ccccc 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, 1997
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)
520 Madison Avenue New York NY 10022
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 980-3883
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 1,673,190
Class Outstanding at May 1, 1997
<PAGE>
NATIONAL CAPITAL MANAGEMENT CORPORATION
FORM 10-QSB
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Consolidated Balance Sheets as of March 31, 1997 and
December 31, 1996 3
Consolidated Statements of Operations for the three
months ended March 31, 1997 and 1996 4
Consolidated Statement of Shareholders' Equity for
the three months ended March 31, 1997 5
Consolidated Statements of Cash Flows for the three
months ended March 31, 1997 and 1996 6
Notes to Consolidated Financial Statements 7-10
ITEM II. Management's Discussion and Analysis of
Financial Condition and
Results of Operations 11-12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of
Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
2
<PAGE>
<TABLE>
NATIONAL CAPITAL MANAGEMENT CORPORATION
CONSOLIDATED BALANCE SHEETS
<CAPTION>
March 31, December 31,
1997 1996
----------- -----------
(Unaudited) (Audited)
ASSETS
------
<S> <C> <C>
Cash and cash equivalents $ 272,658 $ 651,346
Accounts receivable 18,240 18,240
Notes receivable 679,185 813,650
Property and equipment, lEss accumulated
depreciation of $65,388 and $63,198 at
March 31, 1997 and December 31, 1996,
respectively 39,443 41,633
Net assets of discontinued operations -
Real Estate Segment 1,840,993 1,849,296
Viatical Settlements Segment 360,278 375,529
Other assets 36,225 36,225
----------- -----------
Total assets $ 3,247,022 $ 3,785,919
=========== ===========
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<TABLE>
<S> <C> <C>
Accounts payable and accrued expenses $ 202,869 $ 268,369
Common stock repurchase obligation - 100,000
----------- ----------
Total liabilities 202,869 368,369
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, 1,813,056 shares
issued, 1,673,190 outstanding 16,732 16,732
Additional paid-in capital 23,125,123 23,125,123
Accumulated deficit (19,923,485) (19,550,088)
Treasury stock, 139,866 shares at
March 31, 1997 and December 31, 1996 (174,217) (174,217)
----------- -----------
Total shareholders' equity 3,044,153 3,417,550
----------- -----------
Total liabilities and shareholders'
equity $ 3,247,022 $ 3,785,919
=========== ===========
See accompanying notes.
-3-
</TABLE>
<PAGE>
<TABLE>
NATIONAL CAPITAL MANAGEMENT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
FOR THE THREE MONTHS
ENDED
MARCH 31,
1997 1996
----------- ----------
<S> <C> <C>
Income (expense):
Other income $ 63,850 $ 57,872
Corporate administrative expense (329,796) (84,324)
---------- ----------
Net loss from continuing operations
before tax (265,946) (26,452)
Provision for income taxes - -
---------- ----------
Net loss from continuing operations
after tax (265,946) (26,452)
---------- ----------
Discontinued operations:
Net operating loss:
Viatical settlements (Note 2) (88,160) (254,392)
Real estate segment (Note 3) (19,291) (96,988)
---------- ----------
Net loss from discontinued operations (107,451) (351,380)
---------- ----------
Net loss $ (373,397) $ (377,832)
========== ==========
Net loss from continuing operations
per share $(.16) $(.02)
Net loss from discontinued operations
per share (.06) (.21)
----- -----
Net loss per share $(.22) $(.23)
===== =====
Average number of shares outstanding 1,673,190 1,650,524
========= =========
See accompanying notes.
-4-
</TABLE>
<PAGE>
<TABLE>
NATIONAL CAPITAL MANAGEMENT CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
<CAPTION>
Additional Total
Common Paid-in Accumulated Treasury Shareholders'
Stock Capital Deficit Stock Equity
------- ---------- ---------- -------- ------------
<S> <C> <C> <C> <C> <C>
Balances at
December 31, 1996 $16,732 $23,125,123 $(19,550,088) $(174,217) $3,417,550
Net loss - - (373,397) - (373,397)
Balances at
March 31, 1997 $16,732 $23,125,123 $(19,923,485) $(174,217) $3,044,153
======= =========== ============ ========= ==========
See accompanying notes.
-5-
</TABLE>
<PAGE>
<TABLE>
NATIONAL CAPITAL MANAGEMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
For the Three Months
Ended
March 31,
1997 1996
--------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(373,397) $ (377,832)
--------- ----------
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 2,191 2,190
Reserves and allowances on notes
receivable 200,000 -
Changes in operating assets and liabilities:
Decease in accounts receivable - (31,324)
Decrease in accounts payable
and accrued liabilities (65,500) (1,090,674)
--------- ----------
Net cash used in operating activities (236,706) (1,497,640)
--------- ----------
Change in net assets of discontinued
operations (76,446) 794,690
--------- ----------
Cash flows provided by investing activities:
Collections on notes receivable 132,500 100,000
Issuance of note receivable (198,035) -
Decrease in other assets - (16,989)
-------- ----------
Net cash provided by investing activities (65,535) 83,011
-------- ----------
Decrease in cash and cash equivalents (378,687) (619,939)
Cash and cash equivalents at
beginning of period 651,345 608,785
--------- -----------
Cash and cash equivalents at end of period $ 272,658 $ (11,154)
========= ==========
See accompanying notes.
-6-
</TABLE>
<PAGE>
NATIONAL CAPITAL MANAGEMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997 AND 1996
(Unaudited)
NOTE 1 - THE COMPANY AND BASIS OF PRESENTATION
The financial information for the three month periods ended March 31, 1997
and 1996 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, 1997
are not necessarily indicative of the results to be expected for a full year.
The consolidated balance sheet as of December 31, 1996 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,
1996 Annual Report to shareholders on Form 10-KSB as filed with the
Securities and Exchange Commission.
National Capital Management Corporation ("NCMC" or the "Company") is a
holding company that currently is completing the orderly liquidation of
its discontinued operations, while seeking other acquisitions.
Prior to 1995, the Company had been comprised of three distinctly
different operating businesses, the Viatical Settlement Segment, which was
operated through National Capital Benefits Corporation ("NCBC"), a wholly
owned subsidiary, the Real Estate Segment and the Industrial Products
Segment. The Industrial Products Segment and Real Estate Segment were
discontinued in 1995. The Viatical Settlement Segment was discontinued in
1996.
Consolidation Principles
- ------------------------
The consolidated financial statements include the accounts of the Company
and all of its majority-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Reclassifications
- -----------------
Certain amounts as presented in prior year financial statements have been
reclassified to conform with the current period presentation.
Recent accounting pronouncements
- --------------------------------
In February 1997, the Financial Accounting Standards Board released
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
("SFAS 128"). SFAS 128 changes the computational guidelines for earnings
per share information. NCMC will adopt the provisions of SFAS 128 in
their December 31, 1997 consolidated financial statements. SFAS 128 will
eliminate the presentation of primary earnings per share and replace it
with basic earnings per share. Basic earnings per share differs from
primary earnings per share because common stock equivalents are not
considered in computing basic earnings per share. Fully diluted earnings
per share will be replaced with diluted earnings per share. Diluted
earnings per share is similar to fully diluted earnings per share, except
in determining the number of dilutive shares outstanding for options and
warrants, the proceeds that would be received upon the conversion of all
dilutive options and warrants are assumed to be used to repurchase the
Company's common shares at the average market price of such stock during
the period. For fully diluted earnings per share, the higher of the
average market price or ending market price is used. If SFAS 128 had been
in effect, the Company would have reported basic earnings per share of
$(.16) from continuing operations and $(.06) from discontinued operations
for the three months ended March 31, 1997. Diluted earnings per share is
not presented because, in the event of a loss, common stock equivalents
are anti-dilutive.
-7-
<PAGE>
NOTE 2 - DISCONTINUED OPERATIONS - VIATICAL SETTLEMENTS
The results of the Viatical Settlements Segment have been reported
separately as discontinued operations in these consolidated statements of
operations. Prior period financial statements have been restated to
present the Viatical Settlements Segment as a discontinued operation.
In December 1996, the Company decided to discontinue the operations of the
viatical settlement business. The Company reduced its staff and expects
that the remaining personnel will administer the orderly liquidation of
its existing portfolio. It is expected that this process will take
several years. The Company established a valuation reserve, which is
adjusted quarterly, against accrued policy revenues and purchased policy
costs which represents the estimated expected loss on holding the
remaining policies to maturity in order to reflect management's estimate
of the fair market value of the net assets. The amount of the reserve was
determined based on projections of expected cash inflows from maturity and
reinsurance claims, and cash outflows for debt service and operating costs
during the portfolio administration process which is expected to take
several years.
NCBC has an insurance contract with NCB Insurance Ltd. ("NCB"), a wholly-owned
subsidiary of NCBC, which automatically 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, through NCB, maintains a
participation in the residual 10%.
The anticipated reinsurance recoveries represent a substantial element of
the cash flow projections used to determine the valuation reserve. While
management expects full collection of reinsurance recoveries, these
recoveries from the sole reinsurance facility represent a significant
concentration of risk.
Summarized below are the operations of the Company s Viatical Settlements
Segment for the three months ended March 31, 1997 and 1996.
<TABLE>
<CAPTION>
For the three months
ended
March 31,
1997 1996
---------- ----------
<S> <C> <C>
Revenue accrued and received $1,461,721 $3,092,460
Cost of insurance policies (1,208,725) (2,621,323)
Valuation reserve income (expense) 110,321 -
---------- ----------
Earned discount 363,317 471,137
Interest expense (337,692) (246,381)
---------- ----------
Earned discount after interest expense 25,625 224,756
Selling and administrative expenses (113,512) (443,687)
Depreciation and amortization (273) (35,461)
---------- -----------
Net loss $ (88,160) $ (254,392)
========== ==========
</TABLE>
-8-
<PAGE>
NOTE 2 - DISCONTINUED OPERATIONS - VIATICAL SETTLEMENTS (CONTINUED)
The components of the Viatical Settlements Segment net assets from
discontinued operations in the consolidated balance sheet as of March 31,
1997 and December 31, 1996 are as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
---------- ------------
<S> <C> <C>
Purchased policy costs, less amortized
policy costs of $15,056,420 and
$13,847,695, respectively $ 7,191,492 $ 8,381,600
Valuation reserve (1,389,679) (1,500,000)
Accrued policy revenues, less matured
revenues valuation of $7,187,235 and
$6,446,841, respectively 10,585,776 9,893,007
Revolving credit facility (12,120,582) (12,806,701)
Subordinated note payable (2,000,000) (2,000,000)
Reinsurance liability (1,706,925) (1,307,940)
Other, net (199,804) (284,437)
----------- -----------
$ 360,278 $ 375,529
=========== ===========
</TABLE>
NOTE 3 - 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 following is a description of the Company s disposal
activities:
Appletree Townhouses: The Company s wholly-owned subsidiary, Georgia
Properties, Inc. ("GPI"), received advances 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 1995 from the
Company, in exchange for an option to purchase Appletree Townhouses for
$3,500,000, which was exercised on March 31, 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 paid interest from
the date of sale at 8% per annum until it was paid in December 1996. In
addition, the buyer was required to prepay $250,000 of this note on May 1,
1996, which was paid in April 1996. A gain of $327,735, related to the
sale of this property and the liquidation of the Appletree Subsidiary, was
reported in the year ended December 1996.
The results of the Real Estate Segment have been reported separately as
discontinued operations in these consolidated statements of operations.
Summarized below are the operations of the Company s Real Estate Segment
for the three months ended March 31, 1997 and 1996:
<TABLE>
<CAPTION>
For the three months
ended
March 31,
1997 1996
-------- --------
<S> <C> <C>
Total revenues $254,265 $517,338
Costs and expenses:
Operations and maintenance 142,448 300,241
Property taxes and insurance 19,716 67,388
Depreciation and amortization 73,500 144,887
Net interest 26,905 91,068
Corporate administrative expenses 10,987 10,742
Total costs and expenses 273,556 (614,326)
-------- --------
Net loss $(19,291) $(96,988)
======== ========
</TABLE>
-9-
<PAGE>
NOTE 3 - DISCONTINUED OPERATIONS - REAL ESTATE SEGMENT (CONTINUED)
The components of the Real Estate Segment net assets from discontinued
operations in the consolidated balance sheet as of March 31, 1997 and
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
----------- -------------
<S> <C> <C>
Rental properties, less accumulated
depreciation of $1,236,673 and
$1,163,173, respectively $3,061,415 $3,116,778
Mortgage note payable (1,209,844) (1,239,914)
Accounts payable (67,533) (73,773)
Other, net 56,955 46,205
---------- ----------
$1,840,993 $1,849,296
========== ==========
</TABLE>
NOTE 4 - DISCONTINUED OPERATIONS - INDUSTRIAL PRODUCTS SEGMENT
The Industrial Products Segment was discontinued during 1995. It
consisted of the Company s wholly-owned subsidiary, Jensen Corporation
("Jensen"), which manufactured and distributed machinery used primarily by
commercial laundries, large institutions and hotels as well as commercial
compactor products for waste disposal. On November 10, 1995, the Company
sold 100% of the common stock of 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
Internati0onal B.V., and the sole shareholder of AMKO International B.V.
guaranteed, as amended May 16, 1997, $500,000 of payments, of all
notes (see below).
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. These notes are
guaranteed by AMKO International B.V.
The $1,311,000 note, as amended May 16, 1997, bears interest at 8.5% per
annum and is payable in varying installments with the balance due in April
1998 unless extended as indicated below. The $765,000 note, as amended
May 16, 1997, bears interest at 8.5% per annum and is payable in varying
installments with the balance due in April 1998 unless extended as
indicated below. The $337,650 note, as amended May 16, 1997, bears interest
at 8.5% per annum and is payable in varying installments with the balance due
in April 1998 unless extended as indicated below.
The Company advanced $198,000 to AMKO during February and March 1997, of
which $82,500 was repaid. The balance is a Demand Note which bears
interest at 12% per annum. This note is also guaranteed by AMKO
International.
In accordance with the May 16, 1997 amendment, the notes may be extended
until April 1999, if AMKO prepays $500,000 on or before April 1, 1998. If
extended, the interest rate on all of the notes will increase to 12%. The
Company has charged AMKO a fee of $200,000 in conjunction with the latest
amendment. The fee was paid on May 16, 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 March 1997, AMKO had paid principal of
$450,000, and the Company agreed to a $50,000 reduction in the face amount
of the $1,311,000 note to settle certain contract disputes. The Company
recorded a reserve of $1,350,000 for these notes as of March 31, 1997.
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.
-10-
<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 March 31, 1997 and of the results of
operations for the Company for the three months ended March 31, 1997 and
1996, 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, 1996 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, and the ability to collect reinsurance recoveries from a single
reinsurance facility.
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ significantly
from those estimates.
Material estimates that are particularly susceptible to significant change
in the near term relate to the determination of the valuation reserve
against accrued policy revenues and the cost of purchased policies and the
collectibility of notes receivable.
While the Company is managing the administration of the collection of the
portfolio of life insurance policies and the orderly liquidation of its
real estate, management intends to seek other acquisitions.
Accounting for long-lived assets
- --------------------------------
For the three months ending March 31, 1997 and calendar year December 31,
1996, the Company has applied SFAS 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", and
determined that certain adjustments for impairment were required. In
addition to the write-down of several assets of the Company, a valuation
reserve was established against accrued policy revenues and the cost of
purchased policy costs in order to reflect management's estimate of the
fair market value of the net assets (Note 2).
-11-
<PAGE>
The accuracy of the valuation reserve established by the Company (Note 2)
is directly related to NCBC s assumptions regarding the remaining life
expectancy of terminally ill individuals. While NCBC believes that its
estimate of life expectancy, and the related valuation reserve will
approximate actual experience, given the inherent scientific uncertainty
of such estimates, including the potential impact of recently announced
medical treatments that might extend life expectancies, there can be no
assurance that these policies will mature in accordance with management's
estimates. Therefore, the Company established a $1,500,000 valuation
reserve against accrued policy revenues and purchase policy costs during
1996, which is adjusted quarterly. The amount of the reserve was
determined based on projections of expected cash inflows from maturity and
reinsurance claims, and cash outflows for debt service and operating costs
during the portfolio administration process which is expected to take
several years (Note 2).
Financial condition and liquidity
- ---------------------------------
The Company's cash decreased from $651,346 as of December 31, 1996 to
$272,658 at March 31, 1997, principally as a result of financing operating
activities, payment of $100,000 in conjunction with a common stock
repurchase obligation, and a net $115,500 demand loan to Jensen
Corporation offset in part by a $50,000 payment by AMKO(Note 4).
Other than in its Viatical Settlement subsidiary, the Company does not
have any existing general credit facilities to fund its ongoing working
capital requirements. These lending facilities were recently amended in
light of management's decision to discontinue the Viatical Settlement
Business and liquidate the portfolio.
Results of operations
- ---------------------
The Company decided to discontinue its Viatical Settlement Business in
December 1996.
In light of the foregoing, the Company ceased purchasing insurance
policies from individuals. The Company may, however, seek the purchase of
a portfolio of life insurance policies to the extent each of the policies
in such a bulk purchase is within the guidelines set forth in the
reinsurance agreements with NCBC. As previously announced, NCBC has
restructured its organization and reduced its office staff to two people.
Management anticipates that the remaining staff, as well as NCMC
management, will manage NCBC's existing portfolio of approximately $19.8
million of insurance policies. Management estimates that the
administration of these policies will take several years.
During the three months ended March 31, 1997, approximately $740,000
of life insurance policies matured as compared to $1.8 million for the
same period last year.
The recognition of earned discount and the ultimate profitability
associated with purchased insurance policies is directly related to NCBC s
assumptions regarding the remaining life expectancy of terminally ill
individuals. Such estimates were made when the insurance policy was
purchased based upon facts and circumstances then known. While NCBC
believes that its estimate of life expectancy, and the related recognition
of earned discount will closely approximate actual experience, given the
inherent scientific uncertainty of such estimates, including the potential
impact of recently announced medical treatments that might extend life
expectancies, there can be no assurance that these policies will mature in
accordance with management s estimates. Therefore, the Company established
a $1,500,000 valuation reserve against accrued policy revenues and
purchase policy costs, as stated on the balance sheet, during 1996, and as
adjusted during the three months ended March 31, 1997. The amount of the
reserve was determined based on projections of expected cash inflows from
maturity and reinsurance claims, and cash outflows for debt service and
operating costs during the portfolio administration process which is
expected to take several years (Note 2).
The Company increased its reserve against notes receivable by $200,000 to
reflect the collectibility of these notes.
-12-
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable
ITEM 2. CHANGES IN SECURITIES
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.14.1 Second modification of Loan Agreement by and between
Bank One Columbus NA and National Capital Benefits Corp.
and National Capital Management Corporation dated
February 7, 1997.
(b) Reports on Form 8-K
The Company filed a Form 8-K dated April 2, 1997 relating to
the discontinuation by NCBC of purchasing life insurance
policies, and the renegotiation of the NCBC loan arrangement.
-13-
<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
Chief Executive Officer
By:
---------------------
Jeffrey S. Goldstein
Chief Financial Officer
-14-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 272,658
<SECURITIES> 0
<RECEIVABLES> 18,240
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 104,831
<DEPRECIATION> 65,388
<TOTAL-ASSETS> 3,247,022
<CURRENT-LIABILITIES> 202,869
<BONDS> 0
0
0
<COMMON> 16,732
<OTHER-SE> 3,027,421
<TOTAL-LIABILITY-AND-EQUITY> 3,247,022
<SALES> 0
<TOTAL-REVENUES> 63,850
<CGS> 0
<TOTAL-COSTS> 329,796
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (265,946)
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