U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
[Fee Required]
For the fiscal year ended December 31, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the transition period from ----------------------------------- to
------------------------------
Commission file number 0-16819
National Capital Management Corporation
(Name of small business issuer in its charter)
Delaware 94-3054267
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
520 Madison Avenue, New York NY 10022
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (212) 980-3883
Securities registered pursuant to Section 12(b) of the Exchange Act:
NONE
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, $0.01 Par
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 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
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or
any amendment to this Form 10-KSB. [X]
Issuer's revenues for its most recent fiscal year $6,872,330
The aggregate market value of voting stock held by nonaffiliates of the
Registrant is approximately $1,099,286 as of April 6, 1998
1,673,190
(Number of shares of common stock outstanding as of April 6, 1998)
Total number of pages in this document is: 41
The exhibit index is on page 38
<PAGE>
PART I
Item 1 - Description of Business
Introduction
National Capital Management Corporation ("NCMC") is a holding company that
previously operated through its primary subsidiary, National Capital
Benefits Corp. (collectively with NCMC, the "Company"), which purchased
life insurance policies for cash, on a discounted basis, from individuals
having life threatening illnesses, a transaction which is otherwise known
as viatical settlements. In December 1996 the Company made a
determination to discontinue this operation.
In prior years, the Company had been comprised of two additional
distinctly different operating businesses, the Real Estate Segment and the
Industrial Products Segment. However, these segments were discontinued
during 1995 through the sale of principally all of their assets and/or
stock.
In August 1996 the Company was notified by NASDAQ that the Company no
longer appeared to meet certain requirements for continued listing on
NASDAQ's National Market System. In particular, NASDAQ noted that (i) the
closing bid price for the Company's common stock on August 12, 1996 was
$.875 per share and therefore below NASDAQ's $1 minimum bid price and (ii)
because of the bid price, the market value of the public float no longer
appeared to meet the requirement for a $1 million public float.
In September 1996, in response to the foregoing two concerns raised by
NASDAQ, the Company proposed a stock repurchase program pursuant to which
the Company would purchase up to 80,000 shares of the Company's common
stock in the open market from time-to-time as market conditions permitted.
However, NASDAQ immediately notified the Company that it had completed its
review of the Company's proposal and request for continued listing on
NASDAQ's National Market System, and had decided to deny the Company's
request.
The decision was based on several factors. The NASDAQ staff noted that
the Company was in the hearings process in 1995 for a minimum bid price
deficiency. At that time, the Company was successful in maintaining
compliance by implementing a one-for-three reverse stock split. NASDAQ
stated that the Company's proposed repurchase program would further reduce
the already limited shares of public float and would not guarantee
achieving compliance with the minimum bid price and/or the market value of
public float criteria. NASDAQ further noted that the Company has had a
history of financial losses. In conclusion, as a result of the Company's
inability to provide a plan which would ensure continual compliance, and
that the Company was in the hearings process in 1995 for a bid price
deficiency, the NASDAQ staff determined that continued listing on NASDAQ's
National Market System was no longer Warranted and informed the Company
that the common stock would be deleted from the National Market System,
effective with the opening of business on October 31, 1996. The Company
is eligible to trade on the OTC Bulletin Board.
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<PAGE>
Discontinued Operation - Viatical Settlements
On March 17, 1994, the Company formed National Capital Benefits Corp.
("NCBC") to engage in the business of purchasing life insurance policies
which insure the lives of individuals with life threatening illnesses.
NCBC purchased policies which insured individuals projected to have a life
expectancy of 36 months or less. In March 1994, the Company funded NCBC
with initial cash investments of $1,490,000, consisting of $1,450,000 of
preferred stock and $40,000 of common stock, and purchased an additional
$663,082 of preferred stock for cash through December 31, 1996.
In addition, NCBC had a revolving line of credit ("The Facility") up to
$15 million, based on a formula of eligible policies purchased, from an
institutional lender which was to be used to provide working capital and
funds for the purchase of such policies. The facility is secured by all
of the assets of NCBC, including purchased insurance policies, 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. The Facility
was amended on November 30, 1996, and can no longer be utilized to finance
the purchase of policies. However, the facility does provide for the use
of maturity and reinsurance claim proceeds (see below) for debt service
and certain operating expenses. The outstanding balance as of December
31, 1997 was approximately $9.5 million.
In addition, as of December 29, 1995, NCBC issued a $2,000,000
subordinated note (the "Note") bearing interest at a rate of 14% with
interest payable monthly in arrears. The interest rate on the Note is
consistent with a market rate at which a similar borrowing could be
obtained by the Company. Therefore, the fair value of the Note
approximates the carrying value at December 31, 1997. 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, which would guarantee the holder a minimum additional 4%
interest on the outstanding balance. In April 1997, the Warrant Agreement
was amended to reflect an increased interest rate of 14 3/4% on the Note.
In exchange for agreeing to this increase in the interest rate, NCBC, or
its assigns, shall have the option to repurchase the Warrant for the sum
of $1.00.
NCBC insured 90% of the net death benefit of the acquired policies through
a wholly-owned Bermuda insurance company which, in turn, has reinsured the
risk with a consortium of large international insurance companies. As of
December 31, 1997, the face value of NCBC's purchased insurance policies
remaining in its portfolio was approximately $19.1 million. During 1997,
approximately $1.4 million of policies matured. Reinsurance claims made
and paid during 1997 were approximately $3.7 million, and $3.4 million,
respectively.
A trust whose sole trustee was an executive officer of NCBC ("the Minority
Owner") originally owned 14-1/2% of the common stock of NCBC. Effective
November 30, 1996, the Company acquired this minority interest and all
agreements with the minority owner were terminated.
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<PAGE>
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. As part of
the agreement, as amended in September 1996, NCBC was required to
immediately pay CAPX $25,000, and an additional $150,000 by January 1997
to repurchase all of the CAPX shares. The agreement was further modified
in February 1997 at which time the Company paid $100,000 and the agreement
was terminated.
Nature of Recently Discontinued Viatical Settlement Business
The viatical settlement business made it possible for people facing life
threatening illnesses to sell their life insurance policies for cash at a
discount from the policies' stated death benefit. The sales proceeds gave
them choices that they might not otherwise have, such as selecting quality
health care, retaining ownership of a residence, retiring indebtedness or
sharing funds with family, friends or favorite charities.
A prospective seller's medical records were reviewed by physicians
retained by NCBC as consultants who specialized in treatment of the
individual's particular illness or disorder. A prognosis was then made by
each physician of the life expectancy of that person, which is an
essential element in determining NCBC's purchasing of the policy and the
terms of such purchase. Other factors considered when purchasing policies
was the financial strength of the insurance company writing the policy,
the amount of coverage provided by the policy, assignment restrictions
contained in the policy, the amount of any loans against the policies,
prior assignments, the beneficiary, the cost of policy premiums, issue
date and type of policy.
NCBC is required 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 these estimates.
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, and are adjusted
periodically, but not more than annually, based upon actual experience.
While NCBC believes that its estimate of life expectancy, and the related
recognition of earned discount would closely approximate actual
experience, given the inherent scientific uncertainty of such estimates,
including the 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 purchase policy
costs during 1996, and as adjusted during the year ended December 31,
1997, as stated on the balance sheet (see footnote 3 to the financial
statements). During the fourth quarter ended December 31, 1997, the
Company increased its original reserve by $350,000. 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 more years (see footnote 3).
In accordance with the discontinuance of this business segment, NCBC has
restructured its organization and reduced its office staff to one person.
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<PAGE>
Discontinued Operation - Real Estate Segment
In November 1995, the Company elected to discontinue operations of the
Real Estate Segment. The following is the status 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 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 on the
balance due 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 1996.
Florida land: The Company owned undeveloped land in Ft. Lauderdale,
Florida which is zoned for commercial/industrial use. This parcel was
sold for $216,000 in August 1996, and the Company reported a gain of
$190,489.
Colony Ridge Apartments: Colony Ridge Apartments is an apartment complex
in Decatur, Georgia which was constructed in 1968 and consists of 23
two-story buildings containing a total of 212 apartment units. On
January 16, 1998, the Company entered into an agreement to sell the Colony
Ridge Apartments for $3,650,000. It is anticipated that the sale of this
property will occur on or about April 30, 1998. The purchase price is
expected to be paid by the purchaser to the Company by delivery of
immediately available and collectible funds.
Redbird Trails Apartments and North Oak Apartments: On June 13, 1994 and
December 8, 1994, in accordance with previous agreements dated December
30, 1993, the Company sold limited partnership interests in Redbird Trails
Associates, L.P. ("Redbird") and Signature Midwest, L.P. ("Signature"),
respectively, to two unrelated entities. The Company retained a .9%
interest in each partnership through two wholly-owned subsidiaries serving
as the operating general partners. Such operating general partners were
obligated to provide loans of up to $150,000 and $75,000 to Redbird and
Signature, respectively, to fund any operating deficits, as defined, for
a three year period ending December 8, 1997. No loans were made during
1997.
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<PAGE>
The Company retained a contingent interest in the cash flows of these
partnerships. It will receive any cash available from property
operations, to the extent it exceeds approximately $61,000 annually, and
any refinancing proceeds up to a total of approximately $4.5 million, plus
interest at 9.25% per annum on the outstanding balance of this amount.
Any proceeds of sale will be allocated, first, 99.1% to the new partners
until they have received 135% of their investment, less any prior
distributions. Any remaining proceeds from a sale will be allocated to
the Company up to $6 million, less any distributions from operations or
refinancings as described above. These arrangements have not been
reflected in the Company's financial statements since their ultimate
realization cannot reasonably be determined. In addition, at such time as
the tax benefits have been utilized, the Company has the right to purchase
the interests of the newly admitted partners for 135% of their contributed
capital (minus prior cash payments). Should the Company choose not to
exercise such right to purchase the partners' interests, the newly
admitted administrative general partner has the right to require the
Company to sell all of the assets and liquidate the partnerships. The
Company has not funded any operating deficits and has received
approximately $40,000 and $-0- excess cash flows during 1997 and 1996.
Discontinued Operation - Industrial Products Segment
The Industrial Products Segment 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 Jensens 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
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 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 December 31, 1997 this note was paid in full.
In accordance with the May 16, 1997 amendment, the notes could 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 would 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.
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<PAGE>
The Company loaned Jensen an additional $200,035 in conjunction with the
May 16, 1997 modification, and an additional $36,000 in October 1997.
These notes bear interest at 8.5% and mature simultaneously with the other
notes.
As of October, 1997, Jensen stopped making payments as required by the
terms of the May 16, 1997 amendment. On November 11, 1997, Jensen filed
for Chapter 7 bankruptcy. On March 26, 1998, an auction sale was held,
the proceeds of which were distributed by the trustee in bankruptcy. The
Company received $56,686 in April 1998 as a result of the sale and
anticipates receiving approximately an additional $95,000. The remaining
balance of the notes was written off.
Item 2 - Description of Property
The Company maintains an office in New York for use by its executive
officers and consultants at the premises of Resource Holdings, Ltd.
("Resource"). The Company is not a party to a lease, but there is an
understanding that NCMC will pay rent for the offices in New York until
the end of 1998. In addition, in accordance with its agreement with
Resource, the Company has deposited with Resource's landlord the amount of
$37,746 which will be returned, plus interest, to the Company on
termination of Resource's lease (see Item 12 - Certain Relationships and
Related Transactions).
Mr. Shaw, a director of the Company, is a managing director and
significant shareholder of Resource, and therefore may be deemed to have
an interest in any payments to Resource.
The Company considers this property to be suitable and adequate for its
present needs. The property is being fully utilized. See Item 1
"Business" for discussion of real properties owned in connection with the
discontinued operations of the Real Estate Segment.
Item 3 - Legal Proceedings
The Company was a named defendant in a product liability lawsuit related
to Jensen Corporation. In August 1996, the lawsuit was settled at no cost
to the Company.
Item 4 - Submission of Matters to a Vote of Security Holders
The Company did not hold an annual meeting during 1997.
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<PAGE>
PART II
Item 5 - Market for Common Equity and Related Stockholder Matters
a. Market Information
The Company's common stock trades on the OTC Bulletin Board under
the symbol NCMC.
The high and low bid prices of shares of common stock of the Company
for each quarter during the years ended December 31, 1997 and
1996, are as follows:
<TABLE>
<CAPTION>
Bid Price
-----------------
High Low
---- ----
<S> <C> <C>
For the Quarter Ended
December 31, 1997............................ .6313 .4625
September 30, 1997........................... .6563 .4063
June 30, 1997 ............................... .5625 .3875
March 31, 1997............................... .5625 .3438
December 31, 1996............................ .5620 .3750
September 30, 1996........................... 1.0000 .8750
June 30, 1996................................ 1.7500 1.0000
March 31, 1996............................... 2.3750 2.3750
</TABLE>
The quotations represent inter dealer quotations without retail mark-
up, mark-down or commission, and do not necessarily represent actual
transactions. The last reported sales price of the Company's common
stock on April 6, 1998 was $.657.
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
1,673,190 are issued and outstanding. All such shares are of the par
value of $.01.
b. Number of Holders of Common Stock
At April 6, 1998, the approximate number of holders of record of shares
of common stock of the Company was 947.
c. Dividends on Common Stock
The Company has not declared any dividends on its common stock during
the two year period ended December 31, 1997, and does not anticipate
paying any dividends in the near future.
Item 6 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
OVERVIEW
During 1996, the Company initially expanded its viatical settlement
business until it discontinued this operation at the end of the year.
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.
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<PAGE>
FINANCIAL CONDITION AND LIQUIDITY
The Company's cash decreased from $651,345 at December 31, 1996, to
$56,035 at December 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 $236,035 demand loan to Jensen
Corporation. This was offset by receipt of approximately $700,000 in fees
and interest from AMKO USA, Inc. During 1996, cash used to finance
operating activities and the viatical settlement business was offset by
the receipt of $1,347,000 from the sale of Appletree Townhouses and the
Florida land.
Other than in its Viatical Settlement Subsidiary, the Company does not
have any existing general credit facilities to fund its ongoing working
capital requirements.
VIATICAL SETTLEMENT BUSINESS
Effective as of December 29, 1995, NCBC entered into a revolving credit
facility ("Facility") with a credit limit of up to $15 million, which
expires December 1998. 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 (Libor rate + 2-7/8% at December 31, 1997
and 1996). 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 initially loaned NCBC a
specified percentage of the cost of the insurance policies purchased, and
the insurance policies purchased by NCBC had to meet certain underwriting
criteria as established in the Facility. Repayment of outstanding
principal is required as insurance proceeds from matured policies are
collected.
NCBC negotiated a modification to the Facility, as of November 30, 1996,
and can no longer use the Facility to purchase additional policies.
However, the Facility does provide for the drawdown of a specified
percentage of the policy portfolio and the use of proceeds from maturity
and reinsurance claims for debt service and certain operating expenses.
In addition, as of December 29, 1995, NCBC issued a $2,000,000
subordinated note (the "Note") bearing interest at a rate of 14% with
interest payable monthly in arrears. The interest rate on the Note is
consistent with a market rate at which a similar borrowing could be
obtained by the Company. Therefore, the fair value of the Note
approximates the carrying value at December 31, 1997. 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, which would guarantee the holder a minimum additional 4%
interest on the outstanding balance. In April 1997, the Warrant Agreement
was amended to reflect an increased interest rate of 14 3/4% on the Note.
In exchange for agreeing to this increase in the interest rate, NCBC, or
its assigns, shall have the option to repurchase the Warrant for the sum
of $1.00.
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<PAGE>
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. As part of
the agreement, as amended in September 1996, NCMC was required by CAPX to
repurchase all of its shares at $5.25 per share on or before January 1997.
In conjunction with the September 1996 amendment NCBC paid CAPX $25,000
and the balance of $150,000 was due January 1997. The agreement was
further modified in February 1997, at which time the Company paid $100,000
and the agreement was terminated.
The viatical settlement business was discontinued in December 1996.
REAL ESTATE BUSINESS
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 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 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 1996.
Florida land: The Company owned undeveloped land in Ft. Lauderdale,
Florida which is zoned for commercial/industrial use. This parcel was
sold for $216,000 in August 1996, and the Company reported a gain of
$190,489.
Colony Ridge Apartments: Colony Ridge Apartments is an apartment complex
in Decatur, Georgia which was constructed in 1968 and consists of 23
two-story buildings containing a total of 212 apartment units.
On January 16, 1998, the Company entered into an agreement to sell
the Colony Ridge Apartments for $3,650,000. It is anticipated that the
sale of this property will occur on or about April 30, 1998. The purchase
price is expected to be paid by the purchaser to the Company by delivery
of immediately available and collectible funds.
Redbird Trails Apartments and North Oak Apartments: On June 13, 1994 and
December 8, 1994, in accordance with previous agreements dated December
30, 1993, the Company sold limited partnership interests in Redbird Trails
Associates, L.P. ("Redbird") and Signature Midwest, L.P. ("Signature"),
respectively, to two unrelated entities. The Company retained a .9%
interest in each partnership through two wholly-owned subsidiaries serving
as the operating general partners. Such operating general partners were
obligated to provide loans of up to $150,000 and $75,000 to Redbird and
Signature, respectively, to fund any operating deficits, as defined, for
a three year period ending December 8, 1997. No loans were made during
1997.
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<PAGE>
The Company retained a contingent interest in the cash flows of these
partnerships. It will receive any cash available from property
operations, to the extent it exceeds approximately $61,000 annually, and
any refinancing proceeds up to a total of approximately $4.5 million, plus
interest at 9.25% per annum on the outstanding balance of this amount.
Any proceeds of sale will be allocated, first, 99.1% to the new partners
until they have received 135% of their investment, less any prior
distributions. Any remaining proceeds from a sale will be allocated to
the Company up to $6 million, less any distributions from operations or
refinancings as described above. These arrangements have not been
reflected in the Company's financial statements since their ultimate
realization cannot reasonably be determined. In addition, at such time as
the tax benefits have been utilized, the Company has the right to purchase
the interests of the newly admitted partners for 135% of their contributed
capital (minus prior cash payments). Should the Company choose not to
exercise such rights to purchase the partners' interests, the newly
admitted administrative general partner has the right to require the
Company to sell all of the assets and liquidate the partnerships. The
Company did not fund any operating deficits and has received approximately
$40,000 and $-0- excess cash flows during 1997 and 1996.
INDUSTRIAL PRODUCTS BUSINESS
The Industrial Products Segment was also 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
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.
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 B.V.
As of December 31, 1997, this note was paid in full.
In accordance with the May 16, 1997 amendment, the notes could 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 would 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.
-11-
<PAGE>
The Company loaned Jensen an additional $200,035 in conjunction with the
May 16, 1997 modification, and an additional $36,000 in October 1997.
These notes bear interest at 8.5% and mature simultaneously with the other
notes.
As of October, 1997, Jensen stopped making payments as required by the
terms of the May 16, 1997 amendment. On November 11, 1997, Jensen filed
for Chapter 7 bankruptcy. On March 26, 1998, an auction sale was held,
the proceeds of which were distributed by the trustee in bankruptcy. The
Company received $56,686 in April 1998 as a result of the sale and
anticipates receiving approximately an additional $95,000. The remaining
balance of the notes was written off.
RESULTS OF OPERATIONS FOR 1997 COMPARED TO 1996
National Capital Benefits Corp. ("NCBC") commenced operations on March 17,
1994. During the periods ended December 31, 1997 and 1996, NCBC had
purchased at face value (including those in escrow) approximately $-0-
and $10.5 million of policies, respectively. During 1997 and 1996,
approximately $1.4 million and $4.3 million respectively, of policies
matured. Reinsurance claims made and paid during 1997 were approximately
$3.7 million and $3.4 million, respectively.
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, and are adjusted
periodically, but not more than annually, based upon actual experience.
While NCBC believed that its estimate of life expectancy, and the related
recognition of earned discount would 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
purchase policy costs during 1996, and as adjusted during the year ended
December 31, 1997, as stated on the balance sheet. During the fourth
quarter ended December 31, 1997, the Company increased its original
reserve by $350,000. The amount of the reserve was determined based on
projections of expected cash inflows from maturities and reinsurance
claims, and cash outflows for debt service and operating costs during the
portfolio administration process, which is expected to take several more
years (see footnote 3).
The Company previously announced that certain existing medications
presently under development may, when used in combination, significantly
prolong the life expectancy of persons previously diagnosed with AIDS.
These medical treatments and a July 1996 AIDS conference have had a
significant impact on this segment of the viatical settlement industry.
The Company previously indicated that a large percentage of its portfolio
involves individuals with terminal illnesses related to AIDS and that the
development of a treatment for 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. From November 30, 1996 through the date of this report, the
Company did not process new applications for policies.
The Company decided to discontinue its viatical settlement business in
December 1996.
-12-
<PAGE>
NCBC has restructured its organization and reduced its office staff to one
person. Management anticipates that this person, as well as NCMC
management, will manage NCBC's existing portfolio of approximately $19.1
million of insurance policies. Management estimates that the
administration of these policies will take several more years.
-13-
<PAGE>
Item 7 - Financial Statements and Supplementary Data
----------------------------------------------------
NATIONAL CAPITAL MANAGEMENT CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Public Accountants 15
Consolidated Balance Sheet at December 31, 1997 16
Consolidated Statements of Operations for the years ended
December 31, 1997 and 1996 17
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1997 and 1996 18
Consolidated Statements of Cash Flows for the years ended
December 31, 1997 and 1996 19
Notes to Consolidated Financial Statements 20-31
-14-
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders of
National Capital Management Corporation:
We have audited the accompanying consolidated balance sheet of National
Capital Management Corporation (a Delaware corporation) as of December 31,
1997, and the related consolidated statements of operations, shareholders'
equity and cash flows for the year then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our audits.
The consolidated financial statements of the Company for the year ended
December 31, 1996 was audited by other auditors whose report dated April
11, 1997, expressed an unqualified opinion on those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
As discussed in the Notes to Consolidated Financial Statements, the
Company had been comprised of three distinctly different operating
businesses. The real estate and the industrial products segments were
discontinued in 1995. The viatical settlements segment was discontinued
in 1996. As discussed in Notes 1 and 3, the Company expects to administer
an orderly liquidation of its existing viatical settlements portfolio and
expects the process will take several years.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of National Capital Management Corporation at December 31, 1997,
and the consolidated results of its operations and its cash flows for the
year then ended, in conformity with generally accepted accounting
principles.
/s/ JANOVER RUBINROIT, LLC
Garden City, New York
April 6, 1998
-15-
<PAGE>
<TABLE>
NATIONAL CAPITAL MANAGEMENT CORPORATION
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
ASSETS
<S> <C>
Cash and cash equivalents $ 56,035
Notes receivable (Note 4) 150,000
Property and equipment, less accumulated depreciation
of $71,958 32,873
Net assets of discontinued operations -
Viatical Settlements Segment (Note 3) 25,528
Real Estate Segment (Note 6) 1,795,030
Other assets 36,225
----- -----
Total assets $ 2,095,691
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<S> <C>
Accounts payable and accrued expenses $ 103,299
Shareholders' equity (Notes 9 and 10):
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, 1,813,056 shares issued,
1,673,190 outstanding 16,732
Additional paid-in capital 23,125,123
Accumulated deficit (20,975,246)
Treasury stock, 139,866 shares (174,217)
Total shareholders' equity 1,992,392
-----------
Total liabilities and shareholders' equity $ 2,095,691
The accompanying notes are an integral part of this statement.
-16-
</TABLE>
<PAGE>
<TABLE>
NATIONAL CAPITAL MANAGEMENT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Years ended December 31,
1997 1996
----------- -----------
<S> <C> <C>
Income (expense):
Other income $ 584,876 $ 134,041
Corporate administrative expense (1,589,053) (665,717)
Net loss from continuing operations before tax (1,004,177) (531,676)
Provision for income taxes - -
Net loss from continuing operations after tax (1,004,177) (531,676)
Discontinued operations:
Net operating loss:
Viatical settlements (Note 3) (374,413) (3,603,572)
Real estate segment (Note 6) (46,568) (193,307)
Net gain on disposal of:
Real estate segment (Note 6) - 518,224
Net loss from discontinued operations (420,981) (3,278,655)
----------- -----------
Net loss $(1,425,158) $(3,810,331)
The accompanying notes are an integral part of this statement.
-17-
</TABLE>
<PAGE>
<TABLE>
NATIONAL CAPITAL MANAGEMENT CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 and 1996
<CAPTION>
Additional Total
Common Paid-in Accumulated Treasury Shareholders'
Stock Capital Deficit Stock Equity
------ ------- ----------- -------- ------------
<S> <C> <C> <C> <C> <C>
Balances at
December 31,
1995 $17,904 $23,123,951 $(15,739,757) $(224,217) $7,177,881
Adjustment to
Common Stock (1,172) 1,172 - - -
Reduction in cost due
to CAPX settlement
(Note 9) - - - 50,000 50,000
Net loss - - (3,810,331) - (3,810,331)
Balances at
December 31,
1996 16,732 23,125,123 (19,550,088) (174,217) 3,417,550
Net loss - - (1,425,158) - (1,425,158)
------- ----------- ----------- --------- ----------
Balance at
December 31,
1997 $16,732 $23,125,123 $(20,975,246) $(174,217) $1,992,392
The accompanying notes are an integral part of this statements.
-18-
</TABLE>
<PAGE>
<TABLE>
NATIONAL CAPITAL MANAGEMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Years Ended December 31,
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,425,158) $(3,810,331)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 8,760 8,760
Reserves and allowances on notes
and interest receivable - 200,000
Reduction in value of notes receivable 979,408 -
Changes in operating assets and liabilities:
Decease in accounts receivable (61,483) 21,490
Increase (decrease) in accounts payable and
accrued liabilities (165,070) (529,024)
---------- ----------
Net cash used in operating activities (663,543) (4,109,105)
---------- ----------
Change in net assets of discontinued operations 304,267 3,736,443
--------- ----------
Cash flows provided by (used in) investing activities:
Collections on notes receivable - 400,000
Increase in other assets - 15,223
Additional loan to Jensen (236,035) -
--------- ----------
Net cash provided by (used in)
investing activities (236,035) 415,223
--------- ----------
Increase (decrease) in cash and cash equivalents (595,311) 42,561
Cash and cash equivalents at beginning of period 651,346 608,785
--------- ----------
Cash and cash equivalents at end of period $ 56,035 $ 651,346
Supplemental schedule of non-cash operating
and financing activities:
Reduction of accrued liability for
treasury stock $ - $ 50,000
The accompanying notes are an integral part of this statements.
-19-
</TABLE>
<PAGE>
NATIONAL CAPITAL MANAGEMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 - THE COMPANY AND BASIS OF PRESENTATION
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. (Notes 3, 6 and 7).
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.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Property and Equipment - Property and equipment is stated at amortized
cost net of accumulated depreciation. Depreciation is computed using the
straight-line and accelerated methods over the estimated useful lives of
the assets.
Income Taxes - Income taxes are accounted for in accordance with the
provisions of Statement of Financial Accounting Standards ("SFAS") No.
109, "Accounting for Income Taxes". As required under SFAS No. 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the financial
statement carrying amounts of assets and liabilities and the respective
tax basis amounts. Deferred tax assets and liabilities are measured under
tax rates that are expected to apply to taxable income in the years in
which these differences are expected to be settled. The effect of a
change in tax rates on deferred tax assets and liabilities is recognized
in the period of the tax change.
Estimates - The preparation of financial statements in conformity with
generally accepted accounting principals 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 the cost of purchased policies, the collectibility of notes
receivable, and the realizability of net deferred tax assets. See Notes
3, 4 and 8.
-20-
<PAGE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Accounting for long-lived assets
For the calendar year ended December 31, 1996, the Company adopted 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 impairments were required. In addition to the write down of several
assets of the Company, a $1.5 million valuation reserve was established,
as adjusted during the year ended December 31, 1997, against the cost of
purchased policy costs in order to reflect management's estimate of the
fair market value of the net assets (Note 3).
The accuracy of the valuation reserve established by the Company (Note 3)
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 impact of recent 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
purchase policy costs during 1996 and as adjusted during the year ended
December 31, 1997. During the fourth quarter ended December 31, 1997, the
Company increased its original reserve by $350,000. The amount of the
reserve was determined based on projections of expected cash inflows from
maturities and reinsurance claims, and cash outflows for debt service and
operating costs during the portfolio administration process, which is
expected to take several more years (Note 3).
Statement of Cash Flows
The Company considers all short-term highly liquid investments purchased
with a maturity of three months or less to be cash and cash equivalents
for purposes of the Consolidated Statement of Cash Flows.
Cash paid for interest was approximately $1,087,000 and $1,054,400, for
1997 and 1996, respectively. The Company paid no material amounts for
income taxes during these years.
During 1996, the Company sold two real estate properties in transactions
in which one purchaser assumed a first mortgage obligation of the Company
in the amount of $1,048,795 and recognized gains of $518,224 in connection
with the sales.
Earnings per share
Effective December 15, 1997, the Financial Accounting Standards Board
issued Statement No. 128, "Earnings per Share". Statement No. 128
replaced the previously reported primary and fully diluted earnings per
share with basic and diluted earnings per share. Under the new
requirements for calculating earnings per share, the dilutive effect of
stock options will be excluded from basis earnings per share but included
in the computation of diluted earnings per share. All earnings per share
mounts have been restated so as to comply with Statement No. 128.
NOTE 3 - DISCONTINUED OPERATIONS - VIATICAL SETTLEMENTS
The results of the Viatical Settlements have been reported separately as
discontinued operations in these consolidated statements of operations.
-21-
<PAGE>
NOTE 3 - DISCONTINUED OPERATIONS - VIATICAL SETTLEMENTS (CONTINUED)
In December 1996, the Company decided to discontinue the operations of the
Viatical Settlements 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 more years. The Company established a $1,500,000 valuation
reserve during 1996, and as adjusted during the year ended December 31,
1997, against 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.
During the fourth quarter ended December 31, 1997, the Company increased
its original reserve by $350,000. The amount of the reserve was
determined based on projections of expected cash inflows from maturities
and reinsurance claims, and cash outflows for debt service and operating
costs during the portfolio administration process, which is expected to
take several more 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%. Reinsurance claims made
and paid during 1997 were approximately $3.7 million and $3.4 million,
respectively.
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 or risk.
Summarized below are the operations of the Company's Viatical Settlements
for the years ended December 31, 1997 and 1996.
<TABLE>
<CAPTION>
For the year ended
December 31,
1997 1996
---------- ----------
<S> <C> <C>
Revenue accrued and received $5,203,919 $ 8,915,792
Cost of insurance policies (4,203,385) (7,781,846)
Write-off against valuation rese 801,823 -
Increase in valuation reserve (350,000) (1,500,000)
Earned discount 1,452,357 (366,054)
Interest expense (1,275,111) (1,294,648)
Earned discount after interest expense 177,246 (1,660,702)
Selling and administrative expenses (550,571) (1,404,365)
Depreciation and amortization (1,088) (538,505)
---------- -----------
Net loss $ (374,413) $(3,603,572)
</TABLE>
The components of the Viatical Settlements net assets from discontinued
operations in the consolidated balance sheet as of December 31, 1997 are
as follows:
<TABLE>
<S> <C>
Purchased policy costs, less amortized
policy costs of $18,051,081 $ 4,200,382
Valuation reserve (1,048,177)
Accrued policy revenues, less matured
revenues valuation of $7,820,301 13,715,134
Revolving credit facility (9,511,468)
Subordinated note payable (2,000,000)
Reinsurance liability (4,927,799)
Other, net (402,544)
-----------
$ 25,528
-22-
</TABLE>
<PAGE>
NOTE 3 - DISCONTINUED OPERATIONS - VIATICAL SETTLEMENTS (CONTINUED)
Purchased Policy Costs - NCBC purchased life insurance policies from
terminally ill individuals at a discount from the policy's net face value
(amount paid by the insurance carrier upon the death of the insured). The
amount of the discount was determined by the life expectancy of the
insured. The majority of the policies purchased by NCBC were from
insureds with an estimated remaining life, at the time of purchase, of
less than 24 months.
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.
Accrued Policy Revenues - Accrued policy revenues represent the accrued
portion of insurance proceeds receivable on purchased policies that have
not yet matured and amounts due on matured policies not yet received.
Reinsurance Liability - As policies migrate to reinsurance and funds are
collected by the Company, a corresponding liability is recorded for the
amount that may be returned to the reinsurer upon collection of the policy
proceeds.
According to the terms of the reinsurance agreement this liability may be
reduced if the policy proceeds are not collected within a specified time
frame.
Revenue and Cost Recognition - Revenue related to expected insurance
proceeds is recognized by accreting the face value of purchased policies
ratably over the period from the policy purchase date to the estimated
maturity date ("accrual period"). Costs related to the purchase of
insurance policies are also recognized through the amortization of such
capitalized costs ratably over the accrual period. The difference between
revenue and costs recognized each period represents NCBC's earned discount
on purchased insurance policies.
The length of the accrual period is determined by NCBC based upon its best
estimate of the maturity date (i.e. date on which it will collect the face
value of the policy). Such life expectancy estimates were based upon a
review of the insured's medical records by NCBC's panel of medical
specialists, as adjusted for actual collection experience on policies that
have matured to date. Should the policy mature earlier than expected, the
entire proceeds and costs will be recognized at that time, less any
amounts previously accrued or amortized.
NCBC periodically, but not more than annually, adjusts the accrual period
based upon actual collection experience on matured policies. Adjustments
to such estimates, if required, are recognized in the period determined.
Additionally, as noted above, the Company established a $1,500,000
valuation reserve against purchased policy costs during 1996, and as
adjusted during the year ended December 31, 1997, which reflects the
estimated expected loss on holding the remaining policies to maturity.
During the fourth quarter ended December 31, 1997, the Company increased
its original reserve by $350,000.
-23-
<PAGE>
NOTE 3 - DISCONTINUED OPERATIONS - VIATICAL SETTLEMENTS (CONTINUED)
At December 31, 1997 the face value of purchased insurance policies
remaining in NCBC's portfolio was approximately $19.1 million. NCBC did
not purchase any new policies during 1997. During 1997 and 1996,
approximately $1.4 million and $4.3 million face value of policies
matured, respectively.
Since the Viatical Settlement is discontinued, these amounts, as well as
the interest expense and most selling and administrative expenses are
written off against the valuation reserve.
Revolving Credit Facility and Subordinated Note Payable
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 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 1/2% at December 31, 1997).
Under the terms of the Facility, the lender initially loaned NCBC a
specified percentage of the cost of the insurance policies purchased, and
the insurance policies purchased by NCBC had to meet certain underwriting
criteria as established in the Facility. Repayment of outstanding
principal is required as insurance proceeds from matured policies are
collected.
NCBC negotiated a modification to the Facility, as of November 30, 1996,
and can no longer use the Facility to purchase additional policies.
However, the Facility does provide for the drawdown of a specified
percentage of the policy portfolio and the use of proceeds from maturity
and reinsurance claims for debt service and certain operating expenses.
The balance outstanding at December 31, 1997 was approximately $9.5
million.
In addition, as of December 29, 1995, NCBC issued a $2,000,000
subordinated note (the "Note") bearing interest at a rate of 14% with
interest payable monthly in arrears. The interest rate on the Note is
consistent with a market rate at which a similar borrowing could be
obtained by the Company. Therefore, the fair value of the Note
approximates the carrying value at December 31, 1997. 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, which would guarantee the holder a minimum additional 4%
interest on the outstanding balance. In April 1997, the Warrant Agreement
was amended to reflect an increased interest rate of 14 3/4% on the Note.
In exchange for agreeing to this increase in the interest rate, NCBC, or
its asignees, shall have the option to repurchase the Warrant for the sum
of $1.00.
The proceeds from issuing the Note were received on January 8, 1996, and
used to reduce the outstanding balance of the Facility. The interest rate
on the Note is consistent with a market rate at which a similar borrowing
could be obtained by the Company. Therefore, the fair value of the Note
approximates the carrying value at December 31, 1997.
-24-
<PAGE>
NOTE 4 - NOTES RECEIVABLE
Notes receivable consists of the following at December 31, 1997:
<TABLE>
<S> <C>
Notes receivable from AMKO USA, Inc. (Note 7) $2,199,685
Interest receivable and other 79,723
----------
2,279,408
Less reduction in value of notes
receivable (Note 7) (2,129,408)
----------
$ 150,000
</TABLE>
NOTE 5 - TRANSACTIONS WITH AFFILIATES
For the two-year period ended December 31, 1997, the Company had
agreements with NCM Management Ltd., a real estate company affiliated with
Mr. Herbert J. Jaffe, a director of the Company, to provide management
services to the Company. The Company also provided compensation and
benefits to Mr. Jaffe. Costs incurred under these agreements amounted to
approximately $97,000 and $146,500 for 1997 and 1996, respectively.
Effective April 1, 1995, Messrs. Pinto and Shaw entered into new
agreements with the Company to act in the same capacities through March
31, 1997, with options to extend these agreements for one year if certain
conditions are met. Effective April 1, 1997, Messrs. Pinto and Shaw agreed
to work for the Company for a monthly fee of $7,500 at the discretion of
the Board. Mr. Shaw and Mr. Pinto continue in the same capacities
on a month to month basis.
Messrs. Pinto and Shaw were each compensated $98,942 and $100,290 for 1997
and $125,000 each for 1996, pursuant to these agreements, plus $102,000
and $91,000 during 1997 and 1996, respectively, was paid to them or their
assigns for other costs, certain office expenses, including rent for the
offices in New York, and related services incurred for Company business.
The Company obtained cash from an officer and a member of the Board of the
Company to continue operations, including advances totaling $500,000 on
October 26, 1995 bearing interest at 12% per annum, payable in monthly
installments of interest only until due on January 31, 1996 and on demand
thereafter. The advances were repaid on February 1, 1996.
NOTE 6 - 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 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 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 1996.
-25-
<PAGE>
NOTE 6 - DISCONTINUED OPERATIONS - REAL ESTATE SEGMENT (CONTINUED)
Florida land: The Company owned undeveloped land in Ft. Lauderdale,
Florida which is zoned for commercial/industrial use. This parcel was
sold for $216,000 in August 1996, and the Company reported a gain of
$190,489.
Colony Ridge Apartments: Colony Ridge Apartments is an apartment complex
in Decatur, Georgia which was constructed in 1968 and consists of 23
two-story buildings containing a total of 212 apartment units.
On January 16, 1998, the Company entered into an agreement to sell
the Colony Ridge Apartments for $3,650,000. It is anticipated that
the sale of this property will occur on or about April 30, 1998. The
purchase price is expected to be paid by the purchaser to the Company by
delivery of immediately available and collectible funds.
Redbird Trails Apartments and North Oak Apartments: On June 13, 1994 and
December 8, 1994, in accordance with previous agreements dated December
30, 1993, the Company sold limited partnership interests in Redbird Trails
Associates, L.P. ("Redbird") and Signature Midwest, L.P. ("Signature"),
respectively, to two unrelated entities. The Company retained a .9%
interest in each partnership through two wholly-owned subsidiaries serving
as the operating general partners. Such operating general partners were
obligated to provide loans of up to $150,000 and $75,000 to Redbird and
Signature, respectively, to fund any operating deficits, as defined, for
a three year period ending December 8, 1997. No loans were made during
1997.
The Company retained a contingent interest in the cash flows of these
partnerships. It is entitled to receive any cash available from property
operations, to the extent it exceeds approximately $61,000 annually, and
any refinancing proceeds up to a total of approximately $4.5 million, plus
interest at 9.25% per annum on the outstanding balance of this amount.
Any proceeds of sale are to be allocated, first, 99.1% to the new partners
until they have received 135% of their investment, less any prior
distributions.
Any remaining proceeds from a sale are to be allocated to the Company up
to $6 million, less any distributions from operations or refinancings as
described above. These commitments have not been reflected in the
Company's financial statements since their ultimate realization cannot
reasonably be determined. In addition, at such time as any tax benefits
have been utilized, the Company has the right to purchase the interests of
the newly admitted partners for 135% of their contributed capital (minus
prior cash payments). Should the Company choose not to exercise such
right to purchase the partners' interests, the newly admitted
administrative general partner has the right to require the Company to
sell all of the assets and liquidate the partnerships. The Company did
not fund any operating deficits and has received approximately $40,000 and
$-0- excess cash flows during 1997 and 1996, respectively.
The results of the Real Estate Segment have been reported separately as
discontinued operations in these consolidated statements of operations.
-26-
<PAGE>
NOTE 6 - DISCONTINUED OPERATIONS - REAL ESTATE SEGMENT (CONTINUED)
Summarized below are the operations of the Company's Real Estate Segment
for the years ended December 31, 1997 and 1996.
<TABLE>
<CAPTION>
For the year ended
December 31,
1997 1996
---------- ----------
<S> <C> <C>
Total revenues $1,083,537 $1,281,248
---------- ----------
Costs and expenses:
Operations and maintenance 598,103 656,097
Property taxes and insurance 72,714 128,435
Depreciation and amortization 294,708 366,421
Net interest 102,475 145,917
Corporate administrative expenses 62,105 177,685
---------- ----------
Total costs and expenses 1,130,105 1,474,555
---------- ----------
Net loss $ (46,568) $ (193,307)
</TABLE>
The components of the Real Estate Segment net assets from discontinued
operations in the consolidated balance sheet as of December 31, 1997
are as follows:
<TABLE>
<S> <C>
Rental properties, less accumulated
depreciation of $1,457,881 $2,905,725
Mortgage note payable (1,115,599)
Accounts payable (109,120)
Other, net 114,024
----------
$1,795,030
</TABLE>
NOTE 7 - DISCONTINUED OPERATION - 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
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.
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.
-27-
<PAGE>
NOTE 7 - DISCONTINUED OPERATION - INDUSTRIAL PRODUCTS SEGMENT (CONTINUED)
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 B.V.
As of December 31, 1997, this note was paid in full.
In accordance with the May 16, 1997 amendment, the notes could 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 would 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 $200,035 in conjunction with the
May 16, 1997 modification and an additional $36,000 in October 1997.
These notes bear interest at 8.5% and mature simultaneously with the other
notes.
As of October, 1997, Jensen stopped making payments as required by the
terms of the May 16, 1997 amendment. On November 11, 1997, Jensen filed
for Chapter 7 bankruptcy. On March 26, 1998, an auction sale was held,
the proceeds of which were distributed by the trustee in bankruptcy. The
Company received $56,686 in April 1998 as a result of the sale and
anticipates receiving approximately an additional $95,000. The remaining
balance of the notes was written off.
NOTE 8 - INCOME TAXES
Effective January 1, 1993, the Company changed its method of accounting
for income taxes from the deferred method to the asset and liability
method required by FASB Statement No. 109, "Accounting for Income Taxes".
The implementation of Statement 109 did not have a material impact on the
Company's financial statements.
At December 31, 1997, the Company had federal net operating carryforwards
of approximately $11.4 million. The net operating losses will expire in
the various years through December 31, 2012. The Company had state net
operating loss carryforwards of various amounts in the states in which it
operates.
At December 31, 1997, the Company had federal alternative minimum tax
credits of approximately $13,000, which may be carried forward
indefinitely.
Federal and state laws impose limitations on the use of the net operating
losses and tax credits following certain changes in ownership. If such an
ownership change occurs, the limitation could reduce the amount of the
benefits of the net operating losses and credit that would be available to
offset future taxable income starting in the year of the ownership change.
A reconciliation of income tax computed at the federal statutory corporate
tax rate to income tax expense on the net loss from continuing and
discontinued operations is:
<TABLE>
<CAPTION>
Year ended December 31,
1997 1996
------------------ ------------------
Amount Percent Amount Percent
--------- ------- -------- -------
<S> <C> <C> <C> <C>
Income tax benefit at federal
statutory rate $(484,554) (34.0)% $(1,295,513) (34.0)%
Valuation allowance 484,554 34.0 1,295,513 34.0
--------- ----- ----------- -----
Other - - - -
--------- ----- ----------- -----
$ - - % $ - - %
</TABLE>
-28-
<PAGE>
NOTE 8 - INCOME TAXES (CONTINUED)
Deferred income taxes reflect the net effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
The Company has a net deferred tax asset related to discontinued
operations at December 31, 1997 and 1996 of approximately $3,403,593 and
$3,609,000, respectively. This amount consists primarily of net operating
losses and reserves recorded for book and not yet deducted for tax. A
valuation allowance has been established to reduce this net deferred asset
to zero based upon the uncertainty regarding realization of such tax
benefits given the Company's history of operating losses.
NOTE 9 - SHAREHOLDERS' EQUITY
No warrants were exercised during 1997, and 863,094 warrants, which
represented all warrants outstanding, expired at December 31, 1997. No
warrants were issued during 1997.
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. As part of
the agreement, as amended in September 1996, NCMC was required by CAPX to
repurchase all of its shares at $5.25 per share on or before January 1997.
In conjunction with the September 1996 amendment NCBC paid CAPX $25,000
and the balance of $150,000 was due January 1997. The agreement was
further modified in February 1997, at which time the Company paid $100,000
and the agreement was terminated.
The Company continues to account for its stock-based warrants using the
intrinsic value method in accordance with APB 25, "Accounting for Stock
Issued to Employees" and its related interpretations. Accordingly, no
compensation expense has been recognized in the financial statements for
employee stock arrangements.
SFAS 123, "Accounting for Stock-Based Compensation", requires the
disclosure of pro forma net income and earnings per share had the Company
adopted the fair value method as of the beginning of fiscal 1996. Under
SFAS 123, the fair value of stock-based warrants to employees is
calculated through the use of option pricing models, even though such
models were developed to estimate the fair value of freely tradable, fully
transferable options without vesting restrictions, which significantly
differ from the Company's stock based warrants. These models also require
subjective assumptions, including future stock price volatility and
expected time to exercise, which greatly affect the calculated values.
The Company has determined that the effect of SFAS 123 was immaterial for
1997.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
NCBC's lease was terminated during January 1997. The landlord retained
the $20,000 security deposit, and the Company paid an additional $20,000
for a release from all obligations under the lease.
-29-
<PAGE>
NOTE 11 - LITIGATION
The Company was a named defendant in a product liability lawsuit related
to Jensen Corporation. In August 1996 the lawsuit was settled at no cost
to the Company.
NOTE 12 - INTERIM FINANCIAL DATA (UNAUDITED)
[CAPTION]
<TABLE>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
Calendar year ended
December 31, 1997:
Net income (loss) from
continuing
continuing operations $(312,852) $245,648 $(251,420) $(685,553)
Net income (loss) from
discontinued operations (60,545) 14,532 (33,224) (341,744)
Net income (loss) per
share from
continuing operations:
Basic and diluted (.19) .15 (.15) (.41)
Net income (loss) per
share from
discontinued operations:
Basic and diluted (.04) .01 (.02) (.20)
Net income (loss) per share:
Basic and diluted (.22) .16 (.17) (.61)
Denominator for basic and
diluted income (loss)
per share -
weighted average shares 1,673,190 1,673,190 1,673,190 1,673,190
Calendar year ended
December 31, 1996:
Net loss from continuing
operations (163,597) (91,454) (77,426) (199,199)
Net loss from discontinued
operations (214,235) (208,405)(1,002,613) (1,853,402)
Net loss per share from
continuing operations:
Basic and diluted (.10) (.06) (.05) (.12)
Net loss per share from
discontinued operations:
Basic and diluted (.13) (.12) (.60) (1.11)
Net loss per share:
Basic and diluted (.23) (.18) (.65) (1.23)
Denominator for basic and
diluted income (loss)
per share - weighted
average shares 1,673,190 1,673,190 1,673,190 1,673,190
</TABLE>
-30-
<PAGE>
NOTE 13 - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted loss
per share:
[CAPTION]
<TABLE>
Years Ended
---------------------------
December 31, December 31,
1997 1996
------------ ------------
<S> <C> <C>
Numerator:
Net loss from continuing
operations (1,004,177) (531,676)
Net loss from discontinued
operations (420,981) (3,278,655)
Net loss from continuing operations -
numerator for basic and diluted loss
per share (.60) (.32)
Net loss from discontinued operations -
numerator for basic and diluted loss
per share (.25) (1.96)
Denominator:
Denominator for basic and diluted loss
per share - weighted average shares 1,673,190 1,673,190
Loss per share:
Basic and diluted (.85) (2.28)
</TABLE>
In accordance with FASB No. 128, as a result of losses from continuing
operations, the inclusion of employee stock options were antidilutive and,
therefore, were not utilized in the computation of diluted earnings
per share.
-31-
<PAGE>
Item 8 - Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
Incorporated by reference from Form 8-K filed by the Company on February
27, 1998.
PART III
Item 9 - Directors, Executive Officers, Promoters, and Control Persons;
Compliance With Section 16(a) of the Exchange Act
At April 6, 1998, there were four directors on the Company's Board of
Directors, two of which are also executive officers of the Company. The
principal occupations and affiliations during the last five years of the
directors and executive officers are described in the following table.
Each director's term of office expires at the next meeting of shareholders
following his election and upon the election and qualification of his
successor. The executive officers serve at the pleasure of the Board of
Directors.
James Pinto Chariman since 1989 NCMC
Chairman of the Board Director Biscayne Holdings,
Inc.
Age 47 (apparel
Director since 1988 manufacturer)
Director Anderson Group, Inc.
(electronics
company)
Director Empire of Carolina,
Inc. (toys)
John C. Shaw Chief Executive Officer NCMC
Director and since 1994
Chief Executive Chief Financial Officer NCMC
Officer since 1997
Age 44 Managing Director since Resource Holdings,
Director since 1988 1983 Ltd.
(investment firm)
1989 to 1992 Co-Chairman NCMC
Trustee Wedgestone Financial
(diversified lender
and truck parts
manufacturer)
Herbert J. Jaffe President 1988-1996 NCMC
Director
Age 63 1983-95 Chairman NCM Management Ltd.
Director since 1987 (real estate
management company
of NCMC)
David Faulkner 1989-1996 Vice Chairman/ Memorex Telex Inc.
Director CFO (computer industry)
Age 57
Director since July 1994
-32-
<PAGE>
Jeffrey Goldstein Chief Financial Officer NCMC
Age 52 September 1996-June 1997
Chief Executive Officer NCBC
June 1995-June 1997
Trustee since October 1992 Wedgestone
President 1992-1997 Financial
(diversified lender
and
truck parts
manufacturer)
Item 10 - Executive Compensation
The following table sets forth information in respect to the compensation
of the Chief Executive Officer and each of the other two most highly
compensated executive officers of NCMC, whose compensation exceeded
$70,000, for services in all capacities to the Corporation and its
subsidiaries in 1997, 1996 and 1995.
<TABLE>
<CAPTION>
Annual Compensation
----------------------------------------
Other Annual
Year Salary Bonus Compensation
---- ------- ----- ------------
<S> <C> <C> <C> <C>
John C. Shaw 1997 100,290 - -
Chief Executive Officer 1996 125,000 - -
Chief Financial Officer 1995 142,500 - -
James J. Pinto 1997 98,942 - -
Chairman 1996 125,000 - -
1995 142,500 - -
Jeffrey S. Goldstein (1) 1997 - - -
Chief Executive Officer 1996 80,000 - -
NCBC 1995 70,000 - -
Herbert J. Jaffe (2) 1997 35,100 - -
President and 1996 86,664 - -
Chief Operating Officer 1995 100,000 - -
Ken M. Klein (3) 1995 150,000 - -
President
NCBC
</TABLE>
(1) Mr. Goldstein was hired as Chief Executive Officer of NCBC in June
1995 and as Chief Financial Officer of NCMC in September 1996. Mr.
Goldstein resigned in June 1997 from NCMC and NCBC to pursue other
interests.
(2) Mr. Jaffe resigned as president in October 1996.
(3) Mr. Klein left the Company in November 1996 to pursue other
interests.
No stock options were granted to the individuals named in the summary
compensation table during 1997 and none of those individuals exercised a
stock option during 1997. All warrants expired on December 31, 1997.
-33-
<PAGE>
Effective April 1, 1995, Messrs. Pinto and Shaw entered into new
agreements with the Company to act in the same capacities through March
31, 1997, with options to extend these agreements for one year if certain
conditions are met. Effective April 1, 1997, Messrs. Pinto and Shaw agreed
to work for the Company for a monthly fee of $7,500 at the discretion of
the Board. Mr. Shaw and Mr. Pinto continue in the same capacities on
a month to month basis.
Messrs. Pinto and Shaw were each compensated $98,942 and $100,290 for 1997
and $125,000 each for 1996, pursuant to these agreements, plus $102,000
and $91,000 during 1997 and 1996, respectively, was paid to them or their
assigns for other costs, certain office expenses, including rent for the
offices in New York, and related services incurred for Company business.
The bylaws of the Company provide for indemnification by it of its
officers and directors to the fullest extent permitted by law. In order to
mitigate the cost of indemnification the Company has a policy for
directors and officers insurance.
During 1997, members of the Board of Directors, who are not either
employees, officers or consultants of the Company, received quarterly
compensation of $2,000 and $250 for each meeting attended. Directors are
entitled to be reimbursed for reasonable out of pocket expenses incurred
with respect to meetings of the Board.
-34-
<PAGE>
Item 11 - Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding the
beneficial ownership of NCMC common stock as of April 6, 1998, by: (i)
each person known by the Company to own beneficially more than 5% of the
shares of NCMC common stock (ii) each person who is a director or
executive officer of the Company; and (iii) all directors and executive
officers of the Company as a group.
<TABLE>
<CAPTION>
Beneficial Owner of
NCMC Common Stock
---------------------------
Number of Percent of
Shares Class
-------- ----------
<S> <C> <C>
Name and address of NCMC
Beneficial Owner (1)
-----------------------
RHEC, L.P. 388,681 23.2%
10 East 53rd Street
New York, NY 10022
Herbert J. Jaffe 11,512 (2) *
James J. Pinto 309,748 18.5%
John C. Shaw 483,570 28.9%
David Faulkner - *
Jeffrey S. Goldstein - *
All executive officers and
directors as a group
(5 persons) 804,830(3) 48.1%
</TABLE>
--------------
* less than 1%
-35-
<PAGE>
NOTES TO TABLE OF BENEFICIAL OWNERS AND MANAGEMENT
1. Unless otherwise indicated, each shareholder listed has the sole power
to vote and direct the disposition of the shares of the Company
beneficially owned by such shareholder.
2. Includes 11,379 shares owned by NCM Holdings, a general partnership of
which Mr. Jaffe is a general partner, and 133 shares owned directly by
Mr. Jaffe.
3. Includes 400,060 shares of NCMC common stock owned by NCM Holdings and
RHEC, L.P.
-36-
<PAGE>
Item 12 - Certain Relationships and Related Transactions
The Company and NCM Management Ltd. ("NCM") have agreed that NCM will
provide real estate management services through December 1997 and provide
personnel, equipment and facilities for the day to day management and
operations of the Company including supervision of its remaining real
estate properties. As compensation for its services, NCM received a
monthly management fee of 4% of revenues from Colony Ridge Apartments, and
6% of revenues from Redbird Trails Apartments and North Oak Apartments
from January 1, 1996 until August 31, 1996 and 4% for all properties
thereafter. Mr. Jaffe, a director of the Company, is NCM's Chairman of
the Board. He also owns approximately 33% of the outstanding capital
stock of NCM and may be deemed to have a material interest in all payments
to NCM. During 1997, NCM received an aggregate of approximately $97,000
for management services rendered to the Company, included in which amount
was Mr. Jaffe's compensation.
The Company maintains an office in New York for use by its executive
officers and consultants at the premises of Resource Holdings, Ltd.
("Resource"). The Company is not a party to a lease, but there is an
understanding that NCMC will pay rent for the offices in New York until
the end of 1998. In addition, in accordance with its agreement with
Resource, the Company has deposited with Resource's landlord the amount of
$37,746 which will be returned, plus interest, to the Company on
termination of Resource's lease. The Company reimbursed approximately
$100,000 to Resource for providing such office space and related services
in 1997. Mr. Shaw, a director of the Company, is a managing director and
significant shareholder of Resource, and therefore may be deemed to have
an interest in any payments to Resource.
Stock Transaction Reports by Officers, Directors and 10% Stockholders
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors, executive officers and holders of more than 10%
of the Company's common stock to file with the Commission initial reports
of ownership and reports of changes in ownership of common stock and other
equity securities of the Company. Other than one late filing by Mr. Shaw,
to the Company's knowledge, based solely on copies of reports furnished to
the Company and information furnished by the reporting persons, each
officer, director and 10% stockholder of the Company was in compliance
with all reporting requirements under Section 16(a) for the year ended
December 31, 1997.
-37-
<PAGE>
PART IV
Item 13 - Exhibits and Reports on Form 8-K
The following documents are filed as part of this report:
(a) Exhibits:
3.1 Articles of Incorporation and By-Laws of National Capital
Management Corporation (the "Company" or "NCMC")
(incorporated by reference from Schedule 4 to the Prospectus
included in the Registration Statement on Form S-4 of the
Company (No. 33 19149) filed on December 18, 1987 (the
"Registration Statement")).
3.2 Certificate of Amendment of Certificate of Incorporation of
National Capital Management Corporation implementing one for
three reverse stock split dated June 29, 1995.
3.3 Resolution of Board of Directors amending NCMC By-Laws dated
April 12,1995 (incorporated by reference from Exhibit
3(ii).1 of the Annual Report on Form 10-K of the Company
filed on April 17, 1995).
4.1 Form of Warrant for 2,400,000 shares of NCMC common stock
(incorporated by reference from Exhibit 4.1 of the Annual
Report on Form 10-K of the Company filed on March 29, 1988).
4.2 Form of Warrant for 214,285 shares of NCMC common stock
(incorporated by reference from Exhibit 4.2 of the Annual
Report on Form 10-K of the Company filed on March 29, 1988).
10.1 Registration Agreement dated February 25, 1988 between NCMC
and certain other persons (incorporated by reference from
Exhibit 10.3 of the Annual Report on Form 10-K of the
Company filed on March 29, 1988).
10.2 Employment Agreement dated September 1, 1990 between James
J. Pinto and NCMC (incorporated by reference from Exhibit
10.4 of the Annual Report on Form 10-K of the Company filed
on April 1, 1991).
10.3 Amended and Restated Employment Agreement dated as of June
15, 1994 between James J. Pinto and NCMC (incorporated by
reference from Exhibit 10.3 of the Annual Report on Form 10-K of
the Company filed on April 17, 1995).
10.4 Agreement dated as of April 1, 1995 between James J. Pinto
and NCMC (incorporated by reference from Exhibit 10.4 of the
Annual Rep ort on Form 10-K of the Company filed on April 17,
1995).
10.5 Consulting Agreement dated January 1, 1992 between John C.
Shaw and NCMC (incorporated by reference from Exhibit 10.5
of the Annual Report on Form 10-K of the Company filed on
April 15, 1992).
10.6 Amended and Restated Employment Agreement dated as of June
15, 1994 between John C. Shaw and NCMC (incorporated by
reference from Exhibit 10.6 of the Annual Report on Form 10-K of
the Company filed on April 17, 1995).
10.7 Agreement dated as of April 1, 1995 between John C. Shaw and
NCMC (incorporated by reference from Exhibit 10.7 of the
Annual Report on Form 10-K of the Company filed on April 17,
1995).
-38-
<PAGE>
10.8 Second Amended and Restated Agreement of Limited Partnership
of Redbird Trails Associates, L.P. by and among NCQ Redbird,
Inc. National Corporate Tax Credit Fund and National
Corporate Tax Credit, Inc. dated as of November 23, 1994
(incorporated by reference from Exhibit 10.3 of the Annual
Report on Form 10-K of the Company filed on April 17, 1995).
10.9 Operating Deficit and Rental Achievement Agreement among
Redbird Trails Associates, L.P., National Capital Management
Corp., National Corporate Tax Credit Fund and National
Corporate Tax Credit, Inc. dated as of June 6, 1994
(incorporated by reference from Exhibit 10.7 of the
Quarterly Report on Form 10-QSB of the Company filed on
August 15, 1994).
10.10 Second Amended and Restated Agreement of Limited Partnership
of Signature Midwest, L.P. by and among NCQ North Oak, Inc.
National Corporate Tax Credit Fund and National Corporate
Tax Credit, Inc. dated as of November 23, 1994 (incorporated
by reference from Exhibit 10.3 of the Annual Report on Form
10-K of the Company filed on April 17, 1995).
10.11 Operating Deficit and Rental Achievement Agreement among
Signature Midwest, L.P., National Capital Management Corp.,
National Corporate Tax Credit Fund and National Corporate
Tax Credit, Inc. dated as of November 23, 1994 (incorporated
by reference from Exhibit 10.3 of the Annual Report on Form
10-K of the Company filed on April 17, 1995).
10.12 Employment Agreement dated as of March 1, 1994 between NCMC
and Kenneth M. Klein (incorporated by reference from Exhibit
10.15 of the Annual Report on Form 10-KSB of the Company
filed on March 31, 1994).
10.13 Loan Agreement by and between Bank One and National Capital
Benefits Corp. dated December 29, 1995.
10.14 Security Agreement and Assignment by National Capital
Benefits Corp. for the benefit of Bank One dated December
28, 1995.
10.15 Senior Subordinated Note and Warrant Purchase Agreement by
and between National Capital Benefits Corp. and Banc One
Capital Partners V, Ltd. dated December 29, 1995.
10.16 Warrant Certificate from National Capital Benefits Corp. in
favor of Banc One Capital Partners V, Ltd. dated December
29, 1995.
10.17 Property Purchase Agreement by and between National Capital
Management Corporation and William R. Dixon, Jr. for sale of
The Mart Shopping Center dated July 26, 1995.
10.18 Option Agreement by and between Georgia Properties, Inc. and
William R. Dixon, Jr. for the sale of Appletree Townhouses
dated December 21, 1995.
10.19 Promissory Note from William R. Dixon, Jr. in favor of
Georgia Properties, Inc. dated March 29, 1996.
10.20 Agreement of Purchase and Sale of Stock among AMKO USA,
Inc., National Capital Management Corporation and Jensen
Corporation dated October 30, 1995.
10.21 Promissory Note from AMKO USA, Inc. in favor of National
Capital Management Corporation for $1,311,000 dated November
1995.
10.22 Guaranty of Note from AMKO International B.V. in favor of
National Capital Management Corporation dated November 1995
related to Promissory Note in amount of $1,311,000.
10.23 Promissory Note from Jensen Corporation in favor of National
Capital Management Corporation for $765,000 dated November
1995.
-39-
<PAGE>
10.24 Promissory Note from Jensen Corporation in favor of National
Capital Management Corporation for $337,650 dated November
1995.
10.25 Guaranty of Note from AMKO International B.V. in favor of
National Capital Management Corporation dated November 1995
related to Promissory Note in amount of $765,000.
10.26 Guaranty of Note from Jan Oerlemans in favor of National
Capital Management Corporation dated November 1995 related
to Promissory Note in amount of $1,311,000.
10.27 Letter of revisions of the Asset Purchase Agreement between
National Capital Benefits Corp. and AutoLend Group, Inc.
dated October 6, 1995.
10.28 Promissory Note between National Capital Management
Corporation and Fifth Avenue Partners dated October 26,
1995.
10.29 Subsidiaries of NCMC (including controlled partnerships).
(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.
The Company filed a Form 8-K dated February 27, 1998 with the commission
stating the Company's change in certifying accountant retained to handle
the audit for the year ended December 31, 1997.
-40-
<PAGE>
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) 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
By: /s/ JOHN C. SHAW
John C. Shaw
Chief Executive Officer,
Principal Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
By: /s/ HERBERT J. JAFFE
Herbert J. Jaffe, Director
April 6, 1998
By: /s/ JAMES PINTO
James Pinto, Director
April 6, 1998
By: /s/ JOHN C. SHAW
John C. Shaw, Director
April 6, 1998
By: /s/ DAVID FAULKNER
David Faulkner, Director
April 6, 1998
-41-
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<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
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