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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, 2003 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.)
2211 Greene Way
Louisville, Kentucky 40220
_______________________________________ __________
(Address of principal executive office) (Zip Code)
(502) 992-9060
__________________________________________________
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 [ ] NO [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
form.
YES [ ] NO [X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).
YES [ ] NO [X]
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was last sold, or the average bid and asked price of such common equity, as of
the last business day of the registrant's most recently completed second fiscal
quarter.
Not applicable as no regular market exists for the common stock of Lincoln.
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of March 29, 2004.
COMMON (NO-PAR) 2,609
DOCUMENTS INCORPORATED BY REFERENCE
None.
PART I
ITEM 1: BUSINESS
OVERVIEW
Lincoln International Corporation ("Lincoln" or the "Company"), is a Kentucky
corporation that was incorporated in 1960. During the reporting period, the
Company was engaged in providing bookkeeping and payroll services to small and
medium sized businesses primarily in Louisville, Kentucky through its Accounting
USA business division, and the rental of commercial office property located in
Louisville, Kentucky. Subsequent to the end of its last fiscal year, Lincoln
sold its rental property and distributed to its stockholders its operating
company containing its bookkeeping business.
ACCOUNTING USA
Accounting USA was founded in 1999 and provides accounting/bookkeeping and
payroll services for small to medium sized businesses primarily in the
metropolitan area of Louisville Kentucky. Accounting USA 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 to the
belief of Lincoln minimal in the Louisville, Kentucky metropolitan 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 on a "real time" basis. Accounting USA's
core functions are: accounts payable; accounts receivable; job cost; bank
reconciliation; time and billing; and financial statements. Accounting USA also
provides numerous customized financial reports to its clients. The primary
market channels for Accounting USA are direct sales and business referrals from
banks, CPA's or other businesses. The intent of Lincoln is to refine the
services of Accounting USA and the sales of those services so that it can be
offered in other metropolitan markets around the country. Management believes
the services of Accounting USA meets a unique market niche, particularly with
the Internet access available to its clients. Given that the outsourcing of
accounting/bookkeeping can save clients up to 40% of the cost of doing the same
service in-house, management believes that the outsourcing concept of Accounting
USA has potential for future expansion and growth. Accounting USA 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. At this
time it is undecided as to what extent Lincoln will continue to provide
assistance and support to the start-up efforts of Accounting USA.
REAL ESTATE OPERATIONS
During recent years the Company has been involved in the business of owning and
leasing commercial real estate. At one time, the Company owned properties
located at 2200, 2300, and 2211 Greene Way, Louisville, Kentucky. The Company
however has liquidated most of its real estate portfolio, holding only the
property located at 2211 Greene Way, Louisville, KY during the last fiscal year.
This property was sold subsequent to the end of that fiscal year and the Company
is no longer in the commercial real estate business.
DEVELOPMENTS DURING FISCAL 2003
On August 16, 2002, the CEO for Accounting USA, Mr. Brian W. McDonald, resigned
to pursue other interests. Approximately one month after Mr. McDonald's
departure one of the Company's Client Account Specialists resigned and
concurrently ten (10) clients left with directions they were moving their
business to a Company established by the departing operations employee, Ms.
Suzanne Luckett. The Company filed a lawsuit against Ms. Luckett in October
2002, and subsequently on March 7, 2003 filed a Motion to Amend its Complaint to
include another former operations employee by the name of Stephanie Colin.
Following discovery, the Company amended its Complaint further and the court
approved bringing in as Defendants Karen McDonald and Brian W. McDonald.
Discovery indicated that Karen McDonald, Suzanne Luckett and Stephanie Colin
formed an Indiana corporation by the name of Accounting Advantage, LLC to which
approximately $200,000 worth of annualized revenue from clients of Accounting
USA had been transferred. That lawsuit was settled on October 17, 2003 resulting
in the extension of the Non-Compete Agreement with Mr. McDonald, foreclosure of
Accounting Advantage from soliciting any current or former clients of Accounting
USA, and Karen and Brian McDonald returning their 200 shares of common stock of
the Company back to Lincoln to be retired.
On December 15, 2002, the Company entered into an agreement with Paychex, Inc.
to sell its payroll operation. Pursuant to that sales agreement the Company
received $45,379 in January 2003 and an additional $56,298 in August 2003.
Through this process, the Company has developed a new strategic marketing
relationship with Paychex, Inc. Since the completion of the sale, Paychex, Inc.
sales employees have been actively referring their clients and sales prospects
to Accounting USA and vice versa. The Company has also actively engaged in
conversation with various accounting firms and other outsourced suppliers of
administrative services in the Louisville Metro Area to form strategic alliances
and/or joint business ventures.
On January 27, 2003, the Company entered into an agreement with Kenneth Berryman
to serve as President and CEO of the Company's Accounting USA division. Mr.
Berryman has substantially reduced the Company's monthly cash losses and
repositioned the Company to facilitate sales growth. As of September 1, 2003,
Mr. Berryman was hired as a full-time employee of the Company continuing his
duties as President and CEO of the Accounting USA division.
On July 28, 2003 the Company received notice that its long time accounting firm
and auditor, Potter & Company was terminating its relationship effective
immediately with Lincoln. On October 31, 2003, Lincoln engaged Carpenter,
Mountjoy, & Bressler located at 2300 Waterfront Plaza, 325 West Main Street,
Louisville, KY 40202-4244 as its new independent auditor.
DEVELOPMENTS FOLLOWING THE CLOSE OF FISCAL 2003
On August 22, 2003, the Company sold its last remaining commercial office rental
property located in Louisville, Kentucky for $1,260,000. At the sale closing,
the Company paid off its first and second mortgages against the property of
$485,551 and $57,599, respectively. After closing fees, taxes and other
adjustments, the Company received net proceeds of $637,664. It is expected that
the Company will pay local taxes of approximately $14,000 related to this sale.
The Company is expected to utilize a portion of its federal and state net
operating loss carryforwards to offset the federal and state taxes related to
this sale.
In January 2004, Lincoln transferred all of its assets relating to the
Accounting USA business operations to a wholly-owned subsidiary, AUSA, Inc.
Lincoln then distributed all of its shares of AUSA, Inc. stock to its
shareholders. AUSA, Inc. is a private corporation and is not required to file
reports with the Securities and Exchange Commission under the Securities and
Exchange Act of 1934.
EMPLOYEES:
As of July 31, 2003, Lincoln had thirteen (13) employees. Following the spin-off
of the Accounting USA division in January 2004, the Company had no employees.
ITEM 2: PROPERTIES
The properties owned or leased by Lincoln as of July 31, 2003 are described
below. These properties listed above are suitable and adequate for the various
needs they supply.
LINCOLN ADMINISTRATIVE AND EXECUTIVE OFFICES
Lincoln leased its sole executive offices through March 12, 2004. These offices
were located at 2300 Greene Way, Ste. 201, Louisville, KY 40220 The lease for
this location was for 1,858 square feet. The lease expired March 12, 2004 and
was not renewed by Lincoln.
Lincoln's Accounting USA division leases approximately 2,268 square feet of
office space in an office building previously owned by the Company at 2211
Greene Way, Louisville, KY 40220. This lease was assumed by AUSA, Inc. in
January 2004 upon the spin-off of the Accounting USA divisions. The lease
expires May 31, 2006.
RENTAL PROPERTIES
Lincoln owned as of July 31, 2003 a building located at 2211 Greene Way,
Louisville, KY 40220, which it leases to various tenants for income, including
its former Accounting USA division. The building contains approximately 15,800
sq. feet. Following the end of the last fiscal year, Lincoln sold the building
and has no further interest in it.
ITEM 3: LEGAL PROCEEDINGS
None.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
There does not exist at the present time any regular market for any common stock
of Lincoln. Historically the Company has not paid dividends to its stockholders.
Subsequent to the last fiscal year, Lincoln did distribute to its shareholders
all of its stock holdings in AUSA, Inc., a wholly-owned subsidiary which held
its Accounting USA operations. The Company has not determined whether it will in
the future distribute to its shareholders any or all of its remaining on-hand
cash.
ITEM 6: SELECTED FINANCIAL DATA
Years ending July 31
______________________________________________________________________
2001
2003 2002 (Restated) 2000 1999
__________ __________ __________ __________ __________
Revenues $ 991,902 $1,292,757 $1,137,268 $ 692,942 $ 190,050
Net income (loss) (553,903) (732,966) (766,830) (500,914) 1,474,483
Earnings (loss) per
common share (1):
Net income (loss) (194.69) (250.24) (270.30) (188.49) 706.92
Cash dividends 0 0 0 0 0
Total assets 1,019,989 1,551,137 2,730,518 3,786,349 3,690,394
Long-term obligations 466,270 528,498 573,320 85,511 0
Gain (loss) on sale of property,
equipment, and operating
assets (2,464) 0 296,192 (12,884) 2,359,078
(1) All data adjusted for a 1 for 3 reverse stock split in FY 2003.
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATIONS
CRITICAL ACCOUNTING POLICIES
The preparation of our financial statements in accordance with accounting
principles generally accepted in the U.S. requires us to make estimates and
assumptions that affect the reported amounts of assets, liabilities, expenses
and interest income in our financial statements and accompanying notes. On an
on-going basis, the Company evaluates its estimates, including those related to
contract agreements, research collaborations and investments. The Company bases
its estimates on historical experience and various other assumptions that it
believes to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions. The following items
in the Company's financial statements require significant estimates and
judgments:
GOING CONCERN: The accompanying financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. As reflected in
the accompanying financial statements, the Company has incurred recurring net
losses and negative cash flows from operations over the prior three years which
raises substantial doubt about the Company's ability to continue as a going
concern. As more fully discussed in Note T, management has developed plans to
address these issues. The financial statements do not include any adjustments
that might result from the Company being unable to continue as a going concern.
GOODWILL: Prior to August 1, 2002, goodwill was amortized on a straight-line
basis over five years. At July 31, 2002, goodwill, net of accumulated
amortization of $78,813, was $138,987. Beginning August 1, 2002, goodwill is no
longer amortized, but is evaluated at least annually for impairment, and more
frequently under certain conditions.
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS: Effective August 1, 2002,
the Company adopted Statement of Financial Accounting Standards (SFAS) No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets." The Company
evaluates long-term assets for impairment and assesses their recoverability
based upon anticipated future cash flows. If facts and circumstances lead the
Company's management to believe that the cost of one of its assets may be
impaired, the Company will (a) evaluate the extent to which that cost is
recoverable by comparing the future undiscounted cash flows estimated to be
associated with that asset to the asset's carrying amount and (b) write-down
that carrying amount to market value or discounted cash flow value to the extent
necessary. As of July 31, 2003, the Company determined the carrying amount of
its assets to be equal to or less than market value and did not recognize an
impairment charge. However, management adopted a plan to sell certain of its
property as of February 2003. As of this date, these assets were recorded as
assets held for sale on the balance sheet and no depreciation expense has
subsequently been recorded.
RESULTS OF OPERATIONS
The primary focus of the Company over the last two fiscal years has been to move
the Accounting USA division to a break-even point and to discontinue rental
property operations by selling the remaining rental property assets.
STATEMENT OF INCOME
FISCAL YEAR ENDED JULY 31, 2003 COMPARED TO THE YEAR ENDED JULY 31, 2002
Total revenue decreased compared to the previous year primarily due to lost
accounts that were the subject of litigation. The Company does not believe it
will be able to retrieve these accounts lost upon the departure of the former
President of the Accounting USA division and former members of his staff. These
clients accounted for approximately $200,000 in annual revenue. The Company
continues to generate new sales, however, significant sales growth is dependent
upon the availability of capital, development of a successful marketing plan,
and additional strategic alliances.
Total revenue declined $300,855, or 23.3%, to $991,902 for the year. The decline
in revenue was due substantially to lost client revenue in the Accounting USA
division following the departure of the former division President and the
discontinuance of the payroll and onsite accounting services. The Accounting USA
division added 21 new clients during the year and implemented a price increase
in the third fiscal quarter ended April 30, 2003, partially offsetting the lost
revenue. Revenue in the Rental Property division declined $23,362, or 12.3%, to
$166,161 for the year.
Gross profits increased $39,119, or 11.3%, to $385,237 in FY2003 despite lower
revenue in the Accounting USA division due to aggressive cost reduction in this
division. Direct operating costs overall declined $339,974, or 35.9% to $606,665
for the year primarily due to the closing of the payroll and onsite accounting
operations and to lower employment costs in the accounting services operation
due to staff reductions. Gross profits in the Rental Property division of
$90,919 were down $4,512, or 4.7% for the year.
The operating deficit improved $234,217, or 33.1%, to a loss of $473,259 for the
year as a result of lower overhead costs in the Accounting USA division. Total
selling, general and administrative costs decreased $334,085, or 31.7%, to
$719,509 for the year as payroll related expenses in sales and corporate
administration in the Accounting USA division were substantially reduced.
Depreciation costs were also lower as certain computer equipment with three-year
lives became fully depreciated during the year. In FY2003, the Company recorded
$138,987 in expense related to the write-off of impaired goodwill under SFAS No.
142, "Goodwill and Other Intangible Assets," which the Company adopted in
FY2003. Excluding this cost, the operating loss improved $373,204, or 52.8%, to
a loss of $334,272 for the year. The operating loss in the Rental Property
division decreased $15,227, or 7.7%, to a loss of $183,544 in FY2003 due
primarily to lower amortization and other operating costs.
The net loss decreased $179,063, or 24.4%, to a loss of $553,903 for the year
due the smaller operating loss. However, this improvement was partially offset
by the net effect of several non-operating gains and losses. Net non-operating
costs increased $55,154, or 216.4%, to $80,644 in FY2003. The increase in costs
were primarily due to higher bad debt expense related to the write-off of the
Admiralty Boat loan and lower interest income due to a smaller average invested
funds and lower interest rates paid on those funds. Excluding the write-off of
impaired goodwill, the net loss declined $318,050, or 43.4%, to a loss of
$414,916 for the year.
Inflation has not had any material impact during the last 3 years on net revenue
or income from operations. Except as described above, the Company has had no
material benefit from increases in its prices for services during the last three
years.
LIQUIDITY AND CAPITAL RESOURCES
Cash decreased $305,051, or 93.3%, to $21,944 in FY2003 due primarily to
operating losses. New investment in property and equipment and the net effect of
financing activities contributed to reducing cash a total of $24,615 for the
year. The Company's primary source of liquidity and capital has been its cash
reserves and equity in its real estate holdings. In June 2003, the Company
established a bank line of credit in the amount of $100,000 secured by real
estate assets to provide funds for operations. As of July 31, 2003, $47,500 was
outstanding under the line of credit. In February 2003, the Company engaged a
real estate agent to sell its last remaining real estate property in order to
reduce debt and enhance liquidity. The sale of the real estate property was
completed on August 22, 2003 resulting in the repayment of $543,157 in mortgage
debt and receipt of $637,664 in net cash at settlement. With the disposition in
January 2004 of its Accounting USA operations, the Company has no material
ongoing capital or liquidity commitments.
ACQUISITION OR DISPOSITION OF ASSETS
On August 8, 2003 the Company sold the remaining "bass boats" it had helped
finance the manufacturing of, to Nu Legend Boats at 108 Marshall Street,
Stanton, KY. The boats were sold "as-is" with no recourse to the Company as well
as an indemnification by the purchaser with regard to any and all claims arising
including manufacturing defects. The Company will have to write-off $48,700 of
the original $90,500 purchase price for these boats. The original borrower,
Admiralty Boats, filed bankruptcy within a year of the financing and the claim
has been filed although it has been indicated that there will be no assets to
satisfy claims. The Company is attempting to liquidate the boats and has had
them with a reputable dealer in Corbin, KY, with two boats in Florida and one in
California. The entire boat industry had become "extremely soft", and it had
become difficult to sell a discontinued line of boat with no manufacturer's
warranty in place. Over time the boats had been sitting, and there had been some
additional deterioration as well as additional costs and that the boats did not
have trailers or motors and had to be sold as part of a package. The Company had
sold one boat approximately a year and a half to two years ago at an auction at
Nashville, KY and received only $1,000 for that boat so it was determined that
to salvage the boat at this point in time rather than invest future funds was
not only appropriate but recommended.
On August 22, 2003 the Company sold commercial property located at 2211 Greene
Way for $1,260,000. The Company received a written opinion from Walter Wagner,
Jr. Co., the real estate Company listing the property, concerning the
reasonableness of the sale and the "soft market" for commercial real estate in
the Louisville area, and particularly in the area of this commercial property.
As part of that transaction the Company paid off a $485,559 first mortgage and a
$57,599 second mortgage with Commonwealth Bank & Trust Co., Louisville, KY.
After closing fees and other adjustments, the Company recorded $637,664 in net
cash. It is expected that the Company will pay local taxes of approximately
$14,000 related to this sale.
LITIGATION
As of March 29, 2004, the Company has no litigation current, pending or
threatened against it. The Company has, as noted earlier, settled a lawsuit that
was filed in October of 2002 that included alleged violations of a non-compete
agreement and various other claims against former employees. The suit was
settled on October 17, 2003 with Mr. & Mrs. Brian W. McDonald returning 200
shares (approximately 7.2% of the Company's issued and outstanding stock) as
part of the settlement as well as an extension of the Non-Compete Agreement with
Mr. McDonald for an additional year through 2005 as well as barring Accounting
Advantage, the Company established by former Accounting USA division employees,
from soliciting or receiving former or current customers of the Company.
YEAR ENDED JULY 31, 2002 COMPARED TO THE YEAR ENDED JULY 31, 2001
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.
The financial statements for the years ended July 31, 2002 and 2001 have been
restated to reclassify the valuation adjustment in the investment in Winebrenner
Capital Partners, LLC initially recorded in 2001. As a result of the
restatement, other comprehensive loss decreased $250,000 and net loss increased
$250,000 in the year ended July 31, 2001 and the accumulated deficit has
increased by $250,000 in fiscal year 2002 and 2001.
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.
ACQUISITION OR DISPOSITION OF ASSETS
During the fiscal year ended July 31, 2003 no material assets of Lincoln were
disposed of. On August 22, 2003, subsequent to the end of the fiscal year
covered by this report, the property located at 2211 Greene Way was sold for
$1,260,000. Subsequently, in January 2004, Lincoln distributed to its
stockholders the stock of AUSA, Inc., its wholly-owned subsidiary containing its
bookkeeping and payroll services business.
LIQUIDITY AND CAPITAL RESOURCES
As of July 31, 2002, the Company had $327,000 in cash and debt of $486,000
against the 2211 Greene Way property. Based upon the estimated value of the 2211
Greene Way property, the Company therefore had available capital of
approximately $1,000,000 that could 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, would 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 would 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 would 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 have been 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
LINCOLN INTERNATIONAL CORPORATION
Table of Contents
July 31, 2003, 2002 and 2001
Independent Auditor's Report..................................................1
Financial Statements
Balance Sheets.............................................................2
Statements of Operations...................................................3
Statements of Changes in Stockholders' Equity..............................4
Statements of Cash Flows...................................................5
Notes to Financial Statements..............................................7
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
Lincoln International Corporation
Louisville, Kentucky
We have audited the accompanying balance sheet of Lincoln International
Corporation as of July 31, 2003, and the related statements of operations,
changes in stockholders' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit. The financial statements of Lincoln International Corporation for the
years ended July 31, 2002 and 2001 were audited by other auditors whose report
dated October 25, 2002, included an explanatory paragraph that described the
Company's ability to continue as a going concern discussed in Note T to the
financial statements. As discussed in Note B, the Company has restated its July
31, 2002 and 2001 financial statements during the current year to reclassify the
valuation adjustment in the investment in Winebrenner Capital Partners, LLC
recorded in 2001 from other comprehensive income to the statement of operations,
in conformity with accounting principles generally accepted in the United States
of America. The other auditors reported on the July 31, 2002 and 2001 financial
statements before the restatement.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board in the United States of America. Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the July 31, 2003 financial statements referred to above present
fairly, in all material respects, the financial position of Lincoln
International Corporation as of July 31, 2003, and the results of its operations
and its cash flows for the year then ended in conformity with accounting
principles generally accepted in the United States of America.
We also audited the adjustments described in Note B that were applied to restate
the July 31, 2002 and 2001 financial statements. In our opinion, the adjustments
are appropriate and have been properly applied.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Notes A and T 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.
Louisville, Kentucky
January 31, 2004
LINCOLN INTERNATIONAL CORPORATION
BALANCE SHEETS
July 31, 2003 and 2002
A S S E T S
(Restated)
2003 2002
Current assets:
Cash and cash equivalents $ 21,944 $ 326,995
Accounts receivable, net of allowance for
doubtful accounts of $2,418 ($7,000 in 2002) 10,950 49,664
Note receivable, net of allowance for
doubtful amounts of $72,062 ($35,100 in 2002) 8,000 48,462
Other receivable 56,298 -
Prepaid expenses and other current assets 7,476 10,598
Total current assets 104,668 435,719
Property and equipment, net 88,838 151,677
Assets held for sale 814,454 824,754
Marketable securities 12,029 -
Goodwill, net - 138,987
Total assets $ 1,019,989 $ 1,551,137
L I A B I L I T I E S
Current liabilities:
Accounts payable $ 47,977 $ 63,452
Accrued expenses 84,810 43,810
Obligation under capital lease 4,461 4,235
Line of credit 47,500 -
Note payable 52,819 -
Current maturities of debt obligations 11,702 41,072
Total current liabilities 249,269 152,569
Noncurrent liabilities:
Long-term obligations, less current maturities 463,394 521,161
Obligation under capital lease 2,876 7,337
Total noncurrent liabilities 466,270 528,498
Total liabilities 715,539 681,067
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, 1,000,000 shares authorized,
2,775 issued and outstanding (2,931 in 2002) 1,977,798 1,994,718
Accumulated deficit (1,678,551) (1,124,648)
Accumulated other comprehensive income 5,203 -
Total stockholders' equity 304,450 870,070
Total liabilities and stockholders' equity $ 1,019,989 $ 1,551,137
See accompanying independent auditor's report and notes to financial statements
2
LINCOLN INTERNATIONAL CORPORATION
STATEMENTS OF OPERATIONS
Years ended July 31, 2003, 2002, and 2001
(Restated)
2003 2002 2001
Revenues $ 991,902 $ 1,292,757 $ 1,137,268
Cost and expenses:
Cost of Revenues 606,665 946,639 950,526
Selling, general and administrative expenses 719,509 1,053,594 1,165,192
Impairment of goodwill 138,987 - -
1,465,161 2,000,233 2,115,718
Loss from operations (473,259) (707,476) (978,450)
Other income (expense):
Loss on investment - - (250,000)
Gain (loss) on sale of property and equipment (2,464) - 296,192
Loss on uncollectible note receivable (36,962) - (35,100)
Interest expense, net (48,045) (25,490) (35,551)
Legal fees - - (74,500)
Other income 6,827 - -
Total other (expense) income (80,644) (25,490) (98,959)
Loss before income taxes (553,903) (732,966) (1,077,409)
Benefit from income taxes - - (310,579)
Net loss $ (553,903) $ (732,966) $ (766,830)
Net loss per common share (basic and diluted) $ (194.69) $ (250.24) $ (270.30)
Shares used in computing loss per common share 2,845 2,929 2,837
LINCOLN INTERNATIONAL CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years ended July 31, 2003, 2002, and 2001
Accumulated
Retained Other Total
Common Earnings Comprehensive Stockholders'
Shares Common Stock (Deficit) Income (Loss) Equity
Balance at August 1, 2000 2,657 $ 1,879,898 $ 375,148 $ - $ 2,255,046
Issuance of common stock in connection
with purchase of business at $420 267 112,000 - - 112,000
Issuance of common stock as part of
executive compensation at $420 5 2,100 - - 2,100
Net loss - - (766,830) - (766,830)
Balance at July 31, 2001 (Restated) 2,929 1,993,998 (391,682) - 1,602,316
Issuance of common stock to
fractional shareholders at $360 2 720 - - 720
Net loss - - (732,966) - (732,966)
Balance at July 31, 2002 (Restated) 2,931 1,994,718 (1,124,648) - 870,070
Comprehensive loss
Net loss - - (553,903) - (553,903)
Change in value of available for sale
security - - - 5,203 5,203
Total comprehensive loss - - - - (548,700)
Issuance of common stock to
fractional shareholders at $240 1 240 - - 240
Fractional shares purchased by the Company
at $120 - (120) - - (120)
Fractional shares redeemed by the Company
in conjunction with the Reverse Stock Spl(157) (17,040) - - (17,040)
Balance at July 31, 2003 2,775 $ 1,977,798 $ (1,678,551) $ 5,203 $ 304,450
LINCOLN INTERNATIONAL CORPORATION
STATEMENTS OF CASH FLOWS
Years ended July 31, 2003, 2002, and 2001
(Restated)
2003 2002 2001
Cash flows from operating activities:
Net loss $ (553,903) $ (732,966) $ (766,830)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 90,818 157,393 163,593
Amortization - 39,704 39,109
Impairment of goodwill 138,987 - -
Provision for doubtful accounts 32,380 19,601 35,500
Stock issued for compensation - - 2,100
Loss (gain) on sale of property and equipment 2,464 - (296,192)
Loss on investment - - 250,000
Marketable securities (6,827) - -
Deferred income taxes - - (329,011)
Changes in operating assets and liabilities:
Accounts receivables 43,296 26,898 (70,166)
Other current assets (53,176) 10,828 29,871
Accounts payable (15,475) (90,140) 75,000
Accrued expenses 41,000 (7,062) 2,878
Income taxes payable - (18,433) 18,433
Net cash used in operating activities (280,436) (594,177) (845,715)
Cash flows from investing activities:
Proceeds from sale of property and equipment - - 2,204,549
Purchase of property and equipment (20,142) (16,382) (93,166)
Purchase of Vena Marks & Associates, LLC - - (110,800)
Purchase of Investment in Winebrenner Capital Partners, LLC - - (250,000)
Decrease/(increase) in note receivable 3,500 4,285 (14,724)
Net cash (used in) provided by investing activities (16,642) (12,097) 1,735,859
Cash flows from financing activities:
Proceeds from issuance of common stock 240 720 -
Common stock repurchase (17,160) - -
Net proceeds on line of credit 47,500 - 500,000
Proceeds from note payable 52,819 - -
Proceeds from long-term borrowings - - 33,491
Principal payments on long-term debt (87,137) (38,924) (532,761)
Principal payments on capital lease obligations (4,235) (3,424) (2,779)
Net cash used in financing activities (7,973) (41,628) (2,049)
Net (decrease) increase in cash and cash equivalents (305,051) (647,902) 888,095
Cash and cash equivalents at beginning of year 326,995 974,897 86,802
Cash and cash equivalents at end of year $ 21,944 $ 326,995 $ 974,897
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 49,928 $ 53,460 $ 87,360
Continued
LINCOLN INTERNATIONAL CORPORATION
STATEMENTS OF CASH FLOWS--CONTINUED
Years ended July 31, 2003, 2002, and 2001
(Restated)
2003 2002 2001
Acquisition of Vena Marks & Associates, LLC
Assets acquired:
Property and equipment $ - $ - $ 5,000
Goodwill - - 133,800
$ - $ - $ 138,800
Payment for assets acquired:
Cash paid at closing $ - $ - $ 110,800
Stock issued - - 28,000
$ - $ - $ 138,800
Acquisition of Minority Interest
Assets acquired:
Goodwill $ - $ - $ 84,000
Payment for assets acquired:
Stock issued $ - $ - $ 84,000
Supplemental schedule of noncash financing activities:
Debt paid by refinancing $ - $ - $ 1,000,000
See accompanying independent auditor's report and notes to financial statements
LINCOLN INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
July 31, 2003, 2002 and 2001
NOTE A--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 are 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.
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. As reflected in the accompanying
financial statements, the Company has incurred recurring net losses and negative
cash flows from operations over the prior three years which raises substantial
doubt about the Company's ability to continue as a going concern. As more fully
discussed in Note T, management has developed plans to address these issues. The
financial statements do not include any adjustments that might result from the
Company being unable to continue as a going concern.
NATURE OF BUSINESS: The Company operates two business segments: the Rental
Property division and the Accounting USA division.
The Rental Property division owns and operates commercial office rental
properties in Louisville, Kentucky. Since August 1, 2000, the Company has owned
and operated as many as four Class A suburban office properties. As of July 31,
2003, all but one property has been sold and the remaining rental property was
under contract for sale. This amount is separately recorded on the balance sheet
as assets held for sale. On August 22, 2003, this property was sold and the
Company has no plans to invest in rental properties in the future. See Note S
for further discussion of the sale of the property.
The Accounting USA division provides bookkeeping services to small and mid-sized
businesses and organizations primarily in the Louisville, Kentucky metropolitan
area. The Company formed Accounting USA, Inc. on October 1, 1999, and received
75% of the outstanding shares of common stock in conjunction with a merger with
Accounting USA's predecessor, Accounting Outsourced Solutions, LLC. On December
1, 2000, Accounting USA, Inc. merged into the Company and continued operations
as an unincorporated division. In exchange for the minority interest, the
Company issued 600 shares of the Company's common stock.
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.
REVENUE RECOGNITION: Revenue from services is recognized as the services are
rendered, which is generally monthly at fixed rates.
FAIR VALUE OF FINANCIAL INSTRUMENTS: Cash, accounts receivable, accounts payable
and accrued expenses are reflected in the financial statements at their carrying
amount, which approximates fair value because of the short-term maturity of
those instruments. The carrying amount of debt obligations at July 31, 2003
approximates fair value because borrowings have rates that reflect currently
available terms and conditions for similar debt.
Continued
LINCOLN INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS--CONTINUED
July 31, 2003, 2002 and 2001
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
CASH AND CASH EQUIVALENTS: For purposes of reporting cash flows, the Company
considers all highly liquid investments with maturities of three months or less
to be cash equivalents. The carrying amounts reported in the balance sheets for
cash equivalents approximate their fair values.
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 had no uninsured cash at July 31, 2003.
ACCOUNTS RECEIVABLE: Accounts receivable consists of amounts due for bookkeeping
services, which were not received by the Company at year-end. The Company
invoices most clients for its services at the beginning of each month and
payments are due within ten days.
Based on management's evaluation of uncollectible accounts receivable at the end
of each year, bad debts are provided for on the allowance method. The allowance
for doubtful accounts as of July 31, 2003 and 2002 was approximately $2,400 and
$7,000, respectively.
MARKETABLE SECURITIES: Marketable securities have been classified as available
for sale and are stated at fair value based on quoted market values. The
marketable securities consisted of common stocks with a cost of $6,827 and a
market value of $12,029 at July 31, 2003. Unrealized gains or losses are
included as a component of stockholders equity until realized.
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. The net book value of these brochures was $-0-as of July 31,
2003 and 2002. Advertising expense was $644, $10,823 and $74,761 for the years
ended July 31, 2003, 2002 and 2001, respectively.
GOODWILL: Goodwill represents the excess of the aggregate purchase price paid by
the Company in acquisitions accounted for as purchases over the fair value of
the net identifiable tangible and intangible assets acquired.
Prior to August 1, 2002, goodwill was amortized on a straight-line basis over
five years. At July 31, 2002, goodwill, net of accumulated amortization of
$78,813, was $138,987. Beginning August 1, 2002, goodwill is no longer
amortized, but is evaluated at least annually for impairment, and more
frequently under certain conditions. The effects of adopting new accounting
standards are discussed in Note G.
Continued
LINCOLN INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS--CONTINUED
July 31, 2003, 2002 and 2001
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS: Effective August 1, 2002,
the Company adopted Statement of Financial Accounting Standards (SFAS) No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets." The Company
evaluates long-term assets for impairment and assesses their recoverability
based upon anticipated future cash flows. If facts and circumstances lead the
Company's management to believe that the cost of one of its assets may be
impaired, the Company will (a) evaluate the extent to which that cost is
recoverable by comparing the future undiscounted cash flows estimated to be
associated with that asset to the asset's carrying amount and (b) write-down
that carrying amount to market value or discounted cash flow value to the extent
necessary. As of July 31, 2003, the Company determined the carrying amount of
its assets to be equal to or less than market value and did not recognize an
impairment charge. However, management adopted a plan to sell certain of its
property as of February 2003. As of this date, these assets were recorded as
assets held for sale on the balance sheet and no depreciation expense has
subsequently been recorded. See Note S for discussion of the sale of these
assets.
INCOME TAXES: The Company accounts for income taxes in accordance with SFAS No.
109, "Accounting for Income Taxes." Accordingly, deferred income taxes have been
provided for temporary differences between the recognition of revenue and
expenses for financial and income tax reporting purposes and between the tax
basis of assets and liabilities and their reported amounts in the financial
statements.
EARNINGS PER SHARE: Earnings per common share are based on the weighted average
number of common shares outstanding during the respective periods. Since the
Company has no outstanding stock warrants or options, no dilutive effect exists,
and therefore, no diluted earnings per share calculations are necessary.
RECLASSIFICATIONS: Certain reclassifications have been made to the prior years'
financial statements to conform to the 2003 classification, none of which had an
effect on previously reported net income.
NOTE B--RESTATEMENT
The financial statements for the years ended July 31, 2002 and 2001 have been
restated to reclassify the valuation adjustment in the investment in Winebrenner
Capital Partners, LLC initially recorded in 2001. As a result of the
restatement, other comprehensive loss decreased $250,000 and net loss increased
$250,000. See Note P for further discussion.
NOTE C--NOTE RECEIVABLE
During the year ended July 31, 2000, the Company entered into a Master Loan
Agreement with a manufacturer and seller of pleasure boats to help finance the
manufacturing of boats. The Master Loan Agreement had an initial term of one
year, renewable at that time by the Company. The agreement was for a maximum of
$100,000 to be drawn in a series of minimum advances of $15,000. Each note was
secured by the boats constructed with the funds disbursed by the Company. The
Company disbursed 90% of required funds to construct specific boats. At the time
of the sale of the boats, payments totaling 100% of the manufacturing costs were
due. The Company had the option to charge interest equal to 10% per annum on the
notes if they were not repaid 120 days from the date funds were disbursed.
Continued
LINCOLN INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS--CONTINUED
July 31, 2003, 2002 and 2001
NOTE C--NOTE RECEIVABLE--CONTINUED
As of July 31, 2001, the Company had disbursed a total of $90,500 under the
Master Loan Agreement. The loan went into default during the year ended July 31,
2002 and management provided reserves against the loan based upon the expected
liquidation value of the collateral. For the year ended July 31, 2003, the
Company recorded an additional expense of approximately $37,000 in order to
recognize the liquidation value of the collateral. The collateral was sold in
August 2003 for $8,000.
The note receivable balance consists of the following:
2003 2002
----------- -----------
Company funds disbursed $ 90,500 $ 90,500
Interest thereon 23,362 23,362
Repayments (33,800) (30,300)
----------- -----------
Subtotal 80,062 83,562
Less allowance for uncollectible amounts 72,062 35,100
----------- -----------
Note receivable, net $ 8,000 $ 48,462
=========== ===========
NOTE D--OTHER RECEIVABLE
Other receivable consists of the following:
2003 2002
----------- -----------
Payroll transaction receivable $ 56,298 -
On December 5, 2002, the Company entered into a Purchase and Sale Agreement for
the sale of a client list for certain customers that the Company had been
performing payroll services. The Company received proceeds of $101,677 for this
transaction, which resulted in a net profit of $5,148 after related expenses.
This amount has been recognized in Cost of Revenues. As of the date of this
transaction, the Company no longer performs payroll services. See Note S for
subsequent activity related to the payroll transaction receivable.
NOTE E--PREPAID EXPENSES
Prepaid expenses consist of the following:
2003 2002
----------- ------------
Prepaid maintenance, support and training $ 4,453 $ 3,738
Prepaid rent 1,781 -
Prepaid insurance 349 2,568
Prepaid leasing commissions - 3,348
Refundable deposits 578 478
Other 315 466
----------- ------------
Total $7,476 $10,598
=========== ============
Continued
LINCOLN INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS--CONTINUED
July 31, 2003, 2002 and 2001
NOTE F--PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
2003 2002
---------- ----------
Leasehold improvements $24,272 $ 4,631
Office and computer equipment 467,839 472,107
---------- ----------
492,111 476,738
Less accumulated depreciation and amortization 411,910 336,054
---------- ----------
80,201 140,684
Equipment held under capital lease,
net of accumulated amortization 8,637 10,993
---------- ----------
Net property and equipment
$88,838 $151,677
========== ==========
Depreciation expense for the years ended July 31, 2003, 2002 and 2001 was
$90,818, $157,393 and $163,593, respectively.
NOTE G--GOODWILL
In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No.
141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 142 was effective for the Company as of August 1, 2002. Under
the new rules, goodwill and indefinite lived intangible assets are no longer
amortized and will be reviewed annually for impairment. Intangible assets that
are not deemed to have an indefinite life will continue to be amortized over
their useful lives.
SFAS No. 142 uses a two-step process to measure potential impairment. In the
first step, the fair values of the Company's reporting units are compared to the
units' carrying amounts. Reporting units with similar economic and operating
characteristics may be combined into a single segment level evaluation. If the
fair value of a reporting unit exceeds its carrying cost, goodwill is not
considered impaired. If the carrying cost exceeds fair value, a second step is
used to determine the amount of impairment. The second step determines the
implied fair value of goodwill for a reporting unit by applying the estimated
fair value to the tangible and separately identifiable intangible assets and
liabilities of the reporting unit, with any remaining amount considered
goodwill.
The Company completed the first step analysis under the requirements of the
standard and determined that goodwill was impaired. The fair value of the
Company's reporting units was determined using a discounted cash flow technique.
The Company defined its reporting units at the segment level. As a result of
this analysis, it was determined that an impairment loss of $138,987 was to be
recorded. As the Company's analysis was not completed within six months of the
adoption date, the resulting loss has been recorded in the Statement of
Operations for the year ended July 31, 2003 as a component of loss from
operations.
Continued
LINCOLN INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS--CONTINUED
July 31, 2003, 2002 and 2001
NOTE G--GOODWILL--CONTINUED
If the Company had accounted for its goodwill under SFAS No. 142 for all periods
presented, the Company's net loss and loss per share would have been as follows:
2003 2002 2001
----------- -------------- -------------
Net loss, as reported $ (553,903) $ (732,966) $(766,830)
Add back: goodwill amortization - 39,704 39,109
----------- -------------- -------------
Adjusted net loss $ (553,903) $ (693,262) $(727,721)
----------- ============== =============
Basic loss per share:
Net loss, as reported $ (194.69) $ (250.24) $ (270.30)
Goodwill amortization - 13.56 13.79
----------- -------------- -------------
Adjusted net loss $ (194.69) $ (236.68) $ (256.51)
=========== ============== =============
NOTE H--LINE OF CREDIT AND LONG-TERM DEBT OBLIGATIONS
On June 17, 2003, the Company entered into a line of credit agreement with a
commercial bank. The balance as of July 31, 2003 is $47,500. The line of credit
carries variable interest at the Prime Rate plus one (effective rate of 5% at
July 31, 2003). The line, which is not to exceed $100,000, was due June 17,
2004, and is secured by a second mortgage on the real property of the Company.
The Company has a short-term note payable of $52,819 as of July 31, 2003 with a
commercial bank that re-financed an existing term note with the same bank. The
note was opened on June 12, 2003 and was due December 12, 2003. The note carries
variable interest at the Prime Rate plus two (effective rate of 6% at July 31,
2003. The note is payable monthly and is secured by all assets of the Company.
The total outstanding balance under the line of credit was paid in full on
August 22, 2003 and the line of credit was closed. The short-term note payable
was paid in full on November 21, 2003. See further discussion in Note S.
Long-term debt consists of the following:
2003 2002
--------------- --------------
Term note payable, interest at 8.75%, monthly payments of $3,105,
including principal and interest, due October 2004. $ - $ 76,317
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,
with a final balloon payment of $443,769 475,096 485,916
--------------- --------------
475,096 562,233
Less current maturities 11,702 41,072
--------------- --------------
Total $ 463,394 $ 521,161
=============== ==============
Continued
LINCOLN INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS--CONTINUED
July 31, 2003, 2002 and 2001
NOTE H--LINE OF CREDIT AND LONG-TERM DEBT OBLIGATIONS--CONTINUED
As of July 31, 2003, the annual principal maturities required on the term note
payable are as follows:
Year ending July 31
2004 $ 11,702
2005 12,898
2006 450,496
----------
Total $ 475,096
==========
The total outstanding balance on the term note payable was paid in full on
August 22, 2003. See further discussion in Note S.
NOTE I--CAPITAL LEASES
The following is an analysis of the equipment under capital lease:
2003 2002
------------ --------------
Office and computer equipment $ 18,845 $ 18,845
Less accumulated amortization 10,208 7,852
------------ --------------
Total $ 8,637 $ 10,993
============ ==============
Amortization expense is included as a component of depreciation expense included
in selling, general and administrative expenses.
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, 2003:
Year ending July 31
2004 $ 5,142
2005 3,000
-----------
Total minimum lease payments 8,142
Less: amount representing interest 805
-----------
Present value of net minimum lease payments 7,337
Less: current obligation 4,461
-----------
Capital lease obligation long-term $ 2,876
===========
Continued
LINCOLN INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS--CONTINUED
July 31, 2003, 2002 and 2001
NOTE J--ACCRUED EXPENSES
Accrued expenses consist of the following:
2003 2002
------------- --------------
Accrued payroll and payroll taxes $ 13,262 $ 26,249
Accrued property taxes 6,175 5,593
Accrued professional fees 49,902 3,218
Accrued contractor fees 12,600 -
Other 2,871 8,750
------------- --------------
Total $ 84,810 $ 43,810
============= ==============
NOTE K--INCOME TAXES
The components of the income tax benefit are as follows:
2003 2002 2001
------------ --------------- --------------
Federal income taxes $ - $ - $ 278,623
State and local income taxes - 81,165
-
Deferred taxes - (329,012)
-
Tax benefit of net operating loss carryforward - (341,355)
-
------------ --------------- --------------
-
-
Total $ - $ - $(310,579)
============ =============== ==============
At July 31, 2003, the Company had approximately $1.7 million of federal net
operating loss carryforwards available to offset future federal taxable income.
Such carryforwards reflect income tax losses incurred which will expire in the
year 2006 through 2028.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts for income tax purposes. Management has concluded that
it is more likely than not that the Company's deferred tax assets will not be
realized. Accordingly, a valuation allowance has been established to offset the
net deferred tax assets. Significant components of the Company's net deferred
tax assets as of July 31, 2003 are as follows:
2003 2002
------------ -----------
Deferred tax assets:
Net operating loss carryforwards $ 648,741 $ 575,490
Loss on investment 95,000 110,340
Goodwill 60,172
-
Other 29,102 18,583
------------ -----------
833,015 704,413
Valuation allowance (625,114) (458,769)
Deferred tax liability - excess tax depreciation (207,901) (245,644)
------------ -----------
Net deferred tax asset (liability) $ - $ -
============ ===========
Continued
LINCOLN INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS--CONTINUED
July 31, 2003, 2002 and 2001
NOTE K--INCOME TAXES--CONTINUED
The following is a reconciliation of income tax expense (benefit) to that
computed by applying the federal statutory rate to income before income taxes:
2003 2002 2001
------------- --------------- --------------
Federal tax at the statutory rate $ (188,327) $(239,581) $(281,319)
State and local income taxes, net of federal tax
benefit - - (35,411)
Nondeductible expenses 2,469 4,270 4,265
Change in valuation allowance 166,345 436,139 22,630
Effect of graduated tax rates 19,513 (200,828) (20,744)
------------- --------------- --------------
Provision for (benefit from) income taxes $ - $ - $(310,579)
============= =============== ==============
NOTE L--LEASE COMMITMENTS
The Company has entered into several operating lease agreements, primarily for
office space and office equipment. Total rental expense amounted to $56,760,
$60,403 and $28,572 in 2003, 2002 and 2001, respectively. Future minimum rentals
at July 31, 2003 are as follows:
Year ending July 31
2004 $ 44,562
2005 42,773
2006 30,075
----------
Total $ 117,410
==========
NOTE M--LEASE OF PROPERTY AND EQUIPMENT
The Company is the lessor of commercial rental office buildings under operating
leases. These assets are currently recorded on the balance sheet as assets held
for sale. The following is a summary of the Company's investment in property and
equipment under operating leases as of July 31:
2003 2002
----------- -------------
Land $88,916 $ 88,916
Buildings and improvements 801,051 801,051
----------- -------------
889,967 889,967
Less accumulated depreciation 75,513 65,213
----------- -------------
Total $814,454 $824,754
=========== =============
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.
Continued
LINCOLN INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS--CONTINUED
July 31, 2003, 2002 and 2001
NOTE M--LEASE OF PROPERTY AND EQUIPMENT--CONTINUED
The minimum future rentals to be received on the leases at July 31, 2003 are as
follows:
Year ending July 31
2004 $ 185,739
2005 185,739
2006 93,659
2007 22,104
2008 22,104
Thereafter 5,526
----------
Total $ 514,871
==========
In May 2003 one of the Company's lessees sublet a portion of their office space
to the Company's Accounting USA division. The rental expense related to the
sublease was $1,294 in 2003 and has been included in the Company's 2003
operating expenses.
The land and building related to these leases was sold August 22, 2003. See Note
S for further discussion.
NOTE N--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, 2003, 2002 and 2001. The plan had
a zero balance as of July 31, 2003 and 2002.
NOTE O--REVERSE STOCK SPLIT
On February 18, 2003, the Company made effective a three-to-one reverse stock
split, which shareholders approved on December 6, 2002. The purpose of the split
was to attempt to reduce the number of outstanding shareholders below 300 in
order for the Company to have the ability to terminate its registration pursuant
to Section 12(g) of the Securities Exchange Act and become a private company.
Under the resolution, any fractional share existing post-split would be
automatically converted into "scrip" with a value of $120 per old share. Any
shareholder interested in maintaining an interest in the Company was offered the
ability to acquire a sufficient interest in a new share that, when combined with
the present holding, would equate to one whole new share. All references in the
financial statements referring to shares, share prices, per share amounts and
stock plans have been adjusted retroactively to reflect the three-to-one reverse
stock split.
The following is a summary of the completed transaction:
Old 1-for-3 Fractional Shares New Shares
Shares Split "Scrip" Purchased
8,792 2,930.67 (156.33) 0.67 2,775
Continued
LINCOLN INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS--CONTINUED
July 31, 2003, 2002 and 2001
NOTE P--RELATED PARTY TRANSACTIONS
On October 2000, the Company sold one of its commercial office rental properties
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 was being offered under an intrastate offering at $5 per
share. The 50,000 shares received represented 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. This investment was determined to be other than temporarily impaired and
has been written off in the fiscal year ended July 31, 2001.
NOTE Q--SEGMENT INFORMATION
The Company has two reportable segments: the Rental Property division (rental)
and the Accounting USA division (bookkeeping). These segments are strategic
business units managed separately as each business requires different technology
and marketing strategies.
The accounting policies of the segments are the same as those described in the
summary of significant accounting
policies. (See Note A)
The Company accounts for inter-segment revenues as if the transactions were to
third parties. No single external customer accounted for ten percent or more of
total revenues.
2003
Rental Bookkeeping Total
Revenues from external customers $166,161 $825,741 $991,902
Inter-segment revenue 5,670 12,098 17,768
Interest income 2,642 184 2,826
Interest expense 42,928 7,943 50,871
Depreciation 14,257 76,561 90,818
Impairment of goodwill - 138,987 138,987
Segment assets 979,187 187,712 1,166,899
Expenditures for segment assets - 20,142 20,142
2002
Rental Bookkeeping Total
Revenues from external customers $189,519 $1,103,238 $1,292,757
Inter-segment revenue - 12,600 12,600
Interest income 22,994 4,966 27,960
Interest expense 43,491 9,959 53,450
Depreciation and amortization 41,466 155,631 197,097
Segment assets 1,398,246 291,691 1,689,937
Expenditures for segment assets - 16,382 16,382
Continued
LINCOLN INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS--CONTINUED
July 31, 2003, 2002 and 2001
NOTE Q--SEGMENT INFORMATION--CONTINUED
2001
Rental Bookkeeping Total
Revenues from external customers $322,641 $814,627 $1,137,268
Inter-segment revenue 32,530 12,600 45,130
Interest income 27,371 26,553 53,924
Interest expense 78,368 11,107 89,475
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
The following is a reconciliation of reportable segment revenues, cost and
expenses, profit or loss and assets as of and for the year ending July 31:
2003 2002
-------------- -----------------
Revenues
Total revenue from reportable segments $1,009,670 $ 1,305,357
Elimination of Inter-segment revenues (17,768) (12,600)
-------------- -----------------
Total revenues $991,902 $ 1,292,757
============== =================
Costs and Expenses
Total costs and expenses from reportable segments $1,482,929 $ 2,012,833
Elimination of Inter-segment costs and expenses (17,768) (12,600)
-------------- -----------------
Total costs and expenses $1,465,161 $ 2,000,233
============== =================
Profit or Loss
Total operating loss for reportable segments (473,259) $ (707,476)
Interest income 2,826 27,960
Non-operating expense (32,599) -
Interest expense (50,871) (53,450)
-------------- -----------------
Loss before income taxes (553,903) $ (732,966)
============== =================
Assets
Total assets for reportable segments $1,166,899 $ 1,689,937
Elimination of Inter-segment receivables (146,910) (138,800)
-------------- -----------------
Total assets $1,019,989 $ 1,551,137
============== =================
Continued
LINCOLN INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS--CONTINUED
July 31, 2003, 2002 and 2001
NOTE R--QUARTERLY INFORMATION (UNAUDITED)
The following is an analysis of certain items in the income statements by
quarter for the years ended July 31:
--------------------------------------------------------------------------------------------------------
2003 2002
--------------------------------------------------------------------------------------------------------
First Second Third Fourth First Second Third Fourth
- ---------------------------------------------------------------------------------------------------------------------------
Net revenue $300,863 $375,097 $155,084 $ 160,858 $309,676 $334,944 $331,716 $316,421
Operating loss (111,879) (14,421) (181,285) (165,674) (205,546) (164,776) (130,374) (206,780)
Net loss (120,713) (23,969) (190,717) (218,504) (208,196) (174,577) (144,603) (205,590)
Loss per share $ (41.18) $ (8.23) $ (66.48) $ (78.80) $ (71.08) $ (59.60) $ (49.37) $ (70.19)
- ---------------------------------------------------------------------------------------------------------------------------
NOTE S--SUBSEQUENT EVENTS
On August 8, 2003, the Company sold the remaining collateral securing its Note
Receivable for $8,000. The collateral was sold "as-is", without recourse, and
with indemnification by the purchaser in regard to any and all claims arising
including manufacturing defects. As of July 31, 2003, the Company had provided
for an allowance for doubtful accounts totaling $74,167 against the gross asset
balance of $82,167. No further expense was recorded at the time of the sale.
On August 12, 2003, the Company received a payment of $56,298 as the final
installment due for the purchase of its payroll client list under a Purchase and
Sale Agreement dated December 5, 2002. Currently, no further agreements or
obligations exist between the Company and the buyer except for a surviving
provision in the Purchase and Sale Agreement for the Company not to engage in
payroll preparation services through December 5, 2005.
On August 22, 2003, the Company sold its last remaining commercial office rental
property for $1,260,000. At the sale closing, the Company paid off its first and
second mortgages against the property of $485,551 and $57,599, respectively.
After closing fees, taxes and other adjustments, the Company received net
proceeds of $637,664. The Company does not expect to pay federal and state taxes
on this transaction and does not anticipate any further real estate investments.
In October 2003, certain shareholders representing 77% of the issued and
outstanding capital stock in the Company, entered into an agreement with a
third-party to acquire all of their shares subsequent to the removal of all
assets, liabilities, contracts and operations from the Company. All other
shareholders will continue to hold their shares in the Company which is expected
to remain public. Closing of this transaction is subject to satisfactory
completion of due diligence and documentation, which is expected sometime in the
Company's third fiscal quarter.
On October 17, 2003, the Company settled the lawsuit it filed in October 2002
against former employees of the Company and a new company they formed to compete
with the Company's Accounting USA division. Terms of the settlement include the
return of 200 shares of Common Stock in the Company owned by a former officer,
as well as other agreements regarding non-solicitation of clients and
non-competition.
Continued
LINCOLN INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS--CONTINUED
July 31, 2003, 2002 and 2001
NOTE S--SUBSEQUENT EVENTS--CONTINUED
On October 30, 2003, the Company entered into a one-year Revolving Note and
Security Agreement (the Note) with a commercial bank in the amount of $53,000 to
re-finance an existing bank loan. The Note is secured by $53,000 reserved in a
money market account in that bank. On January 30, 2004, this Revolving Note was
paid-in-full and the line was closed.
On January 30, 2004, the Company transferred substantially all of its operating
assets to its wholly-owned subsidiary, AUSA, Inc. Thereafter, the Company
declared a distributive dividend to its stockholders of record on January 30,
2004 of all the shares of common stock of AUSA, Inc. so that each stockholder of
the Company will receive a share of AUSA, Inc. common stock for each share of
common stock of the Company owned by such stockholder on January 30, 2004.
Excluded from the assets transferred by the Company to AUSA, Inc. were cash and
deposit account balances of approximately $450,000, which funds have been
retained by the Company as well as liabilities estimated to be approximately
$33,000.
NOTE T--MANAGEMENT'S PLANS (UNAUDITED)
Management has developed a plan to increase sales, as well as their profit
margin, and to decrease operating expenses, primarily by taking AUSA, Inc.
private and selling the remaining "public shell" of the Company. The Company is
also actively searching for existing bookkeeping companies to acquire to enhance
the AUSA business. 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.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
On July 28, 2003 the Company received notice that its long time accounting firm
and auditor, Potter & Company was resigning effective immediately. On October
31, 2003, Lincoln engaged Carpenter, Mountjoy, & Bressler located at 2300
Waterfront Plaza, 325 West Main Street, Louisville, KY 40202-4244 as its new
independent auditor.
ITEM 9A. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. Our management
evaluated, with the participation of our Chief Executive Officer and our Chief
Financial Officer, the effectiveness of our disclosure controls and procedures
as of the end of the period covered by this Annual Report on Form 10-K. Based on
this evaluation, our Chief Executive Officer and our Chief Financial Officer
have concluded that the Company's disclosure controls and procedures are
effective to ensure that information we are required to disclose in reports that
we file or submit under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING. There was no change
in our internal control over financial reporting that occurred during the period
covered by this Annual Report on Form 10-K that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
PART III
ITEM 10: NAME, PRINCIPAL OCCUPATION AND OTHER POSITIONS WITH LINCOLN FOR LAST 5
YEARS
Directors, Executive
Officers and 5% Shares Owned as of
Shareholders Since Age March 30, 2004 Percent of Class
____________________ _____ ___ __________________ ________________
Thurman L. Sisney, 1994 57 607 (1) 23.26%
President, Treasurer and Director
Richard Jay Frockt 1997 59 507 (2) 19.44%
Chairman of the Board
Secretary and Director
Janet Clark Frockt 1997 57 402 (2) 15.41%
Director
Officers and Directors 1,516 58.11%
as a Group
(1) Mr. Sisney claims beneficial interest in 968 shares of the Company which
includes 361 shares held by his wife, Sherleen S. Sisney.
(2) 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 402 shares. Mr. Frockt also
owns 105 shares directly. 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 402 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 200 shares of Lincoln common stock. Ryan Jeffrey Frockt
is the legally emancipated son of Richard Jay Frockt and Janet Clark Frockt,
both of whom disclaim any beneficial ownership in the shares to which Ryan
Jeffrey Frockt is beneficiary.
BUSINESS HISTORY OF DIRECTORS
Thurman L. Sisney--Mr. Sisney is President of the Company. 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 since October of 1994.
Janet Clark Frockt--Ms. Clark Frockt 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. Ms. Frockt and Mr. Frockt are
husband and wife.
Richard Jay Frockt--Mr. Frockt is Chairman of the Board of the Company. 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.
The Board of Directors of the Company does not have an audit committee or any
director that qualifies as a financial expert. The Board of Director, when
appropriate fulfills the same functions as would an audit committee. The Board
of Directors does not believe it is necessary to add a financial expert as a
director of the Company as the Company has following the close of the last
fiscal year liquidated all of its operating assets and it is aware that its
principal stockholders are currently structuring a sale of control of the
Company.
CODE OF ETHICS
The Company has not adopted a Code of Ethics that applies to any of its
directors, officers or employees. Based on the Company liquidating its operating
assets and the stated desire by the majority owners of the Company to either
sell control of the Company or to have it cease being a reporting company under
the Securities and Exchange Act of 1934, the Company determined that it was an
unnecessary use of its corporate time and resources to develop and adopt a Code
of Ethics at this time.
ITEM 11: EXECUTIVE COMPENSATION.
Mr. Sisney received $23,692 in salary in fiscal year 2003 plus medical and other
miscellaneous benefits. The directors received no compensation for meetings. The
Company has no outstanding equity based compensation plans, including stock
option plans. No stock, options or other equity of the Company has been issued
to any director or officer of the Company during the last two fiscal years and
no option or other right to acquire securities of the Company are currently
outstanding.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
See ITEM 10 for information about the stock ownership of certain beneficial
owners and management. In October 2003, directors Richard J. Frockt, Janet
Frockt, Thurman L. Sisney and shareholders Russell Roth, Sandee Schuwolf,
Sherleen Sisney, and Sheldon Gilman (Trustee for the Ryan Jeffrey Frockt Trust)
entered into a Stock Purchase Agreement with Geneva Equities, LTD, whereby
Geneva, subject to certain conditions and due diligence, will purchase for the
amount of $103,033 common stock from the above individuals as follows:
1. Salinas Investments, LTD., 402 shares
2. Pyramid Securities LTD, 402 shares
3. The Ryan Jeffrey Frockt Trust, Sheldon Gilman Trustee, 200 shares
4. Richard Frockt, 105 shares
5. Russell Roth, 55 shares
6. Sandee Schulwolf, 8 shares
7. Lee Sisney, 607 shares
8. Sherleen Sisney, 361 shares
This represents a total of 2,140 shares of the Company's 2,609 common shares
currently issued and outstanding or a total of 82.0%. If this transaction
closes, it will result in a change of control of the Company.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
ITEM 14: PRINCIPAL ACCOUNTANT FEES AND SERVICES.
AUDIT FEES
The aggregate fees billed for each of the last two fiscal years for professional
services rendered by the principal accountant for the audit of the Company's
annual financial statements and review of financial statements included in the
Company's Form 10Q or services that are normally provided by the accountant in
connection with statutory and regulatory filings or engagements for those fiscal
years are $36,918(1) and $29,477(2), respectively.
AUDIT RELATED FEES
The aggregate fees billed for each of the last two fiscal years for assurance
and related services by the principal accountant that are reasonably related to
the performance of the audit or review of the Company's financial statements and
are not reported under Item 9(e)(1) of Schedule 14A for those fiscal years are
$0 and $0, respectively.
TAX FEES
The aggregate fees billed for each of the last two fiscal years for professional
services rendered by the principal accountant for tax compliance, tax advice,
and tax planning for those fiscal years are $5,000 and $766(2),
respectively.
ALL OTHER FEES
The aggregate fees billed for each of the last two fiscal years for products and
services provided by the principal accountant, other than the services reported
above in this Item 14 are $4,468 and $2,201, respectively.
(1) Fees are split between current and former principal accountants $28,721 and
$8,197, respectively.
(2) Tax Fees combined with audit fees.
The Board of Directors of the Company does not have a separate audit committee.
The Board of Directors does not have any policy regarding the pre-approval of
audit or non-audit related services by its accountants.
PART IV
ITEM 15: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Form 10-K:
(1) FINANCIAL STATEMENTS (INCLUDED IN PART II OF THIS REPORT):
Report of Carpenter, Mountjoy & Bressler, Independent
Auditors
Report of Potter & Co., Independent Auditors
Balance Sheets
Statements of Operations
Statement of Stockholders' Equity (Deficit)
Statements of Cash Flows
Notes to Financial Statements
(2) FINANCIAL STATEMENT SCHEDULES:
All financial statement schedules are omitted because the information is
inapplicable or presented in the notes to the financial statements.
(3) EXHIBITS:
EXHIBIT DESCRIPTION OF DOCUMENT
NUMBER
3.1 Amendment to Articles of Incorporation dated Jule 10, 1997.
3.2 Articles of Incorporation Certified November 25, 1985.
3.3 Bylaws
4.1 Specimen Common Stock Certificate.
10.1 Contract for the Sale of Real Property at 2211 Greene Way,
Louisville, KY
10.2 Asset Contribution And Stock Purchase Agreement Between Lincoln
AUSA, Inc. Incorporated by Reference to 8-K Filing November 7,
2003
16.1 Letter From Moore Stephens Potter, LLP Regarding Change in
Certifying Accountant
23.1 Consent of Carpenter, Mountjoy & Bressler, PSC Independent
Auditors
23.2 Consent of Moore Stephens Potter, LLP, Independent Auditors
31.1 Certification of Chief Executive Officer and Chief Financial
Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of the Chief Executive Officer and Chief Financial
Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(18 U.S.C. Section 1350).
(b) REPORTS ON FORM 8-K
(1) Form 8-K filed September 22, 2003 reporting on the termination of
Potter & Co. as the Company's auditors.
(2) Form 8-K filed November 6, 2003 reporting on the engagement of
Carpenter, Mountjoy & Bressler as the Company's auditors.
(3) Form 8-K filed November 07, 2003 reporting on the sale of the 2211
Greene Way office property.
(4) Form 8-K filed February 2, 2004 reporting the transfer to the
stockholders of Lincoln of its Accounting USA assets.
(c) EXHIBITS
The exhibits listed under Item 14(a)(3) hereof are filed as part of this
Form 10-K other than Exhibit 32.1 which shall be deemed furnished.
(d) FINANCIAL STATEMENT SCHEDULES
All financial statement schedules are omitted because the information is
inapplicable or presented in the notes to the financial statements.
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, Chief Executive Officer,
and Treasurer, Thurman L. Sisney, and by its Secretary, Richard J. Frockt, as
thereunto duly authorized in the City of Louisville, Commonwealth of Kentucky,
on the __th day of March, 2004.
LINCOLN INTERNATIONAL CORPORATION
/s/ THURMAN L. SISNEY
___________________________________________
BY: THURMAN L. SISNEY, PRESIDENT, TREASURER
Date: March__, 2004
/s/ RICHARD J. FROCKT
___________________________________________
BY: RICHARD J. FROCKT, SECRETARY
Date: March__, 2004
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
___________________________________________
BY: THURMAN L. SISNEY, PRESIDENT, TREASURER
/s/ RICHARD JAY FROCKT
___________________________________________
BY: RICHARD JAY FROCKT, CHAIRMAN OF THE BOARD, SECRETARY
(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