UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[ X ] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended June 30, 2003
-------------
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from to
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Commission File Number: 0-1665
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DCAP GROUP, INC.
----------------
(Exact Name of Small Business Issuer as Specified in its Charter)
Delaware 36-2476480
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(State or Other Jurisdiction of (I.R.S Employer
Incorporation or Organization) Identification No.)
1158 Broadway, Hewlett, NY 11557
--------------------------------
(Address of Principal Executive Offices)
(516) 374-7600
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(Issuer's Telephone Number, Including Area Code)
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(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
APPLICABLE ONLY TO ISSUERS INVOLVED IN
BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes No
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APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 12,353,402 shares as of July
31, 2003.
Transitional Small Business Disclosure Format (check one):
Yes No X
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INDEX
DCAP GROUP, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet - June 30, 2003 (Unaudited)
Condensed Consolidated Statements of Operations - Six months ended
June 30, 2003 and 2002 (Unaudited)
Condensed Consolidated Statements of Operations - Three months ended
June 30, 2003 and 2002 (Unaudited)
Condensed Consolidated Statements of Cash Flows - Six months ended
June 30, 2003 and 2002 (Unaudited)
Notes to Condensed Consolidated Financial Statements - Six months
ended June 30, 2003 and 2002 (Unaudited)
Item 2. Management's Discussion and Analysis or Plan of Operation
Item 3. Controls and Procedures
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
Forward-Looking Statements
This Quarterly Report contains forward-looking statements as that term is
defined in the federal securities laws. The events described in forward-looking
statements contained in this Quarterly Report may not occur. Generally these
statements relate to business plans or strategies, projected or anticipated
benefits or other consequences of our plans or strategies, projected or
anticipated benefits from acquisitions to be made by us, or projections
involving anticipated revenues, earnings or other aspects of our operating
results. The words "may," "will," "expect," "believe," "anticipate," "project,"
"plan," "intend," "estimate," and "continue," and their opposites and similar
expressions are intended to identify forward-looking statements. We caution you
that these statements are not guarantees of future performance or events and are
subject to a number of uncertainties, risks and other influences, many of which
are beyond our control, that may influence the accuracy of the statements and
the projections upon which the statements are based. Factors which may affect
our results include, but are not limited to, the following:
o our ability to obtain the necessary level of financing to expand our
premium finance operations
o increases in interest rates which would adversely affect our premium
finance margins
o the decline in the number of insurance companies offering insurance
products in our markets
o the volatility of insurance premium pricing
o government regulation
o competition from larger, better financed and more established
companies
o the possibility of tort reform and a resultant decrease in the demand
for insurance
o the dependence on our executive management
o our ability to raise additional capital which may be required.
Any one or more of these uncertainties, risks and other influences could
materially affect our results of operations and whether forward-looking
statements made by us ultimately prove to be accurate. Our actual results,
performance and achievements could differ materially from those expressed or
implied in these forward-looking statements. We undertake no obligation to
publically update or revise any forward-looking statements, whether from new
information, future events or otherwise.
Explanatory Note
Throughout this Quarterly Report, the words "DCAP Group," "we," "our," and
"us" refer to DCAP Group, Inc. and the operations of DCAP Group, Inc. as a
whole. References to "DCAP Insurance" and the "DCAP Companies" in this Quarterly
Report mean our wholly-owned subsidiary, Dealers Choice Automotive Planning,
Inc., and affiliated companies, and the operations of our insurance-related
subsidiaries.
PART I. FINANCIAL INFORMATION
---------------------
Item 1. FINANCIAL STATEMENTS
--------------------
DCAP GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
June 30, 2003
-------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $1,081,820
Accounts receivable, net of allowance for doubtful
accounts of $43,000 1,083,750
Notes receivable 40,254
Prepaid expenses and other current assets 228,600
----------
Total current assets 2,434,424
----------
PROPERTY AND EQUIPMENT, net 342,378
----------
OTHER ASSETS:
Goodwill 1,111,551
Other intangibles, net 395,578
Deposits and other assets 32,704
Note receivable 52,523
----------
Total other assets 1,592,356
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$4,369,158
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 625,703
Current portion of long-term debt 7,646
Current portion of capital lease obligations 47,187
Deferred revenue 59,474
Debentures payable 154,200
----------
Total current liabilities 894,210
----------
LONG-TERM DEBT 525,000
----------
CAPITAL LEASE OBLIGATIONS 20,152
----------
DEFERRED REVENUE 21,460
----------
MANDATORILY REDEEMABLE PREFERRED STOCK 904,000
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STOCKHOLDERS' EQUITY:
Common Stock, $.01 par value; authorized
25,000,000 shares; issued 16,068,018 shares 160,680
Preferred Stock, $.01 par value; authorized 1,000,000
shares; 0 shares issued and outstanding -
Capital in excess of par 10,242,409
Deficit (7,470,098)
-----------
2,932,991
Treasury Stock, at cost, 3,714,616 (928,655)
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2,004,336
----------
$4,369,158
==========
See notes to condensed consolidated financial statements.
4
DCAP GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Six months ended
June 30,
-----------------------------
2003 2002
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Revenues:
Commissions and fees $ 3,015,662 $ 699,235
Premium finance revenue 697,272 427,096
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Total revenues 3,712,934 1,126,331
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Operating Expenses:
Selling, general and administrative 2,943,162 988,288
Depreciation and amortization 74,918 59,740
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Total operating expenses 3,018,080 1,048,028
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Operating Income: 694,854 78,303
Other (Expense) Income:
Interest income 4,803 1,198
Interest expense (33,794) (28,900)
Interest expense -
mandatorily redeemable preferred stock (7,792) -
Gain on sale of stores 89,700 -
------------ -----------
52,917 (27,702)
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Income before income taxes
and minority interest 747,771 50,601
Provision for income taxes 5,664 423
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Income before minority interest 742,107 50,178
Minority interest - 1,936
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Income from continuing operations 742,107 48,242
Discontinued operations:
(Loss) income from discontinued operations (46,096) 39,057
------------ -----------
Net income $ 696,011 $ 87,299
============ ===========
Net income per common share:
Basic:
Income from continuing operations $ 0.06 $ 0.01
(Loss) income from discontinued operations (0.00) 0.00
------------ -----------
Net income $ 0.06 $ 0.01
============ ===========
Diluted:
Income from continuing operations $ 0.05 $ 0.01
(Loss) income from discontinued operations (0.00) 0.00
------------ -----------
Net income $ 0.05 $ 0.01
============ ===========
Weighted average number of shares outstanding:
Basic 12,353,402 11,353,402
============ ===========
Diluted 13,079,072 11,429,673
============ ===========
See notes to condensed consolidated financial statements.
5
DCAP GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended
June 30,
----------------------------
2003 2002
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Revenues:
Commissions and fees $ 1,554,247 $ 335,871
Premium finance revenue 349,795 256,270
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Total revenues 1,904,042 592,141
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Operating Expenses:
Selling, general and administrative 1,535,865 501,239
Depreciation and amortization 38,599 29,461
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Total operating expenses 1,574,464 530,700
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Operating Income: 329,578 61,441
Other (Expense) Income:
Interest income 3,455 590
Interest expense (16,534) (12,230)
Interest expense -
mandatorily redeemable preferred stock (7,792) -
------------ ------------
(20,871) (11,640)
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Income before income taxes and minority interest 308,707 49,801
Provision for (benefit from) income taxes 809 (252)
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Income before minority interest 307,898 50,053
Minority interest - 3,753
------------ ------------
Income from continuing operations 307,898 46,300
Discontinued operations:
Income from discontinued operations - 12,669
------------ ------------
Net income $ 307,898 $ 58,969
============ ============
Net income per common share:
Basic:
Income from continuing operations $ 0.02 $ 0.01
Income from discontinued operations 0.00 0.00
------------ ------------
Net income $ 0.02 $ 0.01
============ ============
Diluted:
Income from continuing operations $ 0.02 $ 0.01
Income from discontinued operations 0.00 0.00
------------ ------------
Net income $ 0.02 $ 0.01
============ ============
Weighted average number of shares outstanding:
Basic 12,353,402 11,353,402
============ ============
Diluted 13,234,215 11,505,944
============ ============
See notes to condensed consolidated financial statements.
6
DCAP GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six months ended
June 30,
----------------------------
2003 2002
-------------- -----------
Cash flows from operating activities:
Net income $ 696,011 $ 87,299
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 74,918 67,458
Provision for bad debts 27,029 1,219
Gain on sale of stores (89,700) -
Minority interest - 1,936
Changes in operating assets and liabilities:
Decrease (increase) in assets:
Accounts receivable (375,923) 19,722
Prepaid expenses and other current assets (44,945) (13,262)
Deposits and other assets (1,954) 1,239
Decrease in liabilities:
Accounts payable and accrued expenses (60,091) (44,317)
Deferred revenue (10,942) (20,619)
------------- ------------
Net cash provided by operating activities 214,403 100,675
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Cash flows from investing activities:
Decrease (increase) in notes receivables - net 35,966 (990)
Cost of acquisition of AIA Acquisition Corp. (39,039) -
Receipts against notes receivable 2,786 -
Proceeds from disposition of discontinued subsidiary 500,000 -
Proceeds from sale of DCAP stores 141,383 -
Purchase of property and equipment (71,868) (9,332)
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Net cash provided by (used in) investing activities 569,228 (10,322)
------------ -----------
Cash flows from financing activities:
Principal payment of long-term debt and
capital lease obligations (309,214) (54,587)
------------- -----------
Net cash used in financing activities (309,214) (54,587)
------------ -----------
Net increase in cash and
cash equivalents 474,417 35,766
Cash and cash equivalents,
beginning of period 607,403 220,774
------------ -----------
Cash and cash equivalents,
end of period $ 1,081,820 $ 256,540
============ ===========
See notes to condensed consolidated financial statements.
7
DCAP GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2003 AND 2002 (UNAUDITED)
1. The Condensed Consolidated Balance Sheet as of June 30, 2003, the Condensed
Consolidated Statements of Operations for the three and six months ended
June 30, 2003 and 2002 and the Condensed Consolidated Statements of Cash
Flows for the six months ended June 30, 2003 and 2002 have been prepared by
us without audit. In our opinion, the accompanying unaudited condensed
consolidated financial statements contain all adjustments necessary to
present fairly in all material respects our financial position as of June
30, 2003, results of operations for the three and six months ended June 30,
2003 and 2002 and cash flows for the six months ended June 30, 2003 and
2002. This report should be read in conjunction with our Annual Report on
Form 10-KSB for the year ended December 31, 2002.
The results of operations and cash flows for the six months ended June 30,
2003 are not necessarily indicative of the results to be expected for the
full year.
2. Summary of Significant Accounting Policies:
a. Principles of consolidation
The accompanying consolidated financial statements include the accounts of
all subsidiaries and joint ventures in which we have a majority voting
interest or voting control. All significant intercompany accounts and
transactions have been eliminated.
b. Revenue recognition
We recognize commission revenue from insurance policies at the beginning of
the contract period (except for those commissions payable annually, which
we recognize on a ratable basis) and on automobile club dues equally over
the contract period. Franchise fee revenue is recognized when substantially
all of our contractual requirements under the franchise agreement are
completed. Refunds of commissions on the cancellation of insurance policies
are reflected at the time of cancellation.
Premium financing fee revenue is earned based upon the origination of
premium finance contracts sold by agreement to third parties. The contract
fee gives consideration to an estimate as to the collectability of the loan
amount. Periodically, actual results are compared to estimates previously
recorded, and adjusted accordingly.
c. Website Development Costs
Technology and content costs are generally expensed as incurred, except for
certain costs relating to the development of internal-use software,
including those relating to operating our website, that are capitalized and
depreciated over two years. A total of $23,549 and -0- in such costs was
incurred during the six months ended June 30, 2003 and 2002, respectively.
8
d. Reclassifications
Certain reclassifications have been made to the consolidated financial
statements for the six months ended June 30, 2002 to conform with the
classifications used for the six months ended June 30, 2003.
3. Acquisition of 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%
dividend, is convertible into our Common Stock at a conversion price of
$.50 per share and is 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 may be
payable. The additional consideration cannot exceed an aggregate of
$335,000. The AIA insurance agencies derive substantially all of their
income from commissions and fees associated with the sale of automobile
insurance. The acquisition allows for the expansion of our geographical
footprint outside New York State and allows for 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 at May 1, 2003 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 condensed consolidated statements of operations include the revenues
and expenses of AIA from May 1, 2003.
The following pro forma results were developed assuming the acquisition of
AIA had occurred on January 1, 2002:
Three months ended Six months ended
June 30, June 30,
----------------------- ---------------------------
2003 2002 2003 2002
---- ---- ---- ----
Revenues $2,024,900 $888,561 $4,125,978 $1,737,885
Income from
continuing operations 321,737 50,620 752,812 59,134
Income from continuing
operations per share 0.03 0.01 0.06 0.01
The above unaudited pro forma condensed financial information is presented
for illustrative purposes only and is not necessarily indicative of the
condensed consolidated results of operations that actually would have been
realized had we and AIA been a combined company during the specified
periods.
9
4. 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. Such loans are sold to
a third party upon origination.
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 six months ended June
30, 2003 and 2002.
Summarized financial information concerning our reportable segments is
shown in the following tables:
Six Months Ended Premium
June 30, 2003 Insurance Finance Other(1) Total
-------------------- ---------- --------- -------- ----------
Revenues from external
customers $3,015,662 $697,272 $ - $3,712,934
Interest income 1,223 - 3,580 4,803
Interest expense 41,586 - - 41,586
Depreciation and
amortization 74,138 780 - 74,918
Segment profit (loss) 626,487 525,266 (409,646) 742,107
Segment assets 3,236,120 209,038 924,000 4,369,158
------------
(1) Column represents corporate-related items and, as it relates to
segment profit (loss), income, expense and assets not allocated to
reportable segments.
Six Months Ended Premium
June 30, 2002 Insurance Finance Other(1) Total
-------------------- --------- ------- -------- -----------
Revenues from external
customers $699,235 $427,096 $ - $1,126,331
Interest income 1,003 - 195 1,198
Interest expense 28,900 - - 28,900
Depreciation and
amortization 59,740 - - 59,740
Segment (loss) profit (41,120) 304,984 (215,622) 48,242
Segment assets 780,670 104,216 312,841 1,197,727
----------
(1) Column represents corporate-related items and, as it relates to
segment profit (loss), income, expense and assets not allocated to
reportable segments.
10
5. Stock Options
We have elected the disclosure only provisions of Statement of Financial
Accounting Standard No. 123, "Accounting for Stock-Based Compensation"
("SFAS 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 six months ended June 30, 2003 and 2002 consistent with the
provisions of SFAS 123, our net income and net income per share would have
been adjusted as follows:
Six Months Ended
June 30,
---------------------
2003 2002
---- ----
Net income, as reported $696,011 $87,299
Deduct: Total stock-based employee
compensation expense determined under
fair value based method, net of related tax
effects (30,000) (48,000)
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Pro forma net income $666,011 $39,299
======== =======
Net income per share:
Basic -as reported $ 0.06 $ 0.01
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Basic -pro forma $ 0.05 $ 0.00
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Diluted- as reported $ 0.05 $ 0.01
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Diluted- pro forma $ 0.05 $ 0.00
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6. Sale of Stores
During the six months ended June 30, 2003, we sold two of our retail
offices (part of our Insurance segment) for cash consideration aggregating
$141,383 and a note receivable of approximately $97,000. The sale of the
two offices resulted in a gain of $89,700. The assets of these stores
included accounts receivable of approximately $85,000, goodwill with a
carrying amount of $50,000, and fixed assets with a carrying amount of
approximately $10,000. In addition, concurrently with the sale, the
purchasers entered into franchise agreements with us.
7. Income Taxes
Our tax provision for the three and six months ended June 30, 2003 reflects
the anticipated utilization of net operating loss carryforwards that had
previously been fully reserved. As a result we recognized a tax benefit
during the three and six months ended June 30, 2003.
11
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
----------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 2003 AND 2002
Results of Operations
Our net income from continuing operations for the six months ended June 30,
2003 was $742,107 as compared to $48,242 for the six months ended June 30, 2002.
During the six months ended June 30, 2003, revenues from our insurance
related operations were $3,015,662 as compared to $699,235 for the six months
ended June 30, 2002. The increase in revenues was generally due to revenues from
the Barry Scott Companies, Inc., which we acquired on August 30, 2002, and AIA
Acquisition Corp. whose assets we acquired effective May 1, 2003.
Premium finance revenues increased $270,176 during the six months ended
June 30, 2003 as compared to the six months ended June 30, 2002. This increase
was the result of higher average premiums being financed and an expansion of our
premium finance marketing efforts to non-DCAP insurance agencies. In March,
2003, we were informed by Flatiron Credit Company, Inc ("Flatiron"), the premium
finance agency that was purchasing our premium finance receivables, that it
would no longer do so after July 30, 2003. On July 14, 2003, we obtained an
$18,000,000 two-year line of credit from Manufacturers and Traders Trust Company
("M&T") 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.
During the second quarter of 2003, Flatiron required us to cease doing
premium finance business with a group of insurance agencies that generated a
high percentage of bad debts. As a result, the number of contracts and the
resulting revenue attendant to those contracts were not realized.
On July 14, 2003, we began utilizing the above mentioned credit facilities.
We have commenced recording interest and fee-based revenue over the life of each
loan (generally 10 or 11 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 in connection with our Flatiron
relationship), we are now recording income and expense over the life of each
contract. As a result, although our revenue per contract will increase, since
the revenue will be recognized over a longer period of time, in all likelihood
there will be a short-term decline in our premium finance revenue.
Our selling, general and administrative expenses for the six months ended
June 30, 2003 were $1,954,874 more than for the six months ended June 30, 2002.
This increase was primarily due to the expenses of the Barry Scott Companies
acquired on August 30, 2002 and AIA Acquisition Corp. whose assets were acquired
effective May 1, 2003.
During the six months ended June 30, 2003, we issued redeemable Series A
Preferred Stock in connection with the acquisition of the assets of AIA
Acquisition Corp. and incurred interest expense of $7,792. No Preferred Stock
was outstanding during the six months ended June 30, 2002.
During the six months ended June 30, 2003, we sold two of our stores,
resulting in a gain of $89,700. No such sales occurred during the six months
ended June 30, 2002.
12
Our insurance-related operations, on a stand-alone basis, generated a net
profit of $626,487 during the six months ended June 30, 2003 as compared to a
loss of $41,120 during the six months ended June 30, 2002. Our premium finance
operations, on a stand-alone basis, generated a net profit of $525,266 during
the six months ended June 30, 2003 as compared to a net profit of $304,984
during the six months ended June 30, 2002. Losses from corporate-related items
not allocable to reportable segments were $409,646 during the six months ended
June 30, 2003 as compared to $215,622 during the six months ended June 30, 2002.
In January 2003, we discontinued the operations of the International
Airport Hotel in San Juan, Puerto Rico. During the six months ended June 30,
2003, this discontinued operation generated a net loss of $46,096 as compared to
a net profit of $39,057 during the six months ended June 30, 2002.
Liquidity and Capital Resources
As of June 30, 2003, we had $1,081,820 in cash and cash equivalents and
working capital of $1,540,214. As of December 31, 2002, we had $607,403 in cash
and cash equivalents and working capital of $904,232.
Cash and cash equivalents increased between December 31, 2002 and June 30,
2003 primarily due to (i) net cash of $569,228 from investing activities for the
six months ended June 30, 2003 based on proceeds of $500,000 from the
disposition of our Hotel segment and $141,383 from the sale of stores and (ii)
net cash of $214,403 provided by operating activities for the six months ended
June 30, 2003 based on our net income of $696,011 and depreciation and
amortization of $74,918 for the period, offset by an increase in current assets
of $422,822, a decrease in current liabilities of $71,033, and the gain on the
sale of stores of $89,700, offset by (iii) cash of $309,214 used in financing
activities for principal payments of long-term debt and capital lease
obligations.
In connection with our May 2003 acquisition of AIA Acquisition Corp., we
issued Series A Preferred Stock valued at $904,000. The Series A Preferred Stock
carries a 5% dividend, is convertible into our Common Stock at a conversion
price of $.50 per share and is redeemable on April 30, 2007 (or sooner under
certain circumstances).
As indicated above, in July 2003, in order to finance our premium finance
operations, we obtained a variable rate two-year line of credit of $18,000,000
from M&T and $3,500,000 from a private placement of subordinated debt and
warrants. The subordinated debt is payable on January 10, 2006 and provides for
interest at the rate of 12.625% per annum, payable semi-annually. We have the
right to prepay the subordinated debt commencing on July 10, 2004.
Liquidity at June 30, 2003 was sufficient, in the opinion of management, to
meet our cash requirements for the 12 month period ending June 30, 2004.
Item 3. CONTROLS AND PROCEDURES
-----------------------
Our Chief Executive Officer and Chief Financial Officer conducted an
evaluation of the effectiveness of our disclosure controls and procedures. Based
on this evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures were effective as of June
30, 2003 in alerting him in a timely manner to material information required to
be included in our SEC reports. In addition, no change in our internal control
over financial reporting occurred during the fiscal quarter ended June 30, 2003
that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
13
PART II. OTHER INFORMATION
-----------------
Item 1. LEGAL PROCEEDINGS
-----------------
None
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
-----------------------------------------
On May 28, 2003, through an indirect wholly-owned subsidiary, we
acquired substantially all of the assets of AIA Acquisition Corp. ("AIA"). The
base purchase price of $904,000 was payable by the delivery of 904 shares of our
Series A Preferred Stock. The Series A Preferred Stock carries a 5% dividend, is
convertible into our Common Stock at a conversion price of $.50 per share and is
mandatorily redeemable on April 30, 2007 (or sooner under certain
circumstances).
The above offering of shares was exempt from the registration
requirements of the Securities Act of 1933 pursuant to Section 4(2) thereof as a
transaction not involving any public offering. We reached this determination
based on the following: (i) AIA represented that it was either an "accredited
investor" or that it had such knowledge and experience in financial and business
matters that it was capable of evaluating the merits and risks of an investment
in the Series A Preferred Stock; (ii) it acquired the shares for its own
account; (iii) the certificate representing the shares bears a restrictive
legend permitting transfer only upon the registration of the shares or pursuant
to an exemption from such registration requirements; and (iv) we did not offer
or sell the shares by any form of general solicitation or general advertising.
Item 3. DEFAULTS UPON SENIOR SECURITIES
-------------------------------
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
None
Item 5. OTHER INFORMATION
-----------------
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
3(a) Certificate of Incorporation, as amended1
3(b) By-laws, as amended1
31 Rule 13a-14(a)/15d-14(a) Certification as adopted pursuant to
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1 Denotes document filed as an exhibit to our Quarterly Report on Form 10-QSB
for the period ended September 30, 2002 and incorporated herein by reference.
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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
(b) Reports on Form 8-K
Four Current Reports on Form 8-K were filed by us during the quarter
ended June 30, 2003 as follows:
(i) Date of Report: April 29, 2003
Item reported: 4
(ii) Date of Report: May 27, 2003
Items reported: 7, 9
(iii) Date of Report: May 28, 2003
Items reported: 2, 7
(iv) Date of Report: June 11, 2003
Items reported: 5, 7
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SIGNATURES
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In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
DCAP GROUP, INC.
Dated: August 6, 2003 By: /s/ Barry Goldstein
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Barry Goldstein
President, Chairman of the Board,
Chief Executive Officer, Chief
Financial Officer and Treasurer
(Principal Executive, Financial
and Accounting Officer)
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