10-K/A 1 form10ka73100.txt FORM 10-KA DATED JULY 31, 2000 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-K/A Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For fiscal year ended July 31, 2000 Commission File No. 0-5767 LINCOLN INTERNATIONAL CORPORATION (Exact name of registrant as specified in its charter) Kentucky # 61-0575092 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Suite 201, 2300 Greene Way Louisville, Kentucky 40220 (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code: (502) 671-0010 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered none none Securities registered pursuant to Section 12(g) of the Act: Common Stock (no-par) voting Title of class Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO State the aggregate market value of the voting stock held by non-affiliates of the Registrant. The aggregate market value shall be computed by reference to the price at which the stock was sold, or the average bid and asked prices of such stock, as of a specified date within 60 days prior to the date of filing. No regular market exists for the stock. Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the July 31, 2000. Common (no-par) 7,972 DOCUMENTS INCORPORATED BY REFERENCE (1) Annual Report -- 1999-2000 (2) Information Statement -- 2000 Portions of the above Annual Report and Information Statement to be issued are hereby incorporated by reference into Parts II and III. PART I ITEM 1: BUSINESS LINCOLN INTERNATIONAL CORPORATION (LINCOLN), incorporated in 1960, is engaged in the rental of commercial office property located in Louisville, Kentucky and in providing bookkeeping and payroll services to small and medium sized businesses primarily in Louisville, Kentucky. On March 5, 1999 Lincoln International Corporation closed on the sale of the Bourbon Stock Yard real estate located at 1048 East Main Street to the Home of the Innocents, Inc. for a total purchase price of $3,377,991, net of sales expense. All proceeds of this sale were deposited with an intermediary as required under United States Code Section 1031 in order to effect a deferral of capital gains taxes on the sale proceeds. In redirecting its principle line of business, Lincoln International Corporation purchased four (4) separate parcels of property: a 3,500 square foot office condominium located at 11860 Capital Way for $282,500; and on June 18, 1999 Lincoln closed on the purchase of real estate located at 2200, 2211, and 2300 Greene Way, Jeffersontown, Kentucky for a total purchase price of $2,800,000. On May 3, 2000 Lincoln sold the 3500 square foot office condominium located at 11860 Capital Way and currently retains ownership of the property located at 2200, 2211, and 2300 Greene Way, Jeffersontown, Kentucky. For the past year, Lincoln has renewed existing tenant leases and sought to lease remaining vacant space. As of July 31, 2000 approximately 89% of the total space has been leased. On August 5, 1999 Articles of Dissolution for Farmers Friend Mineral Company, Inc. and Lincoln Finance Company, Inc. were filed with the Secretary of State for the Commonwealth of Kentucky thereby dissolving the two subsidiaries which have required consolidated financial reports. It is believed that the dissolution of these two corporations, which owned no assets and were not operating in any way, will simplify the accounting and lower accounting costs for Lincoln International Corporation. On January 4, 1999 an intrastate sale of Lincoln securities as a Unit Offering to Kentucky residents was completed, and pursuant to authorization of the Board of Directors, all Units remaining after the close of the offer were made available for purchase by other existing shareholders as determined solely by the Board of Directors. The shares remaining after the close were made available and purchased as follows: 1. 600 Units shall be available for purchase by Pyramid Securities LTD, P.O. Box 2185, Georgetown, Grand Cayman, British West Indies; 2. 600 Units shall be available for purchase by Salina Investment LTD, P.O. Box 2185, Georgetown, Grand Cayman, British West Indies; 3. 600 Units shall be available for purchase by the Ryan Jeffrey Frockt Trust; Sheldon G. Gilman, Trustee, 462 So. 4th Avenue, Suite 500, Louisville, Kentucky 40202; 4. 150 shares shall be available to Richard A. Dolin, Director of Lincoln International Corporation, 5502 Tecumseh Circle, Louisville, Kentucky 40207; 5. 100 shares to Earl W. Winebrenner, III and/or Holly Winebrenner, 1741 Kensington Pl. Lane, Louisville, Kentucky 40205-2748; 6. 150 shares to Russell Roth, Director, 7769 Spanish Lake Dr., Las Vegas, NV 89113; 7. 427 shares to Thurman L. Sisney and/or Sherleen Sisney, Director and Chairman of the Board, 8002 Montero Court, Prospect, Kentucky 40059. Total capital raised from the Unit Offering was $597,900. On August 6, 1999 the Board of Directors of Lincoln approved the investment of 1.5 million dollars in a newly formed corporation, Accounting USA, Inc. Mr. Brian McDonald, MBA/CPA had established a company known as Accounting Outsource Solutions, LLC, within the preceding 2 1/2 years. Under a Merger Agreement, Accounting Outsource Solutions, LLC was contributed into Accounting USA, Inc. in return for 25% of the equity. Lincoln International Corporation in return for its investment received 75% of the equity of Accounting USA, Inc. which was incorporated in the State of Nevada on September 30, 1999. As of July 31, 2000 Lincoln International Corporation had advanced $900,000 of its 1.5 million dollar investment commitment in the newly formed Accounting USA, Inc. Two of the Directors of Lincoln International Corporation (Thurman L. Sisney and Richard J. Frockt) serve as two of the three Directors of Accounting USA, Inc. along with the third Director, Mr. Brian McDonald. Accounting USA, Inc. provides accounting/bookkeeping and payroll services for small to medium sized businesses primarily in the Louisville area. It does, however, service clients outside of the Louisville area on a limited basis, including a client in Columbus, Ohio and one in the State of Vermont. Accounting USA, Inc. has developed and provides internet access for its clients into its accounting platform. The business is not seasonal nor is it dependant on any particular customers. Direct competition for the outsourcing of the accounting/payroll business is in effect non-existent in the Louisville, Kentucky area. Many small to medium sized businesses employ in-house personnel to perform the accounting/bookkeeping responsibilities for their company. Some CPA firms and small bookkeeping firms provide bookkeeping services for their clients although this is usually done on a historical basis as compared with or contrasted to the services provided by Accounting USA, Inc. on a "real time" basis. Accounting USA, Inc.'s core functions are: accounts payable; accounts receivable; payroll; job cost; bank reconciliation; time and billing; and financial statements. Accounting USA, Inc. also provides numerous customized financial reports to its clients. The primary market channels for Accounting USA, Inc. are direct sales and business partnerships with banks, CPA's or other businesses. The intent of Lincoln is to refine the services of Accounting USA, Inc. and the sales of those services so that it can be replicated in other metropolitan markets around the country. Management believes the services of Accounting USA, Inc. meets a unique market niche, particularly with the internet access available to its clients. Given that the outsourcing of accounting/bookkeeping can save clients an average of 30% to 40% of the cost of doing the same service in-house, it is believed by management that the outsourcing concept of Accounting USA, Inc. has potential for future expansion and growth. Accounting USA, Inc. does not replace the services performed by the client's CPA, such as tax preparation and audits. Accordingly, CPA's often find the bookkeeping performed on behalf of their client facilitates the provision of their professional services. Lincoln will continue to provide assistance and support to the start-up efforts of Accounting USA, Inc. In July, 2000 Lincoln International Corporation was approached by the Mountain Economic Development Fund (MEDF) of 201 South Main Street, Winchester, Kentucky 40391 through its Executive Director, Mr. Grant Satterly, requesting financing assistance for Admiralty Boats, Inc., d/b/a Boats Ltd., a Kentucky corporation with its principal office located at 3516 Willow Spring Road, Lexington, Kentucky 40509. MEDF requested a loan in the sum of One Hundred Thousand Dollars ($100,000.00) under a revolving line of credit for Boats, Ltd. to increase their cash flow and allow more favorable purchasing of raw material. Boats, Ltd. is in the business of manufacturing bass fishing boats and sporting boats varying in sizes from 15 feet to 22 feet. MEDF is an affiliate of the Christian Appalachian Project which is well known and reputable in its efforts to retain and/or to create jobs in the Appalachian areas of Kentucky. On July 13, 2000 the company extended a one (1) year revolving line of credit to Boats, Ltd. for One Hundred Thousand Dollars ($100,000). Loan proceeds are to be advanced based upon a pre-determined ninety (90) percent of the manufacturer's cost to manufacture. Lincoln receives a perfected, secured interest in each boat. The security interest is released only upon the sale of each respective boat and upon receipt of one hundred (100) percent of the manufacturer's total cost. Lincoln has the exclusive right to extend the line of credit for an additional one (1) year term. Management does not intend for lending to become a principal part of its business. EMPLOYEES: As of July 31, 2000, LINCOLN employed one (1) person in an adminis- trative/clerical capacity and Accounting USA, Inc. employed twenty-nine (29) employees. ITEM 2: Properties The following are the various properties owned or leased by LINCOLN as of July 31, 2000.
APPROXIMATE LEASE EXPIRATION TYPE OF SQUARE FEET DATE (RENEWAL LOCATION PROPERTY FLOOR SPACE OPTIONS) LINCOLN ADMINISTRATIVE OFFICES Louisville, KY Offices 600 sq. feet. Owned RENTAL PROPERTIES Louisville, KY Office Spaces 16,210 sq. ft Owned Louisville, KY Office Spaces 15,800 sq. ft Owned Louisville, KY Office Spaces 12,500 sq. ft Owned
* * * * * * * * * * * * * * * * * * The properties listed above are suitable and adequate for the various needs they supply. ITEM 3: Legal Proceedings Litigation Report. On March 23, 1999, two minority shareholders, Mr. Merle Brewer and Ms. Sarah Forree, filed a lawsuit in the United States District Court, Western District of Kentucky, Louisville Division against Lincoln International Corporation, and individuals Thurman L. Sisney, David Barhorst (who resigned June of 1998) and Mr. Richard Dolin (deceased in February of 1999). The case is styled: Civil Action No. 3:99CV-178-S. On May 18, 1999, Lincoln International Corporation filed a Motion to Dismiss the complaint alleging that there are no questions of law nor facts substantiating the allegations in the complaint. A response to the Motion to Dismiss was filed by the plaintiffs on July 8, 1999. On June 30, 1999, the plaintiffs filed a Motion to Amend the complaint to substitute another plaintiff in place of one of the original plaintiffs, Sarah Forree. On December 23, 1999 the Court granted the plaintiff's Motion and allowed Terry Kennedy to be substituted for Sarah Forree. On February 18, 2000 the company filed an Amended Motion to Dismiss. Defendants have also raised in their motion to Amend the complaint the allegation that notice of dissenters rights should have been provided in the reverse split that concluded on April 5, 1998. Legal counsel for the corporation gives little merit to the complaint or causes of actions raised by the Plaintiffs. If the company should be unsuccessful on its Motion to Dismiss, our answer will be filed to the complaint. On March 31, 2000 the Plaintiffs filed their Response to Defendants Motion to Dismiss. At this time, the Court has not ruled on any of the intervening motions. ITEM 4: Submission of Matters to a Vote of Security Holders The items to be voted on at the annual meeting which will be held on the 1st day of December, 2000, are as follows: (1) Election of directors and (2) Transaction of any other business as may properly come before the meeting or any adjournment THEREOF. PART II ITEM 5: Market for Registrant's Common Stock and Related Stockholder Matters (1) There does not exist at the present time any regular market for any common stock of the Registrant. ITEM 6: Selected Financial Data
Years ending July 31 2000 1999 1998 1997 1996 Revenues 692,942 190,050 297,459 292,719 301,629 Income (loss) before extraordinary items (500,914) 1,474,483 (72,688) (154,577) 494,735 Net income (loss) (500,914) 1,474,483 (72,688) (154,577) 494,735 Earnings (loss) per common share: Income (loss) before extraordinary items (62.83) 235.64 (17.16) (38.71) 122.70 Net income (loss) (62.83) 235.64 (17.16) (38.71) 122.70 Cash dividends 0 0 0 0 0 Total assets 3,786,349 3,690,394 1,147,311 1,236,802 1,358,785 Long-term obligations 85,511 0 380,205 385,511 387,250 Gain (loss) on sale of property, equipment, and operating assets (12,884) 2,359,078 0 24,999 715,210
ITEM 7: Management's Discussion and Analysis of Financial Conditions and Results of Operations The results and the nature of operations for the company changed dramatically from fiscal year 1998 through July 31, 2000. Until March 5, 1999 the company had owned and operated The Bourbon Stockyard, a livestock auction on approximately 21 acres of land situated in downtown Louisville, Kentucky. The cattle market was changing significantly as fewer livestock producers were taking their livestock to auctions such as those operated by the company. There was a definite trend increasing of selling directly to purchasers or end users such as packing and slaughterhouses. In July of 1995, the company entered into a ten-year lease of the operation with Michigan Livestock Exchange in East Lansing, Michigan, agriculture cooperative with sales nearing One Billion Dollars and vast expertise in the livestock business. It was assumed that Michigan Livestock Exchange, under the 10-year Lease Management Agreement, could provide significantly more capital resources and expertise than the company itself could provide over the succeeding ten years. The stockyard facilities necessary to operate the auction covered approximately sixteen acres of the total 21 acres, and were in dire need of repairs. It was anticipated that capital expenditures to maintain the facilities would rise significantly just to maintain the property/facilities in order to remain certified by the U.S. Department of Agriculture and the Commonwealth of Kentucky. The lease proceeds from the property were originally $18,000 per month under the management agreement and this was subsequently reduced to $13,000 per month as a result of the settlement of litigation. This cash flow was sufficient to meet the current obligations of the company, which in fiscal 1998 were approximately $197,000 since the company had only one employee, rented minimal office space, and its only debt service on a mortgage note payable of $380,205 with monthly payments of $3,283. Accordingly, the proceeds from leases related to the property provided the necessary liquidity into the near and longer term future in order to allow management the time to develop other sources if revenue from the property or to develop the portions of the property not required by the livestock auction operations. On May 4, 1998, the Board of Directors of the company approved, but put on hold, an Intrastate Stock Offering aimed at raising a minimum of $400,000 to be used for working capital and capital expenditures related to maintaining the property for operations and at the same time, developing warehouses or office rental space on the perimeter of the property. By the end of fiscal 1998, the company had been approached by Home of the Innocents, Inc., a not-for-profit health care provider to special needs children, with an expressed interest in purchasing 5 to 7 acres of the site. The company did not desire to break up the property and thereby diminish its value and the company had serious concerns about environmental issues because of past uses of the property, for example about 6 acres had been used as a railroad bed for many decades. Accordingly, the company later proceeded with an Intrastate Stock Offering which culminated January 4, 1999, raising $597,000 in capital to be used for maintenance and improvements, construction of possible rentable warehouses and/or office/warehouse on the portion of the property not used in the livestock auction operations. Notwithstanding the discovery of lead and arsenic in significant amounts on the property as well as asbestos roofing on a significant part of the approximate 16 acres of roofing on that facility, the Home of the Innocents, Inc. purchased the site upon which the auction was located in March 5, 1999 providing $3,377,991 in capital net of expenses. Out of those sale proceeds the first mortgage on the property to Stockyard Bank in the amount of $385,605 was paid off. Faced with significant capital gains on the sale proceeds as well as the lost revenue stream from leasing the property, the company sought to purchase professional office rental property under United States Code Section 1031, which allows deferral of capital gains if the sales proceeds are timely reinvested in property. Accordingly, on May 3, 1999 the company purchased a 3,500 square foot office/warehouse at 1180 Capital Way in Louisville, Kentucky. Then on June 18, 1999 the company purchased approximately 44,311 square feet of professional office space in three (3) buildings located at 2200, 2300, and 2211 Greene Way in Louisville, Kentucky. The combined gross revenue from the four pieces of property had the potential to generate gross revenue of $560,694 or $332,488 in revenue net of expenses using historically provided expenses representing 37.77% of gross income. This represented a cash flow larger than existed under leasing the livestock auction business and more than adequate to meet existing obligations and long term obligations, given the company had only one (1) employee and, at that time, no debt. The company received a One Million Dollar line of credit, secured by a mortgage against the property located at 2200, 2300, and 2211 Greene Way to be used for property improvement, working capital and expenses related to seeking new opportunities for the company. The acquisitions of commercial real estate by the company resulted in a revenue stream and improved liquidity. They also represent a capital resource, which if subsequently sold, could result in the capital gains from such sale being totally obviated by the company's net operating losses. It was anticipated that the $1,000,000 line of credit could easily be converted to a long term, fixed rate mortgage given the fact that the property purchased for $2,800,000 at 2200, 2211, and 2300 Greene Way had no debt against it other than that represented by the line of credit. The company continued looking for other businesses to buy, to merge with or to invest in that would allow the company's assets to be put to work producing on-going revenue. After looking at many acquisitions, the company found a business that represented potential for growth and expansion. On August 6, 1999 the Board of Directors of Lincoln approved the investment of up to 1.5 million dollars in a newly formed corporation, Accounting USA, Inc. Mr. Brian McDonald, MBA/CPA had established a company known as Accounting Outsource Solutions, LLC, within the preceding 2-1/2 years. Under a Merger Agreement, Accounting Outsource solutions, LLC was contributed into Accounting USA, Inc. in return for 25% of the equity. Lincoln International Corporation in return for its investment received 75% of the equity of Accounting USA, Inc., which was incorporated in the State of Nevada on September 30, 1999. As of July 31, 2000 Lincoln International Corporation had advanced $900,000 of its 1.5 million dollar investment commitment in the newly formed Accounting USA, Inc. Two of the Directors of Lincoln International Corporation (Thurman L. Sisney and Richard J. Frockt) serve as two of the three Directors of Accounting USA, Inc. along with the third Director, Mr. Brian McDonald. Accounting USA, Inc. provides accounting/bookkeeping and payroll services for small to medium sized businesses primarily in the Louisville area. It does, however, service clients outside of the Louisville area on a limited basis, including a client in Columbus, Ohio and one in the State of Vermont. Accounting USA, Inc. has developed and provides Internet access for its clients into its accounting platform. The business is not seasonal nor is it dependant on any particular customers. Direct competition for the outsourcing of the accounting/payroll business is in effect non-existent in the Louisville, Kentucky area. Many small to medium sized businesses employ in-house personnel to perform the accounting/bookkeeping responsibilities for their company. Some CPA firms and small bookkeeping firms provide bookkeeping services for their clients although this is usually done on a historical basis as compared with or contrasted to the services provided by Accounting USA, Inc. on a "real time" basis. Accounting USA, Inc's. core functions are: accounts payable; accounts receivable; payroll; job cost; bank reconciliation; time and billing; and financial statements. Accounting USA, Inc. also provides numerous customized financial reports to its clients. The primary market channels for Accounting USA, Inc. are direct sales and business partnerships with banks, CPA's or other businesses. The intent of Lincoln is to refine the services of Accounting USA, Inc. and the sales of those services so that it can be replicated in other metropolitan markets around the country. Management believes the services of Accounting USA, Inc. meets a unique market niche, particularly with the Internet access available to its clients. Given that the outsourcing of accounting/bookkeeping is estimated to save clients an average of 30% to 40% of the cost of doing the same service in-house, it is believed by management that the outsourcing concept of Accounting USA, Inc. has potential for future expansion and growth. Accounting USA, Inc. does not replace the services performed by the client's CPA, such as tax preparation and audits. Accordingly, CPA's often find the bookkeeping performed on behalf of their client facilitates the provision of their professional services. Lincoln will continue to provide assistance and support to the start-up efforts of Accounting USA, Inc. On May 3, 2000 the company sold the 3,500 square foot commercial space located at 11860 Capital Way. The proceeds from the sale of this property, plus cash on hand, plus proceeds from the line of credit were to be the source of the capital to be invested in Accounting USA. It was expected that the rental income from the commercial property the company owns, would be sufficient to meet current obligations, including debt service on the line of credit. It was also expected that a sale of one or more of the buildings would take place in order to pay off the line of credit after it reached the approved $1,000,000 amount. In July 2000, Lincoln International Corporation was approached by the Mountain Economic Development Fund ("MEDF") of 201 South Main Street, Winchester, Kentucky 40391 through its Executive Director, Mr. Grant Satterly, requesting financing assistance for Admiralty Boats, Inc., d/b/a Boats Ltd., a Kentucky corporation with its principal office located at 3516 Willow Spring Road, Lexington, Kentucky 40509. MEDF requested a loan in the sum of One Hundred Thousand Dollars ($100,000.00) under a revolving line of credit for Boats, Ltd. to increase their cash flow and allow more favorable purchasing of raw material. Boats, Ltd. is in the business of manufacturing bass fishing boats and sporting boats varying in sizes from 15 feet to 22 feet. MEDF is an affiliate of the Christian Appalachian Project which is well known and reputable in its efforts to retain and/or to create jobs in the Appalachian areas of Kentucky. On July 13, 2000 the company extended a one (1) year revolving line of credit to Boats, Ltd. for One Hundred Thousand Dollars ($100,000). Loan proceeds are to be advanced based upon a pre-determined ninety (90) percent of the manufacturer's cost to manufacture. Lincoln receives a perfected, secured interest in each boat, which security interest is released only upon the sale of each respective boat and upon receipt of one hundred (100) percent of the manufacturer's total cost. Lincoln has the exclusive right to extend the line of credit for an additional one (1) year term. Net working capital changed from a positive of $347,919 as of July 31, 1999 to a negative of $421,656 as of July 31, 2000 for two (2) primary reasons: 1. The company took out of the million dollar line of credit in September of 1999 to be used primarily as capital infusion into Accounting USA. $500,000 of that line was drawn down and therefore reflected in the current liabilities of the company as of July 31, 2000; and 2. Much of the cash that was available and reported as of July 31, 1999 had been used in the investment in Accounting USA. The negative net working capital of $421,656 should not have an adverse effect on the ability to operate the company because one or more of the buildings will be sold to pay off the line of credit, or in the alternative, the line of credit will be replaced by a fixed rate, long term mortgage that will remove the line of credit as a current liability. It is expected that the net revenue from rental of the commercial office space owned by the company will be sufficient, until such time as to a determination can be made about the future profitability or possibilities related to Accounting USA. Rental income from the company's commercial property is $36,409.75 per month or $436,914 per year upon execution if the 4,236 square feet lease of Suite 200 in 2300 Greene Way. On a near term basis, rental income plus the sale of one or more of the three (3) commercial office buildings owned by the company should be sufficient to provide the liquidity to meet current obligations. It is expected that the sale of at least one of the buildings and converting the company's line of credit to a fixed rate mortgage will not only provide capital, but also retain rental income sufficient to meet the company's obligations. The long-term liquidity needs of the company are largely predicated upon the success of Accounting USA, a start-up company that will not reach a break-even point until the fall of 2001. Therefore, the ultimate profitability of Accounting USA will dictate, to some extent, the liquidity of the company. Other capital resources will be evaluated on an on-going basis. The sale of real estate raising additional equity capital and the merger or sale of a portion of Accounting USA represent only potential or possible additional sources in the future. ITEM 8: Consolidated Financial Statements and Supplementary Data The response to this item is contained within a separate section of this report. ITEM 9: Changes in and Disagreements with Accountants None. PART III ITEM 10: NAME, PRINCIPAL OCCUPATION AND OTHER POSITIONS WITH LINCOLN FOR LAST 5 YEARS DIRECTORS SINCE SHARES OWNED AS OF 07/31/2000 Thurman L. Sisney, President Director, Age 54 1994 2,785 Richard Jay Frockt Chairman of the Board Director 1997 1,208(1) Russell R. Roth Secretary/Treasurer Director 1997 150 Janet Clark Frockt Director 1997 1,207(1) ------- Officers & Directors as a group 5,350 (1) Richard Frockt, a Director of the Company, is the beneficiary of a tax-deferred annuity which, in turn, is the owner of all the outstanding capital stock of Salina Investment LTD, the record holder of 1,208 shares. In addition, Janet Frockt, the wife of Richard Frockt and a Director of the Company, is the beneficiary of a tax-deferred annuity which, in turn, is the owner of all the capital stock of Pyramid Securities LTD, the record holder of 1,207 shares. Mr. Frockt disclaims any beneficial ownership interest in the shares to which Mrs. Frockt is the beneficiary. Mrs. Frockt disclaims any beneficial ownership interest in the shares to which Mr. Frock is the beneficiary. Further, the Ryan Jeffrey Frockt Trust, Sheldon Gilman, Trustee, is the owner of 600 shares of Lincoln International Corporation stock. Ryan Jeffrey Frockt is the legally emancipated son of Richard Jay Frockt and Janet Clark Frockt, both of whom disclaim any beneficial ownership in the shares to which Ryan Jeffrey Frockt is beneficiary. BUSINESS HISTORY OF DIRECTORS Thurman L. Sisney--Mr. Sisney is President of Lincoln International Corporation. He has a masters degree in Business Administration and a law degree from the University of Louisville and has been in private practice since 1980. Mr. Sisney has served as general counsel to the Finance and Administration Cabinet as well as counsel and legislative liaison to the governor of Kentucky. He has also served as general counsel and Deputy Commissioner of the Department of Agriculture. Mr. Sisney is and has been active in numerous civic and charitable organizations. Mr. Sisney has been President of Lincoln International Corporation since October of 1994. Janet Clark Frockt--Ms. Clark has a B.A. in Dramatic Arts from the University of California at Santa Barbara. She has performed with the Wand'ring Minstrels Theatrical Group and Theatre A La Carte in Louisville, Kentucky. Ms. Frockt is also the author, Assistant Director and Producer of the film "Dominant Positions", an original screenplay filmed for PBS. Richard Jay Frockt--Mr. Frockt is Chairman of the Board of Lincoln International Corporation. Mr. Frockt has a B.S. in History from Western Kentucky University and a juris doctorate from the University of Louisville Law School. He was a capital partner with the law firm Barnett and Alagia in Louisville until 1986, when he became the Chief Operating Officer of TMC Communications, a regional long distance telephone company in Santa Barbara, California. Mr. Frockt founded WCT Communications, Inc. in 1989. He served as Chairman of the Board and Chief Executive Officer of that company until 1995. Russell R. Roth--Mr. Roth is Secretary-Treasurer of the Company. Mr. Roth earned a B.S. in Economics from the University of Kansas and an MBA in Finance from the University of Michigan. He has served as Chief Financial Officer of Cessna Aircraft Company which merged into General Dynamics Corporation in 1986. He then became Chief Financial Officer of Sotheby Holdings, Inc., an art auction company with headquarters in New York City. Mr. Roth founded Las Vegas Investment Report in 1993. This publication reported upon and analyzed the gaming industry and was closed in December, 1999. Mr. Roth is currently President of Las Vegas Gaming, Inc., a gaming supply company. ITEM 11: The directors received no compensation for meetings. The travel expenses for 1999-2000 were $2,831. ITEM 12 and ITEM 13: LINCOLN intends to file an Information Statement pursuant to Regulation 14(c) which contains all of the information required by Part III which information is incorporated herein by reference. PART IV ITEM 14: Exhibits, Financial Statement Schedules and Reports on Form 8-K Part IV which relates to Item 14 concerning exhibits, financial statement schedules and reports is hereby amended to include the following items by reference. (3) Articles of Incorporation and By-Laws: The articles and by-laws of Lincoln International Corporation were filed as a part of its Form 10 filing in September of 1971. (4) Form 8-K filed September, 1991, reporting sale and disposition of assets of Lincoln Finance Company, Inc. to Kentucky Finance Co., Inc. of three (3) of the four (4) finance companies operated by Registrant. (5) Articles of Merger of majority held subsidiary, Professional Services, Inc., into Registrant as filed on Form 10K for fiscal year 1991-1992. (6) Form 10-K - 1995 (1) A copy of the lease agreement dated July 15, 1995, between LINCOLN INTERNATIONAL CORPORATION and Kentucky Livestock Exchange (BOURBON STOCKYARDS OPERATIONS) a division of Michigan Livestock Exchange, et al. (7) Form 8-K - 1997 (1) A copy of the amendment to the Articles of Incorporation eliminating classes of stock. Financial data and schedules are submitted separately as a separate schedule and are attached hereto. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Lincoln International Corporation has duly caused this report to be signed on its behalf, by the undersigned, President and Chief Executive Officer, Thurman L. Sisney, and by its Secretary, and Treasurer, Russell R. Roth, as thereunto duly authorized in the City of Louisville, Commonwealth of Kentucky, on the 11th day of June, 2001. LINCOLN INTERNATIONAL CORPORATION By:/s/THURMAN L. SISNEY ----------------------------------------- Thurman L. Sisney, President Date: -------------------------------------- By:/s/RUSSELL R. ROTH ----------------------------------------- Russell R. Roth, Sec./Treas. Date: -------------------------------------- Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of LINCOLN INTERNATIONAL CORPORATION in the capacities and on the date indicated. SIGNATURE TITLE (1) Principal Executive Officers By:/s/THURMAN L. SISNEY ----------------------------- Thurman L. Sisney President By:/s/RICHARD JAY FROCKT ----------------------------- Richard Jay Frockt Chairman of the Board By:/s/RUSSELL R. ROTH ----------------------------- Russell R. Roth Secretary/Treasurer (2) Directors By:/s/THURMAN L. SISNEY ----------------------------- Thurman L. Sisney Director By:/s/RICHARD JAY FROCKT ----------------------------- Richard Jay Frockt Director By:/s/JANET CLARK FROCKT ----------------------------- Janet Clark Frockt Director By:/s/RUSSELL R. ROTH ------------------------------ Russell R. Roth Director LINCOLN INTERNATIONAL CORPORATION ANNUAL REPORT FORM 10-K INDEPENDENT AUDITOR'S REPORT The Board of Directors and Stockholders Lincoln International Corporation Louisville, Kentucky We have audited the consolidated balance sheets of Lincoln International Corporation listed in the accompanying index to Financial Statements (Item 14(a)) as of July 31, 2000 and 1999, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended July 31, 2000. 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 audits. We conducted our audits 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 audits provide a reasonable basis for our opinion. In our opinion, the financial statements listed in the accompanying Index to Financial Statements (Item 14(a)) present fairly, in all material respects, the consolidated financial position of Lincoln International Corporation as of July 31, 2000 and 1999, and the consolidated results of its operations and its cash flows for each of the three years in the period ended July 31, 2000, in conformity with accounting principles generally accepted in the United States of America. As described in Note 17 to the consolidated financial statements, the Company incorrectly capitalized organization costs. Also, the minority interest was reflected as a debit balance under stockholders' equity in the consolidated balance sheet. As the minority owner has no further commitments to provide capital, the minority interest should have been allocated losses to the extent to bring the interest to zero. The 2000 financial statements have been restated to reflect these changes. POTTER & COMPANY, LLP Louisville, Kentucky October 20, 2000 (except for Note 17, as to which the date is May 25, 2001) LINCOLN INTERNATIONAL CORPORATION INDEX TO FINANCIAL STATEMENTS ITEM 14(A) The following consolidated financial statements of Lincoln International Corporation and subsidiaries are incorporated by reference in Item 8: Consolidated balance sheets - July 31, 2000 and 1999 Consolidated statements of operations - years ended July 31, 2000, 1999, and 1998 Consolidated statements of stockholders' equity - years ended July 31, 2000, 1999, and 1998 Consolidated statements of cash flows - years ended July 31, 2000, 1999, and 1998 Notes to consolidated financial statements Supporting schedules for the three years ended July 31, 2000, 1999, and 1998: II - Valuation and qualifying accounts and reserves All other schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements and notes thereto.
SCHEDULE II LINCOLN INTERNATIONAL CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS AND RESERVES Years ended July 31, 2000, 1999, and 1998 Column A Column B Column C Column D Column E ------------------------------------ ---------------- ------------------------------ ---------------------- ------------- Additions ------------------------------ Balance at Charged to Charged to Beginning Costs and Other Accts. Deductions - Balance at Description of Year Expenses Describe Describe End of Year ------------------------------------ ---------------- ------------- -------------- ---------------------- ------------- Year ended July 31, 2000 Reserves deducted from assets: Allowance for losses: Accounts receivable $ 0 $ 8,195 $ 0 $ 0 $ 8,195 ============= =========== ============ ============ =========== Year ended July 31, 1999 Reserves deducted from assets: Allowance for losses: Accounts receivable $ 0 $ 0 $ 0 $ 0 $ 0 ============= =========== ============ ============ =========== Year ended July 31, 1998 Reserves deducted from assets: Allowance for losses: Accounts receivable $ 40,332 $ 17,550 $ 0 $ (57,882)* $ 0 ============= =========== ============ ============ =========== * The allowance for losses on accounts receivable and accounts receivable were reduced by $57,882 per a settlement agreement dated August 18, 1998.
LINCOLN INTERNATIONAL CORPORATION CONSOLIDATED FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR'S REPORT July 31, 2000, 1999, and 1998 INDEPENDENT AUDITOR'S REPORT To the Board of Directors and Stockholders Lincoln International Corporation Louisville, Kentucky We have audited the accompanying consolidated balance sheets of Lincoln International Corporation as of July 31, 2000 and 1999, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended July 31, 2000. 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 audits. We conducted our audits 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 audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Lincoln International Corporation as of July 31, 2000 and 1999, and the consolidated results of its operations and its cash flows for each of the three years in the period ended July 31, 2000, in conformity with accounting principles generally accepted in the United States of America. As described in Note 17 to the consolidated financial statements, the Company incorrectly capitalized organization costs. Also, the minority interest was reflected as a debit balance under stockholders' equity in the consolidated balance sheet. As the minority owner has no further commitments to provide capital, the minority interest should have been allocated losses to the extent to bring the interest to zero. The 2000 financial statements have been restated to reflect these changes. POTTER & COMPANY, LLP October 20, 2000 (except for Note 17, as to which the date is May 25, 2001)
LINCOLN INTERNATIONAL CORPORATION CONSOLIDATED BALANCE SHEETS July 31, 2000 and 1999 A S S E T S 2000 1999 --------------- -------------- Current assets: Cash and cash equivalents $ 86,802 $ 396,466 Accounts receivable, less allowance of $8,195 for 2000 and $0 for 1999 55,348 0 Note receivable 38,023 0 Other receivables 6,627 2,500 Prepaid expenses 50,819 0 ------------- ------------ Total current assets 237,619 398,966 ------------- ------------ Net property and equipment 3,091,224 3,105,922 ------------- ------------ Noncurrent asset: Deferred tax asset 457,506 185,506 ------------- ------------ Total assets $ 3,786,349 $ 3,690,394 ============= ============ L I A B I L I T I E S Current liabilities: Line of credit $ 500,000 $ 0 Current maturities of long-term debt 29,640 0 Obligation under capital lease 3,048 0 Accounts payable 78,592 32,297 Accrued expenses 47,995 18,750 ------------- ------------ Total current liabilities 659,275 51,047 ------------- ------------ Noncurrent liabilities: Long-term debt, less current maturities 70,784 0 Obligation under capital lease 14,727 0 Deferred tax liability 786,517 883,387 ------------- ------------ Total noncurrent liabilities 872,028 883,387 ------------- ------------ Total liabilities 1,531,303 934,434 ------------- ------------ Commitments S T O C K H O L D E R S' E Q U I T Y Stockholders' equity Common stock, no par value, 3,000,000 shares authorized, 7,972 shares issued and outstanding 1,879,898 1,879,898 Retained earnings 375,148 876,062 ------------- ------------ Total stockholders' equity 2,255,046 2,755,960 ------------- ------------ Total liabilities and stockholders' equity $ 3,786,349 $ 3,690,394 ============= ============
LINCOLN INTERNATIONAL CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS Years ended July 31, 2000, 1999, and 1998 2000 1999 1998 --------------- --------------- ------------ Revenues $ 692,942 $ 190,050 $ 297,459 ------------- ------------- ---------- Costs and expenses: Cost of revenues 616,216 79,035 64,422 Operating, general and administrative expenses 916,673 325,078 276,940 ------------- ------------- ---------- Total costs and expenses 1,532,889 404,113 341,362 ------------- ------------- ---------- Loss from operations (839,947) (214,063) (43,903) ------------- ------------- ---------- Other income (expense): Gain (loss) on sale of property, equipment, and operating assets (12,884) 2,359,078 0 Interest and dividend income 18,618 48,606 0 Miscellaneous income 0 1,355 6,276 Interest expense (35,307) (20,312) (35,061) ------------- ------------- ---------- Total other income (expense) (29,573) 2,388,727 (28,785) ------------- ------------- ---------- Income (loss) before income taxes (869,520) 2,174,664 (72,688) Provision for (benefit from) income taxes (368,606) 700,181 0 ------------- ------------- ---------- Net income (loss) $ (500,914) $ 1,474,483 $ (72,688) ============= ============= ========== Net income (loss) per common share $ (62.83) $ 235.64 $ (17.16) ============= ============= ==========
LINCOLN INTERNATIONAL CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Years ended July 31, 2000, 1999, and 1998 Retained Total Earnings Stockholders' Common Stock (Deficit) Equity ------------ -------- ------------ Balance at July 31, 1997 $ 1,300,019 $(525,733) $ 774,286 Purchase of common stock for the treasury (18,021) 0 (18,021) Net loss 0 (72,688) (72,688) ----------- --------- ------------ Balance at July 31, 1998 1,281,998 (598,421) 683,577 Issuance of common stock for cash 597,900 0 597,900 Net income 0 1,474,483 1,474,483 ----------- --------- ------------ Balance at July 31, 1999 1,879,898 876,062 2,755,960 Net loss 0 (500,914) (500,914) ----------- --------- ------------ Balance at July 31, 2000 $ 1,879,898 $ 375,148 $ 2,255,046 =========== ========== ===========
LINCOLN INTERNATIONAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended July 31, 2000, 1999, and 1998 2000 1999 1998 ----------- ------------- ------------- Cash flows from operating activities: Net income (loss) $ (500,914) $ 1,474,483 $ (72,688) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization 143,263 37,126 40,750 Allowance for doubtful accounts 8,195 0 17,550 (Gain) loss on sale of property, equipment, and operating assets 12,884 (2,359,078) 0 Deferred income taxes (368,870) 697,881 0 (Increase) decrease in: Receivables (105,693) 8,411 (18,729) Prepaid expenses (50,819) 3,141 (3,141) Increase (decrease) in: Accounts payable 46,295 19,986 (16,282) Accrued expenses 29,245 (2,809) (21,409) Deferred rent 0 (18,810) 18,810 Deposits 0 (25,000) 25,000 ---------- ----------- ---------- Net cash used in operating activities (786,414) (164,669) (30,139) ---------- ----------- ---------- Cash flows from investing activities: Proceeds from sale of property, equipment and operating assets 263,743 3,377,991 0 Purchase of property and equipment (386,349) (3,119,696) (12,087) ---------- ----------- ---------- Net cash provided by (used in) investing activities (122,606) 258,295 (12,087) ---------- ----------- ---------- Cash flows from financing activities: Proceeds from issuance of common stock 0 597,900 0 Net proceeds on line of credit 500,000 0 0 Proceeds from long-term borrowings 115,000 0 0 Principal payments on long-term debt (14,574) (386,054) (4,900) Principal payments on capital lease obligations (1,070) 0 0 Purchase of common stock for the treasury 0 0 (18,021) ---------- ----------- ---------- Net cash provided by (used in) financing activities 599,356 211,846 (22,921) ---------- ----------- ---------- Net increase (decrease) in cash and cash equivalents (309,664) 305,472 (65,147) Cash and cash equivalents at beginning of year 396,466 90,994 156,141 ---------- ----------- ---------- Cash and cash equivalents at end of year $ 86,802 $ 396,466 $ 90,994 ========== =========== ========== Supplemental disclosures of cash flow information: Cash paid during the year for interest $ 34,937 $ 20,312 $ 35,121 ========== =========== ========== Cash paid during the year for income taxes $ 2,300 $ 0 $ 0 ========== =========== ========== Supplemental schedule of non-cash investing activities: Purchase of equipment under capital lease $ 18,845 $ 0 $ 0 ========== =========== ==========
LINCOLN INTERNATIONAL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS July 31, 2000, 1999, and 1998 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This summary of significant accounting policies of Lincoln International Corporation (the Company) is presented to assist in understanding the Company's financial statements. The financial statements and notes are representations of the Company's management who is responsible for their integrity and objectivity. These accounting policies conform to generally accepted accounting principles and have been consistently applied in the preparation of the financial statements. Company's Activities: Lincoln International Corporation owned property in Louisville, Kentucky which it leased to a stockyard operator. The property and equipment of the stockyard were sold during fiscal year 1999. The proceeds from the sale were used to purchase commercial rental office buildings in Louisville, Kentucky. On October 1, 1999, the Company formed Accounting USA, Inc. and received 75% of the outstanding shares of common stock. The Company contributed $500,000 at the time of formation. The Company was obligated over an 18 month period beginning October 1, 1999 to contribute an additional $1,000,000 for a total investment of $1,500,000. As if July 31, 2000, the Company had contributed $900,000, leaving an additional $600,000 to be contributed. The subsidiary provides payroll and bookkeeping services primarily in the Louisville metropolitan area. The revenue of the subsidiary constituted approximately 50% of consolidated revenue for the year ending July 31, 2000. The results of operations of the subsidiary for the period October 1, 1999 through July 31, 2000 are included in the consolidated statement of operations for the year ended July 31, 2000. Principles of Consolidation: The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries, and its majority-owned subsidiary. All significant intercompany transactions are eliminated in consolidation. 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 and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents: For purposes of reporting cash flows, the Company considers all highly liquid investments with a maturity of three months or less to be cash equivalents. LINCOLN INTERNATIONAL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS July 31, 2000, 1999, and 1998 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Property and Equipment: Property and equipment are recorded at cost. Depreciation is provided over the following estimated useful lives: Buildings and improvements 20-40 years Leasehold improvements 3-5 years Office and computer equipment 3-12 years The Company uses the straight-line method of computing depreciation for financial statement purposes and accelerated methods for income tax purposes. Leasehold improvements are amortized using the straight-line method over the lease term. Advertising: The Company expenses advertising costs when incurred, except marketing brochures, which are capitalized and amortized over the expected benefits period. Advertising expense was $53,684 and $17,071 for the years ended July 31, 2000 and 1999, respectively. Income Taxes: Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes. Deferred taxes result primarily from using different accounting methods for financial reporting from those used for income tax reporting. The deferred tax assets and liabilities represent future tax consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. The Company files a consolidated federal income tax return and includes each wholly-owned subsidiary. Investment tax credits are treated as a reduction of the tax provision in the year in which the benefit is earned (flow-through method). Separate state income tax returns are filed for the Company and each subsidiary. Earnings Per Share: Earnings per share are based on the weighted average number of shares outstanding during each year. Reclassifications of Previously Issued Financial Statements: Certain reclassifications have been made to the 1999 financial statement presentation to correspond to the current year's format. Total equity and net income are unchanged due to these reclassifications. LINCOLN INTERNATIONAL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS July 31, 2000, 1999, and 1998 NOTE 2 - NOTE RECEIVABLE During the year ended July 31, 2000, the Company entered into a master loan agreement with a builder and seller of pleasure boats to help finance the building of the boats. The master loan agreement has an initial term of one year, renewable at that time by the Company. The agreement is for a maximum of $100,000 to be issued in a series of minimum installments of $15,000. Each note is secured by the boats constructed with the funds disbursed by the Company. The Company will disburse 90% of required funds to construct the specific boats. At the time of sale of the boats, the Company will be repaid 100% of the required funds. The Company has the option to charge interest equal to 10% per annum on the notes if they are not repaid 120 days from the date funds are disbursed. As of July 31, 2000, the Company has disbursed $37,400 on the master loan agreement, leaving $62,600 available to draw. The note receivable balance at July 31, 2000 is as follows: Company funds disbursed $ 37,400 Interest receivable 623 ---------- Total $ 38,023 ========== NOTE 3 - OTHER RECEIVABLES Other receivables consist of the following: 2000 1999 ---------- ------------- Due from officer $ 6,149 $ 0 Refundable deposits 478 2,500 -------- --------- Total $ 6,627 $ 2,500 ======== ========= The balance due from officer is non-interest bearing, and there are no repayment terms on the advance. NOTE 4 - PREPAID EXPENSES Prepaid expenses consist of the following: 2000 1999 --------- --------- Prepaid leasing commissions $ 21,683 $ 0 Prepaid advertising costs 18,972 0 Prepaid maintenance, support, and training 9,224 0 Other 940 0 -------- -------- Total $ 50,819 $ 0 ======== ======== LINCOLN INTERNATIONAL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS July 31, 2000, 1999, and 1998 NOTE 5 - PROPERTY AND EQUIPMENT Property and equipment consists of the following: 2000 1999 ---------- ---------- Land $ 281,804 $ 310,054 Building 2,572,321 2,790,483 Office and computer equipment 385,712 50,940 Leasehold improvements 2,800 2,800 ---------- ---------- 3,242,637 3,154,277 Less accumulated depreciation and amortization 167,117 48,355 ---------- ---------- 3,075,520 3,105,922 Equipment held under capital lease, net of accumulated amortization 15,704 0 ---------- ---------- Net property and equipment $3,091,224 $3,105,922 ========== ========== Depreciation expense for the years ended July 31, 2000, 1999 and 1998 was $143,263, $37,126 and $40,750, respectively. All property and equipment of Bourbon Stock Yards was sold on March 5, 1999 for $3,377,991, net of sales expense. The sale resulted in a gain of $2,359,078 for financial statement purposes. The proceeds were used to purchase commercial rental office buildings. Substantially all of the gain was deferred under Section 1031 for federal and state tax purposes. NOTE 6 - LINE OF CREDIT The Company maintains a line of credit with a local bank which bears interest at prime plus .50% (prime at July 31, 2000 was 9.5%) and is collateralized by substantially all corporate real and personal property with an assignment of leases and rents. Interest is payable monthly. The line of credit has a maximum of $1,500,000 which may be borrowed and is renewable annually. The balance outstanding on the line of credit at July 31, 2000 was $500,000, leaving $1,000,000 available to draw. LINCOLN INTERNATIONAL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS July 31, 2000, 1999, and 1998 NOTE 7 - LONG-TERM DEBT 2000 1999 ------------ ----------- Term note payable, interest at 8.75%, monthly payments of $3,105, including principal and interest, due October 2004, $33,492 available to be drawn. $ 100,424 $ 0 Less current maturities 29,640 0 ------------ ----------- Total $ 70,784 $ 0 ============ =========== As of July 31, 2000, the annual maturities required on the term note payable are as follows: Year ending July 31: 2001 $ 29,640 2002 32,340 2003 35,286 2004 3,158 --------- Total $ 100,424 ========= NOTE 8 - CAPITAL LEASE The following is an analysis of the property under capital leases: 2000 1999 ------------- ------------- Office and computer equipment $ 18,845 $ 0 Less accumulated amortization 3,141 0 ------------ ------------ Total $ 15,704 $ 0 ============ ============ The following is a schedule by years of future minimum lease payments under the capital lease together with the present value of the net minimum lease payments as of July 31, 2000: Year ending July 31: 2001 $ 5,142 2002 5,142 2003 5,142 2004 5,142 2005 3,000 ---------- Net minimum lease payments 23,568 Less amount representing interest 5,793 ---------- Present value of net minimum lease payments $ 17,775 ========== LINCOLN INTERNATIONAL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS July 31, 2000, 1999, and 1998 NOTE 9 - ACCRUED EXPENSES Accrued expenses consist of the following: 2000 1999 ------- ------- Accrued payroll and payroll taxes $27,529 $ 0 Accrued property taxes 17,820 14,437 Other 2,646 4,313 ------- ------- Total $47,995 $18,750 ======= ======= NOTE 10 - INCOME TAXES A deferred tax asset has been recognized for operating loss carryovers that are available to offset future income taxes. In addition, a deferred tax asset has been recognized for the loss incurred by an unconsolidated subsidiary which will be recognized when the unconsolidated subsidiary is profitable or in the event the unconsolidated subsidiary is liquidated. A deferred tax liability has been recognized as the result of the deferred gain on the sale of property for income tax purposes. The net deferred tax liability in the balance sheet consists of the following: 2000 1999 ------------ --------- Deferred tax asset $ 457,506 $ 185,506 Deferred tax liability (786,517) (883,387) ------------ --------- Net deferred tax liability $ (329,011) $(697,881) ============ ========= The Company has available at July 31, 2000 operating loss carryforwards which may provide future tax benefits. If not used, the carryforwards will expire as follows: Year of Operating Loss Expiration Carryforwards ---------- -------------- 2006 $ 196,784 2007 0 2008 72,982 2009 31,281 2010 31,281 2011 0 2012 62,562 2013 58,242 --------- Total $ 453,132 ========= LINCOLN INTERNATIONAL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS July 31, 2000, 1999, and 1998 NOTE 10 - INCOME TAXES (CONTINUED) The provision for income taxes consists of the following: 2000 1999 1998 ---------- ---------- ---------- Federal income taxes $ 1,764 $ 18,719 $ 0 State and local income taxes 735 7,708 0 Deferred taxes (368,870) 697,881 0 Tax benefit of net operating loss carryforward (2,235) (24,127) 0 ---------- --------- -------- Total $ (368,606) $ 700,181 $ 0 ========== ========= ========= Deferred income taxes on difference between tax and financial accounting for: 2000 1999 1998 ---------- ---------- ---------- Depreciation $ (96,870) $ 883,387 $ 0 Net deferred costs (5,776) 0 0 Net operating loss carryforward (1,663) (185,506) 0 Loss on unconsolidated subsidiary (264,561) 0 0 --------- -------- --------- Total $ (368,870) $ 697,881 $ 0 ========== ========= ========= For financial statement purposes, the loss of the subsidiary is included in the operations of the Company. The loss of the subsidiary is not included on the parent company's tax return, as the subsidiary files separate income tax returns for federal and state purposes. NOTE 11 - LEASE COMMITMENTS The Company has entered into operating lease agreements. Total rental expense amounted to $16,885 in 2000, $32,323 in 1999, and $61,667 in 1998. Future minimum rentals at July 31, 2000 are as follows: YEAR ENDING JULY 31: 2001 $ 15,163 2002 10,163 2003 6,566 2004 5,367 2005 3,578 ---------- Total $ 40,837 ========== LINCOLN INTERNATIONAL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS July 31, 2000, 1999, and 1998 NOTE 12 - LEASE OF PROPERTY AND EQUIPMENT The Company is the lessor of commercial rental office buildings under operating leases. Following is a summary of the Company's investment in property and equipment under operating leases as of July 31, 2000: Land $ 281,804 Buildings and improvements 2,572,321 --------- 2,854,125 Less accumulated depreciation 77,960 ----------- Total $ 2,776,165 ============ Under the operating method of accounting for leases, the cost of the property and equipment is recorded as an asset and is depreciated over its estimated useful life and the rental income is recognized as the lease rental payments are earned. The minimum future rentals to be received on the leases at July 31, 2000 are as follows: Year ending July 31: 2001 $ 342,962 2002 346,750 2003 159,748 2004 22,104 2005 22,104 Thereafter 71,838 ------------ Total $ 965,506 ============ NOTE 13 - MAJOR BUSINESS SEGMENTS As of October 1, 1999, Lincoln International Corporation has two reportable segments: commercial rental real estate lessor (rental) and payroll and bookkeeping services (bookkeeping). The accounting policies of the segments are the same as those described in the summary of significant accounting policies. Lincoln International Corporation accounts for intersegment revenues as if the transactions were to third parties. Lincoln International Corporation's reportable segments are strategic business units managed separately as each business requires different technology and marketing strategies.
LINCOLN INTERNATIONAL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS July 31, 2000, 1999, and 1998 NOTE 13 - MAJOR BUSINESS SEGMENTS (CONTINUED) 2000 1999 1998 ----------- ----------- ----------- Revenues: Rental $ 375,312 $ 190,050 $ 297,459 Bookkeeping 347,155 0 0 ----------- ----------- ----------- Total $ 722,467 $ 190,050 $ 297,459 =========== =========== =========== Costs and expenses: Cost of revenues Rental $ 223,452 $ 79,035 $ 64,422 Bookkeeping 398,417 0 0 ----------- ----------- ----------- Total 621,869 79,035 64,422 ----------- ----------- ----------- Operating, general and administrative expenses Rental 349,919 325,078 276,940 Bookkeeping 590,626 0 0 ----------- ----------- ----------- Total 940,545 325,078 276,940 ----------- ----------- ----------- Total costs and expenses 1,562,414 404,113 341,362 ----------- ----------- ----------- Loss from operations (839,947) (214,063) (43,903) Interest income 18,618 48,606 0 Non-operating income 0 2,360,433 6,276 Non-operating expense (12,884) 0 0 Interest expense (35,307) (20,312) (35,061) ----------- ----------- ----------- Gain (loss) before income taxes $ (869,520) $ 2,174,664 $ (72,688) =========== =========== =========== Total assets: Rental $ 3,339,876 $ 3,690,394 $ 1,147,311 Bookkeeping 459,354 0 0 ----------- ----------- ----------- Total $ 3,799,230 $ 3,690,394 $ 1,147,311 =========== =========== =========== Capital expenditures: Rental $ 38,383 $ 3,119,696 $ 12,087 Bookkeeping 366,811 0 0 ----------- ----------- ----------- Total $ 405,194 $ 3,119,696 $ 12,087 =========== =========== =========== Depreciation and amortization: Rental $ 76,073 $ 37,126 $ 40,750 Bookkeeping 67,190 0 0 ----------- ----------- ----------- Total $ 143,263 $ 37,126 $ 40,750 =========== =========== ===========
LINCOLN INTERNATIONAL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS July 31, 2000, 1999, and 1998 NOTE 13 - MAJOR BUSINESS SEGMENTS (CONTINUED) The following is a reconciliation of reportable segment revenues, profit or loss and assets as of and for the year ending July 31, 2000. REVENUES Total revenue from reportable segments $ 722,467 Elimination of intersegment revenues (29,525) ----------- Total consolidated revenues $ 692,942 =========== COSTS AND EXPENSES Total costs and expenses from reportable segments $ 1,562,414 Elimination of intersegment costs and expenses (29,525) ----------- Total consolidated costs and expenses $ 1,532,889 =========== ASSETS Total assets for reportable segments $ 3,799,230 Elimination of intersegment receivables (12,881) ----------- Total consolidated assets $ 3,786,349 =========== No reconciliation is required as of July 31, 1999 and 1998 as only one business segment existed at that time. NOTE 14 - CONCENTRATION OF CREDIT RISK The Company maintains cash accounts in commercial banks located in Louisville, Kentucky. Accounts are guaranteed by the Federal Deposit Insurance Corporation (FDIC) up to $100,000. The Company has an uninsured amount of $168,793 outstanding at July 31, 2000. NOTE 15 - CAPITAL STOCK During fiscal 1999, the Company issued an aggregrate 3,986 shares of common stock to stockholders residing in the state of Kentucky. One option to acquire an additional share at $150 in the first year, $160 in the second year or $170 in the third year after the issue was attached to each share issued. NOTE 16 - COMMITMENTS The Company has entered into an agreement with a company to find tenants for its rental buildings. At the time of the lease agreement, the Company is to pay a leasing commission equal to 6% of total rental income under the lease. As of July 31, 2000 the Company had commitments of $20,090 for leasing commissions dependent on lease renewals. NOTE 17 - CORRECTION OF AN ERROR In the financial statements previously issued, organization costs of $16,780 were capitalized and $2,797 of amortization expense was deducted. The $16,780 should have been expensed as incurred. Also in the financial statements previously issued, the minority interest was reflected as in a deficit position due to the subsidiary's losses. As the minority owner had no commitment to provide additional capital, the minority interest should have been limited to losses to bring the investment to zero. LINCOLN INTERNATIONAL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS July 31, 2000, 1999, and 1998 NOTE 17 - CORRECTION OF AN ERROR (CONTINUED) The financial statements have been restated to reflect these changes.