U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended June 30, 1999
Commission file number 0-16819
FragranceNet.com, Inc.
(Exact name of registrant as specified in its charter)
Delaware 94-3054267
(State or other jurisdiction of (I.R.S.Employer Identification Number)
incorporation or organization)
2070 Deer Park Avenue Deer Park NY 11729
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (516) 242-3205
Former name, former address and former fiscal year, if changed from last
report
National Capital Management Corporation 520 Madison Ave. N.Y., N.Y. 10022
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12
months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No ___________
Number of common shares outstanding as of June 30, 1999:
Common stock, $0.01 par value, 1,673,190 shares
<PAGE>
FRAGRANCENET.COM, INC.
(FORMERLY NATIONAL CAPITAL MANAGEMENT CORPORATION)
FORM 10-QSB QUARTERLY REPORT
JUNE 30, 1999
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
Consolidated Balance Sheets as of June 30, 1999
(unaudited) and December 31, 1998 3
Consolidated Statements of Operations for the three
and six months ended June 30, 1999 and 1998 (unaudited) 4
Consolidated Statements of Cash Flows for the six
months ended June 30, 1999 and 1998 (unaudited) 5
Notes to Consolidated Financial Statements 6-11
ITEM II. Management's Discussion and Analysis of
Financial Condition and
Results of Operations 12-14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of
Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
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<PAGE>
FRAGRANCENET.COM, INC.
(FORMERLY NATIONAL CAPITAL MANAGEMENT CORPORATION)
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1999 AND DECEMBER 31, 1998
<TABLE>
June 30, December 31,
1999 1998
ASSETS (Unaudited) (Audited)
<S> <C> <C>
Cash and cash equivalents $2,106,022 $2,058,674
Other receivable - 75,000
Accounts receivable - 3,711
Property and equipment, less accumulated
depreciation of $-0- and $80,718 at
June 30, 1999 and December 31, 1998,
respectively - 24,113
Net assets of discontinued operations -
Real Estate Segment - 11,426
Viatical Settlements Segment -
Other assets - 39,960
Total assets $2,106,022 $2,212,884
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
Net liabilities of discontinued operations -
Viatical Settlements Segment $ - $ 493,015
Accrued liabilities 34,624 71,007
Total current liabilities 34,624 564,022
Shareholders' equity:
Preferred stock, $0.01 par value,
3,000,000 shares authorized, no shares
issued and outstanding - -
Common stock, $0.01 par value, 6,666,666
shares authorized, 1,813,056 shares
issued, 1,673,190 outstanding 16,732 16,732
Additional paid-in capital 23,618,139 23,125,123
Accumulated deficit (21,389,256)(21,318,776)
Treasury stock, 139,866 shares at
June 30, 1999 and
December 31, 1998 (174,217) (174,217)
Total shareholders' equity 2,071,398 1,648,862
Total liabilities and shareholders' equity $ 2,106,022 $2,212,884
</TABLE>
See Accompanying Notes to Financial Statements.
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<PAGE>
FRAGRANCENET.COM, INC.
(FORMERLY NATIONAL CAPITAL MANAGEMENT CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
<TABLE>
Three months ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Income (expense):
Other income $ 17,638 $ 66,833 $ 34,330 $ 77,726
Corporate administrative
expense (301,745) (299,633) (424,235) (437,072)
Net loss from
continuing operations
after tax (284,107) (232,800) (389,905) (359,346)
Discontinued operations:
Net operating income
(loss):
Viatical settlements
(Note 2) - (25,201) (3,750) (25,201)
Real estate segment
(Note 3) - (43,932) (399) (30,973)
Gain on disposal of
real estate segment,
Net of taxes of
approximately
$43,000 in 1998
(Note 3) 323,574 655,374 323,574 655,374
Net income from
discontinued
operations 323,574 586,241 319,425 599,200
Net income (loss) $ 39,467 $353,441 $(70,480) $239,854
Net loss from
continuing operations
per share $(.18) $(.14) $(.24) $(.21)
Net income from
discontinued operations
per share .20 .35 .20 .35
Net income (loss)
per share $ .02 $ .21 $(.04) $ .14
Average number of
shares outstanding 1,673,190 1,673,190 1,673,190 1,673,190
</TABLE>
See Accompanying Notes to Financial Statements.
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<PAGE>
FRAGRANCENET.COM, INC.
(FORMERLY NATIONAL CAPITAL MANAGEMENT CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
<TABLE>
1999 1998
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (70,480) $ 239,854
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation 4,380 4,380
Bad debt expense - 127,767
Gain on sale of real estate segment (323,574) (655,374)
Loss on disposal of fixed assets 19,733 -
Changes in operating assets and
liabilities:
Decrease in accounts receivable 3,711 -
Increase (decrease) in accounts
payable and accrued liabilities (36,382) 44,234
Increase (decrease) in other assets 39,960 (3,736)
Net cash used in operating activities (362,652) (242,875)
Change in net assets of discontinued
operations - (373,691)
Cash flows from investing activities:
Proceeds from sale of real estate segment 335,000 2,499,101
Collections on notes receivable 75,000 56,785
Net cash provided by investing activities 410,000 2,555,886
Increase in cash and cash equivalents 47,348 1,939,320
Cash and cash equivalents at beginning
of period 2,058,674 56,035
Cash and cash equivalents at end of period $2,106,022 $1,995,355
</TABLE>
See Accompanying Notes to Financial Statements.
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<PAGE>
FRAGRANCENET.COM, INC.
(FORMERLY NATIONAL CAPITAL MANAGEMENT CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
(Unaudited)
NOTE 1 - THE COMPANY AND BASIS OF PRESENTATION
The financial information for the three and six month periods ended June
30, 1999 and 1998 presented in this Form 10-QSB has been prepared from the
accounting records without audit. The information furnished reflects all
adjustments (consisting of only normal recurring adjustments) which are,
in the opinion of management, necessary for a fair statement of the
results of interim periods. The results of operations for the three
months ended June 30, 1999 are not necessarily indicative of the results
to be expected for a full year. The consolidated balance sheet as of
December 31, 1998 has been derived from audited financial statements.
This report should be read in conjunction with the consolidated financial
statements included in the Company's December 31, 1998 Annual Report to
shareholders on Form 10-KSB as filed with the Securities and Exchange
Commission.
On July 28, 1999 the Company merged with TeleScents, Inc. and changed its
name to FragranceNet.com, Inc. (See Note 6.)
Prior to 1995, the Company had been comprised of three distinctly
different operating businesses, the Viatical Settlements 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.
The remainder of the Real Estate Segment was sold for $335,000 in May,
1999 (see Note 3).
The Viatical Settlement Segment was disposed of in June, 1999 (see Note 2).
Subsequent to June 30, 1999 the Company declared a dividend of $.58 per
share (see Note 6).
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.
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 basic earnings per share but included
in the computation of diluted earnings per share. All earnings per share
amounts have been restated so as to comply with Statement No. 128.
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<PAGE>
NOTE 2 - DISCONTINUED OPERATIONS - VIATICAL SETTLEMENTS SEGMENT
The results of the Viatical Settlements Segment have been reported
separately as discontinued operations in these consolidated statements of
operations.
In December 1996, the Company decided to discontinue the operations of the
Viatical Settlements Segment. The Company reduced its staff and expects
that the remaining personnel will administer the orderly liquidation of
its existing portfolio. The Company established a $1,500,000 valuation
reserve during 1996 against accrued policy revenues and purchased policy
costs which represents the estimated expected loss on holding the remaining
policies to maturity in order to reflect management's estimate of the fair
market value of the net assets. During the fourth quarter ended
December 31, 1997, the Company increased its original reserve by $350,000.
In addition, management reevaluated the expected costs of operations and
accordingly increased the reserve by $522,000 as of December 31, 1998.
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.
Because the Company is under no obligation to fund the liability
associated with the cost of operations of the Viatical Settlements
Segment, the liability of the discontinued operation at December 31, 1998
was reclassified to additional paid-in-capital.
On June 29, 1999, the Company sold all outstanding shares of the Viatical
Settlements Segment to an entity controlled by the former Chief Executive
Officer/Director of the Company. As consideration, the Purchaser assumed
all obligations to Bank One and Bank One Capital Partners V, Ltd.
Summarized below are the operations of the Company's Viatical Settlements
Segment for the three and six months ended June 30, 1999 and 1998:
<TABLE>
For the three For the six
months ended months ended
June 30, June 30,
1999 1998 1999 1998
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenue accrued and
received $374,778 $ 867,340 $846,082 $1,901,078
Cost of insurance
policies (286,026) (686,820) (642,907) (1,443,663)
Valuation reserve
income 116,305 170,532 210,393 262,737
Earned discount 205,057 351,052 413,568 720,152
Interest expense (141,848) (274,975) (281,848) (583,349)
Earned discount after
interest expense 63,209 76,077 131,720 136,803
General and
administrative
expenses (63,209) (101,278) (131,720) (162,004)
Net income (loss) $ - $(25,201) - $ (25,201)
</TABLE>
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<PAGE>
NOTE 2 - DISCONTINUED OPERATIONS - VIATICAL SETTLEMENTS SEGMENT
(CONTINUED)
The components of the Viatical Settlements Segment net assets
(liabilities) from discontinued operations in the consolidated balance
sheets as of June 30, 1999 and December 31, 1998 are as follows:
<TABLE>
June 30, December 31,
1999 1998
(Unaudited) (Audited)
<S> <C> <C>
Purchased policy costs, less amortized
policy costs of $-0- and $20,668,126,
respectively $ - $ 1,583,337
Valuation reserve - (666,899)
Accrued policy revenues, less matured
revenues valuation of $-0- and
$9,586,769, respectively - 15,266,332
Revolving credit facility - (3,660,216)
Subordinated note payable - (2,000,000)
Reinsurance liability - (10,522,723)
Other, net - (492,846)
$ - $ (493,015)
</TABLE>
NOTE 3 - DISCONTINUED OPERATIONS - REAL ESTATE SEGMENT
On November 27, 1995, the Company elected to discontinue operations of the
Real Estate Segment to concentrate its efforts on its Viatical Settlements
Segment. The following is a description of the Company's recent disposal
activity:
Colony Ridge Apartments
Colony Ridge Apartments was an apartment complex in Decatur, Georgia which
was constructed in 1968 and consisted of 23 two-story buildings containing
a total of 212 apartment units. On May 6, 1998, the Company sold the
Colony Ridge Apartments for $3,650,000. The Company received net proceeds
of approximately $2,500,000. The difference between the sales price and
the net proceeds received was due to the repayment of the mortgage, state
taxes, and miscellaneous expenses. The Company reported a gain, net of
income taxes, of approximately $650,000 during 1998.
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. For the three and six months ended June 30, 1999 the
Company received management fees of approximately $8,400 and $16,100.
respectively.
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<PAGE>
NOTE 3 - DISCONTINUED OPERATIONS - REAL ESTATE SEGMENT (CONTINUED)
In May 1999, the Company sold to NCM Management Ltd. the real estate
company currently providing management services to these properties,
which is controlled by a former Director of the Company, its residual
interest in such properties, including the right to receive the
aforementioned management fee, for $335,000.
The results of the Real Estate Segment have been reported separately as
discontinued operations in these consolidated statements of operations.
Summarized below are the operations of the Company s Real Estate Segment
for the three and six months ended June 30, 1999 and 1998:
<TABLE>
For the three months For the six months
ended June 30, ended June 30,
1999 1998 1999 1998
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Total revenues $ - $113,560 $ - $393,148
Costs and expenses:
Operations and
maintenance - 80,045 - 227,477
Property taxes and
insurance - 2,101 - 22,143
Depreciation and
amortization - 25,000 - 100,000
Net interest - 16,940 - 41,095
Corporate administrative
expenses 399 33,406 399 33,406
Total costs and expenses (399) (157,492) (399) (424,121)
Net income (loss) $ (399) $(43,932) $ (399) $(30,973)
</TABLE>
NOTE 4 - DISCONTINUED OPERATIONS - INDUSTRIAL PRODUCTS SEGMENT
The Industrial Products Segment was discontinued during 1995. It
consisted of the Company's wholly-owned subsidiary, Jensen Corporation
("Jensen"), which manufactured and distributed machinery used primarily by
commercial laundries, large institutions and hotels as well as commercial
compactor products for waste disposal. On November 10, 1995, the Company
sold 100% of the common stock of Jensen, located in Fort Lauderdale,
Florida to AMKO USA, Inc. ("AMKO"), an affiliate of AMKO International
B.V. which is based in The Netherlands, for $1,726,000. The sale proceeds
included cash of $415,000 and a promissory note receivable in the amount
of $1,311,000 which was secured by Jensen's stock, accounts receivable and
inventory. The $1,311,000 note was guaranteed in its entirety by AMKO
International B.V., and the sole shareholder of AMKO International B.V.
guaranteed, as amended May 16, 1997, $500,000 of payments, of all notes.
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 was secured by the assets of Jensen. These notes were
guaranteed by AMKO International B.V.
-9-
<PAGE>
NOTE 4 - DISCONTINUED OPERATIONS - INDUSTRIAL PRODUCTS SEGMENT (CONTINUED)
The $1,311,000 note, as amended May 16, 1997, bore interest at 8.5% per
annum and was 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, bore interest at 8.5% per annum and was 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, bore
interest at 8.5% per annum and was 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 which bore
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 prepaid $500,000 on or before April 1, 1998. If
extended, the interest rate on all of the notes would increase to 12%.
The Company charged AMKO a fee of $200,000 in conjunction with the
amendment. The fee was paid on May 16, 1997.
The Company loaned Jensen an additional $200,000 in conjunction with the
May 16, 1997 modification and an additional $36,000 in October 1997.
These notes bore 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 are either to be distributed pursuant to an
evidentiary hearing or a prior court approved agreement with the trustee.
In March 1999, a settlement was reached with the trustee, in which a
payment of $75,000 would be made to the Company, as a result of the sale
of Jensen's inventory, in exchange for which the Company would assert no
further claims against the debtor. This payment was received in May 1999.
As a result of the bankruptcy filing, the Company reduced the value of its
notes receivable to $150,000 as of December 31, 1997. The Company
received approximately $73,000 during 1998 and the remaining balance was
written off as of December 31, 1998.
AMKO International filed for and was discharged from the bankruptcy in the
Netherlands between January and April 1998.
The Company had pursued a remedy in judicial proceedings in the
Netherlands with a procedural result that would allow the Company to
pursue AMKO International in the United States courts. As of February
1999, the Company released both AMKO International and its successor in
interest from any and all claims. In addition, the Company and FNM
Holdings NV (a Netherlands bank) agreed to settle all potential lender
liability claims. As a result of the foregoing, the Company was free to
pursue the former owner of AMKO International "solely" on his personal
guarantee. This claim against the personal guarantee will allocate any
proceeds received on the basis of 75% to the Company and 25% to FNM
Holding, N.V., after all expenses have been paid. The Company cannot
predict the outcome of this litigation or the likelihood that it will be
pursued. This claim was assigned to entities controlled by the former
Chairman/Director and the former Chief Executive Officer/Director in
exchange for their agreement to undertake certain limited indemnifications
in connection with the merger.
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<PAGE>
NOTE 5 - CONCENTRATION OF RISK
The Company has bank balances in excess of the $100,000 of depository
insurance provided by the Federal Deposit Insurance Corporation.
NOTE 6 - SUBSEQUENT EVENTS:
On July 28, 1999, the Company entered into an Agreement and Plan of Merger
by and among the Company, FAC, Inc., and TeleScents, Inc. (the "Merger
Agreement") pursuant to which the Company, through its wholly-owned
subsidiary, FAC, Inc., merged with and into TeleScents, Inc.
("TeleScents"), a private closely-held company organized under the laws of
the State of New York. Pursuant to the terms of the Merger Agreement,
FAC, Inc. merged with and into TeleScents (the "Merger"), whereupon the
separate corporate existence of FAC, Inc. ceased, and TeleScents continued
as the surviving corporation ("Surviving Corporation"). As Merger
consideration for the shares of TeleScents, the Company issued to the
Shareholders of TeleScents, Inc. (collectively, the "Shareholders") an
aggregate of 4,900,000 shares of the Company's Common Stock and an
aggregate of newly authorized 1,029,514 shares of the Company's Series A
Preferred Stock having a par value of $.01 per share (the "Preferred
Stock"). The Preferred Stock is convertible into the Company's Common
Stock on a 1-for-10 basis at such time as the Company has sufficient
number of authorized shares. In accordance with the Post-Closing
Agreement dated July 28, 1999, the Company anticipates that the Preferred
Stock will be converted into 10,295,140 shares of Common Stock in
connection with a shareholders' meeting to be held as soon as practicable.
The Company intends to recommend to Shareholders as soon as practicable
an amendment to the Company's Certificate of Incorporation to increase the
number of shares to allow for the foregoing conversion. The Preferred
Stock carries voting privileges on an "as converted" basis. Accordingly,
the Shareholders, in the aggregate, hold approximately 89.55% of the
Company's voting stock.
Subsequent to June 30, 1999 but prior to July 28, 1999, 40,000 options
expiring three years from the date of issuance and exercisable at $.40
per share were issued to the four directors of the Company. In
accordance with the Merger Agreement, three of the directors resigned on
July 28, 1999. In addition, in connection with identifying and
negotiating the transaction with TeleScents and providing the Company
with advising services in connection with the merger, on the date of
closing a corporation controlled by the former Chairman and a
partnership managed by the former Chief Executive Officer each received
three-year warrants to purchase 30,000 shares of common stock of the
Company at an exercisable price of $.40 per share, and $45,000 and
$15,000 in cash, respectively. All of the above options and warrants
vested immediately.
The Company declared a cash dividend of $.58 per share to the Shareholders
of record as of the close of business on July 20, 1999. The dividend will
be paid on August 12, 1999.
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<PAGE>
FRAGRANCENET.COM, INC.
(FORMERLY NATIONAL CAPITAL MANAGEMENT CORPORATION)
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS:
Overview
The following is a discussion and analysis of the consolidated financial
condition of the Company as of June 30, 1999 and of the results of
operations for the Company for the three and six months ended June 30,
1999 and 1998, and of certain factors that may affect the Company's
prospective financial condition and results of operations. The following
is supplemental to and should be read in conjunction with the Company's
December 31, 1998 Annual Report to shareholders on Form 10-KSB as filed
with the Securities and Exchange Commission, and the financial information
and accompanying notes beginning on page 3 of this report.
Information contained in this discussion and analysis contains "forward-
looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, which can be identified by the use of
forward-looking terminology such as "may", "will", "expect", "plan",
"anticipate", "estimate" or "continue" or the negative thereof or other
variations thereon or comparable terminology. There are certain important
factors that could cause results to differ materially from those
anticipated by some of these forward-looking statements. Investors are
cautioned that all forward-looking statements involve risks and
uncertainty. The factors, among others, that could cause actual results
to differ materially include: cures and advances in medical treatments for
terminal illnesses; dependence on medical consultants and an ability to
predict life expectancy; the Company's ability to execute its business
plan, and the ability to collect reinsurance recoveries from a single
reinsurance facility.
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ significantly
from those estimates.
Material estimates that are particularly susceptible to significant change
in the near term relate to the determination of the valuation reserve
against accrued policy revenues and the cost of purchased policies and the
collectibility of notes receivable.
On July 28, 1999, the Company entered into an Agreement and Plan of Merger
by and among the Company, FAC, Inc., and TeleScents, Inc. (the "Merger
Agreement") pursuant to which the Company, through its wholly-owned
subsidiary, FAC, Inc., merged with and into TeleScents, Inc.
("TeleScents"), a private closely-held company organized under the laws of
the State of New York. Pursuant to the terms of the Merger Agreement,
FAC, Inc. merged with and into TeleScents (the "Merger"), whereupon the
separate corporate existence of FAC, Inc. ceased, and TeleScents continued
as the surviving corporation ("Surviving Corporation"). As Merger
consideration for the shares of TeleScents, the Company issued to the
Shareholders of TeleScents, Inc. (collectively, the "Shareholders") an
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<PAGE>
aggregate of 4,900,000 shares of the Company's Common Stock and an
aggregate of newly authorized 1,029,514 shares of the Company's Series A
Preferred Stock having a par value of $.01 per share (the "Preferred
Stock"). The Preferred Stock is convertible into the Company's Common
Stock on a 1-for-10 basis at such time as the Company has sufficient
number of authorized shares. In accordance with the Post-Closing
Agreement, the Company anticipates that the Preferred Stock will be
converted into 10,295,140 shares of Common Stock in connection with a
shareholders' meeting to be held as soon as practicable. The Company
intends to recommend to Shareholders as soon as practicable an amendment
to the Company's Certificate of Incorporation to increase the number of
shares to allow for the foregoing conversion. The Preferred Stock carries
voting privileges on an "as converted" basis. Accordingly, the
Shareholders, in the aggregate, hold approximately 89.55% of the Company's
voting stock.
Accounting for long-lived assets
For the six months ended June 30, 1999 and calendar year December 31,
1998, the Company has applied SFAS 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", and
determined that certain adjustments for impairment were required. In
addition to the write-down of several assets of the Company, a $1.5
million valuation reserve was established during 1996 against accrued
policy revenues and purchased policy costs in order to reflect
management's estimate of the fair market value of the net assets. During
the fourth quarter ended December 31, 1997 and 1998, the Company increased
its original reserve by $350,000 and $522,000, respectively (Note 2).
Financial condition and liquidity
The Company's cash decreased from $2,058,674 as of December 31, 1998 to
$2,106,022 at June 30, 1999, principally as a result of financing
operating activities.
With the disposal of its Viatical Settlements Segment, the Company does
not have any existing general credit facilities to fund its ongoing
working capital requirements. These lending facilities were amended in
1997 in light of management's decision to discontinue the Viatical
Settlements Segment and liquidate the portfolio.
Results of operations
The remainder of the Real Estate Segment was sold for $335,000 in May,
1999 (see Note 3).
The Viatical Settlement Segment was disposed of in June, 1999 (see Note
2).
During the three and six months ended June 30, 1999, approximately $-0-
and $362,500 of life insurance policies matured as compared to $160,000
and $297,500 for the same period last year.
-13-
<PAGE>
On May 6, 1998, the Company sold the Colony Ridge Apartments for
$3,650,000. The Company received net proceeds of approximately
$2,500,000. The difference between the sales price and the net proceeds
received was due to the repayment of the mortgage, state taxes, and
miscellaneous expenses. The Company reported a gain, net of income taxes,
of approximately $650,000 during 1998.
YEAR 2000
The Year 2000 problem is the result of computer programs being written
with two digits instead of four digits to define the applicable year. The
Company believes based upon its internal reviews and other factors, that
future external and internal costs to be incurred relating to the
modification of internal-use software for the Year 2000 will not have a
material adverse effect on the Company's results of operations or
financial position. The Company, due to the fact that it is in the
process of orderly liquidating its discontinued operations, only makes
minimal use of computers in operating its business. In addition, the
Company believes that its internal computer systems, facilities and
equipment will be upgraded, where required, for Year 2000. However, there
is no assurance that all of the upgrades will be completed in time or
function as intended. In such an event, the Company may experience
significant disruptions, the cost of which the Company is unable to
estimate at this time. The Company, also, cannot assure that its failure
or failure of third parties to address adequately Year 2000 issues will
not have a material effect on the Company.
-14-
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable
ITEM 2. CHANGES IN SECURITIES
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Not applicable
-15-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FRAGRANCENET.COM, INC.
(FORMERLY NATIONAL CAPITAL
MANAGEMENT CORPORATION
Dated: By: //s// Dennis M. Apfel
Dennis M. Apfel
Chief Financial Officer
-16-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 2,106,022
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,106,022
<CURRENT-LIABILITIES> 34,624
<BONDS> 0
0
0
<COMMON> 16,732
<OTHER-SE> 2,054,666
<TOTAL-LIABILITY-AND-EQUITY> 2,106,022
<SALES> 0
<TOTAL-REVENUES> 34,330
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 424,235
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (389,905)
<INCOME-TAX> 0
<INCOME-CONTINUING> (389,905)
<DISCONTINUED> 319,425
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (70,480)
<EPS-BASIC> (.04)
<EPS-DILUTED> (.04)
</TABLE>
