10-K 1 lincoln10k.txt FORM 10-K PERIOD ENDING 07/31/02 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For fiscal year ended July 31, 2002 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) (502) 671-0010 __________________________________________________ Registrant's telephone number, including area code Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on which Title of each class 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, 2002. Common (no-par) 8,793 DOCUMENTS INCORPORATED BY REFERENCE (1) Annual Report -- 2001-2002 (2) Information Statement -- 2002 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 providing bookkeeping and payroll services to small and medium sized businesses primarily in Louisville, Kentucky, and the rental of commercial office property located in Louisville, Kentucky. 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. On December 1, 2000 Accounting USA, Inc. merged into the Company. In exchange for the minority interest, the Company issued 600 shares of the Company's common stock to the minority interest. 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. 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 additional one (1) year terms. Management does not intend for lending to become a principal part of its business. EMPLOYEES: As of July 31, 2002, LINCOLN employed eighteen (18) employees. ITEM 2: PROPERTIES The following are the various properties owned or leased by LINCOLN as of July 31, 2002. APPROXIMATE LEASE EXPIRATION TYPE OF SQUARE FEET DATE (RENEWAL LOCATION PROPERTY FLOOR SPACE OPTIONS) LINCOLN ADMINISTRATIVE OFFICES Louisville, KY Offices 5,111 sq. feet. Leased (Expires May 2002 and March 2004) RENTAL PROPERTIES Louisville, KY Office Spaces 15,800 sq. feet. 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. On December 20, 2000 the Court entered an Order Dismissing Count X of the Plaintiffs Amended Complaint for failure to state a claim upon which relief could be granted pursuant to Fed. R. Civ. P. 12(b)(6) and denied the company's Motion with respect to dismissing the remainder of the Plaintiffs Amended Complaint. The Court's dismissal of Count X of the Complaint in effect validated the reverse split of the company completed on April 5, 1998. On July 17, 2001, the company entered into a Settlement Agreement with the two named Plaintiffs Terry Kennedy and Merle Brewer and their legal counsel. In the settlement the company agreed to give each named Plaintiff stock equivalent to a value of $2,000, and the Plaintiffs would have a thirty-day option to sell that stock back to the company for $2,000. The value of the stock would be based upon the last listed trade value as listed on NASDAQ. Further, any shareholders who tendered their stock in the Tender Offer in 1997 will be notified that they will have the opportunity to buy back stock of the company at a price of $120.00 per share (or $0.30 per share at the pre-split value) the value at which the stock was sold in the Tender. In regard to those who sold stock as part of the Reverse Split in 1998, the company will allow those shareholders to buy back in also at the same rate i.e. $120.00 per share (or $0.30 of the pre-split value) if they so desire. All terms of the Settlement Agreement were complied with, and a total of six (6) shareholders elected to purchase Lincoln stock (for a total of six (6) shares) as part of the settlement. On July 22, 2002, the Court entered its Order dismissing the action with prejudice. The two Plaintiffs sold their stock back to the Company. 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 6th day of December, 2002, are as follows: (1) Election of directors; (2) Transaction of any other business as may properly come before the meeting or any adjournment thereof; and (3) Approval of a 3 for 1 Reverse Split of the Company's Common Stock as approved on August 29, 2002, by unanimous consent action and as set forth in the following Resolution: WHEREAS, the costs of maintaining a public company are high (estimated at $40,000 to $50,000 per year); and WHEREAS, the Company's stock is thinly traded and has been for over twenty years; and WHEREAS, it appears that the costs of remaining public company outweigh the benefits derived by shareholders. BE IT HEREBY RESOLVED that the following plan of reverse split be recommended to the shareholders for their approval at a Special Shareholders meeting to be held on November 8, 2002, or another date as is necessary, at the offices of Lincoln International Corporation, 2300 Greene Way, Suite 201, Louisville, Kentucky 40220, at which shareholders of record at the close of business on October 1, 2002 would be allowed to vote. PROPOSED PLAN OF REVERSE SPLIT The no par common shares of Lincoln International Corporation will be reverse split in the ratio of three old shares to one new share. All shareholders of record at the close of business on the date the reverse split is approved who hold only one or two old shares and would thus be frozen out will be granted a right to acquire from Lincoln a fractional interest in one new share such that when combined with their scrip will enable them to acquire one new share should they desire to remain Lincoln shareholders. BE IT FURTHER RESOLVED, that these Consent Minutes may be executed in multiple counterparts. BE IT FURTHER RESOLVED, that October 31, 2002 shall and is hereby fixed as the record date for determination of Shareholders entitled to vote at the December 6, 2002 annual shareholders meeting. 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 _________________________________________________________________ 2002 2001 2000 1999 1998 _________ _________ _________ _________ _________ Revenues 1,292,757 1,137,268 692,942 190,050 297,459 Income (loss) before extraordinary items (732,966) (516,830) (500,914) 1,474,483 (72,688) Net income (loss) (732,966) (516,830) (500,914) 1,474,483 (72,688) Earnings (loss) per common share: Income (loss) before extraordinary items (83.40) (60.58) (62.83) 235.64 (17.16) Net income (loss) (83.40) (60.58) (62.83) 235.64 (17.16) Cash dividends 0 0 0 0 0 Total assets 1,796,781 2,730,518 3,786,349 3,690,394 1,147,311 Long-term obligations 528,498 573,320 85,511 0 380,205 Gain (loss) on sale of property, equipment, and operating assets 0 296,192 (12,884) 2,359,078 0
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 1998 through January 31, 2001. 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 increasing trend of selling directly to purchasers or end users such as packing and slaughterhouses. In July of 1995, the company entered into a ten-year operating lease with Michigan Livestock Exchange in East Lansing, Michigan, an 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 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 was 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 of 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. In late 1998, the company received an offer to purchase part of the Bourbon Stock Yard real estate. On March 5, 1999 Lincoln International Corporation sold The Bourbon Stockyards providing $3,377,991 in capital net of expenses. Out of those sale proceeds the first Mortgage on the property to Stock Yard Bank in the amount of $385,605 was paid off. The company began evaluating various investment and acquisition options. 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 11860 Capital Way in Louisville, Kentucky. Then on June 18, 1999 the company purchase approximately 44,311 square feet of professional office space in three (3) buildings located at 2200, 2310, 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 that which 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 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. 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 converted 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. 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 clients in Georgia, Vermont, and New Hampshire. 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 responsibility 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 August 22, 2002 Mr. Brian McDonald, the CEO of Accounting USA, Inc., resigned to pursue other opportunities. Mr. McDonald did not have a non-compete agreement, and it is not known what impact, if any, his departure will have on the Company's future. Not long after Mr. McDonald resigned two (2) client account specialists also resigned. Concurrently with the resignations ten (10) Accounting USA clients gave notice they were terminating Accounting USA's services and going to a bookkeeping company. It was later learned that the bookkeeping company was organized by one of the resigning client account specialists on October 15, 2002. The company filed a lawsuit against one of the former client account specialists as well as Accounting Advantage, LLC, for which she was listed as the agent for service of process. The company is seeking compensatory and punitive damages and other remedies as is appropriate. RESULTS OF OPERATIONS The primary focus of the company over the last two years has been to move Accounting USA, Inc. to a break-even point. STATEMENT OF INCOME Accounting service fee revenue increased by 34.9% during the last fiscal year, based upon accounting service fee revenues of $827,227 and $1,115,838, respectively, for fiscal years July 31, 2001 and 2002. The company increased its service fee rate on new accounts sold during the last quarter of the fiscal year ended July 31, 2001. The company increased its billing rate, on average, by another 5% during the fiscal year July 31, 2002. This rate increase is not expected to impact the company's growth rate. The company's two most significant cost of sales areas, the accounting department and the payroll department, both reflected a significant percentage decrease relative to their relationship to accounting service fee revenue. The accounting department cost did increase from $560,745 for the fiscal period ended July 31, 2001 to $580,394 for the fiscal period ended July 31, 2002, but as a percentage of service revenue the accounting department cost fell from 67.8% of sales to 52.0% of sales. Consistent with the accounting department, the payroll department cost did increase from $167,143 for the fiscal period ended July 31, 2001 to $207,962 for the fiscal period ended July 31, 2002, but as a percentage of service revenue the payroll department cost fell from 20.2% of sales to 18.6% of sales. Increased efficiencies in processing methods and improved management techniques were important reasons for this improvement. The company concluded that even though the payroll department demonstrated a marked improvement in its cost relationship to revenues, this department was closed during fiscal year July 31, 2002. The payroll service bureau services was performed by a strategic payroll partner of the company at a cost at or below the prior internal cost to the company. Sales and marketing cost decreased from $248,480 in fiscal year July 31, 2001 to $156,057 in fiscal year July 31, 2002, or a $92,423 increase. The company determined the advertising programs were largely ineffective in the fiscal year July 31, 2001 and therefore were not continued in fiscal year July 31, 2002. The company also reduced the average size of its sales force during the last quarter of fiscal year July 31, 2001 in order to focus its energies on referral-based sales channels, which require less overall coverage than direct selling programs. Depreciation expense increased from $110,751 in fiscal year July 31, 2001 to $132,726 in fiscal year July 31, 2002. The current fiscal year increase in depreciable assets of approximately $16,382 along with a full year depreciation expense for assets acquired during fiscal year July 31, 2001 contributed to this 19.8% increase. Other notable operating cost increases include delivery cost, or the fees associated with the delivery of the company's accounting processing to the clients. This fee increased by $14,856 from July 31, 2001 to July 31, 2002. This fiscal year July 31, 2002 delivery cost represented 5.7% of sales for the same period ended compared to 5.9% for the fiscal year July 31, 2001. General and administrative cost decreased from $331,588 in fiscal year July 31, 2001 to $292,151 during fiscal year July 31, 2002, or a 11.9% decrease. BALANCE SHEET The company's accounts receivable decreased by 43.0%, based upon open receivables at July 31, 2001 of $87,164 compared to open receivables of $49,664 at July 31, 2002. Given the 34.9% increase in sales, the company did a solid job of collecting accounts during the current fiscal period. Net depreciable assets actually declined during the current fiscal year as depreciation expense of $132,726 exceeded the capital asset additions of $16,382. The company expects to continue this trend during fiscal year July 31, 2003, since the vast majority of technology assets including hardware and software have already been acquired and placed in service. The company capitalized an intangible asset referred to as Capitalized Client Listing during fiscal year July 31, 2001 associated with the acquisition of a bookkeeping service. This intangible asset had an original basis of $123,000 and was amortized during fiscal years July 31, 2001 and 2002 producing amortization expense totaling $17,109 and $22,905, respectively. The company received capital injections in the form of cash from its parent company in the amount of $425,000 during fiscal year July 31, 2002. ACQUISITION OR DISPOSITION OF ASSETS On January 31, 2001, the Company sold the real estate located at 2300 Greene Way for $1,062,500. On May 30, 2001 the company also sold for $1,250,000 a commercial property located at 2200 Greene Way. Currently the property located at 2211 Greene Way is listed for sale at a price of $1,375,000. LIQUIDITY AND CAPITAL NEEDS The company currently has approximately $200,000 in cash and debt of approximately $475,000 on 2211 Greene Way. The property is listed and is anticipated could be sold within the year. The company therefore has available approximately $1,000,000 that would be used to inject as needed into Accounting USA, Inc. The company is currently assessing the future of Accounting USA, Inc. and deliberating a further infusion of capital under different management. LITIGATION On March 23, 1999, two minority shareholders, Merle Brewer and 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 as a Plaintiff 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 dissenter's rights should have been provided in the reverse split that concluded on April 5, 1998. On December 20, 2000 the Court entered an Order Dismissing Count X of the Plaintiffs Amended Complaint for failure to state a claim upon which relief could be granted pursuant to Fed. R. Civ. P. 12(bX6) and denied the company's Motion with respect to dismissing the remainder of the Plaintiffs Amended Complaint. The Court's dismissal of Count X of the Complaint in effect validated the reverse split of the company completed on April 5, 1998. On July 17, 2001, the company entered into a Settlement Agreement with the two-named Plaintiffs Terry Kennedy and Merle Brewer and their legal counsel. In the settlement the company agreed to give each named Plaintiff, stock equivalent to a value of $2,000, and the Plaintiffs would have a thirty-day option to sell that stock back to the company for $2,000. The value of the stock would be based upon the last listed trade value as listed on NASDAQ. Further, any shareholders who tendered their stock in the Tender Offer, in 1997, will be notified that they will have the opportunity to buy back stock of the company at a price of $120.00 per share (or $0.30 per share at the pre-split value) the value at which the stock was sold in the Tender. In regard to those who sold stock as part of the Reverse Split in 1998, the company will allow those shareholders to buy back in also at the same rate i.e. $120.00 per share (or $0.30 of the pre-split value) if they so desire. As part of the settlement Lee Sisney will put up half of the stock to be sold to those who choose to buy back into the company and the company will put up the other half. Also, the legal fees for Plaintiffs attorneys will be paid in an amount not to exceed $74,500 as verified as concurrent with the work done up to and including the settlement agreement. The Settlement Agreement was approved by the Court, all terms of the Settlement Agreement complied with, resulting in a total of six (6) shareholders buying six (6) shares of Lincoln stock. On July 22, 2002 the Court entered its Order dismissing the action with prejudice. 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. ITEM 10: NAME, PRINCIPAL OCCUPATION AND OTHER POSITIONS WITH LINCOLN FOR LAST 5 YEARS DIRECTORS SINCE SHARES OWNED AS OF 07/31/2002 Thurman L. Sisney, President Director 1994 2,906 (2) Richard Jay Frockt Chairman of the Board Director 1997 1,208 (1) Brian McDonald Secretary 2000 600 (Resigned effective 8/22/02) Russell R. Roth Treasurer Director 1997 165 Janet Clark Frockt Director 1997 1,207 (1) _____ Officers & Directors as a group 6,086 (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. (2) Mr. Sisney claims beneficial interest in 1055 shares of the Company. 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. Brian McDonald - Mr. McDonald was Secretary of the Company. Mr. McDonald is a 1980 graduate of Indiana University in Bloomington, Indiana, earning a B.S. degree in Accounting. Mr. McDonald later became a certified public accountant in the states of Indiana and Kentucky. Mr. McDonald earned his masters degree in business administration from Indiana University in 1998. Mr. McDonald's career has included three years in public accounting with KPMG, five years as a corporate controller with Mid State Paving, nine years as the chief financial officer of Hughes Group, Inc. In 1997, Mr. McDonald founded Accounting Outsource Solutions, LLC, a company developed to provide outsourced accounting services for small businesses. In 1999, Mr. McDonald and Lincoln International Corp., co-founded Accounting USA, Inc. to continue the business of outsourcing accounting servicing to small businesses. On August 22, 2002, Mr. McDonald resigned to pursue other opportunities. Russell R. Roth--Mr. Roth is 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 2001-2002 were $2,053. Brian McDonald received salary of $133,538 during the year ended July 31, 2002. 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. (8) Form 8-K filed February 2001 reporting sale of commercial rental real estate building. (9) Form 8-K filed June 2001 reporting sale of commercial rental real estate building. 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 Treasurer, Russell R. Roth, as thereunto duly authorized in the City of Louisville, Commonwealth of Kentucky, on the 29th day of October, 2002. LINCOLN INTERNATIONAL CORPORATION /s/ THURMAN L. SISNEY ______________________________________ By: Thurman L. Sisney, President Date: October 29, 2002 _________________________________ /s/ RUSSELL R. ROTH ______________________________________ By: Russell R. Roth, Treasurer Date: October 29, 2002 _________________________________ 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 /s/ THURMAN L. SISNEY _________________________________ Thurman L. Sisney President /s/ RICHARD JAY FROCKT _________________________________ Richard Jay Frockt Chairman of the Board /s/ RUSSELL R. ROTH _________________________________ Russell R. Roth Treasurer (2) Directors /s/ THURMAN L. SISNEY _________________________________ Thurman L. Sisney Director /s/ RICHARD JAY FROCKT _________________________________ Richard Jay Frockt Director /s/ JANET CLARK FROCKT _________________________________ Janet Clark Frockt Director /s/ RUSSELL R. ROTH _________________________________ Russell R. Roth Director CERTIFICATIONS I, Richard Jay Frockt, CEO, certify that: 1. I have reviewed this Annual Report on Form 10-K of Lincoln International Corporation; 2. Based on my knowledge, this Annual Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this Annual Report, fairly represent in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Annual Report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: i) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Annual Report is being prepared; ii) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this Annual Report (the "Evaluation Date"); and iii) Presented in this Annual Report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the board of directors (or persons performing the equivalent functions): i) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and ii) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this Annual Report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. October 29, 2002 /s/ RICHARD JAY FROCKT __________________________ Richard Jay Frockt CERTIFICATIONS I, Thurman L. Sisney, CFO, certify that: 1. I have reviewed this Annual Report on Form 10-K of Lincoln International Corporation; 2. Based on my knowledge, this Annual Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this Annual Report, fairly represent in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Annual Report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: i) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Annual Report is being prepared; ii) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this Annual Report (the "Evaluation Date"); and iii) Presented in this Annual Report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the board of directors (or persons performing the equivalent functions): i) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and ii) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this Annual Report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. October 29, 2002 /s/ THURMAN L. SISNEY __________________________ Thurman L. Sisney 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 balance sheets of Lincoln International Corporation listed in the accompanying index to Financial Statements (Item 14(a)) as of July 31, 2002 and 2001, and the related statements of operations, changes in stockholders' equity, and cash flows for each of the three years in the period ended July 31, 2002. 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 audits 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 financial position of Lincoln International Corporation as of July 31, 2002 and 2001, and the results of its operations and its cash flows for each of the three years in the period ended July 31, 2002, in conformity with accounting principles generally accepted in the United States of America. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 23 to the financial statements, the Company's significant operating losses raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. POTTER & COMPANY, LLP Louisville, Kentucky October 25, 2002 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: Balance sheets - July 31, 2002 and 2001 Statements of operations - years ended July 31, 2002, 2001, and 2000 Statements of changes in stockholders' equity - years ended July 31, 2002, 2001, and 2000 Statements of cash flows - years ended July 31, 2002, 2001, and 2000 Notes to financial statements Supporting schedules for the three years ended July 31, 2002, 2001, and 2000: 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, 2002, 2001, and 2000 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, 2002 Reserves deducted from assets: Allowance for losses: Accounts receivable $ 400 $ 6,600 $ 0 $ 0 $ 7,000 Note receivable 0 35,100 0 0 35,100 _______ ________ _____ ______ ________ $ 400 $ 41,700 $ 0 $ 0 $ 42,100 ======= ======== ===== ====== ======== Year ended July 31, 2001 Reserves deducted from assets: Allowance for losses: Accounts receivable 8,195 400 0 8,195 400 Note receivable 0 35,100 0 0 35,100 _______ ________ _____ ______ ________ $ 8,195 $ 35,500 $ 0 $8,195 $ 35,500 ======= ======== ===== ====== ======== Year ended July 31, 2000 Reserves deducted from assets: Allowance for losses: Accounts receivable $ 0 $ 8,195 $ 0 $ 0 $ 8,195 ======= ======== ===== ====== ========
LINCOLN INTERNATIONAL CORPORATION FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR'S REPORT July 31, 2002, 2001, and 2000 T A B L E O F C O N T E N T S Independent Auditor's Report 1 Balance Sheets 2 Statements of Operations 3 Statements of Changes in Stockholders' Equity 4 Statements of Cash Flows 5 - 6 Notes to the Financial Statements 7 - 19 INDEPENDENT AUDITOR'S REPORT To the Board of Directors and Stockholders Lincoln International Corporation Louisville, Kentucky We have audited the accompanying balance sheets of Lincoln International Corporation as of July 31, 2002 and 2001, and the related statements of operations, changes in stockholders' equity, and cash flows for each of the three years in the period ended July 31, 2002. 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 audits 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 financial position of Lincoln International Corporation as of July 31, 2002 and 2001, and the results of its operations and its cash flows for each of the three years in the period ended July 31, 2002, in conformity with accounting principles generally accepted in the United States of America. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 23 to the financial statements, the Company's significant operating losses raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. POTTER & COMPANY, LLP October 25, 2002 1
LINCOLN INTERNATIONAL CORPORATION BALANCE SHEETS July 31, 2002 and 2001 A S S E T S 2002 2001 ___________ ___________ Current assets: Cash and cash equivalents $ 326,995 $ 974,897 Accounts receivable, net of allowance for doubtful accounts of $7,000 ($400 in 2001) 49,664 83,212 Note receivable, net of allowance for doubtful amounts of $35,100 48,462 52,747 Other receivables 478 13,429 Prepaid expenses 10,120 20,948 ___________ ___________ Total current assets 435,719 1,145,233 ___________ ___________ Property and equipment, net 976,431 1,117,443 ___________ ___________ Noncurrent assets: Goodwill, net 138,987 178,691 Deferred tax asset 245,644 289,151 ___________ ___________ Total noncurrent assets 384,631 467,842 ___________ ___________ Total assets $ 1,796,781 $ 2,730,518 =========== =========== L I A B I L I T I E S Current liabilities: Current maturities of long-term debt $ 41,072 $ 39,103 Obligation under capital lease 4,235 3,730 Accounts payable 63,452 153,592 Accrued expenses 43,810 50,873 Income taxes payable 0 18,433 ___________ ___________ Total current liabilities 152,569 265,731 ___________ ___________ Noncurrent liabilities: Long-term debt, less current maturities 521,161 562,054 Obligation under capital lease 7,337 11,266 Deferred tax liability 245,644 289,151 ___________ ___________ Total noncurrent liabilities 774,142 862,471 ___________ ___________ Total liabilities 926,711 1,128,202 ___________ ___________ 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, 8,793 issued and outstanding (8,787 in 2001) 1,994,718 1,993,998 Retained earnings (deficit) (874,648) (141,682) Accumulated other comprehensive income - unrealized loss on investment (250,000) (250,000) ___________ ___________ Total stockholders' equity 870,070 1,602,316 ___________ ___________ Total liabilities and stockholders' equity $ 1,796,781 $ 2,730,518 =========== =========== See accompanying notes.
2
LINCOLN INTERNATIONAL CORPORATION STATEMENTS OF OPERATIONS Years ended July 31, 2002, 2001, and 2000 2002 2001 2000 ___________ ___________ ___________ Revenues $ 1,292,757 $ 1,137,268 $ 692,942 ___________ ___________ ___________ Costs and expenses: Cost of revenues 946,639 950,526 616,216 Operating, general and administrative expenses 1,053,594 1,165,192 916,673 ___________ ___________ ___________ Total costs and expenses 2,000,233 2,115,718 1,532,889 ___________ ___________ ___________ Loss from operations (707,476) (978,450) (839,947) ___________ ___________ ___________ Other income (expense): Gain (loss) on sale of property and equipment 0 296,192 (12,884) Interest income 27,960 53,924 18,618 Legal fees 0 (74,500) 0 Loss on uncollectible note receivable 0 (35,100) 0 Interest expense (53,450) (89,475) (35,307) ___________ ___________ ___________ Total other income (expense) (25,490) 151,041 (29,573) ___________ ___________ ___________ Loss before income taxes (732,966) (827,409) (869,520) Benefit from income taxes 0 (310,579) (368,606) ___________ ___________ ___________ Net loss $ (732,966) $ (516,830) $ (500,914) Other comprehensive income (loss): Unrealized loss on investment 0 (250,000) 0 ___________ ___________ ___________ Comprehensive income (loss) $ (732,966) $ (766,830) $ (500,914) =========== =========== =========== Net loss per common share $ (83.40) $ (60.58) $ (62.83) =========== =========== =========== See accompanying notes.
3
LINCOLN INTERNATIONAL CORPORATION STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY Years ended July 31, 2002, 2001, and 2000 Retained Unrealized Total Earnings Loss on Stockholders' Common Stock (Deficit) Investment Equity ____________ __________ __________ _____________ Balance at August 1, 1999 $ 1,879,898 $ 876,062 $ 0 $ 2,755,960 Net loss 0 (500,914) 0 (500,914) ___________ __________ __________ ___________ Balance at July 31, 2000 1,879,898 375,148 0 2,255,046 Issuance of common stock 114,100 0 0 114,100 Net loss 0 (516,830) 0 (516,830) Increase in unrealized loss on investment 0 0 (250,000) (250,000) ___________ __________ __________ ___________ Balance at July 31, 2001 1,993,998 (141,682) (250,000) 1,602,316 Issuance of common stock 720 0 0 720 Net loss 0 (732,966) 0 (732,966) ___________ __________ __________ ___________ Balance at July 31, 2002 $ 1,994,718 $ (874,648) $ (250,000) $ 870,070 =========== ========== ========== =========== See accompanying notes.
4
LINCOLN INTERNATIONAL CORPORATION STATEMENTS OF CASH FLOWS Years ended July 31, 2002, 2001, and 2000 2002 2001 2000 __________ __________ __________ Cash flows from operating activities: Net income (loss) $ (732,966) $ (516,830) $ (500,914) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization 197,097 202,702 143,263 Bad debt 19,601 35,500 8,195 Stock issued for compensation 0 2,100 0 (Gain) loss on sale of property, equipment, and operating assets 0 (296,192) 12,884 Deferred income taxes 0 (329,011) (368,870) (Increase) decrease in: Receivables 31,183 (84,890) (105,693) Prepaid expenses 10,828 29,871 (50,819) Increase (decrease) in: Accounts payable (90,140) 75,000 46,295 Accrued expenses (7,062) 2,878 29,245 Income taxes payable (18,433) 18,433 0 __________ __________ __________ Net cash used in operating activities (589,892) (860,439) (786,414) __________ __________ __________ Cash flows from investing activities: Proceeds from sale of property, equipment and operating assets 0 2,204,549 263,743 Purchase of property and equipment (16,382) (93,166) (386,349) Purchase of Vena Marks & Associates, LLC 0 (110,800) 0 Purchase of Investment in Winebrenner Capital Partners, LLC 0 (250,000) 0 __________ __________ __________ Net cash provided by (used in) investing activities (16,382) 1,750,583 (122,606) __________ __________ __________ Cash flows from financing activities: Proceeds from issuance of common stock 720 0 0 Net proceeds on line of credit 0 500,000 500,000 Proceeds from long-term borrowings 0 33,491 115,000 Principal payments on long-term debt (38,924) (532,761) (14,574) Principal payments on capital lease obligations (3,424) (2,779) (1,070) __________ __________ __________ Net cash provided by (used in) financing activities (41,628) (2,049) 599,356 __________ __________ __________ Net increase (decrease) in cash and cash equivalents (647,902) 888,095 (309,664) Cash and cash equivalents at beginning of year 974,897 86,802 396,466 __________ __________ __________ Cash and cash equivalents at end of year $ 326,995 $ 974,897 $ 86,802 ========== ========== ========== Supplemental disclosures of cash flow information: Cash paid during the year for interest $ 53,460 $ 87,360 $ 34,937 ========== ========== ========== 5 Acquisition of Vena Marks & Associates, LLC Assets acquired: Property and equipment $ 0 $ 5,000 $ 0 Goodwill 0 133,800 0 __________ __________ __________ $ 0 $ 138,800 $ 0 ========== ========== ========== Payment for assets acquired: Cash paid at closing $ 0 $ 110,800 $ 0 Stock issued 0 28,000 0 __________ __________ __________ $ 0 $ 138,800 $ 0 ========== ========== ========== Acquisition of Minority Interest Assets acquired: Goodwill $ 0 $ 84,000 $ 0 ========== ========== ========== Payment for assets acquired: Stock issued $ 0 $ 84,000 $ 0 ========== ========== ========== Supplemental schedule of noncash investing activities: Purchase of equipment under capital lease $ 0 $ 0 $ 18,845 ========== ========== ========== Supplemental schedule of noncash financing activities: Debt paid by refinancing $ 0 $1,000,000 $ 0 ========== ========== ========== See accompanying notes.
6 LINCOLN INTERNATIONAL CORPORATION NOTES TO THE FINANCIAL STATEMENTS July 31, 2002, 2001, and 2000 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 accounting principles generally accepted in the United States of America 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. Since the purchase of these buildings, several have been sold. The Company is making an effort to sell the remaining commercial rental office building. On October 1, 1999, the Company formed Accounting USA, Inc. and received 75% of the outstanding shares of common stock. On December 1, 2000, Accounting USA, Inc. merged into the Company. In exchange for the minority interest, the Company issued 600 shares of the Company's common stock. Accounting USA, Inc. provides bookkeeping and payroll services primarily in the Louisville metropolitan area. 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. As of December 1, 2000, the Company no longer has subsidiaries as Accounting USA, Inc. merged into the Company. Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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. 7 LINCOLN INTERNATIONAL CORPORATION NOTES TO THE FINANCIAL STATEMENTS July 31, 2002, 2001, and 2000 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 $10,823, $74,761, and $37,153 for the years ended July 31, 2002, 2001 and 2000 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. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Investment tax credits are treated as a reduction of the tax provision in the year in which the benefit is earned (flow-through method). Earnings Per Share: Earnings per share are based on the weighted average number of shares outstanding during each year. 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. 8 LINCOLN INTERNATIONAL CORPORATION NOTES TO THE FINANCIAL STATEMENTS July 31, 2002, 2001, and 2000 NOTE 2 - NOTE RECEIVABLE (CONTINUED) 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, 2001 the Company had disbursed a total of $90,500 on the master loan agreement. Management does not intend to advance any additional funds. The note receivable balance consists of the following: 2002 2001 _________ _________ Company funds disbursed $ 90,500 $ 90,500 Interest thereon 23,362 15,347 Repayments (30,300) (18,000) _________ _________ Subtotal 83,562 87,847 Less allowance for uncollectible amounts 35,100 35,100 _________ _________ Note receivable, net $ 48,462 $ 52,747 ========= ========= NOTE 3 - OTHER RECEIVABLES Other receivables consist of the following: 2002 2001 _________ _________ Due from officer $ 0 $ 12,951 Refundable deposits 478 478 _________ _________ Total $ 478 $ 13,429 ========= ========= 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: 2002 2001 _________ _________ Prepaid leasing commissions $ 3,348 $ 3,348 Prepaid advertising costs 0 8,301 Prepaid maintenance, support, and training 3,738 4,010 Prepaid insurance 2,568 4,789 Other 466 500 _________ _________ Total $ 10,120 $ 20,948 ========= ========= 9 LINCOLN INTERNATIONAL CORPORATION NOTES TO THE FINANCIAL STATEMENTS July 31, 2002, 2001, and 2000 NOTE 5 - INVESTMENT IN WINEBRENNER CAPITAL PARTNERS, LLC During the year ended July 31, 2001 the Company became a 1% member in Winebrenner Capital Partners, LLC, formed on September 1, 1999. Winebrenner Capital Partners, LLC is registered as a broker and dealer in securities under the Securities Exchange Act of 1934. Subsequent to July 31, 2001, the Company exchanged their shares in Winebrenner Capital Partners, LLC for equivalent shares in Winebrenner Holding Corp. The investment is valued at the lower of cost or fair value. Fair value at July 31, 2001 was $0. NOTE 6 - PROPERTY AND EQUIPMENT Property and equipment consists of the following: 2002 2001 __________ __________ Land $ 88,916 $ 88,916 Building 801,051 801,051 Office and computer equipment 472,107 457,557 Leasehold improvements 4,631 2,800 __________ __________ 1,366,705 1,350,324 Less accumulated depreciation and amortization 401,267 246,230 __________ __________ 965,438 1,104,094 Equipment held under capital lease, net of accumulated amortization 10,993 13,349 __________ __________ Net property and equipment $ 976,431 $1,117,443 ========== ======+=== Depreciation expense for the years ended July 31, 2002, 2001, and 2000 was $157,392, $163,593, and $143,263, respectively. NOTE 7 - GOODWILL On November 1, 2000, the Company acquired some assets of Vena Marks & Associates, LLC. The Company paid $110,800 in the acquisition and issued 200 shares of common stock of Lincoln International Corporation valued at $28,000. The purchase of Vena Marks & Associates, LLC was accounted for by the purchase method whereby the assets acquired are recorded by the Company at fair value. Goodwill of $133,800 has been reflected in the balance sheet. The Company expects to benefit from the goodwill acquired in this transaction over a period of 5 years and is amortizing the amount recorded using the straight-line method. 10 LINCOLN INTERNATIONAL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS July 31, 2002, 2001, and 2000 NOTE 7 - GOODWILL (CONTINUED) With respect to the merger of Accounting USA, Inc. into Lincoln International Corporation, the purchase of the minority interest was accounted for by the purchase method. Goodwill of $84,000 has been reflected in the balance sheet. The Company expects to benefit from the goodwill acquired in this transaction over a period of 5 years and is amortizing the amount recorded using the straight-line method Goodwill consists of the following: 2002 2001 _________ _________ Goodwill $ 217,800 $ 217,800 Less accumulated amortization 78,813 39,109 _________ _________ Goodwill, net $ 138,987 $ 178,691 ========= ========= NOTE 8 - LINE OF CREDIT On January 31, 2001, upon the sale of one of the Company's commercial rental buildings, a portion of the proceeds was used to pay down the line balance. At that time, the remaining $1,000,000 balance was refinanced as a term note. As of July 31, 2001, the Company no longer maintains a line of credit. NOTE 9 - LONG-TERM DEBT 2002 2001 _________ _________ Term note payable, interest at 8.75%, monthly payments of $3,105, including principal and interest, due October 2004. $ 76,317 $ 105,333 Term note payable, interest at 8.73%, monthly payments of $4,451, including principal and interest, collateralized by a first mortgage on the real property of the Company and assignment of leases and rents, due February 2006. 485,916 495,824 _________ _________ 562,233 601,157 Less current maturities 41,072 39,103 _________ _________ Total $ 521,161 $ 562,054 ========= ========= 11 LINCOLN INTERNATIONAL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS July 31, 2002, 2001, and 2000 NOTE 9 - LONG-TERM DEBT (CONTINUED) As of July 31, 2002, the annual maturities required on the term notes payable are as follows: Year ending July 31: 2003 $ 41,072 2004 46,455 2005 22,434 2006 452,272 _________ Total $ 562,233 ========= NOTE 10 - CAPITAL LEASE The following is an analysis of the property under capital lease: 2002 2001 _________ _________ Office and computer equipment $ 18,845 $ 18,845 Less accumulated amortization 7,852 5,496 _________ _________ Total $ 10,993 $ 13,349 ========= ========= 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, 2002: Year ending July 31: 2003 $ 5,571 2004 5,142 2005 3,000 _________ Total minimum lease payments 13,713 Less amount representing interest 2,141 _________ Present value of net minimum lease payments $ 11,572 ========= NOTE 11 - ACCRUED EXPENSES Accrued expenses consist of the following: 2002 2001 _________ _________ Accrued payroll and payroll taxes $ 26,249 $ 33,394 Accrued property taxes 5,593 5,500 Other 11,968 11,979 _________ _________ Total $ 43,810 $ 50,873 ========= ========= 12 LINCOLN INTERNATIONAL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS July 31, 2002, 2001, and 2000 NOTE 12 - INCOME TAXES A deferred tax asset has been recognized for operating loss carryovers available to offset future income taxes. A deferred tax liability has been recognized as the result of the deferred gain on the sale of property for income tax purposes. Gross deferred income tax consists of the following: 2002 2001 _________ _________ Deferred tax asset $ 704,413 $ 311,781 Less valuation allowance 458,769 22,630 _________ _________ Net deferred tax asset $ 245,644 $ 289,151 ========= ========= Deferred tax liability $(245,644) $(289,151) ========= ========= Due to uncertainty regarding the levels of future earnings, the Company has recorded a valuation allowance to reflect the estimated amount of deferred tax assets which may not be realized, principally due to the expiration of net operating loss carryforwards. The Company has available at July 31, 2002 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 $ 145,985 2007 0 2008 72,982 2009 31,281 2010 31,281 2011 0 2012 62,562 2013 0 2014 0 2015 0 2016 0 2017 0 2018 0 2019 0 2020 0 2021 464,384 2022 632,887 __________ Total $1,441,362 ========== 13 LINCOLN INTERNATIONAL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS July 31, 2002, 2001, and 2000 NOTE 12 - INCOME TAXES (CONTINUED) The provision for (benefit from) income taxes consists of the following:
2002 2001 2000 _________ _________ _________ Federal income taxes $ 0 $ 278,623 $ 1,764 State and local income taxes 0 81,165 735 Deferred taxes 0 (329,012) (368,870) Tax benefit of net operating loss carryforward 0 (341,355) (2,235) Total $ 0 $(310,579) $(368,606) ========= ========= =========
Deferred income taxes on difference between tax and financial accounting for:
2002 2001 2000 _________ _________ _________ Depreciation $ (43,506) $ (497,367) $ (96,870) Net deferred costs (2,914) (9,894) (5,776) Net operating loss carryforward 46,420 (86,312) (1,663) Loss on unconsolidated subsidiary 0 264,561 (264,561) _________ _________ _________ Total $ 0 $(329,012) $(368,870) ========= ========= =========
For financial statement purposes, the loss of the subsidiary for the year ended July 31, 2000 is included in the operations of the Company. The loss of the subsidiary is not included on the parent company's tax return for the year ended July 31, 2000, as the subsidiary files separate income tax returns for federal and state purposes. For the year ended July 31, 2001, the Company no longer has subsidiaries as Accounting USA, Inc. merged into the Company. The 2002 provision for (benefit from) taxes represents an effective rate of 0.0% (37.5% for 2001 and 42.4% for 2000) of financial income before taxes and is different from the amount which would normally be expected by applying the statutory federal income tax rates to such income. The reasons for the difference are as follows:
2002 2001 2000 _________ _________ _________ Computed "expected" tax expense (benefit) $(239,581) $(281,319) $(295,637) State and local income taxes 0 (35,411) (37,975) Nondeductible expenses 4,270 4,265 3,273 Increase in valuation allowance 436,139 22,630 0 Effect of graduated tax rates (200,828) (20,744) (38,267) _________ _________ _________ Provision for (benefit from) income taxes $ 0 $(310,579) $(368,606) ========= ========= =========
14 LINCOLN INTERNATIONAL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS July 31, 2002, 2001, and 2000 NOTE 13 - LEASE COMMITMENTS The Company has entered into operating lease agreements. Total rental expense amounted to $60,403 in 2002, $28,572 in 2001, and $16,885 in 2000. Future minimum rentals at July 31, 2002 are as follows: YEAR ENDING JULY 31: 2003 27,933 2004 17,831 2005 3,578 _______ Total $49,342 ======= NOTE 14 - 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, 2002 and 2001: 2002 2001 _________ _________ Land $ 88,916 $ 88,916 Buildings and improvements 801,051 801,051 _________ _________ 889,967 889,967 Less accumulated depreciation 65,213 44,612 _________ _________ Total $ 824,754 $ 845,355 ========= ========= 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, 2002 are as follows: Year ending July 31: 2003 $ 77,909 2004 22,104 2005 22,104 2006 22,104 2007 22,104 Thereafter 27,630 _________ Total $ 193,955 ========= 15 LINCOLN INTERNATIONAL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS July 31, 2002, 2001, and 2000 NOTE 15 - 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.
2002 __________________________________________ Rental Bookkeeping Total __________ ___________ ___________ Revenues from external customers $ 189,519 $ 1,103,238 $ 1,292,757 Interest income 22,994 4,966 27,960 Interest expense 43,491 9,959 53,450 Intersegment revenue 0 12,600 12,600 Depreciation and amortization 41,466 155,631 197,097 Segment assets 1,643,890 291,691 1,935,581 Expenditures for segment assets 0 16,382 16,382 2001 __________________________________________ Rental Bookkeeping Total __________ ___________ ___________ Revenues from external customers $ 322,641 $ 814,627 $ 1,137,268 Interest income 27,371 26,553 53,924 Interest expense 78,368 11,107 89,475 Intersegment revenue 32,530 12,600 45,130 Depreciation and amortization 64,042 138,660 202,702 Segment assets 2,631,602 491,668 3,123,270 Expenditures for segment assets 26,323 66,843 93,166 2000 __________________________________________ Rental Bookkeeping Total __________ ___________ ___________ Revenues from external customers $ 356,862 $ 336,080 $ 692,942 Interest income 8,526 10,092 18,618 Interest expense 27,256 8,051 35,307 Intersegment revenue 18,450 11,075 29,525 Depreciation and amortization 76,073 67,190 143,263 Segment assets 3,339,876 459,354 3,799,230 Expenditures for segment assets 38,383 366,811 405,194
16 LINCOLN INTERNATIONAL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS July 31, 2002, 2001, and 2000 NOTE 15 - MAJOR BUSINESS SEGMENTS The following is a reconciliation of reportable segment revenues, cost and revenues, profit or loss and assets as of and for the year ending July 31, 2002 and 2001. 2002 2001 ___________ ___________ REVENUES Total revenue from reportable segments $ 1,305,357 $ 1,182,398 Elimination of intersegment revenues (12,600) (45,130) ___________ ___________ Total consolidated revenues $ 1,292,757 $ 1,137,268 =========== =========== COSTS AND EXPENSES Total costs and expenses from reportable segments $ 2,012,835 $ 2,160,848 Elimination of intersegment costs and expenses (12,600) (45,130) ___________ ___________ Total consolidated costs and expenses $ 2,000,235 $ 2,115,718 =========== =========== PROFIT OR LOSS Total loss for reportable segments $ (707,478) $ (978,450) Non-operating income 0 296,192 Interest income 27,960 53,924 Non-operating expense 0 (109,600) Interest expense (53,450) (89,475) ___________ ___________ Loss before income taxes $ (732,968) $ (827,409) =========== =========== ASSETS Total assets for reportable segments $ 1,935,581 $ 3,123,270 Elimination of intersegment receivables (138,800) (142,752) ___________ ___________ Total consolidated assets $ 1,796,781 $ 2,980,518 =========== =========== NOTE 16 - PROFIT SHARING PLAN The Company adopted a profit sharing plan in March 2000. The plan covers all employees meeting the minimum eligibility requirements. Contributions to the plan are at the discretion of the Board of Directors. No contributions were made by the Company during the years ended July 31, 2002, 2001, and 2000. NOTE 17 - 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 $248,242 at July 31, 2002. 17 LINCOLN INTERNATIONAL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS July 31, 2002, 2001, and 2000 NOTE 18 - PROFORMA RESULTS OF COMPANY ACQUIRED On November 1, 2000, the Company acquired some assets of Vena Marks & Associates, LLC. Proforma financial information as though the companies had been combined from beginning of periods: 8/1/00 - 7/31/01 8/1/99 - 7/31/00 ________________ ________________ Revenue $ 1,260,183 $ 2,214,728 =========== =========== Loss before extraordinary items (771,618) (793,261) =========== =========== Loss before extraordinary items per share $ (90.45) $ (99.50) =========== =========== Net loss $ (771,618) $ (793,261) =========== =========== Net loss per share $ (90.45) $ (99.50) =========== =========== NOTE 19 - CAPITAL STOCK During fiscal 1999, the Company issued an aggregate 3,986 shares of common stock to stockholders residing in the state of Kentucky. An option was attached to each share issued which allowed an additional share to be purchased at $150 in the first year after issue, $160 in the second year after issue, and $170 in the third year after issue. NOTE 20 - 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, 2002 the Company had no commitments for leasing commissions dependent on lease renewals. NOTE 21 - SUBSEQUENT EVENTS On August 29, 2002, the Board of Directors unanimously approved a 3-for-1 reverse stock split of the Company's common stock. All stockholders of record at the close of business on the date the reverse split was approved, who hold less than three shares, will be granted a right to acquire from the Company a fractional interest in one new share in order to remain a stockholder. 18 LINCOLN INTERNATIONAL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS July 31, 2002, 2001, and 2000 NOTE 22 - RELATED PARTY TRANSACTIONS On October 2000, the Company sold one of its commercial rental office buildings to Winebrenner Capital Partners, LLC. As part of the consideration for the transaction, the Company received $250,000 of stock in Winebrenner Capital Partners, LLC, which is being offered under an intrastate offering at $5 per share. The 50,000 shares received represents 1% of the limited liability company. In addition to the 50,000 shares received, the Company received a warrant to purchase an additional 50,000 shares over a 10 year period at $5 per share. NOTE 23 - GOING CONCERN As shown in the accompanying statements of operations, the Company has incurred continuing losses from operations. Management has developed a plan to increase sales, as well as their profit margin, and to decrease operating expenses. The Company is also actively searching for existing bookkeeping companies to acquire. The ability of the Company to continue as a going concern is dependent on the success of this plan. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. NOTE 24 - RESTATEMENT The financial statements for the year ending July 31, 2001 have been restated to account for an investment at fair value. As a result of the restatement, comprehensive loss increased by $250,000 and stockholders' equity decreased by $250,000. 19