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 March 31, 1995
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 otherjurisdiction 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 5,009,257
Class Outstanding at May 12, 1995
<PAGE>
PART 1. FINANCIAL INFORMATION
NATIONAL CAPITAL MANAGEMENT CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 952,187 $ 749,449
Restricted cash 199,350 215,565
Accounts receivable, less allowance for doubtful
accounts of $28,390 and $25,000 at March 31, 1995
and December 31, 1994, respectively 1,541,341 2,674,606
Inventories 2,178,575 1,717,361
Purchased insurance policies (at cost, face value
of $3,780,300 and $2,610,550 at March 31, 1995
and December 31, 1994, respectively) - current
portion 2,530,230 1,942,490
Other current assets 338,980 227,234
Total current assets 7,740,663 7,526,705
Purchased insurance policies (at cost, face value
$1,030,009 and $1,043,004 at March 31, 1995 and
December 31, 1994, respectively) - long-term
portion 689,226 761,369
Rental properties, less accumulated depreciation of
$3,279,193 and $3,128,402 at March 31, 1995 and
December 31,1994, respectively 8,636,162 8,757,784
Property and equipment, less accumulated
depreciation of $57,361 and $51,148 at March 31,
1995 and December 31, 1994, respectively 105,047 103,582
Other assets 776,994 750,887
Total assets $ 17,948,092 $ 17,900,327
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,138,040 $ 1,246,543
Revolving credit facility - current portion 2,586,662 1,569,190
Accrued liabilities 559,007 647,220
Current portion of long-term debt 1,349,384 1,419,078
Total current liabilities 5,633,093 4,882,031
Revolving credit facility - long-term portion 702,806 615,052
Long-term payable 100,000 150,000
Long-term debt 2,744,400 2,755,155
Total liabilities 9,180,299 8,402,238
Common stock repurchase obligation 175,000 175,000
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 23,516,649
Accumulated deficit (14,334,520) (13,604,224)
Treasury stock (643,625) (643,625)
Total shareholders' equity 8,592,793 9,323,089
$ 17,948,092 $ 17,900,327
</TABLE>
<PAGE>
NATIONAL CAPITAL MANAGEMENT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
1995 1994
<S> <C> <C>
Revenues:
Viatical settlement and accrued revenue $ 683,382 $ --
Real estate properties 607,386 1,075,293
Industrial products sales 903,962 1,485,816
Interest 8,021 28,541
Other income 5,000 2,951
Total revenues 2,207,751 2,592,601
Costs and expenses:
Viatical settlement operations:
Cost of policies 607,266 --
Selling and administrative 328,108 67,741
Depreciation and amortization 56,790 --
Interest 74,509 --
Total viatical settlement
costs and expenses 1,066,673 67,741
Real estate property operations:
Operations and maintenance 328,386 577,111
Property taxes and insurance 75,067 136,022
Depreciation and amortization 150,962 222,601
Interest 89,822 215,613
Total real estate property
costs and expenses 644,237 1,151,347
Industrial products operations:
Cost of sales 667,186 1,208,569
Selling and administrative 294,887 278,588
Depreciation 4,648 4,647
Total industrial products
costs and expenses 966,721 1,491,804
General and corporate:
General and administrative 257,416 318,202
Interest expense-other 3,000 5,816
Total costs and expenses 2,938,047 3,034,910
Net loss $ (730,296) $ (442,309)
Net loss per share $ (0.15) $ (0.09)
Average number of shares outstanding 5,019,257 5,131,357
</TABLE>
<PAGE>
NATIONAL CAPITAL MANAGEMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
For the Three Months Ended
March 31,
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (730,296) $ (442,309)
Adjustment to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 212,400 227,248
Changes in operating assets and liabilities:
Decrease in accounts receivable 1,133,265 200,052
Increase in inventories (461,214) (559,210)
Increase in other current assets (111,746) (40,192)
Increase in purchased insurance policies (515,597) --
(Decrease) increase in accounts payable
and accrued liabilities (196,716) 2,522
Decrease in long-term payable (50,000) --
Net cash used in operating activities (719,904) (611,889)
Cash flows from investing activities:
Additions and improvements to real property (29,170) (68,509)
Additions to property and equipment (7,678) --
Increase in other assets (81,502) (232,645)
Net cash used in investing activities (118,350) (301,154)
Cash flow from financing activities:
Reduction of restricted cash 16,215 --
Additions to revolving credit facility 1,105,226 --
Payments on long-term debt (80,449) (53,190)
Net cash provided by (used in) financing
activities 1,040,992 (53,190)
Increase (decrease) in cash and equivalents 202,738 (966,233)
Cash and equivalents at beginning of period 749,449 2,872,925
Cash and equivalents at end of period $ 952,187 $1,906,692
</TABLE>
<PAGE>
NATIONAL CAPITAL MANAGEMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1995 AND 1994
(Unaudited)
NOTE 1
The financial information for the three month periods ended
March 31, 1995 and 1994 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
months ended March 31, 1995 are not necessarily indicative of
the results to be expected for a full year. The consolidated
balance sheet as of December 31, 1994 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, 1994 Annual Report to
shareholders on Form 10-KSB as filed with the Securities and
Exchange Commission.
Basis of Presentation
The accompanying financial statements have been prepared
assuming that National Capital Benefits Corporation ("NCBC"),
an 80% owned subsidiary of the Company, will continue as a
going concern. NCBC has incurred an operating loss of
approximately $1,493,000 since its inception in 1994, has
limited cash at March 31, 1995 for use in operations and is
thus solely dependent on the Company to provide cash needed
for operating expenses and its share of acquisition costs of
purchased policies that are not able to be fully funded under
its revolving line of credit facility. NCBC has available to
it a $10,000,000 revolving line of credit facility, of which
$3,289,468 has been drawn at March 31, 1995. This line of
credit is to provide a portion of the funding for acquisition
costs of insurance policies. However, this line can be used
to provide operating cash to NCBC only to the extent that
insurance policy proceeds in excess of the related loan
amounts have been received by the lender. Given the
scientific uncertainty of estimating the remaining life
expectancies of the insureds covered by purchased policies,
there can be no assurance that these policies will mature in
accordance with the projected schedule. As such, until such
time as significant proceeds are in fact received on matured
policies, this line will not be able to provide NCBC a
significant amount of operating cash. This potential lack of
access to cash to meet operating needs, along with the lack of
a formal commitment from the Company to support cash needs,
raises substantial doubt about NCBC's ability to continue as a
going concern. The Company has no contractual or other
obligation to continue the funding of NCBC. Management of the
Company has determined that it may be unable to fund NCBC
operations at its current and projected levels with its
present cash reserves and is considering the disposal of
certain of its assets, at acceptable prices, if it determines
it is in its best interest to continue such funding. The
financial statements do not include any adjustments to reflect
the possible future effects on the recoverability and
classification of NCBC's assets or the amounts and
classifications of liabilities that may result from the
outcome of this uncertainty.
<PAGE>
NOTE 2
Purchased insurance policies are stated 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 an
affiliated entity pursuant to an abnormal mortality insurance
contract. Purchased insurance policies consist of the
following:
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
<S> <C> <C>
Costs paid to viator $3,571,060 $2,727,596
Reinsurance premiums 97,926 75,151
Other direct acquisition costs 322,196 233,597
Less amortized costs (771,726) (332,485)
3,219,456 2,703,859
Less current portion 2,530,230 1,942,490
$ 689,226 $ 761,369
</TABLE>
NOTE 3
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>
March 31, December 31,
1995 1994
<S> <C> <C>
Raw materials $1,025,347 $1,181,247
Work-in-process 1,035,833 513,045
Finished goods 117,395 23,069
$2,178,575 $1,717,361
</TABLE>
NOTE 4
Redbird Trails Apartments and North Oak Apartments. On June
13, 1994 and December 8, 1994, in accordance with its previous
agreement dated December 30, 1993, the Company sold
partnership interests in Redbird Trails Associates, L.P.
("Redbird") and Signature Midwest, L.P. ("Signature"),
respectively, to a new unrelated limited partner and
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 properties owned by these partnerships for an
investment of approximately $1,256,000 and $769,000 in each
partnership plus a $100,000 expense reimbursement of which the
Company received $847,000 during 1994, net of $440,000 paid to
an original limited partner for all its interests and claims.
The balance of the funds due was received by the Company
during March 1995. A gain of $1,203,358 was recognized on
these transactions in 1994.
<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, 1994 Annual
Report to shareholders on Form 10-KSB as filed with the
Securities and Exchange Commission, and the financial
information and accompanying notes beginning on page 1 of this
report.
FINANCIAL CONDITION AND LIQUIDITY
The Company's cash increased from approximately $1 million at
December 31, 1994 to $1.2 million at March 31, 1995
principally as a result of receipt of $1,253,000 in March 1995
pursuant to the admission of two unaffiliated partners into
Redbird Trails Associates, L.P. and Signature Midwest, L.P.,
offset by cash used to finance operating activities, $231,000
used to support the viatical settlement business during its
start up phase and $265,000 used to finance Jensen
Corporation's operations. Of the $1.2 million in cash at
March 31, 1995, $.2 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's cash position has declined to $.7 million as of May
12, 1995, of which $.1 million is restricted for use in the
Viatical Settlement Division, resulting from cash used to
finance operating activities, $310,000 used to support the
viatical settlement business and $108,000 used to finance
Jensen Corporation's operations.
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. In addition, the Company periodically
reviews its assets to determine whether disposition thereof
may be appropriate to enhance liquidity or to fund other
opportunities. As indicated below with respect to the
discussion of National Capital Benefits Corporation,
additional funds may be required for the Company's viatical
settlement business.
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 until such time as this subsidiary is
operating on a consistently profitable basis. However, there
is no assurance that such operations will become profitable.
NCBC has incurred an operating loss of approximately
$1,493,000 since its inception in 1994, has limited cash at
March 31, 1995 for use in operations and is thus solely
dependent on the Company to provide cash needed for operating
expenses and its share of acquisition costs of purchased
policies that are not able to be fully funded under its
revolving line of credit facility. NCBC had used $3,289,468 of
its $10,000,000 revolving line of credit facility at March 31,
1995. This line of credit is to provide a portion of the
funding for acquisition costs of insurance policies. However,
this line can be used to provide operating cash to NCBC only
to the extent that insurance policy proceeds in excess of the
related loan amounts have been received by the lender. Given
the scientific uncertainty of estimating the remaining life
expectancies of the insureds covered by purchased policies,
there can be no assurance that these policies will mature in
accordance with the projected schedule. As such, until such
time as significant proceeds are in fact received on matured
policies, this line will not be able to provide NCBC a
significant amount of operating cash. This potential lack of
access to cash to meet operating needs, along with the lack of
a formal commitment from the Company to support cash needs,
raises substantial doubt about NCBC's ability to continue as a
going concern. The Company has no contractual or other
obligation to continue the funding of NCBC. Management of the
Company has determined that it may be unable to fund NCBC
operations at its current and projected levels with its
present cash reserves and is considering the disposal of
certain of its assets, at acceptable prices, if it determines
it is in its best interest to continue such funding.
The note payable secured by The Mart Shopping Center in the
approximate amount of $1,246,000 became due on December 1,
1994. However, during March 1995 the current lender has
extended the loan to December 1, 1997 based on an interest
rate of 10% and a 20 year amortization period.
The note payable of approximately $1.1 million secured by
Appletree Townhouses is due on October 1, 1995. The Company
has been working to refinance this loan on or before its due
date. However, the Company has contacted the current lender
and has requested a twelve month extension should it be
unsuccessful in its attempt to refinance this loan.
In February 1995 the Company initiated a plan to repurchase up
to 250,000 of its own shares for treasury in the open market
or through isolated transactions to December 31, 1995. 10,000
shares were purchased pursuant to this plan on May 11, 1995 at
a cost of $9,675.
RESULTS OF OPERATIONS
Consolidated revenues decreased for the three month period
ended March 31, 1995 from the three month period ended March
31, 1994 as a result of the loss of operating revenues
associated with the sale of partnership interests in Redbird
Trails Associates, L.P. ("Redbird") and Signature Midwest,
L.P. ("Signature"), a slight decline in revenues associated
with The Mart Shopping Center due to lower occupancy rates and
a significant decline in industrial product sales, offset by
the addition of the viatical settlement division and a slight
improvement in real property operating revenues from the
Georgia properties. 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 and the sale of partnership interests in Redbird and
Signature, offset by the costs related to the initial
operations of the Viatical Settlement Division.
<PAGE>
VIATICAL SETTLEMENT DIVISION
National Capital Benefits Corp. ("NCBC") commenced operations
on March 17, 1994. As of March 31, 1995 NCBC had purchased
(including those in escrow) at face $4.8 million of policies.
Four policies matured during the first quarter of 1995 having
a face value of $212,500, with related direct costs of
$171,177 and gross profit equal to $41,323. Additional gross
revenues of $470,882 and related costs of $436,089 were
accrued pursuant to NCBC's policy to accrete such revenue and
costs over the period from the purchase of the policy to the
date on which a reinsurance claim may first be filed. NCBC
incurred operating expenses of approximately $450,000 during
the first quarter of 1995 primarily for wages, advertising,
consulting and professional fees, lender fees, travel and
entertainment and office supplies.
REAL ESTATE DIVISION
Rental property revenue decreased principally as a result of
the sale of partnership interests in Redbird on June 13, 1994
and Signature on December 8, 1994, offset by a slight increase
in revenue from the remaining properties totaling
approximately $17,000 for the three months ended March 31,
1995. The Mart Shopping Center continue to maintain average
occupancy rates greater than 90%. Occupancy at Appletree
Townhouses has remained constant with an average of
approximately 91% for the first three quarters of 1995 and
1994. Average occupancy at Colony Ridge Apartments increased
to 84% in the first three quarters of 1995 from 76% in the
first three quarters of 1994. The decrease in total operating
and maintenance expenses of approximately 43% during the three
months ended March 31, 1995 compared to the same periods in
1994 is principally related to the sale of partnership
interests in Redbird and Signature. Property taxes, interest
expense, depreciation and amortization decreased during the
same period as a result of the sale of partnership interests
in Redbird and Signature. Real estate property operations, as
a whole, produced operating losses of approximately $37,000
for the three months ended March 31, 1995 compared to $76,000
for the same period in 1994, after all operating expenses,
including depreciation and interest expense.
INDUSTRIAL PRODUCTS DIVISION
Machine sales for the three months ended March 31, 1995 were
approximately $358,000 compared to approximately $1,013,000
during the same period in 1994. The decline in machine sales
during the first quarter is essentially the result of a mature
product line, delay in customer purchase commitments until the
industry's major trade show in June and $550,000 of contracts
delayed into the second quarter. However, management believes
sales will improve from this level during the remainder of
1995. Parts sales were approximately $543,000 for the three
month period ended March 31, 1995 compared to approximately
$460,000 during the same period in 1994, due to general market
conditions. Cost of sales also was reduced as a result of the
decline in sales.
Jensen's operations were below levels which support break-even
operations during the first quarter of 1995, generating a loss
of approximately $63,000. In February, Jensen announced the
introduction of three new product lines to improve its market
share and anticipates price increases in June.
<PAGE>
Part II. OTHER INFORMATION
Item 5 - Other Information
By letter dated April 12, 1995, NASDAQ has informed the
Company that the Company is not in compliance with its minimum
bid requirement of essentially $1 per share, which is
necessary to continue the listing of the Company's stock on
the National Market System ("NMS"). NASDAQ has granted the
Company a temporary exemption from the minimum bid
requirement. NASDAQ has determined that the Company must
perform a reverse stock split to remain on the NMS. If a
decision is taken to split the stock, the Company must submit
a plan to NASDAQ by May 31, 1995, must effect the split by
June 10, 1995 and maintain compliance with the minimum bid
requirement for ten business days beginning from June 10, 1995
through June 23, 1995. A reverse stock split would be
expected to increase the bid price of the Company's stock. If
the reverse stock split is not carried out as required by
NASDAQ or, if it is carried out, but does not result in a
stock price which meets the NASDAQ minimum bid requirement,
the Company's stock will no longer be traded on the NMS. The
Company's violation of the NASDAQ's requirement has been
limited to approximately 1% under its alternate test of a
minimum of $3,000,000 in public float, as defined, on any one
trading day during the last 30 days.
<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: May 19, 1995 By:/s/ Herbert J. Jaffe
Herbert J. Jaffe
President
By: /s/ Leslie A. Filler
Leslie A. Filler
Principal Financial Officer and
Principal Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AND CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS IN FROM 10QSB FOR THE PERIOD ENDED MARCH 31, 1995 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 952,187
<SECURITIES> 0
<RECEIVABLES> 1,569,731
<ALLOWANCES> 28,390
<INVENTORY> 2,178,575
<CURRENT-ASSETS> 7,740,663
<PP&E> 12,077,763
<DEPRECIATION> 3,336,554
<TOTAL-ASSETS> 17,948,092
<CURRENT-LIABILITIES> 5,633,093
<BONDS> 0
<COMMON> 54,289
0
0
<OTHER-SE> 8,538,504
<TOTAL-LIABILITY-AND-EQUITY> 17,948,092
<SALES> 903,962
<TOTAL-REVENUES> 2,207,751
<CGS> 667,186
<TOTAL-COSTS> 2,938,047
<OTHER-EXPENSES> 257,416
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,000
<INCOME-PRETAX> (730,296)
<INCOME-TAX> 0
<INCOME-CONTINUING> (730,296)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (730,296)
<EPS-PRIMARY> (.15)
<EPS-DILUTED> 0
</TABLE>
