UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 2004
--------------
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
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.)
1158 Broadway, Hewlett, NY 11557
--------------------------------
(Address of Principal Executive Offices)
(516) 374-7600
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(Issuer's Telephone Number, Including Area Code)
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(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
APPLICABLE ONLY TO ISSUERS INVOLVED IN
BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes No
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APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 12,444,308 shares as of April
30, 2004.
Transitional Small Business Disclosure Format (check one):
Yes No X
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INDEX
DCAP GROUP, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements
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Condensed Consolidated Balance Sheet - March 31, 2004 (Unaudited)
Condensed Consolidated Statements of Income - Three months
ended March 31, 2004 and 2003 (Unaudited)
Condensed Consolidated Statements of Cash Flows - Three months
ended March 31, 2004 and 2003 (Unaudited)
Notes to Condensed Consolidated Financial Statements - Three
months ended March 31, 2004 and 2003 (Unaudited)
Item 2. Management's Discussion and Analysis or Plan of Operation
Item 3. Controls and Procedures
PART II. OTHER INFORMATION
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Item 1. Legal Proceedings
Item 2. Changes in Securities and Small Business Issuer Purchases of Equity
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
discussed in Item 6 of our Annual Report on Form 10-KSB for the year ended
December 31, 2003 under "Factors That May Affect Future Results and Financial
Condition".
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.
3
PART I. FINANCIAL INFORMATION
---------------------
Item 1. FINANCIAL STATEMENTS
--------------------
DCAP GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheet (Unaudited)
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March 31, 2004
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Assets
Current Assets:
Cash and cash equivalents $ 2,560,834
Accounts receivable, net of allowance for
doubtful accounts of $73,000 1,050,236
Finance contracts receivable $26,643,356
Less: Deferred Interest (2,236,649)
Less: Allowance for doubtful accounts (223,490) 24,183,217
-----------
Prepaid expenses and other current assets 138,847
-----------
Total Current Assets 27,933,134
Property and Equipment, net 412,925
Goodwill 1,171,551
Other Intangibles, net 324,206
Deposits and Other Assets 305,808
-----------
Total Assets $30,147,624
===========
Liabilities And Stockholders' Equity
Current Liabilities:
Revolving credit line $12,758,926
Accounts payable and accrued expenses 863,153
Premiums payable 8,118,751
Current portion of long-term debt 125,000
Taxes payable 245,714
Other current liabilities 220,255
-----------
Total Current Liabilities 22,331,799
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Long-Term Debt 3,757,100
-----------
Other Liabilities 39,286
-----------
Mandatorily Redeemable Preferred Stock 904,000
-----------
Commitments
Stockholders' Equity:
Common Stock, $.01 par value; 40,000,000
shares authorized; 16,068,018 shares issued 160,680
Preferred Stock, $.01 par value; 1,000,000
shares authorized; 0 shares issued and outstanding -
Capital in excess of par 10,389,409
Deficit (6,505,995)
-----------
4,044,094
Treasury Stock, at cost, 3,714,616 shares (928,655)
-----------
Total Stockholders' Equity 3,115,439
-----------
Total Liabilities and Stockholders' Equity $30,147,624
===========
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See notes to condensed consolidated financial statements.
4
DCAP GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements Of Income (Unaudited)
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Three months ended March 31, 2004 2003
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Revenues:
Commissions and fees $ 1,671,817 $ 1,461,415
Premium finance revenue 1,828,200 347,477
-----------------------------
3,500,017 1,808,892
-----------------------------
Operating Expenses:
General and administrative expenses 2,484,035 1,407,299
Depreciation and amortization 102,483 36,317
Premium finance interest expense 275,841 -
-----------------------------
Total Operating Expenses 2,862,359 1,443,616
-----------------------------
Operating Income 637,658 365,276
-----------------------------
Other (Expense) Income:
Interest income 1,690 1,348
Interest expense (10,029) (17,260)
Interest expense -
mandatorily redeemable preferred stock (11,300) -
Gain on sale of stores - 89,700
-----------------------------
(19,639) 73,788
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Income Before Provision for Income Taxes 618,019 439,064
Provision for Income Taxes 247,708 4,855
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Income from Continuing Operations 370,311 434,209
Discontinued Operations:
Loss from discontinued operations - (46,096)
-----------------------------
Net Income $ 370,311 $ 388,113
=============================
Net Income Per Common Share:
Basic:
Income from continuing operations $ 0.03 $ 0.03
Loss from discontinued operations - (0.00)
-----------------------------
Net income $ 0.03 $ 0.03
=============================
Diluted:
Income from continuing operations $ 0.02 $ 0.03
Loss from discontinued operations - (0.00)
-----------------------------
Net income $ 0.02 $ 0.03
=============================
Weighted Average Number Of Shares Outstanding:
Basic 12,353,402 12,353,402
=============================
Diluted 16,205,797 12,923,929
=============================
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See notes to condensed consolidated financial statements.
5
DCAP GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
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Three months ended March 31, 2004 2003
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Cash Flows From Operating Activities:
Net income $ 370,311 $ 388,113
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 102,483 36,317
Bad debt expense (24,019) 5,886
Amortization of warrants 14,700 -
Gain on sale of stores - (89,700)
Changes in operating assets and liabilities:
Decrease (increase) in assets:
Accounts receivable 746,124 (186,155)
Prepaid expenses and other current assets (19,516) 30,923
Deposits and other assets (6,385) (3,979)
Increase (decrease) in liabilities:
Premiums payable 1,588,532 -
Accounts payable and accrued expenses (464,376) (197,020)
Taxes payable 245,714 -
Other current liabilities (13,448) (868)
----------------------------
Net Cash Provided By (Used in) Operating Activities 2,540,120 (16,483)
----------------------------
Cash Flows from Investing Activities:
Increase in finance contracts receivable - net (5,075,037) -
Decrease in notes and other receivables - net 4,071 21,649
Purchase of property and equipment (44,001) (10,952)
Proceeds from disposition of discontinued subsidiary - 500,000
Proceeds from sale of stores - 141,383
---------------------------
Net Cash (Used In) Provided by Investing Activities (5,114,967) 652,080
---------------------------
Cash Flows from Financing Activities:
Principal payments on long-term debt (4,467) (36,606)
Proceeds from revolving credit line 16,996,812 -
Payments on revolving credit line (13,205,968) -
---------------------------
Net Cash Provided by (Used in) Financing Activities 3,786,377 (36,606)
----------------------------
Net Increase in Cash and Cash Equivalents 1,211,530 598,991
Cash and Cash Equivalents, beginning of period 1,349,304 607,403
---------------------------
Cash and Cash Equivalents, end of period $ 2,560,834 $1,206,394
===========================
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See notes to condensed consolidated financial statements.
6
DCAP GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2004 AND 2003 (UNAUDITED)
1. The Condensed Consolidated Balance Sheet as of March 31, 2004, the
Condensed Consolidated Statements of Income for the three months ended
March 31, 2004 and 2003 and the Condensed Consolidated Statements of Cash
Flows for the three months ended March 31, 2004 and 2003 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, 2004, results of operations for the three months ended March 31, 2004
and 2003 and cash flows for the three months ended March 31, 2004 and 2003.
This report should be read in conjunction with our Annual Report on Form
10-KSB for the year ended December 31, 2003.
The results of operations and cash flows for the three months ended March
31, 2004 are not necessarily indicative of the results to be expected for
the full year.
2. Summary of Significant Accounting Policies:
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a. Principles of consolidation
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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 (except for those commissions that are receivable
annually, which we recognize on a ratable basis) 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.
Prior to July 14, 2003, premium financing fee revenue was earned based upon
the origination of premium finance contracts sold by agreement to third
parties. The contract fee gave consideration to an estimate as to the
collectability of the loan amount. Periodically, actual results were
compared to estimates previously recorded, and adjusted accordingly.
On July 14, 2003, we changed our business model with respect to our premium
finance operations from selling finance contracts to third parties to
internally financing those contracts. To accomplish this, we obtained a
credit facility and commenced recording interest and fee-based revenue over
the life of each loan (generally 9 to 10 months) and expenses of operating
a finance company, such as servicing, bad debts and interest expense.
Thus, rather than recording a one-time fee per contract (as we did prior to
July 14, 2003), we are now recording income and expense over the life of
each contract, as well as receivables and payables relating to the
operations of a premium finance company. We are using the interest method
to recognize interest income over the life of each loan in accordance with
Statement of Financial Accounting Standard No. 91, "Accounting for
Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans
and Initial Direct Costs of Leases."
7
Delinquency fees are earned when collected. Upon completion of collection
efforts, after cancellation of the underlying insurance policies, any
uncollected earned interest or fees are charged off.
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. A total of $6,582 and $9,800 in such costs was
incurred during the three months ended March 31, 2004 and 2003,
respectively.
d. Reclassifications
-----------------
Certain reclassifications have been made to the consolidated financial
statements for the three months ended March 31, 2003 to conform with the
classifications used for the three months ended March 31, 2004.
3. Business Segments:
-----------------
We currently have two reportable business segments: Insurance and Premium
Finance. 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. Insurance revenues are derived from activities within
the United States, and all long-lived assets are located within the United
States. The Premium Finance segment offers property and casualty
policyholders loans to finance the policy premiums.
In December 2002, we disposed of our Hotel segment as part of a settlement
agreement. Accordingly, the segment information shown in the following
table excludes the activity of this segment for the three months ended
March 31, 2004 and 2003.
Summarized financial information concerning our reportable segments is
shown in the following tables:
Three Months Ended Premium
March 31, 2004 Insurance Finance Other(1) Total
---------------------- ---------- ----------- ----------- -----------
Revenues from external
customers $1,671,817 $ 1,828,200 $ - $ 3,500,017
Interest income 1,690 - - 1,690
Interest expense 20,146 275,841 1,183 297,170
Depreciation and
amortization 41,947 55,044 5,492 102,483
Segment profit (loss)
before income taxes 399,945 464,852 (246,778) 618,019
Segment profit (loss) 239,980 278,911 (148,580) 370,311
Segment assets 3,029,824 25,785,954 1,331,846 30,147,624
------------
(1) Column represents corporate-related items and, as it relates to
segment profit (loss), income, expense and assets not allocated to
reportable segments.
8
Three Months Ended Premium
March 31, 2003 Insurance Finance Other(1) Total
--------------------- ---------- -------- ---------- ----------
Revenues from external
customers $1,461,415 $347,477 $ - $1,808,892
Interest income 841 - 507 1,348
Interest expense 17,260 - - 17,260
Depreciation and
amortization 35,927 390 - 36,317
Segment profit (loss)
before income taxes 362,421 267,075 (190,432) 439,064
Segment profit (loss) 362,421 267,075 (195,287) 434,209
Segment assets 2,101,844 194,864 1,006,305 3,303,013
----------
(1) Column represents corporate-related items and, as it relates to
segment profit (loss), income, expense and assets not allocated to
reportable segments.
4. Stock Options
-------------
We have elected the disclosure only provisions of Statement of Financial
Accounting Standard No. 123, "Accounting for Stock-Based Compensation"
("FASB 123") in accounting for our employee stock options. Accordingly, no
compensation expense has been recognized. Had we recorded compensation
expense for the stock options based on the fair value at the grant date for
awards in the three months ended March 31, 2004 and 2003 consistent with
the provisions of SFAS 123, our net income and net income per share would
have been adjusted as follows:
Three Months Ended
March 31,
-----------------------
2004 2003
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Net income, as reported $370,311 $388,113
Deduct: Total stock-based employee
compensation expense determined under
fair value based method, net of related tax
effects (16,000) (15,000)
--------- --------
Pro forma net income $354,311 $373,113
======== ========
Net income per share:
Basic - as reported $ 0.03 $ 0.03
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Basic - pro forma $ 0.03 $ 0.03
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Diluted - as reported $ 0.02 $ 0.03
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Diluted - pro forma $ 0.02 $ 0.03
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5. Sale of Stores
--------------
During the three months ended March 31, 2003, we sold two of our retail
offices (part of our Insurance segment) for cash consideration aggregating
$141,383 and a note receivable of approximately $97,000. The sale of the
two offices resulted in a gain of $89,700. The assets
9
of these stores included accounts receivable of approximately $85,000,
goodwill with a carrying amount of $50,000, and fixed assets with a
carrying amount of approximately $10,000. In addition, concurrently with
the sale, the purchasers entered into franchise agreements with us.
6. Net Income Per Share
--------------------
Basic net income per share is computed by dividing income available to
common shareholders by the weighted-average number of common shares
outstanding. Diluted earnings per share reflect, in periods in which they
have a dilutive effect, the impact of common shares issuable upon exercise
of stock options and conversion of mandatorily redeemable preferred stock.
The reconciliation for the three months ended March 31, 2004 and 2003 is as
follows:
Three Months Ended March 31, 2004 2003
-----------------------------------------------------------------------------------------
Weighted Average Number of Shares Outstanding 12,353,402 12,353,402
Effect of Dilutive Securities, common stock equivalents 3,852,395 570,527
---------------------------
Weighted Average Number of Shares Outstanding,
used for computing diluted earnings per share 16,205,797 12,923,929
===========================
Net income available to common shareholders for the computation of
diluted earnings per share is computed as follows:
Three Months Ended March 31, 2004 2003
-----------------------------------------------------------------------------------------
Net Income $ 370,311 $ 388,113
Interest Expense on Dilutive Convertible Preferred Stock 11,300 -
---------------------------
Net Income Available to Common Shareholders for
Diluted Earnings Per Share $ 381,611 $ 388,113
===========================
10
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
---------------------------------------------------------
Overview
We operate 25 storefronts, including 19 Barry Scott locations acquired
through our August 2002 acquisition of Barry Scott Companies, Inc., and five
Atlantic Insurance locations acquired through our May 2003 acquisition of
substantially all the assets of AIA Acquisition Corp. We also have 44 franchised
DCAP locations.
Our insurance storefronts serve as insurance agents or brokers and place
various types of insurance on behalf of customers. We focus on automobile,
motorcycle and homeowner's insurance and our customer base is primarily
individuals rather than businesses.
The stores receive commissions from insurance companies for their services.
We receive fees from the franchised locations in connection with their use of
the DCAP name. Neither we nor the stores currently serve as an insurance company
and therefore do not assume underwriting risks. The stores also offer automobile
club services for roadside assistance and income tax preparation services.
Payments Inc., our wholly-owned subsidiary, is an insurance premium finance
agency that offers premium financing to clients of DCAP, Barry Scott and
Atlantic Insurance offices, as well as non-affiliated insurance agencies. We
currently operate within the states of New York, Pennsylvania and New Jersey.
Critical Accounting Policies
Our consolidated financial statements include accounts of DCAP Group, Inc.
and all majority-owned and controlled subsidiaries. The preparation of financial
statements in conformity with accounting principles generally accepted in the
United States requires our management to make estimates and assumptions in
certain circumstances that affect amounts reported in our consolidated financial
statements and related notes. In preparing these financial statements, our
management has utilized information available including our past history,
industry standards and the current economic environment, among other factors, in
forming its estimates and judgments of certain amounts included in the
consolidated financial statements, giving due consideration to materiality. It
is possible that the ultimate outcome as anticipated by our management in
formulating its estimates inherent in these financial statements might not
materialize. However, application of the critical accounting policies below
involves the exercise of judgment and use of assumptions as to future
uncertainties and, as a result, actual results could differ from these
estimates. In addition, other companies may utilize different estimates, which
may impact comparability of our results of operations to those of companies in
similar businesses.
Commission and fee income
We recognize commission revenue from insurance policies at the beginning of
the contract period, except for commissions that are receivable annually, for
which we recognize the commission revenue ratably. Refunds of commissions on the
cancellation of insurance policies are reflected at the time of cancellation.
11
Franchise fee revenue is recognized when substantially all of our
contractual requirements under the franchise agreement are completed.
Automobile club dues are recognized equally over the contract period.
Finance income, fees and receivables
Finance income consists of interest, service fees and delinquency fees.
Finance income, other than delinquency fees, is recognized using the interest
method or similar methods that produce a level yield over the life of each loan
(generally nine to ten months). Delinquency fees are earned when collected.
Allowance for finance receivable losses
Losses on finance receivables include an estimate of future credit losses
on premium finance accounts. Credit losses on premium finance accounts occur
when the unearned premiums received from the insurer upon cancellation of a
financed policy are inadequate to pay the balance of the premium finance loan
amount, which includes accrued interest. The majority of these shortfalls result
in the write-off of such interest. We review historical trends of such losses
relative to finance receivable balances to develop estimates of future losses.
However, actual write-offs may differ materially from the write-off estimates
that we used.
Goodwill and intangible assets
The carrying value of goodwill was initially reviewed for impairment as of
January 1, 2002, and is reviewed annually or whenever events or changes in
circumstances indicate that the carrying amount might not be recoverable. If the
fair value of the operations to which goodwill relates is less than the carrying
amount of those operations, including unamortized goodwill, the carrying amount
of goodwill is reduced accordingly with a charge to expense. Based on our most
recent analysis, we believe that no impairment of goodwill exists at March 31,
2004.
Stock-based compensation
We apply the intrinsic value-based method of accounting prescribed by
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations, to account for stock-based employee
compensation plans and report pro forma disclosures in our Form 10-QSB filings
by estimating the fair value of options issued and the related expense in
accordance with SFAS No. 123. Under this method, compensation cost is recognized
for awards of common shares or stock options to our directors, officers and
employees only if the quoted market price of the stock at the grant date (or
other measurement date, if later) is greater than the amount the grantee must
pay to acquire the stock.
Results of Operations
Our operating income for the three months ended March 31, 2004 was $637,658
as compared to $365,276 for the three months ended March 31, 2003.
During the three months ended March 31, 2004, revenues from our
insurance-related operations were $1,671,817 as compared to $1,461,415 for the
three months ended March 31, 2003. The increase was generally due to the
revenues of AIA Acquisition Corp. whose assets were acquired
12
effective May 1, 2003.
Premium finance revenues increased $1,480,723 during the three months ended
March 31, 2004 as compared to the three months ended March 31, 2003, as
indicated by the following table:
Three Months Ended
March 31,
------------------------
2004 2003
------------------------
Revenue from sale of receivables $ 0 $347,477
Interest and late fee revenue 1,828,200 0
------------------------
Total $1,828,200 $347,477
=========================
During the three months ended March 31, 2003, we recognized premium finance
revenue from the sale of premium finance receivables to a third party and
recorded a one-time fee per contract. On July 14, 2003, we obtained an
$18,000,000 two-year line of credit from Manufacturers and Traders Trust Co. to
finance our premium finance operations. Concurrently, we obtained $3,500,000 in
funding from a private placement of subordinated debt and warrants to support
our premium finance operations. We then began utilizing these credit facilities
and commenced recording interest and fee-based revenue over the life of each
loan and the expenses of operating a finance company, such as servicing, bad
debts and interest expense. Thus, rather than recording a one-time fee per
contact, we are recording income and expense over the life of each contract.
Effective November 2003, we began providing premium finance services to our
Barry Scott locations (following the expiration of a requirement that the
locations use another provider), and in March 2004 we began providing premium
finance services to our Atlantic Insurance offices.
Our selling, general and administrative expenses for the three months ended
March 31, 2004 were $1,076,736 more than for the three months ended March 31,
2003. This increase was primarily due to the expenses of AIA Acquisition Corp.
whose assets were acquired effective May 1, 2003 and the expenses of operating a
finance company, as discussed above, which we commenced on July 14, 2003.
Our depreciation and amortization expense for the three months ended March
31, 2004 was $66,166 more than for the three months ended March 31, 2003. This
increase was primarily the result of our recording amortization of costs
associated with obtaining the financing discussed above.
As a result of the change in our premium finance business in July 2003 as
discussed above, we incurred premium finance interest expense during the three
months ended March 31, 2004, while none was incurred during the three months
ended March 31, 2003.
In May 2003, we issued redeemable preferred shares in connection with the
acquisition of the assets of AIA Acquisition Corp. and incurred interest expense
of $11,300 during the three months ended March 31, 2004. No preferred shares
were outstanding during the three months ended March 31, 2003.
During the three months ended March 31, 2003, we sold two of our stores
resulting in a gain of $89,700. No such sales occurred during the three months
ended March 31, 2004.
During the three months ended March 31, 2004, our provision for income
taxes was $247,708 as opposed to $4,855 for the three months ended March 31,
2003. This was due to the utilization of net operating loss carryforwards for
the three months ended March 31, 2003. No net operating loss carryforwards were
available for the three months ended March 31, 2004.
13
Our insurance-related operations, on a stand-alone basis, generated a net
profit before income taxes of $399,945 during the three months ended March 31,
2004 as compared to a net profit before income taxes of $362,421 during the
three months ended March 31, 2003. Our premium finance operations, on a
stand-alone basis, generated a net profit before income taxes of $464,852 during
the three months ended March 31, 2004 as compared to a net profit before income
taxes of $267,075 during the three months ended March 31, 2003. The increase was
primarily due to increased profits resulting from the change in our business
model as discussed above. Loss before income taxes from corporate-related items
not allocable to reportable segments was $246,778 during the three months ended
March 31, 2004 as compared to $190,432 during the three months ended March 31,
2003. This increase was primarily due to the gain on sale of stores during the
three months ended March 31, 2003 while no sale of stores occurred during the
three months ended March 31, 2004.
In January 2003, we discontinued the operations of the International
Airport Hotel in San Juan, Puerto Rico. During the three months ended March 31,
2003, this discontinued operation generated a net loss of $46,096. There were no
such operations during the three months ended March 31, 2004.
Liquidity and Capital Resources
As of March 31, 2004, we had $2,560,834 in cash and cash equivalents and
working capital of $5,601,335. As of December 31, 2003, we had $1,349,304 in
cash and cash equivalents and working capital of $5,168,694.
During the three months ended March 31, 2004, our cash and cash equivalents
increased by $1,211,530. This was due to the following:
o Net cash provided by operating activities was $2,540,120 primarily due
to the following: (i) our net income for the period of $370,311, plus
a decrease in accounts receivable of $746,124, and an increase in
premiums payable of $1,588,532 and taxes payable of $245,714, offset
by (ii) a decrease in accounts payable and accrued expenses of
$464,376.
o We used $5,114,967 in investing activities primarily due to an
increase in our net finance contracts receivable of $5,075,037.
o Net cash provided by financing activities was $3,786,377 primarily due
to the following: (i) proceeds of $16,996,812 from our revolving
credit line from Manufacturers and Traders Trust Co. for premium
finance purposes, offset by (ii) payments of $13,205,968 on the
revolving line.
Liquidity at March 31, 2004 was sufficient, in the opinion of management,
to meet our cash requirements for the 12 month period ending March 31, 2005.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably
likely to have a current or future effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that is material to investors.
14
Item 3. CONTROLS AND PROCEDURES
-----------------------
Our Chief Executive Officer and Chief Financial Officer conducted an
evaluation of the effectiveness of our disclosure controls and procedures. Based
on this evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures were effective as of March
31, 2004 in alerting him in a timely manner to material information required to
be included in our SEC reports. In addition, no change in our internal control
over financial reporting occurred during the fiscal quarter ended March 31, 2004
that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
15
PART II. OTHER INFORMATION
-----------------
Item 1. LEGAL PROCEEDINGS
-----------------
None
Item 2. CHANGES IN SECURITIES AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY
----------------------------------------------------------------------
SECURITIES
----------
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) Restated Certificate of Incorporation1
3(b) Certificate of Designation of Series A Preferred Stock2
3(c) By-laws, as amended1
31 Rule 13a-14(a)/15d-14(a) Certification as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
32 Certification of Chief Executive Officer and Chief Financial
Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
--------
1 Denotes document filed as an exhibit to our Quarterly Report on Form 10-QSB
for the period ended September 30, 2002 and incorporated herein by reference.
2 Denotes document filed as an exhibit to our Current Report on Form 8-K for an
event dated May 28, 2003 and incorporated herein by reference.
16
(b) Reports on Form 8-K
-------------------
One Current Report on Form 8-K was filed during the quarter ended
March 31, 2004 as follows:
Date of Report: February 20, 2004
Items Reported: 7 and 12
17
SIGNATURES
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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 13, 2004 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)