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FORM 10-Q
SECURITIES AND EXCHANGE COMMISION
WASHINGTON, D.C.
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended October 31, 2002
Commission file No. 0-0767
LINCOLN INTERNATIONAL CORPORATION
______________________________________________________
(Exact Name of Registrant as specified in its charter)
Kentucky 61-0575092
______________________________ ______________________
(State of other Jurisdiction (I.R.S. Employer
incorporation or organization) Identification Number)
2200 Greene Way, Suite 101
Louisville, Kentucky 40220
________________________________________ __________
(Address or principal executive offices) (Zip Code)
(Registrants Telephone Number, Including Area Code) (502) 671-0010
Indicate by check whether the registrant (1) has filed reports required to be
filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or of such shorter period that the registrant was required
to file such reports) and has been subject to such filing requirements for the
past 90 days.
YES [X] NO [ ]
Indicate the numbers of shares outstanding of each of the issuer' classes of
common stock, as of the close of the period covered by this report: 8,792 of the
(no-par) voting common stock.
LINCOLN INTERNATIONAL CORPORATION
INDEX
PAGES
Part I: Financial Information
Item 1. Financial Statements:
Balance Sheets as of October 31, 2002
and July 31, 2002 3
Statements of Operations for the quarters
and year-to-date periods ended October 31, 2002
and October 31, 2001 4 - 5
Statements of Cash Flows for the
year-to-date periods ended October 31, 2002
and October 31, 2001 6
Notes to the Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8 - 11
Part II: Other Information
Item 6 12
Signature 13
LINCOLN INTERNATIONAL CORPORATION
PART 1: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
BALANCE SHEETS
(Unaudited)
10/31/02 7/31/02
__________ __________
ASSETS
Current assets:
Cash $ 220,951 $ 326,995
Accounts receivable, net of allowance for
doubtful accounts of $7,000 64,724 49,664
Note receivable, net of allowance for
doubtful accounts of $35,100 45,488 48,462
Other receivables 478 478
Prepaid expenses 23,195 10,120
__________ __________
Total current assets 354,836 435,719
__________ __________
Net property, plant and equipment 951,147 976,431
__________ __________
Noncurrent assets:
Goodwill, net 129,060 138,987
Deferred tax asset 241,589 245,644
__________ __________
Total noncurrent assets 370,649 384,631
__________ __________
Total assets $1,676,632 $1,796,781
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 43,605 $ 41,072
Obligation under capital lease 4,056 4,235
Accounts payable 99,021 63,452
Accrued expenses 24,307 43,810
__________ __________
Total current liabilities 170,989 152,569
__________ __________
Noncurrent liabilities:
Long-term debt, less current maturities 508,427 521,161
Obligation under capital lease 6,274 7,337
Deferred tax liability 241,589 245,644
__________ __________
Total noncurrent liabilities 756,290 774,142
__________ __________
Total liabilities 927,279 926,711
__________ __________
Stockholders' equity:
Common stock, no par value, 3,000,000 shares
authorized, 8,792 issued and outstanding 1,994,718 1,994,718
Retained earnings (deficit) (995,365) (874,648)
Accumulated other comprehensive income - unrealized
loss on investment (250,000) (250,000)
__________ __________
Total stockholders' equity 749,353 870,070
__________ __________
Total liabilities and stockholders' equity $1,676,632 $1,796,781
========== ==========
The accompanying notes are an integral part of the Consolidated Financial Statements.
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LINCOLN INTERNATIONAL CORPORATION
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE QUARTER ENDED OCTOBER 31
(UNAUDITED)
10/31/02 10/31/01
_________ _________
Revenues $300,863 $ 309,676
_________ _________
Costs and expenses:
Cost of revenues 227,497 255,282
Operating, general and administrative expenses 185,245 259,940
_________ _________
Total costs and expenses 412,742 515,222
_________ _________
Loss from operations (111,879) (205,546)
_________ _________
Other income (expense):
Interest income 1,977 10,888
Loss on uncollectible note receivable 0 (2,028)
Interest expense (10,811) (11,510)
_________ _________
Total other income (expense) (8,834) (2,650)
_________ _________
Loss before income taxes (120,713) (208,196)
Benefit from income taxes 0 0
_________ _________
Net loss $(120,713) $(208,196)
========= =========
Net loss per common share $ (13.73) $ (23.69)
========= =========
The accompanying notes are an integral part of the Consolidated Financial Statements.
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LINCOLN INTERNATIONAL CORPORATION
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED OCTOBER 31
(UNAUDITED)
10/31/02 10/31/01
_________ _________
Revenues $ 300,863 $ 309,676
_________ _________
Costs and expenses:
Cost of revenues 227,497 255,282
Operating, general and administrative expenses 185,245 259,940
_________ _________
Total costs and expenses 412,742 515,222
_________ _________
Loss from operations (111,879) (205,546)
_________ _________
Other income (expense):
Interest income 1,977 10,888
Loss on uncollectible note receivable 0 (2,028)
Interest expense (10,811) (11,510)
_________ _________
Total other income (expense) (8,834) (2,650)
_________ _________
Loss before income taxes (120,713) (208,196)
Benefit from income taxes 0 0
_________ _________
Net loss (120,713) (208,196)
========= =========
Net loss per common share $ (13.73) $ (23.69)
========= =========
The accompanying notes are an integral part of the Consolidated Financial Statements.
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LINCOLN INTERNATIONAL CORPORATION
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE THREE MONTHS ENDED OCTOBER 31
(Unaudited)
10/31/02 10/31/01
_________ _________
Cash flows from operating activities:
Net loss $(120,713) $(208,196)
Adjustments to reconcile net loss
to net cash used in operating activities
Depreciation and amortization 35,207 48,042
Bad debt 0 2,028
(Increase) decrease in:
Receivables (12,086) (3,874)
Prepaid expenses (13,075) (8,459)
Increase (decrease) in:
Accounts payable 35,569 4,313
Accrued expenses (19,503) (12,130)
_________ _________
Net cash used in operating activities (94,601) (178,276)
_________ _________
Cash flows from investing activities:
Purchase of property and equipment 0 (6,947)
_________ _________
Cash flows from financing activities:
Principal payments on capital lease obligation (1,242) (816)
Principal payments on long-term debt (10,201) (9,309)
_________ _________
Net cash used in financing activities (11,443) (10,125)
_________ _________
Net decrease in cash (106,044) (195,348)
Cash at beginning of the year 326,995 974,897
_________ _________
Cash at end of period $ 220,951 $ 779,549
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 10,824 $ 11,451
========= =========
The accompanying notes are an integral part of the Consolidated Financial Statements.
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LINCOLN INTERNATIONAL CORPORATION
PART 1: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - MANAGEMENT'S STATEMENT
In the opinion of management the accompanying unaudited financial statements
contain all adjustments (all of which are normal and recurring in nature)
necessary to present fairly the financial position of Lincoln International
Corporation at October 31, 2002 and July 31, 2002 and the results of operations
for the quarters and year to date periods ended October 31, 2002 and October 31,
2001. The notes to the financial statements contained in the 2002 Annual Report
to Shareholders and incorporated by reference into the 2002 Form 10-K should be
read in conjunction with these financial statements.
NOTE 2 - 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.
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LINCOLN INTERNATIONAL CORPORATION
PART 1: FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OCTOBER 31, 2002
Management's Discussion and Analysis of Financial Conditions and Results of
Operations
The results and the nature of operations for the company changed
dramatically since 1998. 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 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 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, 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.
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LINCOLN INTERNATIONAL CORPORATION
PART 1: FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
OCTOBER 31, 2002
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 purchased 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 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. 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, 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.
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LINCOLN INTERNATIONAL CORPORATION
PART 1: FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
OCTOBER 31, 2002
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. Subsequently, the
Company increased the amount of investment in Accounting USA.
On August 16, 2002, the CEO for Accounting USA, Mr. Brian W. McDonald, resigned
to pursue other interests. The Company did not have a non-compete agreement with
Mr. McDonald and is unable to assess what adverse impact, if any, might result
from Mr. McDonald's departure. The Company immediately began a search for new
leadership and the operations continued in a stable manner because of the
increased effort of the management team. Approximately one month after Mr.
McDonald's departure one of the Company's Client Account Specialists ("CAS")
resigned and concurrently ten (10) clients left with directions they were moving
their business to a company established by the departing CAS, Ms. Suzanne
Luckett. The Company has filed a lawsuit against Ms. Luckett and is currently in
discovery to determine if other parties will be brought in as defendants.
With the savings from Mr. McDonald's employment package, approximately $125,000
per year, the Company is very near break-even and it is expected losses will
stop by the end of 2002.
The Company is evaluating its options in regard to the future of Accounting USA
and is seeking leadership with greater marketing expertise and experience. The
Company continues to add new clients and management believes marketing
opportunities exist that have not been effectively explored.
At the December 6, 2002 Shareholder Annual Meeting a one (1) for three (3)
Reverse Split was approved, and will be completed by February 18, 2003. When
completed, the Company will be, it is expected, in a position to "go private".
Management cannot say with certainty, but it is projected the number of
shareholders will be reduced from the current 384 to below 300. If taken
private, the Company will be able to save significant professional and other
costs related to being a public company. It is also expected the Company will be
in a position to sell the "Public Shell" at some point in time.
The Company has received and accepted an offer from Paychex, Inc. to purchase
the payroll portion of the business.
Management intends to look at all options concerning the future of Accounting
USA and continues to believe markets and market niches have not been effectually
explored.
RESULTS OF OPERATIONS FOR ACCOUNTING USA, INC.
STATEMENT OF INCOME FOR ACCOUNTING USA, INC.
Total revenue decreased by $8,813 for the quarter ended October 31, 2002
compared to the same quarter one year ago. The primary factor in this decrease
was lost business, which is currently the subject of litigation. The Company's
sales force remains in place and it is expected revenue will increase
approximately $3,000 monthly or $36,000 in annual revenue posted each month.
Accounting department cost decreases reflect the loss of Client Account
Specialists ("CAS") having left in conjunction with lost business.
10
LINCOLN INTERNATIONAL CORPORATION
PART 1: FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
OCTOBER 31, 2002
BALANCE SHEET FOR ACCOUNTING USA, INC.
The company's accounts receivable (net of reserve) decreased by 30%, based upon
open receivables at October 31, 2001 of $92,948 compared to open receivables of
$64,724 at October 31, 2002. The decrease is attributable to the decrease in
accounting service revenue of 3% and an aggressive collection approach adopted
by the company.
Gross tangible fixed assets decreased from their October 31, 2001 position of
$235,066 to the October 31, 2002 position of $124,605, or a decrease of
$110,461, primarily from depreciation. The company is not anticipating making
any significant expenditures in the near future for fixed assets.
The company is currently amortizing an intangible asset referred to as
Capitalized Client Listing associated with the acquisition of a competitor's
client base. As of October 31, 2002, the gross intangible asset basis was
$125,322 with accumulated amortization of $48,062. As of October 31, 2001, the
gross intangible asset basis was $125,322 with accumulated amortization of
$25,157.
Trade accounts payables increased from their October 31, 2001 position of
$20,321 to their October 31, 2002 position of $68,455.
Term debt of the company decreased from the prior year, with $68,644 and $98,331
outstanding for the periods of October 31, 2002 and 2001, respectively.
ACQUISITION OR DISPOSITION OF ASSETS
The Company currently has property located at 2211 Greene Way, Louisville,
Kentucky listed for sale for $1,375,000. In December, a new three-year lease was
executed with the tenant occupying most of the building with a $4,000 decrease
in monthly rent over the life of the lease, but it is expected that securing the
long-term tenant will result in a relatively quick sale of the property.
LIQUIDITY AND CAPITAL NEEDS
The company currently has approximately $150,000 in cash, expects to sell its
payroll business for approximately $168,000 and expects to sell the above real
estate to have available the liquidity needed. With Accounting USA, Inc. losses
expected to stop in December of 2002, sufficient liquidity and capital are
available for operations.
LITIGATION
The Company has no litigation current, pending or threatened. It did file a
lawsuit in October of 2002 against a former employee, Suzanne Luckett, in
relation to former Accounting USA, Inc. clients moving to a company she formed
and is servicing. It is expected there will be other defendants named in that
action.
11
LINCOLN INTERNATIONAL CORPORATION
PART II: Other Information
ITEM 6.
NO DIVIDENDS WERE PAID BY THE COMPANY DURING THE INTERIM PERIOD.
Lincoln International Corporation was not required to file a Form 8K during the
current quarter.
12
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LINCOLN INTERNATONAL CORPORATION
________________________________
Lee Sisney, President
Dated this 18th day of December, 2002
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