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, 1996
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 1,650,524
Class Outstanding at May 10, 1996
<PAGE>
PART 1. FINANCIAL INFORMATION
NATIONAL CAPITAL MANAGEMENT CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
<S> <C> <C>
ASSETS
Cash $ 19,865 $ 634,892
Restricted cash 120,000 120,000
Accounts receivable 77,709 39,730
Notes and subscription receivable 1,313,650 3,413,650
Accrued insurance proceeds 6,681,964 5,467,122
Purchased insurance policies 8,451,070 7,977,044
Property and equipment, less accumulated
depreciation of $69,225 and $65,400 at
March 31, 1995 and December 31, 1995, respectively 78,429 82,254
Net assets of discontinued operations -
Real estate segment 2,552,044 3,051,277
Deferred financing costs 279,583 305,000
Other assets 255,288 253,531
Total assets $ 19,829,602 $ 21,344,500
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued expenses $ 889,634 $ 1,770,789
Revolving credit facility 9,814,919 9,570,830
Advances due affiliates -- 500,000
Subordinated note payable 2,000,000 2,000,000
Finder's fee payable 150,000 150,000
Total liabilities 12,854,553 13,991,619
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, 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 (16,117,589) (15,739,757)
Treasury stock, 139,866 shares at
March 31, 1996 and December 31, 1995 (224,217) (224,217)
Total shareholders' equity 6,800,049 7,177,881
Total liabilities and shareholders' equity $ 19,829,602 $ 21,344,500
</TABLE>
<PAGE>
<TABLE>
NATIONAL CAPITAL MANAGEMENT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
For the Three Months Ended
March 31,
1996 1995
<S> <C> <C>
Revenue accrued and received $ 3,092,460 $ 683,382
Cost of insurance policies 2,621,323 607,266
Earned discount 471,137 76,116
Interest expense 246,381 74,509
Earned discount after interest expense 224,756 1,607
Selling and administrative expenses 368,192 328,108
Depreciation and amortization 35,641 59,912
Loss from continuing operations
before other income and expense (179,077) (386,413)
Other (income) expense:
Corporate administrative expense 173,884 215,717
Interest income (66,379) (7,409)
Other income (5,738) (5,000)
Loss from continuing operations
before income taxes (280,844) (589,721)
Income taxes -- --
Net loss from continuing operations (280,844) (589,721)
Discontinued operations:
Net operating loss:
Real estate segment (96,988) (61,835)
Industrial products segment -- (78,740)
Net loss from discontinued operations (96,988) (140,575)
Net loss $ (377,832) $ (730,296)
Net loss from continuing
operations per share $ (0.17) $ (0.36)
Net loss from discontinued
operations per share (0.06) (0.08)
Net loss per share $ (0.23) $ (0.44)
Average number of shares
outstanding 1,650,524 1,653,858
</TABLE>
[CAPTION]
NATIONAL CAPITAL MANAGEMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended
March 31,
1996 1995
[S] [C] [C]
Cash flows from operating activities:
Net loss $ (377,832) $ (730,296)
Adjustment to reconcile net loss to net cash
provided by (used in) operating activities:
Loss from discontinued operations 96,988 98,876
Depreciation and amortization 35,641 59,912
Earned discounts on insurance policies (421,652) (243,952)
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable (37,979) 1,217,336
Decrease in accounts payable and
accrued liabilities (881,155) (124,559)
Decrease in finders' fee payable -- (50,000)
Net cash provided by (used in)
operating activities (1,585,989) 227,317
Net cash related to discontinued operations 402,245 (182,172)
Cash flows from investing activities:
Purchased insurance policies (3,098,016) (954,838)
Proceeds from maturities of insurance policies 1,830,800 212,500
Additions to property and equipment -- (5,212)
Increase in other assets (8,156) (71,793)
Net cash used in investing activities (1,275,372) (819,343)
Cash flow from financing activities:
Borrowings on revolving credit facility 2,074,889 1,317,726
Repayments on revolving credit facility (1,830,800) (212,500)
Addition to subordinated debt 2,000,000 --
Repayments to advances due affiliates (500,000) --
Repayments on notes receivable 100,000 --
Net cash provided by financing activities 1,844,089 1,105,226
(Decrease) increase in cash and equivalents (615,027) 331,028
Cash and equivalents at beginning of period 634,892 671,022
Cash and equivalents at end of period $ 19,865 $1,002,050
[/TABLE]
<PAGE>
NATIONAL CAPITAL MANAGEMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996 AND 1995
(Unaudited)
NOTE 1
The financial information for the three month periods ended March
31, 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 months ended March 31,
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 majority-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
maintains a participation in the residual 10%.
<PAGE>
NOTE 2 (Continued)
Purchased insurance policies and accrued insurance proceeds
consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
<S> <C> <C>
Costs paid to viator $ 11,917,020 $ 10,487,660
Other direct and indirect
acquisition costs 840,046 1,051,510
Less amortized costs (4,305,996 (3,562,126
Total purchased insurance policies $ 8,451,070 $ 7,977,044
Accrued insurance proceeds $ 4,638,368 $ 4,219,216
Insurance proceeds fully accrued:
Not yet matured 1,808,796 1,081,906
Matured not yet received 234,800 166,000
$ 6,681,964 $ 5,467,122
</TABLE>
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, which 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 $1,030,000 will be reported during the
second quarter of 1996.
NOTE 4
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.
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.
<PAGE>
NOTE 4 (Continued)
Summarized below are the operations of the Company's Real Estate
Segment for the three months ended March 31, 1996 and 1995.
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
1996 1995
<S> <C> <C>
Total revenues $ 517,338 $ 607,386
Costs and expenses:
Operations and maintenance 300,241 328,386
Property taxes and insurance 67,388 75,067
Depreciation and amortization 144,887 147,840
Net interest 91,068 89,210
Corporate administrative expenses 10,742 28,718
Total costs and expenses 614,326 669,221
Loss from operations (96,988) (61,835)
Income taxes -- --
Net loss $ (96,988) $ (61,835)
</TABLE>
The components of the Real Estate Segment net assets from
discontinued operations in the consolidated balance sheet as of
March 31, 1996 and December 31, 1995 are as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
<S> <C> <C>
Rental properties, less accumulated
depreciation of $1,902,099 and $1,758,246
as of March 31, 1996 and December 31, 1995
respectively $ 6,357,201 $ 6,481,587
Mortgage note payable (3,658,571 (3,201,750)
Other, net (146,586) (228,560)
$ 2,552,044 $ 3,051,277
</TABLE>
NOTE 5
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.
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.
<PAGE>
NOTE 5 (Continued)
The $1,311,000 note bears interest at 2% over the prime rate per
annum and is payable in varying installments with the balance due
on June 1, 1997. The $765,000 note bears interest at 10% per
annum and is payable in varying installments with the balance due
on February 1, 1998. The $337,650 note bears interest at 2% over
the prime rate per annum and is payable in varying installments
with the balance due on May 1, 1997.
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 guarantors
of the notes. Consequently, no assurance can be given that the
principal or interest due on the notes will be realized in full.
As of May 10, 1996, AMKO had not paid three installments of
interest and principal, and the Company is currently in
discussion with AMKO to assure that AMKO will pay all amounts in
arrears and make future payments on a timely basis. AMKO, in
conjunction with these discussions, has raised certain claims
concerning the financial operations of the Company prior to sale.
Management believes these claims have no merit.
The Company provided a reserve of $1,000,000 as of December 31,
1995. 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 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 months ended March 31, 1995.
<TABLE>
<S> <C>
Total revenues $ 903,962
Costs and expenses:
Cost of sales 667,186
Selling and administrative 294,887
Depreciation and amortization 4,648
Interest expense 3,000
Corporate administrative expenses 12,981
Total costs and expenses 982,702
Loss from operations (78,740)
Income taxes --
Net loss $ (78,740)
</TABLE>
<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, 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 1 of this report.
FINANCIAL CONDITION AND LIQUIDITY
The Company's cash decreased from approximately $750,000 as of
December 31, 1995 to $140,000 at March 31, 1996, principally as a
result of financing operating activities and the viatical
settlement business and a $500,000 repayment of affiliates loans,
offset by the receipt of $500,000 relating to the sale of
Appletree Townhouses. The Company's cash position has increased
to $174,000 as of May 10, 1996, of which $120,000 is restricted
for use in the Viatical Settlement Division, resulting from the
receipt of $250,000 relating to the sale of Appletree Townhouses,
offset by cash used to finance operating activities. As of May
10, 1996, NCBC would have been able to borrow, under the terms of
its revolving credit facility, an additional $1,461,000.
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 of 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 (8-3/8% at March 31,
1996 and December 31, 1995), 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. As of May 10,
1996, NCBC would have been able to borrow, under the terms of the
Facility, an additional $1,461,000.
NCBC is required under the Facility to comply with covenants
relating to the maintenance of its business (including purchasing
a minimum level of insurance policies quarterly), insurance
coverage, tangible net worth, and limitations on dividends and
payments to affiliates. As of May 10, 1996, NCBC was in
compliance with the Facility covenants.
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, NCMC can also be
required by CAPX to repurchase all of its shares at $5.25 per
share on or before July 29, 1996.
RESULTS OF OPERATIONS
During the three months ended March 31, 1996 and 1995, National
Capital Benefits Corp. ("NCBC") had purchased at face value
(including those in escrow) approximately $3,690,000 and
$1,531,000 of policies, respectively. During the same periods,
$1,830,800 and $212,500 of policies matured. These policies had
related direct costs of $1,544,138 and $171,177, respectively,
and a corresponding gross profit of $286,662 and $41,323,
respectively. NCBC had approximately $16.2 million at face value
of such policies remaining in its portfolio at March 31, 1996.
Additional gross revenues of $1,259,000 and $471,000 were accrued
and related costs of $1,077,000 and $436,000 were amortized
during the three months ended March 31, 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.
During the first quarter of 1996, as a result of its significant
increase in purchased policies, NCBC's earned discount increased
to $471,000 from $76,000 during the first quarter of 1995. NCBC
incurred operating expenses of approximately $368,000 and
$328,000 for the first quarter of 1996 and 1995, respectively,
primarily for wages, advertising, consulting and professional
fees, lender fees, travel and entertainment and office supplies.
<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 17, 1996 By:/s/ Herbert J. Jaffe
Herbert J. Jaffe
President
By: /s/ John C. Shaw
John C. Shaw
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 FORM 10QSB FOR THE PERIOD ENDED MARCH 31, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 139,865
<SECURITIES> 0
<RECEIVABLES> 77,709
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 147,654
<DEPRECIATION> 69,225
<TOTAL-ASSETS> 19,829,602
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 17,904
0
0
<OTHER-SE> 6,782,145
<TOTAL-LIABILITY-AND-EQUITY> 19,829,602
<SALES> 0
<TOTAL-REVENUES> 3,164,577
<CGS> 0
<TOTAL-COSTS> 2,621,323
<OTHER-EXPENSES> 577,717
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 246,381
<INCOME-PRETAX> (280,844)
<INCOME-TAX> 0
<INCOME-CONTINUING> (280,844)
<DISCONTINUED> (96,988)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (377,832)
<EPS-PRIMARY> (.23)
<EPS-DILUTED> 0
</TABLE>
