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): November 17, 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 November 20, 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. Snake River Log Homes, LLC (i) Auditors' Report (ii) Balance Sheet as of December 31, 2002 (iii) Statements of Earnings and Members' Equity for the year ended December 31, 2002 (iv) Statement of Cash Flows for the year ended December 31, 2002 (v) Notes to the Financial Statements (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 October 31, 2003 (iii) Unaudited Pro Forma Consolidated Statement of Operations for the nine months ended October 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 - 2 - SNAKE RIVER LOG HOMES, LLC FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS DECEMBER 31, 2002 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Members Snake River Log Homes, LLC We have audited the accompanying balance sheet of Snake River Log Homes, LLC (a Partnership) as of December 31, 2002 and the related statements of earnings and members' equity and cash flows for the year then ended. 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 auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about 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. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Snake River Log Homes LLC as of December 31, 2002, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. /s/ Poston Denney & Kilpack, PLLC Certified Public Accountants Idaho Falls, Idaho May 21, 2003 - 3 - SNAKE RIVER LOG HOMES, LLC BALANCE SHEET DECEMBER 31, 2002 ASSETS CURRENT ASSETS Cash $ 86,050 Trade receivables, net of allowance for doubtful accounts of $9,940 27,128 ---------- Total current assets 113,178 PROPERTY, PLANT AND EQUIPMENT, at cost Equipment 2,730 Office building 47,222 ---------- 49,952 ---------- Accumulated depreciation ( 3,286) ---------- 46,666 OTHER ASSETS Covenant not to compete, net of amortization 399,278 ---------- $ 559,122 ==========The accompanying notes are an integral part of this financial statement. - 4 - SNAKE RIVER LOG HOMES, LLC BALANCE SHEET DECEMBER 31, 2002 LIABILITIES AND MEMBERS' EQUITY CURRENT LIABILITIES Accounts payable $ 21,567 Customer deposits 56,425 Other accrued liabilities 6,339 Current maturities of long-term debt 105,414 ---------- 189,745 LONG-TERM DEBT, less current maturities 306,636 MEMBERS' EQUITY 62,741 ---------- $ 559,122 ========== The accompanying notes are an integral part of this financial statement. - 5 - SNAKE RIVER LOG HOMES, LLC STATEMENT OF EARNINGS AND MEMBERS' EQUITY YEAR ENDED DECEMBER 31, 2002 Revenues $ 1,481,197 Cost of goods sold 1,129,842 ------------ Gross profit 351,355 General and administrative 386,764 ------------ Loss from operations ( 35,409) Other income (expense) Interest expense ( 4,466) Interest income 966 Forgiveness of debt 44,175 ------------ 40,675 ------------ NET EARNINGS 5,266 Members' equity, January 1, 2002 57,475 ------------ Members' equity, December 31, 2002 $ 62,741 ============ The accompanying notes are an integral part of this financial statement. - 6 - SNAKE RIVER LOG HOMES, LLC STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 2002 Increase (decrease) in cash and cash equivalents Cash flows from operating activities Net earnings $ 5,266 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 2,084 Amortization 13,768 Provision for bad debts 641 Forgiveness of debt ( 44,175) Changes in assets and liabilities Trade receivable 51,366 Accounts payable ( 15,687) Customer deposits 24,435 Other accrued liabilities 2,137 ---------- Total adjustments 34,569 ---------- Net cash provided by operations 39,835 Cash flows from investing activities Redemption of membership interest ( 225,000) ---------- Net cash used in investing activities ( 225,000) Cash flows from financing activities Proceeds from notes payable 225,000 Principal payments on long-term debt ( 996) ---------- Net cash provided by financing activities 224,004 ---------- Net increase in cash and cash equivalents 38,839 Cash and cash equivalents at beginning of year 47,211 ---------- Cash and cash equivalents at end of year $ 86,050 ========== Supplemental disclosures of cash flow information ------------------------------------------------- Cash paid during the year for interest $ 1,857 Non-cash investing and financing activities ------------------------------------------- During the year the Company redeemed the membership interest of its majority member. This was done for $413,046; $225,000 of which was financed through bank debt and a $188,046 note carried by the retiring member. The accompanying notes are an integral part of these financial statements. - 7 - SNAKE RIVER LOG HOMES, LLC NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2002 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 1. Business Activity Snake River Log Homes, LLC, (the Company) was organized under the laws of the State of Idaho. The Company is primarily engaged in the marketing of custom log homes. The Company's sole log source provider is Yellowstone Log Homes. 2. Revenue Recognition The Company recognizes revenues from log home packages when substantially the entire package has been delivered. Customers are normally required to pay 1/3 deposit before the package is ordered and the remainder upon delivery. Revenue is recognized after the product has been shipped. The Company maintains an allowance for doubtful accounts at an amount it estimates to be sufficient to provide protection against losses resulting from less than full payment on its receivables. The Company records the allowance principally by specific identification. Accounts are written off when collection efforts are exhausted. 3. Property and Equipment Property and equipment are stated at cost less accumulated depreciation. Depreciation is provided principally on accelerated methods over the following estimated useful lives: Equipment 5 years Major expenditures and those which substantially increase useful lives are capitalized. Maintenance, repairs and minor renewals are charged to operations when incurred. 4. Intangible Assets The intangible asset is a covenant not to compete from a prior member of the Company. The costs are being amortized over the term of the covenant not to compete of 60 months. 5. Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses during the reporting period. Estimates also affect the disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from these estimates. - 8 - SNAKE RIVER LOG HOMES, LLC NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2002 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 6. Concentrations of credit risk A substantial portion of the Company's trade receivables are with several significant customers. 100% of the log material costs are purchased from Yellowstone Log Homes. 7. Income Taxes The Company is not a taxpaying entity for purposes of federal and state income taxes, and thus no income tax expense has been recorded in their financial statements. Earnings of the Company are distributed to the members and taxed in their respective returns. 8. Cash and cash equivalents The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. NOTE B - LONG-TERM DEBT Long-term debt consists of the following at December 31, 2002: Note payable to a financial institution with interest at 6.6% collateralized by equipment, payments of $1,989 due monthly, the note is personally guaranteed by the Company's members, note due October 15, 2007. $ 224,004 6.0% imputed note payable to former member, payments of $50,000 due April 1, 2003 and November 1, 2003 and $100,000 due April 1, 2004. (Notes E & F) 188,046 ----------- 412,050 Less current maturities ( 105,414) ----------- $ 306,636 =========== Maturities of long-term debt are as follows: Year ending December 31 ----------------------- 2003 $ 105,414 2004 102,163 2005 10,773 2006 11,506 2007 182,194 ----------- $ 412,050 =========== - 9 - SNAKE RIVER LOG HOMES, LLC NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2002 NOTE C - COMMITMENTS AND CONTINGENCIES The Company provides a 1-year workmanship warranty on work performed. The Company has in place a "Memorandum Agreement" with Yellowstone Log Homes, LLC. This agreement provided among other things that: 1. The Company will never sell or move the building. In the event the building is moved or sold, the Company will pay to Yellowstone Log Homes, LLC $44,175. 2. The Company can continue to locate its building on property owned by Yellowstone Log Homes, LLC for an annual lease payment of $1. 3. The Company agrees it will continue to use Yellowstone Log Homes, LLC as its provider of materials as long as Yellowstone Log Homes, LLC can produce and supply material as needed. 4. The Company will maintain its accounts payable current with Yellowstone Log Homes, LLC. 5. The agreement is binding on the Company and Yellowstone Log Homes, LLC and their assigns. As part of the membership redemption discussed in Note E, the Company has an obligation to provide health insurance to the selling member and his family until the date of the final redemption payment on April 1, 2004. NOTE D - RELATED PARTY TRANSACTIONS Amounts due to a related party consist of an amount payable to a member for $1,500 in accounts payable for advertising costs at December 31, 2002. The members of the Company have personally guaranteed the note payable to the bank. - 10 - SNAKE RIVER LOG HOMES, LLC NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2002 NOTE E - CAPITAL ACTIVITY In November 2000, the Company's sole owner entered an agreement to sell a portion of the Company. During 2001, the Company was organized as a limited liability company and the Company's sole proprietor transferred his interest into the Company and became the sole member. Also during 2001, two individuals bought 33% of the ownership interest from the Company's sole owner. Total compensation paid to the member for 33% of his ownership interest was $310,000. This transaction was external to the books of the Company and was between the members. During 2002, as part of the change in ownership, the two minority members entered into an agreement through the Company to redeem the 67% interest of the majority member. To accomplish this, the Company secured a note from a bank for $225,000 and has an obligation to pay the member an additional $188,046 with imputed interest at 6.0%. Of the remaining balance, $48,800 plus interest is due on or before April 1, 2003, $47,170 plus interest is due on or before November 1, 2003 and the balance of $92,076 plus interest is due on or before April 1, 2004. As part of this agreement, the former member agrees not to compete against the Company for a period of five years. The redemption of this membership interest for $413,046 has been recorded as an intangible asset and is being amortized as a covenant not to compete over five years. NOTE F - SUBSEQUENT EVENTS Subsequent to the end of the year, the Company entered into a line of credit agreement with a bank. $50,000 was drawn on the line as payment on a note payable to a former member that was due April 1, 2003 for $50,000. - 11 - LINCOLN LOGS LTD. PRO FORMA FINANCIAL INFORMATION INTRODUCTORY INFORMATION On November 17, 2003, Lincoln Logs Ltd. ("Lincoln Logs") acquired the member- ship interests of Snake River Log Homes, LLC ("Snake River"), a limited liability company. The purchase had an aggregate consideration of approximately $1,663,500, and consisted of a combination of cash, promissory notes, assumption of debt and common stock. The unaudited pro forma consolidated balance sheet was prepared as if the acquisition had occurred on October 31, 2003. For purposes of consolidating the unaudited balances of Lincoln Logs and the acquired business as of October 31, 2003, the unaudited balance sheets of the acquired business as of September 30, 2003 have been used to approximate the acquired business' financial position as of October 31, 2003. The unaudited pro forma consolidated statements of operations for the year ended January 31, 2003 was prepared as if the acquisition had taken place as of February 1, 2002. For the purposes of consolidating the statement of operations of Lincoln Logs and the acquired business for the year ended January 31, 2003, the audited statements of operations of the acquired business for the year ended December 31, 2002 has been used to approximate the results of its operations as of January 31, 2003. The unaudited statement of operations of Lincoln Logs used for the purposes of the presentation of pro forma results of operations for the year ended January 31, 2003 is the unaudited statement of operations filed by Lincoln Logs in a Current Report on Form 8-K/A dated November 13, 2003. That unaudited statement of operations includes the audited results of operations of Lincoln Logs for the year ended January 31, 2003 and the unaudited statements of operations of businesses acquired by Lincoln Logs on August 29, 2003, Hart & Son Industries Ltd. ("Hart & Son") and True Craft Log Structures Ltd.("True Craft"). The unaudited pro forma consolidated statements of operations for the nine- month period ended October 31, 2003 was prepared as if the acquisition had taken place as of February 1, 2003. For the purposes of consolidating the statement of operations of Lincoln Logs and the acquired business for the nine-month period ended October 31, 2003, the unaudited statement of operations of the acquired business for the nine-month period ended September 30, 2003 has been used to approximate the results of its operations as of October 31, 2003. The unaudited consolidated statement of operations of Lincoln Logs used for the purpose of the presentation of pro forma results of operations for the nine- month period ended October 31, 2003 is that unaudited consolidated statement of operations for the nine months ended October 31, 2003 filed by Lincoln Logs in its Quarterly Report on Form 10-QSB dated December 15, 2003, which Quarterly Report includes the results of Hart & Son and True Craft for the period August 29, 2003 (date of acquisition) through October 31, 2003. Also included in the unaudited pro forma consolidated financial statements for the nine-month period ended October 31, 2003 are the unaudited results of operations of Hart & Son and True Craft for the six-month period ended June 30, 2003, which unaudited results of operations were filed by Lincoln Logs in a Current Report on Form 8-K/A dated November 13, 2003. For the purposes of presenting pro forma financial information, all transactions between Lincoln Logs, Snake River, Hart & Son and True Craft have been eliminated as if the acquisitions had been consummated on the assumed - 12 - effective dates. 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. - 13 - LINCOLN LOGS LTD. UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET OCTOBER 31, 2003 (All amounts in US Dollars) ASSETS Lincoln Logs Snake Consolidated Pro Forma Pro Forma River 10Q-SB Filing Adjustments Consolidated CURRENT ASSETS: Cash and cash equivalents $ 199,739 $ 1,077,538 $( 491,478) $ 785,799 Trade accounts receivable, net of allowance for doubtful accounts ( 264) 248,050 247,786 Inventories: Raw materials 0 2,022,117 2,022,117 Work in Process 0 257,543 257,543 Prepaid expenses and other current assets 0 564,649 564,649 Due from related parties 0 43,427 43,427 Mortgage and note receivable 0 2,592 2,592 Prepaid income taxes 0 64,207 64,207 ------------ ------------ ------------ ------------ Total current assets 199,475 4,280,123 ( 491,478) 3,988,120 PROPERTY, PLANT AND EQUIPMENT: Cost 49,951 9,194,396 9,244,347 Less: accumulated depreciation ( 4,849) ( 4,497,629) (4,502,478) ------------ ------------ ------------ ------------ Property, plant and equipment 45,102 4,696,767 0 4,741,869 OTHER ASSETS: Mortgage receivable 0 60,450 60,450 Assets held for resale 0 6,466 6,466 Goodwill 0 731,809 1,021,125 1,752,934 Deposits and other assets 0 64,007 64,007 Other intangible assets, net of accumulated amortization 337,322 302,515 425,000 1,064,837 ------------ ------------ ------------ ------------ Total other assets 337,322 1,165,247 1,446,125 2,948,694 ------------ ------------ ------------ ------------ TOTAL ASSETS $ 581,899 $ 10,142,137 $ 954,647 $ 11,678,683 ============ ============ ============ ============ See accompanying notes to pro forma consolidated financial statements. - 14 - LINCOLN LOGS LTD. UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET OCTOBER 31, 2003 (All amounts in US Dollars) LIABILITIES Lincoln Logs Snake Consolidated Pro Forma Pro Forma River 10Q-SB Filing Adjustments Consolidated CURRENT LIABILITES: Current installment of long- term debt $ 224,004 $ 39,460 $ $ 263,464 Current installment of long- term debt, related parties 57,566 93,458 151,024 Current installments of note payable 205,740 93,458 299,198 Trade accounts payable 1,398,699 1,398,699 Accrued salaries and wages 197,630 197,630 Accrued income taxes 20,000 140,157 ( 14,500) 145,657 Accrued expenses 5,849 686,902 ( 28,685) 664,066 Due to related parties 34,651 34,651 Customer deposits 57,745 2,575,448 2,633,193 ------------ ------------ ------------ ------------ Total current liabilities 307,598 5,336,253 143,731 5,787,582 LONG TERM DEBT, net of current installments: Mortgage payable 571,216 571,216 Note payable 1,190,537 1,190,537 Note payable - related party 167,130 322,563 489,693 Other 188,046 47,934 322,563 558,543 ------------ ------------ ------------ ------------ Total long term liabilities 188,046 1,976,817 645,126 2,809,989 ------------ ------------ ------------ ------------ Total liabilities 495,644 7,313,070 788,857 8,597,571 STOCKHOLDERS' EQUITY: Share Capital 42,395 ( 42,395) 0 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 8,046,799 shares 92,443 3,000 95,443 Additional paid-in capital 6,022,092 237,000 6,259,092 Retained Earnings (Accumulated deficit) 43,860 ( 2,458,584) ( 31,815) ( 2,446,539) Additional other comprehensive income: foreign currency trans- lation adjustment 57,551 57,551 ------------ ------------ ------------ ------------ 86,255 3,713,502 165,790 3,965,547 Less cost of 504,240 shares of common stock in treasury ( 884,435) ( 884,435) ------------ ------------ ------------ ------------ Total stockholders' equity 86,255 2,829,067 165,790 3,081,112 ------------ ------------ ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 581,899 $ 10,142,137 $ 954,647 $ 11,678,683 ============ ============ ============ ============ See accompanying notes to pro forma consolidated financial statements. - 15 - LINCOLN LOGS LTD. UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED OCTOBER 31, 2003 (All amounts in US Dollars) Lincoln Logs Consolidated Pro Forma Pro Forma Hart & Son True-Craft Snake River 10Q-SB Filing Adjustments Consolidated NET SALES $1,331,232 $ 434 $1,543,646 $ 11,723,296 $( 133,955) $ 14,464,653 COST OF SALES 1,092,799 --- 1,108,571 6,680,135 ( 69,299) 8,812,206 ---------- ---------- ---------- ------------ ------------ ------------ GROSS PROFIT 238,433 434 435,075 5,043,161 ( 64,656) 5,652,447 OPERATING EXPENSES: Commissions 22,697 90 0 1,312,836 1,335,623 Selling, general and admin- istrative 277,442 413 371,697 3,352,034 55,380 4,056,966 ---------- ---------- ---------- ------------ ------------ ------------ Total operating expenses 300,139 503 371,697 4,664,870 55,380 5,392,589 ---------- ---------- ---------- ------------ ------------ ------------ INCOME (LOSS) FROM OPERATIONS ( 61,706) ( 69) 63,378 378,291 ( 120,036) 259,858 OTHER INCOME (EXPENSE): Interest income 0 12,826 12,826 Interest expense 0 ( 25,366) ( 2,435) ( 27,801) Other ( 2,362) 119 482 107,928 106,167 ---------- ---------- ---------- ------------ ------------ ------------ Total other income (expense) ( 2,362) 119 482 95,388 ( 2,435) 91,192 ---------- ---------- ---------- ------------ ------------ ------------ INCOME (LOSS) BEFORE INCOME TAXES ( 64,068) 50 63,860 473,679 ( 122,471) 351,050 INCOME TAXES BENEFIT ( 13,175) --- 20,000 163,849 ( 27,166) 143,508 ---------- ---------- ---------- ------------ ------------ ------------ NET INCOME (LOSS) $( 50,893) $ 50 $ 43,860 $ 309,830 $( 95,305) $ 207,542 ========== ========== ========== ============ ============ ============ PER SHARE DATA: Basic earnings per share $ 0.02 ============ Diluted earnings per share $ 0.02 ============ See accompanying notes to pro forma consolidated financial statements. - 16 - LINCOLN LOGS LTD. UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED JANUARY 31, 2003 (All amounts in US Dollars) Lincoln Logs Consolidated Pro Forma Pro Forma Hart & Son True-Craft Snake River 10K-SB Filing Adjustments Consolidated NET SALES $2,400,919 $ 1,954 $1,481,197 $ 13,991,284 $( 204,211) $ 17,671,143 COST OF SALES 2,015,951 --- 1,129,842 7,385,771 ( 74,899) 10,456,665 ---------- ---------- ---------- ------------ ------------ ------------ GROSS PROFIT 384,968 1,954 351,355 6,605,513 ( 129,312) 7,214,478 OPERATING EXPENSES: Commissions 47,381 181 0 1,747,763 1,795,325 Selling, general and admin- istrative 489,999 826 386,764 3,670,473 78,259 4,626,321 ---------- ---------- ---------- ------------ ------------ ------------ Total operating expenses 537,380 1,007 386,764 5,418,236 78,259 6,421,646 ---------- ---------- ---------- ------------ ------------ ------------ INCOME FROM OPERATIONS ( 152,412) 947 ( 35,409) 1,187,277 ( 207,571) 792,832 OTHER INCOME (EXPENSE): Interest income 966 24,941 25,907 Interest expense ( 4,466) ( 57,966) ( 3,247) ( 65,679) Other ( 1,043) 238 44,175 69,901 113,271 ---------- ---------- ---------- ------------ ------------ ------------ Total other income (expense) ( 1,043) 238 40,675 36,876 ( 3,247) 73,499 ---------- ---------- ---------- ------------ ------------ ------------ INCOME BEFORE INCOME TAXES ( 153,455) 1,185 5,266 1,224,153 ( 210,818) 866,331 INCOME TAXES / (BENEFIT) ( 25,478) --- 0 24,000 ( 67,315) ( 68,793) ---------- ---------- ---------- ------------ ------------ ------------ NET INCOME $( 127,977) $ 1,185 $ 5,266 $ 1,200,153 $( 143,503) $ 935,124 ========== ========== ========== ============ ============ ============ PER SHARE DATA: Basic earnings per share $ 0.12 ============ Dilutive earnings per share $ 0.11 ============ See accompanying notes to pro forma consolidated financial statements. - 17 - 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 members of Snake River Logs Homes, LLC, including amounts paid for pre- acquisition costs, consisted of $491,477 paid in cash, $832,041 of promissory notes, on a discounted basis, payable over five years, 300,000 shares of common stock with certain restrictions valued at $240,000, and assumption of $100,000 of debt. ii.) The purchase price was allocated $500,000 to identifiable intangible assets, and the balance of $1,021,125 to goodwill. The amount allocated to identifiable intangible assets was based on preliminary assessments of estimated usefulness, which valuation is subject to a final assessment from an independent valuation consultant. b.) Statement of Operations: i.) The pro forma statements of operations have been adjusted to reflect increases in expenses that would have been incurred, and decreases in expenses that would have been eliminated had the acquisition taken place at the beginning of the periods shown. Those expenses include adjustments for such items as salaries, amortization, interest expense, and the elimination of inter-company transactions. 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 income and losses of certain of the acquired companies with the income tax provision of Lincoln Logs for the twelve-month period ended January 31, 2003 and the nine-month period ended October 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 earnings per share for the nine-month period ended October 31, 2003 and the twelve-month period ended January 31, 2003 was 8,579,967 and 7,842,559, respectively. The weighted average number of shares used to calculate diluted earnings per share for the nine-month period ended October 31, 2003 and the twelve-month period ended January 31, 2003 was 9,215,469 and 9,082,650, respectively. - 18 - 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: January 30, 2004 By: /s/ William J. Thyne William J. Thyne Chief Financial Officer - 19 -