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 March 31, 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
April 30, 2002
INDEX
DCAP GROUP, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet - March 31, 2002 (Unaudited)
Condensed Consolidated Statements of Operations - Three months ended March
31, 2002 and 2001(Unaudited)
Condensed Consolidated Statements of Cash Flows - Three months ended March
31, 2002 and 2001 (Unaudited)
Notes to Condensed Consolidated Financial Statements - Three months ended
March 31, 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, DCAP Insurance Agencies, 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)
March 31, 2002
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 240,118
Due from franchises, net of allowance for doubtful
accounts of $53,000 183,690
Note receivable from former officer 39,590
Prepaid expenses and other current assets 25,045
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Total current assets 448,443
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PROPERTY AND EQUIPMENT, net 345,093
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OTHER ASSETS:
Goodwill 75,000
Other intangibles, net 220,911
Deposits and other assets 43,589
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Total other assets 339,500
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$ 1,173,036
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LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 663,138
Current portion of long-term debt 21,097
Current portion capital lease obligations 79,973
Deferred revenue 74,883
Debentures payable 154,200
Due to officer 66,666
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Total current liabilities 1,059,957
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LONG-TERM DEBT 176,080
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CAPITAL LEASE OBLIGATIONS 104,726
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DEFERRED REVENUE 29,952
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MINORITY INTEREST 7,105
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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, $.01 par value; authorized 1,000,000
shares; 0 shares issued and outstanding -
Capital in excess of par 9,752,409
Deficit (9,183,786)
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719,303
Treasury Stock, at cost, 3,714,616 shares (928,655)
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(209,352)
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$ 1,173,036
============
See notes to condensed consolidated financial statements.
4
DCAP GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended
March 31,
2002 2001
---------- ----------
Revenues:
Commissions and fees $ 363,364 $ 878,474
Rooms 210,961 272,136
Premium finance revenue 170,826 8,143
Other 3,623 6,392
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Total revenues 748,774 1,165,145
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Operating Expenses:
General and administrative 600,853 1,252,084
Depreciation and amortization 34,138 94,683
Marketing 60,601 439,862
Property operation and maintenance 9,825 16,378
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Total operating expenses 705,417 1,803,007
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Operating Income (Loss): 43,357 (637,862)
Other (Expense) Income:
Interest income 1,098 8,743
Interest expense (16,670) (23,259)
Gain on sale of store - 56,043
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(15,572) 41,527
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Income (loss) before income taxes
and minority interest 27,785 (596,335)
Provision for income taxes 1,272 17,921
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Income (loss) before minority interest 26,513 (614,256)
Minority interest (1,817) (1,312)
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Net income (loss) $ 28,330 $ (612,944)
========== ==========
Net income (loss) per common share:
Basic $ .00 $ (.04)
========== ==========
Diluted $ .00 $ (.04)
========== ==========
Weighted average number of shares outstanding:
Basic 11,353,402 15,068,018
========== ==========
Diluted 11,353,402 15,068,018
========== ==========
See notes to condensed consolidated financial statements.
5
DCAP GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three months ended
March 31,
2002 2001
-------- ----------
Cash flows from operating activities:
Net income (loss) $ 28,330 $(612,944)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 34,138 97,126
Forgiveness of note receivable 0 141,454
Provision for bad debts 867 600
Minority interest in net loss (1,817) (1,312)
Gain on sale of store 0 (56,043)
Decrease (increase) in assets:
Accounts receivable 41,382 (98,331)
Prepaid expenses and other current assets 11,710 (3,499)
Deposits and other 0 34,250
Increase (decrease) in liabilities:
Accounts payable and accrued expenses (69,923) 67,467
Deferred revenue (22,294) 20,300
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Net cash provided by (used in)
operating activities 22,393 (410,932)
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Cash flows from investing activities:
(Increase) in notes and other receivables (495) (633)
Acquisition of property and equipment (9,332) 0
Proceeds from sale of store 0 104,976
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Net cash (used in) provided by
investing activities (9,827) 104,343
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Cash flows from financing activities:
Principal payment of long-term debt and
capital lease obligations (26,555) (56,345)
Increase in due to officer 33,333 0
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Net cash provided by (used in) financing activities 6,778 (56,345)
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Net increase (decrease) increase in cash and
cash equivalents 19,344 (362,934)
Cash and cash equivalents,
beginning of period 220,774 759,309
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Cash and cash equivalents,
end of period $240,118 $396,375
======= ========
See notes to condensed consolidated financial statements.
6
DCAP GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2002 AND 2001 (UNAUDITED)
1. The Condensed Consolidated Balance Sheet as of March 31, 2002, the
Condensed Consolidated Statements of Operations for the three months ended
March 31, 2002 and 2001 and the Condensed Consolidated Statements of Cash
Flows for the three months ended March 31, 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 March
31, 2002, results of operations for the three months ended March 31, 2002
and 2001 and cash flows for the three months ended March 31, 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 three months
ended March 31, 2002.
7
d. Reclassifications
Certain reclassifications have been made to the consolidated financial
statements for the three months ended March 31, 2001 to conform with the
classifications used for the three months ended March 31, 2002.
3. The results of operations and cash flows for the three months ended March
31, 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:
Period Ended Premium
March 31, 2002 Insurance Finance Hotel Other(1) Total
--------------------- --------- -------- -------- -------- ---------
Revenues from external
customers $363,364 $170,826 $214,584 $ - $ 748,774
Interest income - - 490 608 1,098
Interest expense 16,670 - - - 16,670
Depreciation and
amortization 30,279 - 3,859 - 34,138
Segment (loss) profit (19,466) 123,225 26,388 (101,817) 28,330
Segment assets 782,203 69,899 265,863 55,071 1,173,036
------------
(1) Column represents corporate-related items and, as it relates to segment
profit (loss), income, expense and assets not allocated to reportable
segments.
Period Ended Premium
March 31, 2001 Insurance Finance Hotel Other(1) Total
--------------------- --------- ------- -------- -------- ----------
Revenues from external
customers $ 878,474 $ 8,143 $278,528 $ - $1,165,145
Interest income - - - 8,743 8,743
Interest expense 23,259 - - - 23,259
Depreciation and
amortization 91,477 - 3,206 - 94,683
Segment (loss) profit (565,868) 7,823 53,787 (108,686) (612,944)
Segment assets 2,474,251 32,488 322,512 308,927 3,138,178
(1) Column represents corporate-related items and, as it relates to segment
profit (loss), income, expense and assets not allocated to reportable
segments.
8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
THREE MONTHS ENDED MARCH 31, 2002 AND 2001
Results of Operations
Our net income for the three months ended March 31, 2002 was $ 28,330 as
compared to a net loss of $612,944 for the three months ended March 31, 2001.
During the three months ended March 31, 2002, revenues from our DCAP
Insurance operations were $363,364 as compared to $878,474 during the three
months ended March 31, 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. However, based on the
conversion to franchise status for the eight DCAP offices sold in March 2001 and
the commencement of their franchise fee obligation in April 2002, monthly
franchise fees are anticipated to increase during 2002.
Premium finance revenues increased $162,683 during the quarter ended March
31, 2002 as compared to the quarter ended March 31, 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 $64,000 Hotel revenues decreased
approximately $64,000 between the three months ended March 31, 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 three months ended March
31, 2002 were $651,231 less than for the comparable quarter in 2001. In
addition, our marketing expenses for the first quarter of 2002 were $379,261
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 $60,545 between the three months ended March 31,
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 three months ended March 31, 2002,
on a stand-alone basis, generated a net loss of $19,466 as compared to a net
loss of $565,868 for the three months ended March 31, 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 three months ended March 31, 2002, on a
stand-alone basis, generated a net profit of $123,225, as compared to a net
profit of $7,823 during the comparable period in 2001. The operations of the
hotel during the three months ended March 31, 2002, on a stand-alone basis,
generated net income of $26,388 as compared to a net income of $53,787 for the
three months ended March 31, 2001. Losses from corporate-related items not
allocable to reportable segments were $101,817 during the three months ended
March 31, 2002 as compared to $108,686 for the three months ended March 31,
2001.
9
Liquidity and Capital Resources
As of March 31, 2002, we had $240,118 in cash and cash equivalents and a
working capital deficiency of $611,514. 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 March 31, 2002 was insufficient to meet operating
requirements. We believe that the following will help reduce our working capital
deficiency and alleviate cash flow demands:
o We have continued efforts to expand our premium finance customer base
of both DCAP and non-DCAP agencies, within and outside New York State.
o Monthly franchise fees generally are not payable with regard to the
initial 12 months of operations. Since many of the franchises sold by
us in 2000 and 2001 did not have franchise fee obligations until the
latter part of 2001 or in 2002, we are now first experiencing an
increase in monthly franchise fees.
Management believes that such items, should they develop as contemplated,
are reasonably capable of reducing our working capital deficiency and
alleviating our cash flow demands during the 12 month period ending March 31,
2003. We can give no assurances that our efforts will be successful.
We have no current commitments for capital expenditures.
10
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None
Item 2. CHANGES IN SECURITES 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
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3(a) Certificate of Incorporation, as amended(1)
3(b) By-laws, as amended(2)
(b) Reports on Form 8-K
No Current Report on Form 8-K was filed by us during the quarter
ended March 31, 2002.
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(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.
11
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: May 15, 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)