DCAP Group, Inc. Form 10-KSB dated December 31, 2004
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-KSB
(Mark
One)
(x) |
ANNUAL
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 |
|
For
the fiscal year ended |
December
31, 2004 |
(
) |
TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 |
|
For
the transition period from |
to |
|
Commission
file number |
0-1665 |
DCAP
GROUP, INC.
(Name of
small business issuer in its charter)
Delaware |
36-2476480 |
(State
or other jurisdiction of incorporation or organization) |
(I.R.S.
Employer Identification No.) |
1158
Broadway, Hewlett, New York |
11557 |
(Address
of principal executive offices) |
(Zip
Code) |
(516)
374-7600 |
(Issuer’s
telephone number, including area code) |
Securities
registered under Section 12(b) of the Exchange Act:
Title
of each class |
Name
of each exchange on which registered |
None |
|
Securities
registered under Section 12(g) of the Exchange Act:
Common
Stock, $.01 par value
(Title of
class)
Check
whether the issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 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. Yes
[X] No__ .
Check if
disclosure of delinquent filers in response to Item 405 of Regulation S-B is not
contained in this form, and no disclosure will be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB.( )
State
issuer's revenues for its most recent fiscal year: $15,088,013
State the
aggregate market value of the voting stock held by non-affiliates computed by
reference to the price at which the stock was sold, or the average bid and asked
prices of such stock, as of a specified date within the past 60 days:
$10,414,869 as of February 28, 2005.
(ISSUERS
INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE
YEARS)
Check
whether the issuer has filed all documents and reports 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
__ .
(APPLICABLE
ONLY TO CORPORATE REGISTRANTS)
State the
number of shares outstanding of each of the issuer's classes of common equity,
as of the latest practicable date: 2,722,024 shares as of February 28, 2005.
DOCUMENTS
INCORPORATED BY REFERENCE
None
Transitional
Small Business Disclosure Format: Yes ____
No [X]
|
|
Page
No. |
Explanatory
Note/Forward-Looking Statements |
1 |
PART
I
|
|
|
Item
1. |
Description
of Business |
2 |
Item
2 |
Description
of Property |
10 |
Item
3. |
Legal
Proceedings |
10 |
Item
4. |
Submission
of Matters to a Vote of Security Holders |
11 |
PART
II
|
|
|
Item
5. |
Market
for Common Equity, Related Stockholder Matters and Small Business Issuer
Purchases of Equity Securities |
12 |
Item
6. |
Management=s
Discussion and Analysis or Plan of Operation |
13 |
Item
7. |
Financial
Statements |
24 |
Item
8. |
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure |
24 |
Item
8A. |
Controls
and Procedures |
24 |
Item
8B. |
Other
Information |
24 |
PART
III
|
|
|
Item
9. |
Directors
and Executive Officers of the Registrant |
25 |
Item
10. |
Executive
Compensation |
28 |
Item
11. |
Security
Ownership of Certain Beneficial Owners and Management and
Related
Stockholder Matters |
29 |
Item
12. |
Certain
Relationships and Related Transactions |
32 |
Item 13. |
Exhibits,
List and Reports on Form 8-K |
35 |
Item
14. |
Principal
Accountant Fees and Services |
38 |
Signatures |
|
|
PART I
Explanatory
Note
All
references in this Annual Report to numbers of common shares and per share
information give retroactive effect to the one-for-five reverse split of our
common shares effected as of August 26, 2004.
Forward-Looking
Statements
This
Annual 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 Annual 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 this Annual
Report 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 publicly update or
revise any forward-looking statements, whether from new information, future
events or otherwise.
ITEM
1. DESCRIPTION
OF BUSINESS
(a) Business
Development
General
We
operate two lines of business:
|
$ |
franchising,
ownership and operation of storefront insurance agencies under the DCAP,
Barry Scott and Atlantic Insurance brand
names |
|
$ |
premium
financing of insurance policies for our DCAP, Barry Scott and Atlantic
Insurance clients as well as clients of non-affiliated entities
|
Our
business strategy anticipates the utilization and expansion of our distribution
network and delivery of insurance-related services through this network.
Pursuant to this strategy, we have
|
$ |
granted
franchises for the use of the DCAP trade
name |
|
$ |
sold
our interest in a number of storefronts but retained them as DCAP
franchises |
|
$ |
as
discussed below, purchased
Barry Scott Companies, Inc., which has 19 store locations, and the assets
of AIA Acquisition Corp., which has five store locations that operate
under the Atlantic Insurance brand name |
|
$ |
changed
our business model with respect to our premium finance operations from
selling finance contracts to third parties to internally financing those
contracts |
Developments
During 2004
The
following material events occurred during 2004:
· |
Effective
August 26, 2004, we effected a one-for-five reverse split of our common
shares. |
· |
In
September 2004, we hired John J. Willis, Jr. as our Chief Operating
Officer. See Item 9 of this Annual Report. |
· |
On
October 7, 2004, our common shares began trading on the NASDAQ Small Cap
Market. |
· |
In
December 2004, we increased our premium finance line of credit with
Manufacturers and Traders Trust Co. (“M&T”) from $18,000,000 to
$25,000,000 and extended the term of the line to June 30, 2007. Subject to
certain conditions, M&T has agreed to arrange an additional
$10,000,000 credit facility with other lenders on a “best efforts” basis.
The terms of the new line of credit agreement are similar to our previous
line of credit agreement with M&T, except that the interest rate was
reduced from M&T’s prime lending rate plus 1.5% to, at our option,
either (i) M&T’s prime lending rate or (ii) LIBOR plus 2.5%, and the
amount that we can borrow was raised from 80% to 85% of eligible premium
finance receivables. In January 2005, we utilized the line of credit to
repay $1,000,000 of our $3,500,000 subordinated debt discussed under
“Developments During 2003” below. We need to extend the maturity date of
our subordinated debt as discussed under “Factors That May Affect Future
Results and Financial Condition” in Item 6 of this Annual
Report. |
Developments
During 2003
The
following material events occurred during 2003:
|
$ |
Effective
May 1, 2003, we acquired substantially all of the assets of AIA
Acquisition Corp., an insurance brokerage firm with five offices located
in eastern Pennsylvania that operate under the Atlantic Insurance brand.
The acquisition allowed for the expansion of our geographical footprint
outside New York State and allowed for us to capitalize on operational and
administrative efficiencies. See Item 12 of this Annual Report.
|
|
$ |
In
July 2003, in connection with the change in our premium finance operations
business model, as discussed above, we obtained an $18,000,000 revolving
line of credit from M&T that was due in July 2005. Interest on this
loan was payable at the rate of prime plus 1.5%. Concurrently, we obtained
a $3,500,000 secured subordinated loan, that is repayable in January 2006
and carries interest at the rate of 12-5/8% per annum. In connection with
the $3,500,000 debt financing, we issued warrants for the purchase of
105,000 common shares at an exercise price of $6.25 per share. The
warrants expire on January 10, 2006. See “Developments During 2004”
above. |
Developments
During 2002
The
following material events occurred during 2002:
|
$ |
On
August 30, 2002, we purchased Barry Scott Companies, Inc. from a
subsidiary of the insurance carrier, The Progressive Corporation. Through
the acquisition, we added 20 new locations, 18 of which are located north
of Westchester County, New York and outside the DCAP footprint. In 2003,
one of the acquired stores was damaged by fire and not
reopened. |
The
purchase price was $850,000, of which $325,000 was paid at closing. The balance
of the purchase price is payable as follows: (i) $125,000 on August 30, 2004,
(ii) $125,000 on August 30, 2005, and (iii) $275,000 on August 30, 2006 (of
which $40,000 was prepaid in 2003). As security for the payment of the
installments and other obligations under the acquisition agreement, a security
interest was granted to Progressive in the shares of stock acquired and in the
assets of Barry Scott and its subsidiaries.
|
$ |
In
August 2002, we raised gross proceeds of $500,000 through a private
placement of our common shares. |
|
$ |
During
2002, we determined that our operation of the former International Airport
Hotel in San Juan, Puerto Rico was a non-core business and that we should
settle the ongoing litigation with the Ports Authority of Puerto Rico, the
owner of the hotel, concerning the term of the lease granted to our
wholly-owned subsidiary, IAH, Inc. Accordingly, in
December 2002, IAH reached a verbal understanding with the Ports Authority
and, on January 29, 2003, IAH finalized a settlement agreement with the
Ports Authority. Pursuant to the agreement, in consideration for
IAH=s
agreement to release all rights with respect to the lease and to vacate
the premises, in January 2003, the Ports Authority paid to IAH the sum of
$500,000. |
General
Our
storefront locations serve as insurance agents or brokers and place various
types of insurance on behalf of customers. We focus on automobile, motorcycle
and homeowners insurance and our customer base is primarily individuals rather
than businesses.
There are
68 store locations owned or franchised by us of which 62 are located in New York
State. In the New York metropolitan area, there are 43 DCAP franchises, one
joint venture DCAP store and one Barry Scott location. There are also 18 Barry
Scott locations outside the New York metropolitan area (all located in central
New York State). There are five Atlantic Insurance locations in eastern
Pennsylvania. All of the Barry Scott and Atlantic Insurance locations are
wholly-owned by us.
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 serve as an insurance company and therefore
do not assume underwriting risks.
Through
our wholly-owned subsidiary, Payments Inc., we provide insurance premium
financing services to our DCAP, Barry Scott and Atlantic Insurance locations as
well as non-affiliated insurance agencies. Payments Inc. is licensed by the New
York State Department of Banking as an insurance premium finance agency and has
been granted permission to conduct business in Pennsylvania and New
Jersey.
We also
offer automobile club services for roadside emergencies. Income tax preparation
services are also offered in connection with the operation of the DCAP stores.
We were
incorporated in 1961 and changed our name from EXTECH Corporation to DCAP Group,
Inc. in 1999.
Our
executive offices are located at 1158 Broadway, Hewlett, New York 11557; our
telephone number is (516) 374-7600 and our fax number is (516) 295-7216.
Insurance
Agencies
Insurance
Brokerage
Our
storefront agencies deal primarily with the insurance needs of individuals. In
the states in which we operate, all automobile owners must secure liability
insurance coverage. We provide various choices to the insured depending on
market conditions.
During
the fiscal year ended December 31, 2004, approximately 90% of our insurance
revenues were derived from commissions and other fees received in connection
with the selling of automobile and other property and casualty insurance
policies.
In
addition to automobile insurance, we offer:
$ property
and casualty insurance for motorcycles, boats and livery/taxis
$ life
insurance
$ business
insurance
$ homeowner=s
insurance
$ excess
coverage
We have
obtained the right to receive calls placed to “1-800-INSURANCE” in the states of
New York, New Jersey and Pennsylvania (except for one area code in Pennsylvania)
as a way to increase our insurance brokerage business.
Franchises
An
important part of our strategy has been to increase our name recognition. We
decided that granting others DCAP franchises is an important step in achieving
this goal.
Franchises
currently pay us an initial franchise fee of $25,000 to offer insurance products
under the DCAP name. Franchisees are obligated to also pay us monthly fees
during the term of the franchise agreement, generally commencing after a twelve
month period from the date on which the storefront opens for business. Monthly
fees payable by franchisees constituted approximately 8% of our insurance
revenues during the year ended December 31, 2004.
Automobile
Club
As a
complement to our automobile insurance operations, we offer automobile club
services for roadside emergencies. We offer memberships for such services, and
we make arrangements with towing dispatch companies to fulfill service call
requirements.
During
fiscal 2004, fees received in connection with automobile club services
constituted approximately 2% of our insurance revenues.
Income Tax
Return Preparation
A number
of our franchise locations provide income tax return preparation services. The
tax return preparation service allows us to offer an additional service to the
walk-in customers who comprise the bulk of our customer base, as well as to
existing customers. We have also obtained the right to receive calls placed to
“1-800-INCOME TAX” as a way to increase our tax preparation business.
During
fiscal 2004, fees received in connection with income tax return preparation were
nominal.
Structure
and Operations
As stated
above, we currently have 68 offices, of which 43 are franchises, 24 are
wholly-owned, and one is a joint venture. Our franchises and joint venture
office consist of both “conversion” and “startup” operations. In a conversion
operation, an existing insurance brokerage with an established business becomes
a DCAP office. In a startup operation, an entrepreneur begins operations as a
DCAP office. Our wholly-owned and joint venture offices are managed by our
employees; each franchise is managed by or under the supervision of the
franchisee.
In order
to promote consistency and efficiency, and as a service to our franchises, we
offer training to office managers. Our training program covers:
$ marketing,
sales and underwriting
$ office
and logistics
$ computer
information
$ our
proprietary database software, DCAP Management System
We
provide the administrative services and functions of a “central office” to our
wholly-owned and joint venture offices. The services provided to these
storefront offices are:
$ sales
training
$ bookkeeping
and accounting
$ processing
services
Franchises
operate without the assistance of our “central office” services.
We also
provide support services to stores such as:
$ assistance
with regard to the hiring of employees
$ assistance
with regard to the writing of local advertising
$ advice
regarding potential carriers for certain customers
We also
manage the cooperative advertising program in which all of our offices
participate.
In
addition to the above services, we provide to all of our offices a direct
business relationship with nationally-known and local insurance carriers that
may otherwise be beyond the reach of small, privately-owned retail insurance
operations.
Premium
Financing
Customers
who purchase insurance policies are often unable to pay the premium in a lump
sum and, therefore, require extended payment terms. Premium finance involves
making a loan to the customer that is backed by the unearned portion of the
insurance premiums being financed. Our wholly-owned subsidiary, Payments Inc.,
is licensed by the New York State Banking Department as a premium finance agency
and has been granted permission to conduct business in Pennsylvania and New
Jersey.
In a
typical premium finance arrangement, we lend the amount of the premium (minus
the customer’s down payment) to the customer and pay it to the insurance company
on behalf of the customer. The customer makes periodic payments to us over the
term of the finance agreement (generally nine to ten months). We strive to
design our payment plans so that the balance of the principal of the loan is at
all times less than the amount of the unearned portion of the insurance premiums
being financed, which backs the loan. We also seek to mitigate risk by acting on
a timely basis to request cancellation of the policy if the policyholder
defaults on his or her obligation to repay the premium finance
loan.
If the
policy is cancelled before its term expires, the policyholder has a right to
receive a return of the unearned premium. Under our premium finance agreement,
the policyholder assigns this right to us to secure his or her obligations under
the loan. If the policyholder fails to make a payment, we have the right to
request that the insurance company cancel the policy and pay to us the amount of
any unearned premium on the policy. If the amount of unearned premium exceeds
the balance due on the loan plus any interest and applicable fees owed by the
policyholder to us, then we return the excess amount to the policyholder in
accordance with applicable law.
The
regulatory framework under which our premium finance procedures are established
is generally set forth in the premium finance statutes of the states in which we
operate. Among other restrictions, the interest rate we may charge our customers
for financing their premiums is limited by these state statutes. See “Government
Regulation.”
Reference
is made to Items 1(a) and 6 of this Annual Report for a discussion of the line
of credit and subordinated debt that we utilize in connection with our premium
finance operations.
Strategy
In order
to achieve our goal of utilizing and expanding our distribution network and
delivering insurance-related services through this network, we currently have
the following four-pronged business strategy:
|
$ |
promote
franchise sales by providing proprietary products and services that may
not be available elsewhere |
|
$ |
acquire
storefront agencies in the Northeast in order to expand our geographical
footprint |
|
$ |
increase
the size of our premium finance business, both within and outside the DCAP
storefronts, including the introduction of our business in other
states |
|
$ |
seek
to expand our operations by acquiring businesses or other assets which we
believe will complement or enhance our
business |
In
seeking to promote franchise sales, we pursue increased name recognition through
the establishment of additional DCAP storefront sites (both conversion and
start-up types) and increased marketing activities. In addition, our cooperative
advertising program will continue to use the aggregated buying power of the
DCAP, Barry Scott and Atlantic Insurance offices to advertise in various
editions of telephone directories and in other media.
We
utilize toll-free telephone numbers to increase business. Telephone calls
received are routed to the DCAP, Barry Scott or Atlantic Insurance office
nearest the call (based on the zip code of the caller) for handling. We are
promoting “1-800-INSURANCE” in our current markets and intend to utilize such
numbers in the future as our market expands.
During
2005, we will continue to seek to acquire additional locations in order to
further capitalize on existing proprietary services, relationships with carriers
and the increased premium finance activity.
As
indicated above, one of our strategies involves the growth of our premium
finance business. Until mid-2003, as the number of insurance companies
participating voluntarily in the New York non-standard automobile insurance
market declined, fewer policies were written on a voluntary basis and there was
an offsetting increase in the size of the involuntary or “assigned risk” market.
The New York Auto Insurance Plan (“NYAIP”), which provides coverage for
“assigned risk” drivers, provides for limited finance options. Unless the
insured can either pay the entire premium at policy inception, or can provide a
large downpayment and be capable of paying the balance over a short period of
time, there is a need for premium financing. Our premium finance subsidiary,
Payments Inc., offers the insured a reduced downpayment and the ability to
spread the balance over a period of up to ten months.
Since
mid-2003, as a result of rate increases for NYAIP policies, and the relaxation
in underwriting standards by voluntary carriers, the size of the voluntary
non-standard market has been increasing and the NYAIP market has declined.
Although NYAIP premiums continued to rise until August 2004, the decline in the
NYAIP market has led us to seek non-NYAIP premium financing business. Beginning
in late 2004, we began to provide premium financing on some policies written in
the voluntary market.
Our final
strategy involves the expansion of our operations into complementary areas. We
continually explore such opportunities as a means to enhance our business.
Complimentary insurance products, including different or enhanced coverages, and
other financial products (such as mortgages) are being considered.
Competition
We
compete with numerous insurance agents and brokers in our market. The amount of
capital required to commence operations is generally small and the only material
barrier to entry is the ability to obtain the required licenses and appointments
as a broker or agent for insurance carriers. There is no price competition
between us and other agents and brokers. All must sell a particular carrier’s
policies at exactly the same price. Because we may be able to offer a different
payment plan through premium financing, we are able to differentiate ourselves.
In recent
years, extensive competition has come from direct sales entities, such as GEICO
Insurance and Progressive Insurance, who have concentrated their advertising
efforts on television and radio. In addition, the Internet sales effort of some
of our competitors has shown promise. Further, legislation that allows banks to
offer insurance to their customers has taken market share from the storefront
insurance operators.
Our
premium finance operation competes with many other companies that have been in
business longer than we have, and have long term relationships with their
insurance agency clients.
Government
Regulation
Our
premium finance subsidiary, Payments Inc., is regulated by governmental agencies
in states in which it conducts business. The regulations, which generally are
designed to protect the interests of policyholders who elect to finance their
insurance premiums, vary by jurisdiction, but usually, among other matters,
involve:
· |
regulating
the interest rates, fees and service charges we may charge our
customers |
· |
imposing
minimum capital requirements for our premium finance subsidiary or
requiring surety bonds in addition to or as an alternative to such capital
requirements |
· |
governing
the form and content of our financing
agreements |
· |
prescribing
minimum notice and cure periods before we may cancel a customer’s policy
for non-payment under the terms of the financing
agreement |
· |
prescribing
timing and notice procedures for collecting unearned premium from the
insurance company, applying the unearned premium to our customer’s premium
finance account, and, if applicable, returning any refund due to our
customer |
· |
requiring
our premium finance company to qualify for and obtain a license and to
renew the license each year |
· |
conducting
periodic financial and market conduct examinations and investigations of
our premium finance company and its
operations |
· |
requiring
prior notice to the regulating agency of any change of control of our
premium finance company |
Employees
We employ
approximately 92 persons. We believe that our relationship with our employees is
good.
ITEM
2. DESCRIPTION
OF PROPERTY
Our
principal executive offices are located at 1158 Broadway, Hewlett, New York, our
central processing offices are located at 1762 Central Avenue, Albany, New York
and the administrative offices of Payments Inc. are located at 1154 Broadway,
Hewlett, New York.
Our 19
Barry Scott offices are located in upstate New York (with the exception of one
located in the New York metropolitan area). Our five Atlantic Insurance offices
are located in eastern Pennsylvania. We also have one joint venture DCAP store
that is located in Greenbrook, New Jersey.
Our 25
wholly-owned or joint venture storefront locations and our executive and other
offices are operated pursuant to lease agreements that expire from time to time
through 2011. The current yearly aggregate base rental for the offices is
approximately $346,000.
ITEM
3. LEGAL
PROCEEDINGS
As
described in Item 1(a) of this Annual Report, in August 2002, we acquired Barry
Scott Companies, Inc. from a subsidiary of The Progressive Corporation. In 1998,
Barry Scott Companies, Inc. had acquired all of the outstanding stock of
Aard-Vark Agency, Ltd. Accordingly, we acquired Aard-Vark as part of our
acquisition of Barry Scott Companies, Inc. On January 21, 2003, Aard-Vark
commenced an action against Barnett Prager, Anita Prager and All About Security,
Inc. in Supreme Court of the State of New York, Queens County. Aard-Vark alleges
claims based on breach of an employment agreement. In response, on April 28,
2003, the defendants served counterclaims against Aard-Vark in which they
alleged breach of contract, breach of implied covenant of good faith and fair
dealing, misrepresentation and breach of fiduciary duty. The defendants sought
damages of up to $2,000,000 for each of several claims against Aard-Vark.
Pursuant to the terms of the agreement whereby we acquired Barry Scott
Companies, Inc., Progressive agreed to indemnify and defend us from any claims
or liabilities arising in connection with the transaction by which Aard-Vark was
acquired by Barry Scott Companies, Inc. Progressive has assigned counsel to
defend the counterclaims against Aard-Vark. In June 2004, the defendants’
counterclaims were dismissed.
ITEM
4. SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
Our
Annual Meeting of Stockholders was held on November 24, 2004. The following is a
listing of the votes cast for or withheld with respect to each nominee for
director (the election of directors being the only matter voted upon at the
meeting):
1. Election
of Board of Directors.
|
Number
of Shares |
|
For |
Withheld |
|
|
|
Barry
B. Goldstein |
1,904,622 |
2,768 |
Morton
L. Certilman |
1,903,212 |
4,178 |
Jay
M. Haft |
1,906,305 |
1,085 |
Jack
D. Seibald |
1,906,323 |
1,067 |
Robert
M. Wallach |
1,661,032 |
246,358 |
PART
II
ITEM
5. MARKET
FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER
PURCHASES OF EQUITY SECURITIES
Market
Information
Since
October 7, 2004, our common shares have been quoted on the NASDAQ Small Cap
Market under the symbol “DCAP.” Prior to that time, our common shares were
quoted on the OTC Bulletin Board under the symbol “DCAP.”
Set forth
below are the high and low bid prices for our common shares for the periods
indicated, as reported on the NASDAQ Small Cap Market or the OTC Bulletin Board,
as the case may be. The prices set forth are prices between broker-dealers and
do not include retail mark-ups or mark-downs or any commissions to the
broker-dealer. The prices may not necessarily reflect actual
transactions.
|
High |
Low |
2004
Calendar Year |
|
|
First
Quarter |
$7.35 |
$4.75 |
Second
Quarter |
6.60 |
5.45 |
Third
Quarter |
6.30 |
4.50 |
Fourth
Quarter |
8.25 |
6.86 |
|
High |
Low |
2003
Calendar Year |
|
|
First
Quarter |
$2.55 |
$1.25 |
Second
Quarter |
3.25 |
1.60 |
Third
Quarter |
6.05 |
2.65 |
Fourth
Quarter |
5.10 |
4.05 |
Holders
As of
March 11, 2005, there were approximately 1,527 record holders of our common
shares.
Dividends
Holders
of our common shares are entitled to dividends when, as and if declared by our
Board of Directors out of funds legally available. There are also outstanding
780 Series A preferred shares. These shares are entitled to cumulative aggregate
dividends of $39,000 per annum (5% of their liquidation preference of $780,000).
No dividends may be paid on our common shares unless an equivalent pro rata
payment is made to the holders of the Series A preferred shares on the
accumulated and unpaid dividends payable to such holders at such
time.
We have
not declared or paid any dividends in the past to the holders of our common
shares and do not currently anticipate declaring or paying any dividends in the
foreseeable future. We intend to retain earnings, if any, to finance the
development and expansion of our business. Future dividend policy will be
subject to the discretion of our Board of Directors and will be contingent upon
future earnings, if any, our financial condition, capital requirements, general
business conditions, and other factors. Therefore, we can give no assurance that
any dividends of any kind will ever be paid to holders of our common
shares.
Recent
Sales of Unregistered Securities
Not
applicable.
Issuer
Purchases of Equity Securities
During
the fourth quarter of 2004, we did not repurchase any of our equity securities.
However, in December 2004, as payment of the exercise price for the purchase of
160,000 common shares by Barry Goldstein, our President and Chief Executive
Officer, pursuant to his exercise of an incentive stock option, Mr. Goldstein
delivered 27,211 of our common shares. In addition, in connection with Mr.
Goldstein’s exercise in December 2004 of a nonstatutory stock option for the
purchase of 34,000 of our common shares, 6,789 of the shares were withheld by us
in connection with the satisfaction of our tax withholding
obligation.
ITEM
6.
MANAGMENT'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 43 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 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.
Franchise
fee revenue is recognized when substantially all of our contractual requirements
under the franchise agreement are completed.
Fees for
income tax preparation are recognized when the services are completed.
Automobile club dues are recognized equally over the contract period.
Finance
income, fees and receivables
Prior
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 nine to ten 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.”
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.
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 account. The
majority of these shortfalls result in the write-off of unrealized 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 December
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-KSB 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.
Recent
Accounting Pronouncements
In
December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based
Payment” (“SFAS No. 123R”). SFAS No. 123R is a revision of SFAS No. 123, and its
related implementation guidance. The effective date of the standard for us is
for periods beginning after December 15, 2005. Upon adoption of SFAS No. 123R,
we will be required to record compensation expense on stock options granted to
employees. We expect to apply the permitted prospective transition method,
whereby we will continue to account for any portion of awards outstanding at the
date of transition using the accounting principles originally applied to those
awards. Accordingly, we expect that the impact from the adoption of SFAS No.
123R will not be material to the consolidated financial statements with respect
to awards outstanding as of the date of transition. New stock option awards will
be accounted for prospectively using the provisions of SFAS No. 123R; the impact
on consolidated financial statements will depend upon the characteristics of
such future awards, and may be material.
In
January 2003, the FASB issued SFAS No. 148, “Accounting for Stock-Based
Compensation—Transition and Disclosure” (“SFAS No. 148”). This Statement amends
SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”) to
provide alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation. In
addition, this Statement amends the disclosure requirements of SFAS No. 123 to
require prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee compensation and the
effect of the method used on reported results. The provisions of this Statement
were required to be adopted for fiscal years ending after December 15, 2002. We
have adopted the disclosure provisions of this Statement. We apply APB Opinion
No. 25, “Accounting for Stock Issued to Employees” in accounting for our
employee stock options. Accordingly, no compensation expense has been recognized
in our financial statements because the exercise price of the employee stock
options is equal to or greater than the market price of our common stock on the
date of grant. We, however, use the minimum value method of measuring stock
options for pro forma disclosure purposes under SFAS No. 123. As permitted by
SFAS No. 123, compensation cost for stock options is recognized in income based
on the excess, if any, of the fair market value of the stock at the date of
grant over the amount an employee must pay to acquire the stock.
In
December 2003, the FASB issued a revision to Interpretation No. 46,
“Consolidation of Variable Interest Entities” (“FIN 46”) which was first issued
in January 2003 and requires the consolidation of variable interest entities, as
defined. For us, variable interest entities created after December 31, 2003
require application of the provisions of FIN 46 immediately. For all previously
existing entities subject to FIN 46, application is required by the
beginning of fiscal 2005. We are currently assessing the applicability and
potential impact of FIN 46 on certain of our facility operating leases and
other contractual relationships. If any of the entities related to these
arrangements require consolidation under the provisions of FIN 46, the impact
would be material to our financial position. For our interest in an entity that
is subject to FIN 46 and that is created after December 31, 2003, we shall
apply FIN 46 to that entity immediately. For our interest in an entity that
is subject to FIN 46 and was created prior to December 31, 2003, we shall
apply FIN 46 in fiscal 2005. Based on our preliminary assessment of FIN 46,
we anticipate that it will not have a material effect on our financial
condition, results of operations or cash flows.
Results
of Operations
Our net
income for the year ended December 31, 2004 was $1,374,364 as compared to
$1,289,803 for the year ended December 31, 2003.
During
the year ended December 31, 2004, revenues from our insurance-related operations
were $7,126,398 as compared to $6,354,920 for the year ended December 31, 2003.
The increase was generally due to revenues of our Atlantic Insurance stores
(whose assets were acquired effective May 1, 2003) as well as an increase in
contingent commissions during 2004. See “Factors That May Affect Future Results
and Financial Condition” in this Item 6 with regard to the recent trend in the
insurance industry to no longer pay contingent commissions.
Premium
finance revenues increased $5,630,786 during the year ended December 31, 2004 as
compared to the year ended December 31, 2003 as indicated by the following
table:
|
|
|
2004 |
|
|
2003 |
|
Revenue
from sale of receivables |
|
$ |
0 |
|
$ |
626,552 |
|
Interest
and late fee revenue |
|
|
7,961,617 |
|
|
1,704,279 |
|
|
|
$ |
7,961,617 |
|
$ |
2,330,831 |
|
During
the period from January 1, 2003 until July 13, 2003, we recognized premium
finance revenue from the sale of the 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 expenses of operating a finance company, such as servicing, bad debts
and interest expense. Thus rather than recording a one time fee per contract, we
are recording income and expense over the life of each contract. See “Liquidity
and Capital Resources” in this Item 6.
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
general and administrative expenses for the year ended December 31, 2004 were
$2,122,872 more than for the year ended December 31, 2003. This increase was
primarily due to the expenses of our Atlantic Insurance stores (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 year ended December 31, 2004 was
$142,598 more than for the year ended December 31, 2003. This increase was
primarily the result of our recording amortization of costs associated with
obtaining the financing discussed above.
During
the year ended December 31, 2004, we incurred premium finance interest expense
of $1,188,990 as compared to $335,343 for the year ended December 31, 2003.
During the year ended December 31, 2004, we recorded a provision for finance
receivable losses of $2,965,796 as compared to $348,228 for the year ended
December 31, 2003. These increases were the result of the change in our premium
finance business in July 2003 as discussed above.
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 $45,200
during the year ended December 31, 2004 as compared to $30,133 during the year
ended December 31, 2003.
During
the year ended December 31, 2003, we sold two of our stores and the book of
business relating to one store, resulting in a gain of $178,662. No such sales
occurred during the year ended December 31, 2004.
During
the year ended December 31, 2004, our provision for income taxes was $481,400 as
compared to a provision for income taxes of $22,608 for the year ended December
31, 2003. This primarily was due to the utilization of net loss
carryforwards of approximately $1,300,000 against our total income in 2003,
while net loss carryforwards of only approximately $439,000 were utilized in
2004.
Our
insurance-related operations, on a stand-alone basis, generated a net profit
before income taxes of $1,753,282 during the year ended December 31, 2004 as
compared to a net profit before income taxes of $1,298,868 during the year ended
December 31, 2003. The increase was primarily the result of the inclusion of the
operations of the Atlantic Insurance stores and an increase in contingent
commission revenue during 2004. Our premium finance operations, on a stand-alone
basis, generated a net profit before income taxes of $1,586,173 during the year
ended December 31, 2004 as compared to a net profit before income taxes of
$839,311 during the year ended December 31, 2003. The increase was primarily due
to increased profits resulting from the change in our business model discussed
above. The net loss before income taxes from corporate-related items not
allocable to reportable segments was $1,483,691 during the year ended December
31, 2004 as compared to $779,672 during the year ended December 31, 2003. This
increase was primarily due to the gain on the sale of stores during the year
ended December 31, 2003 while no sales of stores occurred during the year ended
December 31, 2004 as well as increased executive compensation (due to, among
other things, the hiring of John J. Willis, Jr. as our Chief Operating Officer),
the purchase of directors and officers liability insurance and the payment of
directors fees during the year ended December 31, 2004. See “Factors That May
Affect Future Results and Financial Condition” in this Item 6 with regard to the
recent trend in the insurance industry to no longer pay contingent commissions.
In
January 2003, our subsidiary, IAH, Inc., discontinued the operations of the
International Airport Hotel in San Juan, Puerto Rico. During the year ended
December 31, 2003, this discontinued operation generated a net loss of $46,096.
There were no such operations during the year ended December 31,
2004.
Liquidity
and Capital Resources
As of
December 31, 2004, we had $515,899 in cash and cash equivalents and working
capital of $5,678,700. As of December 31, 2003, we had $1,349,304 in cash and
cash equivalents and working capital of $5,168,694.
Cash and
cash equivalents decreased by $833,405 between December 31, 2003 and December
31, 2004 primarily due to the following:
· |
Net
cash used in operating activities during the year ended December 31, 2004
was $721,504 primarily due to the following: (i) a decrease in premiums
payable of $2,090,840 and an increase in accounts receivable of
$1,122,268, offset by (ii) our net income for the year of $1,374,364, plus
depreciation and amortization of $425,384, an increase in taxes payable of
$510,053 and an increase in accounts payable and accrued expenses of
$380,629. |
· |
We
used $2,508,149 in investing activities during the fiscal year ended
December 31, 2004 primarily due to an increase in our net finance
contracts receivable of $2,347,873. |
· |
Net
cash provided by financing activities during the year ended December 31,
2004 was $2,396,248 primarily due to proceeds of $66,178,841 from our
revolving loan from Manufacturers and Traders Trust Co. for premium
finance purposes and proceeds from the exercise of stock options and
warrants of $445,676, offset by payments of $63,551,264 on the revolving
loan. |
Our
premium finance operations are financed pursuant to a $25,000,000 revolving line
of credit from Manufacturers and Traders Trust Co. Subject to certain
conditions, M&T has agreed to arrange an additional $10,000,000 credit
facility with other lenders on a “best efforts” basis. The line of credit bears
interest at either (i) M&T’s prime rate or (ii) LIBOR plus 2.5%, matures on
June 30, 2007 and is secured by substantially all of our assets. We can borrow
against the line to the extent of 85% of eligible premium finance receivables.
As of December 31, 2004, $11,595,659 was outstanding under the loan. See
“Business-Development-Developments During 2004” in item 1 of this Annual Report
for a description of the changes made in December 2004 from our initial line of
credit with M&T to that described above.
We have
no current commitments for capital expenditures. However, we may, from time to
time, consider acquisitions of complementary businesses, products or
technologies.
In
connection with out initial acquisition of the line of credit from M&T, we
obtained a $3,500,000 secured subordinated loan to support our premium finance
operations. In January 2005, we utilized the M&T line of credit to repay
$1,000,000 of the subordinated debt. Effective April 30, 2005, we are permitted,
under certain circumstances, to utilize the line of credit to repay an
additional $1,000,000 of the subordinated debt. The remaining balance of the
loan is repayable in January 2006 and carries interest at the rate of 12-5/8%
per annum. See “Factors That May Affect Future Results and Financial Condition”
in this Item 6 with regard to the need to extend the maturity date of our
subordinated debt pursuant to the requirements of our premium finance line of
credit.
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 conditions, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources that is material to investors.
Factors
That May Affect Future Results and Financial
Condition
Based
upon the following factors, as well as other factors affecting our operating
results and financial condition, past financial performance should not be
considered to be a reliable indicator of future performance, and investors
should not use historical trends to anticipate results or trends in future
periods. In addition, such factors, among others, may affect the accuracy of
certain forward-looking statements contained in this Annual Report.
Because
our core product is personal automobile insurance, our business may be adversely
affected by negative developments in the conditions in this
industry.
Approximately
43% of our revenues for 2004 were commissions and fees from the sale of personal
automobile and other property and casualty insurance policies. As a result of
our concentration in this line of business, negative developments in the
economic, competitive or regulatory conditions affecting the personal automobile
insurance industry could have a material adverse effect on our results of
operations and financial condition.
Because
substantially all of our insurance-related operations are located in New York
and Pennsylvania, our business may be adversely affected by conditions in these
states.
Substantially
all of our insurance-related operations are located in the states of New York
and Pennsylvania. Our revenues and profitability are affected by the prevailing
regulatory, economic, demographic, competitive and other conditions in these
states. Changes in any of these conditions could make it more costly or
difficult for us to conduct our business. Adverse regulatory developments in New
York or Pennsylvania, which could include fundamental changes to the design or
implementation of the automobile insurance regulatory framework, could have a
material adverse effect on our results of operations and financial
condition.
Our
inability to refinance our current line of credit or obtain additional required
financing would have an adverse effect on our premium finance
revenue.
The
working capital needs of our premium finance subsidiary, Payments Inc., are
substantially dependent on its line of credit agreement with Manufacturers and
Traders Trust Co. that expires in June 2007. That agreement includes covenants
requiring us to pass specified financial tests and to refrain from certain kinds
of actions. In the event we fail to meet our covenants or are unable to extend,
refinance, replace or increase our bank line of credit on economically feasible
terms, our income and the marketability of our premium finance services would be
materially adversely affected.
We
need to extend the maturity date of our subordinated debt pursuant to the
requirements of our premium finance line of credit.
One of
the requirements of Manufacturers and Traders Trust Co. to the increase in
December 2004 in our premium finance line of credit from $18,000,000 to
$25,000,000 was that we obtain an extension of the maturity date of the
subordinated debt that supports our premium finance operations from January 2006
to December 2007. The extension is required to be obtained by June 29, 2005.
There is currently $2,500,000 of subordinated debt outstanding and we have the
right, under certain circumstances, to utilize the line of credit to repay an
additional $1,000,000 of the subordinated debt effective April 30, 2005. We have
the right to prepay the subordinated debt (subject to M&T’s consent). We are
currently in negotiations with the holders of the subordinated debt with regard
to an extension of the maturity date. In the event we are unable to obtain such
extension or otherwise satisfy M&T’s requirements in this regard (either
through the obtaining of replacement subordinate debt financing, debt
conversion, equity conversion or other financing transaction, in each case upon
terms acceptable to M&T), we would be in default of our line of credit
agreement. We require the M&T line of credit (or substitute financing) to
operate our premium finance business. The loss of available financing would have
a material adverse effect upon our business, financial condition and operations.
Increases
in interest rates would have an adverse effect on our premium finance
operations.
Our
premium finance line of credit with M&T provides for interest based upon
M&T’s floating prime rate or the floating LIBOR rate. Increases in these
rates would increase the cost of borrowing for premium financing. Since we
generally charge interest on our premium finance loans at the statutory rate
permitted in each state, we would not be able to increase our loan rates to
compensate for any such increased cost of borrowing.
If we
lose key personnel or are unable to recruit qualified personnel, our ability to
implement our business strategies could be delayed or
hindered.
Our
future success will depend, in part, upon the efforts of Barry Goldstein, our
Chief Executive Officer, and John J. Willis, Jr., our Chief Operating Officer.
The loss of Mr. Goldstein and/or Mr. Willis or other key personnel could prevent
us from fully implementing our business strategies and could materially and
adversely affect our business, financial condition and results of operations. In
addition, an event of default under our line of credit agreement will be
triggered if Mr. Goldstein is no longer serving as chief executive and chief
operating officer of Payments Inc. We have an employment agreement with Mr.
Goldstein that expires on April 1, 2007 and an employment agreement with Mr.
Willis that expires on October 18, 2007. As we continue to grow, we will need to
recruit and retain additional qualified management personnel, but we may not be
able to do so. Our ability to recruit and retain such personnel will depend upon
a number of factors, such as our results of operations and prospects and the
level of competition then prevailing in the market for qualified
personnel.
The
recent trend in the insurance industry to cease the payment of contingent
commissions could adversely affect us.
One of
the reasons for the increase in the revenues and profitability in 2004 of our
insurance-related operations was contingent commissions received by us from
insurers based upon the performance of the policies obtained by us. In October
2004 an action was brought by the New York State Attorney General against Marsh
& McLennan Companies, the nation’s leading insurance brokerage firm,
alleging, among other things, that it had improperly steered clients to insurers
with whom it had lucrative contingent commission arrangements. As a result of
the ongoing investigation of this mater by the Attorney General’s office and
others, there has been an industry-wide change in the method by which insurance
brokers are compensated from contingent commission arrangements to increased
base commission arrangements. Prior to and during 2004, we earned contingent
commissions when our business with a particular carrier met certain threshold
levels of profitability and/or growth. While there is no way to predict whether
we would have attained such benchmarks in 2005, those carriers which have
eliminated these contingencies have, in general, provided for increases to our
base compensation rates. The uncertainty concerning contingencies has been
eliminated, but the additional base compensation may not be sufficient to meet
our previous commission level. Such change may have an adverse effect on our
results of operations.
Reductions
in the New York involuntary automobile insurance market may adversely affect our
premium finance business.
Our
primary source of premium finance loans has been the assigned risk, or
involuntary, automobile insurance market. In New York, since mid-2003, there has
been a decline in the number of new applications for coverage at the New York
Auto Insurance Plan. This has led to a reduction in the number of loans where
policies of this type are the collateral. We have offset the rate of decline by
increasing our loan originations at our Barry Scott and Atlantic Insurance
locations. In general, these loans are of a smaller average size. Beginning in
2004, we began to finance certain voluntary auto insurance policies. There is no
guaranty that the number or size of the loans in the voluntary marketplace will
offset the declines experienced in the involuntary market.
The
volatility of premium pricing and commission rates could adversely affect our
operations.
We
currently derive most of our insurance-related revenues from commissions paid by
insurance companies. The commission is usually a percentage of the premium
billed to an insured. Insurance premiums are not determined by us. Historically,
property and casualty premiums have been cyclical in nature and have displayed a
high degree of volatility based on economic and competitive conditions. Because
our commission revenue is paid to us based on insurance premiums, a decline in
premium levels will have an adverse effect on our business. In times of expanded
underwriting capacity of insurance companies, premium rates have decreased
causing a reduction in the commissions payable to us. In addition, in many
cases, insurance companies may seek to reduce their expenses by reducing the
commission rates payable to insurance agents or brokers and generally reserve
the right to make such reductions. We cannot predict the timing or extent of
future changes in commission rates or premiums and therefore cannot predict the
effect, if any, that such changes would have on our operations.
We
are subject to regulation that may restrict our ability to earn
profits.
Our
premium finance subsidiary is subject to regulation and supervision by the
financial institution departments in the states where it offers to finance
premiums. Certain regulatory restrictions, including restrictions on the maximum
permissible rates of interest for premium financing, and prior approval
requirements may affect its ability to operate.
The
operations of our storefronts depend on their continued good standing under the
licenses and approvals pursuant to which they operate. Licensing laws and
regulations vary from jurisdiction to jurisdiction. Such laws and regulations
are subject to amendment or interpretation by regulatory authorities, and
generally such authorities are vested with broad discretion as to the granting,
suspending, renewing and revoking of licenses and approvals.
In
addition, there are currently 43 DCAP franchises. The offering of franchises is
regulated by both the federal government and some states, including New York.
As a
holding company, we are dependent on the results of operations of our operating
subsidiaries and the regulatory and contractual capacity of our premium finance
subsidiary to pay dividends to us.
We are a
holding company and a legal entity separate and distinct from our operating
subsidiaries. As a holding company without significant operations of our own,
the principal sources of our funds are dividends and other payments from our
operating subsidiaries. Dividends from our premium finance subsidiary are
limited by the minimum capital requirements in applicable state regulations and
by covenants in our loan agreement with Manufacturers and Traders Trust Co.
Consequently, our ability to repay debts, pay expenses and pay cash dividends to
our shareholders may be limited.
Our
premium finance subsidiary is subject to capital requirements, and our failure
to meet these standards could subject us to regulatory
actions.
Our
premium finance subsidiary is subject to minimum capital requirements imposed
under the laws of the states in which it conducts business. Failure to meet
applicable minimum statutory capital requirements could subject our premium
finance subsidiary to further examination or corrective action imposed by state
regulators, including limitations on our engaging in finance activities, state
supervision or even liquidation.
Our
business is highly competitive, which may make it difficult for us to market our
core products effectively and profitably.
The
personal automobile insurance business is highly competitive. We compete with
numerous other insurance agents and brokers in our market. The amount of capital
required to commence operations as a broker or agent is generally small and the
only material barrier to entry is the ability to obtain the required licenses
and appointments as a broker or agent for insurance carriers. We also compete
with insurers, such as GEICO Insurance, that sell insurance policies directly to
their customers.
Some of
our competitors, including those who provide premium finance services, have
substantially greater financial and other resources than we have, and they may
offer a broader range of products or offer competing products or services at
lower prices. Our results of operations and financial condition could be
materially and adversely affected by a loss of business to competitors offering
similar insurance products or services at lower prices or having other
competitive advantages.
A
decline in the number of insurance companies offering insurance products in our
markets would adversely affect our business.
Based
upon economic conditions and loss history, insurance companies enter and leave
our market. A reduction in the number of available insurance products that we
can offer to our customers would adversely affect our business.
We
may have difficulties in managing our expansion into new geographic markets, and
we may not be successful in identifying agency acquisition candidates or
integrating their operations.
Our
future growth plans include expanding into new states by acquiring the business
and assets of local agencies. Our future growth will face risks, including risks
associated with obtaining necessary licenses for our premium finance operations
and our ability to identify agency acquisition candidates or, if acquired, to
integrate their operations. In addition, we may acquire businesses in states in
which market and other conditions may not be favorable to us.
Our
inability to identify and acquire agency acquisition candidates could hinder our
growth by slowing down our ability to expand into new states. If we do acquire
additional agencies, we could suffer increased costs, disruption of our business
and distraction of our management if we are unable to integrate the acquired
agencies into our operations smoothly. Our geographic expansion will also
continue to place significant demands on our management, operations, systems,
accounting, internal controls and financial resources. Any failure by us to
manage our growth and to respond to changes in our business could have a
material adverse effect on our business, financial condition and results of
operations.
We
may seek to expand through acquisitions of complementary businesses or other
assets which involve additional risks that may adversely affect
us.
We
continually seek to expand our operations by acquiring businesses or other
assets which we believe will complement or enhance our business. We may also
acquire or make investments in complementary businesses, products, services or
technologies. In the event we effect any such acquisition, we may not be able to
successfully integrate any acquired business, asset, product, service or
technology in our operations without substantial costs, delays or other problems
or otherwise successfully expand our operations. In addition, efforts expended
in connection with such acquisitions may divert our management’s attention from
other business concerns. We also may have to borrow money to pay for future
acquisitions and we may not be able to do so at all or on terms favorable to us.
Additional borrowings and liabilities may have a materially adverse effect on
our liquidity and capital resources.
We
are materially dependent upon the operations of our third party premium finance
servicing agent.
The
administration, servicing and collection of our premium finance receivables is
handled by a third party. Our premium finance business is materially dependent
upon the operations of such company in a professional manner, including the
timely cancellation of insurance policies based upon the failure of the customer
to pay a premium finance receivable installment.
We
rely on our information technology and telecommunication systems, and the
failure of these systems could materially and adversely affect our
business.
Our
business is highly dependent upon the successful and uninterrupted functioning
of our information technology and telecommunications systems as well as those of
our premium financing servicing agent. We rely on these systems to support our
operations, as well as to process new and renewal business, provide customer
service, make claims payments, support premium financing activities, and
facilitate collections and cancellations. The failure of these systems could
interrupt our operations and result in a material adverse effect on our
business.
The
enactment of tort reform could adversely affect our business.
Legislation
concerning tort reform is from time to time considered in the United States
Congress and in several states. Among the provisions considered for inclusion in
such legislation are limitations on damage awards, including punitive damages.
Enactment of these or similar provisions by Congress or by states in which we
sell insurance could result in a reduction in the demand for liability insurance
policies or a decrease in the limits of such policies, thereby reducing our
commission revenues. We cannot predict whether any such legislation will be
enacted or, if enacted, the form such legislation will take, nor can we predict
the effect, if any, such legislation would have on our business or results of
operations.
ITEM
7. FINANCIAL
STATEMENTS
The
financial statements required by this Item 7 are included in this Annual Report
on Form 10-KSB following Item 14 hereof.
ITEM
8. CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
There
were no changes in accountants due to disagreements on accounting and financial
disclosure during the twenty-four month period ended December 31,
2004.
ITEM
8A. 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 December 31,
2004 in alerting him in a timely manner to material information required to be
included in our Securities and Exchange Commission reports. In addition, no
change in our internal control over financial reporting occurred during the
fourth quarter of the fiscal year ended December 31, 2004 that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
ITEM
8B.
OTHER
INFORMATION
Effective
November 1, 2004, we entered into a one year consulting agreement with Morton L.
Certilman, one of our directors, pursuant to which he is entitled to receive
approximately $60,000.
PART
III
ITEM
9. DIRECTORS
AND EXECUTIVE OFFICERS OF THE REGISTRANT
Executive
Officers and Directors
The
following table sets forth the positions and offices presently held by each of
our current directors and executive officers and their ages:
Name |
Age |
Positions
and Offices Held |
Barry
B. Goldstein |
52 |
President,
Chairman of the Board, Chief Executive Officer, Chief Financial Officer,
Treasurer and Director |
John
J. Willis, Jr. |
40 |
Executive
Vice President and Chief Operating Officer |
Morton
L. Certilman |
73 |
Secretary
and Director |
Jay
M. Haft |
69 |
Director |
Jack
D. Seibald |
44 |
Director |
Robert
M. Wallach |
52 |
Director |
Barry
B. Goldstein
Mr.
Goldstein was elected our President, Chief Executive Officer, Chief Financial
Officer, Chairman of the Board, and a director in March 2001 and our Treasurer
in May 2001. From April 1997 to December 2004, he served as President of AIA
Acquisition Corp., which operated insurance agencies in Pennsylvania and which
sold substantially all of its assets to us in May 2003. Mr. Goldstein received
his B.A. and M.B.A. from State University of New York at Buffalo, and has been a
certified public accountant since 1979.
John
J. Willis, Jr.
Mr. Willis
was elected our Executive Vice President and Chief Operating Officer in
September 2004. Prior to joining us, he was Vice President
of Product Management for The Hartford Insurance Company's Northeast Region. In
this capacity, he was responsible for the growth and profitability of the
automobile, homeowners and umbrella products sold through agency and direct
distribution channels in ten states. From March 1997 through May 2002,
he served in various capacities at Progressive Insurance Company,
including Agency Auto Product Manager, Agency Distribution Manager, Claims
Manager, and Manager of a small chain of company-owned insurance
agencies. Mr. Willis received a Bachelor’s degree in Finance, summa cum laude, from
Syracuse University and earned his M.B.A. at Harvard University’s Graduate
School of Business Administration.
Morton
L. Certilman
Mr.
Certilman served as our Chairman of the Board from February 1999 until March
2001. From October 1989 to February 1999, he served as our President. He was
elected our Secretary in May 2001 and has served as one of our directors since
1989. Mr. Certilman has been engaged in the practice of law since 1956 and is
affiliated with the law firm of Certilman Balin Adler & Hyman, LLP. Mr.
Certilman is the immediate past Chairman of the Long Island Regional Planning
Board, and formerly served as Chairman of the Nassau County Coliseum
Privatization Commission and the Northrop/Grumman Master Planning Council. He
served as a director of the Long Island Association and the New Long Island
Partnership for a period of ten years and currently serves as a director of the
Long Island Sports Commission. Mr. Certilman also currently serves as Chairman
of the Long Island Museum of Science and Technology. Mr. Certilman has lectured
extensively before bar associations, builders=
institutes, title companies, real estate institutes, banking and law school
seminars, The Practicing Law Institute, The Institute of Real Estate Management
and at annual conventions of such organizations as the National Association of
Home Builders, the Community Associations Institute and the National Association
of Corporate Real Estate Executives. He was a member of the faculty of the
American Law Institute/American Bar Association, as well as the Institute on
Condominium and Cluster Developments of the University of Miami Law Center. Mr.
Certilman has written various articles in the condominium field, and is the
author of the New York State Bar Association Condominium Cassette and the
Condominium portion of the State Bar Association book on “Real Property Titles.”
Mr. Certilman received an LL.B. degree, cum laude, from
Brooklyn Law School.
Jay
M. Haft
Mr. Haft
served as our Vice Chairman of the Board from February 1999 until March 2001.
From October 1989 to February 1999, he served as our Chairman of the Board. He
has served as one of our directors since 1989. Mr. Haft has been engaged in the
practice of law since 1959 and since 1994 has served as counsel to Parker Duryee
Rosoff & Haft (and since December 2001, its successor, Reed Smith). From
1989 to 1994, he was a senior corporate partner of Parker Duryee. Mr. Haft is a
strategic and financial consultant for growth stage companies. He is active in
international corporate finance and mergers and acquisitions. Mr. Haft also
represents emerging growth companies. He has actively participated in strategic
planning and fund raising for many high-tech companies, leading edge medical
technology companies and marketing companies. He is a director of a number of
public and private corporations, including DUSA Pharmaceuticals, Inc., whose
securities are traded on the Nasdaq Stock Market, and also serves on the Board
of the United States-Russian Business Counsel. Mr. Haft is a past member of the
Florida Commission for Government Accountability to the People, a past national
trustee and Treasurer of the Miami City Ballet, and a past Board member of the
Concert Association of Florida. He is also a trustee of Florida International
University Foundation and serves on the advisory board of the Wolfsonian Museum
and Florida International University Law School. Mr. Haft received B.A. and
LL.B. degrees from Yale University.
Jack
D. Seibald
Mr.
Seibald has been a Managing Member of Whiteford Advisors LLC, an investment
management firm, since its founding in 1997. With a background in equity
research and investment management, Mr. Seibald’s experience in the investment
business dates to 1983. He began his career at Oppenheimer & Co. and has
also been affiliated with Salomon Brothers, Morgan Stanley & Co, and
Blackford Securities. Mr. Seibald also operated The Seibald Report, Inc., an
independent investment research company. Mr. Seibald is currently a registered
representative with Sanders Morris Harris, a broker-dealer. He holds a B.A. from
George Washington University and an M.B.A. from Hofstra University. He has
served as one of our directors since 2004.
Robert
M. Wallach
Mr.
Wallach has served since 1993 as President, Chairman and Chief Executive Officer
of The Robert Plan Corporation, a servicer and underwriter of private passenger
and commercial automobile insurance. He has served as one of our directors since
1999.
There are
no family relationships among any of our executive officers and
directors.
Each
director will hold office until the next annual meeting of stockholders and
until his successor is elected and qualified or until his earlier resignation or
removal. Each executive officer will hold office until the initial meeting of
the Board of Directors following the next annual meeting of stockholders and
until his successor is elected and qualified or until his earlier resignation or
removal.
Audit
Committee Financial Expert
Our Board
of Directors has determined that the Audit Committee of the Board does not have
an “audit committee financial expert,” as that is defined in Item 401(e)(2) of
Regulation S-B. We have been seeking to obtain the services of an individual who
would serve on our Board and Audit Committee and who would be an “audit
committee financial expert.”
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16 of the Exchange Act requires that reports of beneficial ownership of common
shares and changes in such ownership be filed with the Securities and Exchange
Commission by Section 16 “reporting persons,” including directors, certain
officers, holders of more than 10% of the outstanding common shares and certain
trusts of which reporting persons are trustees. We are required to disclose in
this Annual Report each reporting person whom we know to have failed to file any
required reports under Section 16 on a timely basis during the fiscal year ended
December 31, 2004. To our knowledge, based solely on a review of written
representations that no reports were required, during the fiscal year ended
December 31, 2004, our officers, directors and 10% stockholders complied with
all Section 16(a) filing requirements applicable to them, except that Mr. Willis
failed to report on a timely basis purchases of common shares on two dates
during 2004.
Code
of Ethics for Senior Financial Officers
Our Board
of Directors has adopted a Code of Ethics for our principal executive officer,
principal financial officer, principal accounting officer or controller, or
persons performing similar functions. A copy of the Code of Ethics was filed as
an exhibit to our Annual Report for the fiscal year ended December 31, 2003. We
intend to satisfy the disclosure requirement under Item 10 of Form 8-K regarding
an amendment to, or a waiver from, or Code of Ethics by posting such information
on our website, www.dcapinsurance.com.
ITEM
10. EXECUTIVE
COMPENSATION
Summary
Compensation Table
The
following table sets forth certain information concerning the compensation for
the fiscal years ended December 31, 2004, 2003 and 2002 for Barry B. Goldstein,
our Chief Executive Officer:
Name
and
Principal
Position |
Year |
Annual
Compensation |
Long
Term Compensation
Awards
Shares
Underlying Options |
All
Other Compensation |
Salary |
Bonus |
|
Barry
B. Goldstein
Chief
Executive Officer |
2004 |
$350,000 |
$100,000(1) |
- |
- |
2003 |
300,000 |
50,000(2) |
- |
- |
2002 |
200,000 |
20,000 |
200,000 |
- |
(1) Paid in
June 2004 for services rendered during 2003.
(2) Paid in
March 2003 for services rendered during 2002.
Option Tables
OPTION
GRANTS IN FISCAL YEAR ENDED DECEMBER 31, 2004
Name |
Number
of Common
Shares
Underlying
Options
Granted |
Percentage
of Total
Options
Granted to
Employees
in Fiscal Year |
Exercise
Price |
Expiration
Date |
|
Barry
B. Goldstein |
- |
- |
- |
- |
AGGREGATED
OPTION EXERCISES IN FISCAL YEAR
ENDED
DECEMBER 31, 2004 AND FISCAL YEAR-END OPTION VALUES
Name |
Number
of
Shares
Acquired
on
Exercise |
Value
Realized |
Number
of Shares Underlying Unexercised Options
at
December 31, 2004 Exercisable/Unexercisable |
Value
of Unexercised
In-the-Money
Options
at
December 31, 2004 Exercisable/Unexercisable |
|
Barry
B. Goldstein |
194,000 |
$1,174,900 |
166,000
/ 40,000 |
$1,037,500
/ $260,000 |
Long-Term
Incentive Plan Awards
No awards
were made to Mr. Goldstein during the fiscal year ended December 31, 2004 under
any long-term incentive plan.
Compensation
of Directors
Effective
January 1, 2004, our non-employee directors are entitled to receive compensation
for their services as directors as follows:
· |
additional
$5,000 per annum for committee chair |
· |
$500
per Board meeting attended ($250 if
telephonic) |
· |
$250
per committee meeting attended ($125 if
telephonic) |
Each of
Messrs. Certilman and Haft also received additional compensation of $15,000
during 2004 in consideration of their services as a director.
In
addition, for the one year period commencing November 1, 2004, Mr. Certilman is
entitled to receive a fee of approximately $60,000 from us for consulting
services.
Employment
Contracts, Termination of Employment and Change-in-Control
Arrangements
Mr.
Goldstein is employed as our President, Chairman of the Board and Chief
Executive Officer pursuant to an employment agreement that expires on April 1,
2007. Mr. Goldstein is entitled to receive a salary of $350,000 per annum plus
such additional compensation as may be determined by the Board of Directors.
Pursuant to the employment agreement with Mr. Goldstein, he would be entitled,
under certain circumstances, to a payment equal to one and one-half times his
then annual salary in the event of the termination of his employment following a
change of control of DCAP.
ITEM
11. SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
Security
Ownership
The
following table sets forth certain information as of February 28, 2005 regarding
the beneficial ownership of our common shares by (i) each person who we believe
to be the beneficial owner of more than 5% of our outstanding common shares,
(ii) each present director, (iii) each person listed in the Summary Compensation
Table under “Executive Compensation,” and (iv) all of our present executive
officers and directors as a group.
Name
and Address
Of
Beneficial Owner
|
Number
of Shares
Beneficially
Owned |
Approximate
Percent
of Class |
Barry
B. Goldstein
1158
Broadway
Hewlett,
New York
|
386,400
(1)(2) |
13.2% |
AIA
Acquisition Corp.
6787
Market Street
Upper
Darby, Pennsylvania
|
361,600
(3) |
11.9% |
Eagle
Insurance Company
c/o
The Robert Plan Corporation
999
Stewart Avenue
Bethpage,
New York
|
297,378 |
10.9% |
Robert
M. Wallach
c/o
The Robert Plan Corporation
999
Stewart Avenue
Bethpage,
New York
|
297,378
(5) |
10.9% |
Jack
D. Seibald
1336
Boxwood Drive West
Hewlett
Harbor, New York
|
274,750
(1)(6) |
9.9% |
Morton
L. Certilman
The
Financial Center at Mitchel Field
90
Merrick Avenue
East
Meadow, New York
|
211,701
(1)(7) |
7.7% |
Jay
M. Haft
69
Beaver Dam Road
Salisbury,
CT
|
182,278
(1)(8) |
6.6% |
Abraham
Weinzimer
418
South Broadway
Hicksville,
New York
|
156,784 |
5.8% |
All
executive officers
and
directors as a group (6 persons) |
1,371,477
(1)(2)(5)(6)
(7)(8)(9)(10) |
45.1% |
(1) |
Based
upon Schedule 13D filed under the Securities Exchange Act of 1934, as
amended. |
(2) |
Represents
(i) 206,000 shares issuable upon the exercise of options that are
exercisable currently or within 60 days, (ii) 8,500 shares held by Mr.
Goldstein's children, and (iii) 11,900 shares held in a retirement trust
for the benefit of Mr. Goldstein. Mr. Goldstein disclaims beneficial
ownership of the shares held by his children and retirement trust.
Excludes shares owned by AIA Acquisition Corp. of which members of Mr.
Goldstein’s family are principal
stockholders. |
(3) |
Based
upon Schedule 13G filed under the Securities Exchange Act of 1934, as
amended, and other information that is publicly available. Includes
312,000 shares issuable upon the conversion of preferred shares that are
currently convertible. |
(4) |
Eagle
is a wholly-owned subsidiary of The Robert Plan
Corporation. |
(5) |
Represents
shares owned by Eagle, of which Mr. Wallach, one of our directors, is a
Vice President. Eagle is a wholly-owned subsidiary of The Robert Plan
Corporation, of which Mr. Wallach is President, Chairman and Chief
Executive Officer. |
(6) |
Represents
(i) 113,000 shares owned jointly by Mr. Seibald and his wife, Stephanie
Seibald; (ii) 100,000 shares owned by SDS Partners I, Ltd., a limited
partnership (“SDS”); (iii) 3,000 shares owned by Boxwood FLTD Partners, a
limited partnership (“Boxwood”); (iv) 33,000 shares owned by Stewart
Spector IRA (“S. Spector”); (v) 3,000 shares owned by Barbara Spector IRA
Rollover (“B. Spector”); (vi) 4,000 shares owned by Karen Dubrowsky IRA
(“Dubrowsky”); and (vii) 18,750 shares issuable upon the exercise of
currently exercisable warrants. Mr. Seibald has voting and dispositive
power over the shares owned by SDS, Boxwood, S. Spector, B. Spector and
Dubrowsky. The amount reflected as owned by S. Spector includes shares
issuable upon the exercise of currently exercisable warrants.
|
(7) |
Includes
25,000 shares issuable upon the exercise of currently exercisable
options. |
(8) |
Includes
(i) 25,000 shares issuable upon the exercise of currently exercisable
options and (ii) 3,076 shares held in a retirement trust for the benefit
of Mr. Haft. |
(9) |
Includes
shares owned by Eagle, of which Mr. Wallach is a Vice President. Mr.
Wallach is also President, Chairman and Chief Executive Officer of The
Robert Plan, Eagle's parent. |
(10) |
Includes
17,500 shares issuable upon the exercise of currently exercisable
options. |
Securities
Authorized for Issuance Under Equity Compensation
Plans
The
following table sets forth information as of December 31, 2004 with respect to
compensation plans (including individual compensation arrangements) under which
our common shares are authorized for issuance, aggregated as
follows:
$ |
All
compensation plans previously approved by security holders;
and |
$ |
All
compensation plans not previously approved by security holders. |
EQUITY
COMPENSATION PLAN INFORMATION
|
Number
of securities to be issued upon exercise of outstanding options, warrants
and rights
(a) |
Weighted
average exercise price of outstanding options, warrants and
rights
(b) |
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
(a))
(c) |
Equity
compensation plans approved by security holders
|
408,800
|
$2.68
|
147,200
|
Equity
compensation plans not approved by security holders
|
-0-
|
-0-
|
-0-
|
Total |
408,800 |
$2.68 |
147,200 |
ITEM
12. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
Sale
of Brentwood Store
Effective
February 27, 2003, we sold our Brentwood, New York store to Abraham Weinzimer,
one of our principal stockholders, at a purchase price of $115,437 (equal to
approximately 70% of the store=s
commission income during 2002). Concurrently with the purchase, the entity
acquired by Mr. Weinzimer entered into a franchise agreement with DCAP
Management Corp., our franchise subsidiary, on terms similar in most respects to
our standard conversion franchise agreements. The terms of the above sale were
the result of arm=s length
negotiations between us and Mr. Weinzimer that were based upon the terms of
other recent sales of our stores to persons who are not affiliated with us and
then current market conditions. No independent appraisal or valuation was
received in connection with the agreement.
Purchase
of Pennsylvania Stores
Effective
May 1,
2003, we acquired substantially all of the assets of AIA Acquisition Corp., an
insurance brokerage firm with offices located in eastern Pennsylvania. The
salient terms of the acquisition are as follows:
· |
A
base purchase price of $904,000 (which represents (i) 69% of AIA's
includable commission income for the 12 months ended March 31, 2002 or the
year ended December 31, 2002, whichever was less, plus (ii) an amount
equal to AIA’s collected accounts receivable and prepaid expenses). The
base purchase price was payable in Series A preferred shares. The Series A
preferred shares carry a 5% dividend, are convertible into common shares
at a conversion price of $2.50 per share and are redeemable on April 30,
2007 (or sooner under certain
circumstances). |
· |
Additional
cash consideration based upon the EBITDA of the combined operations of AIA
and our wholly-owned subsidiary, Barry Scott Companies, Inc., during the
five year period ending April 30, 2008. The additional consideration
cannot exceed an aggregate of $335,000. As of December 31, 2004, the
aggregate additional cash consideration paid or payable to AIA was
$134,000. |
Mr.
Goldstein, our Chief Executive Officer, served at the time of the acquisition as
President of AIA and members of his family are principal stockholders of AIA.
The terms of the acquisition were the result of arm’s length negotiations
between us and AIA and were based upon the sales price of stores to persons who
are not affiliated with us and current market conditions.
Guaranty
Mr.
Goldstein has guaranteed the repayment of $2,500,000 of the $25,000,000 line of
credit from Manufacturers and Traders Trust Co. discussed in Items 1(a) and 6 of
this Annual Report. Subject to certain conditions, Mr. Goldstein’s guaranty is
scheduled to be reduced to $1,250,000 effective April 30, 2005 and to terminate
effective April 30, 2006. In consideration of the guaranty, we have agreed that,
for so long as the guaranty remains in effect, we will pay him $50,000 per annum
and reimburse him for all premiums paid by him on a $2,500,000 insurance policy
on his life. In the event, at the time of his death, the guaranty is still in
effect, the proceeds of the life insurance policy will be used to satisfy the
guaranty. In such event, Mr. Goldstein’s estate would not be entitled to be
indemnified for the amount so paid as a guarantor.
2003
Subordinated Debt Financing
Effective
July 10, 2003, in order
to fund our premium finance operations, we obtained $3,500,000 from a private
placement of subordinated debt. The subordinated debt is repayable on January
10, 2006 and provides for interest at the rate of 12.625% per annum, payable
semi-annually. Subject to M&T’s consent, we have the right to prepay the
subordinated debt. In January 2005, we utilized our M&T line of credit to
repay $1,000,000 of the subordinated debt. Effective April 30, 2005, we have the
right to utilize the M&T line of credit to prepay an additional $1,000,000
of the subordinated debt. In consideration of the debt financing, we issued to
the lenders warrants
for the purchase of an aggregate of 105,000 of our common shares at an exercise
price of $6.25 per share. The warrants expire on January 10, 2006. One of the
private placement lenders was a retirement trust established for the benefit of
Jack Seibald which loaned us $625,000 and was issued a warrant for the purchase
of 18,750 of our common shares. Mr. Seibald is one of our principal stockholders
and, effective September 2004, became one of our directors. See “Factors That
May Affect Future Results and Financial Condition” in Item 6 of this Annual
Report with regard to the need to extend the maturity date of our subordinated
debt pursuant to the requirements of our premium finance line of
credit.
Relationship
Certilman
Balin Adler & Hyman, LLP, a law firm with which Mr. Certilman is affiliated,
serves as our counsel. It is presently anticipated that such firm will continue
to represent us and will receive fees for its services at rates and in amounts
not greater than would be paid to unrelated law firms performing similar
services.
ITEM
13. EXHIBITS,
LIST AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description
of Exhibit
2(a) |
Share
Purchase Agreement, dated as of August 30, 2002, by and between
Progressive Agency Holdings Corp. and Blast Acquisition Corp.
(1) |
2(b) |
Asset
Purchase Agreement, dated May 28, 2003, by and among AIA-DCAP Corp., DCAP
Group, Inc. and AIA Acquisition Corp. (2) |
3(a) |
Restated
Certificate of Incorporation (3) |
3(b) |
Certificate
of Designation of Series A Preferred Stock
(2) |
3(c) |
By-laws,
as amended (4) |
10(a) |
1998
Stock Option Plan, as amended (5) |
10(b) |
Subscription
Agreement, dated as of October 2, 1998, between DCAP Group, Inc. and Eagle
Insurance Company and amendments thereto
(6) |
10(c)
|
Stock
Purchase Agreement dated May 17, 2000 by and between DCAP Group, Inc.,
Dealers Choice Automotive Planning, Inc., Alyssa Greenvald, Morton
Certilman, DCAP Ridgewood, Inc., DCAP Bayside, Inc., DCAP Freeport, Inc.
and MC DCAP, Inc. (7) |
10(d) |
Employment
Agreement, dated as of May 10, 2001, between DCAP Group, Inc. and Barry
Goldstein (8) |
10(e) |
Amendment
No. 1, dated as of March 18, 2003 (but effective as of January 1, 2003),
to Employment Agreement between DCAP Group, Inc. and Barry
Goldstein |
10(f) |
Amendment
No. 2, dated as of June 29, 2004 (but effective as of January 1, 2004), to
Employment Agreement between DCAP Group, Inc. and Barry Goldstein
(4) |
10(g) |
Amendment
No. 3, dated as of March 22, 2005, to Employment Agreement between DCAP
Group, Inc. and Barry Goldstein |
10(h) |
Stock
Option Agreement, dated as of May 10, 2001, between DCAP Group, Inc. and
Barry Goldstein (8) |
10(i) |
Stock
Option Agreement, dated as of May 15, 2002, between DCAP Group, Inc. and
Barry Goldstein (5) |
10(j) |
Stock
Option Agreement, dated as of May 15, 2002, between DCAP Group, Inc. and
Morton L. Certilman (5) |
10(k) |
Stock
Option Agreement, dated as of May 15, 2002, between DCAP Group, Inc. and
Jay M. Haft (5) |
10(l) |
Stock
Purchase Agreement, dated as of February 27, 2003, between DCAP Group,
Inc. and Abraham Weinzimer with respect to sale of DCAP Brentwood Inc.
(5) |
10(m) |
Financing
and Security Agreement, dated December 27, 2004, by and among
Manufacturers and Traders Trust Company and Payments Inc., among
others |
10(n) |
Revolving
Credit Note, dated December 27, 2004, in the principal amount of
$25,000,000 issued by Payments Inc. to Manufacturers and Traders Trust
Company |
10(o) |
Security
Agreement, dated December 27, 2004, by DCAP Group, Inc, DCAP Management
Corp., AIA-DCAP Corp., Aard-Vark Agency, Ltd., Barry Scott Agency, Inc.,
Barry Scott Companies, Inc., Barry Scott Acquisition Corp., Baron Cycle,
Inc., Blast Acquisition Corp., Dealers Choice Automotive Planning, Inc.,
IAH, Inc. and Intandem Corp. for the benefit of Manufacturers and Traders
Trust Company in its capacity as “Agent” for itself and other
“Lenders” |
10(p) |
Pledge,
Assignment and Security Agreement, dated December 27, 2004, by DCAP Group,
Inc. for the benefit of Manufacturers and Traders Trust Company in its
capacity as “Agent” for itself and other
“Lenders” |
10(q) |
Pledge,
Assignment and Security Agreement, dated December 27, 2004, by Blast
Acquisition Corp. for the benefit of Manufacturers and Traders Trust
Company in its capacity as “Agent” for itself and other
“Lenders” |
10(r) |
Unit
Purchase Agreement, dated as of July 2, 2003, by and among DCAP Group,
Inc. and the purchasers named therein (9) |
10(s) |
Security
Agreement, dated as of July 10, 2003, by and among Payments Inc. and the
secured parties named therein (9) |
10(t) |
Pledge
Agreement, dated as of July 10, 2003, by and among DCAP Group, Inc. and
the pledgees named therein (9) |
10(u) |
Form
of Secured Subordinated Promissory Note, dated July 10, 2003, issued by
DCAP Group, Inc. with respect to aggregate principal indebtedness of
$3,500,000 (9) |
10(v) |
Form
of Warrant, dated July 10, 2003, for the purchase of an aggregate of
525,000 shares of common stock of DCAP Group, Inc.
(9) |
10(w) |
Registration
Rights Agreement, dated July 10, 2003, by and among DCAP Group, Inc. and
the purchasers named therein (9) |
10(x) |
Letter
agreement, dated October 31, 2003, between DCAP Group, Inc. and Barry
Goldstein (10) |
10(y) |
Letter
agreement, dated November 1, 2004, between DCAP Group, Inc. and Morton L.
Certilman |
10(z) |
Employment
Agreement, dated as of September 24, 2004, between DCAP Group, Inc. and
Jack Willis |
10(aa) |
Stock
Option Agreement, dated as of October 18, 2004, between DCAP Group, Inc.
and Jack Willis |
23 |
Consent
of Holtz Rubenstein Reminick LLP |
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 Current Report on Form 8-K for an
event dated August 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. |
(3) |
Denotes
document filed as an exhibit to our Quarterly Report on Form 10-QSB for
the period ended September 30, 2004 and incorporated herein by
reference. |
(4) |
Denotes
document filed as an exhibit to our Quarterly Report on Form 10-QSB for
the period ended June 30, 2004 and incorporated herein by
reference. |
(5) |
Denotes
document filed as an exhibit to our Annual Report on Form 10-KSB for the
fiscal year ended December 31, 2002 and incorporated herein by
reference. |
(6) |
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. |
(7) |
Denotes
document filed as an exhibit to our Quarterly Report on Form 10-QSB for
the period ended June 30, 2000 and incorporated herein by
reference. |
(8) |
Denotes
document filed as an exhibit to our Quarterly Report on Form 10-QSB for
the period ended June 30, 2001 and incorporated herein by
reference. |
(9) |
Denotes
document filed as an exhibit to Amendment No. 1 to our Current Report on
Form 8-K for an event dated May 28, 2003 and incorporated herein by
reference. |
(10) |
Denotes
document filed as an exhibit to our Annual Report on Form 10-KSB for the
fiscal year ended December 31, 2003 and incorporated herein by
reference. |
(b) Reports
on Form 8-K
The
following reports on Form 8-K were filed by us during the last quarter of the
fiscal year ended December 31, 2004:
Date of
Event:
Items
Reported: |
October
4, 2004
8.01
and 9.01 |
|
|
Date of
Event:
Items
Reported: |
November
15, 2004
2.02
and 9.01 |
|
|
Date of
Event:
Item
Reported: |
November
19, 2004
1.01 |
|
|
Date of
Event:
Item
Reported: |
December
20, 2004
1.01 |
ITEM
14. PRINCIPAL
ACCOUNTANT FEES AND SERVICES
The
following is a summary of the fees billed to us by Holtz Rubenstein Reminick
LLP, our independent auditors, for professional services rendered for the fiscal
years ended December 31, 2004 and December 31, 2003:
Fee
Category |
|
|
Fiscal
2004 Fees |
|
|
Fiscal
2003 Fees |
|
Audit
Fees(1) |
|
$ |
73,000 |
|
$ |
44,400 |
|
Audit-Related
Fees(2) |
|
|
- |
|
|
1,675 |
|
Tax
Fees |
|
|
- |
|
|
- |
|
All
Other Fees(3) |
|
|
12,250 |
|
|
9,630 |
|
Total
Fees |
|
$ |
85,250 |
|
$ |
55,705 |
|
(1) |
Audit
Fees consist of aggregate fees billed for professional services rendered
for the audit of our annual financial statements and review of the interim
financial statements included in quarterly reports or services that are
normally provided by the independent auditors in connection with statutory
and regulatory filings or engagements for the fiscal years ended December
31, 2004 and December 31, 2003, respectively.
|
(2) |
Audit-Related
Fees consist of aggregate fees billed for assurance and related services
that are reasonably related to the performance of the audit or review of
our financial statements and are not reported under “Audit Fees.” These
fees related to a review of our Current Reports on Form 8-K.
|
(3) |
All
Other Fees consist of aggregate fees billed for products and services
provided by Holtz Rubenstein Reminick LLP, other than those disclosed
above. These fees related to the audits of our wholly-owned subsidiary,
DCAP Management Corp., and general accounting consulting
services. |
The Audit
Committee is responsible for the appointment, compensation and oversight of the
work of the independent auditors and approves in advance any services to be
performed by the independent auditors, whether audit-related or not. The Audit
Committee reviews each proposed engagement to determine whether the provision of
services is compatible with maintaining the independence of the independent
auditors. All of the fees shown above were pre-approved by the Audit
Committee.
DCAP
GROUP, INC. AND
SUBSIDIARIES |
REPORT
ON AUDITS OF CONSOLIDATED
FINANCIAL
STATEMENTS |
|
Two
Years Ended December 31, 2004 |
|
DCAP
GROUP, INC. AND
SUBSIDIARIES
Two Years
Ended December 31, 2004
Pages
Financial
Statements |
|
Report
of Independent Registered Public Accounting Firm
Consolidated
Balance Sheet
Consolidated
Statements of Income
Consolidated
Statement of Stockholders' Equity
Consolidated
Statements of Cash Flows
Notes
to Consolidated Financial Statements |
F-2
F-3
F-4
F-5
F-6
F-7
- F-21 |
|
|
|
|
Consolidated
Financial Statements
Report
of Independent Registered Public Accounting Firm
Board of
Directors and Stockholders
DCAP
Group, Inc. and Subsidiaries
Hewlett,
New York
We have
audited the accompanying consolidated balance sheet of DCAP Group, Inc. and
Subsidiaries as of December 31, 2004 and the related consolidated statements of
income, stockholders' equity and cash flows for each of the years in the
two-year period ended December 31, 2004. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of DCAP Group, Inc. and
Subsidiaries as of December 31, 2004 and the results of their operations and
their cash flows for each of the years in the two-year period ended December 31,
2004 in conformity with accounting principles generally accepted in the United
States of America.
Holtz
Rubenstein Reminick LLP
Melville,
New York
February
24, 2005
DCAP
GROUP, INC. AND
SUBSIDIARIES
Consolidated
Balance Sheet |
|
|
December
31, 2004 |
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets: |
|
|
|
|
|
|
|
Cash
and cash equivalents |
|
|
|
|
$ |
515,899 |
|
Accounts
receivable, net of allowance for |
|
|
|
|
|
|
|
doubtful
accounts of $62,000 |
|
|
|
|
|
2,911,240
|
|
Finance
contracts receivable |
|
$ |
23,283,106 |
|
|
|
|
Less:
Deferred interest |
|
|
(1,785,115 |
) |
|
|
|
Less:
Allowance for finance receivable losses |
|
|
(65,957 |
) |
|
21,432,034
|
|
Prepaid
expenses and other current assets |
|
|
|
|
|
255,574
|
|
Deferred
income taxes |
|
|
|
|
|
51,200
|
|
Total
Current Assets |
|
|
|
|
|
25,165,947
|
|
|
|
|
|
|
|
|
|
Property
and Equipment, net |
|
|
|
|
|
369,313
|
|
Goodwill |
|
|
|
|
|
1,238,551
|
|
Other
Intangibles, net |
|
|
|
|
|
266,444
|
|
Deferred
Income Taxes |
|
|
|
|
|
3,600
|
|
Deposits
and Other Assets |
|
|
|
|
|
457,340
|
|
Total
Assets |
|
|
|
|
$ |
27,501,195 |
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders' Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities: |
|
|
|
|
|
|
|
Revolving
credit line |
|
|
|
|
$ |
11,595,659 |
|
Accounts
payable and accrued expenses |
|
|
|
|
|
1,708,158
|
|
Premiums
payable |
|
|
|
|
|
4,439,379
|
|
Current
portion of long-term debt |
|
|
|
|
|
1,125,000
|
|
Income
taxes payable |
|
|
|
|
|
430,493
|
|
Other
current liabilities |
|
|
|
|
|
188,558
|
|
Total
Current Liabilities |
|
|
|
|
|
19,487,247
|
|
|
|
|
|
|
|
|
|
Long-Term
Debt |
|
|
|
|
|
2,676,200
|
|
Deferred
Revenue |
|
|
|
|
|
38,920
|
|
Mandatorily
Redeemable Preferred Stock |
|
|
|
|
|
904,000
|
|
|
|
|
|
|
|
|
|
Commitments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
Equity: |
|
|
|
|
|
|
|
Common
stock, $.01 par value; authorized 10,000,000 shares; |
|
|
|
|
|
|
|
issued
3,449,347 |
|
|
|
|
|
34,494
|
|
Preferred
stock, $.01 par value; authorized |
|
|
|
|
|
|
|
1,000,000
shares; 0 shares issued and outstanding |
|
|
|
|
|
-
|
|
Capital
in excess of par |
|
|
|
|
|
11,040,831
|
|
Deficit |
|
|
|
|
|
(5,501,942 |
) |
|
|
|
|
|
|
5,573,383
|
|
Treasury
stock, at cost, 776,923 shares |
|
|
|
|
|
(1,178,555 |
) |
Total
Stockholders' Equity |
|
|
|
|
|
4,394,828
|
|
Total
Liabilities and Stockholders' Equity |
|
|
|
|
$ |
27,501,195 |
|
See
notes to consolidated financial statements. |
|
F-3
|
DCAP
GROUP, INC. AND
SUBSIDIARIES
Consolidated
Statements of Income |
|
|
Years
Ended December 31, |
2004
|
2003
|
Revenue: |
|
|
|
|
|
Commissions
and fees |
|
$ |
7,126,398 |
|
$ |
6,354,920 |
|
Premium
finance revenue |
|
|
7,961,617
|
|
|
2,330,831
|
|
Total
Revenue |
|
|
15,088,015
|
|
|
8,685,751
|
|
|
|
|
|
|
|
|
|
Operating
Expenses: |
|
|
|
|
|
|
|
General
and administrative expenses |
|
|
8,586,657
|
|
|
6,463,785
|
|
Provision
for finance receivable losses |
|
|
2,965,796
|
|
|
348,228
|
|
Depreciation
and amortization |
|
|
425,384
|
|
|
282,786
|
|
Interest
expense |
|
|
1,188,990
|
|
|
335,343
|
|
Total
Operating Expenses |
|
|
13,166,827
|
|
|
7,430,142
|
|
|
|
|
|
|
|
|
|
Operating
Income |
|
|
1,921,188
|
|
|
1,255,609
|
|
|
|
|
|
|
|
|
|
Other
(Expense) Income: |
|
|
|
|
|
|
|
Interest
income |
|
|
10,006
|
|
|
9,085
|
|
Interest
expense |
|
|
(30,230 |
) |
|
(54,716 |
) |
Interest
expense - mandatorily redeemable preferred stock |
|
|
(45,200 |
) |
|
(30,133 |
) |
Gain
on sale of stores and business |
|
|
-
|
|
|
178,662
|
|
Total
Other (Expense) Income |
|
|
(65,424 |
) |
|
102,898
|
|
|
|
|
|
|
|
|
|
Income
Before Provision for Income Taxes |
|
|
1,855,764
|
|
|
1,358,507
|
|
Provision
for Income Taxes |
|
|
481,400
|
|
|
22,608
|
|
Income
from Continuing Operations |
|
|
1,374,364
|
|
|
1,335,899
|
|
|
|
|
|
|
|
|
|
Discontinued
Operations: |
|
|
|
|
|
|
|
Loss
from operations of discontinued subsidiary, net of |
|
|
|
|
|
|
|
income
taxes of $0 |
|
|
-
|
|
|
(46,096 |
) |
Net
Income |
|
$ |
1,374,364 |
|
$ |
1,289,803 |
|
|
|
|
|
|
|
|
|
Net
Income Per Common Share: |
|
|
|
|
|
|
|
Basic: |
|
|
|
|
|
|
|
Income
from continuing operations |
|
$ |
0.55 |
|
$ |
0.54 |
|
Loss
from operations of discontinued subsidiary |
|
|
-
|
|
|
(0.02 |
) |
Net
Income |
|
$ |
0.55 |
|
$ |
0.52 |
|
|
|
|
|
|
|
|
|
Diluted: |
|
|
|
|
|
|
|
Income
from continuing operations |
|
$ |
0.44 |
|
$ |
0.46 |
|
Loss
from operations of discontinued subsidiary |
|
|
-
|
|
|
(0.02 |
) |
Net
Income |
|
$ |
0.44 |
|
$ |
0.44 |
|
|
|
|
|
|
|
|
|
Weighted
Average Number of Shares Outstanding: |
|
|
|
|
|
|
|
Basic |
|
|
2,501,462
|
|
|
2,470,680
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
3,225,303
|
|
|
2,949,261
|
|
|
|
|
|
|
|
|
|
|
|
|
See
notes to consolidated financial statements. |
|
F-4
|
DCAP
GROUP, INC. AND
SUBSIDIARIES
Consolidated
Statement of Stockholders' Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years
Ended December 31, 2004 and 2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock |
|
|
Preferred Stock |
|
|
Capital
in
Excess |
|
|
Equity
|
|
|
Treasury Stock |
|
|
|
|
|
|
|
Shares |
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
of
Par |
|
|
(Deficit) |
|
|
Shares
|
|
|
Amount
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
January 1, 2003 |
|
|
16,068,018
|
|
$ |
160,680 |
|
|
-
|
|
$ |
- |
|
$ |
10,242,409 |
|
$ |
(8,166,109 |
) |
|
3,714,616
|
|
$ |
(928,655 |
) |
$ |
1,308,325 |
|
Effect
of 1 for 5 Reverse Stock Split |
|
|
(12,854,488 |
) |
|
(128,544 |
) |
|
-
|
|
|
-
|
|
|
128,544
|
|
|
-
|
|
|
(2,971,693 |
) |
|
-
|
|
|
- |
|
Balance,
January 1, 2003, as adjusted |
|
|
3,213,530
|
|
|
32,136
|
|
|
-
|
|
|
-
|
|
|
10,370,953
|
|
|
(8,166,109 |
) |
|
742,923
|
|
|
(928,655 |
) |
|
1,308,325
|
|
Warrants
Issued with Private Placement |
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
147,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
147,000
|
|
Net
Income |
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,289,803
|
|
|
- |
|
|
-
|
|
|
1,289,803
|
|
Balance,
December 31, 2003 |
|
|
3,213,530
|
|
|
32,136
|
|
|
-
|
|
|
-
|
|
|
10,517,953
|
|
|
(6,876,306 |
) |
|
742,923
|
|
|
(928,655 |
) |
|
2,745,128
|
|
Exercise
of Stock Options and Warrants |
|
|
235,817
|
|
|
2,358
|
|
|
-
|
|
|
-
|
|
|
443,318
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
445,676
|
|
Tax
Benefit from Exercise of Stock Options |
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
79,560
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
79,560
|
|
Treasury
Stock Acquired |
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
34,000
|
|
|
(249,900 |
) |
|
(249,900 |
) |
Net
Income |
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,374,364
|
|
|
-
|
|
|
-
|
|
|
1,374,364
|
|
Balance,
December 31, 2004 |
|
|
3,449,347
|
|
$ |
34,494 |
|
|
-
|
|
$ |
- |
|
$ |
11,040,831 |
|
$ |
(5,501,942 |
) |
|
776,923
|
|
$ |
(1,178,555 |
) |
$ |
4,394,828 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
notes to consolidated financial statements. |
|
|
F-5
|
|
DCAP
GROUP, INC. AND
SUBSIDIARIES
Consolidated
Statements of Cash Flows |
|
|
Years
Ended December 31, |
2004 |
2003
|
Cash
Flows from Operating Activities: |
|
|
|
|
|
|
|
Net
income |
|
$ |
1,374,364 |
|
$ |
1,289,803 |
|
Adjustments
to reconcile net income to net cash |
|
|
|
|
|
|
|
(used
in) provided by operating activities: |
|
|
|
|
|
|
|
Depreciation
and amortization |
|
|
425,384
|
|
|
282,786
|
|
Bad
debt expense |
|
|
7,388
|
|
|
21,408
|
|
Amortization
of warrants |
|
|
58,800
|
|
|
29,400
|
|
Deferred
income taxes |
|
|
(54,800 |
) |
|
-
|
|
Gain
on sale of stores and business |
|
|
-
|
|
|
(178,662 |
) |
Changes
in operating assets and liabilities: |
|
|
|
|
|
|
|
Increase
in assets: |
|
|
|
|
|
|
|
Accounts
receivable |
|
|
(1,122,268 |
) |
|
(1,095,662 |
) |
Prepaid
expenses and other current assets |
|
|
(132,172 |
) |
|
(30,833 |
) |
Deposits
and other assets |
|
|
(64,555 |
) |
|
(289,392 |
) |
(Decrease)
increase in liabilities: |
|
|
|
|
|
|
|
Premiums
payable |
|
|
(2,090,840 |
) |
|
6,530,219
|
|
Accounts
payable and accrued expenses |
|
|
380,629
|
|
|
530,298
|
|
Income
taxes payable |
|
|
510,053
|
|
|
-
|
|
Other
current liabilities |
|
|
(13,487 |
) |
|
(11,601 |
) |
Net
Cash (Used in) Provided by Operating Activities |
|
|
(721,504 |
) |
|
7,077,764
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Investing Activities: |
|
|
|
|
|
|
|
Increase
in finance contracts receivable - net |
|
|
(2,347,873 |
) |
|
(19,084,161 |
) |
Decrease
in notes and other receivables - net |
|
|
16,847
|
|
|
34,945
|
|
Proceeds
from disposition of discontinued subsidiary |
|
|
-
|
|
|
500,000
|
|
Proceeds
on sale of stores and business |
|
|
-
|
|
|
254,308
|
|
Purchase
of property and equipment |
|
|
(110,123 |
) |
|
(133,217 |
) |
Business
acquisitions |
|
|
(67,000 |
) |
|
(106,039 |
) |
Net
Cash Used in Investing Activities |
|
|
(2,508,149 |
) |
|
(18,534,164 |
) |
|
|
|
|
|
|
|
|
Cash
Flows from Financing Activities: |
|
|
|
|
|
|
|
Principal
payments on long-term debt and capital lease obligations |
|
|
(161,491 |
) |
|
(269,781 |
) |
Proceeds
from long-term debt |
|
|
-
|
|
|
3,500,000
|
|
Proceeds
from revolving loan |
|
|
66,178,841
|
|
|
17,769,118
|
|
Payments
on revolving loan |
|
|
(63,551,264 |
) |
|
(8,801,036 |
) |
Deferred
loan costs |
|
|
(265,614 |
) |
|
-
|
|
Proceeds
from exercise of stock options and warrants |
|
|
445,676
|
|
|
-
|
|
Purchase
of treasury stock |
|
|
(249,900 |
) |
|
-
|
|
Net
Cash Provided by Financing Activities |
|
|
2,396,248
|
|
|
12,198,301
|
|
|
|
|
|
|
|
|
|
Net
(Decrease) Increase in Cash and Cash Equivalents |
|
|
(833,405 |
) |
|
741,901
|
|
Cash
and Cash Equivalents, beginning of year |
|
|
1,349,304
|
|
|
607,403
|
|
Cash
and Cash Equivalents, end of year |
|
$ |
515,899 |
|
$ |
1,349,304 |
|
|
|
|
|
|
|
|
|
|
|
|
See
notes to consolidated financial statements. |
|
F-6
|
DCAP
GROUP, INC. AND
SUBSIDIARIES
Notes
to Consolidated Financial Statements
Two Years Ended December 31, 2004
1. |
Organization
and Nature of Business |
|
|
|
DCAP
Group, Inc. and Subsidiaries (referred to herein as "we" or "us") operate
a network of retail offices and franchise operations engaged in the sale
of retail auto, motorcycle, boat, business, and homeowner's insurance, and
provide premium financing of insurance policies for customers of our
offices as well as customers of non-affiliated entities. We also provide
automobile club services for roadside emergencies and tax preparation
services.
Prior
to July 14, 2003, our premium finance business entailed the origination of
premium finance contracts which were sold to third parties, and for which
we earned a fee. 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.
In
addition, we operated the International Airport Hotel in San Juan, Puerto
Rico (the "Hotel") through our wholly-owned subsidiary, IAH, Inc. The
lease on the Hotel was terminated in January 2003 and the operations of
this subsidiary have been presented as discontinued operations in the
accompanying financial statements. |
|
|
2. |
Summary
of Significant Accounting Policies |
|
|
|
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.
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.
Franchise
fee revenue is recognized when substantially all of our contractual
requirements under the franchise agreement are completed.
Fees
for income tax preparation are recognized when the services are completed.
Automobile club dues are recognized equally over the contract
period.
Allowance
for doubtful accounts -
Management must make estimates of the uncollectability of accounts
receivable. Management specifically analyzed accounts receivable and
analyzes historical bad debts, customer concentrations, customer
credit-worthiness, current economic trends and changes in customer payment
terms when evaluating the adequacy of the allowance for doubtful
accounts.
Finance
income, fees and receivables
- Until
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. In connection with 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 the finance subsidiary, such as servicing, bad debts and
interest expense as well as receivables and payables relating to the
operations of the premium finance subsidiary.
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 in accordance with Statement of Financial Accounting Standard
("SFAS") No. 91, |
F-7
DCAP
GROUP, INC. AND
SUBSIDIARIES
Notes
to Consolidated Financial Statements
Two Years Ended December 31, 2004
"Accounting
for Nonrefundable Fees and Costs Associated with Originating or Acquiring
Loans and Initial Direct Costs of Leases." Delinquency fees are earned
when collected. Upon completion of our collection efforts, after
cancellation of the underlying insurance policies, any uncollected earned
interest or fees are charged off.
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 account. The majority of these shortfalls result in the
write-off of unrealized 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. As of December 31, 2004, the allowance
for finance receivable losses was approximately $66,000.
Goodwill
and intangible assets - In
January 2002, we adopted SFAS No. 142, "Goodwill and Intangible Assets".
SFAS No. 142 requires, among other things, that companies no longer
amortize goodwill, but instead test goodwill for impairment at least
annually. In addition, SFAS No. 142 requires that we identify reporting
units for the purpose of assessing potential future impairment of
goodwill, reassess the useful lives of other existing recognized
intangible assets and cease amortization of intangible assets with an
indefinite useful life.
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 December 31,
2004.
Property
and equipment -
Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the related
assets. Leasehold improvements are being amortized using the straight-line
method over the estimated useful lives of the related assets or the
remaining term of the lease.
Deferred
loan costs - Deferred
loan costs are amortized on a straight-line basis over the related term of
the loan.
Concentration
of credit risk - We
invest our excess cash in deposits and money market accounts with major
financial institutions and have not experienced losses related to these
investments.
All
finance contracts receivable are repayable in less than one year. In the
event of a default by the borrower, we are entitled to cancel the
underlying insurance policy financed and receive a refund for the unused
term of such policy from the insurance carrier. We structure the repayment
terms in an attempt to minimize principal losses on finance contract
receivables.
We
perform on going credit evaluations and generally do not require
collateral.
Cash
and cash equivalents - We
consider all highly liquid debt instruments with a maturity of three
months or less, as well as bank money market accounts, to be cash
equivalents.
Estimates
-
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
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 |
DCAP
GROUP, INC. AND
SUBSIDIARIES
Notes
to Consolidated Financial Statements
Two Years Ended December 31, 2004
reflect, in periods in which they have a dilutive
effect, the impact of common shares issuable upon exercise of stock
options.
The
reconciliation for the years ended December 31, 2004 and 2003 is as
follows:
|
|
2004
|
2003
|
|
|
|
|
|
Weighted
Average Number of Shares Outstanding |
2,501,462 |
2,470,680 |
|
Effect
of Dilutive Securities, common stock equivalents |
723,841 |
478,581 |
|
Weighted
Average Number of Shares Outstanding, used for
computing
diluted earnings per share |
3,225,303 |
2,949,261 |
|
Net
income available to common shareholders for the computation of diluted
earnings per share is computed as follows: |
|
Years
Ended December 31, |
2004
|
2003
|
|
|
|
|
|
Net
Income |
$1,374,364 |
$1,289,803 |
|
Interest
Expense on Dilutive Convertible Preferred Stock |
45,200 |
30,133 |
|
Net
Income Available to Common Shareholders for
Diluted
Earnings Per Share |
$1,419,564 |
$1,319,936 |
|
Advertising
costs -
Advertising costs are charged to operations when the advertising first
takes place. Included in general and administrative expenses are
advertising costs approximating $629,000 and $453,000 for the years ended
December 31, 2004 and 2003, respectively.
Impairment
of long-lived assets - We
review long-lived assets and certain identifiable intangibles to be held
and used for impairment on an annual basis and whenever events or changes
in circumstances indicate that the carrying amount of an asset exceeds the
fair value of the asset. If other events or changes in circumstances
indicate that the carrying amount of an asset that we expect to hold and
use may not be recoverable, we will estimate the undiscounted future cash
flows expected to result from the use of the asset or its eventual
disposition, and recognize an impairment loss. The impairment loss, if
determined to be necessary, would be measured as the amount by which the
carrying amount of the assets exceeds the fair value of the assets. A
similar evaluation is made in relation to goodwill, with any impairment
loss measured as the amount by which the carrying value of such goodwill
exceeds the expected undiscounted future cash flows.
Income
taxes -
Deferred tax assets and liabilities are determined based upon the
differences between financial reporting and tax bases of assets and
liabilities, and are measured using the enacted tax rates and laws that
will be in effect when the differences are expected to
reverse.
New
accounting pronouncements - In
January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities, an interpretation of ARB No.
51," as revised. A Variable Interest Entity ("VIE") is an entity with
insufficient equity investment or in which the equity investors lack some
of the characteristics of a controlling financial interest. Pursuant to
FIN 46, an enterprise that absorbs a majority of the expected losses of
the VIE must consolidate the VIE. The full adoption of FIN 46 in fiscal
2004 did not have a material effect on our financial position and results
of operations.
In
December 2004, the FASB issued SFAS No. 123(R), "Accounting for
Stock-Based Compensation" ("SFAS No. 123(R)"). SFAS No. 123(R) establishes
standards for the accounting for transactions in which an entity exchanges
its equity instruments for goods or services. This statement focuses
primarily on accounting for transactions in which an entity obtains
employee services in share-based payment transactions. SFAS No. 123(R)
requires that the fair value of such equity instruments be recognized as
an |
F-9
DCAP
GROUP, INC. AND
SUBSIDIARIES
Notes
to Consolidated Financial Statements
Two Years Ended December 31, 2004
expense in the historical financial statements as
services are performed. Prior to SFAS No. 123(R), only certain pro forma
disclosures of fair value were required. The provisions of this statement are
effective for small business issuers as of the beginning of the first annual or
interim reporting period that begins after December 15, 2005.
On
December 16, 2004, the FASB issued SFAS No. 153, "Exchange of Non-monetary
Assets", an amendment of Accounting Principles Board ("APB") Opinion No. 29,
which differed from the International Accounting Standards Board's ("IASB")
method of accounting for exchanges of similar productive assets. Statement No.
153 replaces the exception from fair value measurement in APB No. 29, with a
general exception from fair value measurement for exchanges of non-monetary
assets that do not have commercial substance. The statement is to be applied
prospectively and is effective for non-monetary asset exchanges occurring in
fiscal periods beginning after June 15, 2005. We do not believe that SFAS No.
153 will have a material impact on our results of operations or cash
flows.
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 $16,746 and $48,163 in such costs were incurred
during the years ended December 31, 2004 and 2003, respectively.
Comprehensive
income (loss) -
Comprehensive income (loss) refers to revenue, expenses, gains and losses that
under generally accepted accounting principles are included in comprehensive
income but are excluded from net income as these amounts are recorded directly
as an adjustment to stockholders' equity. At December 31, 2004 and 2003, there
were no such adjustments required.
Stock
based compensation - 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 years ended December
31, 2004 and 2003, consistent with the provisions of SFAS 123, our net income
and net income per share would have been adjusted to the following pro forma
amounts:
|
|
|
2004 |
|
|
2003 |
|
|
|
|
|
|
|
|
|
Net
Income, as reported |
|
$ |
1,374,364 |
|
$ |
1,289,803 |
|
Deduct:
Stock-based employee compensation expense determined under fair value
based method, net of related tax effect |
|
|
142,828 |
|
|
104,964 |
|
Net
Income, pro forma |
|
|
1,231,536 |
|
|
1,184,839 |
|
Basic
Income Per Share, as reported |
|
|
.55 |
|
|
.52 |
|
Basic
Income Per Share, pro forma |
|
|
.49 |
|
|
.48 |
|
Diluted
Income Per Share, as reported |
|
|
.44 |
|
|
.44 |
|
Diluted
Income Per Share, pro forma |
|
|
.40 |
|
|
.41 |
|
The
fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model. The following weighted average
assumptions were used for grants during the years ended
December 31: |
|
|
|
2004 |
|
|
2003 |
|
|
|
|
|
|
|
|
|
Dividend
Yield |
|
|
0.00 |
% |
|
0.00 |
% |
Volatility |
|
|
81.65 |
% |
|
95.88 |
% |
Risk-Free
Interest Rate |
|
|
3.50 |
% |
|
2.00 |
% |
Expected
Life |
|
|
5
years |
|
|
5
years |
|
DCAP
GROUP, INC. AND
SUBSIDIARIES
Notes
to Consolidated Financial Statements
Two Years Ended December 31, 2004
|
The
Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options, which have no vesting restrictions and
are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because our stock options have characteristics significantly
different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of our stock
options.
Reclassifications
-
Certain amounts reported in the prior-year financial statements and notes
thereto have been reclassified to conform to 2004
classifications. |
|
|
3. |
Acquisition |
|
|
|
AIA
Acquisition Corp.
On
May 28, 2003, we acquired (effective May 1, 2003) substantially all of the
assets of AIA Acquisition Corp. ("AIA"), an insurance brokerage firm with
six offices located in eastern Pennsylvania, for a base purchase price of
$904,000. The base purchase price was payable with 904 shares of our
Series A Preferred Stock. The Series A Preferred Stock carries a 5.0%
dividend, is convertible into our Common Stock at a conversion price of
$2.50 per share and is redeemable on April 30, 2007 (or sooner under
certain circumstances). Additional contingent cash consideration based
upon the EBITDA of the combined operations of AIA and our wholly-owned
subsidiary, Barry Scott Companies, Inc., during the five year period
ending April 30, 2008 may be payable. The additional cash consideration
cannot exceed $67,000 in any one-year, or an aggregate of $335,000 for the
five year period.
The
AIA insurance agencies derive substantially all of their income from
commissions and fees associated with the sale of automobile insurance. The
acquisition allowed for the expansion of our geographical footprint
outside New York State and allows us to capitalize on operational and
administrative efficiencies.
On
May 28, 2003, we entered into a two-year employment contract with a former
employee of AIA.
The
goodwill amount recorded is comprised of the following: (i) the excess of
the purchase price over the tangible net assets and identified intangibles
acquired and (ii) the estimated direct transaction costs associated with
the acquisition.
Our
consolidated statements of income include the revenues and expenses of AIA
from May 1, 2003. |
|
|
4. |
Finance
Contract Receivables |
|
|
|
A
summary of the changes of the allowance for finance receivable losses is
as follows: |
|
December
31, |
2004
|
2003
|
|
|
|
|
|
Balance,
beginning of year |
$
247,509 |
$
- |
|
Provision
for Finance Receivable Losses |
2,965,796 |
348,228 |
|
Charge-offs |
(3,147,348) |
(100,719) |
|
Balance,
end of year |
$65,957 |
$247,509 |
|
Finance
receivables are collateralized by the unearned premiums of the related
insurance policies. These finance receivables have an average remaining
contractual maturity of approximately four months, with the longest
contractual maturity being approximately ten
months. |
DCAP
GROUP, INC. AND
SUBSIDIARIES
Notes
to Consolidated Financial Statements
Two Years Ended December 31, 2004
5. |
Goodwill |
|
|
|
The
changes in the carrying value of goodwill are as
follows: |
|
December
31, |
2004 |
2003 |
|
|
|
|
|
Balance,
beginning of year |
$ 1,171,551 |
$ 619,382 |
|
Additions,
as a result of business combination |
- |
503,130 |
|
Addition,
as a result of contingent acquisition and transaction
costs |
67,000 |
106,039 |
|
Reduction,
as a result of sale of stores |
- |
(57,000) |
|
Balance,
end of year |
$ 1,238,551 |
$ 1,171,551 |
6. |
Other
Intangibles |
|
|
|
At
December 31, 2004, other intangible assets consist of the
following: |
|
Gross
Carrying Amount: |
|
|
|
Customer
lists |
|
$ 253,550 |
|
Vanity
phone numbers |
|
204,416 |
|
|
|
457,966 |
|
Accumulated
Amortization: |
|
|
|
Customer
lists |
|
122,904 |
|
Vanity
phone numbers |
|
68,618 |
|
|
|
191,522 |
|
Balance,
end of year |
|
$ 266,444 |
|
The
aggregate amortization expense for the years ended December 31, 2004 and
2003 was approximately $77,000 and $92,000,
respectively. |
|
Estimated
amortization expense for the five years subsequent to December 31, 2004 is
as follows: |
|
Years
Ending December 31, |
|
|
|
|
|
|
|
2005 |
|
$ 77,000 |
|
2006 |
|
68,000 |
|
2007 |
|
26,000 |
|
2008 |
|
14,000 |
|
2009 |
|
14,000 |
|
The
remaining weighted-average amortization period as of December 31, 2004 is
as follows: |
|
Customer
Lists |
2.06
years |
|
Vanity
Phone Numbers |
10.00
years |
|
|
4.41
years |
|
Other
intangible assets are being amortized using the straight-line method over
a period of four to fifteen years. |
DCAP
GROUP, INC. AND
SUBSIDIARIES
Notes
to Consolidated Financial Statements
Two Years Ended December 31, 2004
7. |
Property
and Equipment |
|
|
|
At
December 31, 2004, property and equipment consists of the
following: |
|
|
Useful
Lives |
|
|
|
|
|
|
|
|
Furniture,
Fixtures and Equipment |
5
years |
|
$ 347,139 |
|
Leasehold
Improvements |
3 -
5 years |
|
235,581 |
|
Computer
Hardware, Software and Office Equipment |
2 -
5 years |
|
1,131,597 |
|
Entertainment
Facility |
20
years |
|
200,538 |
|
|
|
|
1,914,855 |
|
Less
Accumulated Depreciation and Amortization |
|
|
1,545,542 |
|
|
|
|
$ 369,313 |
|
Depreciation
expense for the years ended December 31, 2004 and 2003 was approximately
$113,300 and $78,800, respectively. |
|
|
8. |
Other
Assets |
|
|
|
At
December 31, 2004, other assets consists of the
following: |
|
Deferred
Loan Costs, net |
|
$ 335,296 |
|
Website
Design Costs, net |
|
29,481 |
|
Deposits |
|
32,658 |
|
Other |
|
59,905 |
|
|
|
$ 457,340 |
9. |
Accounts
Payable and Accrued Expenses |
|
|
|
At
December 31, 2004, accounts payable and accrued expenses consists of the
following: |
|
Accounts
Payable |
|
$ 1,083,365 |
|
Interest |
|
207,871 |
|
Payroll
and Related Costs |
|
49,741 |
|
Professional
Fees |
|
60,250 |
|
Loan
Costs |
|
190,000 |
|
Acquisition
Costs |
|
67,000 |
|
Other |
|
49,931 |
|
|
|
$ 1,708,158 |
10. |
Debentures
Payable |
|
|
|
In
1971, pursuant to a plan of arrangement, we issued a series of debentures,
which matured in 1977. As of December 31, 2004, $154,200 of these
debentures has not been presented for payment. Accordingly, this balance
has been included in other current liabilities in the accompanying
consolidated balance sheet. Interest has not been accrued on the remaining
debentures payable. In addition, no interest, penalties or other charges
have been accrued with regard to any escheat
obligation. |
DCAP
GROUP, INC. AND
SUBSIDIARIES
Notes
to Consolidated Financial Statements
Two Years Ended December 31, 2004
11. |
Revolving
Credit Facility |
|
|
|
In
July 2003, we obtained an $18,000,000 revolving line of credit from
Manufacturers and Traders Trust Co. (the "Bank"). The line bore interest
at the Bank's prime lending rate plus 1.5%, and was to mature on July 31,
2005. We could borrow against the line to the extent of 80% of eligible
premium finance receivables.
On
December 27, 2004, we entered into a new revolving line of credit ("New
Revolver") with the Bank, which provides for an increase in the credit
line to $25,000,000. Subject to certain conditions, the Bank has agreed to
arrange an additional $10,000,000 credit facility with other lenders on a
"best efforts" basis. The New Revolver bears interest, at our option, at
either the Bank's prime lending rate (5.15% at December 31, 2004) or LIBOR
(2.35% at December 31, 2004) plus 2.5%, and matures on June 30, 2007. We
can borrow against the line to the extent of 85% of eligible premium
finance receivables. As of December 31, 2004, $11,595,659 was outstanding
under this line.
The
line is secured by substantially all of the assets of our premium finance
subsidiary and a $4,000,000 life insurance policy on our Chairman and CEO,
and is guaranteed by DCAP Group, Inc. and subsidiaries.
Our
Chairman and CEO has guaranteed the payment of $2,500,000 of the line
through April 30, 2005. Subject to certain conditions, the guarantee is
reduced to $1,250,000 effective April 30, 2005 and is eliminated effective
April 30, 2006. |
|
|
12. |
Long-Term
Debt |
|
|
|
At
December 31, 2004, long-term debt is comprised of the
following: |
|
Note
payable issued in connection with the purchase of Barry Scott Companies,
due in installments of $125,000 in August
2005 and $235,000 in August 2006, plus interest at 5%. |
|
$ 360,000 |
|
|
|
|
|
Subordinated
loan, which bears interest at 12.625% per annum, payable monthly. The
principal balance is due and payable
on January 10, 2006. The loan is subordinate to the revolving credit
facility, and is secured by a security interest in the assets of our
premium finance subsidiary and a pledge of our subsidiaries'
stock. |
|
3,500,000 |
|
|
|
|
|
Unamortized
value of stock purchase warrants issued in connection with subordinated
loan. |
|
(58,800) |
|
|
|
3,801,200 |
|
Less
Current Maturities |
|
1,125,000 |
|
|
|
$ 2,676,200 |
|
In
January 2005, we repaid $1,000,000 of the subordinated loan with proceeds
of the new revolving credit line. |
|
|
|
Long-term
debt matures as follows: |
|
Years
Ending December 31, |
|
|
|
|
|
|
|
2005 |
|
$ 1,125,000 |
|
2006 |
|
2,735,000 |
DCAP
GROUP, INC. AND
SUBSIDIARIES
Notes
to Consolidated Financial Statements
Two Years Ended December 31, 2004
13. |
Sale
of Stores and Business |
|
|
|
During
the year ended December 31, 2003, we sold two of our retail insurance
brokerage offices and the book of business relating to an additional store
for cash consideration aggregating approximately $254,000 and a note
receivable of approximately $97,000. These sales resulted in a gain of
approximately $178,000. The assets sold included accounts receivable of
approximately $97,000, goodwill with a carrying value of $57,000, property
and equipment with a carrying amount of approximately $10,000, and other
assets of approximately $10,000. |
|
|
14. |
Related
Party Transaction |
|
|
|
Professional
fees - A
law firm affiliated with one of our directors was paid legal fees of
$242,000 and $237,000 for the years ended December 31, 2004 and 2003,
respectively.
A
director was paid a fee of $50,000 during the year ended December 31, 2003
for consulting services in accordance with a consulting agreement. This
agreement expired on December 31, 2003 and was not renewed. In November
2004, we entered into a new consulting agreement with the director for an
annual fee of $59,800 payable in equal monthly installments.
Guarantee
-
Our Chairman and CEO personally guaranteed the repayment of $2,500,000 of
our revolving credit facility. In consideration of this guaranty, we have
agreed to pay him $50,000 per annum and reimburse him for all premiums
paid by him on a $2,500,000 life insurance policy as long as the
guarantees remains in effect. He was paid $50,000 in each of the years
ended December 31, 2004 and 2003. |
|
|
15. |
Income
Taxes |
|
|
|
We
file a consolidated U.S. Federal Income Tax return that includes all
wholly-owned subsidiaries. State tax returns are filed on a consolidated
or separate basis depending on applicable laws. The provision for income
taxes from continuing operations is comprised of the
following: |
Years
Ended December 31, |
|
2004 |
|
2003 |
|
|
|
|
|
|
|
|
|
Current: |
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
|
|
$ |
418,856 |
|
$ |
- |
|
State |
|
|
|
|
|
117,344 |
|
|
22,608 |
|
|
|
|
|
|
|
536,200 |
|
|
22,608 |
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
|
|
|
(46,500 |
) |
|
- |
|
State |
|
|
|
|
|
(8,300 |
) |
|
- |
|
|
|
|
|
|
|
(54,800 |
) |
|
- |
|
|
|
|
|
|
$ |
481,400 |
|
$ |
22,608 |
|
|
A
reconciliation of the federal statutory rate to our effective tax rate is
as follows: |
Years
Ended December 31, |
|
|
2004 |
|
|
2003 |
|
|
|
|
|
|
|
|
|
Computed
Expected Tax Expense |
|
|
34.00 |
% |
|
34.00 |
% |
State
Taxes, net of federal benefit |
|
|
5.79 |
% |
|
10.00 |
% |
Permanent
Differences |
|
|
2.35 |
% |
|
- |
|
Change
in Valuation Allowance |
|
|
(16.20 |
%) |
|
(42.33 |
%) |
Total
Tax Expense |
|
|
25.94 |
% |
|
1.67 |
% |
DCAP
GROUP, INC. AND
SUBSIDIARIES
Notes
to Consolidated Financial Statements
Two Years Ended December 31, 2004
|
At
December 31, 2004, we had net operating loss carryforwards for tax
purposes, which expire at various dates through 2019, of approximately
$1,600,000. These net
operating loss carryforwards are subject to Internal Revenue Code Section
382, which places a limitation on the utilization of the federal net
operating loss to approximately $10,000 per year, as a result of a greater
than 50% ownership change of DCAP Group, Inc. in 1999. During fiscal 2003,
approximately $100,000 of available net operating loss carryforwards
expired as a result of the sale of certain subsidiaries. We utilized net
operating loss carryforwards of approximately $438,000 and $1,300,000
during the years ended December 31, 2004 and 2003 to offset current
taxable income.
The
tax effects of temporary differences which give rise to deferred tax
assets at December 31, 2004 consists of the
following: |
Deferred
Tax Assets: |
|
|
|
|
Net
operating loss carryovers |
|
$ |
643,434 |
|
Provision
for doubtful accounts |
|
|
24,800 |
|
Allowance
for loan losses |
|
|
26,383 |
|
Amortization
of intangible assets |
|
|
35,822 |
|
Gross
Deferred Tax Assets |
|
|
730,439 |
|
Deferred
Tax Liabilities: |
|
|
|
|
Depreciation |
|
|
32,549 |
|
Amortization
of goodwill |
|
|
59,676 |
|
Gross
Deferred Tax Liabilities |
|
|
92,225 |
|
Net
Deferred Tax Assets Before Valuation Allowance |
|
|
638,214 |
|
Less
Valuation Allowance |
|
|
(583,414 |
) |
Net
Deferred Tax Assets |
|
$ |
54,800 |
|
|
We
recorded a reduction in our valuation allowance against our net deferred
tax assets of approximately $300,000 for the year ended December 31,
2004. |
|
|
16. |
Commitments |
|
|
|
Leases
-
We, and each of our affiliates, lease office space under noncancellable
operating leases expiring at various dates through August 2011. Many of
the leases are renewable and include additional rent for real estate taxes
and other operating expenses. The minimum future rentals under these lease
commitments for leased facilities and office equipment are as
follows: |
|
Years
Ending December 31, |
|
|
|
|
|
|
|
2005 |
|
$ 407,000 |
|
2006 |
|
333,000 |
|
2007 |
|
254,000 |
|
2008 |
|
206,000 |
|
2009 |
|
67,000 |
|
Thereafter |
|
115,000 |
|
Rental
expense approximated $507,000 and $492,000 for the years ended December
31, 2004 and 2003, respectively. |
DCAP
GROUP, INC. AND
SUBSIDIARIES
Notes
to Consolidated Financial Statements
Two Years Ended December 31, 2004
Employment
agreements
- During
2004, we amended our employment agreement with an officer, increasing the
minimum salary to $350,000 per annum for the remainder of the agreement. The
employment agreement also provides for discretionary bonuses and other
perquisites commonly found in such agreements. The employment agreement was
scheduled to expire on April 1, 2005.
Subsequent
to year end, we amended the agreement with the officer, pursuant to which, among
other things, the term of the agreement has been extended to April 1, 2007 and
the officer shall be entitled, under certain circumstances, to a payment equal
to one and one-half times his then annual salary in the event of the termination
of his employment following a change of control.
During
2004, we entered into an employment agreement with an officer, which provides
for minimum salary of $200,000 per annum. In addition, we granted the officer
options to purchase up to 70,000 shares of our Common Stock. The employment
agreement expires on October 18, 2007.
Litigation
- From
time to time, we are involved in various lawsuits and claims incidental to our
business. In the opinion of management, the ultimate liabilities, if any,
resulting from such lawsuits and claims will not materially affect our financial
position.
17. |
Mandatorily
Redeemable Preferred Stock |
|
|
|
On
May 8, 2003, we issued 904 shares of $.01 par value 5.0% Series A
Preferred Stock in connection with the acquisition of substantially all of
the assets of AIA Acquisition Corp. The Series A Preferred Stock has a
liquidation preference of $1,000 per share. Dividends on the Series A
Preferred Stock are cumulative and are payable in cash.
Each
share of the Series A Preferred Stock is convertible at the option of the
holder at any time into shares of our Common Stock, par value $.01 per
share, at a conversion rate of $2.50 per share.
On
January 15, 2005, the preferred stockholder converted 124 shares of Series
A Preferred Stock into 49,600 shares of our Common Stock.
Subject
to legal availability of funds, the Series A Preferred Stock is
mandatorily redeemable by us for cash at its liquidation preference on or
after April 30, 2007 (unless previously converted into our Common Stock).
Redemption of the Series A Preferred Stock could occur prior to April 30,
2007 upon a substantial sale by us, as defined.
In
accordance with SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and
Equity",
the Series A Preferred Stock has been reported as a liability, and the
preferred dividends have been classified as interest expense. |
|
|
18. |
Stockholders'
Equity |
|
|
|
Reverse
stock split - On
August 23, 2004, our Board of Directors authorized a one for five reverse
stock split effected at the close of business on August 25, 2004 to
stockholders of record on such date. The $0.01 par value per share remains
the same and $128,544 was reclassified from Common Stock to capital in
excess of par value as of the earliest period presented. Per share
information for all periods presented have been adjusted to give effect
for the one for five reverse stock split.
In
connection with the reverse split, our Certificate of Incorporation was
amended to reduce the number of authorized shares from 40,000,000 to
10,000,000.
|
DCAP
GROUP, INC. AND
SUBSIDIARIES
Notes
to Consolidated Financial Statements
Two Years Ended December 31, 2004
|
Preferred
stock -
During 2001, we amended our Certificate of Incorporation to provide for
the authority to issue 1,000,000 shares of Preferred Stock, with a par
value of $.01 per share. Our Board of Directors has the authority to issue
shares of Preferred Stock from time to time in a series and to fix, before
the issuance of each series, the number of shares in each series and the
designation, liquidation preferences, conversion privileges, rights and
limitations of each series.
Warrants
- On
June 2, 1999, we sold, through a private placement, 33.5 units (each
consisting of 9,090 shares of Common Stock and 3,030 Class A, 3,030 Class
B and 3,030 Class C Warrants) at a purchase price of $50,000 per unit for
net proceeds of $1,360,000, net of closing costs approximating $315,000.
Each Class A, B, and C Warrant was initially exercisable at $8.25, $10.30,
and $12.40, respectively, and expired June 2, 2004. Each unit was subject
to increase, and the exercise prices of the Warrants were subject to
reduction, based upon the market price of our Common Stock one year after
June 2, 1999.
On
June 2, 2000, we issued 152,268 shares of Common Stock, 50,756 Class A,
50,756 Class B, and 50,756 Class C Warrants to the private placement
investors pursuant to price protection provisions contained in the
offering agreement. Pursuant to those provisions, we had agreed to issue
to the investors additional shares and Warrants based upon the market
price of our Common Stock one year after the June 2, 1999 offering date
(if lower than the market price at the time of the offering). As a result,
the per-share price was reduced from $5.50 to $3.65 (the floor price
provided for) and the additional shares and warrants were issued. In
addition, the price protection provision resulted in a reduction of the
exercise price of the Class A, B, and C Warrants to $5.50, $6.85, and
$8.25, respectively.
In
addition, the underwriter was issued an aggregate of 91,361 warrants with
an exercise price ranging from $3.65 to $8.25.
During
the year ended December 31, 2004, warrants were exercised for the purchase
of 22,727 shares of Common Stock at an exercise price of $5.50 per share
and 19,090 shares of Common Stock at an exercise price of $3.65 per share.
All remaining Warrants issued in connection with the private placement
expired on June 2, 2004.
On
July 10, 2003, in connection with the issuance of the subordinated debt,
we issued Warrants to purchase 105,000 shares of our Common Stock at an
exercise price of $6.25 per share. The Warrants were valued at $147,000
and are being amortized as additional interest expense over the term of
the associated debt. The Warrants expire on January 10, 2006.
Stock
options - In
November 1998, we adopted the 1998 Stock Option Plan, which provides for
the issuance of incentive stock options and non-statutory stock options.
Under this plan, options to purchase not more than 400,000 shares of our
Common Stock were permitted to be granted, at a price to be determined by
our Board of Directors or the Stock Option Committee at the time of grant.
During 2002, we increased the number of shares of Common Stock authorized
to be issued pursuant to the 1998 Stock Option Plan to 750,000. Incentive
stock options granted under this plan expire no later than ten years from
date of grant (except no later than five years for a grant to a 10%
stockholder). Our Board of Directors or the Stock Option Committee will
determine the expiration date with respect to non-statutory options
granted under this plan.
A
summary of the status of our stock option plans as of December 31, 2004
and 2003, and changes during the years then ended, is presented
below: |
DCAP
GROUP, INC. AND
SUBSIDIARIES
Notes
to Consolidated Financial Statements
Two Years Ended December 31, 2004
Years
Ended December 31, |
|
2004 |
|
2003 |
|
Fixed
Stock Options |
|
|
|
|
|
Share |
|
|
Weighted
Average
Exercise
Price |
|
|
Share |
|
|
Weighted
Average
Exercise
Price |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding,
beginning of year |
|
|
|
|
|
630,500 |
|
$ |
3.31 |
|
|
580,000 |
|
$ |
3.25 |
|
Granted |
|
|
|
|
|
87,300 |
|
|
6.56 |
|
|
59,000 |
|
|
3.55 |
|
Exercised |
|
|
|
|
|
(194,000 |
) |
|
1.29 |
|
|
- |
|
|
- |
|
Expired |
|
|
|
|
|
(90,000 |
) |
|
13.45 |
|
|
- |
|
|
- |
|
Forfeited |
|
|
|
|
|
(25,000 |
) |
|
4.10 |
|
|
(8,500 |
) |
|
1.50 |
|
Outstanding,
end of year |
|
|
|
|
|
408,800 |
|
$ |
2.68 |
|
|
630,500 |
|
$ |
3.31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
exercisable, end of year |
|
|
|
|
|
280,950 |
|
$ |
1.99 |
|
|
493,000 |
|
$ |
3.70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
Fair Values of
Options
Granted During Year |
|
|
|
|
|
|
|
$ |
4.79 |
|
|
|
|
$ |
2.55 |
|
|
The
following table summarizes information about stock options outstanding at
December 31, 2004: |
|
|
Options
Outstanding |
|
Options
Exercisable |
|
Exercise
Price |
Number
Outstanding |
Weighted
Average
Remaining
Contractual
Life |
Weighted
Average
Exercise
Price |
|
Number
Outstanding |
Weighted
Average
Exercise
Price |
|
|
|
|
|
|
|
|
|
$1.25
- 1.50 |
294,500 |
2.24
yrs. |
$1.47 |
|
243,125 |
$1.50 |
|
$2.35
- 4.10 |
27,000 |
3.76
yrs. |
$3.45 |
|
16,000 |
$3.28 |
|
$6.35
- 7.39 |
87,300 |
4.81
yrs. |
$6.56 |
|
21,825 |
$6.56 |
|
Warrants |
|
105,000 |
|
|
|
|
|
Stock
Option Plan |
|
556,000 |
19. |
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 years ended December
31, 2004 and 2003. |
DCAP
GROUP, INC. AND
SUBSIDIARIES
Notes
to Consolidated Financial Statements
Two Years Ended December 31, 2004
|
Revenue,
interest income, interest expense, depreciation and amortization, profit
and loss, and assets pertaining to the segments in which we operate are
presented below. |
Year
Ended December 31, 2004 |
|
|
Premium
Finance |
|
|
Insurance |
|
|
Other
(1 |
) |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
from External Customers |
|
$ |
7,961,617 |
|
$ |
7,125,398 |
|
$ |
- |
|
$ |
15,088,015 |
|
Interest
Income |
|
|
- |
|
|
10,006 |
|
|
- |
|
|
10,006 |
|
Interest
Expense |
|
|
1,188,990 |
|
|
74,267 |
|
|
1,183 |
|
|
1,264,420 |
|
Depreciation
and Amortization |
|
|
212,391 |
|
|
179,478 |
|
|
33,515 |
|
|
425,384 |
|
Segment
Profit (Loss) before Income Taxes |
|
|
1,586,173 |
|
|
1,753,282 |
|
|
(1,483,691 |
) |
|
1,855,764 |
|
Segment
Profit (Loss) |
|
|
951,704 |
|
|
1,051,969 |
|
|
(629,309 |
) |
|
1,374,364 |
|
Segment
Assets |
|
|
21,742,126 |
|
|
4,706,150 |
|
|
1,052,919 |
|
|
27,501,195 |
|
|
(1) Column
represents corporate-related items and, as it relates to segment profit
(loss), income, expense and assets not allocated to reportable
segments. |
Year
Ended December 31, 2003 |
|
|
Premium
Finance |
|
|
Insurance |
|
|
Other
(1 |
) |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
from External Customers |
|
$ |
2,330,831 |
|
$ |
6,354,920 |
|
$ |
- |
|
$ |
8,685,751 |
|
Interest
Income |
|
|
- |
|
|
1,223 |
|
|
7,862 |
|
|
9,085 |
|
Interest
Expense |
|
|
335,343 |
|
|
84,849 |
|
|
- |
|
|
420,192 |
|
Depreciation
and Amortization |
|
|
101,165 |
|
|
175,286 |
|
|
6,335 |
|
|
282,786 |
|
Segment
Profit (Loss)
before
Income Taxes |
|
|
839,311 |
|
|
1,298,868 |
|
|
(779,672 |
) |
|
1,358,507 |
|
Segment
Profit (Loss) |
|
|
839,311 |
|
|
1,298,868 |
|
|
(802,280 |
) |
|
1,335,899 |
|
Segment
Assets |
|
|
20,261,744 |
|
|
3,097,098 |
|
|
1,260,972 |
|
|
24,619,814 |
|
|
(1) Column
represents corporate-related items and, as it relates to segment profit
(loss), income, expense and assets not allocated to reportable
segments. |
20. |
Major
Customers |
|
|
|
At
December 31, 2004, revenue from major customers consisted of the
following: |
|
Customer |
%
of Total Revenue |
Segment |
|
|
|
|
|
A |
22% |
Insurance |
|
At
December 31, 2003, revenue from major customers consisted of the
following: |
|
Customer |
%
of Total Revenue |
Segment |
|
|
|
|
|
A |
25% |
Insurance |
DCAP
GROUP, INC. AND
SUBSIDIARIES
Notes
to Consolidated Financial Statements
Two Years Ended December 31, 2004
21. |
Fair
Value of Financial Instruments |
|
|
|
The
methods and assumptions used to estimate the fair value of the following
classes of financial instruments were:
Current
Assets and Current Liabilities:
The carrying values of cash, accounts receivables, finance contract
receivables and payables and certain other short-term financial
instruments approximate their fair value.
Long-Term
Debt:
The fair value of our long-term debt, including the current portion, was
estimated using a discounted cash flow analysis, based on our assumed
incremental borrowing rates for similar types of borrowing arrangements.
The carrying amount of variable and fixed rate debt at December 31, 2004
approximates fair value. |
|
|
22. |
Retirement
Plan |
|
|
|
Qualified
employees are eligible to participate in a salary reduction plan under
Section 401(k) of the Internal Revenue Code. Participation in the plan is
voluntary, and any participant may elect to contribute up to a maximum of
$12,000 per year. We will match 25% of the employee's contribution up to
6%. Contributions for the years ended December 31, 2004 and 2003
approximated $26,000 and $17,000,
respectively. |
23. |
Supplementary
Information - Statement of Cash Flows |
|
|
|
Cash
paid during the years for: |
Years
Ended December 31, |
|
2004 |
|
2003 |
|
|
|
|
|
|
|
|
|
Interest |
|
|
|
|
$ |
1,160,798 |
|
$ |
127,345 |
|
|
|
|
|
|
|
|
|
|
|
|
Income
Taxes |
|
|
|
|
$ |
30,927 |
|
$ |
17,608 |
|
|
During
the year ended December 31, 2003, we issued 904 shares of Series A
Preferred Stock with a value of $904,000 in connection with a business
acquisition. |
|
|
24. |
Discontinued
Operations |
|
|
|
We
operated the International Airport Hotel in San Juan, Puerto Rico through
our subsidiary, IAH, Inc., and had been in litigation with the Port
Authority of Puerto Rico concerning the lease on the hotel. In December
2002, we agreed in principle to a settlement agreement whereby the Ports
Authority paid us $500,000. Operations ceased on January 27,
2003.
Revenues
from the discontinued operation totaled $64,561 for the year ended
December 31, 2003. Pretax net loss from the discontinued operation totaled
$(46,096) for the year ended December 31,
2003. |
SIGNATURES
In
accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
there-unto duly authorized.
|
DCAP
GROUP, INC.
|
Dated:
March 30, 2005
|
By:
/s/ Barry B. Goldstein
Barry B. Goldstein
Chief Executive Officer |
In
accordance with the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
Signature |
Capacity |
Date |
|
|
|
/s/
Barry B. Goldstein
Barry
B. Goldstein |
President,
Chairman of the Board, Chief Executive Officer, Chief Financial Officer,
Treasurer and Director (Principal Executive, Financial and Accounting
Officer) |
March
30, 2005 |
/s/
Morton L. Certilman
Morton
L. Certilman |
Secretary
and Director |
March
30, 2005 |
/s/
Jay M. Haft
Jay
M. Haft |
Director |
March
30, 2005 |
/s/
Jack D. Seibald
Jack
D. Seibald |
Director |
March
30, 2005 |
/s/
Robert M. Wallach
Robert
M. Wallach |
Director |
March
30, 2005 |