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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For Quarter Ended SEPTEMBER 30, 2002 Commission File No. 1-8249
LINCORP HOLDINGS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 23-2161279
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(State or Other Jurisdiction of (I.R.S. Employer Identification
Incorporation or Organization) Number)
3900 Park Ave., Suite 102
Edison, NJ 08820
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(Address of Principal Executive (Zip Code)
Offices)
Registrant's Telephone Number,
Including Area Code: (732) 494-9455
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(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
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
--- ---
Indicate the number of shares outstanding or each of the issuer's classes of
common stock, as of the latest practicable date.
1,730,559 SHARES OF COMMON STOCK OUTSTANDING AT OCTOBER 17, 2002
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LINCORP HOLDINGS, INC.
INDEX
PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets 1
Statements of Operations 2
Statements of Cash Flows 3
Notes to Financial Statements 4
Item 2. Management's Financial Discussion 5
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 6
Item 4. Evaluation of Disclosure Controls and
Procedures 6
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 7
Item 3. Default upon senior securities 7
Item 6. Exhibits and Report on Form 8-K 7
SIGNATURES 8
CERTIFICATIONS 9 - 10
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PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The condensed financial statements included herein have been prepared by the
registrant from the books of Lincorp Holdings, Inc. without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission. This
information, which is subject to year-end adjustments, reflects all adjustments
which are, in the opinion of management, necessary to present fairly the results
for the interim periods. Although the registrant believes that the disclosures
are adequate to make the information presented not misleading, certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. It is suggested
that these condensed financial statements be read in conjunction with the
financial statements and the notes thereto included in the registrant's latest
Annual Report on Form 10-K.
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PART 1 - FINANCIAL INFORMATION
LINCORP HOLDINGS, INC.
BALANCE SHEETS
(IN THOUSANDS)
September 30, December 31,
2002 2001
------------ ------------
(Unaudited)
ASSETS
Cash ................................................. $ 9 $ 11
Investment in real estate ........................ 300 300
--------- ---------
$ 309 $ 311
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Liabilities:
Debt secured by real estate,
including accrued interest .................. $ 620 $ 620
Other borrowed funds, including accrued interest 175,507 175,426
Other liabilities ............................... 4,001 3,928
--------- ---------
180,128 179,974
--------- ---------
Commitments and contingent liabilities
Stockholders' deficit:
Preferred stock, Series A;
200 shares authorized;
no shares issued and outstanding .............. -- --
Preferred stock, $.01 par value;
10,000 shares authorized;
no shares issued and outstanding .............. -- --
Common stock, $.01 par value;
1,990,000 shares authorized;
1,730,559 shares issued and outstanding ....... 17 17
Capital contributed in excess of par value ....... 153,638 153,638
Accumulated deficit .............................. (333,474) (333,318)
--------- ---------
(179,819) (179,663)
--------- ---------
$ 309 $ 311
========= =========
The accompanying notes are an integral part of these financial statements.
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LINCORP HOLDINGS, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
UNAUDITED
Three Months Nine Months
Ended September 30, Ended September 30,
------------------ ------------------
2002 2001 2002 2001
------- ------- ------- -------
Expenses:
Interest expense ................................... $ 31 $ 29 $ 91 $ 91
General and administrative expenses ................ 25 19 64 56
------- ------- ------- -------
Total expenses .............................. 56 48 155 147
------- ------- ------- -------
Loss before income taxes .............................. (56) (48) (155) (147)
Income taxes .......................................... -- -- 1 --
------- ------- ------- -------
Net loss .............................................. $ (56) $ (48) $ (156) $ (147)
======= ======= ======= =======
Basic loss per share of Common Stock outstanding ...... $ (0.03) $ (0.02) $ (0.09) $ (0.08)
======= ======= ======= =======
Weighted average shares of Common Stock outstanding ... 1,731 1,731 1,731 1,731
======= ======= ======= =======
The accompanying notes are an integral part of these financial statements.
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LINCORP HOLDINGS, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
UNAUDITED
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
2002 2001 2002 2001
------- ------- ------- -------
OPERATING ACTIVITIES
Net loss ............................................ $ (56) $ (48) $ (156) $ (147)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Increase in accrued interest payable ...... 27 27 81 81
Increase in other liabilities ............. 32 3 73 11
------- ------- ------- -------
Net cash provided by (used in) operating activities . 3 (18) 2 (55)
Cash, beginning of period ........................... 6 33 11 70
------- ------- ------- -------
Cash, end of period ................................. $ 9 $ 15 $ 9 $ 15
======= ======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest ................................. $ -- $ -- $ -- $ --
======= ======= ======= =======
Income taxes ............................. $ -- $ -- $ 1 $ --
======= ======= ======= =======
The accompanying notes are an integral part of these financial statements.
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LINCORP HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - LIQUIDITY AND GOING CONCERN
At September 30, 2002, Lincorp Holdings, Inc. (the "Company") had approximately
$176.1 million of principal and accrued interest (the "Indebtedness")
outstanding under its various debt obligations. The Company is in payment
default under several of the debt obligations comprising the Indebtedness. The
Indebtedness is secured by a senior security interest in all of the Company's
assets.
The Company's debt holders have waived substantially all interest owing by the
Company on its Indebtedness to them that would otherwise accrue since July 1,
1998. For the nine months ended September 30, 2002 and 2001, the total interest
waived was approximately $8.1 million for each nine month period.
The Company's sources of funds during the period ended September 30, 2002 and to
date, have been primarily from its previously existing cash balances and
advances from a shareholder, Wilmington Capital Management Inc. ("Wilmington").
Unless the Company's debt holders continue to defer in realizing on the pledged
collateral, the Company will be unable to continue as a going concern.
NOTE 2 - REAL ESTATE OPERATIONS
During the fourth quarter of 1997, the Company made a $0.6 million secured first
mortgage loan to Republic Development Co. (the "Republic Mortgage Loan") for the
purpose of developing a commercial real estate property. This loan was scheduled
to mature May 19, 1998. To finance this loan, the Company borrowed funds from
Wilmington. The Wilmington borrowing was in the form of a $602,000 discounted
note (the "Wilmington Republic Note") which matured on May 19, 1998 in the
amount of $620,000 and was secured by the Republic Mortgage Loan.
The Republic Mortgage Loan was not repaid on May 19, 1998 and in November 1999,
the Company foreclosed on the Republic Mortgage Loan and took possession of the
land. At December 31, 2000, the Company reduced the carrying value of the land
by $311,000 to $300,000 which it believes is the current fair market value of
the land. The Company is currently pursuing legal action against Republic
Development Co. and the original appraisal firm. The ultimate outcome of this
litigation cannot be determined at this time. The Wilmington Republic Note,
which matured on May 19, 1998, was not repaid by the Company as its payment was
dependent upon collecting the Republic Mortgage Loan. Wilmington has agreed to
defer the collection of its note until the land is sold.
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PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S FINANCIAL DISCUSSION
LIQUIDITY AND GOING CONCERN
At September 30, 2002, the Company had approximately $176.1 million of principal
and accrued interest (the "Indebtedness") outstanding under its various debt
obligations. The Company is in payment default under several of the debt
obligations comprising the Indebtedness. The Indebtedness is secured by a senior
security interest in all of the Company's assets.
The Company's debt holders have waived substantially all interest owing by the
Company on its Indebtedness to them that would otherwise accrue since July 1,
1998. For the nine months ended September 30, 2002 and 2001, the total interest
waived was approximately $8.1 million for each six month period.
The Company's sources of funds during the period ended September 30, 2002 and to
date, have been primarily from its previously existing cash balances and
advances from Wilmington Capital Management Inc. Unless the Company's debt
holders continue to defer in realizing on the pledged collateral, the Company
will be unable to continue as a going concern.
RESULTS OF OPERATIONS
Nine Months Ended September 30, 2002 Compared to the Nine Months Ended September
30, 2001
For the nine months ended September 30, 2002 and 2001 the Company had a net loss
of $156,000 and $147,000, respectively.
FINANCIAL POSITION
Material Changes Since December 31, 2001
There was no significant change in the Company's financial position since
December 31, 2001.
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PART I - FINANCIAL INFORMATION
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
No material changes have occurred related to the Company's policies, procedures,
controls or risk profile.
ITEM 4. EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
The management of the Company including Mr. Jack R. Sauer as President and Chief
Executive Officer and Mr. Gordon Flatt as Chief Financial Officer have evaluated
the Company's disclosure controls and procedures. Under rules promulgated by the
Securities and Exchange Commission (the "SEC"), disclosure controls and
procedures are defined as those "controls or other procedures of an issuer that
are designed to ensure that information required to be disclosured by the issuer
in the reports filed or submitted by it under the Securities Exchange Act of
1934 is recorded, processed, summarized and reported, within the time periods
specified in the Commission's rules and forms." Based on the evaluation of the
Company's disclosure controls and procedures, it was determined that such
controls and procedures were effective as of September 30, 2002, the date of the
conclusion of the evaluation.
Further, there were no significant changes in the internal controls or in other
factors that could significantly affect these controls after September 30, 2002,
the date of the conclusion of the evaluation of disclosure controls and
procedures.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There have been no material developments with respect to
litigation.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
(a) At September 30, 2002 the Company had approximately $176.1 million of
principal and accrued interest (the "Indebtedness") outstanding under
its various debt obligations. The Company is in payment default under
several of the debt obligations comprising the Indebtedness. The
Indebtedness is secured by a senior security interest in all of the
Company's assets.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
99(i) Principal Executive Officer Certification Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes -
Oxley Act of 2002.
99(ii) Principal Financial Officer Certification Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes -
Oxley Act of 2002.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LINCORP HOLDINGS, INC.
Dated: October 24, 2002 /s/ Jack R. Sauer
----------------------
Jack R. Sauer
President
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CERTIFICATION
I, Jack R. Sauer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Lincorp Holdings, Inc.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
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6 The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
OCTOBER 24, 2002 /s/ JACK R. SAUER
-----------------------
Jack R. Sauer
President and
Chief Executive Officer
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CERTIFICATION
I, Gordon Flatt, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Lincorp Holdings, Inc.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
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6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: OCTOBER 24, 2002 /s/ GORDON FLATT
------------------------
Gordon Flatt
Chief Financial Officer
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Exhibit Index
Exhibit Description
- ------- -----------
99(i) Principal Executive Officer Certification Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes -
Oxley Act of 2002.
99(ii) Principal Financial Officer Certification Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes -
Oxley Act of 2002.