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, 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
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(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
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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
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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 November 1, 1997
<PAGE>
NATIONAL CAPITAL MANAGEMENT CORPORATION
FORM 10-QSB
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Consolidated Balance Sheets as of September 30, 1997
and December 31, 1996 3
Consolidated Statements of Operations for the three
and nine months ended September 30, 1997 and 1996 4
Consolidated Statement of Shareholders' Equity for
the nine months ended September 30, 1997 5
Consolidated Statements of Cash Flows for the nine
months ended September 30, 1997 and 1996 6
Notes to Consolidated Financial Statements 7-11
ITEM II. Management's Discussion and Analysis of
Financial Condition and
Results of Operations 12-13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of
Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
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<PAGE>
<TABLE>
NATIONAL CAPITAL MANAGEMENT CORPORATION
CONSOLIDATED BALANCE SHEETS
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
ASSETS (Unaudited) (Audited)
------
<S> <C> <C>
Cash and cash equivalents $ 223,142 $ 651,346
Accounts receivable 90,470 18,240
Notes receivable 563,685 813,650
Property and equipment, less
accumulated depreciation of
$69,768 and $63,198 at September 30,
1997 and December 31, 1996,
respectively 35,063 41,633
Net assets of discontinued operations -
Real Estate Segment 1,863,772 1,849,296
Viatical Settlements Segment 345,704 375,529
Other assets 44,152 36,225
---------- -----------
Total assets $3,165,988 $ 3,785,919
========== ===========
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<TABLE>
<S> <C> <C>
Accounts payable and accrued expenses $ 146,299 $ 268,369
Common stock repurchase obligation - 100,000
---------- -----------
Total liabilities 146,299 368,369
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 (19,947,949) (19,550,088)
Treasury stock, 139,866 shares at
September 30, 1997 and
December 31, 1996 (174,217) (174,217)
----------- -----------
Total shareholders' equity 3,019,689 3,417,550
----------- -----------
Total liabilities and
shareholders' equity $ 3,165,988 $ 3,785,919
=========== ===========
See accompanying notes.
-3-
</TABLE>
<PAGE>
<TABLE>
NATIONAL CAPITAL MANAGEMENT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
Three months ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Income (expense):
Other income $ 159,671 $ 83,121 $ 648,253 $ 217,375
Corporate
administrative
expense (363,230) (103,131) (793,291) (286,100)
---------- ---------- ---------- ----------
Net loss from
continuing
operations
before tax (203,559) (20,010) (145,038) (68,725)
Provision for income
taxes - - - -
----------- ---------- ---------- ----------
Net loss from
continuing operations
after tax (203,559) (20,010) (145,038) (68,725)
---------- ---------- ---------- ----------
Discontinued operations:
Net operating income
(loss):
Viatical
settlements
(Note 2) (87,851) (1,055,825) (241,227) (1,941,462)
Real estate
segment
(Note 3) 6,766 (41,277) (11,596) (158,167)
Industrial
products
segment - (150,000) - (150,000)
Net gain on disposal
of:
Real estate segment
(Note 3) - 187,073 - 560,624
---------- ----------- ---------- ----------
Net loss from
discontinued
operations (81,085) (1,060,029) (252,823) (1,689,005)
---------- ----------- ---------- ----------
Net loss $ (284,644) $(1,080,039) $ (397,861) $(1,757,730)
========== =========== ========== ==========
Net loss from
continuing
operations
per share $(.12) $(.01) $(.09) $ (.04)
Net loss from
discontinued
operations
per share (.05) (.64) (.15) (1.02)
----- ----- ----- -----
Net loss per share $(.17) $(.65) $(.24) $(1.06)
===== ===== ===== ======
Average number
of shares
outstanding 1,673,190 1,650,524 1,673,190 1,650,524
========= ========= ========= ========
See accompanying notes.
-4-
</TABLE>
<PAGE>
<TABLE>
NATIONAL CAPITAL MANAGEMENT CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 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 - - (397,861) - (397,861)
------- ----------- ------------ --------- ----------
Balances at
September 30, 1997 $16,732 $23,125,123 $(19,947,949) $(174,217) $3,019,689
======= =========== ============ ========= ==========
See accompanying notes.
-5-
</TABLE>
<PAGE>
NATIONAL CAPITAL MANAGEMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Nine Months
Ended
September 30,
1997 1996
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (397,861) $(1,757,730)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation 6,570 6,570
Reserves and allowances on notes
receivable 450,000 -
Changes in operating assets and
liabilities:
Increase in accounts receivable (72,230) (110,402)
Decrease in accounts payable
and accrued liabilities (174,420) (412,898)
Increase in other assets (7,930) (30,080)
---------- -----------
Net cash used in operating activities (195,871) (2,304,540)
---------- -----------
Change in net assets of discontinued
operations (32,298) 2,364,760
---------- -----------
Cash flows from investing activities:
Collections on notes receivable - 647,500
Issuance of note receivable (200,035) (1,301,205)
---------- -----------
Net cash used in investing activities (200,035) (653,705)
---------- -----------
Decrease in cash and cash equivalents (428,204) (593,485)
Cash and cash equivalents at
beginning of period 651,346 608,785
---------- -----------
Cash and cash equivalents at
end of period $ 223,142 $ 15,300
========== ===========
Supplemental information:
Cash paid for interest $ 850,231 $ 776,770
========== ==========
Cash paid for taxes $ 70,906 $ 4,876
========== ==========
See accompanying notes.
-6-
</TABLE>
<PAGE>
NATIONAL CAPITAL MANAGEMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997 AND 1996
(Unaudited)
NOTE 1 - THE COMPANY AND BASIS OF PRESENTATION
The financial information for the three and nine month periods ended
September 30, 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 and nine months ended September 30, 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
$(.12) and $(.09) from continuing operations and $(.05) and $(.15) from
discontinued operations for the three and nine months ended September 30,
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 and nine months ended September 30, 1997 and 1996.
<TABLE>
<CAPTION>
For the three For the nine
months ended months ended
September 30, September 30,
1997 1996 1997 1996
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue accrued and
received $1,287,448 $ 2,280,589 $4,073,072 $ 6,644,673
Cost of insurance
policies (1,002,337) (2,809,163) (3,317,245) (6,521,428)
Valuation reserve
income (expense) (54,593) - 151,438 -
---------- ----------- ---------- -----------
Earned discount 230,518 (528,574) 907,265 123,245
Interest expense (300,797) (373,312) (891,886) (932,722)
---------- ----------- ---------- -----------
Earned discount after
interest expense (70,279) (901,886) 15,379 (809,477)
Selling and
administrative
expenses (17,299) (82,985) (255,788) (994,130)
Depreciation and
amortization (273) (70,954) (818) (137,855)
---------- ----------- ---------- -----------
Net loss $ (87,851) $(1,055,825) $ (241,227) $(1,941,462)
========== =========== ========== ===========
</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 September
30, 1997 and December 31, 1996 are as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
<S> <C> <C>
Purchased policy costs, less amortized
policy costs of $17,164,940 and
$13,847,695, respectively $ 5,117,861 $ 8,381,600
Valuation reserve (1,348,562) (1,500,000)
Accrued policy revenues, less matured
revenues valuation of $7,644,408 and
$6,446,841, respectively 12,591,605 9,893,007
Revolving credit facility (10,179,584) (12,806,701)
Subordinated note payable (2,000,000) (2,000,000)
Reinsurance liability (3,634,645) (1,307,940)
Other, net (200,971) (284,437)
----------- -----------
$ 345,704 $ 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 and nine months ended September 30, 1997 and 1996:
<TABLE>
<CAPTION>
For the three For the nine
months ended months ended
September 30, September 30,
1997 1996 1997 1996
-------- -------- -------- ----------
<S> <C> <C> <C> <C>
Total revenues $267,229 $334,605 $783,704 $1,121,582
-------- -------- -------- ----------
Costs and expenses:
Operations and maintenance 134,131 184,276 410,974 628,017
Property taxes and insurance 19,715 18,534 59,147 108,755
Depreciation and amortization 73,500 72,370 220,500 292,791
Net interest 25,461 (12,797) 78,608 109,657
Corporate administrative
expenses 7,656 113,499 26,071 140,529
-------- -------- -------- ----------
Total costs and expenses 260,463 375,882 795,300 1,279,749
--------- -------- -------- ----------
Net income (loss) $ 6,766 $(41,277) $(11,596) $ (158,167)
========= ======== ======== ==========
</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 September 30, 1997 and
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- -------------
<S> <C> <C>
Rental properties, less
accumulated depreciation
of $1,383,673 and $1,163,173,
respectively $2,960,228 $3,116,778
Mortgage note payable (1,137,078) (1,239,914)
Accounts payable (84,525) (73,773)
Other, net 125,147 46,205
---------- ----------
$1,863,772 $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
ncluded 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, 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 was a Demand Note with interest at
12% per annum. This note was also guaranteed by AMKO International. As
of September 30, 1997 this note was paid in full.
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 loaned Jensen an additional $200,000 in conjunction with the
May 16, 1997 modification. This note bears interest at 8.5% and matures
simultaneously with the other notes.
-10-
<PAGE>
NOTE 4 - DISCONTINUED OPERATIONS - INDUSTRIAL PRODUCTS SEGMENT (CONTINUED)
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 balance of the principal or interest due
on the notes will be realized in full or at all. As of September 30, 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 has a reserve of $1,600,000 for these
notes as of September 30, 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.
As of October, 1997, Jensen stopped making payments as required by the
terms of the May 16,1997 amendment. The Company has been in discussion
with AMKO and Jensen concerning this situation. As a result, the Company
increased the reserve by $150,000 during the quarter ended September 30,
1997.
-11-
<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, 1997 and of the results of
operations for the Company for the three and nine months ended September
30, 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 collect the remaining
principal and interest on the promissory notes with Jensen; 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 continues to seek other acquisitions.
Accounting for long-lived assets
- --------------------------------
For the nine months ended September 30, 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).
-12-
<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 medical treatments
developed in the last several years 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
$223,142 at September 30, 1997, principally as a result of financing
operating activities, payment of $100,000 in conjunction with a common
stock repurchase obligation, and a net $200,035 demand loan to Jensen
Corporation (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.
Management believes that cash generated from the liquidatioin of the
insurance policy portfolio will be sufficient to fund NCBC's operating
costs, including cash outflows for debt service under the credit facility,
through the insurance policy administration process.
In light of the discontinued operations, the Company does not have any
material commitments for capital expenditures.
Although the Company continues to seek acquisitions, there can be no
assurance that any such acquisitions will be identified. If the Company
pursues an acquisition, financing will be required to consumate such
transaction. There is no assurance that such financing will be available
on favorable terms and conditions or at all.
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 one person.
Management anticipates that the remaining staff, as well as NCMC
management, will manage NCBC's existing portfolio of approximately $19.3
million of insurance policies. Management estimates that the
administration of these policies will take several years.
During the three and nine months ended September 30, 1997, approximately
$170,000 and $1,198,000 of life insurance policies matured, respectively,
as compared to $1,334,000 and $3,721,000 for the same periods 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 medical treatments developed in the last several years 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 nine months ended September 30, 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 during the quarter against notes
receivable by $150,000 to reflect the collectibility of these notes.
-13-
<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
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
The Company filed a Form 8-K dated July 3, 1997 relating to
the resignation of Jeffrey S. Goldstein, the Company's former
Chief Financial Officer.
-14-
<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:
------------------------------
John C. Shaw
Chief Financial Officer
-15-
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC311997
<PERIOD-START> JAN011997
<PERIOD-END> SEP301997
<CASH> 223,142
<SECURITIES> 0
<RECEIVABLES> 90,470
<ALLOWANCES> 0
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<PP&E> 104,831
<DEPRECIATION> 69,768
<TOTAL-ASSETS> 3,165,988
<CURRENT-LIABILITIES> 146,299
<BONDS> 0
0
0
<COMMON> 16,732
<OTHER-SE> 3,002,957
<TOTAL-LIABILITY-AND-EQUITY> 3,165,988
<SALES> 0
<TOTAL-REVENUES> 648,253
<CGS> 0
<TOTAL-COSTS> 793,291
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (145,038)
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<INCOME-PRETAX> (145,038)
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<INCOME-CONTINUING> (145,038)
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<EXTRAORDINARY> (252,823)
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