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 September 30, 2001
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, New York 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
October 31, 2001
INDEX
DCAP GROUP, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet - September 30, 2001 (Unaudited)
Condensed Consolidated Statements of Operations - Nine months
ended September 30, 2001 and 2000 (Unaudited)
Condensed Consolidated Statements of Operations - Three months
ended September 30, 2001 and 2000 (Unaudited)
Condensed Consolidated Statements of Cash Flows - Nine months
ended September 30, 2001 and 2000 (Unaudited)
Notes to Condensed Consolidated Financial Statements - Nine
months ended September 30, 2001 and 2000 (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, the effect of the September 11th terrorist attacks
and any future terrorist acts on the financial health of the insurance companies
whose products we offer, 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, 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)
September 30, 2001
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 371,884
Accounts receivable 259,888
Notes receivable 69,524
Prepaid expenses and
other current assets 71,762
-----------
Total current assets 773,058
-----------
PROPERTY AND EQUIPMENT, net 748,220
-----------
OTHER ASSETS:
Goodwill, net 774,294
Other intangibles 245,424
Deposits and other assets 66,643
------------
Total other assets 1,086,361
------------
$ 2,607,639
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 1,249,151
Current portion of long-term debt 5,860
Current portion capital lease obligations 82,154
Deferred revenue 115,968
Deposits on sale of stores 739,115
Debentures payable 154,200
-----------
Total current liabilities 2,346,448
-----------
OTHER LIABILITIES:
Long-term debt 193,790
Capital lease obligations 153,477
Deferred revenue 40,000
-----------
Total other liabilities 387,267
-----------
MINORITY INTEREST 29,678
-----------
STOCKHOLDERS' EQUITY:
Common Stock, $.01 par value; authorized,
25,000,000 shares; issued, 15,068,018 shares 150,680
Capital in excess of par 9,752,409
Deficit (9,130,189)
-----------
772,900
Treasury Stock (928,654)
-----------
Total Stockholders' Equity (155,754)
-----------
$ 2,607,639
==========
See notes to condensed consolidated financial statements.
4
DCAP GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Nine months ended
September 30,
2001 2000
---------------- --------------
Revenues:
Commissions and fees $ 1,683,438 $ 5,714,330
Rooms 714,227 739,043
Premium finance revenue 125,325 -
Other 20,015 33,801
------------ -----------
Total revenues 2,543,005 6,487,174
------------ -----------
Costs and expenses:
General and administrative 2,759,319 5,858,571
Departmental 212,124 218,026
Depreciation and amortization 222,878 618,044
Lease rentals 145,924 149,463
Property operation
and maintenance 48,548 21,441
----------- -----------
3,388,793 6,865,545
Operating Loss: (845,788) (378,371)
Other Income (Expense):
Interest income 14,743 39,819
Interest expense (44,747) (92,752)
Gain on sale of store 56,043 -
Loss on sale of ownership interest
in joint venture - (75,822)
----------- -----------
26,039 (128,755)
----------- -----------
Loss before income taxes
and minority interest (819,749) (507,126)
Provision for income taxes 20,621 24,523
----------- -----------
Loss before minority interest (840,370) (531,649)
Minority interest 7,254 6,000
----------- -----------
Net loss $ (847,624) $ (537,649)
=========== ===========
Net loss per common share:
Basic $ (.06) $ (.04)
=========== ===========
Diluted $ (.06) $ (.04)
=========== ===========
Weighted average number of shares outstanding:
Basic 15,068,018 14,646,909
========== ==========
Diluted 15,068,018 14,646,909
========== ==========
See notes to condensed consolidated financial statements.
5
DCAP GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended
September 30,
2001 2000
---------------- --------------
Revenues:
Commissions and fees $ 339,877 $1,717,813
Rooms 215,619 220,816
Premium finance revenue 85,123 -
Other 2,518 5,392
------------ ---------
Total revenues 643,137 1,944,021
------------ ---------
Costs and expenses:
General and administrative 396,894 1,973,312
Departmental 72,493 23,288
Depreciation and amortization 50,972 191,549
Lease rentals 43,368 44,523
Property operation
and maintenance 17,946 5,016
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581,673 2,237,688
Operating Income (Loss): 61,464 (293,667)
Other (Expense) Income:
Interest income 5,341 11,102
Interest expense (14,105) (27,993)
------------ ---------
(8,764) (16,891)
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Income (loss) before income taxes
and minority interest 52,700 (310,558)
Provision for income taxes 317 14,973
------------ ---------
Income (loss) before minority interest 52,383 (325,531)
Minority interest 12,402 (219)
------------ ---------
Net Income (loss) $ 39,981 $(325,312)
============ ==========
Net Income (loss) per common share:
Basic $ .00 $ (.02)
============ ===========
Diluted $ .00 $ (.02)
============ ===========
Weighted average number of shares outstanding:
Basic 15,068,018 15,068,018
========== ==========
Diluted 15,068,018 15,068,018
========== ==========
See notes to condensed consolidated financial statements.
6
DCAP GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine months ended
September 30,
2001 2000
-------------- --------------
Cash flows from operating activities:
Net loss $ (847,624) $ (537,649)
Adjustments to reconcile net loss to
net cash (used in) provided by operating activities:
Depreciation and amortization 222,878 618,044
Loss on sale of ownership interests
in joint ventures - 75,822
Forgiveness of note receivable 141,454 -
Provision for bad debts 151,009 1,800
Minority interest in net earnings 7,254 6,000
Gain on sale of store (56,043) -
Decrease (increase) in assets:
Accounts receivable 38,868 (24,002)
Prepaid expenses and other
current assets (14,771) (29,103)
Deposits and other 6,918 64,687
Increase (decrease) in liabilities:
Accounts payable and accrued expenses (601,577) 355,633
Deferred revenue (197,120) (27,467)
---------- --------
Net cash (used in) provided by
operating activities (1,148,754) 503,765
---------- --------
Cash flows from investing activities:
Decrease (increase) in notes and other
receivables, net 156,237 (275,214)
Acquisition of property and equipment (25,577) (75,261)
Proceeds from sale of store 104,976 -
Deposits on sale of stores 739,115 -
---------- ---------
Net cash provided by (used in)
investing activities 974,751 (350,475)
---------- --------
Cash flows from financing activities:
Principal payment of long-term
debt and capital lease obligations (213,422) (257,762)
Proceeds from long-term debt - 41,000
---------- --------
Net cash used in
financing activities (213,422) (216,762)
---------- ---------
Net decrease in cash and
cash equivalents (387,425) (63,472)
Cash and cash equivalents,
beginning of period 759,309 943,176
---------- -------
Cash and cash equivalents,
end of period $ 371,884 $ 879,704
========== ========
See notes to condensed consolidated financial statements.
7
DCAP GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 (UNAUDITED)
1. The Condensed Consolidated Balance Sheet as of September 30, 2001, the
Condensed Consolidated Statements of Operations for the three and nine
months ended September 30, 2001 and 2000 and the Condensed Consolidated
Statements of Cash Flows for the nine months ended September 30, 2001 and
2000 have been prepared by us without audit. In our opinion, the
accompanying unaudited condensed consolidated financial statements contain
all adjustments necessary to present fairly our financial position as of
September 30, 2001, results of operations for the three and nine months
ended September 30, 2001 and 2000 and cash flows for the nine months ended
September 30, 2001 and 2000. This report should be read in conjunction with
our Annual Report on Form 10-KSB for the year ended December 31, 2000.
2. Summary of Significant Accounting Policies:
a. Principles of consolidation
The accompanying consolidated financial statements include the
accounts of all subsidiaries and 50%-owned 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 the
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 collection of
loan installments by third party financing companies. We record this
revenue upon the receipt of fees from the financing companies, as we
do not have the ability to determine whether we have earned fees
during the term of the financing agreement.
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 nine months ended September 30, 2001.
8
3. The results of operations and cash flows for the nine months ended
September 30, 2001 are not necessarily indicative of the results to be
expected for the full year.
4. Segment and Related Information. We have two business units with separate
management teams that provide different products and services.
Summarized financial information concerning our reportable segments is
shown in the following table:
Period Ended
September 30, 2001 Insurance Hotel Other(1) Total
------------------------- --------- ----- -------- -----
Revenues from external
customers $1,808,763 $728,483 $ 5,759 $2,543,005
Interest income 2,501 2,183 10,059 14,743
Interest expense 44,747 - - 44,747
Depreciation and amortization 212,554 10,324 - 222,878
Segment (loss) profit (644,225) 95,757 (299,156) (847,624)
Segment assets 2,126,373 280,929 200,337 2,607,639
Expenditures for segment assets 1,619 21,878 2,080 25,577
Period Ended
September 30, 2000 Insurance Hotel Other(1) Total
------------------------- --------- ----- -------- -----
Revenues from external
customers $5,714,330 $739,043 $ 33,801 $6,487,174
Interest income 3,928 - 35,891 39,819
Interest expense 92,752 - 92,752
Depreciation and amortization 587,550 30,494 - 618,044
Segment (loss) profit (162,700) 109,869 (484,818) (537,649)
Segment assets 6,549,023 314,155 519,850 7,383,028
Expenditures for segment assets 75,261 - - 75,261
------------
(1) Column represents corporate-related items.
9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Results of Operations
Our net loss for the nine months ended September 30, 2001 was $847,624 as
compared to a net loss of $537,649 for the nine months ended September 30, 2000.
During the nine months ended September 30, 2001, revenues from our DCAP
Insurance operations were $1,808,763 as compared to $5,714,330 during the nine
months ended September 30, 2000. The decline in revenues from our
insurance-related operations was generally due to competitive pressures in the
industry and the sale (and, in general, conversion to franchise status) or
closure of 12 DCAP offices. Effective March 28, 2001, we entered into agreements
to sell eight of our remaining 11 wholly-owned and joint venture offices.
Pursuant to our agreements with the purchasers of the stores, pending the
closing, they are entitled to receive all profits from the operations of the
stores and are responsible for all losses. We have therefore determined not to
record any revenues or expenses with respect to these stores commencing with the
effective date of the agreement. We intend to sell our remaining wholly-owned
and joint venture offices in the foreseeable future. Therefore, we anticipate
that revenues from our insurance-related operations will further decline during
the remainder of 2001 and in 2002. However, as a result of our shift in 2000 to
a franchise business model, monthly franchise fees are anticipated to increase
substantially during the remainder of 2001. Since, in general, monthly franchise
fees are not payable with regard to the initial 12 months of operations, and
since many of the franchises sold in 2000 did not commence operations until the
latter part of the year, the increase in monthly franchise fees is not expected
to take place until the latter part of 2001. In addition, we generated premium
finance revenue of $125,325 during the nine months ended September 30, 2001. We
hope that this revenue source will also offset the decline in revenue from our
cutback in operation of DCAP stores. Hotel revenues decreased approximately
$11,000 between the nine months ended September 30, 2000 and 2001.
Our general and administrative expenses for the nine months ended September
30, 2001 were $3,099,252 less than for the comparable period in 2000 primarily
due to the sale and closure of stores discussed above and a reduction in central
office staff. In addition, our depreciation and amortization expenses decreased
$395,166 between the nine months ended September 30, 2000 and 2001 primarily due
to a write off of goodwill and other intangibles that occurred with respect to
our 2000 fiscal year results and the sale or closure in 2000 of stores as
discussed above.
Our DCAP Insurance operations during the nine months ended September 30,
2001, on a stand-alone basis, generated a net loss of $644,225 (after giving
effect to a gain of $56,043 on the sale of our ownership interest in a DCAP
store) as compared to a net loss of $162,700 for the nine months ended September
30, 2000. The net loss was incurred primarily due to the decline in revenues
discussed above which was not offset by a comparable decline in operating
expenses. The operations of the hotel during the nine months ended September 30,
2001, on a stand-alone basis, generated a net income of $95,757 as compared to a
net income of $109,869 for the nine months ended September 30, 2000.
10
Liquidity and Capital Resources
As of September 30, 2001, we had $371,884 in cash and cash equivalents and
a working capital deficiency of $1,573,390. As of December 31, 2000, we had
$759,309 in cash and cash equivalents and a working capital deficiency of
$161,156.
Cash and cash equivalents decreased between December 31, 2000 and September
30, 2001 due to the loss incurred during the period and the outlay of cash to
satisfy accounts payable and accrued expense obligations of $601,577 and repay
long-term debt and capital lease obligations of $213,422. These amounts were
offset by the receipt of approximately $105,000 in cash in February 2001 from
the sale of a DCAP store and approximately $739,000 in April 2001 pursuant to
agreements to sell eight of our stores. Pending the closing of the sale of the
eight stores, the $739,000 received has been recorded on the balance sheet as a
current liability under the heading "Deposits on sale of stores". The closing of
the store sales is scheduled to occur on November 27, 2001 following our annual
meeting of stockholders at which we are seeking approval and ratification of the
sale of assets that may constitute, under Delaware law, substantially all of our
assets.
Our working capital deficiency increased by $1,412,234 between December 31,
2000 and September 30, 2001 primarily due to the loss incurred during the nine
months ended September 30, 2001 and the cancellation of notes receivable in
consideration of our reacquisition of common shares and the cancellation of an
employment agreement, as discussed below. As indicated above, in the event of
the sale of eight stores, a current liability labeled "Deposits on sale of
stores" in the amount of $739,000 will be eliminated. There will be a concurrent
reduction in "Goodwill" in such amount. As a result, our working capital
deficiency will be reduced by $739,000.
Effective March 28, 2001, we repurchased a total of 3,714,616 of our common
shares owned by Kevin Lang and Abraham Weinzimer, our then President and
Executive Vice President, respectively, in consideration of the cancellation of
indebtedness owed to us by them in the aggregate amount of $928,654.
Effective March 28, 2001, concurrently with the termination of the
employment agreement of Morton L. Certilman, our then Chairman of the Board, we
agreed to cancel indebtedness of approximately $141,000 owed to us by him.
Our liquidity at September 30, 2001 was insufficient to meet operating
requirements. In order to reduce our working capital deficiency and alleviate
cash flow demands, we have taken the following actions:
o We have continued efforts to expand franchise operations and decrease
the number of wholly-owned and partially-owned stores (by the sale of
stores and, in general, conversion to franchise status).
o We have continued efforts to expand premium finance operations which
do not carry large overhead expenses.
11
o We have continued efforts to reduce overhead expenses. These efforts
include the reduction of "central office" expenses due to the shift to
a franchise-oriented strategy. In addition, effective March 28, 2001,
the employment agreements for Kevin Lang, Abraham Weinzimer, Morton L.
Certilman and Jay M. Haft, our then President, Executive Vice
President, Chairman of the Board and Vice Chairman of the Board,
respectively, were terminated. Pursuant to the agreements, Messrs.
Lang, Weinzimer, Certilman and Haft had been entitled to receive
aggregate annual compensation of approximately $647,000. Concurrently,
our subsidiary, DCAP Management, entered into a six month employment
agreement with Mr. Lang pursuant to which he was entitled to receive
compensation at the rate of $125,000 per annum. This employment
agreement expired in September 2001.
o We have continued to seek an infusion of capital.
Management believes that such actions, if successfully completed, are
reasonably capable of removing the threat to the continuation of our business
during the 12 month period ended September 30, 2002. We can give no assurances
that our efforts will be successful.
12
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
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 amended2
(b) Reports on Form 8-K
No Current Report on Form 8-K was filed by us during the quarter
ended September 30, 2001.
--------
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.
13
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this amendment to the report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DCAP GROUP, INC.
Dated: November 14, 2001 By: /s/ Barry Goldstein
---------------------------------
Barry Goldstein
President, Chairman of the Board,
Chief Executive Officer and
Chief Financial Officer