SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: May 28, 2003
(Date of earliest event reported)
DCAP GROUP, INC.
----------------
(Exact name of Registrant as specified in charter)
Delaware 0-1665 36-2476480
---------------------------- ------------------- ---------------------------
(State or other jurisdiction (Commission File No.) (IRS Employer Identification
incorporation) Number)
1158 Broadway, Hewlett, New York 11557
--------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 374-7600
--------------
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Businesses Acquired.
-------------------------------------------
(i) Balance Sheet of AIA Acquisition Corp. ("AIA") at December 31,
2002.
(ii) Statement of Operations and Retained Earnings of AIA for the year
ended December 31, 2002.
(iii)Statement of Cash Flows of AIA for the year ended December 31,
2002.
(iv) Balance Sheet of AIA at March 31, 2003.
(v) Statements of Operations and Retained Earnings of AIA for the
three months ended March 31, 2003 and 2002.
(vi) Statements of Cash Flows of AIA for the three months ended March
31, 2003 and 2002.
(b) Pro Forma Financial Information.
-------------------------------
(i) Pro Forma Condensed Consolidated Balance Sheet of the Registrant
as of March 31, 2003.
(ii) Pro Forma Condensed Consolidated Statement of Operations of the
Registrant for the three months ended March 31, 2003.
(iii)Pro Forma Condensed Consolidated Statement of Operations of the
Registrant for the fiscal year ended December 31, 2002.
(c) Exhibits.
--------
Exhibit No. Description
----------- -----------
2.1 Asset Purchase Agreement dated May 28, 2003 by and among AIA-DCAP
Corp., DCAP Group, Inc. and AIA Acquisition Corp.1
4.1 Certificate of Designations of Series A Preferred Stock.1
99.1 Financing and Security Agreement dated July 10, 2003 by and
between
-----------------
1 Previously filed.
Manufacturers and Traders Trust Company and Payments Inc.
99.2 Grid Note dated July 10, 2003 in the principal amount of
$18,000,000 issued by Payments Inc. to Manufacturers and Traders
Trust Company.
99.3 Security Agreement dated July 10, 2003 by DCAP Group, Inc, DCAP
Management Corp., AIA-DCAP Corp., Aard-Vark Agency, Ltd., Barry
Scott Agency, Inc., Barry Scott Companies, Inc., Barry Scott
Acquisition Corp., Baron Cycle, Inc., Blast Acquisition Corp.,
Dealers Choice Automotive Planning, Inc., IAH, Inc. and Intandem
Corp. for the benefit of Manufacturers and Traders Trust Company.
99.4 Pledge, Assignment and Security Agreement dated July 10, 2003 by
DCAP Group, Inc. for the benefit of Manufacturers and Traders
Trust Company.
99.5 Pledge, Assignment and Security Agreement dated July 10, 2003 by
Blast Acquisition Corp. for the benefit of Manufacturers and
Traders Trust Company.
99.6 Unit Purchase Agreement dated as of July 2, 2003 by and among
DCAP Group, Inc. and the purchasers named therein.
99.7 Security Agreement dated as of July 10, 2003 by and among
Payments Inc. and the secured parties named therein.
99.8 Pledge Agreement dated as of July 10, 2003 by and among DCAP
Group, Inc. and the pledgees named therein.
99.9 Form of Secured Subordinated Promissory Note dated July 10, 2003
issued by DCAP Group, Inc. with respect to aggregate principal
indebtedness of $3,500,000.
99.10 Form of Warrant dated July 10, 2003 for the purchase of an
aggregate of 525,000 shares of common stock of DCAP Group, Inc.
99.11 Registration Rights Agreement dated July 10, 2003 by and among
DCAP Group, Inc. and the purchasers named therein.
AIA ACQUISITION CORP.
Financial Statements
&
Accountants' Report
For The Year Ended December 31, 2002
AIA ACQUISITION CORP.
Audited Financial Statements
For the Year Ended December 31, 2002
TABLE OF CONTENTS
-----------------
Page
----
Independent Auditors' Report 1
Balance Sheet 2
Statement of Operations 3
Statement of Cash Flows 4
Notes to Financial Statements 5
Board of Directors
AIA Acquisition Corp.
Philadelphia, PA
Independent Auditors' Report
----------------------------
We have audited the accompanying Balance Sheet of AIA Acquisition Corp., Inc.,
as of December 31, 2002 and the related statements of operations and retained
earnings and cash flows for the year then ended. These financial statements are
the responsibility of Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. 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 an assessment of the accounting principles
used and significant estimates made by management, as well as an evaluation of
the overall financial statement presentation. We believe our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of AIA Acquisition Corp., as of
December 31, 2002, the results of its operations and cash flows for the year
then ended, in conformity with accounting principles generally accepted in the
United States of America.
March 27, 2003 A.W. Guthman & Company
AIA ACQUISITION CORP.
Balance Sheet
As of December 31, 2002
2002
--------------------
ASSETS
CURRENT
Cash $ 35,594
Accounts Receivable 87,276
Commissions Receivable (Note 2) 122,040
Other Current Assets 26,568
--------------------
TOTAL CURRENT ASSETS 271,478
NON-CURRENT
Rental Security Deposits 7,800
Deferred Charges 15,679
Fixed Assets, Less Accumulated Depreciation (Note 2) 264,052
Goodwill (Note 2) 528,695
--------------------
TOTAL NON-CURRENT ASSETS 816,226
--------------------
TOTAL ASSETS $ 1,087,704
====================
LIABILITIES AND SHAREHOLDERS EQUITY
CURRENT LIABILITIES
Accounts Payable $ 96,671
Advances from Officers (Note 3) 80,000
Mortgage Note Payable - current portion (Note 3) 933
Auto Loan Payable - current portion (Note 3) 2,834
--------------------
TOTAL CURRENT LIABILITIES 180,438
LONG-TERM LIABILITIES
Mortgage Note Payable - less current portion (Note 3) 29,527
Auto Loan Payable - less current portion (Note 3) 11,616
Notes Payable - Shareholders (Note 3) 275,000
--------------------
TOTAL LONG-TERM LIABILITIES 316,143
SHAREHOLDERS EQUITY
Capital Stock 346,400
Additional Paid-in Capital 1,025,000
Retained Earnings (780,277)
--------------------
TOTAL SHAREHOLDERS EQUITY 591,123
--------------------
TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY $ 1,087,704
====================
See accompanying notes to financial statements.
-2-
AIA ACQUISITION CORP.
Statement of Operations and Retained Earnings
For the Year Ended December 31, 2002
2002
-----------------
INCOME
Commissions (Note 2) $ 1,105,176
Fees and Services 107,213
Miscellaneous 8,448
-----------------
TOTAL INCOME 1,220,837
EXPENSES
Salaries and Fringe Benefits 607,623
Rent 92,223
Consulting Fees (Note 5) 131,955
Legal and Professional Fees 24,705
Advertising 103,949
Office Supplies 52,273
Telephone and Utilities 63,852
Information Processing 41,196
Postage and Delivery 19,764
Insurance 40,941
Equipment Rental 11,186
Travel and Entertainment 14,121
Repairs and Maintenance 15,326
Depreciation and Amortization 52,337
Interest 40,241
Banking and Credit Card Fees 14,397
State and Local Taxes 4,079
-----------------
TOTAL EXPENSES 1,330,168
-----------------
NET LOSS (109,331)
RETAINED EARNINGS - Beginning of Year (670,946)
-----------------
RETAINED EARNINGS - End of Year (780,277)
=================
See accompanying notes to financial statements.
-3-
AIA ACQUISITION CORP.
Statement of Cash Flows
For the Year Ended December 31, 2002
2002
-----------------
OPERATING ACTIVITIES
Net Loss $(109,331)
Adjustments to reconcile Net Loss to
Cash Used in Operating Activities:
Depreciation 44,938
Amortization 7,399
Changes in Operating Assets and Liabilities:
Increase in Accounts Receivable (39,434)
Decrease in Commissions Receivable 502
Increase in Prepaid Expenses (226)
Increase in Employee Loans Receivable (1,100)
Decrease in Accounts Payable (31,032)
-----------------
NET CASH USED IN OPERATING ACTIVITIES (128,284)
INVESTING ACTIVITIES
Increase in Deferred Marketing & Development Costs (9,554)
Increase in Rental Security Deposits (2,381)
Acquisition of Transportation Equipment (20,040)
Acquisition of Computer & Office Equipment (11,265)
Capitalized Building Improvements (17,101)
-----------------
NET CASH USED IN INVESTING ACTIVITIES (60,341)
FINANCING ACTIVITIES
Proceeds from Officer Advances 80,000
Reduction in Mortgage Note Payable (1,777)
Increase in Loans for Transportation Equipment 11,969
-----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 90,192
-----------------
NET DECREASE IN CASH (98,433)
CASH - Beginning of Year 134,027
-----------------
CASH - End of Year $ 35,594
=================
See accompanying notes to financial statements.
-4-
AIA ACQUISITION CORP.
Notes to Financial Statements
For the Year Ended December 31, 2002
NOTE 1 ORGANIZATION
-------------------
AIA Acquisition Corp., an insurance agency, is a closely-held corporation
organized under the laws of the state of Pennsylvania. The Company, which
maintains all of its sales offices in eastern Pennsylvania, derives
substantially all of its income from commissions and service fees associated
with the sale of auto, homeowners and commercial insurance.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------------------
General
-------
Assets, liabilities, income and expenses are recorded using the accrual basis of
accounting.
Use of Estimates
----------------
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America, 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. Also affected are the reported amounts of revenue and
expenses during the reporting period. Actual results may differ from these
estimates.
Fixed Assets
------------
Fixed Assets are recorded at cost and depreciated over their estimated useful
lives based on methods and rates also allowable for tax purposes. Such assets
were comprised of the following as of December 31, 2002:
Fixed Asset Category Amount
----------------------------------------------- -------------------
Building & Building Improvements $ 161,785
Leasehold Improvements 22,176
Computers & Other Equipment 122,914
Furniture & Fixtures 107,694
Software 7,860
Auto 20,040
-------------------
Total Gross Fixed Assets 442,469
Less Accumulated Depreciation (178,417)
-------------------
Net Book Value $ 264,052
===================
-5-
AIA ACQUISITION CORP.
Notes to Financial Statements
For the Year Ended December 31, 2002
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
------------------------------------------------------------
Organization Costs
------------------
Organization costs which became fully expensed in 2002, were amortized over a
sixty month period on a straight-line basis.
Goodwill
--------
Goodwill, recorded when the Company was acquired in 1997, represents the
difference between the acquisition price and the fair value of the assets
purchased.
Commission Income
-----------------
Commission income is recognized when policies become effective and substantially
all required services have been performed. Commissions receivable at year end
represent management's estimate of the uncollected commissions on policies
written less estimated return commissions on canceled policies.
NOTE 3 - NOTES PAYABLE
----------------------
The Company's auto, purchased in 2002, was financed with a bank loan of $15,365
at 4.74% per annum and payable in sixty monthly installments of $288.12
commencing September, 2002 and the final payment due in August, 2007.
In 1997 the Company purchased a building for $40,000 and financed $34,000 of the
purchase price with a mortgage note. The mortgage note, which is payable in
monthly installments of $328.11, assumes an interest rate of 10% per annum. A
final balloon payment of all outstanding principal and interest is due on
October 1, 2004
From 1997 the Company's initial capitalization included loans from various
shareholders and related parties totaling $275,000. In exchange for such loans,
the lenders were issued promissory notes requiring quarterly interest payments
at 12% per annum. In February 2003, such notes were retired and exchanged for
new notes requiring quarterly payment of interest only through June 30, 2007,
when principal and any unpaid interest are due in full.
In 2002, two of the Company's officers made advances totaling $80,000 and
accruing interest at 9% per annum. In February, 2003, the advances were repaid.
-6-
AIA ACQUISITION CORP.
Notes to Financial Statements
For the Year Ended December 31, 2002
NOTE 4 - INCOME TAXES
---------------------
The Company, a Subchapter S corporation, is not subject to federal income taxes
and none have been provided. Pennsylvania state and local income taxes have been
estimated and provided for in the Statement of Operations.
NOTE 5 - RELATED PARTIES
------------------------
Consulting fees as reported in the Statement of Operations, were paid to a
corporation wholly-owned by the Company's president for financial and managerial
services rendered. The president is a relative of three of the Company's
shareholders. See Note 3 for details on shareholder loans to the Company.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
--------------------------------------
The Company's minimum lease commitment for rental of its administrative and
sales offices is as follows:
Year Amount
---- -------
2003 $14,400
2004 3,600
NOTE 7 - SUBSEQUENT EVENTS
--------------------------
The Company has agreed to sell substantially all of its assets to DCAP Group,
Inc. A publicly held corporation, DCAP Group owns, operates and/or franchises
seventy-three "storefront" insurance agencies in New York and New Jersey. The
sales price will be equal to 69% of the Company's commission income for the
twelve month period ended December 31, 2002. Additional amounts are due based on
the collection of accounts and commissions receivable and the value of prepaid
assets and security deposits at closing. Furthermore, future cash amounts not to
exceed $335,000 may be realized based on the operating performance of the
acquired assets, computed and payable annually over a five year period.
-7-
AIA ACQUISITION CORP.
Financial Statements
and
Accountants' Report
For the Three Month Periods Ended March 31, 2003 and 2002
AIA ACQUISITION CORP.
Reviewed Financial Statements
For the Three Month Periods Ended March 31, 2003 and 2002
TABLE OF CONTENTS
-----------------
Page
----
Independent Auditors' Report 1
Balance Sheet 2
Statements of Operations and
Retained Earnings 3
Statements of Cash Flows 4
Notes to Financial Statements 5
Board of Directors
AIA Acquisition Corp.
Philadelphia, PA
Independent Auditors' Report
----------------------------
We have reviewed the balance sheet of AIA Acquisition Corp., as of March 31,
2003 and the related statements of operations, retained earnings and cash flows
for the three month periods ended March 31, 2003 and 2002. These financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the financial statements referred to above for them to be in
conformity with accounting principles generally accepted in the United States of
America.
June 27, 2003 A.W. Guthman & Company
AIA ACQUISITION CORP.
Balance Sheet
As of March 31, 2003
ASSETS
CURRENT
Cash $ 14,537
Accounts Receivable 40,460
Commissions Receivable (Note 2) 122,040
Other Current Assets 27,391
--------------------
TOTAL CURRENT ASSETS 204,428
NON-CURRENT
Rental Security Deposits 7,800
Deferred Charges 15,679
Fixed Assets, Less Accumulated Depreciation (Note 2) 252,702
Goodwill (Note 2) 528,695
--------------------
TOTAL NON-CURRENT ASSETS 804,876
--------------------
TOTAL ASSETS $ 1,009,304
====================
LIABILITIES AND SHAREHOLDERS EQUITY
CURRENT LIABILITIES
Accounts Payable $ 39,764
Advances from Officers (Note 3) 20,000
Mortgage Note Payable - current portion (Note 3) 933
Auto Loan Payable - current portion (Note 3) 2,834
--------------------
TOTAL CURRENT LIABILITIES 63,531
LONG-TERM LIABILITIES
Mortgage Note Payable - less current portion (Note 3) 29,302
Auto Loan Payable - less current portion (Note 3) 10,920
Notes Payable - Shareholders (Note 3) 342,500
--------------------
TOTAL LONG-TERM LIABILITIES 382,722
SHAREHOLDERS EQUITY
Capital Stock 346,400
Additional Paid-in Capital 1,025,000
Retained Earnings (808,349)
--------------------
TOTAL SHAREHOLDERS EQUITY 563,051
--------------------
TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY $ 1,009,304
====================
See accompanying notes to financial statements.
-2-
AIA ACQUISITION CORP.
Statements of Operations and Retained Earnings
For the Three Month Periods Ended March 31, 2003 and 2002
2003 2002
------------------ ------------------
INCOME
Commissions (Note 2) $ 276,465 $ 297,965
Fees and Services 21,844 29,338
- 1,344
------------------ ------------------
TOTAL INCOME 298,309 328,647
EXPENSES
Salaries and Fringe Benefits 164,736 163,877
Rent 20,923 23,891
Consulting Fees (Note 5) 29,175 32,940
Legal and Professional Fees 6,520 5,922
Advertising 24,707 21,162
Office Supplies 10,264 16,132
Telephone and Utilities 16,599 16,352
Information Processing 10,847 12,631
Postage and Delivery 5,053 5,940
Insurance 8,194 8,219
Equipment Rental 2,489 2,503
Travel and Entertainment 1,966 2,748
Repairs and Maintenance 1,760 -
Depreciation and Amortization 11,351 22,095
Interest 10,347 9,076
Banking and Credit Card Fees 1,450 3,543
State and Local Taxes - 79
------------------ ------------------
TOTAL EXPENSES 326,381 347,110
------------------ ------------------
NET LOSS (28,072) (18,463)
RETAINED EARNINGS - Beginning of Period (780,277) (670,946)
------------------ ------------------
RETAINED EARNINGS - End of Period $ (808,349) $ (689,409)
================== ==================
See accompanying notes to financial statements.
-3-
AIA ACQUISITION CORP.
Statements of Cash Flows
For the Three Month Periods Ended March 31, 2003 and 2002
2003 2002
------------ -------------
OPERATING ACTIVITIES
Net Loss $ (28,072) $ (18,463)
Adjustments to reconcile Net Loss to
Cash Used in Operating Activities:
Depreciation and Amortization 11,351 22,096
Changes in Operating Assets and Liabilities:
Decrease in Accounts Receivable 46,816 29,471
Increase in Prepaid Expenses (1,724) 576
Decrease in Employee Loans Receivable 900 -
Decrease in Accounts Payable (56,907) 21,244
----------------- -----------------
NET CASH USED IN OPERATING ACTIVITIES (27,636) 54,924
INVESTING ACTIVITIES
Increase in Security Deposits - (1,492.00)
Increase in Deferred Marketing and Development Costs - (9,554.00)
Acquistion of Fixed Assets - (16,683.00)
----------------- -----------------
NET CASH USED BY INVESTING ACTIVITIES - (27,729.00)
FINANCING ACTIVITIES
Reduction in Officer Advances Payable (60,000) -
Reduction in Mortgage Note Payable (225) (203)
Reduction in Loans for Transportation Equipment (696) (909)
Increase in Shareholder Loans Payable 67,500 (59,725)
----------------- -----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 6,579 (60,837)
----------------- -----------------
NET DECREASE IN CASH (21,057) (33,642)
CASH - Beginning of Period 35,594 134,027
----------------- -----------------
CASH - End of Period $ 14,537 $100,385
================= =================
See accompanying notes to financial statements.
-4-
AIA ACQUISITION CORP.
Notes to Financial Statements
For the Three Month Periods Ended March 31, 2003 and 2002
NOTE 1 - ORGANIZATION
---------------------
AIA Acquisition Corp., an insurance agency, is a closely-held corporation
organized under the laws of the state of Pennsylvania. The Company, which
maintains all of its sales offices in eastern Pennsylvania, derives
substantially all of its income from commissions and service fees associated
with the sale of auto, homeowners and commercial insurance.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------------------
General
-------
Assets, liabilities, income and expenses are recorded using the accrual basis of
accounting.
Use of Estimates
----------------
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America, 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. Also affected are the reported amounts of revenue and
expenses during the reporting periods. Actual results may differ from these
estimates.
Fixed Assets
------------
Fixed Assets are recorded at cost and depreciated over their estimated useful
lives based on methods and rates also allowable for tax purposes. Such assets
were comprised of the following as of March 31, 2003:
Fixed Asset Category Amount
---------------------------------------- --------------------
Building & Building Improvements $ 161,785
Leasehold Improvements 22,176
Computers & Other Equipment 122,914
Furniture & Fixtures 107,694
Software 7,860
Auto 20,040
-------------------
Total Gross Fixed Assets 442,469
Less Accumulated Depreciation (189,767)
-------------------
Net Book Value $ 252,702
===================
-5-
AIA ACQUISITION CORP.
Notes to Financial Statements
For the Three Month Periods Ended March 31, 2003 and 2002
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
------------------------------------------------------------
Goodwill
--------
Goodwill, recorded when the Company was acquired in 1997, represents the
difference between the acquisition price and the fair value of the assets
purchased.
Commission Income
-----------------
Commission income is recognized when policies become effective and substantially
all required services have been performed. Commissions receivable as of March
31, 2003 represent management's estimate of the uncollected commissions on
policies written less estimated return commissions on canceled policies.
NOTE 3 - NOTES PAYABLE
----------------------
The Company's auto, purchased in 2002, was financed with a bank loan of $15,365
at 4.74% per annum and payable in sixty monthly installments of $288.12
commencing September, 2002 and the final payment due in August, 2007.
In 1997 the Company purchased a building for $40,000 and financed $34,000 of the
purchase price with a mortgage note. The mortgage note, which is payable in
monthly installments of $328.11, assumes an interest rate of 10% per annum. A
final balloon payment of all outstanding principal and interest is due on
October 1, 2004.
From 1997 the Company's initial capitalization included loans from various
shareholders and related parties totaling $275,000. In exchange for such loans,
the lenders were issued promissory notes requiring quarterly interest payments
at 12% per annum. In February 2003, such notes were retired and exchanged for
new notes totaling $342,500, requiring quarterly payment of interest only
through June 30, 2007, when principal and any unpaid interest are due in full.
-6-
AIA ACQUISITION CORP.
Notes to Financial Statements
For the Three Month Periods Ended March 31, 2003 and 2002
NOTE 4 - INCOME TAXES
---------------------
The Company, a Subchapter S corporation, is not subject to federal income taxes
and none have been provided. Pennsylvania state and local income taxes have been
estimated and provided for in the Statement of Operations.
NOTE 5 - RELATED PARTIES
------------------------
Consulting fees as reported in the Statement of Operations, were paid to a
corporation wholly-owned by the Company's president for financial and managerial
services rendered. The president is a relative of three of the Company's
shareholders. See Note 3 for details on shareholder loans to the Company.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
--------------------------------------
The Company's minimum lease commitment for rental of its administrative and
sales offices is as follows:
Year Amount
2003 $14,400
2004 3,600
NOTE 7 - SUBSEQUENT EVENTS
--------------------------
The Company has agreed to sell substantially all of its assets to DCAP Group,
Inc. A publicly held corporation, DCAP Group owns, operates and/or franchises
seventy-three "storefront" insurance agencies in New York and New Jersey. The
sales price will be equal to 69% of the Company's commission income for the
twelve month period ended December 31, 2002. Additional amounts are due based on
the collection of accounts and commissions receivable and the value of prepaid
assets and security deposits at closing. Furthermore, future cash amounts not to
exceed $335,000 may be realized based on the operating performance of the
acquired assets, computed and payable annually over a five year period.
-7-
PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated financial
statements give effect to the acquisition (the "Acquisition") by DCAP Group,
Inc. (the "Registrant") of the shares of AIA Acquisition Corp. ("AIA") accounted
for as a purchase transaction. These pro forma financial statements are
presented for illustrative purposes only, and therefore are not necessarily
indicative of the operating results and financial position that might have been
achieved had the Acquisition occurred as of an earlier date, nor are they
necessarily indicative of the operating results and financial position which may
occur in the future.
A Pro Forma Condensed Consolidated Balance Sheet is provided as of March
31, 2003, giving effect to the Acquisition as though it had been consummated on
that date. Pro Forma Condensed Consolidated Statements of Operations are
provided for the three months ended March 31, 2003 and the year ended December
31, 2002, giving effect to the Acquisition as though it had occurred on January
1, 2002.
The pro forma financial statements are based on preliminary estimates of
values and transaction costs. The actual recording of the transactions will be
based on final values and transaction costs. Accordingly, the actual recording
of the transactions may differ from these pro forma financial statements.
The pro forma condensed consolidated financial statements presented as of
March 31, 2003 and for the three months then ended, and for the fiscal year
ended December 31, 2002, are derived from the separate historical consolidated
financial statements of the Registrant and AIA and should be read in conjunction
with the audited and unaudited consolidated financial statements of the
Registrant (included in its Annual Report on Form 10-KSB for the year ended
December 31, 2002 and Quarterly Report on Form 10-QSB for the period ended March
31, 2003) and AIA (contained elsewhere herein.)
DCAP GROUP, INC. AND SUBSIDIARIES
AND
AIA ACQUISITION CORP.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 2003
(Unaudited)
Historical Pro Forma
------------------------- ---------------------------
DCAP AIA
Group Acquisition Adjustments Consolidated
----------- ----------- ------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $1,206,394 $ 14,537 $ (14,537) 2 $1,206,394
Accounts receivable 763,475 162,500 925,975
Notes receivable 54,571 54,571
Prepaid expenses and other assets 146,312 27,391 (9,553) 2 139,150
(25,000) 3
----------- ----------- -------------- -----------
Total current assets 2,170,752 204,428 (49,090) 2,326,090
PROPERTY AND EQUIPMENT, net 212,128 252,702 (166,636) 2 298,194
OTHER ASSETS:
Goodwill 569,382 528,695 (528,696) 2 1,118,178
510,797 1
38,000 3
Other intangibles, net 268,513 150,000 1 418,513
Deposits and other assets 26,929 23,479 (15,679) 2 34,729
Note receivable 55,309 55,309
----------- ----------- ------------ -----------
Total other assets 920,133 552,174 154,422 1,626,729
----------- ----------- ------------ -----------
$3,303,013 $1,009,304 ($61,304) $4,251,013
=========== =========== ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 576,859 $ 39,764 ($39,764) 2 $ 589,859
13,000 3
Current portion of long-term debt 13,986 3,767 (3,767) 2 13,986
Current portion of capital lease obligations 47,847 47,847
Deferred revenue 66,417 66,417
Debentures payable 154,200 154,200
Note payable - shareholders 20,000 (20,000) 2 0
----------- ----------- ------------ -----------
Total current liabilities 859,309 63,531 (50,531) 872,309
LONG TERM DEBT 691,662 382,722 (382,722) 2 691,662
CAPITAL LEASE OBLIGATIONS 31,013 31,013
DEFERRED REVENUE 24,591 24,591
MANDATORILY REDEEMABLE STOCK 935,000 1 935,000
STOCKHOLDERS' EQUITY
Common stock 160,680 346,400 (346,400) 2 160,680
Capital in excess of par 10,242,409 1,025,000 (1,025,000) 2 10,242,409
Deficit (7,777,996) (808,349) 1,082,552 2 (7,777,996)
(274,203) 1
----------- ----------- ------------ -----------
2,625,093 563,051 (563,051) 2,625,093
Treasury stock (928,655) (928,655)
----------- ----------- ------------ -----------
Total stockholders' equity 1,696,438 563,051 (563,051) 1,696,438
$3,303,013 $1,009,304 ($61,304) $4,251,013
=========== =========== ============ ===========
See accompanying notes to pro forma condensed consolidated financial statements
DCAP GROUP, INC. AND SUBSIDIARIES
AND
AIA ACQUISITION CORP.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 2003
1. To record the estimated purchase price of $935,000 for the acquisition of
AIA consisting of 935 shares of the Registrant's Series A preferred stock,
par value .01 per share, valued at $935,000 and the elimination of the
historical equity capitalization of AIA in accordance with the purchase
method of accounting. The Series A Preferred Stock carries a 5% dividend,
is convertible into Common Stock of the Registrant at a conversion price of
$.50 per share and is redeemable on April 30, 2007 (or sooner under certain
circumstances.)
The goodwill and intangible assets acquired are valued at $548,796 and
$150,000, respectively. Intangible assets represent customer lists obtained
from AIA and will be amortized over an estimated useful life of four years.
The amount of goodwill may be increased based upon additional amounts which
may be payable if certain earning measures are attained. On an ongoing
basis, the Registrant will evaluate the carrying value of goodwill versus
the discounted cash benefit expected to be realized from the performance of
the underlying operations and adjust for any impairment in value.
2. Represents items not assumed by purchaser.
3. To record estimated transaction costs in connection with the acquisition of
AIA.
DCAP GROUP, INC. AND SUBSIDIARIES
AND
AIA ACQUISITION CORP.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2003
(Unaudited)
Historical Pro Forma
------------------------- -----------------------------
DCAP AIA
Group Acquisition Adjustments Consolidated
----------- ----------- ------------ ------------
Revenues:
Commissions and fees $1,461,415 $298,309 ($6,123) 1 $1,753,601
Premium finance revenue 347,477 347,477
------------ ------------ ----------- -----------
Total revenues 1,808,892 298,309 (6,123) 2,101,078
Operating expenses:
General and administrative 1,407,299 304,683 (14,683) 1 1,671,988
3,864 3
(29,175) 6
Depreciation and amortization 36,317 11,351 (1,782) 2 55,261
9,375 5
------------ ------------ ---------- ------------
Total operating expenses 1,443,616 316,034 (32,401) 1,727,249
------------ ------------ ---------- ------------
Operating income (loss) 365,276 (17,725) 26,278 373,829
Other (expense) income
Interest income 1,348 1,348
Interest expense (17,260) (10,347) 928 2 (17,260)
9,419 4
Interest expense - mandatorily redeemable stock (11,688) 7 (11,688)
Gain on sale of stores 89,700 89,700
------------ ------------ ---------- ------------
Total other (expense) income 73,788 (10,347) (1,341) 62,100
------------ ------------ ---------- ------------
Income (loss) before income taxes 439,064 (28,072) 24,937 435,929
Provision for income taxes 4,855 0 8 4,855
------------ ------------ ---------- ------------
Income (loss) from continuing operations 434,209 (28,072) 24,937 431,074
Discontinued operations:
(Loss) from discontinued operations (46,096) (46,096)
------------ ------------ ---------- ------------
Net income (loss) $388,113 ($28,072) $24,937 $384,978
============ ============ ========== ============
Net income per share:
Basic and diluted:
Income from continuing operations $0.03 $0.03
(Loss) from discontinued operations $0.00 $0.00
------------ ------------
Net income $0.03 $0.03
============ ============
Weighted average number of shares outstanding:
Basic 12,353,402 12,353,402
Diluted 12,923,929 12,923,929
See accompanying notes to pro forma condensed consolidated financial statements
DCAP GROUP, INC. AND SUBSIDIARIES
AND
AIA ACQUISITION CORP.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2003
1. To remove operations of excluded store (Elmwood).
2. To remove expenses of building and auto not transferred.
3. To record rent payments to be made on building to be leased and lease
payments on auto to be leased.
4. To remove interest expense on liabilities not assumed.
5. To record amortization of intangible assets acquired in connection with the
acquisition of AIA. The intangible assets are being amortized over a four
year period.
6. To remove consulting expenses which will not be payable in the future.
7. To record dividend on Series A Preferred Stock. The Series A Preferred
Stock carries a 5% dividend, is convertible into Common Stock of the
Registrant at a conversion price of $.50 per share and is redeemable on
April 30, 2007 (or sooner under certain circumstances.)
8. No tax provision has been recorded on the Pro Forma adjustments based upon
the utilization of net operating loss carryforwards of the Registrant.
DCAP GROUP, INC. AND SUBSIDIARIES
AND
AIA ACQUISITION CORP.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2002
(Unaudited)
Historical Pro Forma
------------------------ ----------------------------
DCAP AIA
Group Acquisition Adjustments Consolidated
---------- ----------- ----------- ------------
Revenues:
Commissions and fees $2,473,921 $1,220,837 ($41,708) 1 $ 3,653,050
Premium finance revenue 1,309,808 1,309,808
----------- ----------- ----------- ------------
Total revenues 3,783,729 1,220,837 (41,708) 4,962,858
Operating expenses:
General and administrative 2,875,063 1,233,511 (70,012) 1 3,922,064
15,457 3
(131,955) 6
Depreciation and amortization 135,882 52,337 (7,130) 2 218,589
37,500 5
----------- ----------- ----------- ------------
Total operating expenses 3,010,945 1,285,848 (156,140) 4,140,653
----------- ----------- ----------- ------------
Operating income 772,784 (65,011) 114,432 822,205
Other (expense) income
Interest income 2,460 2,460
Interest expense (64,299) (40,241) 3,416 2 (64,299)
36,825 4
Interest expense - mandatorily redeemable stock (46,750) 7 (46,750)
----------- ----------- ----------- ------------
Total other (expense) income (61,839) (40,241) (6,509) (108,589)
----------- ----------- ----------- ------------
Income (loss) before income taxes and minority interest 710,945 (105,252) 107,923 713,616
Provision for income taxes 10,534 4,079 0 8 14,613
----------- ----------- ----------- ------------
Income (loss) before minority interest 700,411 (109,331) 107,923 699,003
Minority interest 1,936 1,936
----------- ----------- ----------- ------------
Income (loss) from continuing operations 698,475 (109,331) 107,923 697,067
Discontinued operations:
Income from discontinued operations 34,612 34,612
Gain on disposition of discontinued subsidiary 312,920 312,920
----------- ----------- ----------- ------------
Net income (loss) $1,046,007 ($109,331) $107,923 $1,044,599
=========== =========== =========== ============
Net income per share:
Basic and diluted:
Income from continuing operations $0.06 $0.06
Income from discontinued operations $0.03 $0.03
----------- ------------
Net income $0.09 $0.09
=========== ============
Weighted average number of shares outstanding:
Basic 11,695,868 11,695,868
Diluted 12,037,194 12,037,194
See accompanying notes to pro forma condensed consolidated financial statements
DCAP GROUP, INC. AND SUBSIDIARIES
AND
AIA ACQUISITION CORP.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2002
1. To remove operations of excluded store (Elmwood).
2. To remove expenses of building and auto not transferred.
3. To record rent payments to be made on building to be leased and lease
payments on auto to be leased.
4. To remove interest expense on liabilities not assumed.
5. To record amortization of intangible assets acquired in connection with the
acquisition of AIA. The intangible assets are being amortized over a four
year period.
6. To remove consulting expenses which are duplicative and will not be payable
in the future.
7. To record dividend on Series A Preferred Stock. The Series A Preferred
Stock carries a 5% dividend, is convertible into Common Stock of the
Registrant at a conversion price of $.50 per share and is redeemable on
April 30, 2007 (or sooner under certain circumstances.)
8. No tax provision has been recorded on the Pro Forma adjustments based upon
the utilization of net operating loss carryforwards of the Registrant.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
DCAP GROUP, INC.
Dated: July 25, 2003 By: /s/ Barry Goldstein
-------------------------------
Barry Goldstein
Chief Executive Officer