition provisions of SFAS No. 148 are effective in fiscal years
beginning after December 15, 2002. The Company is currently evaluating the
transition provisions of SFAS No. 148 and has adopted the disclosures provisions
of SFAS No. 148.
- 20 -
In January 2003, FASB issued Interpretation No. 46, Consolidation of Variable
Interest Entities ("FIN 46"). FIN 46 requires a variable interest entity to be
consolidated by a company if that company is subject to a majority of the risk
of loss from the variable interest entity's activities to entitled to receive
a majority of the entity's residual returns, or both. FIN 46 also requires
disclosure about variable interest entities that a company is not required to
consolidate, but in which it has a significant variable interest. The
consolidation requirements of FIN 46 apply immediately to variable interest
entities created after January 31, 2003. The consolidation requirements apply
to existing entities in the second fiscal year or interim period beginning
after June 15, 2003. On October 9, 2003, the FASB deferred the consolidation
requirements under FIN 46 until the end of the first interim or annual period
ending after December 15, 2003. Certain of the disclosure requirements apply in
all financial statements issued after January 31, 2003, regardless of when the
variable interest entity was established. The Company does not believe this
interpretation will have a material impact on its financial statements.
ITEM 3 CONTROLS AND PROCEDURES
The Company's management evaluated, with the participation of the Chief
Executive Officer and Chief Financial Officer, the effectiveness of the
Company's disclosure controls and procedures as of the end of the period covered
by this report. Based upon that evaluation, the Chief Executive Officer and
Chief Financial Officer have concluded that the Company's disclosure controls
and procedures were effective as of the end of the period covered by this
report.
There has been no change in the Company's internal control over financial
reporting that occurred during the fiscal quarter covered by this report that
has materially affected, or is reasonably likely to affect, the Company's
internal control over financial reporting.
- 21 -
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibit Index
31.1 Certification of Chief Executive Officer pursuant to
Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act
of 1934, as adopted pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to
Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act
of 1934, as adopted pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002.
32.1 Certification of Chief Executive Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
b. Reports on Form 8-K
On September 9, 2003, the Company filed a Current Report on
Form 8-K under Item 5 (Other Events and Regulation FD
Disclosures)
On September 15, 2003, the Company filed a Current Report on
Form 8-K under Item 2 (Acquisition or Disposition of Assets)
On October 10, 2003, the Company filed a Current Report on
Form 8-K under Item 5 (Other Events and Regulation FD
Disclosures) and Item 7 (Financial Statements and Exhibits)
- 22 -
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 15, 2003
/ s / William J. Thyne
William J. Thyne
Vice President, Treasurer, Secretary,
and Chief Financial Officer
December 15, 2003
- 23 -
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, John D. Shepherd, certify that:
1. I have reviewed this quarterly report of Form 10-QSB of Lincoln Logs
Ltd.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of Lincoln Logs Ltd. as of, and for, the periods presented
in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
and have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this quarterly
report based on such evaluation; and
c) disclose in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
- 1 -
a) all significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial
information; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: December 15, 2003
/ s / John D. Shepherd
Name: John D. Shepherd
Title: Chairman of the Board, President
and Chief Executive Officer
- 2 -
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, William J. Thyne, certify that:
1. I have reviewed this quarterly report of Form 10-QSB of Lincoln Logs
Ltd.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of Lincoln Logs Ltd. as of, and for, the periods presented
in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
and have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this quarterly
report based on such evaluation; and
c) disclose in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
- 1 -
a) all significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial
information; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: December 15, 2003
/ s / William J. Thyne
Name: William J. Thyne
Title: Vice President, Treasurer,
Secretary, and Chief Financial Officer
- 2 -
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Lincoln Logs, Ltd. ("the Company")
on Form 10-QSB for the period ending October 31, 2003 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, John D.
Shepherd, Chief Executive Officer of the Company, certify that, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002, that, to the best of my knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
Date: December 15, 2003 / s / John D. Shepherd
Name: John D. Shepherd
Title: Chairman of the Board, President
and Chief Executive Officer
[A signed original of this written statement required by Section 906 has been
provided to Lincoln Logs Ltd. and will be retained by Lincoln Logs Ltd. and
furnished to the Security and Exchange Commission or its staff upon request.]
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Lincoln Logs, Ltd. ("the Company")
on Form 10-QSB for the period ending October 31, 2003 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, William
J. Thyne, Chief Financial Officer of the Company, certify that, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002, that, to the best of my knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
Date: December 15, 2003 / s / William J. Thyne
Name: William J. Thyne
Title: Vice President, Treasurer,
Secretary, and Chief Financial Officer
[A signed original of this written statement required by Section 906 has been
provided to Lincoln Logs Ltd. and will be retained by Lincoln Logs Ltd. and
furnished to the Security and Exchange Commission or its staff upon request.]