SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[ X ] Quarterly Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934
For the period ended September 30, 1994
or
[ ] Transition Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934
For the transition period from to
Commission file number 0-16819
National Capital Management Corporation
(Exact name of registrant as specified in its charter)
Delaware 94-3054267
(State or other jurisdiction of (I.R.S.Employer
Identification
incorporation or organization) Number)
50 California Street, San Francisco, CA 94111
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code
(415) 989-2661
Former name, former address and former fiscal year, if
changed from last report
Check whether the issuer (1) filed all reports required
to be filed by Section 13 or 15(d) of the Securities
Exchange Act during the past 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
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or
15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the
issuer's classes of common equity, as of the latest
practical date.
Common 5,019,257
Class Outstanding at November 11, 1994
<PAGE>
PART 1. FINANCIAL INFORMATION
NATIONAL CAPITAL MANAGEMENT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,097,467 $ 2,872,925
Accounts receivable, less allowance for doubtful
accounts of $99,875 and $100,485 at September
30, 1994 and December 31, 1993, respectively 829,745 933,127
Notes receivable - 938,500
Inventories 2,160,882 1,810,721
Purchased insurance policies 821,500 -
Other current assets 224,932 312,670
Total current assets 5,134,526 6,867,943
Rental properties, less accumulated depreciation
of $3,163,949 and $2,872,392 at September 30,
1994 and December 31, 1993, respectively 11,283,005 15,512,469
Property and equipment, less accumulated
depreciation of $43,357 and $28,065 at September
30, 1994 and December 31, 1993, respectively 100,256 77,813
Other assets 1,047,344 550,672
Total assets $ 17,565,131 $ 23,008,897
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 759,899 $ 922,660
Revolving line of credit 35,000 -
Accrued liabilities 1,245,127 1,105,205
Deferred gain on sale of real property - 938,500
Current portion of long-term debt 1,514,588 1,745,895
Total current liabilities 3,554,614 4,712,260
Long-term debt 4,631,329 7,766,382
Total liabilities 8,185,943 12,478,642
Common stock repurchase obligation 175,000 -
Shareholders' equity:
Preferred stock, $0.01 par value, 3,000,000
shares authorized,no shares issued or outstanding - -
Common stock, $0.01 par value, 20,000,000 shares
authorized,5,019,257 shares issued and
outstanding 54,289 54,289
Additional paid-in capital 23,516,649 23,673,649
Accumulated deficit (13,693,125 (12,662,183)
Treasury stock (643,625) (535,500)
Total shareholders' equity 9,234,188 10,530,255
Total liabilities and shareholders' equity $ 17,595,131 $ 23,008,897
<PAGE>
NATIONAL CAPITAL MANAGEMENT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
For the Three Months For the Nine Months
Ended September 30 Ended September 30
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Revenues:
Real estate properties $ 765,914 $1,328,642 $ 2,863,013 $ 3,871,612
Industrial products sales 1,170,841 1,423,773 4,169,200 5,333,617
Gain on sale of real property - - 938,500 -
Interest 16,255 10,137 66,612 40,874
Other income - 547 6,282 54,399
Total revenues 1,953,010 2,763,099 8,043,607 9,300,502
Costs and expenses:
Real estate property
operations:
Operations and maintenance 420,512 740,081 1,536,986 2,058,817
Property taxes and insurance 100,132 183,619 373,754 534,876
Depreciation and 186,004 238,993 617,411 718,983
amortization
Interest 135,039 298,560 556,133 890,225
Total real estate property
costs and expenses 841,687 1,461,253 3,084,284 4,202,901
Industrial products
operations:
Cost of sales 994,171 1,226,613 3,523,591 4,349,777
Selling and administrative 234,514 203,326 851,178 1,096,251
Depreciation 4,648 4,648 13,943 14,844
Total industrial products
costs and expenses 1,233,333 1,434,587 4,388,712 5,460,872
Viatical settlement expenses 370,444 - 634,033 -
General and administrative 335,726 324,586 954,349 934,782
Interest expense-other 4,390 4,000 13,171 12,000
Total costs and expenses 2,785,580 3,224,426 9,074,549 10,610,555
Net loss $ (832,570) $ (461,327) $(1,030,942) $(1,310,053)
Net loss per share $ (0.17) $ (0.09) $ (0.21) $ (0.26)
Average number of shares
outstanding 4,988,822 5,131,357 5,028,939 5,131,357
<PAGE>
NATIONAL CAPITAL MANAGEMENT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
For the Nine Months Ended
September 30
1994 1993
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,030,942) $(1,310,053)
Adjustment to reconcile net loss to net
cash provided by (used in) operating
activities:
Depreciation and amortization 696,176 733,827
Gain on sale of real property (938,500) -
Changes in operating assets and
liabilities:
Decrease (increase) in accounts 91,725 (172,988)
receivable
Decrease (increase) in inventories (350,161) 58,868
Decrease in other current assets 3,745 124,038
Increase in property and equipment (37,735) -
Increase in purchased insurance policies (821,500) -
Increase in accounts payable
and accrued liabilities 187,037 410,626
Net cash used in operating activities (2,200,155) (155,682)
Cash flows from investing activities:
Decrease (increase) in other assets (119,212) 93,970
Additions and improvements to real property (180,195) (1,231,149)
Repayment of note receivable 938,500 -
Net cash provided by (used in) investing
activities 639,093 (1,137,179)
Cash flow from financing activities:
Additions to revolving line of credit 35,000 -
Additions to long-term debt - 1,300,000
Payments on long-term debt (159,271) (1,304,811)
Purchase of treasury stock (265,125) -
Issuance of stock 175,000 -
Net cash used in financing activities (214,396) (4,811)
Decrease in cash and equivalents (1,775,458) (1,297,672)
Cash and equivalents at beginning of period 2,872,925 2,824,391
Cash and equivalents at end of period $ 1,097,467 $ 1,526,719
</TABLE>
Supplemental Schedule to Noncash Investing
and Financial Activities
During the period ending September 30, 1994, the Company sold
99.1% of its investment in Rebird Trails Associates, L.P. As
such, the assets and liabilities of Redbird Trails Associates,
including the mortgage in the amount of $3,237,089, have not
been included in the condensed consolidated balance sheet.
<PAGE>
NATIONAL CAPITAL MANAGEMENT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1994 AND 1993
(Unaudited)
NOTE 1
The condensed financial information for the three and nine
month periods ended September 30, 1994 and 1993 presented in
this Form 10-QSB has been prepared from the accounting records
without audit. The information furnished reflects all
adjustments (consisting of only normal recurring adjustments)
which are, in the opinion of management, necessary for a fair
statement of the results of interim periods. The results of
operations for the three and nine months ended September 30,
1994 are not necessarily indicative of the results to be
expected for a full year. The condensed consolidated balance
sheet as of December 31, 1993 has been derived from audited
financial statements. This report should be read in
conjunction with the consolidated financial statements
included in the Company's December 31, 1993 Annual Report to
shareholders on Form 10-KSB as filed with the Securities and
Exchange Commission.
NOTE 2
Inventories are generally valued at the lower of cost (first-
in, first-out) or market. Provisions are made in each period
for the effect of obsolete and slow-moving inventories.
Inventories consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
<S> <C> <C>
Raw materials $ 1,495,984 $ 1,223,892
Work-in-process 571,578 414,392
Finished goods 93,320 172,437
$ 2,160,882 $ 1,810,721
</TABLE>
NOTE 3
The Company accounts for purchased insurance policies at cost,
which includes the purchase price, direct costs related to the
acquisition of such policies and direct costs anticipated to
be incurred through the date they can first be submitted to a
wholly owned subsidiary pursuant to a reinsurance agreement.
The cost of purchased insurance policies was $821,500 at
September 30, 1994.
NOTE 4
On December 30, 1993, the Company sold all of its interests in
Quivira Place Associates, L.P., owner of a 289 unit apartment
complex located in Lenexa, Kansas. A portion of the sales
proceeds included a promissory note in the amount of $938,500
that was issued from the buyer to the Company and was recorded
as a deferred gain on the Company's balance sheet at December
31, 1993. This note was collected by the Company on April 15,
1994, and the deferred gain was recognized as revenue in the
three month period ending June 30, 1994.
NOTE 5
On June 13, 1994, in accordance with its previous agreement
dated December 30, 1993, the Company sold partnership
interests in Redbird Trails Associates, L.P. ("Redbird") to a
new unrelated limited partner and an administrative general
partner. These partners, which are related to each other,
obtained a 99.1% interest in the existing equity, profits or
losses and low income housing tax credits of the property
owned by this partnership for an investment of $1,256,158.
The Company received $476,921 of this amount plus an $82,000
expense reimbursement on June 13, 1994. Receipt of the
balance of the funds, net of $128,000 due to an original
limited partner as discussed below, is contingent upon the
Company completing a refinancing of the property.
The Company retained a contingent interest in the cash flows
of this partnership. It will receive any cash available from
property operations, to the extent it exceeds approximately
$40,000 annually, and any refinancing proceeds up to a total
of approximately $3.4 million, plus interest at 9.25% per
annum on the outstanding balance of this amount. Any proceeds
of sale will be allocated, first, 99.1% to the new partners
until they have received 135% of their investment, less any
prior distributions. Any remaining proceeds from a sale will
be allocated to the Company up to $3.4 million, less any
distributions from operations or refinancings pursuant to the
discussion above. This arrangement has not been reflected in
the Company's financial statements since its ultimate
realization cannot reasonably be determined. In addition, at
such time as the tax benefits have been utilized, the Company
has the right to purchase the interests of the newly admitted
partners for 135% of their contributed capital (minus prior
cash payments). Should the Company choose not to exercise
such right to purchase the partners' interests, the newly
admitted administrative general partner has the right to
require the Company to sell all of the assets and liquidate
the partnership.
A wholly-owned subsidiary of the Company is the only surviving
partner of the original partners. It retained a .9% interest
as the operating general partner and is obligated to provide
loans of up to $150,000 to Redbird to fund any operating
deficits, as defined, for a three year period commencing upon
the date the property is refinanced. One of the original
limited partners of Redbird, which is not affiliated with the
Company, was paid $146,000 by the Company and $128,000 by the
newly admitted partners on June 13, 1994 for its entire
interest and settlement of all claims with respect to this
partnership. The cash payment of $128,000 by the new partners
will be charged against the balance of funds owed to the
Company with respect to this transaction.
The assets, liabilities and operations of Redbird have not
been included in the condensed consolidated financial
statements of the Company subsequent to closing this
transaction on June 13, 1994. The Company has accounted for
its investment in and the earnings of Redbird using the equity
method of accounting since that date. The Company's
investment in Redbird exceeds the proceeds received by the
Company from this transaction as of September 30, 1994, and,
as such, no gain has been recognized on this transaction
during 1994.
On December 30, 1993, the Company reached an agreement similar
to the Redbird agreement, which is contingent upon certain
material conditions to be satisfied by the Company, to admit
the same limited partner and administrative general partner
into Signature Midwest, L.P. for an investment of
approximately $769,000. Since closing this transaction is
contingent upon meeting conditions which may or may not be
achieved, there is no certainty that it will be ultimately
consummated. As such, this transaction has not been reflected
in the consolidated financial statements. During August 1994,
the contingent, new limited partner paid one of the existing
limited partners of the partnership $166,000 for its entire
interests and settlement of all claims. The proposed new
limited partner also paid NCMC $102,541 during the same
period, which will not be recognized as income until this
transaction is concluded. The investment by the proposed new
partner will be reduced by the amount of these two payments,
totaling $268,541, to approximately $500,000 if this
transaction is completed. If this transaction is not
successfully completed, NCMC has agreed to refund $83,000 of
these payments to the proposed new limited partner.
NOTE 6
On March 17, 1994, the Company formed the Viatical Settlement
Division to engage in the business of purchasing life
insurance policies which insure the lives of individuals with
terminal illnesses. The operating entity in this division is
National Capital Benefits Corporation ("NCBC"), eighty percent
of whose common stock, and all of its preferred stock, is
owned by the Company. NCBC generally seeks to purchase
policies which insure individuals having a projected life
expectancy of 24 months or less. In March 1994 the Company
funded NCBC with initial cash investments of $1,490,000,
consisting of $1,450,000 of preferred stock and $40,000 of
common stock, and purchased an additional $1,000,000 of
preferred stock for cash during June 1994. In addition, NCBC
has obtained a revolving line of credit up to $10 million,
based on a formula of eligible policies purchased, from an
institutional lender to be used to provide working capital and
funds for the purchase of such policies. The facility is
secured by all of NCBC's assets including the policies
purchased and will bear interest at 2% over a composite of
several large bank prime rates or the rate on 90 day dealer
commercial paper, whichever is higher. NCBC had drawn $35,000
on this line of credit as of September 30, 1994. NCBC has
agreed to insure 90% of the net death benefit of the acquired
policies through a newly formed and wholly-owned Bermuda
insurance company which has reinsured the risk with a
consortium of large international insurance companies. There
was approximately $.5 million of cash remaining in NCBC and
its wholly-owned Bermuda insurance company at September 30,
1994 which is restricted for use in NCBC's operations pursuant
to the revolving line of credit agreement. Additionally, NCBC
had approximately $585,000 of borrowing capacity available at
September 30, 1994 pursuant to its revolving line of credit
agreement. In connection with the acquisition of certain
assets of CAPX Corporation ("CAPX") by NCBC and the issuance
of 100,000 shares of Company common stock, the institutional
lender permitted the transfer to NCMC of $175,000 by NCBC.
Twenty percent of the common stock of NCBC is owned in the
aggregate by an executive officer of NCBC and a trust whose
sole trustee is another executive officer of NCBC (the
"Minority Owners"). The Company has entered into an agreement
with the Minority Owners which prohibits the transfer of the
stock held by them through July 1, 1997 and thereafter permits
the Company a right of first refusal on all other transfers
through the tenth anniversary of the agreement. In addition,
during the period May 1, 1997 through June 30, 1997, either
the Company or the Minority Owners can notify the other of a
conversion election in which event the Company may at its
option, either (a) issue shares of its common stock plus, in
certain instances, other consideration in the amount of the
appraised value (based on the fair market value of NCBC after
repayment of all preferred stock) for their NCBC shares, (b)
sell NCBC on or before the anniversary date of receipt of the
appraisal or (c) on or before said anniversary date distribute
the shares of NCBC held by NCMC to its shareholders. If the
Company issues to the Minority Owners shares of its common
stock, the Company has agreed to use its best efforts to
promptly effect the registration thereof if requested by a
majority of the Minority Owners.
On July 29, 1994, NCBC acquired from CAPX Corporation
substantially all of its operating assets (other than cash,
securities and purchased insurance policies), including the
trade names of its wholly-owned subsidiaries, Living Benefits
Inc. and American Life Resources, Inc. Management believes
these two subsidiaries have been the two most established
companies in the viatical settlement business prior to this
transaction, with an estimated 20% market share. There was no
assumption of liabilities or obligations by NCBC.
Consideration paid consisted of $125,000 in cash, 100,000
shares of common stock previously held as treasury stock by
NCMC and a gross revenues participation in all proceeds
arising from viatical settlements entered into by NCBC, equal
to 1.75% and 1% in the United States and other countries,
respectively, over the next four years. NCMC has agreed for a
period of two years from the date of closing to repurchase the
shares from CAPX for a purchase price of $1.75 per share and
has also agreed to certain registration rights for a three
year period.
NOTE 7
On April 22, 1994, the Company repurchased 212,100 shares of
its common stock for treasury shares at a cost of $265,125.
On July 29, 1994 the Company issued 100,000 shares of its
common stock to CAPX Corporation in consideration for certain
assets purchased therefrom (see Note 6).
<PAGE>
NATIONAL CAPITAL MANAGEMENT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The following discussion is supplemental to and should be read
in conjunction with the Company's December 31, 1993 Annual
Report to shareholders on Form 10-KSB as filed with the
Securities and Exchange Commission, and the condensed
financial information and accompanying notes beginning on page
1 of this report.
FINANCIAL CONDITION AND LIQUIDITY
The Company's cash declined from approximately $2.9 million at
December 31, 1993 to $1.1 million at September 30, 1994
principally as a result of cash used to finance operating
activities, to enter into the viatical settlement business
and to build inventories at Jensen Corporation, offset by the
collection of a $938,500 note receivable on April 15, 1994
resulting from the sale of Quivira Place Associates, L.P. in
1993 and the receipt of $412,921 (net of $146,000 paid to
settle the claims of a limited partner) on June 13, 1994
pursuant to the admission of two unaffiliated partners into
Redbird Trails Associates, L.P. Of the $1.1 million in cash
at September 30, 1994, $.5 million has been restricted for use
by the Viatical Settlement Division pursuant to the existing
revolving line of credit agreement as discussed below.
The Company does not have any existing general credit
facilities to fund its ongoing working capital requirements,
and additional financing may be required in connection with
the acquisition of other operating businesses or other assets.
The Company may seek additional financing through the issuance
of securities on a private or public basis, or through long or
short-term borrowings. The Company is currently attempting to
refinance and/or sell certain real estate properties to
provide additional sources of cash to finance current and
future operations, including its intent to continue to grow
the viatical settlement business. In addition, the Company
periodically reviews its assets to determine whether
disposition thereof may be appropriate to enhance liquidity or
to fund other opportunities. In recent years the Company has
experienced operating losses and the Company may be required,
from time to time, to provide additional funding to support
the industrial operations of Jensen Corporation and the
viatical settlement business of National Capital Benefits
Corporation until such time as these subsidiaries are
operating on a consistently profitable basis. However, there
is no assurance that such operations will become profitable.
Management believes that the Company's cash and equivalents
are sufficient to fund its present level of operations through
March 1995.
On December 30, 1993, the Company sold all of its interests in
Quivira Place Associates, L.P., owner of a 289 unit apartment
complex located in Lenexa, Kansas. A portion of the sales
proceeds included a promissory note in the amount of $938,500
that was issued from the buyer to the Company and was recorded
as a deferred gain on the Company's balance sheet at December
31, 1993. This note was collected by the Company on April 15,
1994, and the deferred gain was recognized as revenue in the
three month period ending June 30, 1994.
On June 13, 1994, in accordance with its previous agreement
dated December 30, 1993, the Company sold partnership
interests in Redbird Trails Associates, L.P. ("Redbird") to a
new unrelated limited partner and an administrative general
partner. These partners, which are related to each other,
obtained a 99.1% interest in the existing equity, profits or
losses and low income housing tax credits of the property
owned by this partnership for an investment of $1,256,158.
The Company received $476,921 of this amount plus an $82,000
expense reimbursement on June 13, 1994. Receipt of the
balance of the funds, net of $128,000 due to an original
limited partner as discussed below, is contingent upon the
Company completing a refinancing of the property.
The Company retained a contingent interest in the cash flows
of this partnership. It will receive any cash available from
property operations, to the extent it exceeds approximately
$40,000 annually, and any refinancing proceeds up to a total
of approximately $3.4 million, plus interest at 9.25% per
annum on the outstanding balance of this amount. Any proceeds
of sale will be allocated, first, 99.1% to the new partners
until they have received 135% of their investment, less any
prior distributions. Any remaining proceeds from a sale will
be allocated to the Company up to $3.4 million, less any
distributions from oeprations or refinancings pursuant to the
discussion above. This arrangement has not been reflected in
the Company's financial statements since its ultimate
realization cannot reasonably be determined. In addition, at
such time as the tax benefits have been utilized, the Company
has the right to purchase the interests of the newly admitted
partners for 135% of their contributed capital (minus prior
cash payments). Should the Company choose not to exercise
such right to purchase the partners' interests, the newly
admitted administrative general partner has the right to
require the Company to sell all of the assets and liquidate
the partnership.
A wholly-owned subsidiary of the Company is the only surviving
partner of the original partners. It retained a .9% interest
as the operating general partner and is obligated to provide
loans of up to $150,000 to Redbird to fund any operating
deficits, as defined, for a three year period commencing upon
the date the property is refinanced. One of the original
limited partners of Redbird, which is not affiliated with the
Company, was paid $146,000 by the Company and $128,000 by the
newly admitted partners on June 13, 1994 for its entire
interest and settlement of all claims with respect to this
partnership. The cash payment of $128,000 by the new partners
will be charged against the balance of funds owed to the
Company with respect to this transaction.
The assets, liabilities and operations of Redbird have not
been included in the condensed consolidated financial
statements of the Company subsequent to closing this
transaction on June 13, 1994. The Company has accounted for
its investment in and the earnings of Redbird using the equity
method of accounting since that date. The Company's
investment in Redbird exceeds the proceeds received by the
Company from this transaction as of September 30, 1994, and,
as such, no gain has been recognized on this transaction
during 1994.
On December 30, 1993, the Company reached an agreement similar
to the Redbird agreement, which is contingent upon certain
material conditions to be satisfied by the Company, to admit
the same limited partner and administrative general partner
into Signature Midwest, L.P. for an investment of
approximately $769,000. Since closing this transaction is
contingent upon meeting conditions which may or may not be
achieved, there is no certainty that it will be ultimately
consummated. As such, this transaction has not been reflected
in the consolidated financial statements. During August 1994,
the contingent, new limited partner paid one of the existing
limited partners of the partnership $166,000 for its entire
interests and settlement of all claims. The proposed new
limited partner also paid NCMC $102,541 during the same
period, which will not be recognized as income until this
transaction is concluded. The investment by the proposed new
partner will be reduced by the total amount of these two
payments, equal to $268,541, if this transaction is completed.
If this transaction is not successfully completed, NCMC has
agreed to refund $83,000 of these payments to the proposed new
limited partner.
On March 17, 1994, the Company formed the Viatical Settlement
Division to engage in the business of purchasing life
insurance policies which insure the lives of individuals with
terminal illnesses. The operating entity in this division is
National Capital Benefits Corporation ("NCBC"), eighty percent
of whose common stock, and all of its preferred stock, is
owned by the Company. NCBC generally seeks to purchase
policies which insure individuals having a projected life
expectancy of 24 months or less. In March 1994 the Company
funded NCBC with initial cash investments of $1,490,000,
consisting of $1,450,000 of preferred stock and $40,000 of
common stock, and purchased an additional $1,000,000 of
preferred stock for cash during June 1994. In addition, NCBC
has obtained a revolving line of credit up to $10 million,
based on a formula of eligible policies purchased, from an
institutional lender to be used to provide working capital and
funds for the purchase of such policies. The facility is
secured by all of NCBC's assets including the policies
purchased and will bear interest at 2% over a composite of
several large bank prime rates or the rate on 90 day dealer
commercial paper, whichever is higher. NCBC had drawn $35,000
on this line of credit as of September 30, 1994. NCBC has
agreed to insure 90% of the net death benefit of the acquired
policies through a newly formed and wholly-owned Bermuda
insurance company which has reinsured the risk with a
consortium of large international insurance companies. There
was approximately $.5 million of cash remaining in NCBC and
its wholly-owned Bermuda insurance company at September 30,
1994 which is restricted for use in NCBC's operations pursuant
to the revolving line of credit agreement. Additionally, NCBC
had approximately $585,000 of borrowing capacity available at
September 30, 1994 pursuant to its revolving line of credit
agreement. In connection with the acquisition of certain
assets of CAPX Corporation ("CAPX") by NCBC and the issuance
of 100,000 shares of Company common stock, the institutional
lender permitted the transfer to NCMC of $175,000 by NCBC.
On July 29, 1994, NCBC acquired from CAPX Corporation
substantially all of its operating assets (other than cash,
securities and purchased insurance policies), including the
trade names of its wholly-owned subsidiaries, Living Benefits
Inc. and American Life Resources, Inc. Management believes
these two subsidiaries have been the two most established
companies in the viatical settlement business prior to this
transaction, with an estimated 20% market share. There was no
assumption of liabilities or obligations by NCBC.
Consideration paid consisted of $125,000 in cash, 100,000
shares of common stock previously held as treasury stock by
NCMC and a gross revenues participation in all proceeds
arising from viatical settlements entered into by NCBC, equal
to 1.75% and 1% in the United States and other countries,
respectively, over the next four years. NCMC has agreed for a
period of two years from the date of closing to repurchase the
shares from CAPX for a purchase price of $1.75 per share and
has also agreed to certain registration rights for a three
year period.
The note payable secured by The Mart Shopping Center in the
approximate amount of $1,250,000 is due on December 1, 1994.
However, the current lender has issued a commitment to extend
the loan for three years based on an interest rate of 10% and
a 20 year amortization period.
RESULTS OF OPERATIONS
Consolidated revenues decreased for the three and nine month
periods ended September 30, 1994 from the three and nine month
periods ended September 30, 1993 as a result of the loss of
operating revenues associated with the sale of Quivira and the
sale of partnership interests in Redbird Trails Associates,
L.P. ("Redbird") and a significant decline in industrial
product sales, offset by recognizing the deferred portion of
the gain on the sale of the Company's interests in Quivira
Place Associates, L.P. ("Quivira") and improved real property
operating revenues. Total costs and expenses decreased during
this period primarily as a result of reduced costs and
expenses associated with the decline in industrial product
sales, the sale of Quivira at the end of 1993 and the sale of
partnership interest in Redbird during June of 1994, offset by
the costs related to the initial operations of the Viatical
Settlement Division.
REAL ESTATE DIVISION
Rental property revenue decreased principally as a result of
the sale of Quivira on December 30, 1993 and the sale of
partnership interests in Redbird on June 13, 1994, offset by
an increase in revenue from the Georgia properties of
approximately $45,000 and $221,000 for the three and nine
months ended September 30, 1994, respectively. North Oak
Apartments and The Mart Shopping Center continue to maintain
average occupancy rates greater than 90%. Occupancy at
Appletree Townhouses has improved substantially, from an
average of approximately 80% for the first three quarters of
1993 to 91% for the first three quarters of 1994. Average
occupancy at Colony Ridge Apartments increased slightly with
81% in the first three quarters of 1994 from 77% in the first
three quarters of 1993. The decrease in total operating and
maintenance expenses of approximately 45% and 26% during the
three and nine months ended September 30, 1994, respectively,
compared to the same periods in 1993 is principally related to
the sale of Quivira and the sale of partnership interests in
Redbird, offset by increased expenses at Appletree Townhouses
and Colony Ridge Apartments. Property taxes and interest
expense decreased during the same period as a result of the
sale of Quivira and the sale of partnership interests in
Redbird. Depreciation and amortization also declined as a
result of the sale of Quivira and the sale of partnership
interests in Redbird but was offset by an increase in
depreciation related to rehabilitation costs associated with
other properties. Real estate property operations, as a
whole, produced operating losses of approximately $61,300 and
$206,800 for the three and nine months ended September 30,
1994, respectively, compared to $132,600 and $331,300 for the
same periods in 1993, after all operating expenses, including
depreciation and interest expense.
INDUSTRIAL PRODUCTS DIVISION
Machine sales for the three and nine months ended September
30, 1994 were approximately $673,000 and $2,770,000,
respectively. Machine sales during those periods declined by
approximately $205,000 and $831,000 from the same periods in
1993 essentially as a result of increased competition and
price cutting by competitors which made certain bids
impractical. Parts sales were approximately $475,000 and
$1,352,000 for the three and nine month periods ended
September 30, 1994. Parts sales decreased by approximately
$41,000 and $263,000 during the three and nine months ended
September 30, 1994, respectively, from the same periods in
1993, due, in part, to better customer training in maintenance
programs preventing product failure. Cost of sales also was
reduced as a result of the decline in sales. The reduction in
selling and administrative expenses from 1993 was largely the
result of reduction of the labor force.
Jensen's operations were below levels which support break-even
operations during the third quarter of 1994, generating a loss
of approximately $62,000, bringing the total loss for the
first three quarters to approximately $220,000. Jensen
continues to maintain its competitive pricing policy, but
sales margins continue to suffer as a result. Management
plans the introduction of new product lines to improve its
market share.
VIATICAL SETTLEMENT DIVISION
National Capital Benefits Corp. ("NCBC") commenced operations
on March 17, 1994. NCBC incurred operating expenses of
approximately $634,000 through September 30, 1994 primarily
for advertising, wages, rent and supplies. Additionally,
approximately $300,000 of costs were capitalized prior to
commencement of operations for organization of the business
and securing its credit line. During July, NCBC purchased its
first life insurance policies, and it expanded its operations
by acquiring from CAPX Corporation substantially all of its
operating assets (other than cash, securities and purchased
insurance policies), including the trade names of its wholly-
owned subsidiaries, Living Benefits Inc. and American Life
Resources, Inc. Management believes these subsidiaries have
been the two most established companies in the viatical
settlement business prior to this transaction, with an
estimated 20% market share.
<PAGE>
Signatures
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.
NATIONAL CAPITAL
MANAGEMENT CORPORATION
Date: November 11, 1994 By: /s/ Herbert J. Jaffe
Herbert J. Jaffe
President
By: /s/ Leslie A. Filler
Leslie A. Filler
Principal Financial Officer
and Principal Accounting Officer
