UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 0-1665
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DCAP GROUP, INC.
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(Exact name of small business issuer as specified in its charter)
Delaware 36-2476480
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(State or other jurisdiction of (I.R.S Employer Identification No.)
incorporation or organization)
1158 Broadway, Hewlett, NY 11557
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(Address of principal executive offices) (Zip Code)
(516) 374-7600
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(Registrant's telephone number, including area code
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 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. ( X ) Yes ( ) No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. ( )Yes ( ) No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: 11,353,402 shares as of July
31, 2002
INDEX
DCAP GROUP, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet - June 30, 2002 (Unaudited)
Condensed Consolidated Statements of Operations - Six months
ended June 30, 2002 and 2001 (Unaudited)
Condensed Consolidated Statements of Operations - Three months
ended June 30, 2002 and 2001(Unaudited)
Condensed Consolidated Statements of Cash Flows - Six months
ended June 30, 2002 and 2001 (Unaudited)
Notes to Condensed Consolidated Financial Statements - Six
months ended June 30, 2002 and 2001 (Unaudited)
Item 2. Management's Discussion and Analysis or Plan of Operation
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
2
Forward Looking Statements
This Quarterly Report contains forward-looking statements as that term is
defined in the federal securities laws. The events described in forward-looking
statements contained in this Quarterly Report may not occur. Generally these
statements relate to business plans or strategies, projected or anticipated
benefits or other consequences of our plans or strategies, projected or
anticipated benefits from acquisitions to be made by us, or projections
involving anticipated revenues, earnings or other aspects of our operating
results. The words "may," "will," "expect," "believe," "anticipate," "project,"
"plan," "intend," "estimate," and "continue," and their opposites and similar
expressions are intended to identify forward-looking statements. We caution you
that these statements are not guarantees of future performance or events and are
subject to a number of uncertainties, risks and other influences, many of which
are beyond our control, that may influence the accuracy of the statements and
the projections upon which the statements are based. Factors which may affect
our results include, but are not limited to, the risks and uncertainties
associated with undertaking different lines of business, the lack of experience
in operating certain new business lines, the decline in the number of insurance
companies offering insurance products in our markets, the volatility of
insurance premium pricing, government regulation, competition from larger,
better financed and more established companies, the possibility of tort reform
and a resultant decrease in the demand for insurance, the uncertainty of
litigation with regard to our hotel lease, the dependence on our executive
management, our ability to continue to obtain the necessary financing to operate
our premium finance business, and our ability to raise additional capital which
may be required in the near term. Any one or more of these uncertainties, risks
and other influences could materially affect our results of operations and
whether forward-looking statements made by us ultimately prove to be accurate.
Our actual results, performance and achievements could differ materially from
those expressed or implied in these forward-looking statements. We undertake no
obligation to publically update or revise any forward-looking statements,
whether from new information, future events or otherwise.
Explanatory Note
Throughout this Quarterly Report, the words "DCAP Group," "we," "our," and
"us" refer to DCAP Group, Inc. and the operations of DCAP Group, Inc. as a
whole. References to "DCAP Insurance" and the "DCAP Companies" in this Annual
Report mean our wholly-owned subsidiary, Dealers Choice Automotive Planning
Inc., and affiliated companies, and the operations of our insurance-related
subsidiaries.
3
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
DCAP GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
June 30, 2002
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 256,540
Due from franchises, net of allowance for doubtful
accounts of $53,000 204,998
Note receivable from former officer 40,085
Prepaid expenses and
other current assets 50,017
------------
Total current assets 551,640
------------
PROPERTY AND EQUIPMENT, net 323,489
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OTHER ASSETS:
Goodwill 75,000
Other intangibles, net 205,248
Deposits and other assets 42,350
------------
Total other assets 322,598
------------
$ 1,197,727
============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 684,797
Current portion of long-term debt 24,049
Current portion of capital lease obligations 73,322
Deferred revenue 79,169
Debentures payable 154,200
Due to officer 33,333
------------
Total current liabilities 1,048,870
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LONG-TERM DEBT 171,470
------------
CAPITAL LEASE OBLIGATIONS 89,571
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DEFERRED REVENUE 27,341
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MINORITY INTEREST 10,859
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STOCKHOLDERS' DEFICIT:
Common Stock, $.01 par value; authorized
25,000,000 shares; issued 15,068,018 shares 150,680
Preferred Stock, $.01 par value; authorized 1,000,000
shares; 0 shares issued and outstanding -
Capital in excess of par 9,752,409
Deficit (9,124,818)
------------
778,271
Treasury Stock, at cost, 3,714,616 shares (928,655)
------------
(150,384)
------------
$ 1,197,727
============
See notes to condensed consolidated financial statements.
4
DCAP GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Six months ended
June 30,
2002 2001
---------- ----------
Revenues:
Commissions and fees $ 699,235 $1,343,561
Rooms 417,685 498,608
Premium finance revenue 427,096 40,202
Other 6,904 17,497
---------- ---------
Total revenues 1,550,920 1,899,868
---------- ---------
Operating Expenses:
General and administrative 1,240,503 2,047,805
Depreciation and amortization 67,458 171,906
Marketing 105,934 556,807
Property operation and maintenance 19,898 30,602
---------- ---------
Total operating expenses 1,433,793 2,807,120
---------- ---------
Operating Income (Loss): 117,127 (907,252)
Other (Expense) Income:
Interest income 2,251 9,402
Interest expense (28,900) (30,642)
Gain on sale of store - 56,043
---------- ---------
(26,649) 34,803
---------- ---------
Income (loss) before income taxes
and minority interest 90,478 (872,449)
Provision for income taxes 1,243 20,304
---------- ---------
Income (loss) before minority interest 89,235 (892,753)
Minority interest 1,936 (5,148)
---------- ---------
Net income (loss) $ 87,299 $ (887,605)
========== =========
Net income (loss) per common share:
Basic $ .01 $ (.06)
========== =========
Diluted $ .01 $ (.06)
========== =========
Weighted average number of shares outstanding:
Basic 11,353,402 15,068,018
========== ==========
Diluted 11,429,673 15,068,018
========== ==========
See notes to condensed consolidated financial statements.
5
DCAP GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended
June 30,
2002 2001
------------- ----------
Revenues:
Commissions and fees $ 335,871 $ 465,087
Rooms 206,724 226,472
Premium finance revenue 256,270 32,059
Other 3,281 11,105
----------- -----------
Total revenues 802,146 734,723
----------- -----------
Operating Expenses:
General and administrative 639,650 795,721
Depreciation and amortization 33,320 77,223
Marketing 45,333 116,945
Property operation and maintenance 10,073 14,224
----------- -----------
Total operating expenses 728,376 1,004,113
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Operating Income (Loss): 73,770 (269,390)
Other (Expense) Income:
Interest income 1,153 659
Interest expense (12,230) (7,383)
----------- -----------
(11,077) (6,724)
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Income (loss) before income taxes
and minority interest 62,693 (276,114)
(Benefit) provision for income taxes (29) 2,383
----------- -----------
Income (loss) before minority interest 62,722 (278,497)
Minority interest 3,753 (3,836)
----------- -----------
Net income (loss) $ 58,969 $ (274,661)
=========== ===========
Net income (loss) per common share:
Basic $ .01 $ (.02)
=========== ===========
Diluted $ .01 $ (.02)
=========== ===========
Weighted average number of shares outstanding:
Basic 11,353,402 15,068,018
=========== ==========
Diluted 11,505,944 15,068,018
=========== ==========
See notes to condensed consolidated financial statements.
6
DCAP GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six months ended
June 30,
2002 2001
------- -------
Cash flows from operating activities:
Net income (loss) $87,299 $(887,605)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 67,458 171,906
Forgiveness of note receivable - 141,454
Provision for bad debts 1,219 1,800
Minority interest in net earnings (loss) 1,936 (5,148)
Gain on sale of store - (56,043)
Decrease (increase) in assets:
Accounts receivable 19,722 104,169
Prepaid expenses and other current assets (13,262) (617)
Deposits and other 1,239 (25,707)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses (44,317) (309,448)
Deferred revenue (20,619) (124,565)
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Net cash provided by (used in)
operating activities 100,675 (989,804)
------- --------
Cash flows from investing activities:
(Increase) decrease in notes and
other receivables, net (990) 169,765
Acquisition of property and equipment (9,332) -
Proceeds from sale of store - 104,976
Deposits on sale of stores - 739,115
------- --------
Net cash (used in) provided by
investing activities (10,322) 1,013,856
------- ---------
Cash flows from financing activities:
Principal payment of long-term debt and
capital lease obligations (54,587) (190,111)
------- ---------
Net cash used in financing activities (54,587) (190,111)
------- ---------
Net increase (decrease) in cash and
cash equivalents 35,766 (166,059)
Cash and cash equivalents,
beginning of period 220,774 759,309
------- ---------
Cash and cash equivalents,
end of period $256,540 $593,250
======== =========
See notes to condensed consolidated financial statements.
7
DCAP GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2002 AND 2001 (UNAUDITED)
1. The Condensed Consolidated Balance Sheet as of June 30, 2002, the Condensed
Consolidated Statements of Operations for the three and six months ended
June 30, 2002 and 2001 and the Condensed Consolidated Statements of Cash
Flows for the six months ended June 30, 2002 and 2001 have been prepared by
us without audit. In our opinion, the accompanying unaudited condensed
consolidated financial statements contain all adjustments necessary to
present fairly in all material respects our financial position as of June
30, 2002, results of operations for the three and six months ended June 30,
2002 and 2001 and cash flows for the six months ended June 30, 2002 and
2001. This report should be read in conjunction with our Annual Report on
Form 10-KSB for the year ended December 31, 2001.
2. Summary of Significant Accounting Policies:
------------------------------------------
a. Principles of consolidation
The accompanying consolidated financial statements include the accounts of
all subsidiaries and joint ventures in which we have a majority voting
interest or voting control. All significant intercompany accounts and
transactions have been eliminated.
b. Revenue recognition
We recognize commission revenue from insurance policies at the beginning of
the contract period, on income tax preparation when services are completed,
and on automobile club dues equally over the contract period. Franchise fee
revenue is recognized when substantially all of our contractual
requirements under the franchise agreement are completed. Refunds of
commissions on the cancellation of insurance policies are reflected at the
time of cancellation.
Premium financing fee revenue is earned based upon the origination of
premium finance contracts sold by agreement to third parties. The contract
fee gives consideration to an estimate as to the collectability of the loan
amount. Periodically, actual results are compared to estimates previously
recorded, and adjusted accordingly.
Revenues from room sales are recorded at the time services are performed.
c. Website Development Costs
Technology and content costs are generally expensed as incurred, except for
certain costs relating to the development of internal-use software,
including those relating to operating our website, that are capitalized and
depreciated over two years. No costs were incurred during the six months
ended June 30, 2002.
d. Reclassifications
Certain reclassifications have been made to the consolidated financial
statements for the three and six months ended June 30, 2001 to conform with
the classifications used for the three and six months ended June 30, 2002.
8
3. The results of operations and cash flows for the three and six months ended
June 30, 2002 are not necessarily indicative of the results to be expected
for the full year.
4. Segment and Related Information. We have three reportable business
segments: Insurance, Premium Finance and Hotel. The Insurance segment sells
retail auto, motorcycle, boat, life, business, and homeowner's insurance
and franchises. In addition, this segment offers tax preparation services
and automobile club services for roadside emergencies. The Premium Finance
segment offers property and casualty policyholders loans to finance the
policy premiums. The Hotel segment operates the International Airport Hotel
in San Juan, Puerto Rico. The Hotel caters generally to commercial and
tourist travelers in transit.
Summarized financial information concerning our reportable segments is shown in
the following tables:
Six Months Ended Premium
June 30, 2002 Insurance Finance Hotel Other(1) Total
------------------- --------- -------- -------- -------- ----------
Revenues from external
customers $ 699,235 $427,096 $424,589 - $1,550,920
Interest income 1,003 - 1,053 195 2,251
Interest expense 28,900 - - - 28,900
Depreciation and
amortization 59,740 - 7,718 - 67,458
Segment (loss) profit (41,120) 304,984 39,057 (215,622) 87,299
Segment assets 780,670 104,216 209,294 103,547 1,197,727
Six Months Ended Premium
June 30, 2001 Insurance Finance Hotel Other(1) Total
-------------------- --------- -------- -------- -------- ----------
Revenues from external
customers $1,343,561 $ 40,202 $510,347 $ 5,758 $1,899,868
Interest income - - - 9,402 9,402
Interest expense 30,642 - - - 30,642
Depreciation and
amortization 165,379 - 6,527 - 171,906
Segment (loss) profit (825,510) 37,863 82,807 (182,765) (887,605)
Segment assets 2,320,384 37,824 299,786 294,854 2,952,848
------------
(1) Column represents corporate-related items
9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION.
SIX MONTHS ENDED JUNE 30, 2002 AND 2001
Results of Operations
---------------------
Our net income for the six months ended June 30, 2002 was $87,299 as
compared to a net loss of $887,605 for the six months ended June 30, 2001.
During the six months ended June 30, 2002, revenues from our DCAP Insurance
operations were $699,235 as compared to $1,343,561 during the six months ended
June 30, 2001. The decline in revenues from our insurance-related operations was
generally due to the sale (and conversion to franchise status) of eight DCAP
offices effective as of March 28, 2001. Since there have been no additional
sales or closures of DCAP offices since that date, we do not anticipate that
revenues from our insurance-related operations will substantially decline
further over the balance of 2002.
Premium finance revenues increased $386,894 during the six months ended
June 30, 2002 as compared to the six months ended June 30, 2001. This increase
was the result of (i) our renegotiation in June 2001 of our agreement regarding
the sale of premium finance receivables that has given rise to increased
revenues per transaction, (ii) an increase in the number of franchises utilizing
our premium finance services, and (iii) an expansion of our premium finance
marketing efforts to non-DCAP insurance agencies.
Hotel revenues decreased approximately $80,000 between the six months ended
June 30, 2001 and 2002 primarily due to the decline in air traffic following the
terrorist attack of September 11, 2001.
Our general and administrative expenses for the six months ended June 30,
2002 were $807,302 less than for the comparable period in 2001. In addition, our
marketing expenses for the six months of 2002 were $450,873 less than for the
comparable period in 2001. These decreases were primarily due to the sale of
stores discussed above. Further, our depreciation and amortization expenses
decreased $104,448 between the six months ended June 30, 2001 and 2002 primarily
due to the sale of the stores, a write-off of goodwill as a result of the store
sales, and a write off of fixed assets during the fourth quarter of 2001.
Our DCAP Insurance operations during the six months ended June 30, 2002, on
a stand- alone basis, generated a net loss of $41,120 as compared to a net loss
of $825,510 for the six months ended June 30, 2001 (after giving effect to a
gain of $56,043 on the sale of our ownership interest in a DCAP store). Our
premium finance operations during the six months ended June 30, 2002, on a
stand-alone basis, generated a net profit of $304,984, as compared to a net
profit of $37,863 during the comparable period in 2001. The operations of the
hotel during the six months ended June 30, 2002, on a stand-alone basis,
generated net income of $39,057 as compared to a net income of $82,807 for the
six months ended June 30, 2001. Losses from corporate-related items not
allocable to reportable segments were $215,622 during the six months ended June
30, 2002 as compared to $182,765 for the six months ended June 30, 2001.
10
Liquidity and Capital Resources
-------------------------------
As of June 30, 2002, we had $256,540 in cash and cash equivalents and a
working capital deficiency of $497,230. As of December 31, 2001, we had $220,774
in cash and cash equivalents and a working capital deficiency of $ 598,263.
Our liquidity at June 30, 2002 was insufficient to meet operating
requirements. We believe that our continued efforts to expand our premium
finance customer base of both DCAP and non- DCAP agencies, within and outside
New York State, will help reduce our working capital deficiency and alleviate
cash flow demands.
Management believes that the above efforts are reasonably capable of
reducing our working capital deficiency and alleviating our cash flow demands
during the 12 month period ending June 30, 2003. We can give no assurances that
our efforts will be successful.
We have no current commitments for capital expenditures.
Plan of Operation
-----------------
We are seeking to expand our insurance and premium finance operations
through the acquisition of additional stores. We can give no assurance that our
efforts will be successful.
11
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 5. OTHER INFORMATION
In May 2002, our Board of Directors approved the grant of stock options,
pursuant to our 1998 Stock Option Plan, for the purchase of 1,450,000 shares at
an exercise price of $.30 per share, including options to Barry Goldstein, our
Chief Executive Officer, for the purchase of 1,000,000 shares and to each of
Morton L. Certilman and Jay M. Haft, each a director, for the purchase of
125,000 shares.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3(a) Certificate of Incorporation, as amended1
3(b) By-laws, as amended2
(b) Reports on Form 8-K
No Current Report on Form 8-K was filed by us during the quarter ended
June 30, 2002.
--------
1 Denotes document filed as exhibits to our Annual Reports on Form 10-KSB
for the years ended December 31, 1993 and 1998 and incorporated herein by
reference.
2 Denotes document filed as an exhibit to our Quarterly Report on Form
10-QSB for the period ended March 31, 2001 and incorporated herein by reference.
12
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
DCAP GROUP, INC.
Dated: August 13, 2002 By:/S/ Barry Goldstein
-------------------------------
Barry Goldstein
President, Chairman of the Board,
Chief Executive Officer, Chief
Financial Officer and Treasurer
(Principal Executive, Financial
and Accounting Officer)