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, 2000 Commission File No. 0-5767
LINCOLN INTERNATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
Kentucky # 61-0575092
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Suite 201, 2300 Greene Way
Louisville, Kentucky 40220
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (502) 671-0010
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each
exchange on which
registered
none none
Securities registered pursuant to Section 12(g) of the Act:
Common Stock (no-par) voting
Title of class
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES |X| NO
<PAGE>
State the aggregate market value of the voting stock held by
non-affiliates of the Registrant. The aggregate market value shall be computed
by reference to the price at which the stock was sold, or the average bid and
asked prices of such stock, as of a specified date within 60 days prior to the
date of filing.
No regular market exists for the stock.
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the July 31, 2000.
Common (no-par) 7,972
DOCUMENTS INCORPORATED BY REFERENCE
(1) Annual Report -- 1999-2000
(2) Information Statement -- 2000
Portions of the above Annual Report and Information Statement to be
issued are hereby incorporated by reference into Parts II and III.
2
<PAGE>
PART I
ITEM 1: BUSINESS
LINCOLN INTERNATIONAL CORPORATION (LINCOLN), incorporated in 1960, is
engaged in the rental of commercial office property located in Louisville,
Kentucky and in providing bookkeeping and payroll services to small and medium
sized businesses primarily in Louisville, Kentucky.
On March 5, 1999 Lincoln International Corporation closed on the sale
of the Bourbon Stock Yard real estate located at 1048 East Main Street to the
Home of the Innocents, Inc. for a total purchase price of $3,377,991, net of
sales expense. All proceeds of this sale were deposited with an intermediary as
required under United States Code Section 1031 in order to effect a deferral of
capital gains taxes on the sale proceeds. In redirecting its principle line of
business, Lincoln International Corporation purchased four (4) separate parcels
of property: a 3,500 square foot office condominium located at 11860 Capital Way
for $282,500; and on June 18, 1999 Lincoln closed on the purchase of real estate
located at 2200, 2211, and 2300 Greene Way, Jeffersontown, Kentucky for a total
purchase price of $2,800,000. On May 3, 2000 Lincoln sold the 3500 square foot
office condominium located at 11860 Capital Way and currently retains ownership
of the property located at 2200, 2211, and 2300 Greene Way, Jeffersontown,
Kentucky. For the past year, Lincoln has renewed existing tenant leases and
sought to lease remaining vacant space. As of July 31, 2000 approximately 89% of
the total space has been leased.
On August 5, 1999 Articles of Dissolution for Farmers Friend Mineral
Company, Inc. and Lincoln Finance Company, Inc. were filed with the Secretary of
State for the Commonwealth of Kentucky thereby dissolving the two subsidiaries
which have required consolidated financial reports. It is believed that the
dissolution of these two corporations, which owned no assets and were not
operating in any way, will simplify the accounting and lower accounting costs
for Lincoln International Corporation.
On January 4, 1999 an intrastate sale of Lincoln securities as a Unit
Offering to Kentucky residents was completed, and pursuant to authorization of
the Board of Directors, all Units remaining after the close of the offer were
made available for purchase by other existing shareholders as determined solely
by the Board of Directors. The shares remaining after the close were made
available and purchased as follows:
1. 600 Units shall be available for purchase by Pyramid Securities LTD,
P.O. Box 2185, Georgetown, Grand Cayman, British West Indies;
2. 600 Units shall be available for purchase by Salina Investment LTD,
P.O. Box 2185, Georgetown, Grand Cayman, British West Indies;
3. 600 Units shall be available for purchase by the Ryan Jeffrey Frockt
Trust; Sheldon G. Gilman, Trustee, 462 So. 4th Avenue, Suite 500,
Louisville, Kentucky 40202;
4. 150 shares shall be available to Richard A. Dolin, Director of Lincoln
International Corporation, 5502 Tecumseh Circle, Louisville, Kentucky
40207;
5. 100 shares to Earl W. Winebrenner, III and/or Holly Winebrenner, 1741
Kensington Pl. Lane, Louisville, Kentucky 40205-2748;
6. 150 shares to Russell Roth, Director, 7769 Spanish Lake Dr., Las
Vegas, NV 89113;
7. 427 shares to Thurman L. Sisney and/or Sherleen Sisney, Director and
Chairman of the Board, 8002 Montero Court, Prospect, Kentucky 40059.
Total capital raised from the Unit Offering was $597,900.
3
<PAGE>
On August 6, 1999 the Board of Directors of Lincoln approved the
investment of 1.5 million dollars in a newly formed corporation, Accounting USA,
Inc. Mr. Brian McDonald, MBA/CPA had established a company known as Accounting
Outsource Solutions, LLC, within the preceding 2 1/2 years. Under a Merger
Agreement, Accounting Outsource Solutions, LLC was contributed into Accounting
USA, Inc. in return for 25% of the equity. Lincoln International Corporation in
return for its investment received 75% of the equity of Accounting USA, Inc.
which was incorporated in the State of Nevada on September 30, 1999. As of July
31, 2000 Lincoln International Corporation had advanced $900,000 of its 1.5
million dollar investment commitment in the newly formed Accounting USA, Inc.
Two of the Directors of Lincoln International Corporation (Thurman L. Sisney and
Richard J. Frockt) serve as two of the three Directors of Accounting USA, Inc.
along with the third Director, Mr. Brian McDonald. Accounting USA, Inc. provides
accounting/bookkeeping and payroll services for small to medium sized businesses
primarily in the Louisville area. It does, however, service clients outside of
the Louisville area on a limited basis, including a client in Columbus, Ohio and
one in the State of Vermont. Accounting USA, Inc. has developed and provides
internet access for its clients into its accounting platform. The business is
not seasonal nor is it dependant on any particular customers. Direct competition
for the outsourcing of the accounting/payroll business is in effect non-existent
in the Louisville, Kentucky area. Many small to medium sized businesses employ
in-house personnel to perform the accounting/bookkeeping responsibilities for
their company. Some CPA firms and small bookkeeping firms provide bookkeeping
services for their clients although this is usually done on a historical basis
as compared with or contrasted to the services provided by Accounting USA, Inc.
on a "real time" basis. Accounting USA, Inc's. core functions are: accounts
payable; accounts receivable; payroll; job cost; bank reconciliation; time and
billing; and financial statements. Accounting USA, Inc. also provides numerous
customized financial reports to its clients. The primary market channels for
Accounting USA, Inc. are direct sales and business partnerships with banks,
CPA's or other businesses. The intent of Lincoln is to refine the services of
Accounting USA, Inc. and the sales of those services so that it can be
replicated in other metropolitan markets around the country. Management believes
the services of Accounting USA, Inc. meets a unique market niche, particularly
with the internet access available to its clients. Given that the outsourcing of
accounting/bookkeeping can save clients an average of 30% to 40% of the cost of
doing the same service in-house, it is believed by management that, the
outsourcing concept of Accounting USA, Inc. has potential for future expansion
and growth. Accounting USA, Inc. does not replace the services performed by the
client's CPA, such as tax preparation and audits. Accordingly, CPA's often find
the bookkeeping performed on behalf of their client facilitates the provision of
their professional services. Lincoln will continue to provide assistance and
support to the start-up efforts of Accounting USA, Inc.
In July, 2000 Lincoln International Corporation was approached by the
Mountain Economic Development Fund (MEDF) of 201 South Main Street, Winchester,
Kentucky 40391 through its Executive Director, Mr. Grant Satterly, requesting
financing assistance for Admiralty Boats, Inc., d/b/a Boats Ltd., a Kentucky
corporation with its principal office located at 3516 Willow Spring Road,
Lexington, Kentucky 40509. MEDF requested a loan in the sum of One Hundred
Thousand Dollars ($100,000.00) under a revolving line of credit for Boats, Ltd.
to increase their cash flow and allow more favorable purchasing of raw material.
Boats, Ltd. is in the business of manufacturing bass fishing boats and sporting
boats varying in sizes from 15 feet to 22 feet. MEDF is an affiliate of the
Christian Appalachian Project which is well known and reputable in its efforts
to retain and/or to create jobs in the Appalachian areas of Kentucky. On July
13, 2000 the company extended a one (1) year revolving line of credit to Boats,
Ltd. for One Hundred Thousand Dollars ($100,000). Loan proceeds are to be
advanced based upon a pre-determined ninety (90) percent of the manufacturer's
cost to manufacture. Lincoln receives a perfected, secured interest in each
boat. The security interest is released only upon the sale of each respective
boat and upon receipt of one hundred (100) percent of the manufacturer's total
cost. Lincoln has the exclusive right to extend the line of credit for an
additional one (1) year term. Management does not intend for lending to become a
principal part of its business.
4
<PAGE>
EMPLOYEES:
As of July 31, 2000, LINCOLN employed one 1) person in an
administrative/clerical capacity and Accounting USA, Inc. employed twenty-nine
(29) employees.
ITEM 2: Properties
The following are the various properties owned or leased by LINCOLN as
of July 31, 2000.
<TABLE>
<CAPTION>
APPROXIMATE LEASE EXPIRATION
TYPE OF SQUARE FEET DATE (RENEWAL
LOCATION PROPERTY FLOOR SPACE OPTIONS)
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LINCOLN ADMINISTRATIVE OFFICES
Louisville, KY Offices 600 sq. feet. Owned
RENTAL PROPERTIES
Louisville, KY Office Spaces 16,210 sq. ft Owned
Louisville, KY Office Spaces 15,800 sq. ft Owned
Louisville, KY Office Spaces 12,500 sq. ft Owned
* * * * * * * * * * * * * * * * * *
</TABLE>
The properties listed above are suitable and adequate for the various
needs they supply.
ITEM 3: Legal Proceedings
Litigation Report. On March 23, 1999, two minority shareholders, Mr. Merle
Brewer and Ms. Sarah Forree, filed a lawsuit in the United States District
Court, Western District of Kentucky, Louisville Division against Lincoln
International Corporation, and individuals Thurman L. Sisney, David Barhorst
(who resigned June of 1998) and Mr. Richard Dolin (deceased in February of
1999). The case is styled: Civil Action No. 3:99CV-178-S. On May 18, 1999,
Lincoln International Corporation filed a Motion to Dismiss the complaint
alleging that there are no questions of law nor facts substantiating the
allegations in the complaint. A response to the Motion to Dismiss was filed by
the plaintiffs on July 8, 1999. On June 30, 1999, the plaintiffs filed a Motion
to Amend the complaint to substitute another plaintiff in place of one of the
original plaintiffs, Sarah Forree. On December 23, 1999 the Court granted the
plaintiff's Motion and allowed Terry Kennedy to be substituted for Sarah Forree.
On February 18, 2000 the company filed an Amended Motion to Dismiss. Defendants
have also raised in their motion to Amend the complaint the allegation that
notice of dissenters rights should have been provided in the reverse split that
concluded on April 5, 1998. Legal counsel for the corporation gives little merit
to the complaint or causes of actions raised by the Plaintiffs. If the company
should be unsuccessful on its Motion to Dismiss, our answer will be filed to the
complaint. On March 31, 2000 the Plaintiffs filed their Response to Defendants
Motion to Dismiss. At this time, the Court has not ruled on any of the
intervening motions.
5
<PAGE>
ITEM 4: Submission of Matters to a Vote of Security Holders
The items to be voted on at the annual meeting which will be held on
the 1st day of December, 2000, are as follows:
(1) Election of directors and
(2) Transaction of any other business as may properly come before the
meeting or any adjournment thereof.
6
<PAGE>
PART II
ITEM 5: Market for Registrant's Common Stock and Related Stockholder Matters
(1) There does not exist at the present time any regular market for any
common stock of the Registrant.
ITEM 6: Selected Financial Data
<TABLE>
<CAPTION>
Years ending July 31
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues 692,942 190,050 297,459 292,719 301,629
Income (loss) before
extraordinary items (388,451) 1,474,483 (72,688) (154,577) 494,735
Net income (loss) (388,451) 1,474,483 (72,688) (154,577) 494,735
Earnings (loss) per common share:
Income (loss) before
extraordinary items (48.73) 235.64 (17.16) (38.71) 122.70
Net income (loss) (48.73) 235.64 (17.16) (38.71) 122.70
Cash dividends 0 0 0 0 0
Total assets 3,728,416 3,690,394 1,147,311 1,236,802 1,358,785
Long-term obligations 85,511 0 380,205 385,511 387,250
</TABLE>
7
<PAGE>
ITEM 7: Management's Discussion and Analysis of Financial Conditions and Results
of Operations
As of July 31, 2000 Lincoln International Corporation has invested Nine
Hundred Thousand Dollars ($900,000.00) in Accounting USA, Inc. The company owns
75% of the common stock of Accounting USA, Inc. and is housed in one of the
company's buildings located at 2200 Greene Way, Louisville, Kentucky.
On May 3, 2000 the company sold the 3,500 square foot office building
located at 11860 Capital Way, Louisville, Kentucky for a contract sales price of
Two Hundred Eighty Thousand Dollars ($280,000). The proceeds were used to retire
a debt and for operations.
In July, Lincoln International Corporation was approached by the
Mountain Economic Development Fund ("MEDF") of 201 South Main Street,
Winchester, Kentucky 40391 through its Executive Director, Mr. Grant Satterly,
requesting financing assistance for Admiralty Boats, Inc., d/b/a Boats Ltd., a
Kentucky corporation with its principal office located at 3516 Willow Spring
Road, Lexington, Kentucky 40509. MEDF requested a loan in the sum of One Hundred
Thousand Dollars ($100,000.00) under a revolving line of credit for Boats, Ltd.
to increase their cash flow and allow more favorable purchasing of raw material.
Boats, Ltd. is in the business of manufacturing bass fishing boats and sporting
boats varying in sizes from 15 feet to 22 feet. MEDF is an affiliate of the
Christian Appalachian Project which is well known and reputable in its efforts
to retain and/or to create jobs in the Appalachian areas of Kentucky. On July
13, 2000 the company extended a one (1) year revolving line of credit to Boats,
Ltd. for One Hundred Thousand Dollars ($100,000). Loan proceeds are to be
advanced based upon a pre-determined ninety (90) percent of the manufacturer's
cost to manufacture. Lincoln receives a perfected, secured interest in each
boat, which security interest is released only upon the sale of each respective
boat and upon receipt of one hundred (100) percent of the manufacturer's total
cost. Lincoln has the exclusive right to extend the line of credit for an
additional one (1) year term.
To the extent possible, it is the intent of Management to use losses
from the past fiscal year to offset capital gains that were deferred as a result
of the sale of Bourbon Stock Yards. Accordingly, efforts will be initiated to
sell one or more of the buildings located on Greene Way in order to eliminate
all existing debt used to finance the investment in Accounting USA, Inc. In
addition, options will be evaluated and pursued to place long-term fixed rate
mortgage(s) against any remaining property. It is expected that Accounting USA,
Inc. will reach a break-even point by the infusion of Lincoln's remaining
investment under its 1.5 million dollar commitment to Accounting USA, Inc. If
not, Lincoln will evaluate and pursue any and all options available to it
necessary to expand Accounting USA, Inc.'s revenue base. It is expected that the
cash flow from the rental income from the Greene Way property will service
long-term debt and operational expenses.
ITEM 8: Consolidated Financial Statements and Supplementary Data
The response to this item is contained within a separate section of
this report.
ITEM 9: Changes in and Disagreements with Accountants
None.
8
<PAGE>
PART III
ITEM 10:
NAME, PRINCIPAL OCCUPATION AND OTHER POSITIONS WITH LINCOLN FOR LAST 5 YEARS
DIRECTORS SINCE SHARES OWNED AS OF 07/31/2000
--------- ----- -----------------------------
Thurman L. Sisney,
President
Director, Age 54 1994 2,785
Richard Jay Frockt
Chairman of the Board
Director 1997 1,208(1)
Russell R. Roth
Secretary/Treasurer
Director 1997 150
Janet Clark Frockt
Director 1997 1,207(1)
--------
Officers & Directors as a group 5,350
(1) Richard Frockt, a Director of the Company, is the beneficiary of a
tax-deferred annuity which, in turn, is the owner of all the outstanding capital
stock of Salina Investment LTD, the record holder of 1,208 shares. In addition,
Janet Frockt, the wife of Richard Frockt and a Director of the Company, is the
beneficiary of a tax-deferred annuity which, in turn, is the owner of all the
capital stock of Pyramid Securities LTD, the record holder of 1,207 shares. Mr.
Frockt disclaims any beneficial ownership interest in the shares to which Mrs.
Frockt is the beneficiary. Mrs. Frockt disclaims any beneficial ownership
interest in the shares to which Mr. Frock is the beneficiary. Further, the Ryan
Jeffrey Frockt Trust, Sheldon Gilman, Trustee, is the owner of 600 shares of
Lincoln International Corporation stock. Ryan Jeffrey Frockt is the legally
emancipated son of Richard Jay Frockt and Janet Clark Frockt, both of whom
disclaim any beneficial ownership in the shares to which Ryan Jeffrey Frockt is
beneficiary.
9
<PAGE>
BUSINESS HISTORY OF DIRECTORS
Thurman L. Sisney--Mr. Sisney is President of Lincoln International
Corporation. He has a masters degree in Business Administration and a law degree
from the University of Louisville and has been in private practice since 1980.
Mr. Sisney has served as general counsel to the Finance and Administration
Cabinet as well as counsel and legislative liaison to the governor of Kentucky.
He has also served as general counsel and Deputy Commissioner of the Department
of Agriculture. Mr. Sisney is and has been active in numerous civic and
charitable organizations. Mr. Sisney has been President of Lincoln International
Corporation since October of 1994.
Janet Clark Frockt--Ms. Clark has a B.A. in Dramatic Arts from the
University of California at Santa Barbara. She has performed with the Wand'ring
Minstrels Theatrical Group and Theatre A La Carte in Louisville, Kentucky. Ms.
Frockt is also the author, Assistant Director and Producer of the film "Dominant
Positions", an original screenplay filmed for PBS.
Richard Jay Frockt--Mr. Frockt is Chairman of the Board of Lincoln
International Corporation. Mr. Frockt has a B.S. in History from Western
Kentucky University and a juris doctorate from the University of Louisville Law
School. He was a capital partner with the law firm Barnett and Alagia in
Louisville until 1986, when he became the Chief Operating Officer of TMC
Communications, a regional long distance telephone company in Santa Barbara,
California. Mr. Frockt founded WCT Communications, Inc. in 1989. He served as
Chairman of the Board and Chief Executive Officer of that company until 1995.
Russell R. Roth--Mr. Roth is Secretary-Treasurer of the Company. Mr.
Roth earned a B. S. in Economics from the University of Kansas and an MBA in
Finance from the University of Michigan. He has served as Chief Financial
Officer of Cessna Aircraft Company which merged into General Dynamics
Corporation in 1986. He then became Chief Financial Officer of Sotheby Holdings,
Inc., an art auction company with headquarters in New York City. Mr. Roth
founded Las Vegas Investment Report in 1993. This publication reported upon and
analyzed the gaming industry and was closed in December, 1999. Mr. Roth is
currently President of Las Vegas Gaming, Inc., a gaming supply company.
ITEM 11:
The directors received no compensation for meetings. The travel
expenses for 1999-2000 were $2,831.
ITEM 12 and ITEM 13:
LINCOLN intends to file an Information Statement pursuant to Regulation
14(c) which contains all of the information required by Part III which
information is incorporated herein by reference.
10
<PAGE>
PART IV
ITEM 14: Exhibits, Financial Statement Schedules and Reports on Form 8-K
Part IV which relates to Item 14 concerning exhibits, financial
statement schedules and reports is hereby amended to include the following items
by reference.
(3) Articles of Incorporation and By-Laws: The articles and by-laws of
Lincoln International Corporation were filed as a part of its Form 10 filing in
September of 1971.
(4) Form 8-K filed September, 1991, reporting sale and disposition of
assets of Lincoln Finance Company, Inc. to Kentucky Finance Co., Inc. of three
(3) of the four (4) finance companies operated by Registrant.
(5) Articles of Merger of majority held subsidiary, Professional
Services, Inc., into Registrant as filed on Form 10K for fiscal year 1991-1992.
(6) Form 10-K - 1995 (1) A copy of the lease agreement dated July 15,
1995, between LINCOLN INTERNATIONAL CORPORATION and Kentucky Livestock Exchange
(BOURBON STOCKYARDS OPERATIONS) a division of Michigan Livestock Exchange, et
al.
(7) Form 8-K - 1997 (1) A copy of the amendment to the Articles of
Incorporation eliminating classes of stock.
Financial data and schedules are submitted separately as a separate
schedule and are attached hereto.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Lincoln International Corporation has duly caused this
report to be signed on its behalf, by the undersigned, President and Chief
Executive Officer, Thurman L. Sisney, and by its principal Financial Officer and
principal Accounting Officer, Secretary and Treasurer, Richard Dolin, as
thereunto duly authorized in the City of Louisville, Commonwealth of Kentucky,
on the 27th day of October, 2000.
LINCOLN INTERNATIONAL CORPORATION
By: /s/ THURMAN L. SISNEY
--------------------------
Thurman L. Sisney
President
Date: October 27, 2000
By: /s/ RUSSELL R. ROTH
------------------------
Russell R. Roth
Sec./Treas.
Date: October 27, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of LINCOLN
INTERNATIONAL CORPORATION in the capacities and on the date indicated.
SIGNATURE TITLE
(1) Principal Executive Officers
/s/ THURMAN L. SISNEY
-----------------------------
Thurman L. Sisney President
/s/ RICHARD JAY FROCKT
-----------------------------
Richard Jay Frockt Chairman of the Board
/s/ RUSSELL R. ROTH
-----------------------------
Russell R. Roth Secretary/Treasurer
(2) Directors
/s/ THURMAN L. SISNEY
-----------------------------
Thurman L. Sisney Director
/s/ RICHARD JAY FROCKT
-----------------------------
Richard Jay Frockt Director
/s/ JANET CLARK FROCKT
-----------------------------
Janet Clark Frockt Director
/s/ RUSSELL R. ROTH
-----------------------------
Russell R. Roth Director
12
<PAGE>
LINCOLN INTERNATIONAL CORPORATION
---------------------------------
ANNUAL REPORT FORM 10-K
-----------------------
<PAGE>
INDEPENDENT AUDITOR'S REPORT
----------------------------
The Board of Directors and Stockholders
Lincoln International Corporation
Louisville, Kentucky
We have audited the consolidated balance sheets of Lincoln International
Corporation listed in the accompanying index to Financial Statements (Item
14(a)) as of July 31, 2000 and 1999, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the three years in
the period ended July 31, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements listed in the accompanying Index to
Financial Statements (Item 14(a)) present fairly, in all material respects, the
consolidated financial position of Lincoln International Corporation as of July
31, 2000 and 1999, and the consolidated results of its operations and its cash
flows for each of the three years in the period ended July 31, 2000, in
conformity with generally accepted accounting principles.
/s/ POTTER & COMPANY, LLP
-------------------------
POTTER & COMPANY, LLP
Louisville, Kentucky
October 20, 2000
1
<PAGE>
LINCOLN INTERNATIONAL CORPORATION
Index to Financial Statements
Item 14(a)
The following consolidated financial statements of Lincoln International
Corporation and subsidiaries are incorporated by reference in Item 8:
Consolidated balance sheets - July 31, 2000 and 1999
Consolidated statements of operations - years ended July 31, 2000, 1999,
and 1998
Consolidated statements of stockholders' equity - years ended July 31,
2000, 1999, and 1998
Consolidated statements of cash flows - years ended July 31, 2000, 1999,
and 1998
Notes to consolidated financial statements
Supporting schedules for the three years ended July 31, 2000, 1999, and 1998:
II - Valuation and qualifying accounts and reserves
All other schedules are omitted since the required information is not present or
is not present in amounts sufficient to require submission of the schedule, or
because the information required is included in the consolidated financial
statements and notes thereto.
2
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II
-----------
LINCOLN INTERNATIONAL CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Years ended July 31, 2000, 1999, and 1998
Column A Column B Column C Column D Column E
---------- ----------- -------------------------- ----------- -----------
<S> <C> <C> <C> <C>
Additions
--------------------------
Balance at Charged to Charged to
Beginning Costs and Other Accts. Deductions - Balance at
Description of Year Expenses Describe Describe End of Year
----------- ---------- ---------- ------------ ------------ -----------
Year ended July 31, 2000
Reserves deducted from assets:
Allowance for losses:
Accounts receivable $ 0 $ 8,195 $ 0 $ 0 $ 8,195
========== ========= ========== ========= ===========
Year ended July 31, 1999
Reserves deducted from assets:
Allowance for losses:
Accounts receivable $ 0 $ 0 $ 0 $ 0 $ 0
========== ========= ========== ========= ===========
Year ended July 31, 1998
Reserves deducted from assets:
Allowance for losses:
Accounts receivable $ 40,332 $ 17,550 $ 0 $ (57,882)* $ 0
========== ========= ========== ========= ===========
* The allowance for losses on accounts receivable and accounts receivable were reduced by $57,882 per a settlement
agreement dated August 18, 1998.
</TABLE>
3
<PAGE>
LINCOLN INTERNATIONAL CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
AND INDEPENDENT AUDITOR'S REPORT
July 31, 2000, 1999, and 1998
4
<PAGE>
INDEPENDENT AUDITOR'S REPORT
----------------------------
To the Board of Directors and Stockholders
Lincoln International Corporation
Louisville, Kentucky
We have audited the accompanying consolidated balance sheets of Lincoln
International Corporation as of July 31, 2000 and 1999, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended July 31, 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Lincoln
International Corporation as of July 31, 2000 and 1999, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended July 31, 2000, in conformity with generally accepted accounting
principles.
/s/ POTTER & COMPANY, LLP
-------------------------
POTTER & COMPANY, LLP
October 20, 2000
5
<PAGE>
<TABLE>
<CAPTION>
LINCOLN INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
July 31, 2000 and 1999
A S S E T S
-----------
2000 1999
------------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 86,802 $ 396,466
Accounts receivable, less allowance of
$8,195 for 2000 and $0 for 1999 55,348 0
Note receivable 38,023 0
Other receivables 6,627 2,500
Prepaid expenses 50,819 0
------------- ------------
Total current assets 237,619 398,966
------------- ------------
Net property and equipment 3,091,224 3,105,922
------------- ------------
Noncurrent assets:
Net deferred costs 13,983 0
Deferred tax asset 385,590 185,506
------------- ------------
Total noncurrent assets 399,573 185,506
------------- ------------
Total assets $ 3,728,416 $ 3,690,394
============= ============
L I A B I L I T I E S
---------------------
Current liabilities:
Line of credit $ 500,000 $ 0
Current maturities of long-term debt 29,640 0
Obligation under capital lease 3,048 0
Accounts payable 78,592 32,297
Accrued expenses 47,995 18,750
------------- ------------
Total current liabilities 659,275 51,047
------------- ------------
Noncurrent liabilities:
Long-term debt, less current maturities 70,784 0
Obligation under capital lease 14,727 0
Deferred tax liability 776,245 883,387
------------- ------------
Total noncurrent liabilities 861,756 883,387
------------- ------------
Total liabilities 1,521,031 934,434
------------- ------------
Commitments
S T O C K H O L D E R S' E Q U I T Y
------------------------------------
Stockholders' equity:
Controlling interests
Common stock, no par value, 3,000,000 shares authorized,
7,972 shares issued and outstanding 1,879,898 1,879,898
Retained earnings 487,611 876,062
------------- ------------
2,367,509 2,755,960
Minority interest in subsidiary (160,124) 0
------------- ------------
Total stockholders' equity 2,207,385 2,755,960
------------- ------------
Total liabilities and stockholders' equity $ 3,728,416 $ 3,690,394
============= ============
See accompanying notes.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
LINCOLN INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended July 31, 2000, 1999, and 1998
2000 1999 1998
------------- ------------- ----------
<S> <C> <C> <C>
Revenues $ 692,942 $ 190,050 $ 297,459
------------- ------------- ----------
Costs and expenses:
Cost of revenues 616,216 79,035 64,422
Operating, general and administrative expenses 902,690 325,078 276,940
------------- ------------- ----------
Total costs and expenses 1,518,906 404,113 341,362
------------- ------------- ----------
Loss from operations (825,964) (214,063) (43,903)
------------- ------------- ----------
Other income (expense):
Gain (loss) on sale of property, equipment, and
operating assets (12,884) 2,359,078 0
Interest and dividend income 18,618 48,606 0
Miscellaneous income 0 1,355 6,276
Interest expense (35,307) (20,312) (35,061)
------------- ------------- ----------
Total other income (expense) (29,573) 2,388,727 (28,785)
------------- ------------- ----------
Income (loss) before minority interest and income taxes (855,537) 2,174,664 (72,688)
Minority interest in net loss of subsidiary 160,124 0 0
------------- ------------- ----------
Net income (loss) before income taxes (695,413) 2,174,664 (72,688)
Provision for (benefit from) income taxes (306,962) 700,181 0
------------- ------------- ----------
Net income (loss) $ (388,451) $ 1,474,483 $ (72,688)
============= ============= ==========
Net income (loss) per common share $ (48.73) $ 235.64 $ (17.16)
============= ============= ==========
See accompanying notes.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
LINCOLN INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended July 31, 2000, 1999, and 1998
Retained Total
Earnings Minority Stockholders'
Common Stock (Deficit) Interest Equity
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Balance at July 31, 1997 $ 1,300,019 (525,733) $ 0 $ 774,286
Purchase of common stock
for the treasury (18,021) 0 0 (18,021)
Net loss 0 (72,688) 0 (72,688)
-------------- ------------- ------------- ------------
Balance at July 31, 1998 1,281,998 (598,421) 0 683,577
Issuance of common stock
for cash 597,900 0 0 597,900
Net income 0 1,474,483 0 1,474,483
-------------- ------------- ------------- ------------
Balance at July 31, 1999 1,879,898 876,062 0 2,755,960
Minority interest in net
loss of subsidiary 0 0 (160,124) (160,124)
Net loss 0 (388,451) 0 (388,451)
-------------- ------------- ------------- ------------
Balance at July 31, 2000 $ 1,879,898 $ 487,611 $ (160,124) $ 2,207,385
============== ============= ============= ============
See accompanying notes.
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
LINCOLN INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended July 31, 2000, 1999, and 1998
2000 1999 1998
------------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (388,451) $ 1,474,483 $ (72,688)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 146,060 37,126 40,750
Allowance for doubtful accounts 8,195 0 17,550
(Gain) loss on sale of property, equipment, and
operating assets 12,884 (2,359,078) 0
Minority interest in net loss of subsidiary (160,124) 0 0
Deferred income taxes (307,226) 697,881 0
(Increase) decrease in:
Receivables (105,693) 8,411 (18,729)
Prepaid expenses (50,819) 3,141 (3,141)
Deferred costs (16,780) 0 0
Increase (decrease) in:
Accounts payable 46,295 19,986 (16,282)
Accrued expenses 29,245 (2,809) (21,409)
Deferred rent 0 (18,810) 18,810
Deposits 0 (25,000) 25,000
------------- ----------- -----------
Net cash used in operating activities (786,414) (164,669) (30,139)
------------- ----------- -----------
Cash flows from investing activities:
Proceeds from sale of property, equipment and
operating assets 263,743 3,377,991 0
Purchase of property and equipment (386,349) (3,119,696) (12,087)
------------- ----------- -----------
Net cash provided by (used in) investing activities (122,606) 258,295 (12,087)
------------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock 0 597,900 0
Net proceeds on line of credit 500,000 0 0
Proceeds from long-term borrowings 115,000 0 0
Principal payments on long-term debt (14,574) (386,054) (4,900)
Principal payments on capital lease obligations (1,070) 0 0
Purchase of common stock for the treasury 0 0 (18,021)
------------- ----------- -----------
Net cash provided by (used in) financing activities 599,356 211,846 (22,921)
------------- ----------- -----------
Net increase (decrease) in cash and cash equivalents (309,664) 305,472 (65,147)
Cash and cash equivalents at beginning of year 396,466 90,994 156,141
------------- ----------- -----------
Cash and cash equivalents at end of year $ 86,802 $ 396,466 $ 90,994
============= =========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 34,937 $ 20,312 $ 35,121
============= =========== ===========
Cash paid during the year for income taxes $ 2,300 $ 0 $ 0
============= =========== ===========
Supplemental schedule of non-cash investing activities:
Purchase of equipment under capital lease $ 18,845 $ 0 $ 0
============= =========== ===========
See accompanying notes.
</TABLE>
9
<PAGE>
LINCOLN INTERNATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2000, 1999, and 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------------------
This summary of significant accounting policies of Lincoln International
Corporation (the Company) is presented to assist in understanding the Company's
financial statements. The financial statements and notes are representations of
the Company's management who is responsible for their integrity and objectivity.
These accounting policies conform to generally accepted accounting principles
and have been consistently applied in the preparation of the financial
statements.
Company's Activities:
Lincoln International Corporation owned property in Louisville, Kentucky which
it leased to a stockyard operator. The property and equipment of the stockyard
were sold during fiscal year 1999. The proceeds from the sale were used to
purchase commercial rental office buildings in Louisville, Kentucky.
On October 1, 1999, the Company formed Accounting USA, Inc. and received 75% of
the outstanding shares of common stock. The Company contributed $500,000 at the
time of formation. The Company was obligated over an 18 month period beginning
October 1, 1999 to contribute an additional $1,000,000 for a total investment of
$1,500,000. As if July 31, 2000, the Company had contributed $900,000, leaving
an additional $600,000 to be contributed.
The subsidiary provides payroll and bookkeeping services primarily in the
Louisville metropolitan area.
The revenue of the subsidiary constituted approximately 50% of consolidated
revenue for the year ending July 31, 2000. The results of operations of the
subsidiary for the period October 1, 1999 through July 31, 2000 are included in
the consolidated statement of operations for the year ended July 31, 2000.
Principles of Consolidation:
The consolidated financial statements include the accounts of the Company, its
wholly-owned subsidiaries, and its majority-owned subsidiary. All significant
intercompany transactions are eliminated in consolidation.
Use of Estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and Cash Equivalents:
For purposes of reporting cash flows, the Company considers all highly liquid
investments with a maturity of three months or less to be cash equivalents.
10
<PAGE>
LINCOLN INTERNATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2000, 1999, and 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
---------------------------------------------------------------
Property and Equipment:
Property and equipment are recorded at cost. Depreciation is provided over the
following estimated useful lives:
Buildings and improvements 20-40 years
Leasehold improvements 3-5 years
Office and computer equipment 3-12 years
The Company uses the straight-line method of computing depreciation for
financial statement purposes and accelerated methods for income tax purposes.
Leasehold improvements are amortized using the straight-line method over the
lease term.
Advertising:
The Company expenses advertising costs when incurred, except marketing
brochures, which are capitalized and amortized over the expected benefits
period. Advertising expense was $53,684 and $17,071 for the years ended July 31,
2000 and 1999, respectively.
Income Taxes:
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes.
Deferred taxes result primarily from using different accounting methods for
financial reporting from those used for income tax reporting. The deferred tax
assets and liabilities represent future tax consequences of those differences,
which will either be taxable or deductible when the assets and liabilities are
recovered or settled.
The Company files a consolidated federal income tax return and includes each
wholly-owned subsidiary. Investment tax credits are treated as a reduction of
the tax provision in the year in which the benefit is earned (flow-through
method). Separate state income tax returns are filed for the Company and each
subsidiary.
Earnings Per Share:
Earnings per share are based on the weighted average number of shares
outstanding during each year.
Reclassifications of Previously Issued Financial Statements:
Certain reclassifications have been made to the 1999 financial statement
presentation to correspond to the current year's format. Total equity and net
income are unchanged due to these reclassifications.
11
<PAGE>
LINCOLN INTERNATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2000, 1999, and 1998
NOTE 2 - NOTE RECEIVABLE
------------------------
During the year ended July 31, 2000, the Company entered into a master loan
agreement with a builder and seller of pleasure boats to help finance the
building of the boats.
The master loan agreement has an initial term of one year, renewable at that
time by the Company. The agreement is for a maximum of $100,000 to be issued in
a series of minimum installments of $15,000. Each note is secured by the boats
constructed with the funds disbursed by the Company.
The Company will disburse 90% of required funds to construct the specific boats.
At the time of sale of the boats, the Company will be repaid 100% of the
required funds.
The Company has the option to charge interest equal to 10% per annum on the
notes if they are not repaid 120 days from the date funds are disbursed.
As of July 31, 2000, the Company has disbursed $37,400 on the master loan
agreement, leaving $62,600 available to draw.
The note receivable balance at July 31, 2000 is as follows:
Company funds disbursed $ 37,400
Interest receivable 623
----------
Total $ 38,023
==========
NOTE 3 - OTHER RECEIVABLES
--------------------------
Other receivables consist of the following:
2000 1999
---------- -------------
Due from officer $ 6,149 $ 0
Refundable deposits 478 2,500
---- -----
Total $ 6,627 $ 2,500
===== =====
The balance due from officer is non-interest bearing, and there are no repayment
terms on the advance.
NOTE 4 - PREPAID EXPENSES
-------------------------
Prepaid expenses consist of the following:
2000 1999
--------- ---------
Prepaid leasing commissions $ 21,683 $ 0
Prepaid advertising costs 18,972 0
Prepaid maintenance, support, and training 9,224 0
Other 940 0
-------- --------
Total $ 50,819 $ 0
======== ========
12
<PAGE>
LINCOLN INTERNATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2000, 1999, and 1998
NOTE 5 - PROPERTY AND EQUIPMENT
-------------------------------
<TABLE>
<CAPTION>
Property and equipment consists of the following:
2000 1999
----------- ----------
<S> <C> <C>
Land $ 281,804 $ 310,054
Building 2,572,321 2,790,483
Office and computer equipment 385,712 50,940
Leasehold improvements 2,800 2,800
---------- ----------
3,242,637 3,154,277
Less accumulated depreciation and amortization 167,117 48,355
---------- -----------
3,075,520 3,105,922
Equipment held under capital lease,
net of accumulated amortization 15,704 0
---------- -----------
Net property and equipment $ 3,091,224 $ 3,105,922
========= =========
</TABLE>
Depreciation expense for the years ended July 31, 2000, 1999 and 1998 was
$143,263, $37,126 and $40,750, respectively.
All property and equipment of Bourbon Stock Yards was sold on March 5, 1999 for
$3,377,991, net of sales expense. The sale resulted in a gain of $2,359,078 for
financial statement purposes. The proceeds were used to purchase commercial
rental office buildings. Substantially all of the gain was deferred under
Section 1031 for federal and state tax purposes.
NOTE 6 - DEFERRED COSTS
-----------------------
Deferred costs consist of the following and are amortized over five years:
2000 1999
------------- ------------
Organization costs $ 16,780 $ 0
Accumulated amortization 2,797 0
---------- ----------
Total $ 13,983 $ 0
=========== ===========
NOTE 7 - LINE OF CREDIT
-----------------------
The Company maintains a line of credit with a local bank which bears interest at
prime plus .50% (prime at July 31, 2000 was 9.5%) and is collateralized by
substantially all corporate real and personal property with an assignment of
leases and rents. Interest is payable monthly. The line of credit has a maximum
of $1,500,000 which may be borrowed and is renewable annually. The balance
outstanding on the line of credit at July 31, 2000 was $500,000, leaving
$1,000,000 available to draw.
13
<PAGE>
LINCOLN INTERNATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2000, 1999, and 1998
NOTE 8 - LONG-TERM DEBT
-----------------------
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Term note payable, interest
at 8.75%, monthly payments of
$3,105, including principal and
interest, due October 2004,
$33,492 available to be drawn. $ 100,424 $ 0
Less current maturities 29,640 0
------------ ------------
Total $ 70,784 $ 0
============ ============
</TABLE>
As of July 31, 2000, the annual maturities required on the term note payable are
as follows:
Year ending July 31:
2001 $ 29,640
2002 32,340
2003 35,286
2004 3,158
---------
Total $ 100,424
=========
NOTE 9 - CAPITAL LEASE
----------------------
The following is an analysis of the property under capital leases:
2000 1999
------------ ------------
Office and computer equipment $ 18,845 $ 0
Less accumulated amortization 3,141 0
------------ ------------
Total $ 15,704 $ 0
============ ============
The following is a schedule by years of future minimum lease payments under the
capital lease together with the present value of the net minimum lease payments
as of July 31, 2000:
Year ending July 31:
2001 $ 5,142
2002 5,142
2003 5,142
2004 5,142
2005 3,000
------------
Net minimum lease payments 23,568
Less amount representing interest 5,793
------------
Present value of net minimum lease payments $ 17,775
============
14
<PAGE>
LINCOLN INTERNATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2000, 1999, and 1998
NOTE 10 - ACCRUED EXPENSES
--------------------------
Accrued expenses consist of the following:
2000 1999
------------ ------------
Accrued payroll and payroll taxes $ 27,529 $ 0
Accrued property taxes 17,820 14,437
Other 2,646 4,313
------------ ------------
Total $ 47,995 $ 18,750
============ ============
NOTE 11 - INCOME TAXES
----------------------
A deferred tax asset has been recognized for operating loss carryovers that are
available to offset future income taxes. In addition, a deferred tax asset has
been recognized for the loss incurred by an unconsolidated subsidiary which will
be recognized when the unconsolidated subsidiary is profitable or in the event
the unconsolidated subsidiary is liquidated.
A deferred tax liability has been recognized as the result of the deferred gain
on the sale of property for income tax purposes.
The net deferred tax liability in the balance sheet consists of the following:
2000 1999
------------- -------------
Deferred tax asset $ 385,590 $ 185,506
Deferred tax liability (776,245) (883,387)
------------- -------------
Net deferred tax liability $ (390,655) $ (697,881)
============= =============
The Company has available at July 31, 2000 operating loss carryforwards which
may provide future tax benefits. If not used, the carryforwards will expire as
follows:
Year of Operating Loss
Expiration Carryforwards
---------- --------------
2006 $ 196,784
2007 0
2008 72,982
2009 31,281
2010 31,281
2011 0
2012 62,562
2013 58,242
---------
Total $ 453,132
=========
15
<PAGE>
LINCOLN INTERNATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2000, 1999, and 1998
NOTE 11 - INCOME TAXES (CONTINUED)
----------------------------------
<TABLE>
<CAPTION>
The provision for income taxes consists of the following:
2000 1999 1998
------------ ---------- ---------
<S> <C> <C> <C>
Federal income taxes $ 1,764 $ 18,719 $ 0
State and local income taxes 735 7,708 0
Deferred taxes (307,226) 697,881 0
Tax benefit of net operating loss carryforward (2,235) (24,127) 0
----------- ---------- ---------
Total $ (306,962) $ 700,181 $ 0
=========== ========== =========
</TABLE>
Deferred income taxes on difference between tax and financial accounting for:
<TABLE>
<CAPTION>
2000 1999 1998
---------- ---------- ---------
<S> <C> <C> <C>
Depreciation $ (107,142) $ 883,387 $ 0
Net operating loss carryforward (1,663) (185,506) 0
Loss on unconsolidated subsidiary (198,421) 0 0
--------- -------- --------
Total $ (307,226) $ 697,881 $ 0
========== ======= =========
</TABLE>
NOTE 12 - LEASE COMMITMENTS
---------------------------
The Company has entered into operating lease agreements.
Total rental expense amounted to $16,885 in 2000, $32,323 in 1999, and $61,667
in 1998. Future minimum rentals at July 31, 2000 are as follows:
Year ending July 31:
--------------------
2001 $ 15,163
2002 10,163
2003 6,566
2004 5,367
2005 3,578
----------
Total $ 40,837
==========
16
<PAGE>
LINCOLN INTERNATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2000, 1999, and 1998
NOTE 13 - LEASE OF PROPERTY AND EQUIPMENT
-----------------------------------------
The Company is the lessor of commercial rental office buildings under operating
leases. Following is a summary of the Company's investment in property and
equipment under operating leases as of July 31, 2000:
Land $ 281,804
Buildings and improvements 2,572,321
---------
2,854,125
Less accumulated depreciation 77,960
-----------
Total $ 2,776,165
============
Under the operating method of accounting for leases, the cost of the property
and equipment is recorded as an asset and is depreciated over its estimated
useful life and the rental income is recognized as the lease rental payments are
earned.
The minimum future rentals to be received on the leases at July 31, 2000 are as
follows:
Year ending July 31:
2001 $ 342,962
2002 346,750
2003 159,748
2004 22,104
2005 22,104
Thereafter 71,838
-----------
Total $ 965,506
===========
NOTE 14 - MAJOR BUSINESS SEGMENTS
---------------------------------
As of October 1, 1999, Lincoln International Corporation has two reportable
segments: commercial rental real estate lessor (rental) and payroll and
bookkeeping services (bookkeeping).
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies.
Lincoln International Corporation accounts for intersegment revenues as if the
transactions were to third parties.
Lincoln International Corporation's reportable segments are strategic business
units managed separately as each business requires different technology and
marketing strategies.
17
<PAGE>
LINCOLN INTERNATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2000, 1999, and 1998
NOTE 14 - MAJOR BUSINESS SEGMENTS (CONTINUED)
---------------------------------------------
<TABLE>
<CAPTION>
2000 1999 1998
--------------- ---------------- ---------------
<S> <C> <C> <C>
Revenues:
Rental $ 375,312 $ 190,050 $ 297,459
Bookkeeping 347,155 0 0
-------------- --------------- --------------
Total $ 722,467 $ 190,050 $ 297,459
============== =============== ==============
Costs and expenses:
Cost of revenues
Rental $ 223,452 $ 79,035 $ 64,422
Bookkeeping 398,417 0 0
--------------- --------------- --------------
Total 621,869 79,035 64,422
--------------- --------------- --------------
Operating, general and administrative expenses
Rental 335,936 325,078 276,940
Bookkeeping 590,626 0 0
--------------- --------------- --------------
Total 926,562 325,078 276,940
--------------- --------------- --------------
Total costs and expenses 1,548,431 404,113 341,362
--------------- --------------- --------------
Loss from operations (825,964) (214,063) (43,903)
Interest income 18,618 48,606 0
Non-operating income 0 2,360,433 6,276
Non-operating expense (12,884) 0 0
Interest expense (35,307) (20,312) (35,061)
-------------- --------------- --------------
Gain (loss) before income taxes $ (855,537) $ 2,174,664 $ 72,688
============== =============== ==============
Total assets:
Rental $ 3,281,943 $ 3,690,394 $ 1,147,311
Bookkeeping 459,354 0 0
-------------- --------------- --------------
Total $ 3,741,297 $ 3,690,394 $ 1,147,311
============== =============== ==============
Capital expenditures:
Rental $ 38,383 $ 3,119,696 $ 12,087
Bookkeeping 366,811 0 0
-------------- --------------- --------------
Total $ 405,194 $ 3,119,696 $ 12,087
============== =============== ==============
Depreciation and amortization:
Rental $ 78,870 $ 37,126 $ 40,750
Bookkeeping 67,190 0 0
-------------- --------------- --------------
Total $ 146,060 $ 37,126 $ 40,750
============== =============== ==============
</TABLE>
18
<PAGE>
LINCOLN INTERNATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2000, 1999, and 1998
NOTE 14 - MAJOR BUSINESS SEGMENTS (CONTINUED)
---------------------------------------------
The following is a reconciliation of reportable segment revenues, profit or loss
and assets as of and for the year ending July 31, 2000.
Revenues
--------
Total revenue from reportable segments $ 722,467
Elimination of intersegment revenues (29,525)
-------
Total consolidated revenues $ 692,942
=======
Costs and Expenses
------------------
Total costs and expenses from reportable segments $ 1,548,431
Elimination of intersegment costs and expenses (29,525)
--------
Total consolidated costs and expenses $ 1,518,906
=========
Assets
------
Total assets for reportable segments $ 3,741,297
Elimination of intersegment receivables (12,881)
--------
Total consolidated assets $ 3,728,416
=========
No reconciliation is required as of July 31, 1999 and 1998 as only one business
segment existed at that time.
NOTE 15 - CONCENTRATION OF CREDIT RISK
--------------------------------------
The Company maintains cash accounts in commercial banks located in Louisville,
Kentucky. Accounts are guaranteed by the Federal Deposit Insurance Corporation
(FDIC) up to $100,000. The Company has an uninsured amount of $168,793
outstanding at July 31, 2000.
NOTE 16 - CAPITAL STOCK
-----------------------
During fiscal 1999, the Company issued an aggregrate 3,986 shares of common
stock to stockholders residing in the state of Kentucky. One option to acquire
an additional share at $150 in the first year, $160 in the second year or $170
in the third year after the issue was attached to each share issued.
NOTE 17 - COMMITMENTS
---------------------
The Company has entered into an agreement with a company to find tenants for its
rental buildings. At the time of the lease agreement, the Company is to pay a
leasing commission equal to 6% of total rental income under the lease. As of
July 31, 2000 the Company had commitments of $20,090 for leasing commissions
dependent on lease renewals.
19
