UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K/A
AMENDMENT TO FORM 8-K CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
AMENDMENT NO. 1
Date of Report (Date of earliest event reported): August 29, 2003
LINCOLN LOGS LTD.
(Exact name of small business issuer as specified in its charter)
New York 0-12172 14-1589242
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) 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)
Lincoln Logs Ltd. hereby amends Item 7 of its Current Report on Form 8-K
filed on September 15, 2003, in order to file certain financial statements and
information.
- 1 -
Item 7. Financial Statements, Pro Forma Information and Exhibits
(a) Financial Statements of Businesses Acquired
This item is amended to include the following:
I. Hart & Son Industries Ltd.
(i) Auditors' Report
(ii) Balance Sheets as of August 29, 2003 (date of acquisition) and
June 30, 2003 (unaudited)
(iii) Statements of Retained Earnings for the periods April 1, 2003
to August 29, 2003 and for the year ended June 30, 2003
(unaudited)
(iv) Statement of Loss for the periods April 1, 2003 to August 29,
2003 and for the year ended June 30, 2003 (unaudited)
(v) Statement of Cash Flows for the periods April 1, 2003 to August
29, 2003 and for the year ended June 30, 2003 (unaudited)
(vi) Notes to the Financial Statements
II. True-Craft Log Structures Ltd.
(i) Auditors' Report
(ii) Balance Sheets as of August 29, 2003 (date of acquisition) and
June 30, 2003 (unaudited)
(iii) Statement of Income and Deficit for the periods April 1, 2003 to
August 29, 2003 and for the year ended June 30, 2003 (unaudited)
(iv) Statement of Cash Flows for the periods April 1, 2003 to August
29, 2003 and for the year ended June 30, 2003 (unaudited)
(v) Notes to the Financial Statements
Audited financial statements of the acquired businesses have been provided
for the five (5) month period ended August 29, 2003. Due to the poor
condition of the acquired businesses' historical financial information,
audited financial statements of the acquired businesses for the most recent
year as required by Section 310 of Regulation S-B are not practicable.
- 2 -
(b) Pro Forma Financial Information
This item is amended to include the following:
I. Lincoln Logs Ltd.
(i) Introductory information
(ii) Unaudited Pro Forma Consolidated Balance Sheet as of July 31,
2003
(iii) Unaudited Pro Forma Consolidated Statement of Operations for
the six months ended July 31, 2003
(iv) Unaudited Pro Forma Consolidated Statement of Operations for
the year ended January 31, 2003
(v) Notes to the Unaudited Pro Forma Financial Statements
- 3 -
HART & SON INDUSTRIES LTD.
FINANCIAL STATEMENTS
AUGUST 29, 2003
(Cdn$)
AUDITORS' REPORT
To the Directors of:
Hart & Son Industries Ltd.
We have audited the balance sheet of Hart & Son Industries Ltd. as at August
29, 2003 and the statements of retained earnings, loss and cash flows for the
period April 1, 2003 to August 29, 2003. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with Canadian generally accepted
auditing standards. Those standards require that we plan and perform an
audit to obtain reasonable assurance whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at August 29, 2003 and the
results of its operations and cash flows for the period April 1, 2003 to
August 29, 2003 in accordance with Canadian generally accepted accounting
principles.
The comparative financial statements for the year ended June 30, 2003 were
compiled by other accountants, and their report thereon dated September 30,
2003 stated they did not audit or review those financial statements and,
accordingly, express no opinion or other form of assurance on them.
/s/ LDMB Advisors Inc.
Chartered Accountants
Langley, British Columbia
October 9, 2003
- 4 -
HART & SON INDUSTRIES LTD.
BALANCE SHEET
(Cdn$)
August 29, June 30,
AS AT 2003 2003
(Unaudited)
ASSETS
CURRENT
Accounts receivable, net of allowance of $7,392
(June 30, 2003 - $5,175) $ 31,523 $ 41,086
Goods and services tax receivable 13,530 11,614
Inventory and work-in-progress (Note 3) 430,810 412,411
Income taxes recoverable 47,000 36,000
---------- ----------
522,863 501,111
LOAN RECEIVABLE, RELATED PARTY (Note 4) 5,133 6,322
PROPERTY, PLANT AND EQUIPMENT (Note 5) 336,345 346,727
INCORPORATION COSTS 456 456
---------- ----------
TOTAL ASSETS $ 864,797 $ 854,616
========== ==========
LIABILITIES
CURRENT
Bank indebtedness (Note 6) $ 30,488 $ 29,785
Bank loan payable (Note 6) 170,000 185,000
Trade accounts payable 254,124 188,188
Accrued payroll, related taxes and withholdings 37,923 30,121
Accrued expenses 37,618 20,425
Loans payable, shareholders (Note 7) 135,000 ---
Customer deposits 134,593 159,244
Capital lease obligation (Note 8) 12,399 15,878
Loan payable, related party (Note 9) 6,946 3,982
---------- ----------
819,091 632,623
FUTURE INCOME TAXES (Note 10) --- 21,100
---------- ----------
TOTAL LIABILITIES 819,091 653,723
SHAREHOLDERS' EQUITY
Share capital (Note 11) 101 101
Retained earnings 45,605 200,792
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 45,706 200,893
---------- ----------
$ 864,797 $ 854,616
========== ==========
SUBSEQUENT EVENTS (Note 12)
COMMITMENT (Note 13)
The accompanying notes are an integral part of these financial statements.
- 5 -
HART & SON INDUSTRIES LTD.
STATEMENT OF RETAINED EARNINGS
(Cdn$)
April 1, 2003 July 1, 2002
to to
FOR THE PERIOD August 29, 2003 June 30, 2003
(Unaudited)
RETAINED EARNINGS, beginning of period
as previously reported $ 162,852 $ 397,905
PRIOR PERIOD ADJUSTMENT (Note 14) (20,300) (20,300)
----------- -----------
RETAINED EARNINGS, beginning of period
as restated 142,552 377,605
NET LOSS FOR THE PERIOD (96,947) (176,813)
----------- -----------
RETAINED EARNINGS, end of period $ 45,605 $ 200,792
=========== ===========
The accompanying notes are an integral part of these financial statements.
- 6 -
HART & SON INDUSTRIES LTD.
STATEMENT OF LOSS
(Cdn$)
April 1, 2003 July 1, 2002
to to
FOR THE PERIOD August 29, 2003 June 30, 2003
(Unaudited)
SALES $ 1,402,061 $ 3,317,109
COST OF SALES 1,091,587 2,785,237
------------- -------------
GROSS PROFIT 310,474 531,872
OPERATING EXPENSES
Commissions 14,828 65,461
Selling, general and administrative 284,931 676,983
Retirement expense (Note 15) 135,000 ---
------------- -------------
TOTAL OPERATING EXPENSES 434,759 742,444
------------- -------------
LOSS FROM OPERATIONS (124,285) (210,572)
OTHER INCOME (EXPENSES) 7,038 (1,441)
------------- -------------
LOSS BEFORE INCOME TAXES (117,247) (212,013)
PROVISION FOR (RECOVERY OF) INCOME TAXES
Current --- (36,000)
Future (Note 14) (20,300) 800
------------- -------------
(20,300) (35,200)
------------- -------------
NET LOSS FOR THE PERIOD $ (96,947) $ (176,813)
============= =============
The accompanying notes are an integral part of these financial statements.
- 7 -
HART & SON INDUSTRIES LTD.
STATEMENT OF CASH FLOWS
(Cdn$)
April 1, 2003 July 1, 2002
to to
FOR THE PERIOD August 29, 2003 June 30, 2003
(Unaudited)
CASH FLOWS (USED IN) PROVIDED BY:
OPERATING ACTIVITIES
Net loss $ (96,947) $ (176,813)
Adjustments for items not affecting cash:
Amortization 28,842 73,840
Future income taxes (20,300) 800
Changes in non-cash working capital balances:
Accounts receivable 26,592 171,591
Goods and services tax receivable 26,596 (3,530)
Inventory and work-in-progress (11,970) 42,523
Prepaid expenses 3,603 ---
Trade accounts payable (121,125) (130,011)
Accrued payroll, related taxes and withholdings 7,953 15,175
Accrued expenses 33,910 12,525
Income taxes recoverable (21,433) (63,919)
Customer deposits 44,431 62,353
----------- -----------
(99,848) 4,534
FINANCING ACTIVITIES
Increase (decrease) in bank loan payable 10,000 (80,000)
Increase (decrease) in loan payable, related party (31,514) 3,982
Increase in loans payable, shareholders 137,528 ---
Principal repayments of long-term debt --- (199,669)
Repayment of capital lease obligation (7,715) (21,076)
----------- -----------
108,299 (296,763)
INVESTING ACTIVITIES
Purchase of property, plant and equipment (12,391) (22,753)
Decrease in loan receivable, related party 5,005 301,541
----------- -----------
(7,386) 278,788
----------- -----------
INCREASE (DECREASE) IN CASH 1,065 (13,441)
CASH AND CASH EQUIVALENTS, beginning of period (31,553) (16,344)
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ (30,488) $ (29,785)
=========== ===========
SUPPLEMENTAL INFORMATION
Cash paid during the period to:
Interest $ 12,725 $ 43,107
Income taxes $ 31,433 $ 31,433
The accompanying notes are an integral part of these financial statements.
- 8 -
HART & SON INDUSTRIES LTD.
NOTES TO THE FINANCIAL STATEMENTS
(Cdn$)
1. NATURE OF BUSINESS AND REPORTING PERIOD
The Company was incorporated under the laws of the Province of British
Columbia on July 15, 1974. The Company manufactures and designs log homes,
wood windows and doors.
The statements of retained earnings, loss and cash flows are audited for
the period of April 1, 2003 to August 29, 2003, as this period is inclusive
of the earliest date from which opening inventory could be independently
verified to the effective date of sale of the outstanding shares of the
Company.
The most recent fiscal year of the Company ended on June 30, 2003. The
unaudited balance sheet as at June 30, 2003 and unaudited statements of
retained earnings, loss and cash flows for the year ended June 30, 2003
are presented for information purposes.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements of the Company have been prepared in accordance
with Canadian generally accepted accounting principles. Because a precise
determination of many assets and liabilities is dependent upon future
events, the preparation of financial statements for a period necessarily
involves the use of estimates which have been made using careful judgement.
The financial statements have, in management's opinion, been properly
prepared within reasonable limits of materiality and within the framework
of the accounting policies summarized below:
(a) Functional currency
The functional currency of the Company is Canadian dollars.
(b) Property, plant and equipment
Property, plant and equipment are recorded at cost. Amortization is
provided annually at rates calculated to write off the assets over
their estimated useful lives as follows:
Rate Basis
Buildings 4% diminishing balance
Computer equipment 30% diminishing balance
Manufacturing equipment 20% diminishing balance
Furniture and fixtures 20% diminishing balance
Automotive and forklift equipment 20% diminishing balance
Leasehold improvements 5-10 years straight line
In the year of acquisition, these rates are reduced by one-half.
(c) Inventory and work-in-progress
Inventory has been stated at the lower of cost or estimated replacement
cost on a first-in, first-out basis.
Work-in-progress relates to products that were in the process of being
manufactured at the end of the period. Work-in-progress includes all
costs for labour, materials and overhead and is stated at the lower of
cost or recoverable amount.
- 9 -
HART & SON INDUSTRIES LTD.
NOTES TO THE FINANCIAL STATEMENTS, Continued
(Cdn$)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
(d) Revenue recognition
Revenue is recognized when products are shipped from the manufacturing
facility.
Deposits received in advance are reflected in current liabilities until
the sale is completed.
(e) Translation of foreign currencies
Monetary assets and liabilities denominated in foreign currencies have
been translated into Canadian dollars at the rate of exchange
prevailing at the end of the period. Revenue and expense items are
translated at the average rate of exchange for the period.
(f) Financial instruments
The Company's financial instruments consist of: accounts receivable;
goods and sales tax receivable; income taxes recoverable; loan
receivable, related party; bank loan payable; trade accounts payable;
accrued payroll, related taxes and withholdings; accrued expenses;
loans payable, shareholders; customer deposits; capital lease
obligation; and loan payable, related party.
Management is of the opinion that the Company is not subject to
significant interest, currency or credit risks on the financial
instruments included in these financial statements, except as noted.
The fair market values of these financial instruments approximate
their carrying values. Included in cash is $1,782 denominated in US
dollars.
(g) Future income taxes
Future income taxes represent the estimated taxes payable on the
difference between the values of assets and liabilities recorded for
accounting purposes and the values that would be used for the
calculation of income taxes.
Effective July 1, 2002, the Company adopted Section 3465 of the
Canadian Institute of Chartered Accountants Handbook, "Accounting for
Income Taxes" which requires an asset and liability approach to
financial accounting and reporting for income taxes. Future income tax
assets and future income tax liabilities are computed annually for
differences between the financial statement values and tax values,
based on enacted tax laws and rates applicable to the periods in which
the differences are expected to affect taxable income.
(h) Cash and cash equivalents
The Company's cash and cash equivalents consist of cash on hand and
bank indebtedness. Foreign currencies are converted to Canadian dollars
at the exchange rate in effect at the balance sheet date.
(i) Warranties
The Company sells housing kits with warranties against manufacturer's
defects. The Company has reviewed the history of warranty claims and
has determined that the incidence and value of previous claims have not
been material.
Based on the claims experience, the Company has not provided for such
claims and will treat any costs relating to manufacturer's defects as
a period cost.
- 10 -
HART & SON INDUSTRIES LTD.
NOTES TO THE FINANCIAL STATEMENTS, Continued
(Cdn$)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
(j) United States generally accepted accounting principles
Differences that would exist between these financial statements as
presented and the financial statements if prepared in accordance with
United States generally accepted accounting principles ("US GAAP") are
that incorporation costs would have been expensed under US GAAP.
3. INVENTORY AND WORK-IN-PROGRESS
August 29, 2003 June 30, 2003
Raw materials $ 413,126 $ 387,633
Work-in-progress --- 9,854
Finished goods 17,684 14,924
----------- -----------
$ 430,810 $ 412,411
=========== ===========
4. LOAN RECEIVABLE, RELATED PARTY
August 29, 2003 June 30, 2003
Due from True-Craft Log Structures Ltd. $ 5,133 $ 6,322
The amount due from a company under common control is not secured, bears
no interest and has no fixed terms of repayment.
5. PROPERTY, PLANT AND EQUIPMENT
Net Net
Accumulated August 29, June 30,
Cost Amortization 2003 2003
Buildings $ 7,140 $ 3,218 $ 3,922 $ 3,948
Computer equipment 46,759 39,551 7,208 7,582
Manufacturing equipment 821,076 593,104 227,972 235,282
Furniture and fixtures 49,122 37,215 11,907 12,312
Automotive and forklift equipment 109,031 81,503 27,528 28,467
Leasehold improvements 80,819 23,011 57,808 59,136
--------- --------- --------- ---------
$1,113,947 $ 777,602 $ 336,345 $ 346,727
========== ========= ========= =========
Included in manufacturing equipment is equipment acquired under capital
lease with a cost of $82,672 and accumulated amortization of $37,070
(June 30, 2003 - $36,297).
The expenses include amortization of $28,842 (June 30, 2003 - $73,840).
The amortization expense includes amortization on assets under capital
lease of $773 (June 30, 2003 - $5,153).
6. BANK INDEBTEDNESS AND BANK LOAN PAYABLE
The Company has demand operating loan facilities which total $430,000. The
loans bear interest at the bank's prime overdraft rate plus 1.15% and are
secured by a general security agreement, security provided by the
shareholders and a guarantee of a related corporation.
- 11 -
HART & SON INDUSTRIES LTD.
NOTES TO THE FINANCIAL STATEMENTS, Continued
(Cdn$)
7. LOANS PAYABLE, SHAREHOLDERS
The amounts due to the shareholders are unsecured, bear no interest and
have no fixed terms of repayment.
8. CAPITAL LEASE OBLIGATION
The Company has entered into a lease agreement to acquire equipment which
has been financed by a long-term liability. The capital lease obligation
represents the minimum lease payments payable net of imputed interest at
an average rate of 13% per annum and is secured by equipment owned by the
Company.
The Company's obligation under capital lease consists of:
August 29, 2003 June 30, 2003
National Leasing - Planer:
The lease is repayable in monthly
instalments of $1,839 and is secured by
certain manufacturing equipment $ 14,712 $ 18,391
Less: imputed interest 2,313 2,513
---------- ----------
$ 12,399 $ 15,878
========== ==========
Included in the interest expense is interest related to the capital lease
of $1,481 (June 30, 2003 - $993).
Future minimum annual lease payments payable under the capital lease are
as follows:
Year ending:
2004 $ 14,712
9. LOAN PAYABLE, RELATED PARTY
August 29, 2003 June 30, 2003
Legacy Windows & Doors Ltd. $ 6,946 $ 3,982
The amount due to a company controlled by a Director is unsecured, bears
no interest and has no fixed terms of repayment.
- 12 -
HART & SON INDUSTRIES LTD.
NOTES TO THE FINANCIAL STATEMENTS, Continued
(Cdn$)
10. INCOME TAXES
The Company has non-capital losses of $126,000 available to apply against
future income for tax purposes. The tax effect of this future benefit has
been included in the calculation of future income taxes on the Company's
balance sheet.
Future income tax assets:
Operating loss carryforwards $ 24,500
Valuation allowance (24,500)
----------
$ ---
==========
Management believes that it is not more likely than not that the Company
will create taxable income sufficient to realize its future income tax
assets.
11. SHARE CAPITAL
Authorized:
10,000 common shares without par value
August 29, 2003 June 30, 2003
Issued:
101 common shares $ 101 $ 101
12. SUBSEQUENT EVENTS
Subsequent to August 29, 2003, the Company entered into the following
transactions:
All the issued and outstanding shares were purchased by Lincoln Logs
(Canada) Ltd. ("Parent Company").
Repaid the bank loan in the amount of $170,000 and cancelled the operating
loan facility.
Repaid the loans payable, shareholders in the amount of $135,000.
Repaid the outstanding balance of the capital lease obligations in full on
October 1, 2003.
Obtained a loan from the Parent Company in the amount of $305,000.
Repaid the loan payable, related party with funds from the Parent Company.
Leased the manufacturing premises from the Parent Company on a month-to-
month basis on the same terms and conditions as the lease between the
Parent Company and the lessor. The lease is for a five year term at a
monthly rental amount of $11,800, exclusive of operating costs.
- 13 -
HART & SON INDUSTRIES LTD.
NOTES TO THE FINANCIAL STATEMENTS, Continued
(Cdn$)
13. COMMITMENT
Pursuant to the agreement entered into for the purchase of shares of Hart
& Son Industries Ltd., the Company has agreed to supply a previous Director
with one log cabin house per year, for a period of seven years, at the
manufacturer's cost of the log cabin house.
14. ADJUSTMENT FOR CHANGE TO INCOME TAXES ACCOUNTING POLICY
The Company has adopted the asset and liability approach to accounting for
income taxes. The prior year adjustment reflects the change from the taxes
payable basis. The change in the accounting policy has resulted in a
decrease in opening retained earnings of $20,300.
The change in accounting policy has been applied retroactively and
comparative information has been changed to reflect the change in
accounting policy. As a result of the change in accounting policy, the net
loss for the period has decreased by $20,300. The net loss for the
comparative period increased by $800.
15. RETIREMENT EXPENSE
The retirement expense incurred during the period related to the retirement
on August 29, 2003 of two Directors of the Company.
At August 29, 2003 the Company has no additional liability to fund any
further employee future benefits.
16. RELATED PARTY TRANSACTIONS
During the period, the Company entered into the following transactions with
related parties at costs determined to approximate fair market values:
Paid consulting fees in the amount of $32,645 (June 30, 2003 - $81,047) to
a company controlled by a Director.
Paid rent for premises, exclusive of property taxes, in the amount of
$16,672 (June 30, 2003 - $40,012) to a company controlled by a Director.
Paid rent for the use of equipment in the amount of $1,500 (June 30, 2003 -
$2,700) to a company controlled by a Director.
17. COMPARATIVE FIGURES
The unaudited financial statements prepared for the year ended June 30,
2003, which are presented for comparative purposes only, were compiled by
other accountants. Certain of the June 30, 2003 amounts have been
reclassified to conform with the current year's presentation.
- 14 -
TRUE-CRAFT LOG STRUCTURES LTD.
FINANCIAL STATEMENTS
AUGUST 29, 2003
(Cdn$)
AUDITORS' REPORT
To the Directors of:
True-Craft Log Structures Ltd.
We have audited the balance sheet of True-Craft Log Structures Ltd. as at
August 29, 2003 and the statements of income and deficit and cash flows for
the period April 1, 2003 to August 29, 2003. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to
obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at August 29, 2003 and the
results of its operations and cash flows for the period April 1, 2003 to
August 29, 2003 in accordance with Canadian generally accepted accounting
principles.
The comparative financial statements for the year ended June 30, 2003 were
compiled by other accountants, and their report thereon dated September 30,
2003 stated they did not audit or review those financial statements and,
accordingly, express no opinion or other form of assurance on them.
/s/ LDMB Advisors Inc.
Chartered Accountants
Langley, British Columbia
October 9, 2003
- 15 -
TRUE-CRAFT LOG STRUCTURES LTD.
BALANCE SHEET
(Cdn$)
August 29, June 30,
AS AT 2003 2003
(Unaudited)
ASSETS
CURRENT
Cash $ 44 $ ---
PROPERTY, PLANT AND EQUIPMENT (Note 3) 3,300 3,412
--------- ---------
TOTAL ASSETS $ 3,344 $ 3,412
========= =========
LIABILITIES
CURRENT
Bank indebtedness $ --- $ 584
LOAN PAYABLE, RELATED PARTY (Note 4) 5,133 6,322
--------- ---------
TOTAL LIABILITIES 5,133 6,906
========= =========
SHARE CAPITAL AND DEFICIT
Share capital (Note 5) 77 77
Deficit (1,866) (3,571)
--------- ---------
TOTAL SHARE CAPITAL AND DEFICIT (1,789) (3,494)
--------- ---------
TOTAL LIABILITIES AND SHARE CAPITAL AND DEFICIT $ 3,344 $ 3,412
========= =========
SUBSEQUENT EVENT (Note 8)
The accompanying notes are an integral part of these financial statements.
- 16 -
TRUE-CRAFT LOG STRUCTURES LTD.
STATEMENT OF INCOME AND DEFICIT
(Cdn$)
April 1, 2003 July 1, 2002
to to
FOR THE PERIOD August 29, 2003 June 30, 2003
(Unaudited)
REVENUE $ 1,500 $ 2,700
OPERATING EXPENSES
Commissions 250 250
Selling, general and administrative 602 1,141
---------- ----------
TOTAL OPERATING EXPENSES 852 1,391
---------- ----------
INCOME FROM OPERATIONS 648 1,309
OTHER INCOME 400 329
---------- ----------
NET INCOME 1,048 1,638
DEFICIT, beginning of period (2,914) (5,209)
---------- ----------
DEFICIT, end of period $ (1,866) $ (3,571)
========== ==========
The accompanying notes are an integral part of these financial statements.
- 17 -
TRUE-CRAFT LOG STRUCTURES LTD.
STATEMENT OF CASH FLOWS
(Cdn$)
April 1, 2003 July 1, 2002
to to
FOR THE PERIOD August 29, 2003 June 30, 2003
(Unaudited)
CASH FLOWS (USED IN) PROVIDED BY:
OPERATING ACTIVITIES
Net income $ 1,048 $ 1,638
Adjustments for items not affecting cash:
Amortization 325 853
Changes in non-cash working capital balances:
Accounts payable and accrued liabilities --- (333)
---------- ----------
1,373 2,158
FINANCING ACTIVITIES
Decrease in share subscriptions receivable --- (75)
Decrease in loan payable, related party (5,005) (11,380)
---------- ----------
DECREASE IN CASH (3,632) (9,147)
CASH AND CASH EQUIVALENTS, beginning of period 3,676 8,563
---------- ----------
CASH AND CASH EQUIVALENTS, end of period $ 44 $ (584)
========== ==========
The accompanying notes are an integral part of these financial statements.
- 18 -
TRUE-CRAFT LOG STRUCTURES LTD.
NOTES TO THE FINANCIAL STATEMENTS
1. NATURE OF BUSINESS
The Company was incorporated under the laws of the Province of British
Columbia on March 14, 1972. The Company rents manufacturing equipment to a
related corporation.
The balance sheet as at August 29, 2003 and the statements of income and
deficit and cash flows for the period April 1, 2003 to August 29, 2003 are
audited to be consistent with the period being audited for a related
company, Hart & Son Industries Ltd.
The most recent fiscal year of the Company ended on June 30, 2003. The
unaudited balance sheet as at June 30, 2003 and unaudited statements of
income and deficit and cash flows for the year ended June 30, 2003 are
presented for information purposes.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements of the Company have been prepared in accordance
with Canadian generally accepted accounting principles. Because a precise
determination of many assets and liabilities is dependent upon future
events, the preparation of financial statements for a period necessarily
involves the use of estimates which have been made using careful judgement.
The financial statements have, in management's opinion, been properly
prepared within reasonable limits of materiality and within the framework
of the accounting policies summarized below:
(a) Functional currency
The functional currency of the Company is Canadian dollars.
(b) Property, plant and equipment
Property, plant and equipment are recorded at cost. Amortization is
provided annually at rates calculated to write off the assets over
their estimated useful lives as follows:
Rate Basis
Manufacturing equipment 20% diminishing balance
In the year of acquisition, these rates are reduced by one-half.
(c) Revenue recognition
Revenue is recognized in accordance with the rental agreement
established with the related corporation.
(d) Financial instruments
The Company's financial instruments consist of cash and loan payable,
related party.
Management is of the opinion that the Company is not subject to
significant interest, currency or credit risks on the financial
instruments included in these financial statements. The fair market
values of these financial instruments approximate their carrying
values.
- 19 -
TRUE-CRAFT LOG STRUCTURES LTD.
NOTES TO THE FINANCIAL STATEMENTS, Continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
(e) Future income taxes
Future income taxes represent the estimated taxes payable on the
difference between the values of assets and liabilities recorded for
accounting purposes and the values that would be used for the
calculation of income taxes.
Effective July 1, 2002, the Company has adopted Section 3465 of the
Canadian Institute of Chartered Accountants Handbook, "Accounting for
Income Taxes" which requires an asset and liability approach to
financial accounting and reporting for income taxes. Future income tax
assets and future income tax liabilities are computed annually for
differences between the financial statement values and tax values,
based on enacted tax laws and rates applicable to the periods in which
the differences are expected to affect taxable income.
(f) United States generally accepted accounting principles
No material differences exist between these financial statements as
presented and the financial statements if prepared in accordance with
United States generally accepted accounting principles.
(g) Cash and cash equivalents
The Company's cash and cash equivalents consist of cash on hand and
bank indebtedness. Foreign currencies are converted to Canadian
dollars at the exchange rate in effect at the balance sheet date.
3. PROPERTY, PLANT AND EQUIPMENT
Net Net
Accumulated August 29, June 30,
Cost Amortization 2003 2003
Manufacturing equipment $ 60,140 $ 56,840 $ 3,300 $ 3,412
The selling, general and administrative expenses include amortization of
$325 (June 30, 2003 - $853).
4. LOAN PAYABLE, RELATED PARTY
August 29, June 30,
2003 2003
Due to Hart & Son Industries Ltd. $ 5,133 $ 6,322
The amount due to a company under common control, is not secured, bears
no interest and has no fixed terms of repayment.
- 20 -
TRUE-CRAFT LOG STRUCTURES LTD.
NOTES TO THE FINANCIAL STATEMENTS, Continued
5. SHARE CAPITAL
Authorized:
10,000 common shares without par value
August 29, June 30,
2003 2003
Issued:
7,500 common shares $ 77 $ 77
6. RELATED PARTY TRANSACTION
During the period ended August 29, 2003, the Company entered into the
following transaction with a related party at a price which approximates
fair market value:
Received rental revenue in the amount of $1,500 (June 30, 2003 - $2,700)
from a company controlled by the Directors.
7. INCOME TAXES
The Company has non-capital losses of $1,900 available to apply against
future income for tax purposes. The tax effect of this future benefit has
been included in the calculation of future income taxes on the Company's
balance sheet.
Future income tax assets:
Operating loss carryforwards $ 684
Property, plant and equipment 2,275
---------
2,959
Valuation allowance (2,959)
---------
$ ---
=========
Management believes that it is not more likely than not that the Company
will create taxable income sufficient to realize its future income tax
assets.
8. SUBSEQUENT EVENT
Subsequent to August 29, 2003, all the issued and outstanding shares were
purchased by Lincoln Logs (Canada) Ltd.
9. COMPARATIVE FIGURES
The unaudited financial statements for the year ended June 30, 2003, which
are presented for comparative purposes only, were compiled by other
accountants. Certain of the June 30, 2003 amounts have been reclassified
to conform with the current year's presentation.
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LINCOLN LOGS LTD.
PRO FORMA FINANCIAL INFORMATION
INTRODUCTORY INFORMATION
On August 29, 2003, Lincoln Logs Ltd. ("Lincoln Logs") acquired both Hart &
Son Industries Ltd. ("Hart & Son") and True-Craft Log Structures Ltd.
("True-Craft"). The combined purchase had an aggregate consideration of
approximately Cdn$2,865,000, and consisted of a combination of cash,
promissory notes and common stock.
The unaudited pro forma consolidated balance sheet was prepared as if the
acquisition had occurred on July 31, 2003. For purposes of consolidating the
unaudited balances of Lincoln Logs and the acquired businesses as of July 31,
2003, the unaudited balance sheets of the acquired businesses as of June 30,
2003 have been used to approximate the acquired businesses' financial position
as of July 31, 2003.
The unaudited pro forma consolidated statements of operations for the year
ended January 31, 2003 and for the six months ended July 31, 2003 were
prepared as if the acquisition had taken place as of February 1, 2002. Due to
the poor condition of the acquired businesses' historical financial
information, it is not practicable to bring the acquired businesses'
statements of operations to within 93 days of Lincoln Logs' fiscal year end,
as prescribed by Article 11 of Regulation S-X. For purposes of consolidating
the unaudited statement of operations of Lincoln Logs and the acquired
businesses for the year ended January 31, 2003, the unaudited statements of
operations of the acquired businesses for the year ended June 30, 2003 have
been used to approximate the results of their operations as of January 31,
2003. For purposes of consolidating the unaudited statements of operations
of Lincoln Logs and the acquired businesses for the six months ended July 31,
2003, the unaudited statements of operations of the acquired businesses for
the six months ended June 30, 2003 have been used to approximate the results
of their operations as of July 31, 2003.
For the purpose of presenting pro forma financial information, all
transactions between Lincoln Logs, Hart & Son and True-Craft have been
eliminated as if the acquisition had been consummated on the assumed effective
date. The pro forma financial information reflects other adjustments that are
directly attributable to the acquisition as described in the accompanying
notes.
For the purposes of this presentation, certain pro forma adjustments have
been made to the balance sheet and results of operations to provide information
as to how the acquisition might have affected the financial position and
statements of operations. This unaudited pro forma financial information does
not purport to be indicative of the results of operations that would have been
obtained if the operations had been combined as of the beginning of the period
presented, and is not intended to be a projection of future results.
- 22 -
LINCOLN LOGS LTD.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
JULY 31, 2003
(All amounts in US Dollars)
ASSETS
Pro Forma Pro Forma
Hart & Son True-Craft Lincoln Logs Adjustments Consolidated
CURRENT ASSETS:
Cash and cash equivalents $ $ 26,117 $ 26,117
Trade accounts receivable, net of allowance
for doubtful accounts of $20,199 29,738 481,935 511,673
Inventories:
Raw materials 291,370 1,676,222 1,967,592
Work in Process 7,132 262,254 269,386
Prepaid expenses and other current assets 8,406 606,593 614,999
Due from related parties 4,576 39,526 44,102
Mortgage and note receivable 2,592 2,592
Prepaid income taxes 26,057 11,592 12,666 50,315
------------ ------------ ------------ ------------ ------------
Total current assets 367,279 3,106,831 12,666 3,486,776
PROPERTY, PLANT AND EQUIPMENT:
Cost 806,273 43,529 6,321,445 929,515 8,100,762
Less: accumulated depreciation ( 555,313) ( 41,060) (3,764,695) ( 67,441) (4,428,509)
------------ ------------ ------------ ------------ ------------
Property, plant and equipment - net 250,960 2,469 2,556,750 862,074 3,672,253
OTHER ASSETS:
Mortgage receivable 61,232 61,232
Assets held for resale 330 6,466 6,796
Goodwill 690,102 690,102
Deposits and other assets 225,620 225,620
Other intangible assets, net of accumulated
amortization of $209,182 3,909 234,510 238,419
------------ ------------ ------------ ------------ ------------
Total other assets 330 297,227 924,612 1,222,169
------------ ------------ ------------ ------------ ------------
TOTAL ASSETS $ 618,569 $ 2,469 $ 5,960,808 $ 1,799,352 $ 8,381,198
============ ============ ============ ============ ============
See accompanying notes to pro forma consolidated financial statements.
- 23 -
LINCOLN LOGS LTD.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
JULY 31, 2003
(All amounts in US Dollars)
LIABILITIES
Pro Forma Pro Forma
Hart & Son True-Craft Lincoln Logs Adjustments Consolidated
CURRENT LIABILITES:
Current installment of long-term debt $ 166,953 $ 423 $ 104,569 $ $ 271,945
Current installment of long-term debt,
related parties 28,112 28,112
Current installments of note payable 62,748 62,748
Trade accounts payable 136,207 746,293 882,500
Accrued salaries and wages 21,802 136,828 158,630
Accrued income taxes 15,272 20,000 35,272
Accrued expenses 14,783 797,167 3,029 814,979
Due to related parties 2,882 4,576 7,458
Customer deposits 115,261 2,323,748 2,439,009
------------ ------------ ------------ ------------ ------------
Total current liabilities 473,160 4,999 4,219,465 3,029 4,700,653
LONG TERM DEBT, net of current installments:
Mortgage payable 148,125 148,125
Note payable 649,928 649,928
Note payable - related party 213,371 213,371
Other 62,710 62,710
------------ ------------ ------------ ------------ ------------
Total long term liabilities 1,074,134 1,074,134
------------ ------------ ------------ ------------ ------------
Total liabilities 473,160 4,999 5,293,599 3,029 5,774,787
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; authorized
1,000,000 shares; issued and outstanding
-0- shares 73 56 1 ( 130) ---
Common stock, $.01 par value; authorized
10,000,000 shares; issued 8,046,799 shares 92,343 92,343
Additional paid-in capital 6,034,967 6,034,967
Retained Earnings (Accumulated deficit) 145,333 ( 2,585) (2,830,055) 50,843 (2,636,464)
------------ ------------ ------------ ------------ ------------
145,406 ( 2,529) 3,297,256 50,713 3,490,846
Less cost of 504,240 shares of common stock
in treasury ( 884,435) ( 884,435)
------------ ------------ ------------ ------------ ------------
Total stockholders' equity 145,406 ( 2,529) 2,412,821 50,713 2,606,411
------------ ------------ ------------ ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 618,566 $ 2,470 $ 7,706,420 $ 53,742 $ 8,381,198
============ ============ ============ ============ ============
See accompanying notes to pro forma consolidated financial statements.
- 24 -
LINCOLN LOGS LTD.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JULY 31, 2003
(All amounts in US Dollars)
Pro Forma Pro Forma
Hart & Son True-Craft Lincoln Logs Adjustments Consolidated
NET SALES $ 1,331,232 $ 434 $ 6,437,097 $ $ 7,768,763
COST OF SALES 1,092,799 --- 3,531,945 64,656 4,689,400
------------ ------------ ------------ ------------ ------------
GROSS PROFIT 238,433 434 2,905,152 ( 64,656) 3,079,363
OPERATING EXPENSES:
Commissions 22,697 90 744,667 767,454
Selling, general and administrative 277,442 413 2,184,995 6,630 2,469,480
------------ ------------ ------------ ------------ ------------
Total operating expenses 300,139 503 2,929,662 6,630 3,236,934
------------ ------------ ------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS ( 61,706) ( 69) ( 24,510) ( 71,286) ( 157,571)
OTHER INCOME (EXPENSE):
Interest income 24,941 24,941
Interest expense ( 57,966) ( 57,966)
Other ( 2,362) 119 125,356 123,113
------------ ------------ ------------ ------------ ------------
Total other income (expense) - net ( 2,362) 119 92,331 --- 90,088
------------ ------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES ( 64,068) 50 67,821 ( 71,286) ( 67,483)
INCOME TAXES BENEFIT ( 13,175) --- 20,000 ( 12,666) ( 5,841)
------------ ------------ ------------ ------------ ------------
NET INCOME (LOSS) $ ( 50,893) $ 50 $ 47,821 $ ( 58,620) $ ( 61,642)
============ ============ ============ ============ ============
PER SHARE DATA:
Basic earnings (loss) per share $ ( 0.01)
See accompanying notes to pro forma consolidated financial statements.
- 25 -
LINCOLN LOGS LTD.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JANUARY 31, 2003
(All amounts in US Dollars)
Pro Forma Pro Forma
Hart & Son True-Craft Lincoln Logs Adjustments Consolidated
NET SALES $ 2,400,919 $ 1,954 $ 13,991,284 $ $ 16,394,157
COST OF SALES 2,015,951 --- 7,385,771 129,312 9,531,034
------------ ------------ ------------ ------------ ------------
GROSS PROFIT 384,968 1,954 6,605,513 ( 129,312) 6,863,123
OPERATING EXPENSES:
Commissions 47,381 181 1,747,763 1,795,325
Selling, general and administrative 489,999 826 3,670,473 13,259 4,174,557
------------ ------------ ------------ ------------ ------------
Total operating expenses 537,380 1,007 5,418,236 13,259 5,969,882
------------ ------------ ------------ ------------ ------------
INCOME FROM OPERATIONS ( 152,412) 947 1,187,277 ( 142,571) 893,241
OTHER INCOME (EXPENSE):
Interest income 24,941 24,941
Interest expense ( 57,966) ( 57,966)
Other ( 1,043) 238 69,901 69,096
------------ ------------ ------------ ------------ ------------
Total other income (expense) - net ( 1,043) 238 36,876 --- 36,071
------------ ------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES ( 153,455) 1,185 1,224,153 ( 142,571) 929,312
INCOME TAXES / (BENEFIT) ( 25,478) --- 24,000 ( 47,915) ( 49,393)
------------ ------------ ------------ ------------ ------------
NET INCOME $ ( 127,977) $ 1,185 $ 1,200,153 $ ( 94,656) $ 978,705
============ ============ ============ ============ ============
PER SHARE DATA:
Basic earnings per share $ 0.13
============
Dilutive earnings per share $ 0.11
============
See accompanying notes to pro forma consolidated financial statements.
- 26 -
LINCOLN LOGS LTD.
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL STATEMENTS
Pro Forma Adjustments
a.) Balance Sheet:
i.) Upon consummation of the transaction, the purchase price paid to the
shareholders of Hart and Son Industries, Ltd. and True-Craft Log
Structures, Ltd., including amounts paid for pre-acquisition costs,
consisted of $782,276 paid in cash, $954,158 of promissory notes, on
a discounted basis, payable over five to seven years, and 287,500
shares of common stock with certain restrictions valued at $143,750.
ii.) The purchase price was allocated $929,515 to fixed assets, $260,567
to identifiable intangible assets, and the balance of $690,102 to
goodwill.
b.) Statement of Operations:
i.) The pro forma statements of operations have been adjusted to reflect
additional expenses that would have been incurred had the acquisition
taken place at the beginning of the periods shown. Those expenses
included adjustments for such items as salaries, rent, depreciation,
amortization, and other similar items.
ii.) The tax provision has been adjusted to reflect the combined impact of
the pro forma adjustments by incorporating the tax benefit for the net
losses of the acquired companies with the income tax provision of
Lincoln Logs for the twelve-month period ended January 31, 2003 and
the six-month period ended July 31, 2003.
iii.) The weighted average number of shares outstanding has been adjusted
as if the shares issued as part of the consideration paid were issued
at the beginning of the respective periods shown. The weighted
average number of shares used to calculate basic loss per share for
the six-month period ended July 31, 2003 was 8,046,827. The weighted
average number of shares used to calculate basic earnings per share
and diluted earnings per share for the twelve-month period ended
January 31, 2003 was 7,542,559 and 8,782,650, respectively.
iv.) Certain reclassifications have been made to the operating expenses of
Hart and Son Industries, Ltd. and True-Craft Log Structures, Ltd. to
conform to the classifications based on the historical presentation
of Lincoln Logs Ltd.
- 27 -
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 hereunto duly authorized.
LINCOLN LOGS LTD.
Dated: November 13, 2003 By: /s/ William J. Thyne
William J. Thyne
Chief Financial Officer
- 28 -