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 March 31, 1999
Commission file number 0-16819
National Capital Management Corporation
(Exact name of registrant as specified in its charter)
Delaware 94-3054267
(State or other jurisdiction of (I.R.S.Employer Identification Number)
incorporation or organization)
520 Madison Avenue New York NY 10022
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 980-3883
Former name, former address and former fiscal year, if changed from last
report
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12
months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No ___________
Number of common shares outstanding as of March 31, 1999:
Common stock, $0.01 par value, 1,673,190 shares
<PAGE>
NATIONAL CAPITAL MANAGEMENT CORPORATION
FORM 10-QSB QUARTERLY REPORT
MARCH 31, 1999
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
Consolidated Balance Sheets as of March 31, 1999
(unaudited) and December 31, 1998 3
Consolidated Statements of Operations for the three
months ended March 31, 1999 and 1998 (unaudited) 4
Consolidated Statements of Cash Flows for the three
months ended March 31, 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>
NATIONAL CAPITAL MANAGEMENT CORPORATION
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1999 AND DECEMBER 31, 1998
<TABLE>
March 31, December 31,
1999 1998
ASSETS (Unaudited) (Audited)
<S> <C> <C>
Cash and cash equivalents $1,931,982 $2,058,674
Other receivable 75,000 75,000
Accounts receivable 3,854 3,711
Property and equipment, less accumulated
depreciation of $82,908 and $80,718 at
March 31, 1999 and December 31, 1998,
respectively 21,923 24,113
Net assets of discontinued operations -
Real Estate Segment 11,027 11,426
Viatical Settlements Segment 1 -
Other assets 37,746 39,960
Total assets $2,081,533 $2,212,884
</TABLE>
<TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Net liabilities of discontinued operations -
Viatical Settlements Segment $ - $ 493,015
Accrued liabilities 49,602 71,007
Total current liabilities 49,602 564,022
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 (21,428,723)(21,318,776)
Treasury stock, 139,866 shares at
March 31, 1999 and
December 31, 1998 (174,217) (174,217)
Total shareholders' equity 2,031,931 1,648,862
Total liabilities and shareholders' equity $2,081,533 $2,212,884
</TABLE>
See Accompanying Notes to Financial Statement.
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<PAGE>
NATIONAL CAPITAL MANAGEMENT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
<TABLE>
1999 1998
(Unaudited) (Unaudited)
<S> <C> <C>
Income (expense):
Other income $ 16,692 $ 10,893
Corporate administrative expense (122,490) (137,439)
Net loss from continuing operations before tax (105,798) (126,546)
Provision for income taxes - -
Net loss from continuing operations after tax (105,798) (126,546)
Discontinued operations:
Net operating income (loss):
Viatical settlements (Note 2) (3,750) -
Real estate segment (Note 3) (399) 12,959
Net income (loss) from discontinued operations (4,149) 12,959
Net loss $(109,947) $(113,587)
Net loss from continuing operations per share $(.06) $(.08)
Net income (loss) from discontinued
operations per share (.01) .01
Net loss per share $(.07) $(.07)
Average number of shares outstanding 1,673,190 1,673,190
</TABLE>
See Accompanying Notes to Financial Statements.
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<PAGE>
NATIONAL CAPITAL MANAGEMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
<TABLE>
1999 1998
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (109,947) $(113,587)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation 2,190 2,190
Changes in operating assets and liabilities:
Increase in accounts receivable (143) -
Increase (decrease) in accounts
payable and accrued liabilities (21,405) 85,212
Decrease in other assets 2,214 -
Net cash used in operating activities (127,091) (26,185)
Change in net assets of discontinued
operations 399 2,051
Decrease in cash and cash equivalents (126,692) (24,134)
Cash and cash equivalents at beginning
of period 2,058,674 56,035
Cash and cash equivalents at end of period $1,931,982 $ 31,901
Supplemental information:
Interest paid $122,004 $269,131
</TABLE>
See Accompanying Notes to Financial Statements.
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<PAGE>
NATIONAL CAPITAL MANAGEMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
(Unaudited)
NOTE 1 - THE COMPANY AND BASIS OF PRESENTATION
The financial information for the three month period ended March 31, 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 March 31, 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.
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 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.
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.
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.
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<PAGE>
NOTE 2 - DISCONTINUED OPERATIONS - VIATICAL SETTLEMENTS SEGMENT
(CONTINUED)
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. 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 quarter ended March 31,
1999, 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
has been reclassified to additional paid-in-capital and the value of the
Viatical Settlements Segment as of March 31, 1999 is $1.
NCBC has an insurance contract with NCB Insurance Ltd. ("NCB"), a wholly-
owned subsidiary of NCBC, which automatically provides for payment of 90%
of the face value of the policies purchased at a specified period of time
after the expected maturity date, in accordance with the contract. NCB,
in turn, has reinsured this risk with several large, non-affiliated
international reinsurance companies. NCBC, through NCB, maintains a
participation in the residual 10%.
The anticipated reinsurance recoveries represent a substantial element of
the cash flow projections used to determine the valuation reserve. While
management expects full collection of reinsurance recoveries, these
recoveries from the sole reinsurance facility represent a significant
concentration of risk.
Summarized below are the operations of the Company's Viatical Settlements
Segment for the three months ended March 31, 1999 and 1998:
<TABLE>
1999 1998
(Unaudited) (Unaudited)
<S> <C> <C>
Revenue accrued and received $471,304 $1,033,738
Cost of insurance policies (356,881) (756,843)
Valuation reserve income 94,088 92,205
Earned discount 208,511 369,100
Interest expense (140,000) (308,374)
Earned discount after interest expense 68,511 60,726
General and administrative expenses 71,937 60,453
Depreciation and amortization 324 273
Net loss $ (3,750) $ -
</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 March 31, 1999 and December 31, 1998 are as follows:
<TABLE>
March 31, December 31,
1999 1998
(Unaudited) (Audited)
<S> <C> <C>
Purchased policy costs, less amortized
policy costs of $21,025,066 and
$20,668,126, respectively $ 1,226,367 $ 1,583,337
Valuation reserve (572,891) (666,899)
Accrued policy revenues, less matured
revenues valuation of $9,949,269 and
$9,586,769, respectively 15,124,774 15,266,332
Revolving credit facility (2,380,791) (3,660,216)
Subordinated note payable (2,000,000) (2,000,000)
Reinsurance liability (11,377,619) (10,522,723)
Other, net (19,839) (492,846)
$ 1 $ (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 $695,270 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.
-8-
<PAGE>
NOTE 3 - DISCONTINUED OPERATIONS - REAL ESTATE SEGMENT (CONTINUED)
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 not received any
excess cash flows for the three months ended March 31, 1999 and 1998. The
Company is entitled to a 2% management fee from the partnerships. For the
three month period ended March 31, 1999 and 1998 the Company received
management fees of approximately $7,700 and $11,000, respectively.
The Company is presently in negotiations with NCM Management Ltd., the
real estate company currently providing management services to these
properties, to sell its residual interest in such properties, including
the right to receive the aforementioned management fee, for a fee of
$335,000. Negotiations are preliminary, however, and the Company makes no
assurances that this transaction will be consummated.
The results of the Real Estate Segment have been reported separately as
discontinued operations in these consolidated statements of operations.
Summarized below are the operations of the Company s Real Estate Segment
for the three months ended March 31, 1999 and 1998:
<TABLE>
1999 1998
(Unaudited) (Unaudited)
<S> <C> <C>
Total revenues $ - $279,588
Costs and expenses:
Operations and maintenance - 147,432
Property taxes and insurance - 20,042
Depreciation and amortization - 75,000
Net interest - 24,155
Corporate administrative expense 399 -
Total costs and expenses 399 266,629
Net income (loss) $ (399) $ 12,959
</TABLE>
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<PAGE>
NOTE 3 - DISCONTINUED OPERATIONS - REAL ESTATE SEGMENT (CONTINUED)
The components of the Real Estate Segment net assets from discontinued
operations in the consolidated balance sheets as of March 31, 1999 and
December 31, 1998 are as follows:
<TABLE>
March 31, December 31,
1999 1998
(Unaudited) (Audited)
<S> <C> <C>
Cash $11,027 $11,426
</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.
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.
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<PAGE>
NOTE 4 - DISCONTINUED OPERATIONS - INDUSTRIAL PRODUCTS SEGMENT (CONTINUED)
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 NCMC, as a result of the sale of
Jensen's inventory, in exchange for which NCMC 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 has 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 claims. In addition, the Company and FNM Bank (a
Netherlands bank) agreed to settle all lender liability claims. As a
result of the foregoing, the Company is free to pursue the former owner of
AMKO International on his personal guarantee, and 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.
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.
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<PAGE>
NATIONAL CAPITAL MANAGEMENT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS:
Overview
The following is a discussion and analysis of the consolidated financial
condition of the Company as of March 31, 1999 and of the results of
operations for the Company for the three months ended March 31, 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.
The Company is managing the administration of the collection of the
portfolio of life insurance policies, it has completed the orderly
liquidation of its remaining real estate, and continues to pursue
collection of its receivables. Management intends to seek other
acquisitions.
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<PAGE>
Accounting for long-lived assets
For the three months ended March 31, 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).
The accuracy of the valuation reserve established by the Company (Note 2)
is directly related to NCBC's assumptions regarding the remaining life
expectancy of terminally ill individuals. While NCBC believes that its
estimate of life expectancy, and the related valuation reserve will
approximate actual experience, given the inherent scientific uncertainty
of such estimates, including the potential impact of recently announced
medical treatments that might extend life expectancies, there can be no
assurance that these policies will mature in accordance with management's
estimates. Therefore, the Company established a $1,500,000 valuation
reserve against accrued policy revenues and purchase policy costs during
1996, which is adjusted quarterly. 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 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 (Note 2).
Financial condition and liquidity
The Company's cash decreased from $2,058,674 as of December 31, 1998 to
$1,931,982 at March 31, 1999, principally as a result of financing
operating activities.
Other than in 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
As a result of the Company's decision to discontinue its Viatical
Settlements Segment in December 1996, the Company ceased purchasing
insurance policies from individuals. The Company may, however, seek the
purchase of a portfolio of life insurance policies to the extent each of
the policies in such a bulk purchase is within the guidelines set forth in
the reinsurance agreements with NCBC. As previously announced, NCBC has
restructured its organization and reduced its office staff to one person.
Management anticipates that this remaining person, as well as NCMC
management, will manage NCBC's existing portfolio of approximately $17
million of insurance policies. Management estimates that the
administration of these policies will take several more years.
During the three months ended March 31, 1999, approximately $362,500 of
life insurance policies matured as compared to $137,500 for the same
period last year.
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<PAGE>
The recognition of earned discount and the ultimate profitability
associated with purchased insurance policies is directly related to NCBC's
assumptions regarding the remaining life expectancy of terminally ill
individuals. Such estimates were made when the insurance policy was
purchased based upon facts and circumstances then known. While NCBC
believes that its estimate of life expectancy, and the related recognition
of earned discount will closely approximate actual experience, given the
inherent scientific uncertainty of such estimates, including the potential
impact of recently announced medical treatments that might extend life
expectancies, there can be no assurance that these policies will mature in
accordance with management's estimates. Therefore, the Company established
a $1,500,000 valuation reserve against accrued policy revenues and
purchase policy costs during 1996, and as adjusted during the three months
ended March 31, 1999. During the fourth quarter ended December 31, 1997
and 1998, the Company increased its original reserve by $350,000 and
$522,000, respectively. 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 (Note 2).
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 $695,270 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.
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<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable
ITEM 2. CHANGES IN SECURITIES
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Not applicable
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NATIONAL CAPITAL
MANAGEMENT CORPORATION
Dated: By: //s// John C. Shaw
John C. Shaw
Chief Executive Officer
-16-
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