As filed with the Securities and Exchange Commission on September 14, 2000
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
-------------------------
DCAP GROUP, INC.
(Name of Small Business Issuer in Its Charter)
Delaware 6411 36-2476480
(State or Other Juris- (Primary Standard Industrial I.R.S. Employer
diction of Incorporation Classification Code Number) Identification Number)
or Organization)
90 Merrick Avenue
East Meadow, New York 11554
Telephone: (516) 794-6300
(Address and Telephone Number of Principal Executive Offices)
2545 Hempstead Turnpike
East Meadow, New York 11554
(Address of Principal Place of Business or Intended Principal Place of Business)
-------------------------
Morton L. Certilman
Chairman of the Board
DCAP GROUP, INC.
90 Merrick Avenue
East Meadow, New York 11554
Telephone: (516) 794-6300
Telecopier: (516) 794-4529
(Name, Address and Telephone Number of Agent for Service)
-------------------------
Copies of all communications and notices to:
Fred Skolnik, Esq.
Certilman Balin Adler & Hyman, LLP
90 Merrick Avenue
East Meadow, NY 11554
Telephone: (516) 296-7000
Telecopier: (516) 296-7111
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of the registration statement.
<PAGE>
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_| ______________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_| ____
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
<TABLE>
CALCULATION OF REGISTRATION FEE
<CAPTION>
Proposed Maximum Proposed Maximum
Amount to be Offering Price Aggregate Offering Amount of
Titles of Each Class of Securities to be Registered Registered per Share (2) Price (2) Registration Fee
--------------------------------------------------- ------------ ---------------- ------------------ ----------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value, registered for the 3,284,026 $.46875 $1,539,387.10 $406.40
benefit of Selling Securityholders
Common Stock, $.01 par value, issuable upon the 2,740,898(1) $.46875 $1,284,795.90 $339.20
exercise of Warrants held by Selling ------
Securityholders
Total Registration Fee: $745.60
=============================================================================================================================
</TABLE>
(1) Pursuant to Rule 416 promulgated under the Securities Act of 1933, as
amended (the "Securities Act"), the number of shares of Common Stock to be
registered for resale hereunder also includes an indeterminate number of
shares which may become issuable upon exercise of, or otherwise with
respect to, the warrants to prevent dilution resulting from stock splits,
stock dividends or similar transactions.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(c).
----------------
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act or until this Registration Statement shall become effective
on such date as the Securities and Exchange Commission, acting pursuant to said
Section 8(a), may determine.
---------------
<PAGE>
The information in this prospectus is not complete and may be changed.
These securities may not be sold until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED SEPTEMBER 14, 2000
PROSPECTUS
----------------
DCAP Group, Inc.
6,024,924 SHARES OF COMMON STOCK
The shares of common stock offered A purchase of these securities involves a
by this prospectus are being sold high degree of risk. See "Risk Factors,"
by securityholders of DCAP Group, Inc. beginning on page 5.
The common stock of DCAP Group, Inc. is traded
on the NASD OTC Electronic Bulletin Board under the symbol "DCAP."
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
DCAP Group, Inc.
90 Merrick Avenue
East Meadow, New York 11554
Telephone : (516) 794-6300
____________, 2000
<PAGE>
TABLE OF CONTENTS
Page Number
Prospectus Summary.................................................... 3
Risk Factors.......................................................... 5
Forward-Looking Statements ........................................... 8
Available Information................................................. 9
Use of Proceeds....................................................... 9
Price Range of Common Stock........................................... 10
Dividend Policy....................................................... 10
Pro Forma Financial Statement......................................... 11
Management's Discussion and Analysis or Plan of Operation............. 13
Business.............................................................. 16
Management............................................................ 23
Principal and Selling Stockholders.................................... 32
Certain Relationships and Related Transactions........................ 37
Description of Securities............................................. 43
Plan of Distribution.................................................. 44
Legal Proceedings..................................................... 45
Legal Matters......................................................... 46
Experts............................................................... 46
Index to Financial Statements......................................... F-1
--------------------------
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information that is different
from that contained in this prospectus. This prospectus may only be used where
it is legal to sell these securities. The information contained in this
prospectus may only be accurate on the date of this prospectus.
<PAGE>
PROSPECTUS SUMMARY
This is only a summary and does not contain all the information that may be
important to you. You should read the more detailed information contained later
in this prospectus, including the financial information and statements with
notes.
Please note that, throughout this prospectus, the words "DCAP Group," "we,"
"our," or "us" refer to DCAP Group, Inc. and not to any of the selling
securityholders. Also note that references to "DCAP Insurance" in this
prospectus mean DCAP Group's wholly-owned subsidiary, DCAP Insurance Agencies,
Inc. and related companies.
Each prospective investor is urged to read this prospectus in its entirety.
DCAP Group, Inc.
About us
We place various types of insurance with insurance companies on behalf
of our customers. The types of insurance we place include:
o automobile
o motorcycle
o boat
o life
o business and homeowner
o excess coverage
We receive commissions from insurance companies for our services. We are
not an insurance company and therefore do not assume underwriting risks.
We also offer other services, such as:
o income tax return preparation services
o premium financing services for our customers
o automobile club services for roadside emergencies
We have 67 "DCAP" offices in the New York metropolitan area. Some of them
are wholly owned by us, some are owned partially by the operator of the office
and some are franchises. We expect that 15 more franchised offices will open by
December 31, 2000. We try to select locations that will attract "walk-in" retail
customers.
We also operate the International Airport Hotel in San Juan, Puerto Rico.
3
<PAGE>
We were incorporated in 1961 under the name Executive House, Inc. We
changed our name to EXTECH Corporation in 1991. In February 1999, we acquired
DCAP Insurance and began our insurance operations. At that time we changed our
name to DCAP Group, Inc.
Our Offices
Our executive offices are located at 90 Merrick Avenue, East Meadow, New
York 11554; our telephone number is (516) 794-6300 and our fax number is (516)
794-4529.
About The Offering
Common Stock outstanding.............. 15,068,018 shares
Common Stock offered by the
Selling Securityholders .............. 6,024,924 shares(1)
Common Stock to be outstanding
after the offering ................... 17,808,916 shares(2)
Use of Proceeds....................... We will receive no proceeds from
the sale of the shares of common
stock being offered by the selling
securityholders under this prospectus.
However, we may receive up to
approximately $3,617,992 if the
selling securityholders exercise
warrants held by them. Also, we are
entitled to receive proceeds of the
sale of shares held by two of the
selling securityholders. These
securityholders owe us an aggregate
principal amount of $477,000.
Risk Factors......................... An investment in the shares offered by
this prospectus involves a high degree
of risk and should be considered only
by persons who can afford the loss of
their entire investment. See "Risk
Factors" beginning on page 5.
Bulletin Board Symbol................ "DCAP"
--------------------
(1) This includes 2,740,898 shares that are not yet outstanding and may be
issued by us to the selling securityholders if they exercise warrants held by
them.
(2) This assumes that the selling securityholders exercise all of the warrants
held by them.
4
<PAGE>
Summary Financial Data
The following summary of financial data is based on the actual and pro
forma consolidated financial statements of DCAP Group appearing later in this
prospectus. It should be read together with those statements and the related
notes. The unaudited summary pro forma financial data gives retroactive effect
to our acquisition of DCAP Insurance in February 1999 as if we had acquired it
on January 1, 1998. The amounts set forth under the "Pro Forma" columns are
based upon certain assumptions and estimates which we believe are reasonable.
The pro forma results do not necessarily represent results that would have
occurred if we had acquired DCAP Insurance as of January 1, 1998 and on the
basis assumed above. The separate consolidated financials statements of DCAP
Group as of December 31, 1999 and June 30, 2000 and for the fiscal years ended
December 31, 1999 and 1998 and six months ended June 30, 2000 and 1999 are
presented later in this prospectus. The separate combined financial statements
of DCAP Insurance as of December 31, 1998 and for the fiscal years ended
December 31, 1998 and 1997 are also presented later in this prospectus. See "Pro
Forma Financial Statement" and "Index to Financial Statements."
Statement of Operations
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, December 31,
----------------------------------------- ------------------------------------------------------
2000 1999 1999 1998
---------- --------------------------- -------------------------- ------------------------
(Actual) (Actual) (Pro Forma) (Actual) (Pro Forma) (Actual) (Pro forma)
------ ------ --------- ------ -------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $4,571,870 $3,577,131 $4,740,971 $9,149,909 $10,287,261 $1,031,033 $8,872,928
Net loss (212,337) (97,791) (476,586) (450,042) (873,735) (111,581) (1,781,367)
Net loss per share (,01) (.01) (.03) (.04) (.07) (.02) (.14)
Balance Sheet
</TABLE>
June 30, 2000
-------------
Working capital (deficiency) ($282,868)
Total assets 7,557,896
Total stockholders' equity 4,898,485
RISK FACTORS
BEFORE YOU BUY SHARES OF COMMON STOCK FROM ANY SELLING SECURITYHOLDER, YOU
SHOULD BE AWARE THAT AN INVESTMENT IN THE COMMON STOCK INVOLVES A HIGH DEGREE OF
RISK. YOU SHOULD ONLY ACQUIRE THESE SECURITIES IF YOU CAN AFFORD TO LOSE YOUR
ENTIRE INVESTMENT. BEFORE MAKING AN INVESTMENT, YOU SHOULD CAREFULLY CONSIDER
THE FOLLOWING RISKS AND SPECULATIVE FACTORS, AS WELL AS THE OTHER INFORMATION
CONTAINED IN THIS PROSPECTUS. AS DISCUSSED BELOW, THIS PROSPECTUS CONTAINS
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE ACTUAL
RESULTS OF DCAP GROUP'S OPERATIONS COULD BE SIGNIFICANTLY DIFFERENT FROM THE
INFORMATION CONTAINED IN THOSE FORWARD-LOOKING STATEMENTS. THOSE DIFFERENCES
COULD RESULT
5
<PAGE>
FROM THE RISK FACTORS DISCUSSED IMMEDIATELY BELOW, AS WELL AS FACTORS DISCUSSED
IN OTHER PLACES IN THIS PROSPECTUS.
WE HAVE A HISTORY OF LOSSES. Since we acquired DCAP Insurance in February
1999, we have suffered losses. We lost $212,337 during the six months ended June
30, 2000, and during 1999, we lost $450,042. Also, assuming that we had acquired
DCAP Insurance effective January 1, 1998, we would have lost $1,781,367 for 1998
and $873,735 for 1999. We cannot give any assurance that our business will be
able to operate profitably.
OUR REVENUE IS BASED ON THE AMOUNT OF INSURANCE PREMIUMS PAID BY OUR
CUSTOMERS; THOSE PREMIUMS ARE VOLATILE AND NOT WITHIN OUR CONTROL. We derive
most of our revenues from commissions paid by insurance companies. The
commission is usually a percentage of the premium paid by an insured. Insurance
premiums are not determined by us. Historically, property and casualty premiums
have been cyclical in nature and display a high degree of volatility based on
economic and competitive conditions. Since the mid-1980s, general premium levels
have been depressed due to the increased underwriting capacity of insurance
companies which results in increased competition and decreased premium rates.
When premium rates decrease so do the commissions payable to us. We cannot
predict the timing or extent of future changes in commission rates or premiums.
Therefore, we cannot predict the effect, if any, that these changes would have
on our operations.
CHANGES IN STATE REGULATIONS COULD AFFECT OUR OPERATION. In every state in
which we do or intend to do business, either we or one of our employees must be
licensed by or receive approval from the state insurance department in order to
conduct business. In addition, most states require that individuals who engage
in brokerage activities be personally licensed.
In order for us to continue to operate we must remain in good standing
under the licenses and approvals of each state in which we operate. Licensing
laws and regulations vary from state to state. These laws and regulations are
subject to amendment or interpretation by regulatory authorities. These
authorities are generally given broad discretion as to the granting, suspension,
renewal and revocation of licenses and approvals.
There are currently 63 DCAP franchises (including 15 that have not yet
commenced operations as DCAP stores). The federal government and some of the
states in which we operate regulate the offering of franchises. Some aspects of
our franchising business may be subject to differing interpretations of
applicable laws, rules and regulations by the various agencies responsible for
their enforcement. We cannot give you any assurance that our interpretation of
the applicable laws, rules and regulations is correct. Nor can we assure you
that the laws, rules and regulations and/or the interpretation will not change
from time to time.
COMPETITION IS INTENSE IN THE INSURANCE MARKET. The insurance agency and
brokerage business is highly competitive. There are many insurance agency and
brokerage organizations that actively compete with us. Many of the competing
firms are significantly larger than us and have many times the revenues that we
have. We are also in competition with insurance companies that write insurance
directly for their customers and do not pay commissions to agents
6
<PAGE>
or brokers. We believe that the primary factors determining our competitive
position with others in our industry are innovation and the overall cost and
quality of the services rendered.
In addition, recent Federal legislation has liberalized legal restraints on
the business activities of financial institutions. As a result of these changes,
insurance companies may encounter additional competition from financial
institutions. The additional competition could exert a downward pressure on
premium pricing and/or commissions paid by insurers. This would affect our
revenues.
POSSIBLE TORT REFORM COULD REDUCE THE DEMAND FOR LIABILITY INSURANCE. The
United States Congress and several states are considering legislation concerning
tort reform. Among the provisions being considered are limitations on damage
awards, including punitive damages, and various restrictions applicable to class
action lawsuits. Enactment of these laws could result in a reduction in the
demand for liability insurance policies or a decrease in the limits of such
policies. This would reduce our commission revenues. We cannot predict whether
any such legislation will be enacted, nor can we predict the form of legislation
that will be enacted. We also cannot predict the effect of this legislation on
our business or operations.
THERE IS A DISPUTE AS TO LENGTH OF THE LEASE FOR OUR HOTEL. Since 1996, we
have been engaged in a lawsuit with the Puerto Rico Ports Authority, the owner
of the San Juan International Airport in which our International Airport Hotel
is located. The dispute is over the length of the hotel lease. The Ports
Authority claims that the hotel is currently being leased on a month-to-month
basis. We claim that the lease expiration date is either December 31, 2000 or
December 31, 2005. We also claim that we have the right to further extend the
term of the lease and that we have exercised this right. In the event that the
Ports Authority prevails, we may be required to vacate and surrender the hotel
premises.
WE ARE DEPENDENT ON OUR EXECUTIVE MANAGEMENT; WE NEED TO RETAIN KEY
PERSONNEL. Kevin Lang, Abraham Weinzimer, Morton L. Certilman and Jay M. Haft
are our executive management team. We would be materially and adversely affected
by the loss of the services of these individuals. We are a party to employment
agreements with each of these persons that expire in 2004. Messrs. Lang and
Weinzimer have also entered into a separate restrictive covenant agreement with
us that was executed at the time we acquired DCAP Insurance from them. This
agreement includes non-competition and non-solicitation provisions. Messrs.
Certilman and Haft are only required to perform part-time services as Chairman
and Vice Chairman.
Our success is also dependent upon our ability to attract qualified and
talented personnel. There is intense competition for such personnel in our
business. Our inability to recruit such personnel could have a material adverse
effect on our business and results of operations. Although we have not had
difficulty in attracting qualified persons, we cannot give you any assurance
that we will be able to successfully attract and retain additional qualified
personnel in the future. In addition, we cannot give any assurance that we will
be able to retain our current personnel.
7
<PAGE>
THE EXISTING MANAGEMENT AND PRINCIPAL STOCKHOLDERS HAVE THE ABILITY TO
CONTROL THE ELECTION OF THE BOARD OF DIRECTORS. Our directors, executive
officers and principal stockholders and their affiliates own beneficially
approximately 64% of our outstanding common stock. These persons, if acting
together, have the ability to control the election of the Board of Directors and
other matters submitted to our stockholders for approval. See "Principal
Stockholders."
THERE IS A VERY LIMITED TRADING MARKET FOR OUR COMMON STOCK. Since there is
a limited trading market for our common stock, you may find it difficult to
dispose of the stock you buy.
WE ARE CURRENTLY UNABLE TO HAVE OUR COMMON STOCK LISTED ON THE NASDAQ STOCK
MARKET. Our common stock is currently traded on the Bulletin Board. We do not
currently satisfy the requirements listed below for the listing of our shares on
Nasdaq. Therefore, the higher level of liquidity and accuracy of price
quotations afforded by a Nasdaq listing may not be available for an extended
period of time. In order for our common stock to be listed on the Nasdaq
SmallCap Market, we must meet the following requirements:
o either our net tangible assets (i.e., assets, net of goodwill,
less liabilities) must be at least $4,000,000, our market
capitalization must be at least $50,000,000, or our net income in
latest fiscal year or two of the last three fiscal years must be
at least $750,000; and
o the minimum market value of our public float must be at least
$5,000,000; and
o the minimum bid price for our common stock must be at least $4.00
per share.
Nasdaq also requires that we have at least two independent directors and an
audit committee. The audit committee must have a majority of its members that
are also independent directors.
THE SEC'S "PENNY STOCK" REGULATIONS IMPOSE CERTAIN RESTRICTIONS ON THE
MARKETABILITY OF OUR STOCK. Securities and Exchange Commission regulations
generally define a "penny stock" to be a security that has a market price of
less than $5.00 per share. Our common stock currently trades significantly below
$5.00 per share. Our shares are therefore subject to rules that impose
additional sales practice requirements that restrict the ability of
broker-dealers to sell our common stock. The rules may also affect the price at
which these sales can be made. Also, some brokerage firms will decide not to
effect transactions in "penny stocks". It is unlikely that any bank or financial
institution will accept "penny stock" as collateral.
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements as that term is defined
in the federal securities laws. The events described in forward-looking
statements we make in this prospectus 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
8
<PAGE>
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. Some of the uncertainties,
risks and other influences are discussed in the risk factors described above.
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.
AVAILABLE INFORMATION
We file annual, quarterly, and special reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy
our filings at the SEC's public reference rooms in Washington, D.C., New York,
New York or Chicago, Illinois. Please call 1-800-SEC-0330 for further
information on the operation of the public reference rooms. Our SEC filings are
also available to the public from commercial document retrieval services and at
the Internet web site maintained by the SEC at "http://www.sec.gov."
We have filed with the SEC a registration statement on Form SB-2 to
register the shares of our common stock to be sold by the selling
securityholders. This prospectus is part of that registration statement, and, as
permitted by the SEC's rules, does not contain all of the information set forth
in the registration statement. For further information with respect to us or our
common stock, you may refer to the registration statement. You can review a copy
of the registration statement and its exhibits and schedules at the public
reference room maintained by the SEC, and on the SEC's web site, as described
above.
USE OF PROCEEDS
We will receive no proceeds from the sale of the shares of common stock
being offered by the selling securityholders under this prospectus. However, we
may receive up to approximately $3,617,992 assuming the exercise of warrants
held by the selling securityholders. Also, as of August 31, 2000, we were owed
an aggregate principal amount of $477,000 by Kevin Lang and Abraham Weinzimer
who are two of our executive officers, directors and principal stockholders. We
have included 200,000 shares of common stock held by each of them for resale
pursuant to this prospectus. Messrs. Lang and Weinzimer are required to use the
proceeds of the sale of shares owned by them to repay the amounts owed to us.
See "Management - Employment Contracts; Termination of Employment and Change in
Control Arrangements - Special Provisions for Lang and Weinzimer - Loans" and
"Certain Relationships and Related Transactions - DCAP Agreement - Acquisition
of Common Stock"; and - Sale of Company
9
<PAGE>
Shares." We anticipate that proceeds from any exercise of these warrants or any
payments by Messrs. Lang and Weinzimer will be used for working capital
purposes.
PRICE RANGE OF COMMON STOCK
Our common stock is traded over-the-counter and quoted on the NASD OTC
Electronic Bulletin Board under the symbol "DCAP".
Set forth below are the high and low bid prices for our common stock
for the periods indicated, as reported on the Bulletin Board. 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
1998 Calendar Year
First Quarter $ .75 $ .69
Second Quarter .81 .62
Third Quarter 1.81 .69
Fourth Quarter 2.19 1.47
1999 Calendar Year
First Quarter 2.41 1.47
Second Quarter 1.75 1.19
Third Quarter 1.62 1.00
Fourth Quarter 1.28 .75
2000 Calendar Year
First Quarter 1.06 .75
Second Quarter .81 .31
Third Quarter (through September 7, 2000) .47 .44
On ________, 2000, the closing sale price for our common stock was $____.
As of September 13, 2000, there were approximately 2,330 record holders of
our common stock.
DIVIDEND POLICY
Holders of our common stock are entitled to dividends when, as and if
declared by the Board of Directors out of funds legally available. We have not
declared or paid any dividends in the past and do not currently anticipate
declaring or paying any dividends in the foreseeable
10
<PAGE>
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 the 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 stock.
PRO FORMA FINANCIAL STATEMENT
The following unaudited pro forma condensed consolidated financial
statement gives effect to our acquisition of DCAP Insurance accounted for as a
purchase transaction. This pro forma financial statement is presented for
illustrative purposes only, and therefore is not necessarily indicative of the
operating results that might have been achieved had we acquired DCAP Insurance
as of an earlier date. It is also not necessarily indicative of the operating
results which may occur in the future.
The pro forma condensed consolidated statement of operations is provided
for the year ended December 31, 1999, giving effect to our acquisition of DCAP
Insurance as though it had occurred on January 1, 1999.
The historical consolidated statement of operations presented for the year
ended December 31, 1999 is derived from our separate audited historical
consolidated financial statements and should be read in conjunction with those
separate financial statements included later in this prospectus. The historical
condensed statement of operations for DCAP Insurance for the period January 1,
1999 to February 25, 1999 is derived form the historical interim combined
financial statement of DCAP Insurance and has been prepared in accordance with
generally accepted accounting principles applicable to interim financial
information. In the opinion of our management, this financial statement includes
all adjustments necessary for a fair presentation of financial information for
such interim period.
11
<PAGE>
DCAP GROUP, INC.
AND
DCAP INSURANCE AGENCIES, INC. (FORMERLY DEALERS CHOICE AUTOMOTIVE PLANNING INC.)
AND AFFILIATED COMPANIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
DCAP Insurance
for the Period Pro Forma
DCAP Group, Inc. January 1, 1999 - ------------------------------------
Consolidated February 25, 1999 Adjustments Consolidated
--------------- ----------------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues $ 9,149,909 $ 1,149,352 $ (12,000) (2) $10,287,261
Operating expenses 60,000 (1)
9,653,524 1,511,669 (12,000) (2) 11,213,193
---------- ----------- --------- ----------
Loss before provision for income
taxes and minority interest (503,615) (362,317) (60,000) (925,932)
Provision for income taxes 7,239 - - 7,239
--------- ----------- ---------- ----------
Loss before minority interest (510,854) (362,317) (60,000) (933,171)
Minority interest in net loss
(income) of affiliates 60,812 (1,376) - 59,436
--------- ----------- ---------- ----------
Net loss $ (450,042) $ (363,693) $ (60,000) $ (873,735)
========== =========== ========== ==========
Net loss per common share:
Basic $ (0.04) $ (0.07)
========== ==========
Diluted $ (0.04) $ (0.07)
========== ==========
Weighted average number of shares
outstanding:
Basic 11,729,970 12,626,492
========== ==========
Diluted 11,729,970 12,626,492
========== ==========
</TABLE>
See accompanying notes to pro forma condensed consolidated financial statement
12
<PAGE>
DCAP GROUP, INC.
AND
DCAP INSURANCE AGENCIES, INC.
(FORMERLY DEALERS CHOICE AUTOMOTIVE PLANNING INC.)
AND AFFILIATED COMPANIES
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
1. To record additional amortization in connection with intangible assets
acquired from DCAP Insurance, for the period January 1, 1999 through
February 25, 1999.
2. Elimination of interest on intercompany loans.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Background
During 1998 and prior to February 25, 1999, our sole business was the
operation of the International Airport Hotel in San Juan, Puerto Rico.
On February 25, 1999, we acquired DCAP Insurance. DCAP Insurance is engaged
primarily in placing various types of insurance, including automobile,
motorcycle, boat, life, business and homeowner's insurance, and excess coverage,
with insurance underwriters on behalf of their customers. In addition, DCAP
Insurance offers income tax return preparation services, automobile club
services for roadside emergencies and premium financing services for its
customers.
DCAP Insurance is compensated for its insurance-related services by
commissions paid by insurance companies; the commission is usually a percentage
of the premium paid by the insured. DCAP Insurance does not engage in
underwriting activities and therefore does not assume underwriting risks.
There are 67 existing "DCAP" offices in the New York metropolitan area. As
discussed below, an additional 15 are anticipated to be opened by December 31,
2000. Of the existing locations, 16 are wholly-owned by us, three are owned
partially by us (ranging between 50% and 80%) and partially by other persons who
generally operate the location and 48 are franchises in which we have no equity
interest; the franchisor, DCAP Management Corp., however, is wholly- owned by
us. During the twelve month period from September 1, 1999 through August 31,
2000, we granted a total of 34 franchises. Nineteen of these are currently open
for business. We anticipate that the remaining 15 franchised stores will open by
December 31, 2000 with the result that there would be 82 "DCAP" locations.
13
<PAGE>
Concurrently with our acquisition of DCAP Insurance, we issued and sold to
Eagle Insurance Company 1,486,893 shares of our common stock for an aggregate
purchase price of approximately $1,000,000.
Eagle is a New Jersey insurance company wholly-owned by The Robert Plan
Corporation, an insurance holding company that provides services to insurance
companies. Pursuant to separate agency agreements between some of our DCAP
stores and certain insurance company subsidiaries of The Robert Plan, the DCAP
stores have been appointed agents of the insurance companies with regard to the
offering of automobile and other insurance products.
In June 1999, we raised gross proceeds of $1,675,000 through a private
placement of our securities.
Pursuant to various agreements entered into by us in December 1999, we
acquired the interests of our joint venture partners in 15 DCAP retail insurance
stores, in exchange for the issuance of approximately 850,000 shares of our
common stock. These acquisitions were part of our plan to phase out joint
ventures in the DCAP system and to concentrate on wholly-owned and franchise
operations.
Results of Operations
Six Months Ended June 30, 2000 Compared with Six Months Ended June 30, 1999
Our net loss for the six months ended June 30, 2000 was $212,337 as
compared to a net loss of $97,791 for the six months ended June 30, 1999. The
results of operations for the six months ended June 30, 1999 included the
results of operations of DCAP Insurance from February 25, 1999, the date of our
acquisition of DCAP Insurance. On a pro forma basis (assuming that our
acquisition of DCAP Insurance and certain interests of joint venture partners
had occurred as of January 1, 1999), our net loss for the six months ended June
30, 1999 would have been $476,586.
During the six months ended June 30, 2000, revenues from the operations of
DCAP Insurance were $4,000,445 (including $668,000 in initial franchise fees,
i.e., from the grant of franchises). On a pro forma basis (using the above
assumption), revenues from the operations of DCAP Insurance during the six
months ended June 30, 1999 would have been $4,174,521. No franchises were
granted during the six months ended June 30, 1999. On a pro forma basis, there
was a decline in revenues from the operations of DCAP Insurance (net of initial
franchise fees) of $842,076 between the six months ended June 30, 1999 and 2000
generally due to competitive pressures in the industry and the sale or closure
of certain DCAP offices. Hotel revenues remained generally constant between the
six months ended June 30, 1999 and 2000.
The loss for the six months ended June 30, 2000 as compared to the six
months ended June 30, 1999 was the result primarily of amortization expenses of
$183,769 relating to goodwill and other intangible assets generated primarily by
the DCAP acquisition, which was accounted for under the purchase method of
accounting, and a loss of $75,822 incurred in connection with a
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<PAGE>
sale of ownership interests in joint ventures. This sale is discussed in
"Certain Relationships and Related Transactions - Sale of Stores". The
operations of DCAP Insurance during the six months ended June 30, 2000, on a
stand-alone basis, generated a net loss of $22,508 (after giving effect to the
$75,822 loss referred to above). The operations of the hotel during the six
months ended June 30, 2000, on a stand-alone basis, generated net income of
$82,342.
Year Ended December 31, 1999 Compared with Year Ended December 31, 1998
Our net loss for the year ended December 31, 1999 was $450,042 as compared
to a net loss of $111,581 for the year ended December 31, 1998. The results of
operations for the year ended December 31, 1999 included the results of
operations of DCAP Insurance from February 25, 1999, the date of our acquisition
of DCAP Insurance. The results of operations for the year ended December 31,
1998 do not reflect any of the operations of DCAP Insurance. During the year
ended December 31, 1999, revenues from the operations of DCAP Insurance were
$8,045,737 while hotel revenues for such year were $1,014,950.
The increase in the loss for the year ended December 31, 1999 as compared
to the year ended December 31, 1998 was the result primarily of the operations
of DCAP Insurance from February 25, 1999, which, on a stand-alone basis,
generated a net loss of $173,160, and $260,000 of amortization relating to
goodwill and other intangible assets generated primarily by the DCAP
acquisition, which was accounted for under the purchase method of accounting.
The operations of the hotel during the year ended December 31, 1999, on a
stand-alone basis, generated a net income of $149,080. Corporate-level expenses
of $227,496 for the year ended December 31, 1999, not allocable to either DCAP
Insurance or the hotel, contributed to the net loss for the year ended December
31, 1999.
During the year ended December 31, 1999, we had higher room rental revenues
from the hotel of $62,299 as compared to the year ended December 31, 1998. Such
increase was offset by higher rent expense of $11,785 (since the hotel's rental
expense is based upon revenues received) and higher general and administrative
operating expenses of $38,878 (without regard to DCAP Insurance).
Liquidity and Capital Resources
As of June 30, 2000, we had $1,095,965 in cash and cash equivalents and a
working capital deficit of $282,868. As of December 31, 1999, we had $943,176 in
cash and cash equivalents and a working capital deficit of $211,777.
Cash and cash equivalents increased between December 31, 1999 and June 30,
2000 due to net cash provided by operating activities in the amount of $470,469,
offset by cash used to acquire property and equipment of $75,261 and to repay
long-term debt and capital lease obligations of $175,266.
15
<PAGE>
Other
In April 1999, we obtained a license from the State of Connecticut to sell
insurance in that state. We are in the process of contacting carriers and expect
to begin placing policies in Connecticut in the near future.
BUSINESS
General
We place various types of insurance with insurance companies on behalf of
our customers. The types of insurance we place include:
o automobile
o motorcycle
o boat
o life
o business and homeowner
o excess coverage
We receive commissions from insurance companies for our services. We are
not an insurance company and therefore do not assume underwriting risks.
We also offer other services, such as:
o income tax return preparation services
o premium financing services for our customers
o automobile club services for roadside emergencies
We have 67 "DCAP" offices in the New York metropolitan area. Some of them
are wholly owned by us, some are owned partially by the operator of the office
and some are franchises. We expect that 15 more franchised offices will open by
December 31, 2000. We try to select locations that will attract "walk-in" retail
customers.
We also operate the International Airport Hotel in San Juan, Puerto Rico.
We were incorporated in 1961 under the name Executive House, Inc. We
changed our name to EXTECH Corporation in 1991. In February 1999, we acquired
DCAP Insurance and began our insurance operations. At that time we changed our
name to DCAP Group, Inc.
Our executive offices are located at 90 Merrick Avenue, East Meadow, New
York 11554; our telephone number is (516) 794-6300 and our fax number is (516)
794-4529.
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<PAGE>
DCAP Insurance
Insurance Brokerage
Approximately 74% of our DCAP Insurance revenues are derived from
commissions and other fees received in connection with the selling of automobile
and other property and casualty insurance policies. Initially, DCAP Insurance
specialized in offering assigned-risk and nonstandard insurance policies.
Assigned-risk and nonstandard policies are issued after an analysis of such
factors as the driver's accident record, the kind of car being insured, the age
and credit risk of the driver, where the insured lives, and other items. Over
the last several years, DCAP Insurance has also been marketing and selling
standard and preferred policies; commissions and other amounts received in
connection with the issuance of standard and preferred policies now represent
approximately 20% of our auto insurance revenues. Because we have insurance
underwriting relationships with several nationally known insurance carriers,
including Chubb, Travelers, Progressive Casualty, CNA, AIG, and The Robert Plan
(serving as either brokers or agents), we can offer our customers many carrier
and premium options.
We have established a presence in all five New York City boroughs, Nassau,
Suffolk, Westchester, Rockland and Dutchess Counties, New York and New Jersey.
We select locations to maximize the attraction of "walk-in" retail customers.
These customers generally do not have an established relationship with us and
come to our stores without an appointment. These customers constitute the
majority of our DCAP Insurance business.
In addition to automobile insurance, we offer:
o property and casualty insurance for motorcycles, boats and livery/taxis;
o life insurance
o commercial property insurance
o homeowner's insurance
o excess coverage
We have obtained the right to receive calls placed to "1-800-INSURANCE" in
the states of New York, New Jersey, Connecticut 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 is to increase our name recognition. We
have decided that granting others "DCAP" franchises is an important step in
achieving that goal.
During the twelve month period from September 1, 1999 through August 31,
2000, we granted a total of 34 franchises. This increased the number of our
franchises to 63. Of these, 48 are currently in operation. This represents
approximately 72% of our current store locations. We anticipate that the
remaining 15 franchises will open as "DCAP" stores by December 31, 2000.
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<PAGE>
Franchises currently pay us an initial franchise fee of $25,000 to offer
insurance products under the "DCAP" name. Additional fees are payable if the
franchisee desires to license software from us in the operation of its store or
to obtain training and software in connection with income tax preparation
services. Franchisees are obligated to also pay us monthly fees during the term
of the franchise agreement. Initial franchise fees and ongoing monthly fees
payable by franchisees constitute approximately 23% of our DCAP Insurance
revenues.
Income Tax Return Preparation
A majority of our DCAP stores 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" nationwide as a way to increase our tax preparation
business.
The participating DCAP stores gather information from filers and forward it
to an unaffiliated third party, which processes the information, generates
returns to be submitted to the Internal Revenue Service and other taxing
authorities, manually or electronically files the returns and processes any
refunds. We use a wholly-owned subsidiary as an intermediary between the various
DCAP stores and the third party processor. We believe that the provision of this
service not only increases our revenues, but also enhances our presence in the
various markets that we serve and aids in customer retention. We expect that
greater emphasis will be placed upon this business operation in the near future.
Premium Financing
Clients who purchase insurance policies are often unable to pay the premium
in a lump sum or to make the required down payment, and, therefore, require
financing. Until recently we out sourced premium financing for our clients.
Based upon the perceived need for premium financing, we formed Payments, Inc.
and it became licensed by the New York State Banking Department as a premium
finance company.
In September 1999, Payments, Inc., Flatiron Credit Company, Inc. and
Westchester Premium Acceptance Corp. executed a Sale and Assignment Agreement
pursuant to which Flatiron, through Westchester Premium (its licensed premium
finance affiliate), has agreed to purchase Payments, Inc.'s premium finance
receivables up to $3,000,000. Pursuant to the agreement, Payments, Inc. is
entitled to be paid $20 with respect to each such receivable. The agreement
terminates on September 1, 2002, and either party may voluntarily terminate the
agreement upon 90 days written notice. Payments, Inc. is not liable to
Westchester Premium with respect to uncollected receivables; however, we must
repurchase any premium finance contract that Westchester Premium determines does
not meet the requirements of the agreement.
In September 2000, Westchester Premium advised Payments, Inc. that, based
upon an allegedly high loss ratio, it would no longer continue to provide
financing. We have disputed its allegation. The parties are negotiating the
terms of an amendment to the agreement. Premium financing has continued pending
the conclusion of these negotiations.
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<PAGE>
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 service stations and towing companies to fulfill
service call requirements.
Structure and Operations
As stated above, we currently have 67 offices, of which 16 are
wholly-owned, three are joint venture offices and 48 are franchises. Our joint
venture offices and franchises 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 offices are
managed by our employees; each joint venture office is managed either by the
joint venture partner or by one of our employees; each franchise is managed by
or under the supervision of the franchisee.
In order to promote consistency and efficiency, all of our office managers
are trained by us. Our training program covers:
o marketing, sales and underwriting
o office and logistics
o computer information
o our DCAP Management System (as discussed below)
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:
o sales training
o bookkeeping and accounting
o processing services
o customer services in connection with insurance policy brokerage
Franchises operate without the assistance of our "central office" services.
We also provide support services to stores such as:
o assistance with regard to the hiring of employees
o assistance with regard to the writing of local advertising
o 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 would otherwise be beyond
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<PAGE>
the reach of small, privately-owned retail insurance operations. As a result, an
individual DCAP office can offer policy and premium options to its customers
that other local insurance brokerages cannot. This direct relationship is
enhanced by a software system, known as the DCAP Management System that provides
a direct link to certain carrier databases. This system enables each DCAP office
that utilizes it to access policy coverage and cost information, application
requirements, and other kinds of information. It also enables the DCAP offices'
brokers to search various databases to obtain pertinent information about
potential customers.
Strategy
We seek to achieve an increase in market share through a four-pronged
strategy of:
o increasing name recognition
o expanding and diversifying the products and services offered by our
offices
o utilizing toll-free telephone numbers
o utilizing our website
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 offices to
advertise in various editions of directories and in automobile sales and other
publications. We have also initiated a television advertising campaign.
The second strategy, expanding and diversifying the products and services
offered, will capitalize on the nature of the typical DCAP customer. We offer
our "walk-in" customer not only a variety of automobile insurance products, but,
as noted above, additional types of insurance currently offered, including life,
commercial property and homeowner's insurance, and excess coverage, and other
services, including an income tax return processing program, and a premium
financing service.
We also utilize toll-free telephone numbers to increase business. Telephone
calls received are routed to the DCAP office nearest the call (based on the zip
code of the caller) for handling. We are promoting "1-800-INSURANCE" and
"1-800-INCOME TAX" in our current markets and intend to utilize such numbers in
the future as our market expands.
Our final strategy entails offering our products and services via our
website, "www.dcapinsurance.com". Through the website, an interested potential
customer can obtain information with regard to the various insurance products
and other services we offer, obtain the address of the nearest DCAP store and
apply for insurance online.
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<PAGE>
International Airport Hotel
General
Through our subsidiary, IAH, we operate the International Airport Hotel in
San Juan, Puerto Rico. The hotel is located on the site of the San Juan
International Airport and occupies the third and fifth floors of the main
terminal building. In addition to its 57 guest rooms, the hotel has a lobby
area. The hotel caters generally to commercial and tourist travelers in transit;
it is marketed through brochures, local advertising and in-airport advertising.
We also operate a video game room on the terminal level of the airport. The
operations of the hotel are highly seasonal, with a disproportionate share of
its revenues generated during the first several months of the calendar year.
Approximately 13% of the total room sales for the hotel for 1999 were
attributable to one customer, American Airlines. During 1999, the hotel's
average occupancy rate was approximately 64%. From 1995 to 1998, the average
occupancy rate was approximately 60%. The hotel's average room rate during 1999
was approximately $73.
The hotel is the only hotel actually located on the site of the airport. As
such, it has little direct competition for the tourist trade or commercial
travelers seeking only sleeping accommodations at the airport. Other hotels are
located in areas surrounding the hotel.
Dispute with Ports Authority
On July 22, 1988, we entered into a lease agreement with the Ports
Authority pursuant to which the Ports Authority granted us a lease to operate
the hotel for five years until June 30, 1993. We also received the option to
extend the term of the lease for an additional five year term to end June 30,
1998 (subject to agreement as to the rental amount payable, which the parties
agreed to negotiate in good faith).
In 1992, in accordance with the lease agreement, we exercised our right for
a five year extension of the lease. At the time, the Ports Authority was
uncertain as to whether it wished to build a new hotel in the parking lot of the
airport or upgrade the hotel and, therefore, requested that we accept a 30 month
extension of the then existing term. We agreed to a 30 month extension and
signed a supplemental lease agreement with the Ports Authority in May 1992
extending the lease term to December 31, 1995. We believe that, pursuant to the
supplemental lease agreement, we retained our option to continue the lease for a
period of five years to December 31, 2000 and thereafter for additional five
year terms.
In July 1993, the Assistant Director of Operations of the Ports Authority
forwarded to us a letter containing the terms of a proposed ten year lease
extension which we approved, signed and returned to the Ports Authority.
Although the proposed lease extension does not make the Ports Authority's
approval conditional upon the approval of its Board of Directors, the Ports
Authority has taken that position. The Ports Authority contends that, since
Board of Directors approval was not obtained, the extension is not in effect. We
believe that a ten year agreement has been entered into between us and the Ports
Authority pursuant to the proposed lease
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extension or that, alternatively, we exercised our right to extend the term of
the lease to December 31, 2000. We have notified the Ports Authority that we
believe that we have the right to further extend the term of the lease to
December 31, 2005 and that we exercised this right.
Based upon our refusal to acknowledge that, effective January 1, 1996, we
occupied the hotel on a month-to-month basis, in February 1996, the Ports
Authority requested that we vacate, surrender and deliver the premises by
February 29, 1996. Following the receipt of that request, on February 26, 1996,
we brought an action in the Superior Court of San Juan, Puerto Rico for
declaratory judgment and possessory injunction against the Ports Authority with
respect to the hotel. The action seeks a declaratory judgment that we exercised
an option with respect to our lease for the hotel for an extension of the term
of five years commencing on January 1, 1996 or, in the alternative, that the
Ports Authority executed a new lease agreement for a ten year period commencing
on that date. Discovery proceedings have taken place, and the action is still
pending. We have continued to operate the hotel during the pendency of the
action.
In seeking to protect our interests under the original lease agreement, as
extended, in April 1997, we purchased a bank certificate of deposit in the
amount of $40,000 and pledged it to the Ports Authority as security for the
payment of amounts due under the lease agreement, as required by the terms of
the lease (but which previously had not been delivered).
Employees
We employ approximately 82 persons; 14 of them (all of whom are employees
of IAH) are represented by a collective bargaining organization. We believe that
our relationship with our employees is good.
Property
Our principal executive offices are located at 90 Merrick Avenue, East
Meadow, New York, where we occupy approximately 200 square feet of space on a
month-to-month basis at a monthly rental of $500.
DCAP Insurance's executive offices are located at 2545 Hempstead Turnpike,
East Meadow, New York. Our 19 wholly-owned or joint venture "DCAP" offices
(including DCAP Insurance's executive offices) are operated pursuant to lease
agreements that expire from time to time through 2006. The aggregate base rental
for the offices is approximately $675,000 per annum.
Our hotel is leased from the Ports Authority. The annual rental obligation
equals the greater of $169,400 or 20% of annual gross revenues. Total rent
expense under the lease amounted to $196,119 for 1999 compared to $184,634 for
1998.
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<PAGE>
MANAGEMENT
Executive Officers and Directors
The following table sets forth the name, age and position of our executive
officers and directors:
Name Age Positions Held
Morton L. Certilman 68 Chairman of the Board and Director
Jay M. Haft 64 Vice Chairman of the Board and Director
Kevin Lang 42 President and Director
Abraham Weinzimer 42 Executive Vice President and Director
Robert M. Wallach 47 Director
Brian K. Ziegler 46 Secretary
Morton L. Certilman
Mr. Certilman was elected Chairman of the Board in February 1999
concurrently with our acquisition of DCAP Insurance. Prior thereto and from
October 1989, he served as our President. He has also served as one of our
directors since October 1989. Mr. Certilman has been engaged in the practice of
law since 1956 and is a member of the law firm of Certilman Balin Adler & Hyman,
LLP. Mr. Certilman is Chairman of the Long Island Regional Planning Board, the
Nassau County Coliseum Privatization Commission, and the Northrop/Grumman Master
Planning Council. He is a director of the Long Island Association, the New Long
Island Partnership and the Long Island Sports Commission. 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, 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.
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Jay M. Haft
Mr. Haft was elected Vice Chairman of the Board in February 1999
concurrently with our acquisition of DCAP Insurance. Prior thereto and from
October 1989, he served as our Chairman of the Board. He has also served as one
of our directors since October 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. From 1989 to 1994, he was a senior corporate partner of that firm. 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 technical product, service and marketing
companies. Mr. Haft is a Managing General Partner of Gen Am "1" Venture Fund, an
international venture capital fund. He is also a director of many public and
private corporations, including Robotic Vision Systems, Inc., NCT Group, Inc.,
Encore Medical Corporation, DUSA Pharmaceuticals, Inc., Oryx Technology Corp.,
and Thrift Management, Inc, all of whose securities are traded in the
over-the-counter market. Mr. Haft is a past member of the Florida Commission for
Government Accountability to the People, and a national trustee and Treasurer of
the Miami Ballet. He is also a trustee of Florida International University and
serves on the advisory board of the Wolfsonian Museum in Miami, Florida. Mr.
Haft received B.A. and LL.B. degrees from Yale University.
Kevin Lang
Mr. Lang was elected President and a director in February 1999 concurrently
with our acquisition of DCAP Insurance. He has served as President of DCAP
Insurance since its inception in 1982.
Abraham Weinzimer
Mr. Weinzimer was elected Executive Vice President and a director in
February 1999 concurrently with our acquisition of DCAP Insurance. He has served
as Vice President of DCAP Insurance since its inception in 1982.
Robert M. Wallach
Mr. Wallach was elected a director in February 1999. He has served since
1993 as President, Chairman and Chief Executive Officer of The Robert Plan
Corporation, an insurance company holding company that provides services to
insurance companies.
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<PAGE>
Brian K. Ziegler
Mr. Ziegler has served as Secretary since 1991. He also served as our
Treasurer from 1991 to February 1999. He has been engaged in the practice of law
since 1979 and is a member of the law firm of Certilman Balin Adler & Hyman,
LLP. Mr. Ziegler received a B.S. degree, cum laude, from the Wharton School of
the University of Pennsylvania, and a J.D. degree and an LL.M. degree in
Taxation from the University of Miami School of Law.
Mr. Ziegler is Mr. Certilman's son-in-law. There are no other 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.
Executive Compensation
Summary Compensation Table
The following table sets forth certain information concerning the
compensation of Messrs. Certilman, Lang and Weinzimer, our Chairman of the
Board, President and Executive Vice President, respectively, for the fiscal
years ended December 31, 1999, 1998 and 1997. No other executive officer as of
December 31, 1999 had a total salary and bonus for that year in excess of
$100,000.
<TABLE>
<CAPTION>
Long-Term Compensation
Name and Annual Compensation Awards All Other
Principal Position Year Salary Shares Underlying Options Compensation
------------------ ---- ------ ------------------------- ------------
<S> <C> <C> <C> <C>
Morton L. Certilman 1999 $129,167 225,000 -0-*
Chairman of Board 1998 150,000 - -0-*
1997 150,000 - -0-*
Kevin Lang 1999 $208,000(1) 200,000 -
President 1998 - - -
1997 - - -
Abraham Weinzimer 1999 $208,000(1) 200,000 -
Executive Vice President 1998 - - -
1997 - - -
</TABLE>
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<PAGE>
----------------
* Excludes fees payable during 1997, 1998 and 1999 by us to Certilman Balin
Adler & Hyman, LLP, a law firm of which Mr. Certilman is a member.
(1) Represents salary paid from February 25, 1999, the date of our acquisition
of DCAP Insurance.
Options
<TABLE>
OPTION GRANTS IN FISCAL YEAR ENDED DECEMBER 31, 1999
<CAPTION>
Number of Shares Percentage of Total
of Common Options Granted To
Stock Underlying Employees in Fiscal Exercise
Name Options Granted Year Price Expiration Date
----------------------- --------------- ------ ------- ----------------
<S> <C> <C> <C> <C>
Morton L. Certilman 225,000 26.5% $2.69 (1) February 25, 2004
Jay M. Haft 225,000 26.5% $2.69 (1) February 25, 2004
Kevin Lang 200,000 23.5% $2.69 (1) February 25, 2004
Abraham Weinzimer 200,000 23.5% $2.69 (1) February 25, 2004
</TABLE>
------------
(1) Such price represents 110% of the fair market value of our common
stock on the date of grant.
<TABLE>
AGGREGATED OPTION EXERCISES IN FISCAL YEAR
ENDED DECEMBER 31, 1999 AND FISCAL YEAR-END OPTION VALUES
<CAPTION>
Number of Shares
Number of Underlying Unexercised Value of Unexercised
Shares Options at In-the-Money Options
Acquired Value December 31, 1999 at December 31, 1999
Name on Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
----- ---------- ------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Morton L. certilman - N/A 0/225,000 0/0
Jay M. Haft - N/A 0/225,000 0/0
Kevin Lang - N/A 0/200,000 0/0
Abraham Weinzimer - N/A 0/200,000 0/0
</TABLE>
Long-Term Incentive Plan Awards
No awards were made to any of the named executive officers during the
fiscal year ended December 31, 1999 under any long-term incentive plan.
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Compensation of Directors
Our directors are not entitled to receive any compensation for their
services as directors.
Employment Contracts; Termination of Employment and Change in Control
Arrangements
At the time we acquired DCAP Insurance, we entered into employment
agreements with Messrs. Certilman, Haft, Lang and Weinzimer. Pursuant to the
employment agreements, Mr. Certilman is employed as our Chairman of the Board,
Mr. Haft as our Vice Chairman, Mr. Lang as our President and Mr. Weinzimer as
our Executive Vice President.
General
The employment agreements entered into by Messrs. Certilman, Haft, Lang and
Weinzimer are identical in all respects, except as discussed below under
"Special Provisions for Lang and Weinzimer."
Term
The term of each employment agreement is five years beginning on February
25, 1999. There is an automatic three year renewal term unless, at least 90 days
prior to the expiration of the initial term, we, by vote of 75% of all of the
members of our Board of Directors, notify the employee of our desire not to
extend the term of the employment agreement. In determining the number of
members of the Board, the particular employee, if a member, shall be included.
If we make such an election, the employee generally shall be entitled to
receive, as termination payments, his then annual base salary for a period of
two additional years. As discussed under "Certain Relationships and Related
Transactions - DCAP Agreement - Agreement as to Voting," our By-Laws require a
unanimous vote of our Board members under certain circumstances.
Devotion of Time
During the term of the employment agreement, Messrs. Lang and Weinzimer are
required to expend all of their working time for us. Messrs. Certilman and Haft
are to perform part-time services as are reasonably necessary for them to
fulfill their responsibilities as Chairman and Vice Chairman, respectively.
Salary
During the employment period, Messrs. Lang and Weinzimer each will be
entitled to receive a salary of $250,000 per annum. Messrs. Certilman and Haft
are to receive annual
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<PAGE>
salaries of $125,000 and $22,500, respectively. Each employee will also be
entitled to additional compensation as may be determined by our Board of
Directors in its sole discretion.
Termination
Pursuant to the terms of the employment agreements, an employee's
employment terminates automatically on his death and, at our option, if the
employee becomes disabled. In addition, an employee's employment may be
terminated at any time for "cause." Pursuant to the terms of the employment
agreements and our By-Laws, we may terminate an employee's employment based upon
a claim of "cause" only if a majority of all of the members of our Board of
Directors approves the action. In determining the number of members of the
Board, the particular employee, if a member, shall be included. As provided for
in the employment agreements and our By-Laws, if we desire to terminate an
employee's employment not based upon a claim of "cause," then 75% of all of the
members of our Board of Directors must approve the action. In determining the
number of members, the particular employee, if a member, shall be included. As
discussed under "Certain Relationships and Related Transactions - DCAP Agreement
- Agreement as to Voting," our By-Laws require a unanimous vote of our Board
members under certain circumstances.
In the event of termination of an employee's employment without "cause,"
the employee will be entitled to receive, as liquidated damages, an amount equal
to all compensation that he would have been entitled to receive for the
remainder of the term, including the extended term, as if his employment had not
terminated. However, if the termination notice is given (i) prior to 90 days
before the expiration of the initial term, or (ii) subsequent to that time, but
after the date we have given timely notice of our desire not to extend the
initial term, the terminated employee shall be entitled to receive, as
termination payments, his then annual base salary for a period of two additional
years. The terminated employee is not required to seek other employment after
termination of his employment without "cause;" however, any amounts paid or
payable to him from other employment or other services will reduce, dollar for
dollar, the amounts otherwise payable to him pursuant to his employment
agreement.
Restrictive Covenants
For a period of two years after the expiration or termination of the
employment agreement, without our prior written consent, the terminated employee
is restricted, within a radius of five miles of any of our offices or
franchises, from engaging or participating in a business which is similar to or
competitive with our business activities. The restrictive covenants, however, do
not apply if the employment agreement is terminated based on a disability of the
employee and will cease to apply if:
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<PAGE>
o we default in any obligation to pay any post-termination amounts that
are payable under the provisions of the employment agreement and such
default continues for a period of 20 days following our receipt of
written notice of the default; or
o if all of the following conditions exist:
o the term of the employment agreement is extended for the extended
term;
o prior to the expiration of the extended term, the employee is not
offered a further two-year extension, with the same base annual
salary and substantially the same terms as provided for in the
employment agreement;
o the employee's employment is not terminated for "cause" during
the extended term and he does not voluntarily terminate his
employment; and
o the employee's employment ends on the last day of the extended
term.
Stock Options
At the time of our acquisition of DCAP Insurance, we granted each of
Messrs. Certilman and Haft options to purchase up to 225,000 shares of our
common stock. At that time, we also granted each of Messrs. Lang and Weinzimer
options to purchase up to 200,000 shares of our common stock. These options were
granted upon the following terms:
o the exercise price of the options was $2.69 per share (110% of
the fair market value of our common stock on the date of the
grant);
o the options will expire on February 25, 2004 and
o the options vest to the extent of one-half on February 25, 2000
and one-half on February 25, 2001.
Special Provisions for Lang and Weinzimer
Loans
For each of the twelve-month periods of the initial term of their
employment, we will be obligated, upon the written request of each of Messrs.
Lang and Weinzimer, to lend to him up to $20,000. The right of Messrs. Lang and
Weinzimer to obtain the $20,000 annual loan is assignable by each to the other.
Each loan is to be evidenced by a promissory note in the principal amount of the
loan and is to provide for, among other things, the following:
(i) interest at the prime rate (as published in the Wall Street Journal);
and
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<PAGE>
(ii) payment of principal and interest in four equal annual installments,
commencing one year from the date of each loan (but in no event after
February 25, 2006); the payment schedule is subject to acceleration to
the extent that the borrower receives any proceeds from the sale or
other disposition of any of his shares of common stock.
The repayment of all amounts due under each note is to be secured by the
pledge by the borrower of five shares of our common stock for each one dollar
loaned. To date, $24,000 has been loaned to Mr. Lang under his employment
agreement. No loans have been made to Mr. Weinzimer.
Bonus
In the event that our pre-tax net income (as such term is defined in the
employment agreements) for any fiscal year of the employment agreement of Mr.
Lang or Mr. Weinzimer (but commencing only with the fiscal year ending December
31, 2000 and continuing only through the fiscal year ending December 31, 2005)
is at least $100,000, he will be entitled to receive a bonus in the amount of
$37,500 for each such year. No bonus will be payable for a particular fiscal
year if no amounts are then payable by Mr. Lang or Mr. Weinzimer to us for loans
made to them to acquire 950,000 shares of our common stock, as described under
"Certain Relationships and Related Transactions - DCAP Agreement - Acquisition
of Common Stock". Furthermore, the amount of any bonus payable may never exceed
the amount payable by Mr. Lang or Mr. Weinzimer for those loans. We will be
entitled to offset against any such bonus any amount so payable.
Automobile Allowance
Each of Messrs. Lang and Weinzimer is entitled to the use of one of our
leased automobiles during the employment period for business purposes. Our lease
obligation is not to exceed $1,200 per month per automobile. In addition, we are
responsible for all insurance premiums with respect to the automobile (not to
exceed $3,000 per year per automobile) as well as all expenses for gasoline,
maintenance and repairs.
Disability Insurance Policy
Pursuant to the employment agreements, we are obligated to obtain a
disability insurance policy on behalf of each of Messrs. Lang and Weinzimer. We
must maintain such policy in effect during the employment period. The maximum
amount of premiums for each policy is to be $6,500 per annum.
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<PAGE>
1998 Stock Option Plan
In November 1998, our Board of Directors adopted, and in February 1999 our
stockholders approved, our 1998 Stock Option Plan. Pursuant to the plan, we have
reserved for issuance 2,000,000 shares of our common stock.
The plan provides for the grant of options which are intended to qualify as
"incentive stock options" under Section 422 of the Internal Revenue Code of
1986, and "nonstatutory stock options," or options that are not intended to so
qualify.
The plan is presently administered by our Board of Directors, which selects
the eligible persons to whom options shall be granted, determines the number of
shares subject to each option, the exercise price, and the periods during which
options are exercisable. Our Board also interprets the provisions of the plan
and, subject to certain limitations, may amend the plan. Each option granted
under the plan is evidenced by a written agreement between us and the optionee.
Incentive stock options may be granted to all of our employees (including
officers). Nonstatutory stock options may be granted to all of our employees as
well as non-employee directors and certain consultants and advisors.
The per share exercise price for incentive stock options granted under the
plan may not be less than the per share fair market value of our common stock on
the date the option is granted; however, the per share exercise price for
incentive stock options granted to our 10% stockholders may not be less than
110% of such fair market value. The exercise price for nonstatutory stock
options is determined by our Board of Directors. Incentive stock options granted
under the plan have a maximum term of ten years; however, for 10% stockholders,
they are subject to a maximum term of five years. The term of nonstatutory stock
options is determined by our Board of Directors. Options granted under the plan
are transferable only by will and the laws of descent and distribution. The
total number of incentive stock options that may be granted to any individual
person in any calendar year is limited; however, there is no limit as to
nonstatutory stock options.
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<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The selling securityholders are offering to sell 6,024,924 shares of our
common stock covered by this prospectus. The following table sets forth as of
August 31, 2000:
o the beneficial ownership of our outstanding common stock by:
o each holder of more than 5% of our common stock;
o each of our directors;
o our directors and executive officers as a group;
o the selling securityholders eligible to sell shares of common stock
under this prospectus;
o the number of shares of common stock beneficially owned by each
selling securityholder prior to this offering;
o the maximum number of shares of common stock each selling
securityholder may sell under this prospectus;
o the number of shares of common stock that each selling securityholder
would own after this offering; and
o the percentage of our outstanding common stock owned by each selling
securityholder before the offering and after the offering (assuming
the exercise of all warrants held by the selling securityholders)
<TABLE>
<CAPTION>
Number of Shares of Number of Shares of Percentage of Class
Name and Address of Common Stock Number of Shares Common Stock ---------------------------
Beneficial Owner; Name Beneficially Owned of Common Stock Beneficially Owned Before After
of Selling Securityholder Before the Offering Offered Hereby After the Offering Offering Offering
------------------------- ------------------- ------------------- ------------------ -------- --------
<S> <C> <C> <C> <C> <C>
Kevin Lang 2,675,000(1)(2)(3) 200,000 2,475,000(1)(2)(3) 17.6% 13.8%
2545 Hempstead Tpke.
East Meadow, New York
Abraham Weinzimer 2,675,000(1)(2)(3) 200,000 2,475,000(1)(2)(3) 17.6% 13.8%
2545 Hempstead Tpke.
East Meadow, New York
Jay M. Haft 1,676,393(2)(3)(4) 200,000 1,476,393(2)(3)(4) 11.0% 8.2%
1001 Brickell Bay Drive
Miami, Florida
Eagle Insurance Company 1,486,893(5) 200,000 1,286,893(5) 9.9% 8.3%
c/o The Robert Plan
Corporation
999 Stewart Avenue
Bethpage, New York
32
<PAGE>
Number of Shares of Number of Shares of Percentage of Class
Name and Address of Common Stock Number of Shares Common Stock ---------------------------
Beneficial Owner; Name Beneficially Owned of Common Stock Beneficially Owned Before After
of Selling Securityholder Before the Offering Offered Hereby After the Offering Offering Offering
------------------------- ------------------- ------------------- ------------------ -------- --------
Morton L. Certilman 1,223,505(2)(3)(6) 200,000 1,023,505(2)(3)(6) 8.1% 5.7%
The Financial Center at
Mitchel Field
90 Merrick Avenue
East Meadow, New York
Robert M. Wallach 0(7) 0 0(7) - -
c/o The Robert Plan
Corporation
999 Stewart Avenue
Bethpage, New York
Leonard Novick 136,361(8) 136,361(8) - * -
Brian Genson 136,361(8) 136,361(8) - * -
Stanley S. Arkin 136,361(8) 136,361(8) - * -
Coleman Country Day, Inc. 68,182(9) 68,182(9) - * -
Retirement Trust
Delores Stern 68,182(9) 68,182(9) - * -
Stacey G. Cohen 68,182(9) 68,182(9) - * -
Susan C. McDermott 68,182(9) 68,182(9) - * -
Charles Rustin Holzer 68,182(9) 68,182(9) - * -
David Basner 68,182(9) 68,182(9) - * -
Nancy L. Mendelsohn 68,182(9) 68,182(9) - * -
Richard & Birgit Feldman 136,361(8) 136,361(8) - * -
Hahn JTWROS
Gary Levy 68,182(9) 68,182(9) - * -
Steven Rotter 136,361(8) 136,361(8) - * -
Raymond Mastoloni 68,182(9) 68,182(9) - * -
Josh Kuriloff 68,182(9) 68,182(9) - * -
Steel Systems L.P. 545,436(10) 545,436(10) - 3.6% -
Ruth Greenwald 136,361(8) 136,361(8) - * -
Leon I. Charash, M.D. 136,361(8) 136,361(8) - * -
Bear Stearns Securities 34,091(11) 34,091(11) - * -
Corp., Custodian for
Louis Calderone, IRA
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<PAGE>
Number of Shares of Number of Shares of Percentage of Class
Name and Address of Common Stock Number of Shares Common Stock ---------------------------
Beneficial Owner; Name Beneficially Owned of Common Stock Beneficially Owned Before After
of Selling Securityholder Before the Offering Offered Hereby After the Offering Offering Offering
------------------------- ------------------- ------------------- ------------------ -------- --------
Bear Stearns Securities 68,182(9) 68,182(9) - * -
Corp., Custodian for
Andrew Assael, IRA
Bear Stearns Securities 68,182(9) 68,182(9) - * -
Corp., Custodian for
Malcom Basner, IRA
Fountainhead Enterprises, 68,182(9) 68,182(9) - * -
Inc. Deferred Pension
Plan and Trust DTD
January 1, 1982
Norman Basner 68,182(9) 68,182(9) - * -
Bruce Gordon 136,361(8) 136,361(8) - * -
BT Alex. Brown as 34,091(11) 34,091(11) - * -
Custodian for M.
William Grossman, IRA
Leslie C. Quick III 136,361(8) 136,361(8) - * -
Harry Adjimi 136,361(8) 136,361(8) - * -
Lawrence J. and Barrie A. 68,182(9) 68,182(9) - * -
Ansel JTWROS
Michele Pesner 34,091(11) 34,091(11) - * -
Herbert G. Spielman 68,182(9) 68,182(9) - * -
Dr. Matthew and Susan 136,361(8) 136,361(8) - * -
Silverman JTWROS
Louis Calderone 34,091(11) 34,091(11) - * -
Bryan C. Spielman 68,182(9) 68,182(9) - * -
Bruce Shapiro 136,361(8) 136,361(8) - * -
Howard M. Lorber 272,718(12) 272,718(12) - 1.8% -
Irrevocable Trust DTD
12/9/86
Marc Berger 34,091(11) 34,091(11) - * -
Jamal Partners 136,361(8) 136,361(8) - * -
Kevin H. Zeluck 68,182(9) 68,182(9) - * -
Richard Rostholder 136,361(8) 136,361(8) - * -
Four-Bur Family Co. 272,718(12) 272,718(12) - 1.8% -
34
<PAGE>
Number of Shares of Number of Shares of Percentage of Class
Name and Address of Common Stock Number of Shares Common Stock ---------------------------
Beneficial Owner; Name Beneficially Owned of Common Stock Beneficially Owned Before After
of Selling Securityholder Before the Offering Offered Hereby After the Offering Offering Offering
------------------------- ------------------- ------------------- ------------------ -------- --------
Mitchell Levy 68,182(9) 68,182(9) - * -
Pace Plumbing Corp. 68,182(9) 68,182(9) - * -
Gwen Eide 34,091(11) 34,091(11) - * -
Malcom Basner 34,092(13) 34,092(13) - * -
Martin Bier 6,816(13) 6,816(13) - * -
Robert Eide 190,906(13) 190,906(13) - 1.3% -
Frederick Greenwald 34,092(13) 34,092(13) - * -
Howard Lorber 190,906(13) 190,906(13) - 1.3% -
All executive officers and
directors as a group 9,900,138(1)(2)(3)(4) 1,000,000 8,900,138(1)(2)(3)(4) 63.9% 48.8%
(6 persons) (6)(14)(15) (6)(14)(15)
</TABLE>
---------
* Less than 1%
(1) Includes for each of Messrs. Lang and Weinzimer 100,000 shares issuable
upon the exercise of currently exercisable options. Of the shares
beneficially owned by each of Messrs. Lang and Weinzimer, 1,140,000 and
1,020,000 shares, respectively, are pledged to us as security for the
payment of certain promissory notes. See "Management - Employment
Contracts; Termination of Employment and Change in Control Arrangements -
Special Provisions for Lang and Weinzimer - Loans" and "Certain
Relationships and Related Transactions - DCAP Agreement - Acquisition of
Common Stock".
(2) Reference is made to "Certain Relationships and Related Transactions - DCAP
Agreement - Agreement as to Voting" for a discussion of a certain agreement
as to voting among Messrs. Lang, Weinzimer, Certilman and Haft.
(3) Messrs. Lang, Weinzimer, Certilman and Haft have filed a Schedule 13D under
the Securities Exchange Act of 1934 with respect to their respective equity
interests. In view of the voting agreement referenced in footnote (2)
hereof, Messrs. Lang, Weinzimer, Certilman and Haft may be deemed a group.
Accordingly, the group of Messrs. Lang, Weinzimer, Certilman and Haft
beneficially owns 8,249,898 shares of our common stock. This amount
represents approximately 53.2% of our common stock currently outstanding.
However, each of Messrs. Lang, Weinzimer, Certilman and Haft independently
makes his own decisions with respect to the acquisition and disposition of
our common stock
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<PAGE>
directly owned by him, as well as with respect to the voting of common
stock on matters not covered by the voting agreement. Also, neither Mr.
Lang, Mr. Weinzimer, Mr. Certilman nor Mr. Haft has any economic interest
in the common stock directly owned by any of the others.
(4) Includes 112,500 shares issuable upon the exercise of currently exercisable
options and 15,380 shares held in a retirement trust for the benefit of Mr.
Haft.
(5) Eagle is a wholly-owned subsidiary of The Robert Plan. See "Certain
Relationships and Related Transactions - Eagle".
(6) Includes 112,500 shares issuable upon the exercise of currently exercisable
options and 902,452 shares held in a retirement trust for the benefit of
Mr. Certilman.
(7) Excludes 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,
of which Mr. Wallach is President, Chairman and Chief Executive Officer.
(8) Includes 68,181 shares issuable upon the exercise of currently exercisable
warrants.
(9) Includes 34,092 shares issuable upon the exercise of currently exercisable
warrants.
(10) Includes 272,718 shares issuable upon the exercise of currently exercisable
warrants.
(11) Includes 17,046 shares issuable upon the exercise of currently exercisable
warrants.
(12) Includes 136,359 shares issuable upon the exercise of currently exercisable
warrants.
(13) Represents shares issuable upon the exercise of currently exercisable
warrants.
(14) Includes 28,423 shares held by an executive officer and 134,924 shares held
by trusts for the benefit of such officer's minor children and by the
executive officer's wife. The executive officer disclaims beneficial
ownership of the shares owned by the trusts and his wife.
(15) 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.
The shares being offered by this prospectus are being registered to permit
public secondary trading, and the selling securityholders may offer all or part
of the shares for resale
36
<PAGE>
from time to time. However, the selling securityholders are under no obligation
to sell all or any portion of their shares nor are they obligated to sell any
shares immediately under this prospectus. All information with respect to share
ownership has been furnished by the selling securityholders. See "Plan of
Distribution."
The reflection in the table above of shares beneficially owned or to be
sold in the offering is not intended to constitute a prediction as to either the
number of shares with respect to which warrants will be exercised or the number
of shares otherwise eligible for sale that will be sold.
As indicated above, Messrs. Lang, Weinzimer, Haft and Certilman are
executive officers and directors of DCAP Group. Eagle has a business
relationship with us as discussed under "Certain Relationships and Related
Transactions - Eagle". Also Robert M. Wallach, one of our directors, is Vice
President of Eagle and is President, Chairman and Chief Executive Officer of The
Robert Plan Corporation, Eagle's parent. To our knowledge, no other selling
securityholder has had any position, office or other material relationship with
us during the past three years other than as a holder of our securities, except
that Howard Lorber is a principal shareholder and employee of Aegis Capital
Corp., the placement agent for our 1999 private offering of securities; Robert
Eide is Chairman of Aegis; Malcolm Basner is President of Aegis; Frederick
Greenwald is a Vice President of Aegis; and Martin Bier is an employee of Aegis.
We have agreed to indemnify the selling securityholders and their
affiliated parties against specified liabilities, including liabilities under
the Securities Act of 1933 in connection with this offering. The selling
securityholders have agreed to indemnify us and our directors and officers, as
well as our affiliates and any persons controlling us, against liabilities,
including liabilities under the Securities Act of 1933, relating to information
supplied by them for use in this prospectus. Insofar as indemnification for
liabilities under the Securities Act of 1933 may be permitted to our directors
or officers, or persons controlling us, we have been advised that in the opinion
of the SEC this kind of indemnification is against public policy as expressed in
the Securities Act of 1933, and is therefore unenforceable.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
DCAP Agreement
On February 25, 1999, pursuant to the terms of an Agreement dated as of May
8, 1998 between DCAP Group and Messrs. Lang, Weinzimer, Certilman and Haft, as
amended, we acquired DCAP Insurance. The following is a summary of the material
terms of the agreement:
Acquisition of Common Stock
Pursuant to the agreement, we acquired DCAP Insurance. At the closing of
the acquisition, we issued the following common stock:
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<PAGE>
o 3,300,000 shares to Messrs. Lang and Weinzimer (1,650,000 shares to
each) in consideration for their transfer of the shares of DCAP
Insurance.
o 950,000 shares to Messrs. Lang and Weinzimer (475,000 shares to each)
at a purchase price of $.25 per share (an aggregate of $237,500), paid
as follows:
o an amount in cash equal to the par value of the 950,000 shares
(an aggregate of $9,500); and
o the balance by the delivery by each of Messrs. Lang and Weinzimer
of a promissory note in the principal amount of $114,000 (an
aggregate of $228,000). These notes provide for, among other
things, the following:
o interest at the rate of 6% per annum; and
o payment of principal and interest in six equal annual
installments commencing April 15, 2001 and continuing
through April 15, 2006, subject to acceleration to the
extent that Mr. Lang or Mr. Weinzimer receives any proceeds
from the sale or other disposition of any common stock (see
"Sale of Company Shares"); and
o 452,000 shares to Messrs. Certilman, Haft and Ziegler or their
designees (208,500 shares to each of Messrs. Certilman and Haft or his
retirement trust and an aggregate of 35,000 shares to Mr. Ziegler and
his wife) at a purchase price of $.25 per share (an aggregate of
$113,000), paid in cash.
At the closing of our acquisition of DCAP Insurance, each of Messrs. Haft,
Lang and Weinzimer and Mr. Certilman's retirement trust also purchased 450,000
shares of our common stock (1,800,000 shares in the aggregate) beneficially
owned by Sterling Foster Holding Corp. and held by Mr. Certilman as voting
trustee pursuant to a Voting Trust Agreement with Sterling Foster, at a purchase
price of $.25 per share. Mr. Certilman did not receive any portion of such
purchase price. Upon such purchase, the Voting Trust Agreement was terminated.
At the closing of the acquisition, we also loaned $112,500 to Messrs. Lang
and Weinzimer (an aggregate of $225,000). The proceeds of the loans were used by
Messrs. Lang and Weinzimer solely for the purpose of purchasing their shares
from Sterling Foster. Each of the loans is evidenced by a promissory note that
provides for, among other things, the following:
o interest at the rate of 6% per annum;
o payment of principal and interest in six equal annual installments
commencing April 15, 2001 and continuing through April 15, 2006,
subject to acceleration to the
38
<PAGE>
extent that Mr. Lang or Mr. Weinzimer receives any proceeds from the
sale or other disposition of any shares of common stock (see "Sale of
Company Shares");
o non-recourse against Messrs. Lang and Weinzimer, i.e., Messrs. Lang
and Weinzimer will not be personally liable for the payment of the
notes; instead, in the event of a default, our sole remedy will be
pursuant to a pledge by Messrs. Lang and Weinzimer of their Sterling
Foster shares, as discussed below; and
o the right of each of Messrs. Lang and Weinzimer to satisfy the amounts
due under his respective note by delivering our common stock valued at
the greater of (i) $.25 per share or (ii) the average market price of
our common stock for the 20 trading days immediately preceding the
date of delivery of the shares.
The payment of all amounts due under the $114,000 notes is secured by a
pledge by each of Messrs. Lang and Weinzimer to us of 570,000 shares of common
stock. The payment of all amounts due under the $112,500 notes is secured by a
pledge by each of Messrs. Lang and Weinzimer to us of the shares acquired by him
from Sterling Foster.
Restrictive Covenant Agreements
At the closing of our acquisition of DCAP Insurance, Messrs. Lang and
Weinzimer executed and delivered to us a restrictive covenant agreement.
Pursuant to this agreement, each agreed that for five years he will not engage
or participate in a business that is similar to or competitive with our business
anywhere within five miles of the location of any of our offices (including
franchisees).
The restrictive covenants shall cease to apply in the event:
o the employment of Mr. Lang or Mr. Weinzimer with us is terminated by
us without "cause" (see "Employment Contracts; Termination of
Employment and Change-in- Control Arrangements - Termination"); or
o we default in our obligation to make any post-termination payments as
provided for in the employment agreement and such default continues
for a period of 20 days following our receipt of written notice.
The restrictive covenants contained in the restrictive covenant agreement
are separate and independent from the restrictive covenants contained in the
employment agreements.
39
<PAGE>
Agreement as to Voting
Pursuant to the acquisition agreement, each of Messrs. Certilman, Haft,
Lang and Weinzimer agreed that for a period of eight years:
o he will vote his shares of stock of in favor of each of the others as
a director of DCAP Group as long as the particular person in whose
favor the vote would be is still employed by us;
o in the event Mr. Certilman or Mr. Haft dies or otherwise ceases to
serve as one of our directors, Messrs. Lang and Weinzimer will vote
their respective shares of stock in favor of the designee of the
survivor of Mr. Certilman or Mr. Haft (or, in the case of a reason
other than death, the one remaining as a director);
o in the event Mr. Lang or Mr. Weinzimer dies or otherwise ceases to
serve as one of our directors, Messrs. Certilman and Haft will vote
their respective shares in favor of the designee of the survivor of
Mr. Lang or Mr. Weinzimer (or, in the case of a reason other than
death, the one remaining as a director); and
o without the written approval of the others, he will not vote his
shares to:
o increase the size of our Board of Directors; or
o amend our Certificate of Incorporation or By-Laws.
In the event of the death or other cessation of directorship of any of
Messrs. Certilman, Haft, Lang or Weinzimer during the eight year period, we have
agreed that, unless the Board vacancy is otherwise filled as provided for above,
we will promptly call a special meeting of stockholders to fill the vacancy.
At the closing of our acquisition of DCAP Insurance, our By-Laws were
amended to provide that, in the event the number of directors in office is less
than four, any action taken by our Board of Directors requires the approval of
all of the directors then in office. During such time as the number of directors
in office is less than four, we may be unable to take actions that a majority of
our Board members deems desirable.
Sale of Company Shares
Pursuant to the acquisition agreement, while any loan made to either Mr.
Lang or Mr. Weinzimer pursuant to his employment agreement is outstanding, he
will be obligated to sell, as soon as legally permissible, the maximum number of
shares of our common stock that he is
40
<PAGE>
permitted by law to sell, and to use the proceeds to satisfy his obligations
under his respective notes. Until the various notes executed by them have been
satisfied in full, neither Mr. Lang nor Mr. Weinzimer may sell or otherwise
dispose of any of his common stock for less than $.25 per share (subject to
adjustment for stock splits and the like) without our prior written consent.
Eagle
Concurrently with our acquisition of DCAP Insurance, we issued and sold to
Eagle 1,486,893 shares of our common stock for an aggregate purchase price of
approximately $1,000,000, or $.67 per share.
Eagle is a New Jersey insurance company wholly-owned by The Robert Plan,
one of the largest insurers of assigned-risk drivers in the United States.
According to separate agency agreements between some of our DCAP stores and
certain insurance company subsidiaries of The Robert Plan, the DCAP stores have
been appointed agents of the insurance companies with regard to the offering of
automobile and other insurance products.
Pursuant to our agreement with Eagle, the size of our Board of Directors
was increased to five and Robert M. Wallach, Eagle's Vice President and the
President, Chairman and Chief Executive Officer of The Robert Plan, was
appointed as a member of our Board of Directors. We agreed that, during the five
year period following the closing, provided that Eagle remains the beneficial
owner of at least 1,000,000 shares of our common stock (subject to adjustment
for stock splits and the like), we shall continue to nominate Mr. Wallach as a
director.
Sale of Stores
Prior to May 31, 2000, four DCAP stores were owned one-half by the daughter
of Morton L. Certilman, our Chairman of the Board, and one-half by us. Effective
May 31, 2000, we sold our 50% interest in each of the stores to Mr. Certilman
upon the following material terms and conditions:
o The purchase price for our interest in the stores was approximately
$141,000, after certain credits.
o The purchase price is payable as follows: (a) $66,000 is payable at
the rate of $6,000 per month, starting on the first anniversary of the
closing, and (b) the balance of the purchase price is payable over
five years, together with 6% interest, in equal monthly installments
commencing on the second anniversary of the closing.
41
<PAGE>
o We agreed to waive all indebtedness owing by the stores to us. As of
the closing, the approximate amount of such indebtedness was $210,000.
o As part of the transaction, the stores became conversion franchisees,
and the first annual franchise charge of $18,000 per store was paid in
full at the closing in consideration for a waiver of the annual
franchise charges during the second year.
o The stores entered into franchise agreements with us, which are
similar in most respects to our standard conversion franchise
agreement (including standard territorial rights), except that
o the stores have a right of first refusal with regard to franchise
locations to be offered in zip codes adjoining those in which the
stores are located; and
o in the event we sell another franchise to be located in the
territory with respect to which a store currently has certain
rights (which is more expansive than the rights granted pursuant
to the franchise agreements), the annual franchise fee for the
particular store will be waived for six months.
These rights were granted in consideration of the waiver of
certain other geographic rights not granted to other franchisees.
o Certain license fees totaling $40,000 previously prepaid by Mr.
Certilman will be retained by us, to be applied generally against
franchise fees for any new franchises granted to Mr. Certilman or his
designee.
Relationship
Certilman Balin Adler & Hyman, LLP, a law firm of which Mr. Certilman is a
member, 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. Certilman Balin has also served as counsel to DCAP Insurance and The
Robert Plan with respect to certain matters; however, it did not serve as
counsel to DCAP Insurance or Messrs. Lang and Weinzimer in connection with our
acquisition of DCAP Insurance or to Eagle in connection with the issuance of
shares to Eagle. In addition, Certilman Balin did not serve as counsel to either
us or Mr. Certilman in connection with the transaction discussed above under
"Sale of Stores".
42
<PAGE>
DESCRIPTION OF SECURITIES
Our authorized capital stock consists of 25,000,000 shares of common stock,
$.01 par value, of which 15,068,018 shares are issued and outstanding.
The following is a summary of our common stock and warrants held by some of
the selling securityholders. The rights of the holders of our common stock are
established by our Certificate of Incorporation and By-laws, and by Delaware
law. The rights of the holders of the warrants are established by the provisions
of the respective warrants. The summary below is subject to the applicable
provisions of our Certificate of Incorporation and By-laws, Delaware law and the
warrants.
Common Stock
The holders of our common stock have no preemptive or subscription rights
in later offerings of common stock and are entitled to share ratably
o in such dividends as may be declared by our Board of Directors out of
funds legally available for such purpose; and
o upon liquidation, in all of our assets remaining after payment in full
of all of our debts and obligations.
We have not paid any dividends on our common stock, and we do not
contemplate paying any dividends in the foreseeable future. See "Dividend
Policy."
Warrants
There are outstanding 761,362 Class A Common Stock Purchase Warrants,
761,362 Class B Common Stock Purchase Warrants, and 761,362 Class C Common Stock
Purchase Warrants. The warrants were issued to 43 investors in June 1999
pursuant to a private offering of the securities. Some of the investors are
selling securityholders. Each Class A Warrant, Class B Warrant and Class C
Warrant is exercisable until June 2, 2004, subject to earlier redemption, under
certain circumstances, as discussed below.
The Class A Warrants are exercisable at a price of $1.10 per share; the
Class B Warrants are exercisable at a price of $1.37 per share; and the Class C
Warrants are exercisable at a price of $1.65 per share.
Each of the warrants is subject to redemption by us, at a price of $.001
per warrant, in the event the average of the closing prices of our common stock
during any 30 consecutive trading
43
<PAGE>
day period is at least 125% of the exercise price of the particular warrants and
a registration statement filed under the Securities Act of 1933 is in effect
covering the resale of the common stock underlying the particular warrants. We
shall be required to give 30 days notice of any such redemption. During the 30
day notice period, the holders of the particular warrants shall be entitled to
exercise their right to acquire the underlying common stock by paying the
exercise price.
PLAN OF DISTRIBUTION
The common stock may be sold or distributed from time to time by the
selling securityholders or by pledgees, donees or transferees of, or successors
in interest to, the selling securityholders. The shares may be sold or
distributed directly to one or more purchasers, including pledgees, or through
brokers or dealers who may act solely as agents or may acquire the shares as
principals. The shares may be sold at market prices prevailing at the time of
sale, at prices related to such prevailing market prices, at negotiated prices
or at fixed prices, which may be changed.
The distribution of the shares of common stock may be effected in one or
more of the following methods:
o ordinary brokers transactions;
o purchases by brokers or dealers as principal and resale by such
purchasers for their own accounts pursuant to this prospectus;
o "at the market" to or through market makers or into an existing market
for the common stock;
o in other ways not involving market makers or established trading
markets, including direct sales to purchasers or sales effected
through agents;
o through transactions in options, swaps or other derivatives, whether
exchange listed or otherwise; or
o any combination of the foregoing, or by any other legally available
means.
In addition, the selling securityholders or their successors in interest
may also enter into option or other transactions with broker-dealers that
require the delivery by such broker-dealers of the shares of common stock, which
shares may be resold thereafter pursuant to this prospectus.
44
<PAGE>
Brokers, dealers or agents participating in the distribution of the shares
of common stock may receive compensation in the form of discounts, concessions
or commissions from the selling securityholders and/or the purchasers of shares
of common stock for whom such broker-dealers may act as agent or to whom they
may sell as principal, or both. Such compensation as to a particular
broker-dealer may be in excess of customary commissions. The selling
securityholders and any broker-dealers acting in connection with the sale of the
shares of common stock hereunder may be deemed to be underwriters within the
meaning of Section 2(11) of the Securities Act of 1933, and any commission
received by them and any profit realized by them on the resale of shares of
common stock as principals may be deemed underwriting compensation under the
Securities Act. Neither we nor any selling securityholder can presently estimate
the amount of that compensation. We know of no existing arrangements between any
selling securityholder and any such stockholder, broker, dealer or agent
relating to the sale or distribution of the shares of common stock.
Each selling securityholder and any other person participating in a
distribution of securities will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, including Regulation M,
which may restrict certain activities of, and limit the timing of purchases and
sales of securities by, selling securityholders and other persons participating
in a distribution of securities. Furthermore, under Regulation M, persons
engaged in a distribution of securities are prohibited from simultaneously
engaging in market making and certain other activities with respect to those
securities for a specified period of time prior to the commencement of such
distributions, subject to specified exceptions or exemptions. All of the
foregoing may affect the marketability of the securities offered by this
prospectus.
Any securities covered by this prospectus that qualify for sale pursuant to
Rule 144 under the Securities Act may be sold under that rule rather than
pursuant to this prospectus.
There can be no assurance that the selling securityholders will sell any or
all of the shares of common stock covered by this prospectus.
LEGAL PROCEEDINGS
In November, 1996, an action was commenced in the United States District
Court for the Eastern District of Pennsylvania by Regent National Bank against
DCAP Insurance and Payments, Inc. alleging that DCAP Insurance and Payments,
Inc. breached a certain contract in connection with Regent's agreement to
provide funding to finance the purchase of automobile insurance for customers of
DCAP Insurance, Payments, Inc. and affiliated agencies. Subsequently, Regent
amended its pleading to add Kevin Lang and Abraham Weinzimer as defendants.
Regent claims that the defendants are liable to it for the losses Regent
allegedly suffered as a result of unpaid loans made through DCAP agencies.
Regent claims damages in excess of $800,000. DCAP Insurance and Payments, Inc.
have interposed several affirmative
45
<PAGE>
defenses and have asserted counterclaims against Regent for breach of contract
and fraud. DCAP Insurance and Payments, Inc. seek damages of $40,000. This
matter has been placed on the list of matters to be scheduled for trial, but no
date has been set for a trial. DCAP Insurance believes that it has meritorious
defenses to Regent's claims and intends to continue to defend and pursue its
counterclaim vigorously. In March 1997, DCAP Insurance, Payments, Inc. and their
affiliated agencies brought a separate action against Regent, among others, in
the Supreme Court of the State of New York alleging, among other things, breach
of contract, negligence and fraud and seeking damages of at least $2,000,000 as
well as punitive damages in the amount of $2,000,000. This action has been
stayed pending the resolution of the Pennsylvania action.
Reference is made to "Business - International Airport Hotel - Dispute with
Ports Authority" for a discussion of a certain action brought with respect to
the term of our hotel lease.
LEGAL MATTERS
The validity of the common stock being offered hereby will be passed upon
for DCAP Group by Certilman Balin Adler & Hyman, LLP, 90 Merrick Avenue, East
Meadow, New York 11554.
EXPERTS
The consolidated financial statements of DCAP Group as of December 31, 1999
and for the years ended December 31, 1998 and 1999 included in this prospectus
have been audited by Holtz Rubenstein & Co., LLP, independent auditors, as set
forth in its report appearing later in this prospectus. The consolidated
financial statements are included in reliance upon such report given upon the
authority of such firm as experts in auditing and accounting.
The combined financial statements of DCAP Insurance as of December 31, 1998
and for the year then ended included in this prospectus have been audited by
Margolin Winer & Evens LLP, independent auditors, as set forth in its report
appearing later in this prospectus. The combined financial statements are
included in reliance upon such report given upon the authority of such firm as
experts in auditing and accounting.
46
<PAGE>
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
Page
DCAP GROUP, INC.
<S> <C>
Independent Auditors' Report......................................................................... F-2
Audited Consolidated Financial Statements:
-----------------------------------------
Consolidated Balance Sheet at December 31, 1999.................................................... F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1999 and 1998..................................................................... F-4
Consolidated Statement of Stockholders' Equity for the Years Ended
December 31, 1999 and 1998..................................................................... F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999 and 1998..................................................................... F-6
Notes to Consolidated Financial Statements for the Years Ended
December 31, 1999 and 1998..................................................................... F-7
Unaudited Consolidated Financial Statements:
-------------------------------------------
Condensed Consolidated Balance Sheet at June 30, 2000 (unaudited).................................. F-19
Condensed Consolidated Statements of Operations for the Three and Six Months
Ended June 30, 2000 and 1999 (unaudited) ....................................................... F-20
Condensed Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 2000 and 1999 (unaudited)........................................................ F-22
Notes to Condensed Consolidated Financial Statements for the Six
Months Ended June 30, 2000 and 1999 (unaudited)................................................. F-23
DCAP INSURANCE AGENCIES, INC. (FORMERLY DEALERS CHOICE
AUTOMOTIVE PLANNING, INC.) AND AFFILIATED COMPANIES
Independent Auditors' Report.......................................................................... F-26
Audited Combined Financial Statements:
-------------------------------------
Combined Balance Sheet at December 31, 1998......................................................... F-27
Combined Statement of Operations for the Year Ended December 31, 1998............................... F-28
Combined Statement of Cash Flows for the Year Ended December 31, 1998............................... F-29
Combined Statement of Shareholders' Deficit for the Year Ended
December 31, 1998............................................................................... F-30
Notes to Combined Financial Statements for the Year Ended December 31, 1998......................... F-31
</TABLE>
F-1
<PAGE>
Independent Auditors' Report
Board of Directors and Stockholders
DCAP Group, Inc.
East Meadow, New York
We have audited the accompanying consolidated balance sheet of DCAP Group, Inc.
and Subsidiaries as of December 31, 1999 and the related consolidated statements
of operations, stockholders' equity and cash flows for each of the years in the
two-year period ended December 31, 1999. 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 generally accepted auditing
standards. 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, 1999 and the results of their operations and
their cash flows for each of the years in the two-year period ended December 31,
1999 in conformity with generally accepted accounting principles.
HOLTZ RUBENSTEIN & CO., LLP
Melville, New York
April 7, 2000
F-2
<PAGE>
DCAP GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 943,176
Accounts receivable, net of allowance for
doubtful accounts of $53,000 529,986
Notes receivable (Note 4) 141,500
Prepaid expenses and other current assets 47,826
--------------
Total current assets 1,662,488
PROPERTY AND EQUIPMENT, net (Note 5) 1,427,479
GOODWILL, net (Note 3) 3,789,143
OTHER INTANGIBLES, net (Note 3) 564,028
NOTES RECEIVABLE (Note 4) 413,896
RECEIVABLE FROM STOCKHOLDERS (Note 3) 225,000
DEPOSITS AND OTHER ASSETS (Note 6) 133,728
--------------
$ 8,215,762
==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses (Notes 7 and 8) $ 1,369,363
Current portion of long-term debt (Note 10) 49,169
Current portion of capital lease obligations (Note 11) 301,533
Debentures payable (Note 9) 154,200
--------------
Total current liabilities 1,874,265
--------------
LONG-TERM DEBT (Note 10) 286,575
--------------
CAPITAL LEASE OBLIGATIONS (Note 11) 311,466
--------------
DEFERRED REVENUE 39,787
--------------
MINORITY INTEREST 600,348
--------------
COMMITMENTS (Note 14)
STOCKHOLDERS' EQUITY: (Notes 3 and 15)
Common stock, $.01 par value; authorized 25,000,000 shares;
issued and outstanding 14,299,176 shares 142,992
Capital in excess of par 9,752,597
Deficit (4,564,268)
-------------
5,331,321
Subscription receivable (228,000)
--------------
5,103,321
--------------
$ 8,215,762
==============
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE>
DCAP GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended
December 31,
------------------------
1999 1998
------------- ---------
<S> <C> <C>
REVENUES:
Commissions and fees $8,045,737 $ -
Rooms 967,744 905,445
Other operating departments 55,430 38,062
Interest (Notes 3 and 4) 80,998 87,526
------------- --------------
Total revenues 9,149,909 1,031,033
------------- -------------
COSTS AND EXPENSES:
General and administrative expenses (Note 18) 7,307,976 440,192
Provision for bad debts 44,497 37,180
Departmental 396,872 389,082
Depreciation and amortization 721,998 40,492
Interest 135,715 -
Lease rentals (Notes 12 and 14) 1,012,647 184,634
Property operation and maintenance 33,819 46,704
------------- -------------
Total costs and expenses 9,653,524 1,138,284
------------- -------------
LOSS BEFORE INCOME TAXES
AND MINORITY INTEREST (503,615) (107,251)
INCOME TAXES (Note 13) 7,239 4,330
------------- -------------
LOSS BEFORE MINORITY INTEREST (510,854) (111,581)
MINORITY INTEREST 60,812 -
------------- -------------
NET LOSS $ (450,042) $ (111,581)
============= =============
NET LOSS PER COMMON SHARE (Note 15)
Basic $ (.04) $ (.02)
============== ==============
Diluted $ (.04) $ (.02)
============== ==============
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING
Basic 11,729,970 5,591,367
============== ==============
Diluted 11,729,970 5,591,367
============== ==============
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE>
DCAP GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Capital
----------------------------- in Excess Subscription
Shares Amount of Par Deficit Receivable Total
-------------- ----------- -------------- ------- ------------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 5,591,367 $ 55,914 $ 5,264,950 $ (4,002,645) $ - $1,318,219
Net loss for the year - - - (111,581) - (111,581)
------------- ----------- ------------- ------------ ------------- -------------
Balance, December 31, 1998 5,591,367 55,914 5,264,950 (4,114,226) - 1,206,638
Securities issued in connection
with business acquisitions
(Notes 3 and 15) 6,188,893 61,889 2,109,829 - (228,000) 1,943,718
Securities issued to acquire
intangible property 150,000 1,500 195,375 - - 196,875
Securities issued in private
placement, net of expenses
(Note 15) 1,522,684 15,227 1,344,673 - - 1,359,900
Securities issued in connection
with acquisition of shares of
affiliates (Note 3) 846,232 8,462 837,770 - - 846,232
Net loss for the year - - - (450,042) - (450,042)
------------- ----------- ------------- ------------ ------------- -----------
Balance, December 31, 1999 14,299,176 $ 142,992 $ 9,752,597 $ (4,564,268) $ (228,000) $5,103,321
============= =========== ============= ============ ============= ===========
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE>
DCAP GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended
December 31,
------------------------
1999 1998
------------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (450,042) $ (111,581)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 721,998 40,492
Bad debt expense (recovery) 8,000 (1,700)
Minority interest (60,812) -
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable (127,092) (38,916)
Prepaid expenses and other assets (111,065) (120,513)
Deposits and other assets 40,545 -
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 73,570 51,359
Deferred revenue (101,662) -
------------- -------------
Net cash used in operating activities (6,560) (180,859)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (124,528) (15,053)
Notes receivable - net (1,468,173) (491,046)
Net cash acquired from business combinations 39,065 -
------------- -------------
Net cash used in investing activities (1,553,636) (506,099)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of long-term debt (328,677) -
Proceeds from issuance of stock 2,478,618 -
------------- -------------
Net cash provided by financing activities 2,149,941 -
------------- -------------
Net increase (decrease) in cash and cash equivalents 589,745 (686,958)
Cash and cash equivalents, beginning of year 353,431 1,040,389
------------- -------------
Cash and cash equivalents, end of year $ 943,176 $ 353,431
============= =============
</TABLE>
See notes to consolidated financial statements
F-6
<PAGE>
DCAP GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
1. Organization and Nature of Business:
-----------------------------------
DCAP Group, Inc. and Subsidiaries (the "Company") operates a network of
retail offices engaged in the sale of retail auto, motorcycle, boat, life,
business, and homeowner's insurance. The Company also provides tax preparation
services, automobile club services for roadside emergencies, and premium
financing services. In addition, the Company operates the International Airport
Hotel in San Juan, Puerto Rico (the "Hotel") through its wholly-owned
subsidiary, IAH, Inc. The Hotel caters generally to commercial and tourist
travelers in transit.
On February 25, 1999, the Company acquired all of the outstanding stock of
Dealers Choice Automotive Planning, Inc. ("DCAP") as well as interests in the
other related companies ("DCAP Companies"). The Company's consolidated
statements of operations include the results of operations of the DCAP Companies
from the date of acquisition to December 31, 1999.
2. Summary of Significant Accounting Policies:
a. Principles of consolidation
---------------------------
The accompanying consolidated financial statements include the accounts of
all subsidiaries in which the Company exercises significant influence over all
decision making related to the ongoing major operations. All significant
intercompany accounts and transactions have been eliminated.
b. Revenue recognition
-------------------
The Company recognizes commission revenue from insurance policies at the
beginning of the contract period, on income tax preparation when the services
are completed and on automobile club dues equally over the contract period.
Franchise fee revenue is recognized when substantially all the Company's
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 recognized when financing is
provided to the insured.
Revenues from room sales are recorded at the time services are performed.
c. Goodwill and intangible assets
------------------------------
The excess of the fair value paid over the net assets from the Company's
acquisitions of DCAP and interests in other DCAP Companies has been allocated to
goodwill and other intangible assets, including its workforce, restrictive
covenants and customer lists. Accordingly, a significant portion of the purchase
price of each acquisition is considered to relate to goodwill. In determining
the period in which to amortize goodwill, management considered the effects of
obsolescence, demand, competition, the rate of technological change, expected
changes in distribution channels and barriers to entry. Goodwill and other
intangibles recorded in connection with the Company's acquisitions is amortized
on a straight-line basis over a period of five to fifteen years (Note 3).
F-7
<PAGE>
2. Summary of Significant Accounting Policies: (Cont'd)
------------------------------------------
d. 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.
e. Concentration of credit risk
----------------------------
The Company invests its excess cash in deposits and money market accounts
with major financial institutions and has not experienced losses related to
these investments.
A majority of the Company's receivables are derived from commissions earned
from insurance companies. Concentration of credit risk with respect to its
receivables is considered to be limited due to its regulated customer base.
f. Statement of cash flows
-----------------------
For purposes of the consolidated statement of cash flows, the Company
considers all highly liquid debt instruments with a maturity of three months or
less, as well as bank money market accounts, to be cash equivalents.
g. 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.
h. Loss Per Share:
--------------
The Company's net loss per share was calculated by dividing net loss by the
weighted average number of common shares outstanding.
i. Advertising costs:
-----------------
Advertising costs are charged to operations when the advertising first
takes place.
j. Impairment of long-lived assets:
-------------------------------
In accordance with Statement of Financial Accounting Standard No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of," an impairment loss is recognized whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable.
k. Reclassifications
-----------------
Certain reclassifications have been made to the consolidated financial
statements for the year ended December 31, 1998 to conform with the
classifications used in 1999.
F-8
<PAGE>
3. Business Combinations:
a. Acquisition of DCAP
-------------------
On February 25, 1999, the Company acquired all of the outstanding stock of
DCAP, as well as interests in DCAP Companies. The aggregate purchase price of
DCAP was approximately $1,055,000, consisting of the issuance of 3,300,000
shares of the Company's common stock, valued at $825,000, plus related expenses
of approximately $230,000. This acquisition was accounted for under the purchase
method of accounting.
The historical carrying amounts of the assets acquired and liabilities
assumed approximated their fair values on the date of acquisition. Approximately
$3,242,000 and $450,000 of intangible assets generated by the acquisition were
allocated to goodwill and other intangible assets, respectively. These assets
are being amortized over their estimated useful lives. The components of
goodwill and other intangible assets are as follows:
<TABLE>
<CAPTION>
Amount Life
<S> <C> <C>
Workforce $ 250,000 8 years
Restrictive Covenants 100,000 10 years
Customer Lists 100,000 2 years
Goodwill - Insurance Business 3,215,000 15 years
Goodwill - Income Tax Business 27,000 5 years
</TABLE>
Additionally, the Company also issued 950,000 common shares to certain of
the DCAP shareholders in exchange for $9,500 in cash and $228,000 in promissory
notes. These notes bear interest at 6% per annum and are payable in six equal
annual installments of $49,881, including principal and interest commencing
April 15, 2001 and continuing through April 15, 2006. The due dates are subject
to acceleration to the extent that these same shareholders receive any proceeds
from the sale or other disposition of any of the Company's common shares.
Additionally, the Company received non-recourse promissory notes
aggregating $225,000 from the DCAP shareholders in consideration of loans made
to them in such aggregate amount. The notes bear interest at 6% per annum and
are payable in six equal annual installments of $49,225, including principal and
interest commencing April 15, 2001 and continuing through April 15, 2006. The
due dates are subject to acceleration to the extent that the shareholders
receive any proceeds from the sale or other disposition of any of the Company's
common shares. The proceeds of the loans were used to purchase 900,000 common
shares from an existing shareholder. Interest income accrued on these loans
approximated $23,000 for the year ended December 31, 1999.
The promissory notes received at the closing of the DCAP agreement are
secured by 2,040,000 common shares of the Company.
An independent valuation was performed primarily using the asset
accumulation method for valuing the stock exchanged in the acquisition.
F-9
<PAGE>
3. Business Combinations: (Cont'd)
---------------------
The following unaudited pro forma summary presents the consolidated results
of operations of the Company as if the business combination described above and
acquisitions of joint venture interests described below, had occurred on January
1, 1998:
Years Ended
December 31,
---------------------------------
1999 1998
-------------- -------------
Revenues $ 10,287,261 $ 8,872,928
Loss from operations (925,932) (1,703,967)
Net loss (873,735) (1,781,367)
Basic net loss per share (.07) (.14)
Diluted net loss per share (.07) (.14)
The above amounts are based upon certain assumptions and estimates which
the Company believes are reasonable. The pro forma results do not necessarily
represent results which would have occurred if the business combination had
taken place as of January 1, 1998 and on the basis assumed above.
b. Acquisitions of joint venture interests
---------------------------------------
During 1999, the Company acquired the interests in various DCAP Retail
Insurance Stores in exchange for 846,232 shares of common stock, valued at
$846,232, plus $57,400 in cash. These transactions have been accounted for under
the purchase method of accounting.
The historical carrying amounts of the tangible assets and liabilities
approximated their fair values on the date of acquisition. Approximately
$730,000 of the aggregate purchase price was allocated to goodwill and is being
amortized over its estimated useful life of fifteen years.
4. Notes Receivable:
----------------
Included in notes receivable at December 31, 1999, is $87,000 of notes due
from various DCAP franchises. The notes are payable in monthly installments of
approximately $7,600, including interest at 8.5%, through December 2000.
In June 1998, the Company sold all potential future commissions on renewal
policies belonging to one of its DCAP stores for $20,000 in cash and a note for
$65,000. As of December 31, 1999, the balance on the note approximated $34,000
and is payable in monthly installments of $2,000, including interest at 8%,
through June 2001.
Included in notes receivable at December 31, 1999, are amounts due from
stockholders approximating $359,000. The notes are due on December 31, 2003,
together with accrued interest at the rate of 6.6% per annum. Interest income
accrued on such notes for the year ended December 31, 1999 approximated $22,000.
F-10
<PAGE>
5. Property and Equipment:
----------------------
At December 31, 1999, property and equipment consists of the following:
Furniture, fixtures and equipment $ 845,732
Office equipment 422,307
Leasehold improvements 711,972
Operating equipment 11,463
Computer hardware and software 1,606,107
Transportation equipment 31,047
Entertainment facility 200,538
-------------
3,829,166
Less accumulated depreciation and amortization 2,401,687
-------------
$ 1,427,479
=============
6. Deposits and Other Assets:
-------------------------
In April 1998, the Company purchased a bank certificate of deposit in the
amount of $40,000, which is included in deposits and other assets at December
31, 1999. This amount is pledged to the Puerto Rico Ports Authority ("Ports
Authority") as security for payment of amounts due under the lease agreement.
7. Accounts Payable and Accrued Expenses:
-------------------------------------
At December 31, 1999, accounts payable and accrued expenses consist of
the following:
Accounts payable $ 660,777
Payroll and related costs 191,349
Deferred revenue 81,000
Professional fees 204,912
Rent 66,199
Premiums payable 93,341
Other 71,785
-------------
$ 1,369,363
=============
8. Deferred Compensation:
---------------------
The Company has an agreement to pay special compensation to certain IAH
employees who at the date of retirement have accumulated 20 years of
uninterrupted service. Maximum amount payable per employee is $3,000. There are
seven employees covered by this plan, four of them with 15 years of accumulated
service. Compensation is accrued pro-ratably from the inception of the plan to
the date each employee is eligible for benefits.
9. Debentures Payable:
------------------
In 1971, the Company, pursuant to a plan of arrangement, issued a series of
debentures which matured in 1977. As of December 31, 1999, $154,200 of these
debentures have not been presented for payment. Accordingly, this balance has
been included as a current liability 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 of the Company.
F-11
<PAGE>
10. Long-Term Debt:
--------------
At December 31, 1999, long-term debt is comprised of the following:
<TABLE>
<CAPTION>
<S> <C>
Notes payable to former stockholders, due in monthly installments
aggregating $3,178, including interest at rates ranging from 6% to
10%, maturing at varying dates through September 2002. $ 60,306
Note payable to franchisee, due in varying monthly installments ranging
from $1,700 to $2,000 per month through April 2003, including interest
at approximately 24% per annum. 56,134
Mortgage payable, due in monthly installments of $1,803, including
interest at 9%, per annum through May 2017. The obligation is
collateralized by the Company's entertainment facility having a book
value of $170,000. 190,091
Other 29,213
------------
335,744
Less current maturities 49,169
------------
$ 286,575
============
</TABLE>
Long-term debt matures as follows:
Year Ended December 31,
-------------
2000 $ 49,000
2001 69,000
2002 35,000
2003 14,000
2004 7,000
Thereafter 162,000
11. Capitalized Lease Obligations:
-----------------------------
Included in computer and office equipment are certain assets having a book
value of approximately $1,580,000, leased under capital leases. The future
minimum lease payments of these capital leases and the present value of the net
minimum lease payments as of December 31, 1999 are as follows:
Year Ended December 31,
-----------
2000 $ 379,175
2001 187,332
2002 101,065
2003 63,298
2004 32,787
-----------
Minimum lease payment 763,657
Less amount representing interest 150,658
-----------
Present value of net minimum lease payments 612,999
Less current maturities 301,533
-----------
Present value of net minimum lease payments $ 311,466
===========
F-12
<PAGE>
12. Related Party Transaction:
-------------------------
During the years ended December 31, 1999 and 1998, the Company leased its
corporate office facility from a partnership of which a stockholder/officer is a
member. Rent expense amounted to $6,000 for each of the years ended December 31,
1999 and 1998.
13. Income Taxes:
------------
The Company files 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 1999 and 1998 income of IAH, Inc., a wholly-owned subsidiary, has been
calculated excluding the loss of DCAP Group, Inc., as it is separately taxed
under the laws of Puerto Rico. For 1999 and 1998, a provision of approximately
$7,000 and $4,000 has been made for this tax liability, respectively.
The provision for income taxes is comprised of the following:
Years Ended
December 31,
------------------------
1999 1998
------------ ------------
Benefit at Federal statutory rates $ (171,229) $ (36,465)
Loss in excess of available benefit 178,468 40,795
------------ -----------
$ 7,239 $ 4,330
============ ===========
At December 31, 1999, the Company had net operating loss carryforwards for
tax purposes of approximately $3,600,000. The tax loss carryforwards expire at
various dates through 2019.
Internal Revenue Code Section 382 places a limitation on the utilization of
Federal net operating loss and other credit carryforwards when an ownership
change, as defined by the tax law, occurs. Generally, this occurs when a greater
than 50 percentage point change in ownership occurs. Accordingly, the actual
utilization of the net operating loss and carryforwards for tax purposes may be
limited annually to a percentage (approximately 6%) of the fair market value of
the Company at the time of any such ownership change.
Deferred tax assets at December 31, 1999 consist of the following:
Deferred tax assets:
Net operating loss carryovers $ 1,439,900
Other 55,000
-------------
Total deferred tax asset 1,494,900
Less valuation allowance (1,494,900)
----------
Net deferred tax assets $ -
=============
F-13
<PAGE>
14. Commitments:
-----------
a. IAH, Inc. leases the International Airport Hotel (the "Hotel") property
pursuant to an operating lease with the Ports Authority, which expired in
December 1995. As discussed below, IAH is of the belief that pursuant to a
supplemental lease agreement, it retained the option to continue the lease for a
period of five years to December 31, 2000, which right it exercised, or
alternatively, that the Ports Authority executed a new lease agreement for a ten
year term commencing on January 1, 1996. The lease agreement provides for the
annual rental payments to be equal to the greater of $169,400 or 20% of the
annual gross revenues, as defined, effective January 1, 1994. Total rent expense
under this lease amounted to approximately $196,000 for 1999 and $185,000 for
1998.
Based upon IAH's refusal to acknowledge that, effective January 1, 1996, it
occupied the Hotel on a month-to-month basis, in February 1996, the Ports
Authority requested that IAH vacate, surrender and deliver the premises by
February 29, 1996. Following the receipt of such request, IAH brought an action
in the Superior Court of San Juan, Puerto Rico for declaratory judgment and
possessory injunction against the Ports Authority with respect to the Hotel. The
action seeks a declaratory judgment that, among other alternatives, IAH
exercised an option with respect to its lease for the Hotel for an extension of
the term of five years commencing on January 1, 1996 or that the Ports Authority
executed a new lease agreement for a ten year period commencing on such date.
Certain discovery proceedings have taken place, and the action is still pending.
Management is of the opinion that the Company will prevail on the declaratory
judgment; therefore, management will vigorously defend its position.
b. The Company and each of its affiliates lease office space under
noncancellable operating leases expiring at various dates through the year 2006.
Many of the leases 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:
Year Ended
December 31,
------------
2000 $ 747,000
2001 617,000
2002 491,000
2003 334,000
2004 134,000
Thereafter 144,000
Rental expense approximated $816,000 for the year ended December 31, 1999.
c. Employment agreements
---------------------
In connection with the DCAP acquisition, the Company entered into five-year
employment agreements with certain directors/officers and DCAP shareholders
commencing February 25, 1999. The agreements provide for a three-year renewal
term, which is automatic unless the Company, by vote of 75% of all of the
members of the Board of Directors, as defined, determines otherwise. Certain
agreements provide for bonuses based upon profitability. In the event that the
Company does not extend an employment agreement, the employee will generally
receive an additional two years of his base salary. Total annual compensation
provided for under these agreements is $647,000. During the initial term of the
employment agreements, the Company is obligated to make loans of up to $20,000
per year to each of the DCAP shareholders.
F-14
<PAGE>
14. Commitments: (Cont'd)
-----------
c. Litigation
----------
The Company is involved in various lawsuits and claims incidental to its
business. In the opinion of management, the ultimate liabilities, if any,
resulting from such lawsuits and claims will not materially affect the financial
position of the Company.
15. Stockholders' Equity:
-------------------
a. Private placement of securities
-------------------------------
On June 2, 1999, the Company sold, through a private placement, 33.5 Units
(each consisting of 45,453 common shares and 15,151 Class A, 15,151 Class B and
15,151 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 is exercisable at $1.65, $2.06 and $2.48, respectively and
expires June 2, 2004. All warrants issued in connection with the private
placement were outstanding at December 31, 1999. Each of the warrants is subject
to redemption by the Company at $.001 per warrant in the event the average
closing price of the Company's common stock is at least 125% of the exercise
price for 30 consecutive trading days.
b. Stock options
-------------
The Company maintains a stock option plan which provides for the granting
of options to individuals rendering service to the Company to purchase up to
300,000 shares of common stock of the Company. Such options may be either
incentive stock options or non-statutory stock options. No options are
outstanding as of December 31, 1999.
In November 1998, the Company adopted the 1998 Stock Option Plan (approved
by stockholders in February 1999) which provides for the issuance of incentive
stock options or non- statutory stock options. Under this plan, options to
purchase not more than 2,000,000 shares of common stock may be granted, at a
price to be determined by the Board of Directors or the Stock Option Committee
at the time of grant. Incentive stock options granted under this plan expire ten
years from date of grant (except five years for a grant to a 10% stockholder of
the Company). The 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 the Company's stock option plans of December 31,
1999, and changes during the year then ended is presented below:
Weighted
Average
Exercise
Fixed Stock Options Share Price
------------------- ----- ----------
Outstanding, beginning of year - $ -
Granted 950,000 2.51
Expired - -
Forfeited - -
--------- -------
Outstanding, end of year 950,000 $ 2.51
========= =======
Weighted-average fair value
of options granted during year $.28
====
F-15
<PAGE>
15. Stockholders' Equity: (Cont'd)
--------------------
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Number Contractual Exercise Number Exercise
Exercise Price Outstanding Life Price Outstanding Price
-------------- --------------- ---------------- ------------ ------------- -------
<S> <C> <C> <C> <C> <C>
$1.00 - $2.69 950,000 3.85 yrs. $2.51 100,000 $1.00
</TABLE>
The Company has elected the disclosure-only provisions of Statement of
Financial Accounting Standard No. 123, "Accounting for Stock-Based Compensation"
("FASB 123") in accounting for its employee stock options. Accordingly, no
compensation expense has been recognized. Had the Company recorded compensation
expense for the stock options based on the fair value at the grant date for
awards in the year ended December 31, 1999, consistent with the provisions of
SFAS 123, the Company's net loss and net loss per share would not have been
impacted.
The fair value of each option grant is estimated on the date of grant using
the Black- Scholes option-pricing model. The following range of weighted-average
assumptions were used for grants during the year ended December 31, 1999:
Dividend yield 0.00%
Volatility 8.00%
Risk-free interest rate 5.50%
Expected life 2-5 years
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 the Company's 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 its stock options.
b. Eagle Insurance Agreement
-------------------------
On February 25, 1999, the Company issued 1,486,893 common shares to Eagle
Insurance Company for proceeds of approximately $1,000,000.
d. Common shares reserved
----------------------
Warrants 1,522,710
=========
Stock Option Plans 2,300,000
=========
F-16
<PAGE>
16. Business Segments:
-----------------
The Company currently has two reportable business segments: Insurance and
Hotel. The Insurance segment sells retail auto, motorcycle, boat, life,
business, and homeowner's insurance. In addition, this segment offers tax
preparation services, automobile club services for roadside emergencies,
services with regard to obtaining insurance premium financing, and automobile
loans from third parties. The Hotel segment operates the International Airport
Hotel in San Juan, Puerto Rico. The Hotel caters generally to commercial and
tourist travelers in transit. The Company's revenues are derived from activities
within the United States, and all long-lived assets are located within the
United States.
Revenue, operating income, capital expenditures, and depreciation and
amortization pertaining to the industries in which the Company operates are
presented below.
<TABLE>
<CAPTION>
Year Ended
December 31,1999 Insurance Hotel Other (1) Total
----------------------------- ------------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
Revenues from external
customers $ 8,045,737 $ 1,014,950 $ 8,224 $ 9,068,911
Interest income 25,850 - 55,148 80,998
Interest expense 135,715 - - 135,715
Depreciation and amortization 402,871 45,158 273,969 721,998
Segment profit (loss) (173,160) 149,080 (425,962) (450,042)
Segment assets 2,744,681 307,580 2,099,203 5,151,464
Expenditures for segment assets 450,892 52,239 - 503,431
</TABLE>
The following is a reconciliation of reportable segment assets and
expenditures for segment assets to consolidated totals:
Assets
Total assets for reportable segments $ 5,151,464
Goodwill and other intangibles,
not allocated to segments 3,064,298
-------------
Consolidated total $ 8,215,762
=============
Expenditures for Segment Assets
Total expenditures for segment assets $ 503,431
Non-cash acquisitions of assets (378,903)
-------------
Consolidated total $ 124,528
=============
(1) Column represents corporate-related items and, as it relates to
segment profit (loss), income, expense and assets not allocated to
reportable segments.
Segment information is not provided for 1998 as the Company was primarily
in the Hotel business.
F-17
<PAGE>
17. 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 amount of cash,
current receivables and payables and certain other short-term
financial instruments approximate their fair value.
Long-Term Debt: The fair value of the Company's long-term debt,
including the current portion, was estimated using a discounted cash
flow analysis, based on the Company's assumed incremental borrowing
rates for similar types of borrowing arrangements. The carrying amount
of variable and fixed rate debt at December 31, 1999 approximates fair
value.
18. Advertising Costs:
-----------------
Included in selling, general and administrative expenses are advertising
costs of $760,800 for the year ended December 31, 1999.
19. Supplementary Information - Statement of Cash Flows:
---------------------------------------------------
Cash paid during the years for:
Years Ended
December 31,
------------
1999 1998
---- ----
Supplemental disclosures:
Interest 211,911 -
========== =========
Income Taxes $ 64,660 $ 5,870
========== =========
Non-cash financing and investment activities:
Common stock issued for acquisitions and
intangible property $2,096,107 $ -
========== =========
Acquisitions of property and equipment
through capital leases $ 298,795 $ -
========== =========
F-18
<PAGE>
DCAP GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
June 30, 2000
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $1,095,965
Accounts receivable, net 476,371
Prepaid expenses and
other current assets 191,337
----------
Total current assets 1,763,673
----------
PROPERTY AND EQUIPMENT, net 1,223,284
----------
OTHER ASSETS:
Receivable from stockholders 225,000
Goodwill, net 3,150,383
Other intangibles 522,537
Deposits and other assets 673,019
-----------
Total other assets 4,570,939
-----------
$7,557,896
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $1,570,909
Current portion of long-term debt 75,000
Current portion capital lease obligations 246,432
Debentures payable 154,200
----------
Total current liabilities 2,046,541
----------
OTHER LIABILITIES:
Long-term debt 262,060
Capital lease obligations 253,368
Deferred revenue 44,320
----------
Total other liabilities 559,748
----------
MINORITY INTEREST 53,122
----------
STOCKHOLDERS' EQUITY:
Common Stock, $.01 par value; authorized,
25,000,000 shares; issued and outstanding,
15,068,018 shares 150,680
Capital in excess of par 9,752,410
Deficit (4,776,605)
----------
5,126,485
Subscription receivable (228,000)
----------
4,898,485
----------
$7,557,896
==========
See notes to condensed consolidated financial statements.
F-19
<PAGE>
DCAP GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Six months ended
June 30,
2000 1999
---------- ---------
Revenues:
Commissions & Fees $3,996,517 $3,010,681
Rooms 518,227 524,161
Other 28,409 15,163
Interest 28,717 27,126
---------- ----------
Total revenues 4,571,870 3,577,131
---------- ----------
Costs and expenses:
General and administrative 3,961,081 3,019,889
Departmental 194,738 146,815
Depreciation and amortization 426,495 239,901
Interest 64,759 70,458
Lease rentals 104,940 105,644
Property operation
and maintenance 16,425 13,166
---------- ----------
4,768,438 3,595,873
---------- ----------
Loss before income taxes
and minority interest (196,568) (18,742)
Provision for income taxes 9,550 22,289
---------- ----------
Loss before minority interest (206,118) (41,031)
Minority interest 6,219 56,760
---------- -----------
Net loss $ (212,337) $ (97,791)
========== ==========
Net loss per common share:
Basic $ (.01) $ (.01)
========== ==========
Diluted $ (.01) $ (.01)
========== ==========
Weighted average number of shares outstanding:
Basic 14,432,865 10,093,869
========== ==========
Diluted 14,432,865 10,093,869
========== ==========
F-20
<PAGE>
DCAP GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended
June 30,
2000 1999
---------- ---------
Revenues:
Commissions & Fees $1,867,884 $2,211,182
Rooms 232,544 244,403
Other 22,101 7,063
Interest 14,810 8,145
---------- ----------
Total revenues 2,137,339 2,470,793
---------- ----------
Costs and expenses:
General and administrative 1,902,787 2,176,416
Departmental 114,635 47,057
Depreciation and amortization 211,059 200,987
Interest 33,005 63,372
Lease rentals 46,675 48,736
Property operation
and maintenance 9,741 7,079
---------- ----------
2,317,902 2,543,647
Loss before income taxes
and minority interest (180,563) (72,854)
Provision for income taxes 463 12,752
---------- ----------
Loss before minority interest (181,026) (85,606)
Minority interest 14,713 45,790
---------- ----------
Net loss $ (195,739) $ (131,396)
=========== ===========
Net loss per common share:
Basic $ (.01) $ (.01)
========== ==========
Diluted $ (.01) $ (.01)
=========== ==========
Weighted average number of shares outstanding:
Basic 14,557,668 12,415,511
========== ==========
Diluted 14,557,668 12,415,511
========== ==========
See notes to condensed consolidated financial statements.
F-21
<PAGE>
DCAP GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six months ended
June 30,
2000 1999
----------- ---------
Cash flows from operating activities:
Net loss $ (212,337) $ (97,791)
Adjustments to reconcile net loss to
net cash provided by (used in) operating activities:
Depreciation and amortization 426,495 239,901
Loss on sale of ownership interests
in joint ventures 75,822 -
Provision for bad debts 1,200 1,200
Minority interest in net earnings 6,219 56,760
Decrease (increase) in assets:
Accounts receivable 52,415 (189,135)
Prepaid expenses and other
current assets (19,302) 102,779
Deposits and other 49 1,802
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 216,375 (160,087)
Deferred revenue (76,467) ( 23,635)
--------- -----------
Net cash provided by (used in)
operating activities 470,469 (68,206)
--------- -----------
Cash flows from investing activities:
(Increase) in notes and other
receivables, net (108,153) (1,258,038)
Acquisition of property and equipment (75,261) (34,144)
--------- ----------
Net cash used in
investing activities (183,414) (1,292,182)
--------- ----------
Cash flows from financing activities:
Proceeds from issuance of stock - 2,342,565
Proceeds from long-term debt 41,000 -
Principal payment of long-term
debt and capital lease obligations (175,266) (40,000)
--------- ----------
Net cash (used in) provided by
financing activities (134,266) 2,302,565
--------- ----------
Net increase in cash and
cash equivalents 152,789 942,177
Cash and cash equivalents,
beginning of period 943,176 353,431
--------- ----------
Cash and cash equivalents,
end of period $1,095,965 $1,295,608
========= =========
See notes to condensed consolidated financial statements.
F-22
<PAGE>
DCAP GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (UNAUDITED)
1. The Condensed Consolidated Balance Sheet as of June 30, 2000, the Condensed
Consolidated Statements of Operations for the three and six months ended
June 30, 2000 and 1999 and the Condensed Consolidated Statements of Cash
Flows for the six months ended June 30, 2000 and 1999 have been prepared by
the Company without audit. In the opinion of the Company, the accompanying
unaudited condensed consolidated financial statements contain all
adjustments necessary to present fairly its financial position as of June
30, 2000, results of operations for the three and six months ended June 30,
2000 and 1999 and cash flows for the six months ended June 30, 2000 and
1999. This report should be read in conjunction with the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1999.
2. Summary of Significant Accounting Policies:
a. Principles of consolidation
The accompanying consolidated financial statements include the accounts
of all subsidiaries in which the Company exercises significant
influence over all decision making related to the ongoing major
operations. All significant intercompany accounts and transactions have
been eliminated.
b. Revenue recognition
The Company recognizes commission revenue from insurance policies at
the beginning of the contract period, on income tax preparation when
the services are completed and on automobile club dues equally over the
contract period. Franchise fee revenue is recognized when substantially
all the Company's 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 recognized when financing is provided to the
insured.
Revenues from room sales are recorded at the time services are
performed.
3. The results of operations and cash flows for the six months ended June 30,
2000 are not necessarily indicative of the results to be expected for the
full year.
4. DCAP Acquisition: Pro Forma Information. Since February 25, 1999, the
Company has been engaged in two lines of business. In one, the Company,
through its wholly-owned subsidiary, DCAP Insurance Agencies, Inc.
(formerly Dealers Choice Automotive Planning Inc.) ("DCAP"), and related
entities (collectively, the "DCAP Companies") is engaged primarily in
placing various types of insurance, including automobile, motorcycle, boat,
life, business and homeowner's insurance, and excess coverage, with
insurance underwriters on behalf of its customers. In addition, the DCAP
Companies offer income tax return preparation services, automobile club
services for roadside emergencies and premium financing services for their
customers. The Company has been in this business since its February 25,
1999 acquisition of the DCAP Companies.
In its other line of business, the Company, through its wholly-owned
subsidiary, IAH, Inc., operates the International Airport Hotel in San
Juan, Puerto Rico (the "Hotel"). The Hotel
F-23
<PAGE>
caters generally to commercial and tourist travelers in transit.
As indicated above, on February 25, 1999, the Company acquired all of the
outstanding stock of DCAP as well as interests in the other DCAP Companies.
This transaction was accounted for under the purchase method of accounting.
Accordingly, the Company's condensed consolidated statements of operations
include the revenues and expenses of the DCAP Companies from February 25,
1999.
During 1999, the Company also acquired the interests of its joint venture
partners in various DCAP retail insurance stores. These transactions have
been accounted for under the purchase method of accounting.
The following pro forma results were developed assuming that the
acquisition of the DCAP Companies and the joint venture interests had
occurred as of January 1, 1999. The Company's actual results for the six
months ended June 30, 2000 are also reflected below.
Six Months Ended
June 30,
----------------------------
2000 1999
---- ----
(actual) (pro forma)
Revenues $4,571,870 $4,740,971
Net loss (212,337) (476,586)
Loss per share (.01) (.03)
The pro forma net loss includes amortization of goodwill and other
purchased intangibles of $183,769 for the six months ended June 30, 1999.
The above unaudited pro forma condensed consolidated financial information
is presented for illustrative purposes only and is not necessarily
indicative of the condensed consolidated results of operations in future
periods or the results that actually would have been realized had the
Company and the DCAP Companies been a combined company during the specified
period or the joint venture interests had been acquired as of January 1,
1999.
5. Segment and Related Information. In 1999, the Company adopted SFAS No. 131,
Disclosures About Segments of an Enterprise and Related Information, which
changes the way the Company reports information about its operating
segments. The Company has two business units with separate management teams
that provide different products and services.
Summarized financial information concerning the Company's reportable
segments is shown in the following table:
F-24
<PAGE>
Six months ended
June 30, 2000
DCAP
Companies Hotel Other(1) Total
--------- ----- -------- -----
Revenues $4,000,445 $529,902 $ 41,523 $4,571,870
Net income (loss) (22,508) 82,342 (272,171) (212,337)
Six months ended
June 30, 1999
DCAP
Companies Hotel Other(1) Total
--------- ----- -------- -----
Revenues $3,010,681 $540,707 $ 25,743 $3,577,131
Net income (loss) (19,495) 97,645 (175,941) (97,791)
------------
(1) Column represents corporate-related items and, as it relates to segment
net income (loss), income and expense, including expenses for amortization
of goodwill and other intangibles ($183,769 for the six months ended June
30, 2000), not allocated to reportable segments.
6. On February 25, 1999, concurrently with the acquisition of the DCAP
Companies, Eagle Insurance Company ("Eagle") purchased 1,486,893 Common
Shares of the Company for an aggregate purchase price of approximately
$1,000,000 or $.67 per share. Eagle is a New Jersey insurance company
wholly-owned by The Robert Plan Corporation, an insurance holding company
that is engaged in providing services to insurance companies.
7. Effective June 2,2000, in connection with the Company's June 1999 private
placement offering, an additional 761,342 Common Shares, 253,778 Class A
Warrants, 253,778 Class B Warrants and 253,778 Class C Warrants were issued
to investors. The shares and warrants were issued pursuant to price
protection provisions contained in the offering agreement. Effective June
2, 2000, the exercise prices of the Class A Warrants, Class B Warrants and
Class C Warrants were reduced to $1.10, $1.37 and $1.65, respectively, per
share.
8. In May 2000, the Company sold its ownership interests in four joint
ventures to a related party for $141,000, which will be paid over six
years. Interest at 6% per annum will be payable commencing May 2001. In
connection with the sale, the Company recorded a $75,822 loss.
F-25
<PAGE>
Report of Independent Accountants
Board of Directors
Dealers Choice Automotive Planning, Inc.
East Meadow, New York
We have audited the accompanying combined balance sheet of Dealers Choice
Automotive Planning, Inc. and Affiliated Companies as of December 31, 1998, and
the related combined statements of operations, cash flows and stockholders'
deficit for the year then ended. These combined financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these combined financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
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 audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Dealers
Choice Automotive Planning, Inc. and Affiliated Companies as of December 31,
1998, and the combined results of their operations and their cash flows for the
year then ended in conformity with generally accepted accounting principles.
The combined financial statements referred to above have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations,
and has a stockholders' deficit and negative working capital. These conditions
raise substantial doubt as to the Company's ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 1. The combined financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
/s/ Margolin, Winer & Evans LLP
May 14, 1999, except for
Notes 1 and 13, as to which
the date is June 10, 1999
F-26
<PAGE>
DEALERS CHOICE AUTOMOTIVE PLANNING, INC. AND AFFILIATED COMPANIES
<TABLE>
<CAPTION>
COMBINED BALANCE SHEET
December 31, 1998
------------ ----
ASSETS
<S> <C>
Current Assets:
Cash $ 7,246
Commissions receivable from insurance companies 283,209
Current portion of note receivable (Note 3) 20,638
Prepaid expenses and other current assets 50,503
------
Total Current Assets 361,596
Property and Equipment - net of accumulated depreciation
and amortization of $1,727,921 (Notes 4, 6 and 7) 1,324,401
Note Receivable, net of current portion (Note 3) 36,238
Due from Stockholders (Note 5) 379,583
Deposits and Other Assets 67,401
------
Total Assets $2,169,219
==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Current portion of:
Long-term debt (Note 6) $ 43,233
Obligations under capital leases (Note 7) 284,111
-------
327,344
Notes Payable - DCAP Group, Inc. (Note 8) 782,000
Note payable - bank (Note 9) 170,000
Accounts payable and accrued expenses 1,177,444
Deferred revenue 197,982
Cash overdraft 143,993
Premiums payable 159,543
Income taxes payable 42,684
Other current liabilities 6,094
-----
Total Current Liabilities 3,007,084
Long-Term Debt - net of current portion (Note 6) 306,815
Obligations Under Capital Leases - net of current portion (Note 7) 327,354
Due to Stockholders 31,800
Deferred Revenue 39,650
------
Total Liabilities 3,712,703
Commitments and Contingencies (Note 12) -
Minority Interest in Affiliated Companies (Note 10) 898,026
Stockholders' Deficit (2,441,510)
----------
Total Liabilities and Stockholders' Deficit $2,169,219
==========
The accompanying notes are an integral part of this combined statement.
</TABLE>
F-27
<PAGE>
DEALERS CHOICE AUTOMOTIVE PLANNING, INC. AND
AFFILIATED COMPANIES
<TABLE>
<CAPTION>
COMBINED STATEMENT OF OPERATIONS
Year Ended December 31, 1998
----------------------- ----
Revenue:
<S> <C>
Commissions $4,477,059
Fees and other (including franchising income of $598,046) 3,391,836
---------
Total Revenue 7,868,895
Operating Expenses:
Selling 2,599,263
General and administrative 6,204,490
Depreciation and amortization 453,345
-------
Total Operating Expenses 9,257,098
---------
Loss From Operations (1,388,203)
Other Income (Expenses):
Gain on sale of book of business (Note 3) 80,870
Net loss on disposition of assets (35,894)
Interest (253,489)
--------
Loss Before Income Taxes (1,596,716)
Provision for Income Taxes (Note 11) 113,061
-------
Loss Before Minority Interest (1,709,777)
Minority Interest in Affiliated Companies (281,727)
--------
Net Loss $(1,428,050)
===========
The accompanying notes are an integral part of this combined statement.
</TABLE>
F-28
<PAGE>
DEALERS CHOICE AUTOMOTIVE PLANNING, INC. AND AFFILIATED COMPANIES
COMBINED STATEMENT OF CASH FLOWS
Year Ended December 31, 1998
----------------------- ----
Cash Flows from Operating Activities:
Net loss $(1,428,050)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 453,345
Gain on sale of book of business (80,870)
Net loss on disposition of assets 35,894
Decrease in commissions receivable from
insurance companies 264,852
Decrease in prepaid expenses and other current assets 10,736
Increase in deposits and other assets (3,389)
Decrease in deferred taxes 42,700
Increase in accounts payable and accrued expenses 579,729
Increase in premiums payable 137,234
Increase in income taxes payable and other liabilities 11,669
Decrease in deferred revenue (81,784)
-------
Net Cash Used in Operating Activities (57,934)
-------
Cash Flows from Investing Activities:
Acquisition of property and equipment (96,992)
Proceeds from sale of book of business 85,000
Proceeds from disposition of assets 31,489
Increase in note receivable (65,000)
Repayment of note receivable 8,124
Increase in due from stockholders (24,737)
Decrease in due from related companies 76,455
------
Net Cash Provided by Investing Activities 14,339
------
Cash Flows from Financing Activities:
Principal payments under capital lease obligations (274,427)
Increase in notes payable - DCAP Group, Inc. 457,000
Increase in long-term debt 25,000
Principal payments of long-term debt (97,712)
Decrease in note payable - bank (25,195)
Shareholder contributions to capital 106,113
Decrease in minority interest in affiliated companies (281,727)
Increase in cash overdraft 141,789
-------
Net Cash Provided by Financing Activities 50,841
------
Net Increase in Cash $ 7,246
Cash - beginning of year -
------
Cash - end of year $ 7,246
======
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest $ 177,293
Cash paid for income taxes 64,786
Supplemental Disclosure of Noncash Investing and
Financing Activities:
During 1998, the withdrawal of certain minority stockholders
resulted in an increase in stockholders' equity and a
corresponding decrease in minority interest in affiliated
companies int he amount of $1,619.
During 1998, certain stockholders contributed to capital
loans payable to them in the amount of $48,000.
The accompanying notes are an integral part of this combined statement.
F-29
<PAGE>
DEALERS CHOICE AUTOMOTIVE PLANNING, INC. AND
AFFILIATED COMPANIES
<TABLE>
<CAPTION>
COMBINED STATEMENT OF STOCKHOLDERS' DEFICIT
Year Ended December 31, 1998
--------------------------------------------------------------------------------
Common Paid-in Accumulated Treasury
Stock Capital Deficit Stock Total
----- ------- ------- ----- -----
<S> <C> <C> <C> <C> <C>
Balance - January 1, 1998 $32,583 $326,199 $(1,432,402) $(95,572) $(1,169,192)
Contributions to Capital - 154,113 - - 154,113
Net loss - - (1,428,050) - (1,428,050)
Withdrawal of
Minority Interests 650 185,800 (184,831) - 1,619
------ ------- ---------- ------- ---------
Balance -
December 31, 1998 $33,233 $666,112 $(3,045,283) $(95,572) $(2,441,510)
======= ======== =========== ======== ===========
</TABLE>
The accompanying notes are an integral part of this combined statement.
F-30
<PAGE>
DEALERS CHOICE AUTOMOTIVE PLANNING, INC. AND
AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
1. Oraganization Nature of business - Dealers Choice Automotive Planning,
and Financial Inc. ("DCAP") and Affiliates (collectively, the "Company")
Statement operates a network of retail offices engaged in the sale of
Presentation retail auto, motorcycle, boat, life, business and
homeowner's insurance. The Company also realizes revenue
from franchise fees, the sale of automobile club memberships
and income tax preparation.
Combination - The combined financial statements include the
accounts of DCAP; DCAP Management Corp. (the franchisor of
twenty-eight DCAP locations); and three entities performing
income tax and motor club services. All of these entities
have common ownership. In addition, the combined financial
statements include thirty-five affiliates. As used herein,
an affiliate is an agency operating a retail office under
the DCAP name, where the shareholders of the above entities
own at least fifty percent of the stock of the agency. All
significant intercompany transactions and balances have been
eliminated in combination.
Going concern - The Company's financial statements have been
prepared assuming that the Company will continue as a going
concern. Over the past several years, the Company has
suffered recurring losses from operations and as of December
31, 1998 has a stockholders' deficit of $2,441,510 and
negative working capital of $2,645,488. For the past few
years the Company has relied on loans and the sales of books
of business to supplement operating revenue and meet its
working capital needs. Management believes that the
additional cash infusion from DCAP Group, Inc. (formerly
Extech Corporation) ("DCAP Group") in February 1999 together
with approximately $1.44 million in net proceeds DCAP Group
raised in June 1999 in a private placement will be
sufficient to meet the Company's cash flow needs for the
coming year (see Note 13). Ultimately, the Company's ability
to continue as a going concern is dependent on its ability
to return to profitable operations. The financial statements
do not include any adjustments that might result from the
outcome of this uncertainty.
2. Summary of Revenue recognition - The Company recognizes commission
Significant revenue from insurance policies at the beginning of the
Accounting contract period, on income tax preparation when the services
Policies are completed and on automobile club dues equally over the
contract period. Franchise fee revenue received by DCAP
Management Corp. is recognized when substantially all the
Company's contractual requirements under the franchise
agreement are completed. Refunds of commissions on the
cancellation of insurance policies are reflected at the time
of cancellation.
Cash and cash equivalents - The Company considers all highly
liquid debt instruments purchased with an original maturity
of three months or less to be cash equivalents.
Property and equipment - Property and equipment are stated
at cost. Depreciation and amortization are computed by the
straight-line method based on the estimated useful lives of
the related assets or the shorter of the lease terms or
useful life for the leasehold improvements.
F-31
<PAGE>
The useful lives of property and equipment for purposes of
computing depreciation are:
Computer hardware and software 5 years
Office equipment 5 years
Transportation equipment and
entertainment facility 5 - 10 years
Office furniture and fixtures 7 years
Leasehold improvements Term of related lease
Maintenance and repairs are charged to operations when
incurred. Betterments and major renewals or replacements are
capitalized. When property and equipment is sold or
otherwise disposed of, the asset account and related
accumulated depreciation account are relieved, and any gain
or loss is included in operations.
Advertising - The Company expenses all advertising costs
when incurred. Advertising expense was approximately
$722,000 in 1998.
Income taxes - Income taxes are accounted for under
Financial Accounting Standards Board Statement No. 109,
Accounting for Income Taxes. Statement No. 109 requires
recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been
included in the financial statements or tax returns. Under
this method, deferred tax assets and liabilities are
determined based on the difference between the financial
statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the
differences are expected to reverse. Under Statement No.
109, the effect on the deferred tax assets and liabilities
of a change in tax rates is recognized in income in the
period that includes the enactment date.
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
revenue and expenses during the reporting period. Actual
results could differ from those estimates.
3. Note Receivable In June 1998, the Company sold all potential future
commissions on renewal policies belonging to one of its
stores for $85,000. The Company received $20,000 in cash and
a note for $65,000 which is payable in monthly installments
of $2,037, including interest at 8.0%, through June 30,
2001.
4. Property and Property and equipment consist of:
Equipment
Computer hardware and software $1,324,802
Office equipment 197,110
Transportation equipment 31,047
Office furniture and fixtures 706,665
Entertainment facility 200,538
Leasehold improvements 592,160
-------
3,052,322
Less accumulated depreciation
and amortization 1,727,921
---------
$1,324,401
==========
F-32
<PAGE>
5. Due From Amounts due from stockholders consist primarily of
Stockholders non-negotiable promissory notes due from the stockholders of
DCAP. The notes are due on December 31, 2003, together with
accrued interest at the rate of 6.6% per annum. Interest
income accrued on such notes for the year ended December 31,
1998 amounted to approximately $22,000.
6. Long-Term Debt Long-term debt consists of the following:
Notes payable to former stockholders, due in
monthly installments aggregating $3,178,
including interest at rates ranging from 6%
to 10%, maturing at varying dates through
September 2002. $ 90,391
Note payable to franchisee, due in varying
monthly installments ranging from $1,700
to $2,000 per month through April 2003,
including interest at approximately 24%
per annum. $ 65,243
Mortgage payable, due in monthly installments of
$1,803, including interest at 8.99%, maturing
in May 2017. The obligation is collateralized
by the Company's entertainment facility which
has a net book value of $170,457 as of
December 31, 1998. 194,414
-------
350,048
Less current portion 43,233
------
$ 306,815
==========
The aggregate maturities of long-term debt for each of the
five years subsequent to December 31, 1998 are as follows:
Years ending December 31:
1999 $ 43,233
2000 50,398
2001 39,049
2002 35,231
2003 13,846
Thereafter 168,301
-------
$ 350,058
==========
F-33
<PAGE>
7. Capitalized Included in property and equipment are the following assets
Leases held under capital leases:
Computer hardware and software $1,051,646
Office equipment 168,444
Transportation equipment 31,047
------
1,251,137
---------
Less accumulated amortization 730,677
-------
$ 520,460
==========
Minimum future lease payments for assets under capital
leases at December 31, 1998 are as follows:
Years ending December 31:
1999 362,765
2000 255,021
2001 94,517
2002 11,697
2003 6,908
Thereafter 1,151
-----
Total minimum lease payments 732,059
Less amount representing interest 120,594
-------
Present value of net minimum lease payments 611,465
Less current maturities 284,111
-------
Long-term obligation 327,354
=======
Interest rates on capitalized leases vary from 7.0% to
28.3%.
8. Notes Payable - During the period from November 1997 through December 1998,
DCAP Group, Inc. the Company was advanced a total of $782,000 by DCAP Group.
The borrowings are evidenced by notes payable bearing
interest at 10% per annum. As of the balance sheet date, the
maturity of these notes had been extended to February 28,
1999, at which time they became demand notes. (See Note 13.)
Interest expense on these notes payable for the year ended
December 31, 1998 amounted to $62,000 and is included in
accrued expenses as of December 31, 1998.
9. Note Payable - Note payable - bank consists of a 90 day note due January 1,
Bank 1999 bearing interest at 1.5% above the bank's prime rate
(8.75% at December 31, 1998). The note was renewed upon
maturity for an additional 45 days and was repaid utilizing
a portion of the proceeds of the additional DCAP Group loans
(see Note 13).
F-34
<PAGE>
10. Minority The Company has opened retail offices under the DCAP name,
Interest with the stockholders of the Company owning no less than
fifty percent of the new business entities. The minority
stockholders are required to provide an initial capital
investment to be used for working capital, equipment and
store improvements. Typically, profits and losses are shared
proportionately.
11. Income Taxes Each of the companies included in these combined financial
statements files its own separate income tax returns. In
addition, seventeen of the affiliates have elected "S"
Corporation status and, accordingly, all items of income and
loss from these corporations pass through to the
shareholders for federal and state tax purposes.
The provision for income taxes for the year ended December
31, 1998 consists of federal and state tax provisions for
those members of the combined group who had income in 1998,
minimum state tax provisions for loss companies, and the
reversal of net deferred tax assets in the amount of
$42,700, which existed at the beginning of the year.
Deferred tax assets at December 31, 1998 are comprised of
the following:
Net operating loss carryovers $432,300
Cash versus accrual reporting for
tax return purposes 284,700
-------
Total deferred tax asset 717,000
Less valuation allowance (717,000)
--------
Net deferred tax asset $ -
=========
The Company has recorded a valuation allowance amounting to
the entire deferred tax asset balance because the Company's
financial condition and its lack of a history of consistent
earnings give rise to uncertainty as to whether the deferred
tax asset is realizable. In addition, as a result of the
Company's change in ownership in February 1999 (see Note
13), any future benefit of net operating losses existing at
the time of the change in ownership will be severely limited
under applicable sections of the Internal Revenue Code and
the regulations thereunder.
F-35
<PAGE>
12. Commitments Operating leases - The Company and each of its affiliates
and lease office space under noncancelable operating leases
Contingencies expiring at various dates through the year 2006. Many of the
leases include additional rent for real estate taxes and
other operating expenses. The minimum future rentals under
lease commitments for leased facilities and office equipment
are as follows:
<TABLE>
<CAPTION>
Total Facilities Equipment
----- ---------- ---------
Years ending December 31,
<S> <C> <C> <C>
1999 $ 669,218 $ 641,830 $ 27,388
2000 574,786 556,803 17,983
2001 522,790 520,905 1,885
2002 454,833 454,833 -
2003 323,421 323,421 -
Thereafter 369,616 369,616 -
--------- ------- ------
Total $2,914,664 $2,867,408 $ 47,256
========== ========== ========
</TABLE>
Rent expense for the year ended December 31, 1998
approximated $820,000.
Litigation - In November 1996, an action was commenced in
the United States District Court for the Eastern District of
Pennsylvania by Regent National Bank ("Regent") against the
Company alleging that the Company breached a contract in
connection with Regent's agreement to provide funding to
finance the purchase of automobile insurance for customers
of the Company. Regent claims the Company is liable to it
for the losses that Regent allegedly suffered as a result of
unpaid loans made through the Company. Regent claims damages
of $825,000. The Company has interposed several affirmative
defenses and has asserted counterclaims in the amount of
$40,000 against Regent for breach of contract and fraud.
Inasmuch as the outcome of these matters cannot presently be
determined, no provision for any liability has been made in
the financial statements. The Company intends to continue to
defend and pursue its counterclaim vigorously. In March
1997, the Company brought a separate action against, among
others, Regent in the Supreme Court of the State of New York
alleging, among other things, breach of contract, negligence
and fraud and seeking damages of at least $2,000,000 as well
as punitive damages in the amount of $2,000,000. Such action
has been stayed pending the resolution of the Pennsylvania
action.
13. Subsequent In February 1999, pursuant to an agreement entered into in
Events May 1998, the stockholders of DCAP exchanged all of their
stock in the Company for 3,300,000 shares of common stock of
DCAP Group, a publicly traded company.
Concurrent with the exchange, DCAP Group issued additional
common stock to an unrelated party in consideration of $1
million, of which $920,000 was then advanced to the Company
as additional loans.
In June 1999, DCAP Group issued common stock and warrants in
a private placement and received net proceeds of
approximately $1.44 million.
F-36
<PAGE>
6,024,924 Shares
DCAP Group, Inc.
Common Stock
---------------------------------
Prospectus
---------------------------------
___________, 2000
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Article Fifteenth of DCAP Group's Certificate of Incorporation eliminates
the personal liability of directors to DCAP Group and its stockholders for
monetary damages for breach of fiduciary duty as a director to the fullest
extent permitted by Section 102 of the Delaware General Corporation Law,
provided that this provision shall not eliminate or limit the liability of a
director (i) for any breach of the director's duty of loyalty to DCAP Group or
its stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) arising under
Section 174 of the Delaware General Corporation Law (with respect to unlawful
dividend payments and unlawful stock purchases or redemptions), or (iv) for any
transaction from which the director derived an improper personal benefit.
Additionally, DCAP Group has included in its Certificate of Incorporation
and its By-laws provisions to indemnify its directors, officers, employees and
agents and to purchase insurance with respect to liability arising out of the
performance of their duties as directors, officers, employees and agents as
permitted by Section 145 of the Delaware General Corporation Law. The Delaware
General Corporation Law provides further that the indemnification permitted
thereunder shall not be deemed exclusive of any other rights to which the
directors, officers, employees and agents may be entitled under DCAP Group's
By-laws, any agreement, vote of stockholders or otherwise.
The effect of the foregoing is to require DCAP Group to the extent
permitted by law to indemnify the officers, directors, employees and agents of
DCAP Group for any claim arising against such persons in their official
capacities if such person acted in good faith and in a manner that he reasonably
believed to be in or not opposed to the best interests of DCAP Group, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
his conduct was unlawful.
In connection with this Registration Statement, certain of the selling
stockholders, severally but not jointly, have agreed to indemnify DCAP Group,
its directors, each of its officers who signed this Registration Statement, its
employees, agents and each person who controls it within the meaning of Section
15 of the Securities Act with respect to any statement in or omission from the
Registration Statement or the prospectus or any amendment or supplement thereto
if such statement or omission was made in reliance upon information furnished in
writing to DCAP Group by the selling stockholders specifically for use in
connection with the preparation of the Registration Statement.
II-1
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling DCAP Group
pursuant to the foregoing provisions, DCAP Group has been informed that, in the
opinion of the SEC, such indemnification is against public policy as expressed
in the Securities Act and is therefore unenforceable.
Item 25. Other Expenses of Issuance and Distribution.
The estimated expenses to be incurred by DCAP Group in connection with the
distribution of the securities being registered are estimated as follows:
SEC Registration Fee $ 745.60
Registrant's Counsel Fees and Expenses 20,000.00
Accountant's Fees and Expenses 1,000.00
Miscellaneous Expenses 3,254.40
--------
Estimated Total $25,000.00
==========
Item 26. Recent Sales of Unregistered Securities.
On February 25, 1999, DCAP Group acquired all of the outstanding shares of
DCAP Insurance as well as interests in related entities (collectively, the "DCAP
Shares").
In consideration for the transfer of the DCAP Shares, DCAP Group issued
1,650,000 shares of common stock to each of Kevin Lang and Abraham Weinzimer
(3,300,000 shares in the aggregate).
Concurrently with the acquisition of the DCAP Shares, DCAP Group issued
additional shares of common stock as follows:
(i) 475,000 shares to each of Messrs. Lang and Weinzimer (950,000 shares
in the aggregate) at a purchase price of $.25 per share (an aggregate
of $237,500), paid as follows:
(a) an amount in cash equal to the par value of the 950,000 shares
(an aggregate of $9,500); and
(b) the balance by the delivery by each of Messrs. Lang and Weinzimer
of a promissory note in the principal amount of $114,000 (an
aggregate of $228,000). The notes provide for, among other
things, the following:
(I) interest at the rate of 6% per annum; and
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(II) payment of principal and interest in six equal annual
installments commencing April 15, 2001 and continuing
through April 15, 2006, subject to acceleration to the
extent that Mr. Lang or Mr. Weinzimer receives any proceeds
from the sale or other disposition of any common stock;
(ii) 452,000 shares of common stock in the aggregate to Morton L.
Certilman, Jay M. Haft and Brian K. Ziegler or their designees
(208,500 shares to each of Messrs. Certilman and Haft or his
retirement trust and an aggregate of 35,000 shares to Mr. Ziegler and
his wife) at a purchase price of $.25 per share (an aggregate of
$113,000), paid in cash; and
(iii)1,486,893 shares of common stock to Eagle at a purchase price of $.67
per share (an aggregate of approximately $1,000,000), paid in cash.
Effective as of March 17, 1999, in consideration for the transfer of
certain contract rights, DCAP Group issued 150,000 shares of common stock to
East County Insurance Agency, Inc. - Shirley.
The above transactions were private transactions not involving a public
offering and were exempt from the registration provisions of the Securities Act
pursuant to Section 4(2) thereof. DCAP Group determined that each of the
purchasers was an "accredited investor" or otherwise a sophisticated investor.
The certificates representing the common stock bear restrictive legends
permitting the transfer thereof only upon registration of such securities or
pursuant to an exemption under the Securities Act.
On June 2, 1999, DCAP Group sold, through Aegis Capital Corp., 33.5 Units,
each Unit initially consisting of 45,453 shares of common stock, 15,151 Class A
Common Stock Purchase Warrants ("Class A Warrants"), 15,151 Class B Common Stock
Purchase Warrants ("Class B Warrants") and 15,151 Class C Common Stock Purchase
Warrants ("Class C Warrants"), at a price of $50,000 per Unit (or an aggregate
of $1,675,000), to 43 accredited investors. The placement agent's commission was
$5,000 per Unit (or an aggregate of $167,500).
Effective June 2, 2000, as a result of certain price protection provisions
included as part of the offering, the purchasers of the Units were entitled to
receive an aggregate of 761,342 additional shares of common stock, 253,778
additional Class A Warrants, 253,778 additional Class B Warrants and 253,778
additional Class C Warrants.
The above offering of Units was a private transaction not involving a
public offering and was exempt from the registration provisions of the
Securities Act pursuant to Section 4(2) thereof and
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Rule 506 of Regulation D promulgated thereunder. The Company determined that
each of the purchasers was an "accredited investor." The certificates
representing the common stock and warrants bear restrictive legends permitting
the transfer thereof only upon registration of such securities or pursuant to an
exemption under the Securities Act.
Pursuant to various agreements entered into by DCAP Group in December 1999,
DCAP Group acquired the interests of its joint venture partners in 15 DCAP
retail insurance stores, in exchange for the issuance of approximately 850,000
shares of common stock of DCAP Group.
These transactions were private transactions not involving a public
offering and were exempt from the registration provisions of the Securities Act
pursuant to Rule 505 or 506 of Regulation D promulgated thereunder. The
certificates representing the common stock issued in connection with these
transactions bear restrictive legends permitting the transfer thereof only upon
registration of such securities or pursuant to an exemption under the Securities
Act.
Effective as of February 8, 2000, in consideration for the transfer of
certain contract rights, DCAP Group issued 7,500 shares of common stock to WISE
Agency Corp.
The above transaction was a private transaction not involving a public
offering and was exempt from the registration provisions of the Securities Act
pursuant to Section 4(2) thereof. DCAP Group determined that the purchaser was a
sophisticated investor. The certificate representing such common stock bears a
restrictive legend permitting the transfer thereof only upon registration of
such securities or pursuant to an exemption from registration under the
Securities Act.
Item 27. Exhibits
Exhibit
Number Description of Exhibit
3(a) Certificate of Incorporation, as amended(1)
(b) By-laws, as amended(2)
5 Opinion of Certilman Balin Adler & Hyman, LLP
10(a) Agreement, dated July 22, 1988, between the Ports Authority and IAH(3)
10(b) Resolution of Board of Directors of Ports Authority, dated August 10,
1994, regarding rental obligation of the Hotel(4)
10(c) 1998 Stock Option Plan(2)
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10(d) License and Royalty Agreement, dated July 1991, among DCAP Group, IFTI
Capital Appreciation Management Corporation, and NPS Products, Inc.(5)
10(e) Agreement, dated as of May 8, 1998, by and among DCAP Group and Morton
L. Certilman, Jay M. Haft, Kevin Lang and Abraham Weinzimer, as
amended(2)
10(f) Promissory Note, dated February 25, 1999, from Kevin Lang to DCAP
Group in the principal amount of $114,000(2)
10(g) Pledge Agreement, dated February 25, 1999, between DCAP Group and
Kevin Lang ($114,000 Note)(2)
10(h) Promissory Note, dated February 25, 1999, from Kevin Lang to DCAP
Group in the principal amount of $112,500(2)
10(i) Pledge Agreement, dated February 25, 1999, between DCAP Group and
Kevin Lang ($112,500 Note)(2)
10(j) Promissory Note, dated February 25, 1999, from Abraham Weinzimer to
DCAP Group in the principal amount of $114,000(2)
10(k) Pledge Agreement, dated February 25, 1999, between DCAP Group and
Abraham Weinzimer ($114,000 Note)(2)
10(l) Promissory Note, dated February 25, 1999, from Abraham Weinzimer to
DCAP Group in the principal amount of $112,500(2)
10(m) Pledge Agreement, dated February 25, 1999, between DCAP Group and
Abraham Weinzimer ($112,500 Note)(2)
10(n) Employment Agreement, dated February 25, 1999, between DCAP Group and
Morton L. Certilman(2)
10(o) Employment Agreement, dated February 25, 1999, between DCAP Group and
Jay M. Haft(2)
10(p) Employment Agreement, dated February 25, 1999, between DCAP Group and
Kevin Lang(2)
10(q) Employment Agreement, dated February 25, 1999, between DCAP Group and
Abraham Weinzimer(2)
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10(r) Stock Option Agreement, dated February 25, 1999, between DCAP Group
and Morton L. Certilman(2)
10(s) Stock Option Agreement, dated February 25, 1999, between DCAP Group
and Jay M. Haft(2)
10(t) Stock Option Agreement, dated February 25, 1999, between DCAP Group
and Kevin Lang(2)
10(u) Stock Option Agreement, dated February 25, 1999, between DCAP Group
and Abraham Weinzimer(2)
10(v) Subscription Agreement, dated as of October 2, 1998, between DCAP
Group and Eagle Insurance Company and amendments thereto(2)
10(w) Form of Subscription Agreement with regard to private offering of
Units, dated June 2, 1999(6)
10(x) Form of Registration Rights Agreement with regard to private offering
of Units, dated June 2, 1999(6)
10(y) Form of Warrant Agreement with regard to private offering of Units,
dated June 2, 1999(6)
10(z) Sale and Assignment Agreement, dated as of September 1, 1999, among
Payments, Inc., Flatiron Credit Company, Inc. and Westchester Premium
Acceptance Corp.(6)
10(aa) Stock Purchase Agreement dated May 17, 2000 by and between DCAP Group,
Dealers Choice Automotive Planning, Inc., Alyssa Greenvald, Morton
Certilman, DCAP Ridgewood, Inc., DCAP Bayside, Inc., DCAP Freeport,
Inc., and MC DCAP, Inc.(7)
21 Subsidiaries of the Registrant
23(a) Consent of Holtz Rubenstein & Co., LLP
23(b) Consent of Margolin Winer & Evens LLP
23(c) Consent of Certilman Balin Adler & Hyman, LLP (included as part of
Exhibit 5)
---------------
(1) Denotes document filed as exhibits to DCAP Group's Annual Reports on Form
10-KSB for the years ended December 31, 1993 and 1998 and incorporated
herein by reference.
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(2) Denotes document filed as an exhibit to DCAP Group's Annual Report on Form
10-KSB for the year ended December 31, 1998 and incorporated herein by
reference.
(3) Denotes document filed as an exhibit to DCAP Group's Annual Report on Form
10-KSB for the year ended December 31, 1993 and incorporated herein by
reference.
(4) Denotes document filed as an exhibit to DCAP Group's Annual Report on Form
10-KSB for the year ended December 31, 1994 and incorporated herein by
reference.
(5) Denotes document filed as an exhibit to DCAP Group's Annual Report on Form
10-K for the year ended December 31, 1991 and incorporated herein by
reference.
(6) Denotes document filed as an exhibit to DCAP Group's Annual Report on Form
10-KSB for the year ended December 31, 1999 and incorporated herein by
reference.
(7) Denotes document filed as an exhibit to DCAP Group's Quarterly Report on
Form 10-QSB for the period ended June 30, 2000 and incorporated herein by
reference.
Item 28. Undertakings.
(a) Rule 415 Offering.
DCAP Group will:
(1) File, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to:
(i) include any prospectus required by Section 10(a)(3) of the Securities
Act;
(ii) reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information set forth
in the registration statement; and
(iii)include any additional or changed material information on the plan of
distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial
bona fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
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(b) Indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of DCAP Group
pursuant to the provisions referred to in Item 24 of this Registration
Statement, or otherwise, DCAP Group has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by DCAP Group of expenses incurred or paid by a
director, officer or controlling persons of DCAP Group in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, DCAP
Group will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
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SIGNATURES
In accordance with the requirements of the Securities Act of 1933, DCAP
Group, Inc. certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, in the County of
Nassau, State of New York, on September 14, 2000.
DCAP GROUP, INC.
By: /s/ Morton L. Certilman
-----------------------
Morton L. Certilman,
Chairman of the Board
POWER OF ATTORNEY
Know all men by these presents, that each person whose signature appears
below constitutes and appoints Morton L. Certilman, Kevin Lang and Abraham
Weinzimer, and each of them, with full power to act as his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution
for him and in his name, place and stead, in any and all capacities to sign any
and all amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them and each of his
substitutes, full power and authority to do and perform each and every act and
thing requisite or necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, and each of them and each
of his substitutes, may lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated.
Signature Title Date
/s/ Morton L. Certilman Chairman of the Board and September 14, 2000
------------------------ Director (Principal Executive
Morton L. Certilman Officer)
/s/ Jay M. Haft Vice Chairman of the Board and September 14, 2000
------------------------ Director
Jay M. Haft
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/s/ Kevin Lang President and Director September 14, 2000
------------------------
Kevin Lang
/s/ Abraham Weinzimer Executive Vice President and September 14, 2000
------------------------ Director (Principal Financial
Abraham Weinzimer and Accounting Officer)
------------------------ Director
Robert M. Wallach
<PAGE>
