Edgar Filing: DCAP GROUP INC/

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB

(Mark One)

(x) ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 For the fiscal year ended December 31, 2001

( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from to
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Commission file number 0-1665
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DCAP GROUP, INC.
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(Name of small business issuer in its charter)

Delaware 36-2476480
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(State or other jurisdiction of (I.R.S Employer Identification No.)
incorporation or organization)

1158 Broadway, Hewlett, New York 11557
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(Address of principal executive offices) (Zip Code)

Issuer's telephone number (516)374-7600
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Securities registered under Section 12(b) of the Exchange Act:

Title of each class Name of each exchange on which registered
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none
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Securities registered under Section 12(g) of the Exchange Act:

Common Stock, $.01 par value
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(Title of class)

Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes (X) No .

Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.( )

State issuer's revenues for its most recent fiscal year: $3,520,464

State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days: $1,719,368 as of March 31, 2002.

(ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PAST FIVE YEARS)

Check whether the issuer has filed all documents and reports to be filed by
Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities
under a plan confirmed by a court. Yes ( ) No ( ).

(APPLICABLE ONLY TO CORPORATE REGISTRANTS)

State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 11,353,402 shares as of March
31, 2002.

DOCUMENTS INCORPORATED BY REFERENCE
None

INDEX Page No.

Forward Looking Statements.....................................................1

Explanatory Note ..............................................................1

PART I

Item 1. Description of Business...............................................2

Item 2. Description of Property..............................................10

Item 3. Legal Proceedings....................................................11

Item 4. Submission of Matters to a Vote of Security Holders..................12

PART II

Item 5. Market for Common Equity and Related Stockholder Matters.............14

Item 6. Management's Discussion and Analysis or Plan of Operation............15

Item 7. Financial Statements.................................................17

Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.............................................17

PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act....................18

Item 10. Executive Compensation...............................................20

Item 11. Security Ownership of Certain Beneficial Owners and Management.......22

Item 12. Certain Relationships and Related Transactions.......................23

PART IV

Item 13. Exhibits and Reports on Form 8-K.....................................28

Signatures

PART I

Forward Looking Statements

This Annual Report contains forward-looking statements as that term is
defined in the federal securities laws. The events described in forward-looking
statements contained in this Annual Report may not occur. Generally these
statements relate to business plans or strategies, projected or anticipated
benefits or other consequences of our plans or strategies, projected or
anticipated benefits from acquisitions to be made by us, or projections
involving anticipated revenues, earnings or other aspects of our operating
results. The words "may," "will," "expect," "believe," "anticipate," "project,"
"plan," "intend," "estimate," and "continue," and their opposites and similar
expressions are intended to identify forward-looking statements. We caution you
that these statements are not guarantees of future performance or events and are
subject to a number of uncertainties, risks and other influences, many of which
are beyond our control, that may influence the accuracy of the statements and
the projections upon which the statements are based. Factors which may affect
our results include, but are not limited to, the risks and uncertainties
associated with undertaking different lines of business, the lack of experience
in operating certain new business lines, the decline in the number of insurance
companies offering insurance products in our markets, the volatility of
insurance premium pricing, government regulation, competition from larger,
better financed and more established companies, the possibility of tort reform
and a resultant decrease in the demand for insurance, the uncertainty of
litigation with regard to our hotel lease, the dependence on our executive
management, and our ability to raise additional capital which may be required in
the near term. Any one or more of these uncertainties, risks and other
influences could materially affect our results of operations and whether
forward-looking statements made by us ultimately prove to be accurate. Our
actual results, performance and achievements could differ materially from those
expressed or implied in these forward-looking statements. We undertake no
obligation to publically update or revise any forward-looking statements,
whether from new information, future events or otherwise.

Explanatory Note

Throughout this Annual Report, the words "DCAP Group," "we," "our," and
"us" refer to DCAP Group, Inc. and the operations of DCAP Group, Inc. as a
whole. References to "DCAP Insurance" and the "DCAP Companies" in this Annual
Report mean our wholly-owned subsidiary, DCAP Insurance Agencies, Inc., and
affiliated companies, and the operations of our insurance- related subsidiaries.

ITEM 1. DESCRIPTION OF BUSINESS

(a) Business Development

Background

Prior to February 25, 1999, our sole business was the operation of the
International Airport Hotel in San Juan, Puerto Rico. The hotel is discussed in
Item 1(b) of this Annual Report.

DCAP Acquisition

On February 25, 1999, we acquired the DCAP Companies. The business of the
DCAP Companies is discussed in Item 1(b) of this Annual Report.

At the time of our acquisition of the DCAP Companies, the following other
actions occurred:

o The size of our Board of Directors was initially increased to four,
and Kevin Lang and Abraham Weinzimer, the principals of the DCAP
Companies, joined Morton L. Certilman and Jay M. Haft as our Board
members.

o Messrs. Lang and Weinzimer were appointed as our President and
Executive Vice President, respectively. Messrs. Certilman and Haft,
formerly President and Chairman of the Board, respectively, were
appointed Chairman of the Board and Vice Chairman of the Board,
respectively.

o Messrs. Lang, Weinzimer, Certilman and Haft acquired common shares
from us and from one of our principal shareholders as discussed in
Item 12 of this Annual Report.

o We changed our name from EXTECH Corporation to DCAP Group, Inc.

o Eagle Insurance Company acquired common shares from us as discussed in
Item 12 of this Annual Report. 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.

o The size of our Board of Directors was increased further 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.

Private Placement

In June 1999, we raised gross proceeds of $1,675,000 through a private
placement of our securities.

Acquisitions of Joint Venture Interests

In December 1999, we acquired the interests of our joint venture partners
in 15 DCAP retail insurance stores. 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.

Sale of Stores; Emphasis on Franchise Operations

Commencing in 2000 and continuing into 2001, we began pursuing a strategy
of shifting toward franchise operations. Pursuant to that strategy, since May
2000, we have closed or sold our interest in 20 wholly-owned or partially-owned
stores and have granted 24 franchises to operate DCAP stores. We now have three
remaining wholly-owned or partially-owned stores.

Developments During 2001

The following events occurred in March 2001:

o Barry B. Goldstein was elected our President, Chairman of the Board
and Chief Executive Officer. See Item 9 of this Annual Report.

o We entered into agreements with Messrs. Lang, Weinzimer and Certilman
to sell them a total of eight of our DCAP stores for an aggregate cash
consideration of $767,000. These transactions, which closed in
November 2001, are discussed in Item 12 of this Annual Report.

o We repurchased common shares from Messrs. Lang and Weinzimer as
discussed in Item 12.

o We terminated our employment agreements with Messrs. Lang, Weinzimer,
Certilman and Haft; our wholly-owned subsidiary, DCAP Management
Corp., which operates our franchise business, entered into a six month
employment agreement with Mr. Lang pursuant to which he served as its
President; and each of Messrs. Lang, Weinzimer, Certilman and Haft
resigned his position as an officer of DCAP Group. Each of Messrs.
Lang and Weinzimer also resigned his position as a director of DCAP
Group. The termination of the employment agreements is discussed in
Item 12.

(b) Business of Issuer

General

We operate three lines of business:

o franchising, ownership and operation of storefront insurance agencies
o premium financing of insurance policies for our DCAP clients as well
as clients of non-affiliated entities
o operation of the International Airport Hotel in San Juan, Puerto Rico

Our DCAP storefront locations serve as insurance agents or brokers and
place various types of insurance on behalf of customers. The types of insurance
placed include the following:

o automobile
o motorcycle
o boat
o livery/taxi
o life
o business
o homeowner
o excess coverage

There are 57 DCAP locations in the New York metropolitan area. Fifty-four
of them are franchises. The balance are either wholly owned or partially owned
by us. We try to select locations that will attract "walk-in" retail customers.

The DCAP stores receive commissions from insurance companies for their
services. We receive fees from the franchised locations in connection with their
use of the DCAP name. Neither we nor the DCAP stores serve as an insurance
company and therefore do not assume underwriting risks.

We also offer the following additional services in connection with the
operation of the DCAP stores:

o income tax return preparation services
o automobile club services for roadside emergencies

Through our wholly-owned subsidiary, Payments, Inc., we provide insurance
premium financing services to our DCAP locations as well as non-DCAP insurance
agencies. Payments, Inc. is licensed by the New York State Department of Banking
as an insurance premium finance agency. Payments, Inc. also has been granted
permission to conduct business in Pennsylvania, and its application to do
business in New Jersey is pending.

We also operate the International Airport Hotel in San Juan, Puerto Rico
which caters to commercial and tourist travelers in transit.

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
the DCAP Companies and began our insurance operations. At that time we changed
our name to DCAP Group, Inc.

Our executive offices are located at 1158 Broadway, Hewlett, New York
11557; our telephone number is (516) 374-7600 and our fax number is (516)
295-7216.

DCAP Insurance

Insurance Brokerage

For many years, DCAP Insurance specialized in offering assigned-risk and
nonstandard automobile 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.
Through such preferred carriers as Travelers, Progressive Casualty, and Metlife
Auto and Home, serving as either brokers or agents, we can offer our customers
many carrier and premium options.

Due to the continued lack of profitability experienced by many nonstandard
carriers, the number of insurers servicing the nonstandard market has decreased.
The effect during 2001 was particularly acute in New York City. This has created
a situation where we can no longer offer certain drivers (e.g., a driver seeking
minimum legal liability limits) a choice in carriers (known as the "voluntary
market"), and we must place the insured in the "assigned risk" New York
Automobile Insurance Plan (known as the "involuntary market").

During the fiscal year ended December 31, 2001, approximately 67% of our
DCAP Insurance revenues were derived from commissions and other fees received in
connection with the selling of automobile and other property and casualty
insurance policies.

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 business 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 has been to increase our name
recognition. We decided that granting others DCAP franchises is an important
step in achieving this goal.

During the year ended December 31, 2000, we granted a total of 26
franchises. One additional franchise was granted in 2001. We now have a total of
54 franchises, representing 95% of our total number of locations.

Franchises currently pay us an initial franchise fee of $37,500 to offer
insurance products under the DCAP name. Additional fees are payable if the
franchisee desires 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, generally commencing after a twelve
month period from the date on which the storefront opens for business. Initial
franchise fees and ongoing monthly fees payable by franchisees constituted
approximately 22% of our DCAP Insurance revenues during the year ended December
31, 2001.

Income Tax Return Preparation

Many 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" as a way to increase our tax preparation business.

The participating DCAP stores gather information from filers. The stores
then process the information, generate returns to be submitted to the Internal
Revenue Service and other taxing authorities, manually or electronically file
the return and processes any refunds. 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. During fiscal
2001, fees received in connection with income tax return preparation constituted
approximately 1% of our DCAP Insurance revenues.

Automobile Club

As a complement to our automobile insurance operations, we offer automobile
club services for roadside emergencies. We offer memberships for such services,
and we make arrangements with towing dispatch companies to fulfill service call
requirements.

During fiscal 2001, fees received in connection with automobile club
services constituted approximately 10% of our DCAP Insurance revenues.

Premium Financing

Customers who purchase insurance policies are often unable to pay the
premium in a lump sum and, therefore, require financing. Until September 1999,
we outsourced premium financing for our customers. 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 agency.

Payments, Inc. has a contract with another premium finance agency which has
agreed to purchase premium finance receivables as originated by Payments, Inc.
Payments, Inc. is entitled to a fee with respect to the purchased receivables,
subject to certain conditions. Payments, Inc. retains none of the receivables.

Structure and Operations

As stated above, we currently have 57 offices, of which 54 are franchises,
one is wholly-owned, and two are joint ventures. Our franchises and joint
venture offices consist of both "conversion" and "startup" operations. In a
conversion operation, an existing insurance brokerage with an established
business becomes a DCAP office. In a startup operation, an entrepreneur begins
operations as a DCAP office. Our wholly-owned and joint venture offices are
managed by our employees; each franchise is managed by or under the supervision
of the franchisee.

In order to promote consistency and efficiency, and as a service to our
franchises, we offer training to office managers. Our training program covers:

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

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 may otherwise be beyond the reach of small, privately-owned retail
insurance operations. This direct relationship is enhanced by a software system,
known as the DCAP Management System ("DMS") that provides a direct link to
certain carrier databases. DMS enables each DCAP office that utilizes it to
access policy coverage and cost information, application requirements, and other
kinds of information. All needed premium finance rates and forms are included as
a module within DMS. DMS also enables the DCAP offices' brokers to search
various databases to obtain pertinent information about potential customers.

Strategy

We currently have the following three-pronged business strategy:

o strengthen the DCAP name to increase franchise value
o provide to the DCAP franchisees certain proprietary products and
services that may not be available elsewhere
o increase the size of our premium finance business, both within and
outside the DCAP storefronts, including the introduction of our
business in other states

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 utilized television and radio advertising and will
consider further use in the future.

Our strategy of 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,
business and homeowner's insurance, and excess coverage, and other services,
including an income tax return processing program.

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 involves the growth of our premium finance business. As
the number of insurance companies participating voluntarily in the non-standard
automobile market has significantly decreased, there has been an offsetting
increase in the size of the involuntary market. Thus, there are many more
automobile policies written through the "assigned risk" New York Automobile
Insurance Plan than in the recent past. This plan provides for limited finance
options, and the insurance premiums have increased dramatically in recent years.
Thus, unless the insured can pay the premium in full at the time of the
application for insurance, or can provide a large down payment and be capable of
paying the balance over a short period of time, there is a need for premium
financing. We offer the insured a reduced downpayment, and the ability to spread
the balance over a ten-month period. We are licensed in New York, and have been
given permission to operate in Pennsylvania. Our application to do business in
New Jersey is pending.

Competition

We compete with numerous insurance agents and brokers in our market. The
amount of capital required to commence operations is generally small and the
only material barrier to entry is the ability to obtain the required licenses
and appointments as a broker or agent for insurance carriers. Since the great
majority of the automobile policies issued in our market emanate from the
"assigned risk" New York State Automobile Insurance Plan which provides for
fixed premiums for a given geographical area, there is little price competition
between us and other agents and brokers. As the number of voluntary carriers has
declined, the differentiations between us and our competition has narrowed.

In recent years, extensive competition has come from direct sales entities,
such as GEICO Insurance, who have concentrated their advertising efforts on
television and radio. In addition, the Internet sales effort of some of our
competitors, such as Progressive Insurance, has shown some promise; however, the
market share currently attributable to the Internet is not material. Further,
recent legislation that allows banks to offer insurance to their customers has
taken market share from the storefront insurance operators.

In connection with our income tax preparation services, we compete with
well-established companies such as H&R Block and Jackson Hewitt as well as
smaller tax preparation companies and tax preparers.

Our premium finance operation competes with many other companies that have
been in business longer than we have, and have long term relationships with
their insurance agency clients.

International Airport Hotel

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 9% of the total room
sales for the hotel for 2001 were attributable to one customer, American
Airlines. During 2001, the hotel's average occupancy rate was approximately 60%.
From 1997 to 2000, the average occupancy rate was approximately 63%. The hotel's
average room rate during 2001 was approximately $71.

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 airport. We have been adversely affected by the
reduction in air travel since the attack on the World Trade Center on September
11, 2001.

See Item 3 of this Annual Report for a discussion of a lawsuit with regard
to the lease for the hotel.

Employees

We employ approximately 31 persons; eight of them (all of whom are employed
in connection with our hotel operations) are represented by a collective
bargaining organization. We believe that our relationship with our employees is
good.

ITEM 2. DESCRIPTION OF PROPERTY

Our principal executive offices are located at 1158 Broadway, Hewlett, New
York. We currently also have three wholly-owned or joint venture DCAP stores
that are located as follows:

Store Location Nature of Ownership

White Plains, New York Wholly-owned
Brentwood, New York Joint venture (1)
Greenbrook, New Jersey Joint venture (2)
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(1) 80% owned by us.
(2) 50% owned by us.

Our three wholly-owned or joint venture DCAP offices and our executive
offices are operated pursuant to lease agreements that expire from time to time
through 2011. The current yearly aggregate base rental for the offices is
approximately $142,000.

Our hotel is leased from the Puerto Rico 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 approximately $178,000 for 2001
compared to approximately $197,000 for 2000.

ITEM 3. LEGAL PROCEEDINGS

Dispute with Ports Authority

On July 22, 1988, we entered into a lease agreement with the Puerto Rico
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 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.
Thereafter, a lease agreement was drafted by the Ports Authority which we also
approved, signed and returned. 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. Alternatively, the Ports Authority contends that we were
entitled to only one extension of the lease term. We believe that a lease
totaling ten years has been entered into between us and the Ports Authority
pursuant to the proposed lease 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.

Casmalia Resource Site

In September 2000, we received notices from the United States Environmental
Protection Agency and counsel to the Casmalia Resources Site Steering Committee
seeking payment for certain costs anticipated to be incurred in connection with
the cleanup of a former hazardous waste facility. The notices relate to AG Oil,
a company with which we had no connection and that allegedly sent waste to the
Casmalia Disposal Site in Santa Barbara County, California in and around 1982.
In 1989 AG Oil merged with Aegis Industries Incorporated, a company with which
we also had no connection until 1990 when we obtained a 24% equity interest. In
1992 Aegis was involuntarily dissolved by the State of Delaware. Based upon its
acknowledgment that AG Oil sent relatively small amounts of waste to the site,
the EPA offered to settle the matter for approximately $110,000. In October
2000, our counsel sent a letter to the EPA explaining the tenuous relationship
between AG Oil and us and indicating our belief that we have no responsibility
for any alleged acts of AG Oil and, therefore, no liability in connection with
this matter. We have received no further notices or communications from the EPA
with regard to the matter.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Our Annual Meeting of Stockholders was held on November 27, 2001. The
following is a description of the matters voted upon at the meeting and a
listing of the votes cast for, against or withheld, as well as the number of
abstentions and broker non-votes as to each matter, including a separate
tabulation with respect to each nominee for director.

1. Election of Board of Directors.

Number of Shares
---------------------------------
For Withheld
--- --------

Barry Goldstein 8,041,498 110,283
Morton L. Certilman 8,041,488 110,293
Jay M. Haft 8,041,488 110,293
Robert Wallach 8,041,498 110,283

2. Approval and ratification of the sale by us and our subsidiaries of
assets that may constitute, under Delaware law, substantially all of
our assets.

For 6,725,784
Against 54,918
Abstain 8,299
Broker Non-Vote 1,362,780

3. Approval of an increase in the number of common shares authorized to
be issued pursuant to our 1998 Stock Option Plan from 2,000,000 to
3,000,000.

For 6,558,093
Against 159,915
Abstain 70,993
Broker Non-Vote 1,362,780

4. Approval of an amendment to our Certificate of Incorporation to
increase the number of authorized common shares from 25,000,000 to
40,000,000.

For 7,917,378
Against 160,620
Abstain 73,783
Broker Non-Vote -

5. Approval of an amendment to our Certificate of Incorporation to
provide for the authority to issue up to 1,000,000 preferred shares.

For 6,559,018
Against 160,125
Abstain 69,858
Broker Non-Vote 1,362,780

6. Approval of an amendment to our Certificate of Incorporation to
broaden the corporate purposes to include any lawful act or activity
for which corporations may be organized under Delaware law.

For 6,732,872
Against 51,123
Abstain 5,006
Broker Non-Vote 1,362,780

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

(a) Market Information

Our common shares are 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 shares 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

2001 Calendar Year

First Quarter $.40 $.25
Second Quarter .37 .26
Third Quarter .33 .25
Fourth Quarter .27 .23

2000 Calendar Year

First Quarter $1.06 $.75
Second Quarter .81 .31
Third Quarter .47 .38
Fourth Quarter .38 .25

(b) Holders

As of April 9, 2002, there were approximately 2,303 record holders of our
common shares.

Holders of our common shares are entitled to dividends when, as and if
declared by our 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 future. We intend to retain
earnings, if any, to finance the development and expansion of our business.
Future dividend policy will be subject to the discretion of our Board of
Directors and will be contingent upon future earnings, if any, our financial
condition, capital requirements, general business

conditions, and other factors. Therefore, we can give no assurance that any
dividends of any kind will ever be paid to holders of our common shares.

(d) Recent Sales of Unregistered Securities

Not applicable.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Our DCAP storefront locations serve as insurance agents or brokers and
place various types of insurance on behalf of customers. The types of insurance
placed include the following:

o automobile
o motorcycle
o boat
o livery/taxi
o life
o business
o homeowner
o excess coverage

Payments, Inc., our wholly-owned subsidiary, is an insurance premium
finance agency, licensed by the New York State Banking Department, which offers
premium financing to clients of DCAP offices, as well as non-DCAP insurance
agencies. We currently operate solely within New York State, but are permitted
to conduct business also in Pennsylvania. Our application to conduct business in
New Jersey is pending.

We also operate the International Airport Hotel in San Juan, Puerto Rico.

Results of Operations

Our net loss for the year ended December 31, 2001 was $929,551 as compared
to a net loss of $3,718,297 for the year ended December 31, 2000. The decreased
loss primarily was the result of decreased operating expenses of $5,097,264
resulting from the sale or closure of DCAP stores and a gain on the sale of DCAP
stores of $56,043 (as compared to a loss of $2,136,681 in 2000 which gave effect
to a write off of $2,169,000 of goodwill attributable to such stores). These
positive

factors were offset by a reduction in revenues of $4,294,960 and a loss on the
disposal of equipment of $252,791. Included in the decrease in operating
expenses was a reduction in general and administrative expenses of $4,071,673, a
reduction in lease rental expenses of $449,648, a reduction in depreciation and
amortization of $494,654 and the elimination in 2001 of impairment of intangible
expenses and impairment of notes receivable expenses in the aggregate of
$282,000 from 2000. These expense reductions offset an increase in the provision
for bad debts of $227,266.

During the year ended December 31, 2001, revenues from the operations of
DCAP Insurance were $2,350,094 as compared to $6,677,556 for the year ended
December 31, 2000. The decline in revenues from the operations of DCAP Insurance
was generally due to the sale (and, in general, conversion to franchise status)
or closure of most of our DCAP offices, competitive pressures in the industry
and a reduction in the sale of new franchises. We anticipate that revenues from
the operations of DCAP Insurance will further decline in 2002 due primarily to
the sale of nine of our stores during 2001. However, as a result of our shift in
2000 and 2001 to a franchise business model, monthly franchise fees are
anticipated to increase during 2002. Premium finance revenues increased $220,654
between the year ended December 31, 2000 and 2001. This increase was the result
of (i) our renegotiation in June 2001 of our agreement regarding the sale of
premium finance receivables that has given rise to increased revenues per
transaction, (ii) an increase in the number of franchisees utilizing our premium
finance services, and (iii) an expansion of our premium finance marketing
efforts to non-DCAP insurance agencies. Hotel revenues decreased approximately
$90,277 between the year ended December 31, 2000 and 2001 primarily due to the
overall reduction in air travel since the events of September 11, 2001.

The operations of DCAP Insurance during the year ended December 31, 2001,
on a stand- alone basis, generated a net loss of $821,555 as compared to a net
loss of $3,581,176 for the year ended December 31, 2000. Our premium finance
operations during the year ended December 31, 2001, on a stand alone basis,
generated a net profit of $234,128 as compared to a profit of $24,995 in 2000.
The operations of the hotel during the year ended December 31, 2001, on a
stand-alone basis, generated net income of $99,053 as compared to a net income
of $183,272 for 2000. Losses from corporate-related items not allocable to
reportable segments increased to $441,177 during the year ended December 31,
2001 as compared to $345,388 for 2000.

Income Taxes

We have recorded a full valuation allowance against our net deferred tax
assets because of the uncertainty that sufficient taxable income will be
realized during the carry-forward period to utilize the deferred tax asset.

Liquidity and Capital Resources

As of December 31, 2001, we had $220,774 in cash and cash equivalents and a
working capital deficiency of $598,263. As of December 31, 2000, we had $517,425
in cash and cash equivalents and a working capital deficiency of $161,156.

Cash and cash equivalents decreased between December 31, 2000 and December
31, 2001 primarily due to the net loss of $929,551 for 2001 and cash used to
repay long-term debt and capital lease obligations of $235,704, offset by
proceeds from the sale of DCAP stores of $844,091.

Our liquidity at December 31, 2001 was insufficient to meet operating
requirements. We believe that the following will help reduce our working capital
deficiency and alleviate cash flow demands:

o We have continued efforts to expand our premium finance customer base
of both DCAP and non-DCAP agencies, within and outside New York State.

o Monthly franchise fees generally are not payable with regard to the
initial 12 months of operations. Since many of the franchises sold by
us in 2000 and 2001 did not have franchise fee obligations until the
latter part of 2001 or in 2002, we are now first experiencing an
increase in monthly franchise fees.

Management believes that such items, should they develop as contemplated,
are reasonably capable of reducing our working capital deficiency and
alleviating our cash flow demands during the 12 month period ended December 31,
2002. We can give no assurances that our efforts will be successful.

We have no current commitments for capital expenditures.

ITEM 7. FINANCIAL STATEMENTS

The financial statements required by this Item 7 are included in this
Annual Report on Form 10-KSB following Item 13 hereof.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

There were no changes in accountants due to disagreements on accounting and
financial disclosure during the twenty-four month period ended December 31,
2001.

PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT

Name Age Positions and Offices Held
---- --- --------------------------
Barry B. Goldstein 49 President, Chairman of the Board, Chief
Executive Officer, Chief Financial Officer,
Treasurer and Director
Morton L. Certilman 70 Secretary and Director
Jay M. Haft 66 Director
Robert Wallach 49 Director

Barry Goldstein

Mr. Goldstein was elected our President, Chief Executive Officer, Chief
Financial Officer, Chairman of the Board, and a director in March 2001 and our
Treasurer in May 2001. Since April 1997, he has served as President of AIA
Acquisition Corp., which operates insurance agencies in Pennsylvania. Since
1982, he has served as President of Stone Equities, a consulting firm. Mr.
Goldstein received his B.A. and M.B.A. from State University of New York at
Buffalo, and has been a certified public accountant since 1979.

Morton L. Certilman

Mr. Certilman served as our Chairman of the Board from February 1999
(concurrently with our acquisition of DCAP Insurance) until March 2001. From
October 1989 to February 1999, he served as our President. He was elected our
Secretary in May 2001 and has served as one of our directors since 1989. Mr.
Certilman has been engaged in the practice of law since 1956 and is 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
served as a director of the Long Island Association and the New Long Island
Partnership for a period of ten years and currently serves as a director of the
Long Island Sports Commission. Mr. Certilman 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.

Jay M. Haft

Mr. Haft served as our Vice Chairman of the Board from February 1999
(concurrently with our acquisition of DCAP Insurance) until March 2001. From
October 1989 to February 1999, he served as our Chairman of the Board. He has
served as one of our directors since 1989. Mr. Haft has been engaged in the
practice of law since 1959 and since 1994 has served as counsel to Parker Duryee
Rosoff & Haft (and since December 2001, its successor, Reed Smith). From 1989 to
1994, he was a senior corporate partner of 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. He
is 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.

Robert M. Wallach

Mr. Wallach 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. He has served as one of
our directors since 1999.

There are no family relationships among any of our executive officers and
directors.

Each director will hold office until the next annual meeting of
stockholders and until his successor is elected and qualified or until his
earlier resignation or removal. Each executive officer will hold office until
the initial meeting of the Board of Directors following the next annual meeting
of stockholders and until his successor is elected and qualified or until his
earlier resignation or removal.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16 of the Exchange Act requires that reports of beneficial
ownership of common shares and changes in such ownership be filed with the
Securities and Exchange Commission by

Section 16 "reporting persons," including directors, certain officers, holders
of more than 10% of the outstanding common shares and certain trusts of which
reporting persons are trustees. We are required to disclose in this proxy
statement each reporting person whom we know to have failed to file any required
reports under Section 16 on a timely basis during the fiscal year ended December
31, 2001. To our knowledge, based solely on a review of written representations
that no reports were required, during the fiscal year ended December 31, 2001,
our officers, directors and 10% stockholders complied with all Section 16(a)
filing requirements applicable to them, except that (i) Kevin Lang and Abraham
Weinzimer, former officers, directors and 10% stockholders, filed their
respective Form 4 late (which forms each reported one transaction) and (ii)
Barry Goldstein filed his Form 3 late.

ITEM 10. EXECUTIVE COMPENSATION

Summary Compensation Table

The following table sets forth certain information concerning the
compensation for the fiscal years ended December 31, 2001, 2000 and 1999 for
each of our executive officers as of December 31, 2001 who had a total salary
and bonus for that year in excess of $100,000.

Long-Term Compensation
Annual Compensation Awards
Name and ------------------ ------ All Other
Principal Position Year Salary Shares Underlying Options Compensation
------------------ ---- ------ ------------------------- ------------

Barry B. Goldstein 2001 $200,000(1) 1,000,000 -
Chief Executive Officer 2000 - - -
1999 - - -

Morton L. Certilman 2001 $ 31,250(2) - -0-*
Chairman of Board(2) 2000 125,000 - -0-*
1999 129,167 225,000 -0-*

Kevin Lang 2001 $132,715(3) - -
President(3) 2000 250,000 - -
1999 208,000 200,000 -

* Excludes fees payable during 1999, 2000 and 2001 by us to Certilman Balin
Adler & Hyman, LLP, a law firm of which Mr. Certilman is a member.

(1) Includes amounts earned as a consultant prior to his employment.

(2) Effective March 28, 2001, Mr. Certilman resigned his position as our
Chairman of the Board.

(3) Effective March 28, 2001, Mr. Lang resigned his position as our President
and a director. Effective September 30, 2001, his employment with DCAP
Management Corp., one of our wholly-owned subsidiaries, ended.

Options Tables

OPTION GRANTS IN FISCAL YEAR ENDED DECEMBER 31, 2001

Number of Common Percentage of Total
Shares Underlying Options Granted To
Name Options Granted Employees in Fiscal Year Exercise Price Expiration Date
---- --------------- ------------------------ -------------- ---------------

Barry B. Goldstein 1,000,000 100% $.25 March 31, 2006
Morton L. Certilman - - - -
Kevin Lang - - - -

AGGREGATED OPTION EXERCISES IN FISCAL YEAR
ENDED DECEMBER 31, 2001 AND FISCAL YEAR-END OPTION VALUES

Number of Shares Underlying Value of Unexercised
Number of Unexercised Options at In-the-Money Options
Shares Acquired Value December 31, 2001 at December 31, 2001
Name on Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable

Barry B. Goldstein N/A 0/1,000,000 0/$50,000
Morton L. Certilman - N/A 225,000/0 0/0
Kevin Lang - N/A - -

Long-Term Incentive Plan Awards

No awards were made to any of Messrs. Goldstein, Certilman or Lang during
the fiscal year ended December 31, 2001 under any long-term incentive plan.

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

Effective April 1, 2001, we entered into a four year employment agreement
with Mr. Goldstein pursuant to which he is employed as our President, Chairman
of the Board and Chief Executive Officer. Mr. Goldstein is entitled to receive a
salary of $200,000 per annum plus such additional compensation as may be
determined by the Board of Directors.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information as of March 31, 2002
regarding the beneficial ownership of our common shares by (i) each person who
we believe to be the beneficial owner of more than 5% of our outstanding common
shares, (ii) each present director, (iii) each

person listed in the Summary Compensation Table under "Executive Compensation,"
and (iv) all of our present executive officers and directors as a group.

Name and Address Number of Shares Approximate
of Beneficial Owner Beneficially Owned Percent of Class

Jay M. Haft 1,788,893(1) (2) 15.5%
1001 Brickell Bay Drive
Miami, Florida

Eagle Insurance Company 1,486,893(3) 13.1%
c/o The Robert Plan
Corporation
999 Stewart Avenue
Bethpage, New York

Robert M. Wallach 1,486,893(4) 13.1%
c/o The Robert Plan
Corporation
999 Stewart Avenue
Bethpage, New York

Morton L. Certilman 1,336,005(1)(5) 11.5%
The Financial Center at
Mitchel Field
90 Merrick Avenue
East Meadow, New York

Abraham Weinzimer 783,924(1) 6.9%
418 South Broadway
Hicksville, New York

Kevin Lang 651,460(1) 5.7%
3789 Merrick Road
Seaford, New York

Barry B. Goldstein 425,000(6) 3.6%
1158 Broadway
Hewlett, NY 11557

All executive officers
and directors as a group 5,036,791(1)(2)(5) 41.3%
(4 persons) (6)(7)

(1) Based upon Schedule 13D filed under the Securities Exchange Act of 1934.

(2) Includes 225,000 shares issuable upon the exercise of currently exercisable
options and 15,380 shares held in a retirement trust for the benefit of Mr.
Haft.

(3) Eagle is a wholly-owned subsidiary of The Robert Plan. See Item 12 of this
Annual Report.

(4) Represents shares owned by Eagle, of which Mr. Wallach, one of our
directors, is a Vice President. Eagle is a wholly-owned subsidiary of The
Robert Plan, of which Mr. Wallach is President, Chairman and Chief
Executive Officer.

(5) Includes 225,000 shares issuable upon the exercise of currently exercisable
options and 902,452 shares held in a retirement trust for the benefit of
Mr. Certilman.

(6) Represents 400,000 shares issuable upon the exercise of currently
exercisable options, 5,000 shares held by Mr. Goldstein's minor child and
20,000 shares held in a retirement trust for the benefit of Mr. Goldstein.
Mr. Goldstein disclaims beneficial ownership of the shares held by his
child and retirement trust.

(7) 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.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Sale of Interests in Stores

Prior to May 31, 2000, four of the DCAP stores were owned one-half by the
daughter of Mr. Certilman 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 was payable as follows:

o $66,000 was payable at the rate of $6,000 per month, starting on
the first anniversary of the closing, and

o the balance of the purchase price was payable over five years,
together with 6% interest, in equal monthly installments
commencing on the second anniversary of the closing.

o We agreed to waive all indebtedness owing by the stores to us. As of
the closing, the approximate amount of such indebtedness, which
related to advances made by us on behalf of the stores, 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.

o 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.

The terms of sale were the result of arm's length negotiations between Mr.
Certilman and us. No independent appraisal or valuation was received in
connection with the sale.

The purchase price for the 50% interest in the stores acquired by Mr.
Certilman (prior to the credits applied) was equal to approximately one-half of
the aggregate commissions for the stores for the year ended December 31, 1999.
We believe that a purchase price for a 50% interest in a store equal to one-half
of the store's annual commissions represented fair market value at that time.

See "March 2001 Transactions" for a discussion of the cancellation of the
above amount due by Mr. Certilman as well as of agreements to sell DCAP stores
to Mr. Certilman as well as to Messrs. Kevin Lang and Abraham Weinzimer,
principal stockholders and former DCAP officers and directors.

March 2001 Transactions

In March 2001, the following transactions occurred:

o We entered into agreements with Messrs. Lang, Weinzimer and Certilman
that provided for our sale to them of a total of eight of our DCAP
stores. Pursuant to the agreements, which were closed in November 2001
following shareholder approval, Mr. Lang acquired three of the stores
for a total purchase price of approximately $257,000, Mr. Weinzimer
acquired three of the stores for a total purchase price of $285,000
and an entity owned by Mr. Certilman (we refer to the entity as "Mr.
Certilman") acquired two of the stores for a total purchase price of
approximately $225,000. The locations of the stores are as follows:

o Lang: Amityville, New York
Medford, New York
Seaford, New York

o Weinzimer: Hempstead, New York
Hicksville, New York
Jamaica, New York

o Certilman: East Meadow, New York
Flushing, New York

At the time of execution of the agreements with Messrs. Lang and
Weinzimer, each of them paid to us the total amount of his respective
purchase price. At the time of execution of the agreement with Mr.
Certilman, we received approximately $197,000 of the purchase price.
The balance of $28,000 was paid at the closing of the acquisition
through the assumption of our obligation to an unaffiliated third
party in that amount. The obligation was incurred in May 2000 in
connection with our acquisition of the third party's interest in one
of the stores acquired by Mr. Certilman. Pending the closing of the
sales, each of Messrs. Lang, Weinzimer and Certilman managed his
respective stores and was entitled to receive a management fee equal
to the net profits of the stores. Each of them was also responsible
for all losses incurred during the interim period.

o At the closing, we entered into franchise agreements with Lang,
Weinzimer and Certilman on terms similar to those entered into by Mr.
Certilman in May 2000 (as described above under "Sale of Interests in
Stores"), except that, in general, none of the franchisees will be
allowed to terminate their respective franchise agreements prior to
March 31, 2003. Pending the closing, Messrs. Lang, Weinzimer and
Certilman were responsible for charges as if the franchise agreements
had been executed.

o We reacquired a total of 3,714,616 of the shares owned by Messrs. Lang
and Weinzimer in consideration of the cancellation of indebtedness
owed to us by them in the aggregate amount of $928,654.

o We agreed with Mr. Lang to terminate his employment agreement that was
scheduled to expire in February 2004, and DCAP Management, our
wholly-owned subsidiary that operates our franchise business, entered
into a new employment agreement with him which expired on September
30, 2001. Based upon Mr. Lang's agreement to forgo the compensation
otherwise payable to him for the balance of the original employment
term ($667,000, net of the amount payable to him pursuant to his new
employment agreement), we granted to Mr. Lang a price concession of
approximately $85,000 in connection with his purchase of his three
stores. This price concession resulted in the purchase price of
$257,000 for Mr. Lang.

o We agreed with Mr. Weinzimer to terminate his employment agreement
that was scheduled to expire in February 2004. Based upon Mr.
Weinzimer's agreement to forgo the compensation otherwise payable to
him for the balance of the employment term ($729,000), we granted to
Mr. Weinzimer a price concession of approximately $85,000 in
connection with his purchase of his three stores. This price
concession resulted in the purchase price of $285,000 for Mr.
Weinzimer.

o We agreed with Mr. Certilman to terminate his employment agreement
that was scheduled to expire in February 2004. Concurrently, based
upon Mr. Certilman's agreement to forgo the compensation otherwise due
him for the balance of the term of the employment agreement
($365,000), we agreed to cancel indebtedness of approximately $141,000
that Mr. Certilman owed to us pursuant to his purchase of our interest
in four DCAP stores as discussed above under "Sale of Interests in
Stores."

o We agreed with Mr. Haft to terminate his employment agreement that was
scheduled to expire in February 2004.

o Each of Messrs. Lang, Weinzimer, and Haft resigned as an officer of
DCAP Group. Messrs. Lang and Weinzimer also resigned as our directors.

The terms of the above sales agreements were the result of arm's length
negotiations between us and each of Messrs. Lang, Weinzimer and Certilman that
were based upon the terms of other recent sales of our stores to persons who are
not affiliated with us, then current market conditions and the termination of
the employment agreements with each of them, as discussed above. No independent
appraisal or valuation was received in connection with the agreements. We did
not utilize a special independent committee of our Board of Directors to perform
an analysis of the fairness of the transactions or to negotiate the terms of the
sales on our behalf.

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, to Messrs. Lang or Weinzimer in connection with
the transactions with them discussed under "March 2001 Transactions" or to Eagle
in connection with our issuance of shares to Eagle. In addition, Certilman Balin
did not serve as counsel to either us or Mr. Certilman in connection with the
transactions with him discussed under "Sale of Interests in Stores" and "March
2001 Transactions" above.

ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K

(a) Exhibits

Exhibit
Number Description of Exhibit

3(a) Certificate of Incorporation, as amended(1)

(b) By-laws, as amended(2)

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(d) Stock Option Agreement, dated February 25, 1999, between DCAP Group,
Inc. and Morton L. Certilman(2)

10(e) Stock Option Agreement, dated February 25, 1999, between DCAP Group,
Inc. and Jay M. Haft(2)

10(f) Subscription Agreement, dated as of October 2, 1998, between DCAP
Group, Inc. and Eagle Insurance Company and amendments thereto(2)

10(g) Form of Subscription Agreement with regard to private offering of
Units, dated June 2, 1999(5)

10(h) Form of Registration Rights Agreement with regard to private offering
of Units, dated June 2, 1999(5)

10(i) Form of Warrant Agreement with regard to private offering of Units,
dated June 2, 1999(5)

10(j) Sale and Assignment Agreement, dated as of September 1, 1999, among
Payments, Inc., Flatiron Credit Company, Inc. and Westchester Premium
Acceptance Corp.(5)

10(k) Letter agreement, dated as of June 1, 2001, among Westchester Premium
Acceptance Corporation, Payments, Inc. and Input 1, LLC.

10(l) Stock Purchase Agreement dated May 17, 2000 by and between DCAP Group,
Inc., Dealers Choice Automotive Planning, Inc., Alyssa Greenvald,
Morton Certilman, DCAP Ridgewood, Inc., DCAP Bayside, Inc., DCAP
Freeport, Inc. and MC DCAP, Inc.(6)

10(m) Agreement, dated as of March 28, 2001, between DCAP Group, Inc. and
Kevin Lang with respect to sale of DCAP Bayshore, Inc., DCAP Medford,
Inc. and DCAP Seaford, Inc.(7)

10(n) Agreement, dated as of March 28, 2001, between DCAP Group, Inc. and
Abraham Weinzimer with respect to sale of Diversified Coverage Asset
Planning, Inc., ADCAP Brokerage, Inc. and DCAP Hicksville, Inc.(7)

10(o) Asset Purchase Agreement, dated as of March 28, 2001, between East
Meadow Agency, Inc., DCAP Flushing, Inc. and MLC East Meadow/Flushing
LLC(7)

10(p) Agreement, dated as of March 28, 2001, between DCAP Group, Inc. and
Kevin Lang with respect to repurchase of shares(7)

10(q) Agreement, dated as of March 28, 2001, between DCAP Group, Inc. and
Abraham Weinzimer with respect to repurchase of shares(7)

10(r) Letter agreement, dated as of March 28, 2001, between DCAP Group, Inc.
and Abraham Weinzimer(7)

10(s) Letter agreement, dated as of March 28, 2001, between DCAP Group, Inc.
and Morton L. Certilman(7)

10(t) Letter agreement, dated as of March 28, 2001, between DCAP Group, Inc.
and Jay M. Haft(7)

10(u) Employment Agreement, dated as of March 28, 2001, between DCAP
Management, Inc. and Kevin Lang(7)

10(v) Employment Agreement, dated as of May 10, 2001, between DCAP Group,
Inc. and Barry Goldstein(8)

10(w) Stock Option Agreement, dated as of May 10, 2001, between DCAP Group,
Inc. and Barry Goldstein(8)

21 Subsidiaries

(1) Denotes document filed as exhibits to our Annual Reports on Form 10-KSB for
the years ended December 31, 1993 and 1998 and incorporated herein by
reference.

(2) Denotes document filed as an exhibit to our Quarterly Report on Form 10-QSB
for the period ended March 31, 2001 and incorporated herein by reference.

(3) Denotes document filed as an exhibit to our 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 our 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 our Annual Report on Form 10-KSB
for the fiscal year ended December 31, 1999 and incorporated herein by
reference.

(6) Denotes document filed as an exhibit to our Quarterly Report on Form 10-QSB
for the period ended June 30, 2000 and incorporated herein by reference.

(7) Denotes document filed as an exhibit to our Annual Report on Form 10-KSB
for the fiscal year ended December 31, 2000 and incorporated herein by
reference.

(8) Denotes document filed as an exhibit to our Quarterly Report on Form 10-QSB
for the period ended June 30, 2001 and incorporated herein by reference.

--------------

(b) Reports on Form 8-K

One report on Form 8-K was filed by us during the last quarter of the
fiscal year ended December 31, 2001 as follows:

Date of Report: December 5, 2001
Items Reported: 5 and 7

DCAP GROUP, INC. AND SUBSIDIARIES

REPORT ON AUDITS OF
CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2001 AND 2000

ITEM 7 - Consolidated Financial Statements

INDEX
-----

Page
----

Independent auditors' report F-2

Consolidated balance sheet F-3

Consolidated statements of operations F-4

Consolidated statement of stockholders' deficit F-5

Consolidated statements of cash flows F-6

Notes to consolidated financial statements F-7 - F-17

CONSOLIDATED FINANCIAL STATEMENTS

Independent Auditors' Report

Board of Directors and Stockholders
DCAP Group, Inc.
Hewlett, New York

We have audited the accompanying consolidated balance sheet of DCAP Group, Inc.
and Subsidiaries as of December 31, 2001 and the related consolidated statements
of operations, stockholders' deficit and cash flows for each of the years in the
two-year period ended December 31, 2001. 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 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 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, 2001 and the results of their operations and
their cash flows for each of the years in the two-year period ended December 31,
2001 in conformity with accounting principles generally accepted in the United
States of America.

HOLTZ RUBENSTEIN & CO., LLP
Melville, New York
March 20, 2002

F-2

DCAP GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

DECEMBER 31, 2001

ASSETS

CURRENT ASSETS:
Cash and cash equivalents $ 220,774
Due from franchises, net of allowance for
doubtful accounts of $53,000 225,939
Note receivable - former officer 39,095
Prepaid expenses and other current assets 36,755
------
Total current assets 522,563
-------

PROPERTY AND EQUIPMENT, net 354,236
GOODWILL, net 75,000
OTHER INTANGIBLES, net 236,574
DEPOSITS AND OTHER ASSETS 43,589
------
$ 1,231,962
===========

LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 733,060
Current portion of long-term debt 25,537
Current portion of capital lease obligations 84,939
Deferred revenue 89,757
Debentures payable 154,200
Due to officer 33,333
------
Total current liabilities 1,120,826
---------
LONG-TERM DEBT 182,146
-------
CAPITAL LEASE OBLIGATIONS 120,377
-------
DEFERRED REVENUE 37,372
------
MINORITY INTEREST 8,923
-----

COMMITMENTS

STOCKHOLDERS' DEFICIT:
Common stock, $.01 par value; authorized 40,000,000 shares;
issued 15,068,018 150,680
Preferred stock, $.01 par value; authorized
1,000,000 shares; 0 shares issued and outstanding -
Capital in excess of par 9,752,409
Deficit (9,212,116)
----------
690,973
Treasury stock, at cost, 3,714,616 shares (928,655)
--------
(237,682)
--------
$ 1,231,962
===========

See notes to consolidated financial statements

F-3

DCAP GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

Years Ended
December 31,
2001 2000

REVENUES:
Commissions and fees $ 2,350,094 $ 6,677,556
Rooms 879,918 970,195
Premium finance revenue 259,454 38,800
Other operating departments 30,998 128,873
------ -------
Total revenues 3,520,464 7,815,424
--------- ---------

OPERATING EXPENSES:
General and administrative expenses 2,861,849 6,933,522
Impairment of intangibles - 201,000
Impairment of notes receivable - 81,000
Provision for bad debt 232,666 5,400
Departmental 357,029 382,683
Depreciation and amortization 293,605 788,259
Lease rentals 409,116 858,764
Property operation and maintenance 60,139 61,040
------ ------
Total operating expenses 4,214,404 9,311,668
--------- ---------
OPERATING LOSS (693,940) (1,496,244)
-------- ----------
OTHER (EXPENSE) INCOME:
Interest income 15,960 78,660
Interest expense (47,429) (144,173)
Gain (loss) on sale of DCAP stores 56,043 (2,136,681)
Loss on disposal of property and equipment (252,791) -
-------- ---------
(228,217) (2,202,194)
-------- ----------
LOSS BEFORE INCOME TAXES AND MINORITY INTEREST (922,157) (3,698,438)

INCOME TAXES 20,336 25,000
------ ------

LOSS BEFORE MINORITY INTEREST (942,493) (3,723,438)

MINORITY INTEREST 12,942 5,141
------ -----

NET LOSS $ (929,551) $ (3,718,297)
========== ============

NET LOSS PER COMMON SHARE
Basic $ (0.08) $ (0.25)
======= =======
Diluted $ (0.08) $ (0.25)
======= =======

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
Basic 12,238,222 14,751,832
========== ==========
Diluted 12,238,222 14,751,832
========== ==========

See notes to consolidated financial statements

F-4

DCAP GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT

Capital
Common Stock Preferred Stock in Excess Subscription Treasury
Shares Amount Shares Amount of Par Deficit Receivable Stock Total
------ ------ ------ ------ ------ ------- ---------- ----- -----

Balance, January 1, 2000 14,299,176 $ 142,992 - $ - $9,752,597 $(4,564,268) $ (228,000) $ - $5,103,321

Securities issued to private
placement investors 761,342 7,613 - - (7,613) - - - -

Securities issued to acquire
intangible property 7,500 75 - - 7,425 - - - 7,500

Net loss for the year - - - - - (3,718,297) - - (3,718,297)
---------- ------- ---- ---- --------- ---------- ------- ---- ---------
Balance, December 31, 2000 15,068,018 150,680 - - 9,752,409 (8,282,565) (228,000) - 1,392,524

Cancellation in connection
with sale of stores - - - - - - 228,000 - 228,000

Purchase of 3,714,616 shares
of treasury stock - - - - - - - (928,655) (928,655)

Net loss for the year - - - - - (929,551) - - (929,551)
---------- ------- ---- ----- ---- ------- ------- ------- -------
Balance, December 31, 2001 15,068,018 $ 150,680 - $ - $9,752,409 $(9,212,116) $ - $(928,655) $ (237,682)
========== ========= ==== ====== ========== =========== ====== ========= ==========

See notes to consolidated financial statements

F-5

DCAP GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended
December 31,
2001 2000
---- ----

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (929,551) $ (3,718,297)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization 293,605 788,259
Bad debt expense 232,666 600
Gain on sale of stores (56,043) -
Loss on disposal of fixed assets 252,791 -
Forgiveness of note receivable 141,454 -
Impairment of intangible assets - 201,000
Impairment of notes receivable - 81,000
Loss on sale of ownership interests in joint ventures - 2,136,681
Minority interest (12,942) (5,141)
Changes in operating assets and liabilties:
(Increase) decrease in assets:
Accounts receivable 124,522 (19,690)
Prepaid expenses and other current assets 25,986 (9,165)
Deposits and other assets 29,972 30,783
Increase (decrease) in liabilities:
Accounts payable and accrued expenses (1,078,732) 431,178
Deferred revenue (225,959) 313,301
-------- -------
Net cash (used in) provided by operating activities (1,202,231) 230,509
---------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (25,577) (165,414)
Decrease (increase) in notes and other receivables - net 53,303 (190,519)
Proceeds from sale of DCAP stores 844,091 323,000
Decrease (increase) in restricted cash - other current assets 236,134 (84,897)
------- -------
Net cash provided by (used in) investing activities 1,107,951 (117,830)
--------- --------

CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt and capital lease obligations (235,704) (381,443)
Increase in due to officer 33,333 -
------ -------
Net cash used in financing activities (202,371) (381,443)
-------- --------
Net decrease in cash and cash equivalents (296,651) (268,764)

Cash and cash equivalents, beginning of year 517,425 786,189

Cash and cash equivalents, end of year $ 220,774 $ 517,425
========= =========

See notes to consolidated financial statements

F-6

DCAP GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2001 AND 2000

1. Organization and Nature of Business:

DCAP Group, Inc. and Subsidiaries (the "Company") operate a network of
retail offices and franchise operations engaged in the sale of retail auto,
motorcycle, boat, business, and homeowner's insurance, and provide tax
preparation services and automobile club services for road-side emergencies. The
Company also provides premium financing of insurance policies for their DCAP
clients as well as clients of non-affiliated entities. 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.

In March 2001, the Company entered into agreements with three shareholders
that provided for the sale of a total of eight DCAP stores for cash
consideration of an aggregate of $767,000. The Company recognized a net gain of
approximately $56,000 on the sale of the stores. At the time of execution of the
agreements with two of the shareholders, they each paid to the Company the total
amount of their respective purchase price. At the time of execution of the
agreement with the remaining shareholder, the Company received approximately
$197,000 of the purchase price. The balance was paid at the closing of the
acquisition through the assumption of a liability.

At the closing of the store sales, the Company entered into franchise
agreements with the three shareholders on terms similar to those previously
entered into by one of the shareholders, except that, in general, none of the
franchisees will be allowed to terminate their respective franchise agreements
prior to March 31, 2003.

The Company reacquired a total of 3,714,616 of the issued shares from two
of these shareholders in consideration of the cancellation of indebtedness owed
to the Company by them in the aggregate amount of $928,655. Notes in the
original principal amount of $33,000 plus accrued interest are still owed to the
Company from one of the shareholders (see Note 4).

The Company agreed with one of the shareholders to terminate his employment
agreement that was scheduled to expire in February 2004. Concurrently, the
Company agreed to cancel indebtedness of $141,454 that the shareholder owed to
the Company pursuant to his purchase of the Company's interest in certain DCAP
stores.

During 2000, the Company recognized a net loss of approximately $2,136,000
on the sale of 14 of its DCAP stores (giving effect to the write off of
approximately $2,169,000 of goodwill attributable to such stores).

2. Summary of Significant Accounting Policies:

a. Principles of consolidation
---------------------------

The accompanying consolidated financial statements include the accounts of
all subsidiaries and joint ventures in which the Company has a majority voting
interest or voting control. 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.

F-17

2. Summary of Significant Accounting Policies: (Cont'd)
------------------------------------------

b. Revenue recognition (cont'd)
-------------------

Premium financing fee revenue is earned based upon the origination of
premium finance contracts sold by agreement to third parties. The contract fee
gives consideration to an estimate as to the collectability of the loan amount.
Periodically, actual results are compared to estimates previously recorded, and
adjusted accordingly.

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 restrictive covenants.
Accordingly, a 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
three to fifteen years. Amortization of goodwill and intangible assets
approximated $61,000 and $367,000 for the years ended December 31, 2001 and
2000, respectively. The Company reviews goodwill and certain identifiable
intangibles for impairment as described in Notes 2j and 2k (see Note 3).

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 thc Company's receivables are derived from franchises and
represent franchise fees and reimbursable expenses.

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.

F-8

2. Summary of Significant Accounting Policies: (Cont'd)
------------------------------------------

i. Advertising costs
-----------------

Advertising costs are charged to operations when the advertising first
takes place.

j. Impairment of long-lived assets
-------------------------------

The Company reviews long-lived assets and certain identifiable intangibles
to be held and used for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset exceeds the fair value of the
asset. If other events or changes in circumstances indicate that the carrying
amount of an asset that the Company expects to hold and use may not be
recoverable, the Company will estimate the undiscounted future cash flows
expected to result from the use of the asset or its eventual disposition, and
recognize an impairment loss. The impairment loss, if determined to be necessary
would be measured as the amount by which the carrying amount of the assets
exceeds the fair value of the assets. A similar evaluation is made in relation
to goodwill, with any impairment loss measured as the amount by which the
carrying value of such goodwill exceeds the expected undiscounted future cash
flows.

k. New accounting pronouncements
-----------------------------

In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS
No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Intangible
Assets". SFAS No. 141 requires the use of the purchase method of accounting for
business combinations and prohibits the use of the pooling of interests method.
SFAS No. 141 also expands the definition of intangible assets acquired in a
purchase business combination. SFAS No. 142 eliminates the amortization of
goodwill, requires annual impairment testing of goodwill and introduces the
concept of indefinite life intangible assets. It must be adopted on January 1,
2002. The new rules also prohibit the amortization of goodwill associated with
business combinations that close after June 30, 2001.

In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disclosure of Long-lived Assets". SFAS No. 144 addresses
significant issues relating to the implementation of SFAS No. 121, "Accounting
for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed
Of," develops a single accounting model, based on the framework established in
SFAS No. 121 for long-lived assets to be disposed of by sale, whether previously
held and used or newly acquired.

The Company does not expect the implementation of SFAS 144 to have a
material effect on its financial position or results of operations.

l. Website development costs
-------------------------

Technology and content costs are generally expensed as incurred, except for
certain costs relating to the development of internal-use software, including
those relating to operating the Company's website, that are capitalized and
depreciated over two years. No costs were incurred during 2001 or 2000.

m. Reclassifications
-----------------

Certain reclassifications have been made to the consolidated financial
statements for the year ended December 31, 2000 to conform with the
classifications used in 2001.

n. Comprehensive income (loss)
---------------------------

Comprehensive income (loss) refers to revenues, expenses, gains and losses
that under generally accepted accounting principles are included in
comprehensive income but are excluded from net income as these amounts are
recorded directly as an adjustment to stockholders' equity. At December 31,
2001, there were no such adjustments required.

F-9

3. Impairment of Other Intangibles:
---------------------------------

As discussed in Note 2j, the Company reviews long-lived assets and certain
identifiable intangibles to be held and used for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset exceeds
the fair value of the asset. During the fourth quarter of 2000, the Company
evaluated the carrying value of other intangibles. As a result, unamortized
goodwill and other intangibles of $201,000 were written off.

4. Note Receivable:
---------------

The note receivable at December 31, 2001 is an amount due from a former
officer approximating $39,000 including accrued interest. The note is due on
demand, together with accrued interest at 6.0% per annum.

5. Property and Equipment:
----------------------

At December 31, 2001 property and equipment consists of the following:

Furniture, fixtures and equipment $ 668,482
Office equipment 17,169
Leasehold improvements 149,267
Computer hardware and software 333,132
Transportation equipment 31,047
Entertainment facility 200,538
--------------
1,399,635
Less accumulated depreciation and amortization 1,045,399
--------------
$ 354,236
==============

6. Accounts Payable and Accrued Expenses:
-------------------------------------

At December 31, 2001 accounts payable and accrued expenses consists of the
following:

Accounts payable $ 520,770
Payroll and related costs 15,615
Professional fees 50,000
Other 146,675
-----------
$ 733,060
===========

7. 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, 2001, $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-10

8. Long-Term Debt:
--------------

At December 31, 2001, long-term debt is comprised of the following:

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. $ 27,514

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 $139,000. 180,169
-----------
207,683
Less current maturities 25,537
-----------
$ 182,146
===========

Long-term debt matures as follows:

Years Ended
December 31,
------------
2002 $ 26,000
2003 14,000
2004 7,000
2005 7,000
2006 8,000
Thereafter 146,000

9. Capitalized Lease Obligations:
-----------------------------

Included in computer and office equipment are certain assets having an
acquisition cost of approximately $151,000, leased under capital leases.
Accumulated amortization at December 31, 2001 totaled $62,000. The future
minimum lease payments of these capital leases and the present value of the net
minimum lease payments as of December 31, 2001 are as follows:

Years Ended
December 31,
------------
2002 $ 124,000
2003 85,000
2004 59,000
2005 6,000
-----------
Minimum lease payment 274,000
Less amount representing interest 69,000
-----------
Present value of net minimum lease payments 205,000
Less current maturities 85,000
-----------

Long-term portion of capitalized lease obligations $ 120,000
===========

10. Related Party Transaction:
-------------------------

During the years ended December 31, 2001 and 2000, the Company leased its
corporate office facility from a partnership of which a stockholder/officer is a
member. Rent expense amounted to $1,500 and $6,000 for the years ended December
31, 2001 and 2000, respectively.

F-11

11. 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 2001 and 2000 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 2001 and 2000, a provision of approximately
$3,000 and $6,000 has been made for this tax liability, respectively.

The provision for income taxes is comprised of the following:
Years Ended
December 31,
--------------------------------
2001 2000
------------ ---------------

Benefit at federal statutory rates $ (316,047) $ (1,274,532)
Loss in excess of available benefit 336,383 1,299,532
------------ --------------

$ 20,336 $ 25,000
============ ==============

At December 31, 2001 the Company had net operating loss carryforwards for
tax purposes of approximately $5,100,000. The tax loss carryforwards expire at
various dates through 2021.

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, 2001 consist of the following:

Deferred tax assets:
Net operating loss carryovers $ 2,036,000
Other 55,000
---------------
Total deferred tax asset 2,091,000
Less valuation allowance (2,091,000)
---------------

Net deferred tax assets $ -
===============

The Company has recorded a full valuation allowance against its net
deferred tax assets because of the uncertainty that sufficient taxable income
will be realized during the carryforward period to utilize the deferred tax
asset.

12. Commitments:
-----------

a. Leases
------

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 $178,000 for 2001 and $197,000 for
2000.
F-12

12. Commitments: (Cont'd)
-----------

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.

The Company and each of its affiliates lease office space under
noncancellable operating leases expiring at various dates through August 2011.
Many of the leases are renewable and include additional rent for real estate
taxes and other operating expenses. The minimum future rentals under these lease
commitments for leased facilities and office equipment are as follows:

Years Ended
December 31,
------------
2002 $ 142,000
2003 130,000
2004 113,000
2005 96,000
2006 64,000
Thereafter 288,000

Rental expense approximated $407,000 and $662,000 for the years ended
December 31, 2001 and 2000, respectively.

b. Employment agreement
--------------------

During 2001, the Company entered into an employment agreement with an
officer, which provides for minimum salary of $200,000 per annum. The employment
agreement also provides for discretionary bonuses and other perquisites commonly
found in such agreements. In addition, the Company granted the officer the right
and option to purchase up to 1,000,000 shares of the Company's common stock. The
employment agreement expires on April 1, 2005.

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.

13. Stockholders' Deficit:
---------------------

a. Capitalization
--------------

During 2001, the Company amended its Certificate of Incorporation and
increased the amount of authorized common stock from 25,000,000 to 40,000,000,
with a par value of $.01 per share. All references to the par value of the
common stock outstanding reflect this par value.

F-13

13. Stockholders' Deficit: (Cont'd)
---------------------

b. Preferred stock
---------------

During 2001, the Company amended its Certificate of Incorporation to
provide for the authority to issue 1,000,000 shares of preferred stock, with a
par value of $.01 per share. The Board of Directors has the authority to issue
shares of preferred stock from time to time in a series and to fix, before the
issuance of each series, the number of shares in each series and the
designation, liquidation preferences, conversion privileges, rights and
limitations of each series.

c. 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 $1.10, $1.37 and $1.65, respectively and
expires June 2, 2004. All warrants issued in connection with the private
placement are outstanding at December 31, 2001.

On June 2, 2000, the Company issued 761,342 common shares to the private
placement investors pursuant to price protection provisions contained in the
offering agreement. Pursuant to those provisions, the Company had agreed to
issue to the investors additional shares based upon the market price of the
Company's common shares one year after the June 2, 1999 offering date (if lower
than the market price at the time of the offering). As a result, the per share
price was reduced from $1.10 to $.73 (the floor price provided for) and the
additional shares were issued.

d. Stock options
-------------

In November 1998, the Company adopted the 1998 Stock Option Plan 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 were originally permitted to be granted, at a price to be
determined by the Board of Directors or the Stock Option Committee at the time
of grant. During 2001, the Company increased the number of common shares
authorized to be issued pursuant to the 1998 stock option plan from 2,000,000 to
3,000,000. 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,
2001 and 2000, and changes during the years then ended is presented below:

Years Ended
December 31,
------------------------------------------------------
2001 2000
-------------------------- ------------------------
Weighted Weighted
Average Average
Exercise Exercise
Fixed Stock Options Shares Price Shares Price
------------------- ------------ ----------- --------- -----------

Outstanding, beginning of year 950,000 $ 2.51 950,000 $2.51
Granted 1,000,000 .25 - -
Expired (100,000) 1.00 - -
Forfeited (400,000) 2.69 - -
------------ ------ --------- ------
Outstanding, end of year 1,450,000 $ 1.01 950,000 $ 2.51
============ =========
Weighted average fair value
of options granted during year $ .18 $ -
====== ======

F-14

13. Stockholders' Deficit: (Cont'd)
---------------------

d. Stock options (cont'd)
-------------

The following table summarizes information about stock options outstanding
at December 31, 2001:

Options Outstanding Options Exercisable
----------------------------------------------- --------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Number Contractual Exercise Number Exercise
Exercise Price Outstanding Life Price Outstanding Price
-------------- --------------- ---------------- ------------ ------------- -----------

$0.25 1,000,000 4.25 yrs. $0.25 - $ -
$2.69 450,000 2.17 yrs. $2.69 450,000 $2.69

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 years ended December 31, 2001 and 2000, 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, 2001:

Dividend yield 0.00%
Volatility 92.82%
Risk-free interest rate 6.00%
Expected life 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.

e. Common shares reserved
----------------------

Warrants 2,740,898
=========
Stock Option Plans 3,000,000
=========

14. Business Segments:
-----------------

The Company currently has three reportable business segments: Insurance,
Premium Finance and Hotel. The Insurance segment sells retail auto, motorcycle,
boat, life, business, and homeowner's insurance and franchises. In addition,
this segment offers tax preparation services and automobile club services for
roadside emergencies. Insurance revenues are derived from activities within the
United States, and all long-lived assets are located within the United States.
The Hotel segment operates the International Airport Hotel in San Juan, Puerto
Rico. The Hotel caters generally to commercial and tourist travelers in transit.
The Premium Finance segment offers property and casualty policyholders loans to
finance the policy premiums.

F-15

14. Business Segments: (Cont'd)
-----------------

Revenue, operating income, capital expenditures, and depreciation and
amortization pertaining to the industries in which the Company operates are
presented below.

Year Ended Premium
December 31, 2001 Finance Insurance Hotel Other (1) Total
------------------------ ----------- -------------- ------------ ------------ --------------

Revenues from
external customers $ 259,454 $ 2,350,094 $ 905,158 $ 5,758 $ 3,520,464
Interest income - 5,577 - 10,383 15,960
Interest expense - 47,429 - - 47,429
Depreciation and
amortization - 278,430 15,175 - 293,605
Segment profit (loss) 234,128 (821,555) 99,053 (441,177) (929,551)
Segment assets 51,719 853,862 268,905 57,476 1,231,962
Expenditures for
segment assets 2,080 1,619 21,878 - 25,577

(1) Column represents corporate-related items and, as it relates to segment profit (loss),
income, expense and assets not allocated to reportable segments.

Year Ended Premium
December 31, 2000 Finance Insurance Hotel Other (1) Total
------------------------ ----------- -------------- ------------- ------------ --------------

Revenues from
external customers $ 38,800 $ 6,677,556 $ 1,057,723 $ 41,345 $ 7,815,424
Interest income - 31,297 - 47,363 78,660
Interest expense - 144,173 - - 144,173
Depreciation and
amortization - 751,228 37,031 - 788,259
Segment profit (loss) 24,995 (3,581,176) 183,272 (345,388) (3,718,297)
Segment assets 24,655 3,443,454 302,012 660,502 4,430,623
Expenditures for
segment assets - 235,552 20,222 - 255,774
Impairment of
intangible assets - 201,000 - - 201,000

(1) Column represents corporate-related items and, as it relates to segment profit (loss),
income, expense and assets not allocated to reportable segments.

The following is a reconciliation of reportable segment expenditures for
segment assets to consolidated totals:

Expenditures for Segment Assets for 2000
----------------------------------------

Total expenditures for segment assets $ 255,774
Non-cash acquisitions of assets (90,360)
-------------
Consolidated total $ 165,414
=============

15. 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, notes receivable and payables and certain other
short-term financial instruments approximate their fair value.

F-16

15. Fair Value of Financial Instruments: (Cont'd)
-----------------------------------

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, 2001 approximates fair value.

16. Advertising Costs:
-----------------

Included in selling, general and administrative expenses are advertising
costs approximating $216,000 and $866,000 for the years ended December 31, 2001
and 2000, respectively.

17. Supplementary Information - Statement of Cash Flows:
---------------------------------------------------

Cash paid during the years for:
Years Ended
December 31,
-----------------------------------
2001 2000
------------- -------------

Supplemental disclosures:
Interest $ 73,670 $ 117,983
============= =============

Income Taxes $ 25,232 $ 15,461
============= =============
Non-cash financing and investment activities:
Common stock issued for acquisitions and
intangible property $ - $ 7,500
============= =============
Acquisitions of property and equipment
through capital leases $ - $ 90,360
============= =============

F-17

SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant caused this amendment to the report to be signed on its
behalf by the undersigned, thereunto duly authorized.

DCAP GROUP, INC.

Dated: April 15, 2002 By:/s/ Barry B. Goldstein
--------------------------------
Barry B. Goldstein
Chief Executive Officer

In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.

Signatures Capacity Date
---------- -------- ----

President, Chairman of the Board,
Chief Executive Officer, Chief
Financial Officer, Treasurer and
Director (Principal Executive,
/s/ Barry B. Goldstein Financial and Accounting Officer) April 15, 2002
--------------------------
Barry B. Goldstein

/s/ Morton L. Certilman Secretary and Director April 15, 2002
--------------------------
Morton L. Certilman

/s/ Jay M. Haft Director April 15, 2002
--------------------------
Jay M. Haft

Director
Robert M. Wallach