<PAGE>
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, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
From 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 Number)
incorporation or organization)
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 Section 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 1,650,524
---------------------- ------------------------------
Class Outstanding at August 9, 1996
<PAGE>
NATIONAL CAPITAL MANAGEMENT CORPORATION
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------ ------------
ASSETS
Cash $ 38,125 $ 634,892
Restricted cash 120,000 120,000
Accounts receivable 612,452 39,730
Notes and subscription receivable 2,067,355 3,413,650
Accrued insurance proceeds 7,605,712 5,467,122
Purchased insurance policies 9,316,716 7,977,044
Property and equipment, less accumulated
depreciation of $76,875 and $65,400 at
September 30, 1996 and December 31, 1995,
respectively 74,224 82,254
Net assets of discontinued operations - real
estate segment 1,442,169 3,051,277
Deferred financing costs 228,750 305,000
Other assets 224,917 253,531
------------ ------------
Total assets $21,730,420 $21,344,500
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued expenses $ 594,825 $ 1,920,789
Revolving credit facility 13,540,445 9,570,830
Advances due affiliates - 500,000
Subordinated note payable 2,000,000 2,000,000
------------ ------------
Total liabilities 16,135,270 13,991,619
Common stock purchase obligation 175,000 175,000
Shareholders' equity:
Preferred stock, $0.01 par value,
3,000,000 shares authorized, no shares
issued and outstanding - -
Common stock, $0.01 par value, 6,666,666
shares authorized, 1,790,390 shares issued 17,904 17,904
Additional paid-in capital 23,123,951 23,123,951
Accumulated deficit (17,497,488) (15,739,757)
Treasury stock, 139,866 shares at
September 30, 1996 and December 31, 1995 (224,217) (224,217)
------------ ------------
Total shareholders' equity 5,420,150 7,177,881
------------ ------------
$21,730,420 $21,344,500
------------ ------------
------------ ------------
See accompanying notes.
2
<PAGE>
NATIONAL CAPITAL MANAGEMENT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
1996 1995 1996 1995
----------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
Revenue accrued and received $ 2,280,589 $1,269,456 $ 6,644,673 $ 3,103,922
Cost of insurance policies 2,809,163 1,156,146 6,521,428 2,743,752
----------- ---------- ------------ -----------
Earned discount (528,574) 113,310 123,245 360,170
Interest expense 373,312 177,161 932,722 409,984
----------- ---------- ------------ -----------
Earned discount after interest expense (901,886) (63,851) (809,477) (49,814)
Selling and administrative 5,013 238,412 772,016 882,996
Depreciation and amortization 70,954 81,861 137,855 170,508
----------- ---------- ------------ -----------
Loss from continuing operations before
other income and expense (977,853) (384,124) (1,719,348) (1,103,318)
----------- ---------- ------------ -----------
Other (income) expense:
Corporate administrative expense 171,529 377,190 525,719 783,980
Interest income (69,589) (18,408) (216,025) (38,337)
Other income (3,958) (2,250) (18,855) (8,563)
----------- ---------- ------------ -----------
Loss from continuing operations before
income taxes (1,075,835) (740,656) (2,010,187) (1,840,398)
Income taxes - - - -
----------- ---------- ------------ -----------
Net loss from continuing operations (1,075,835) (740,656) (2,010,187) (1,840,398)
----------- ---------- ------------ -----------
Discontinued operations:
Net operating income (loss):
Real estate segment (41,277) (39,117) (158,167) (174,943)
Industrial products segment (150,000) 28,600 (150,000) (106,637)
Net gain on sale of real estate
properties 187,073 1,023,424 560,624 1,023,424
----------- ---------- ------------ -----------
Net income (loss) from discontinued
operations (4,204) 1,012,907 252,457 741,844
----------- ---------- ------------ -----------
Net income (loss) $(1,080,039) $ 272,251 $(1,757,730) $(1,098,554)
----------- ---------- ------------ -----------
----------- ---------- ------------ -----------
Net loss from continuing operations
per share $(0.65) $(0.45) $(1.22) $(1.11)
Net income (loss) from discontinued
operations per share - 0.62 0.15 0.45
----------- ---------- ------------ -----------
Net income (loss) per share $(0.65) $ 0.17 $(1.06) $(0.66)
----------- ---------- ------------ -----------
----------- ---------- ------------ -----------
Average number of shares outstanding 1,650,524 1,650,524 1,650,524 1,652,112
----------- ---------- ------------ -----------
----------- ---------- ------------ -----------
</TABLE>
See accompanying notes.
3
<PAGE>
NATIONAL CAPITAL MANAGEMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,757,731) $(1,098,554)
Adjustments to reconcile net loss to net cash
used in operating activities:
(Income) loss from discontinued operations (252,457) (741,844)
Depreciation and amortization 137,855 170,508
Earned discounts on insurance policies 412,448 (8,756)
Changes in operating assets and liabilities:
Increase in accounts receivable (572,723) (759,674)
Decrease in accounts payable and accrued liabilities (1,275,964) 211,123
Decrease in finders' fee payable (50,000) (50,000)
------------ -----------
Net cash used in operating activities (3,358,571) (2,277,197)
------------ -----------
Net cash related to discontinued operations 1,861,565 1,086,462
------------ -----------
Cash flows from investing activities:
Purchased insurance policies (7,861,100) (6,180,904)
Proceeds from maturities of insurance policies 3,970,390 1,864,316
Additions to property and equipment (3,445) (5,090)
Increase in other assets (21,516) (105,925)
------------ -----------
Net cash provided by (used in) investing activities (3,915,671) (4,427,603)
------------ -----------
Cash flows from financing activities:
Borrowings on revolving credit facility 7,940,005 5,499,178
Repayments on revolving credit facility (3,970,390) -
Addition to subordinated debt 2,000,000 -
Addition to note receivable (1,301,205) -
Repayment of notes receivable 647,500 -
Payments of advances due affiliates (500,000) -
Acquisition of treasury stock - (9,675)
------------ -----------
Net cash provided by financing activities 4,815,910 5,489,503
------------ -----------
Decrease in cash (596,767) (128,835)
Cash - beginning of period 634,892 671,022
------------ -----------
Cash - end of period $ 38,125 $ 542,187
------------ -----------
------------ -----------
</TABLE>
See accompanying notes.
4
<PAGE>
NATIONAL CAPITAL MANAGEMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
NOTE 1
The financial information for the three and nine month periods ended
September 30, 1996 and 1995 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, 1996 are not necessarily indicative of the results to be expected
for a full year. The consolidated balance sheet as of December 31, 1995 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, 1995 Annual Report to shareholders on Form 10-KSB as filed with the
Securities and Exchange Commission.
REVERSE STOCK SPLIT
Pursuant to the approval of the stockholders on June 28, 1995, the Company
implemented a reverse stock split which was effective July 11, 1995, whereby
each three shares of common stock was converted into one share of Common Stock.
As a result of the reverse stock split, the Registrant has 6,666,666 shares of
authorized common stock, of which 1,650,524 are issued and outstanding. All
such shares are of the par value of $.01. All per share amounts have been
adjusted to reflect the reverse stock split on a retroactive basis.
NOTE 2
Purchased insurance policies are stated at amortized cost. Costs
capitalized include the purchase price paid to the insured (or "viator"), and
certain direct and indirect costs related to the acquisition of such policies.
The insurance policies purchased by the Company have been issued by various
credit worthy insurance carriers, none of which represent a significant
concentration of risk. National Capital Benefits Corp. ("NCBC"), a wholly-owned
subsidiary of the Company, has an insurance contract with NCB Insurance Ltd.
("NCB"), a wholly-owned subsidiary of NCBC, which provides for payment of 90% of
the face value of the policies purchased at a specified period of time after the
expected maturity date, in accordance with the contract. NCB, in turn, has
reinsured this risk with several large, non-affiliated international reinsurance
companies. NCBC retains the residual 10%.
As a result of the recently announced significant advances in AIDS
medications and treatments, which may have a significant impact on the expected
maturities of existing purchased policies in the Company's portfolio, the
Company established an $800,000 valuation reserve against purchased policy costs
as stated on the balance sheet. The impact of this reserve has been reflected
in the three months and nine months ending September 30, 1996.
5
<PAGE>
NOTE 2 (CONTINUED)
Purchased insurance policies and accrued insurance proceeds consist of the
following:
SEPTEMBER 30, DECEMBER 31,
1996 1995
----------- ------------
Cost paid to viator $19,299,105 $10,487,660
Other direct and indirect acquisition costs 2,757,710 1,051,510
Less: Amortized costs (11,940,099) (3,562,126)
Valuation reserve (800,000) -
----------- ------------
Total purchased insurance policies $ 9,316,716 $ 7,977,044
----------- ------------
----------- ------------
Accrued insurance proceeds $ 6,068,657 $ 4,219,216
Insurance proceeds fully accrued:
Not yet matured 1,387,055 1,081,906
Matured not yet received 150,000 166,000
----------- ------------
$ 7,605,712 $ 5,467,122
----------- ------------
----------- ------------
NOTE 3
APPLETREE TOWNHOUSES
The Company's wholly-owned subsidiary, Georgia Properties, Inc. ("GPI"),
received a loan of $650,000 on December 21, 1995 and an additional $500,000 on
February 1, 1996 from the same individual that purchased The Mart Shopping
Center, in exchange for an option to purchase Appletree Townhouses for
$3,500,000. The option was exercised on April 3, 1996.
The sales price of $3,500,000 consisted of the aforementioned advances by
the buyer totaling $1,150,000, assumption of the existing first deed loan by the
buyer in the amount of $1,048,795 and a purchase money note for the balance
equal to $1,301,205. The purchase money note bears interest from the date of
sale at 8% per annum until it is due on December 31, 1996. In addition, the
buyer prepaid $250,000 of this note during April 1996. A gain of approximately
$374,000 has been reported during the second quarter of 1996.
NOTE 4
UNDEVELOPED LAND, 2.8 ACRES
The Company owned undeveloped land in Fort Lauderdale, Florida which is
zoned for commercial/industrial use. This parcel was sold for $216,000 and
yielded $52,000 of cash to the Company, after payment of the related mortgage
debt and other costs, upon its closing on August 30, 1996. The Company reported
a gain of approximately $187,000 during the third quarter of 1996.
NOTE 5
DISCONTINUED OPERATIONS - REAL ESTATE SEGMENT
On November 27, 1995, the Company elected to discontinue operations of the
Real Estate Segment to concentrate its efforts on its viatical settlements
business.
6
<PAGE>
NOTE 5 (CONTINUED)
The results of the Real Estate Segment have been reported separately as
discontinued operations in these consolidated statements of operations. Prior
period financial statements have been restated to present the Real Estate
Segment as a discontinued operation.
Summarized below are the operations of the Company's Real Estate Segment
for the nine months ended September 30, 1996 and 1995:
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
1996 1995
----------- ------------
Total revenues $1,121,582 $1,756,904
----------- ----------
Costs and expenses:
Operations and maintenance 628,017 1,024,756
Property taxes and insurance 108,755 215,176
Depreciation and amortization 292,791 434,163
Net interest 109,657 257,752
Corporate administrative expenses 140,529 -
----------- ----------
Total costs and expenses 1,279,749 1,931,847
----------- ----------
Loss from operations (158,167) (174,943)
Income taxes - -
----------- ----------
Net loss $ (158,167) $ (174,943)
----------- ----------
----------- ----------
The components of the Real Estate Segment net assets from discontinued
operations in the consolidated balance sheet as of September 30, 1996 and
December 31, 1995 are as follows:
SEPTEMBER 30, DECEMBER 31,
1996 1995
Rental properties, less accumulated
depreciation of $1,089,543 and $1,758,246
as of September 30, 1996 and December
31, 1995, respectively $3,158,755 $6,481,587
Mortgage notes payable (1,269,406) (3,201,750)
Other, net (447,180) (228,560)
----------- ----------
$1,442,169 $3,051,277
----------- ----------
----------- ----------
NOTE 6
DISCONTINUED OPERATIONS - INDUSTRIAL PRODUCTS SEGMENT
On November 10, 1995, the Company sold 100% of the common stock of Jensen
Corporation ("Jensen"), located in Fort Lauderdale, Florida to AMKO USA, Inc.
("AMKO"), an affiliate of AMKO International B.V. which is based in the
Netherlands, for $1,726,000. The sale proceeds included cash of $415,000 and a
promissory note receivable in the amount of $1,311,000 which is secured by
Jensen's stock, accounts receivable and inventory. The $1,311,000 note is
guaranteed in its entirety by AMKO International B.V., and the sole shareholder
of AMKO International B.V. guaranteed the first $585,000 of principal payments.
7
<PAGE>
NOTE 6 (CONTINUED)
AMKO also agreed to cause Jensen to pay to the Company a $765,000 obligation
in the form of a note, which was loaned to Jensen, $500,000 of which was prior
to the sale and $265,000 which was simultaneous with the sale, and an
intercompany balance payable by Jensen to the Company of $337,650, which are
secured by the assets of Jensen. The first $765,000 of principal payments under
these notes are guaranteed by AMKO International B.V.
The $1,311,000 note, as amended August 1996, bears interest at 8.5% per annum
and is payable in varying installments with the balance due in October 1997.
The $765,000 note, as amended August 1996, bears interest at 8.5% per annum and
is payable in varying installments with the balance due in March 1998. The
$337,650 note, as amended August 1996, bears interest at 8.5% per annum and is
payable in varying installments with the balance due in March 1998.
The Company believes that the assets securing the three notes, and the
operations of Jensen as they now exist, may not be sufficient to provide for
payment of the notes. The Company has limited financial information concerning
AMKO and the guarantor of the notes. Consequently, no assurance can be given
that the principal or interest due on the notes will be realized in full. AMKO
has made principal payments of $350,000 from January 1, 1996 to September 30,
1996.
The Company provided a reserve of $1,000,000 as of December 31, 1995. This
reserve was increased by $150,000 during the quarter ended September 30, 1996.
Based upon the guarantees and estimated liquidation value of Jensen's assets
which were pledged as collateral for these notes, the Company believes that this
adjusted reserve is adequate.
The results of the Industrial Products Segment have been reported separately
as discontinued operations in these consolidated statements of operations.
Prior period financial statements have been restated to present the Industrial
Products Segment as a discontinued operation.
Summarized below are the operations of the Company's Industrial Products
Segment for the three and nine months ended September 30, 1995.
FOR THE THREE FOR THE NINE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1995 1995
----------- ----------
Total Revenues $1,442,938 $3,438,128
----------- ----------
Costs and expenses:
Cost of sales 1,196,584 2,701,162
Selling and administrative 262,482 840,502
Depreciation and amortization - 9,296
Interest expense (1,998) 4,002
Corporate administrative expenses (42,730) (10,197)
----------- ----------
Total costs and expenses 1,414,338 3,544,765
----------- ----------
Income (loss) from operations 28,600 (106,637)
Income taxes - -
----------- ----------
Net loss $ 28,600 $ (106,637)
----------- ----------
----------- ----------
8
<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 is a discussion and analysis of the consolidated financial
condition of the Company as of September 30, 1996 and of the results of
operations for the Company for the three and nine months ended September 30,
1996 and 1995, and of certain factors that may affect the Company's prospective
financial condition and results of operations. The following is supplemental to
and should be read in conjunction with the Company's December 31, 1995 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 2 of this report.
Information contained in this discussion and analysis contains
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, which can be identified by the use of
forward-looking terminology such as "may", "will", "expect", "plan",
"anticipate", estimate" or "continue" or the negative thereof or other
variations thereon or comparable terminology. There are certain important
factors that could cause results to differ materially from those anticipated by
some of these forward-looking statements. Investors are cautioned that all
forward-looking statements involve risks and uncertainty. The factors, among
others, that could cause actual results to differ materially include: cures and
advances in medical treatments for terminal illnesses; dependence on medical
consultants and an ability to predict life expectancy; the Company's ability to
execute its business plan; the availability and cost of capital and competitive
pressures on pricing for like insurance policies.
By letter dated October 30, 1996, the NASD notified the Company that,
despite the Company's request for continued listing on The NASDAQ Stock Market
pursuant to an exemption for the Company's proposed plan of compliance, the
Company's Common Stock would be deleted from such listing effective October 31,
1996 due to the failure of the Company to meet the NASD's minimum bid price and
market value of public float requirements. The Common Stock continues to be
eligible for trading in the over-the-counter market and reported in the NASD's
OTC Bulletin Board or in the "pink sheets" as reported by the National Quotation
Bureau, Inc. However, because the bid price of the Common Stock has been below
$5.00 per share, the Common Stock, when recommended by a broker-dealer, will
become subject to the limitations of Rule 15g-9 under the Securities Exchange
Act of 1934, as amended (the "Exchange Act") which Rule imposes additional sales
practices requirements on broker-dealers. This Rule and other rules under the
Exchange Act may adversely affect the ability of broker-dealers to sell the
Common Stock.
9
<PAGE>
FINANCIAL CONDITION AND LIQUIDITY
Although the Company has historically engaged in Real Estate and Industrial
Products, since 1995 its primary focus has been as a specialty financial service
company that provides viatical settlements for terminally ill persons. The
Company has conducted this activity through its wholly owned subsidiary,
National Capital Benefits Corporation. A viatical settlement is the payment of
cash in return for an ownership interest in, and the right to receive the death
benefit, or face value, from a life insurance policy. The amount paid for a
policy is determined by the Company based on various factors, including the
Company's estimate of the life expectancy of the insured and the estimated
premiums payable by the Company under the policy over the expected life of the
insured. Through September 30, 1996, approximately 90 percent of the policies
purchased by the Company have insured persons with terminal illnesses related to
Acquired Immune Deficiency Syndrome ("AIDS").
Recently announced studies indicate that certain existing medications and
medications presently under development may, when used in combination,
significantly prolong the life expectancy of persons previously diagnosed with
AIDS. This treatment has been generally referred to by the media as the AIDS
"cocktail". In particular, at a conference held in July 1996 in Vancouver,
British Columbia, a significant amount of attention was focused on preliminary
positive results for the AIDS cocktail. The conference as well as the media
coverage regarding this treatment has had a significant impact on the viatical
settlement industry. Certain of the Company's competitors have indicated they
have temporarily stopped the purchase of these types of policies. The Company's
operations and financial results are dependent on the ability of the Company,
with the assistance of its medical advisors, to predict accurately the life
expectancy of the insured individual. Life expectancy is a significant factor
in the Company's determination of the purchase price of a policy. Since a large
percentage of the Company's portfolio involves individuals with terminal
illnesses related to AIDS, the development of a treatment of AIDS which extends
the life expectancy of such persons could materially reduce the Company's future
actual yield on its portfolio and materially adversely affect the Company's
future performance.
Therefore, as noted in footnote 2 to the financial statements, as a result
of the recently announced significant advances in AIDS medications and
treatments, which may have a significant impact on the expected maturities of
existing purchased policies in the Company's portfolio, the Company established
an $800,000 valuation reserve against purchased policy costs as stated on the
balance sheet. The impact of this reserve has been reflected in the three
months and nine months ending September 30, 1996.
The Company's cash decreased from approximately $755,000 as of December 31,
1995 to $158,000 at September 30, 1996, principally as a result of financing
operating activities and a $500,000 repayment of affiliates loans, offset by the
receipt of $750,000 relating to the sale of Appletree Townhouses and $350,000
relating to the sale of Jensen Corporation. As of November 1, 1996, NCBC would
have been able to borrow, under the terms of its revolving credit facility, an
additional $17,000.
The Company has negotiated a modification to its loan agreements with its
Senior Lender and Subordinated Lender as of November 27, 1996, and is in
compliance with all covenants, as amended.
10
<PAGE>
Other than in its Viatical Settlement Subsidiary, the Company does not have
any existing general credit facilities to fund its ongoing working capital
requirements. The Company may seek additional financing through the issuance of
securities on a private or public basis, or through long or short-term
borrowings.
On March 17, 1994 NCBC entered into a revolving credit facility ("Old
Facility") with a credit limit of $10,000,000. Interest on borrowings under the
Old Facility was at 2% over a composite of several large bank prime rates or the
rate on 90 day dealer commercial paper, whichever is higher, (10 3/4% at
December 31, 1995), and was subject to a commitment fee of .625% on the average
daily unused amount on the line.
Effective as of December 29, 1995, NCBC entered into a revolving credit
facility ("Facility") with a credit limit of up to $15,000,000, which expires
December 1998. The proceeds of the loan were utilized to repay the Old Facility
with another lender. The closing of the transaction was January 8, 1996. The
Facility is secured by all the assets of NCBC, including purchased insurance
policies. The Facility bears interest at 1/2% over the lender's prime rate or
2.7/8% over the 90 day London Inter-Bank Offer Rate ("Libor"), at the option of
NCBC (8 2/5% and 5.81% at September 30, 1996, respectively), and is subject to a
commitment fee of 1/4% on the average daily unused amount of the line. Because
the interest rate on the Facility adjusts quarterly based on Libor, the fair
value of the borrowings under the facility approximates the carrying amount.
Under the terms of the Facility, the lender will loan NCBC a specified
percentage of the cost of the insurance policies purchased. The insurance
policies purchased by NCBC must meet certain underwriting criteria as
established in the Facility. Repayment of outstanding principal is required as
insurance proceeds from matured policies are collected. Under the terms of the
Agreement, as amended on November 27, 1996, NCBC can not use the facility to
purchase additional policies. Additional financing or equity will be required
to finance policy acquisitions. At the present time, management can not be
assured that such financing or equity will be available.
As of November 27, 1996, NCBC was in compliance with the Facility
covenants, as amended.
In addition, as of December 29, 1995, NCBC issued a $2,000,000 subordinated
note (the "Note") bearing an interest rate of 14% with interest payable monthly
in arrears. The Note is due December 31, 1998, and is secured by NCBC's
purchased insurance policies, subject to the security interest granted to the
Facility lender. The purchaser of the Note was granted a warrant to acquire 12%
of the common stock of NCBC (68 shares) at a price of $1.47 per share. The
holder of the warrant can exercise a put of the stock to NCBC under certain
conditions. The warrant expires December 31, 2000.
The proceeds from issuing the Note were received on January 8, 1996, and
used to reduce the outstanding balance of the Facility.
On July 29, 1994, NCBC entered into an agreement and acquired certain
assets of CAPX Corporation ("CAPX"), including the rights to certain service
marks, trade names and proprietary computer software. The purchase price of the
assets was $125,000 and the issuance of 33,333 shares of the $.01 par value of
NCMC's common stock, which was valued at $5.25 per share, adjusted to reflect
the reverse stock split. In addition, the agreement which was amended in
January 1996, provides that NCBC will pay CAPX a commission of up to .875% of
all death benefits recognized from insurance policies in its active portfolio as
of December 31, 1995 and on policies purchased during the period January 1, 1996
to July 28, 1998. As part of the agreement, as amended in September 1996, NCBC
was required by CAPX to repurchase all of its shares at $5.25 per share on or
before January 1997. In conjunction with the amendment, NCBC pre-paid $25,000
and therefore the balance due is $150,000.
11
<PAGE>
RESULTS OF OPERATIONS
During the three and nine months ended September 30, 1996, National Capital
Benefits Corp. ("NCBC") had purchased at face value (including those in escrow)
approximately $2,728,000 and $10,207,000 of policies, respectively.
During the first six months of 1996, the Company averaged $1,250,000 in
policy purchases per month. During the three months ending September 1996, the
Company averaged $900,000 in policy purchases per month, while in October 1996,
the Company only purchased $81,250 of policies. This significant downward trend
in policy acquisitions is expected to continue in the near term as the Company
continues to determine the long-term impact of new AIDS medications on the life
expectancy of prospective clients, and seeks alternative methods to attract
clients with other terminal illnesses. The Federal Tax Law has been amended,
effective January 1, 1997, to provide that certain viatical settlements would be
tax free. However, the Company cannot determine at the present time, what
impact, if any, this change will have on prospective viators.
During the three and nine months ended September 30, 1996, $1,334,000 and
$3,721,000 of polices matured. These policies had related direct costs of
$1,138,000 and $3,093,000, respectively; and a corresponding gross profit of
$196,000 and $628,000, respectively. During the three and nine months ended
September 30, 1995, $144,000 and $1,864,000 of policies matured. These policies
had related direct costs of $120,000 and $1,513,000, respectively, and a
corresponding gross profit of $24,000 and $351,000, respectively.
NCBC had approximately $20,150,000 at face value of such policies remaining
in its portfolio at September 30, 1996. Gross revenues of $6,693,000 and
$2,954,000 were accrued and related cost of $5,721,000 and $2,613,000 were
amortized during the nine months ended September 30, 1996 and 1995,
respectively, pursuant to NCBC's policy to accrete such revenue and costs over
the period from the purchase of the policy to the estimated date of collection
of the face value of the policy.
NCBC incurred selling and administrative expenses of approximately $772,000
and $883,000, respectively for the nine months of 1996 and 1995, respectively,
primarily for wages, advertising, promotion and travel and entertainment.
12
<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
Dated: ________________ By: ______________________________
John C. Shaw
C.E.O.
By: ______________________________
Jeffrey S. Goldstein
Principal Financial Officer and
Principal Accounting Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NATIONAL
CAPITAL MANAGEMENT CORPORATION'S QUARTERLY REPORT FOR THE QUARTER ENDED
SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 138,125
<SECURITIES> 0
<RECEIVABLES> 11,435,519
<ALLOWANCES> 1,150,001
<INVENTORY> 0
<CURRENT-ASSETS> 9,316,716
<PP&E> 151,099
<DEPRECIATION> 76,875
<TOTAL-ASSETS> 21,730,420
<CURRENT-LIABILITIES> 594,825
<BONDS> 15,540,445
0
0
<COMMON> 17,904
<OTHER-SE> 5,402,246
<TOTAL-LIABILITY-AND-EQUITY> 21,730,420
<SALES> 0
<TOTAL-REVENUES> 6,879,553
<CGS> 0
<TOTAL-COSTS> 8,080,263
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 150,000
<INTEREST-EXPENSE> 932,722
<INCOME-PRETAX> (2,010,187)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,010,187)
<DISCONTINUED> 252,457
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,757,730)
<EPS-PRIMARY> (1.06)
<EPS-DILUTED> (1.06)
</TABLE>
