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, 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
incorporation or organization) Identification No.)
2545 Hempstead Turnpike, East Meadow, New York 11554
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(Address of principal executive offices) (Zip Code)
(516) 735-0900
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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, 2001
INDEX
DCAP GROUP, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
------ ---------------------
Item 1. Financial Statements
--------------------
Condensed Consolidated Balance Sheet - June 30, 2001 (Unaudited)
Condensed Consolidated Statements of Operations - Six months
ended June 30, 2001 and 2000 (Unaudited)
Condensed Consolidated Statements of Operations - Three months
ended June 30, 2001 and 2000 (Unaudited)
Condensed Consolidated Statements of Cash Flows - Six months
ended June 30, 2001 and 2000 (Unaudited)
Notes to Condensed Consolidated Financial Statements - Six
months ended June 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, 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)
June 30, 2001
-------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 593,250
Accounts receivable 267,796
Notes receivable 131,997
Prepaid expenses and
other current assets 57,607
------
Total current assets 1,050,650
---------
PROPERTY AND EQUIPMENT, net 783,212
-------
OTHER ASSETS:
Goodwill, net 751,682
Other intangibles 268,036
Deposits and other assets 99,268
------
Total other assets 1,118,986
---------
$ 2,952,848
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 1,550,878
Current portion of long-term debt 5,420
Current portion capital lease obligations 96,474
Deferred revenue 188,523
Deposits on sale of stores 739,115
Debentures payable 154,200
-------
Total current liabilities 2,734,610
---------
OTHER LIABILITIES:
Long-term debt 193,790
Capital lease obligations 162,907
Deferred revenue 40,000
------
Total other liabilities 396,697
-------
MINORITY INTEREST 24,948
------
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 (9,170,170)
-----------
732,919
Treasury Stock (928,654)
--------
Total Stockholders' Equity (195,735)
--------
$ 2,952,848
===========
See notes to condensed consolidated financial statements.
4
DCAP GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Six months ended
June 30,
2001 2000
---- ----
Revenues:
Commissions and fees $ 1,383,763 $ 3,996,517
Rooms 498,608 518,227
Other 17,497 28,409
------ ------
Total revenues 1,899,868 4,543,153
--------- ---------
Costs and expenses:
General and administrative 2,362,425 3,961,081
Departmental 139,631 194,738
Depreciation and amortization 171,906 426,495
Lease rentals 102,556 104,940
Property operation
and maintenance 30,602 16,425
------ ------
2,807,120 4,703,679
--------- ---------
Operating Loss: (907,252) (160,526)
Other Income (Expense):
Interest income 9,402 28,717
Interest expense (30,642) (64,759)
Gain on sale of store 56,043 -
------ -------
34,803 (36,042)
------ -------
Loss before income taxes
and minority interest (872,449) (196,568)
Provision for income taxes 20,304 9,550
------ -----
Loss before minority interest (892,753) (206,118)
Minority interest (5,148) 6,219
------ -----
Net loss $ (887,605) $ (212,337)
============ ===========
Net loss per common share:
Basic $ (.06) $ (.01)
============ ===========
Diluted $ (.06) $ (.01)
============ ===========
Weighted average number of shares outstanding:
Basic 15,068,018 14,432,865
========== ==========
Diluted 15,068,018 14,432,865
========== ==========
See notes to condensed consolidated financial statements.
5
DCAP GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended
June 30,
2001 2000
---- ----
Revenues:
Commissions and fees $ 497,146 $ 1,867,884
Rooms 226,472 232,544
Other 11,105 22,101
------ ------
Total revenues 734,723 2,122,529
------- ---------
Costs and expenses:
General and administrative 799,709 1,902,787
Departmental 66,184 114,635
Depreciation and amortization 77,223 211,059
Lease rentals 46,773 46,675
Property operation
and maintenance 14,224 9,741
------ -----
1,004,113 2,284,897
--------- ---------
Operating Loss: (269,390) (162,368)
Other (Expense) Income:
Interest income 659 14,810
Interest expense (7,383) (33,005)
------ -------
(27,921) (18,195)
------- -------
Loss before income taxes
and minority interest (276,114) (180,563)
Provision for income taxes 2,383 463
----- ---
Loss before minority interest (278,497) (181,026)
Minority interest (3,836) 14,713
------ ------
Net loss $ (274,661) $ (195,739)
============ ===========
Net loss per common share:
Basic $ (.02) $ (.01)
============ ===========
Diluted $ (.02) $ (.01)
============ ===========
Weighted average number of shares outstanding:
Basic 15,068,018 14,557,668
========== ==========
Diluted 15,068,018 14,557,668
========== ==========
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,
2001 2000
---- ----
Cash flows from operating activities:
Net loss $ (887,605) $ (212,337)
Adjustments to reconcile net loss to
net cash (used in) provided by operating activities:
Depreciation and amortization 171,906 426,495
Loss on sale of ownership interests
in joint ventures - 75,822
Forgiveness of note receivable 141,454 -
Provision for bad debts 1,800 1,200
Minority interest in net (loss) earnings (5,148) 6,219
Gain on sale of store (56,043) -
Decrease (increase) in assets:
Accounts receivable 104,169 52,415
Prepaid expenses and other
current assets (617) (19,302)
Deposits and other (25,707) 49
Increase (decrease) in liabilities:
Accounts payable and accrued expenses (309,448) 216,375
Deferred revenue (124,565) (76,467)
Deposits on sale of stores 739,115 -
------- -------
Net cash (used in) provided by
operating activities (250,689) 470,469
-------- -------
Cash flows from investing activities:
Decrease (Increase) in notes and other
receivables, net 169,765 (108,153)
Acquisition of property and equipment - (75,261)
Proceeds from sale of store 104,976 -
------- --------
Net cash provided by (used in)
investing activities 274,741 (183,414)
------- --------
Cash flows from financing activities:
Proceeds from long-term debt - 41,000
Principal payment of long-term
debt and capital lease obligations (190,111) (175,266)
-------- --------
Net cash used in
financing activities (190,111) (134,266)
-------- --------
Net (decrease) increase in cash and
cash equivalents (166,059) 152,789
Cash and cash equivalents,
beginning of period 759,309 943,176
------- -------
Cash and cash equivalents,
end of period $ 593,250 $ 1,095,965
=========== ===========
See notes to condensed consolidated financial statements.
7
DCAP GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2001 AND 2000 (UNAUDITED)
1. The Condensed Consolidated Balance Sheet as of June 30, 2001, the
Condensed Consolidated Statements of Operations for the three and six
months ended June 30, 2001 and 2000 and the Condensed Consolidated
Statements of Cash Flows for the six months ended June 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 June
30, 2001, results of operations for the three and six months ended June 30,
2001 and 2000 and cash flows for the six months ended June 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 joint venture interests in which we exercise
significant influence over all decision making related to the ongoing major
operations. 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 expenses 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, 2001.
8
3. The results of operations and cash flows for the six months ended June
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
June 30, 2001 Insurance Hotel Other(1) Total
------------- --------- ----- -------- -----
Revenues from external
customers $1,383,763 $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 (787,647) 82,807 (182,765) (887,605)
Segment assets 2,358,208 299,786 294,854 2,952,848
Period Ended
June 30, 2000 Insurance Hotel Other(1) Total
-------------------- --------- ----- -------- -----
Revenues from external
customers $3,996,517 $529,902 $ 16,734 $4,543,153
Interest income 3,928 - 24,789 28,717
Interest expense 64,759 - - 64,759
Depreciation and amortization 406,086 20,409 - 426,495
Segment (loss) profit (206,469) 82,342 (88,210) (212,337)
Segment assets 6,604,350 323,962 629,584 7,557,896
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.
---------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 2001 AND 2000
Results of Operations
Our net loss for the six months ended June 30, 2001 was $887,605 as
compared to a net loss of $212,337 for the six months ended June 30, 2000.
During the six months ended June 30, 2001, revenues from our DCAP Insurance
operations were $1,383,763 as compared to $3,996,517 during the six months ended
June 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. 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. Hotel revenues decreased approximately $20,000 between
the six months ended June 30, 2000 and 2001.
Our general and administrative expenses for the six months ended June 30,
2001 were $1,598,656 less than for the comparable period in 2000 primarily due
to the sale and closure of stores discussed above. In addition, our depreciation
and amortization expenses decreased $254,589 between the six months ended June
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 six months ended June 30, 2001, on
a stand-alone basis, generated a net loss of $787,647 (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 $206,469 for the six months ended June 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 six months ended June 30, 2001, on a
stand-alone basis, generated a net income of $82,807 as compared to a net income
of $82,342 for the six months ended June 30, 2000.
10
Liquidity and Capital Resources
As of June 30, 2001, we had $593,250 in cash and cash equivalents and a
working capital deficiency of $1,683,960. 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 June 30,
2001 due to the loss incurred during the period and the outlay of cash to
satisfy accounts payable and accrued expense obligations of $309,448 and repay
long-term debt and capital lease obligations of $190,111. 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 liability under the heading "Deposits on sale of stores".
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 June 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 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 is entitled to receive compensation at the rate of $125,000 per
annum.
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 June 30, 2002. We can give no assurances 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
-----------------
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
10(a) Employment Agreement, dated as of May 10, 2001 between
us and Barry Goldstein.
10(b) Stock Option Agreement, dated as of May 10, 2001 between
us and Barry Goldstein.
(b) Reports on Form 8-K
No Current Report on Form 8-K was filed by us during the
quarter ended June 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.
12
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: August 22, 2001 By:/s/ Barry Goldstein
------------------------------------
Barry Goldstein
President, Chairman of the Board,
Chief Executive Officer and
Chief Financial Officer