**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**




**FORM
      10-QSB**


**(Mark
      One)**


[X]
            Quarterly
                report under Section 13 or 15(d) of the Securities Exchange Act of
                1934For
                the quarterly period endedMarch
                31, 2007[  
                ]
            Transition
                report under Section 13 or 15(d) of the Exchange ActFor
                the transition period from _____________to
                ______________Commission
                File Number:0-1665





**DCAP
      GROUP, INC.**


(Exact
      Name of Small Business Issuer as Specified in its Charter)




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





**1158
      Broadway, Hewlett, NY 11557**


(Address
      of Principal Executive Offices)





**(516)
      374-7600**


(Issuer’s
      Telephone Number, Including Area Code)


**________________________________________________**


(Former
      Name, Former Address and Former Fiscal Year, if Changed


Since
      Last Report)





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____





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). Yes ____ No X





**APPLICABLE
      ONLY TO ISSUERS INVOLVED IN**


**BANKRUPTCY
      PROCEEDINGS DURING THE**


**PRECEDING
      FIVE YEARS**





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




**APPLICABLE
      ONLY TO CORPORATE ISSUERS**





State
      the
      number of shares outstanding of each of the issuer's classes of common equity,
      as of the latest practicable date: 2,962,024 shares as of April 30,
      2007.





Transitional
      Small Business Disclosure Format (check one): Yes  No X








**INDEX**




**DCAP
      GROUP, INC. AND SUBSIDIARIES**





**PART
                I****.**
            **FINANCIAL
                INFORMATION****Item
                1.**
            **Financial
                Statements**Condensed
                Consolidated Balance Sheet - March 31, 2007 (Unaudited)Condensed
                Consolidated Statements of Income - Three months ended March 31,
                2007 and
                2006 (Unaudited)Condensed
                Consolidated Statements of Cash Flows - Three months ended March
                31, 2007
                and 2006 (Unaudited)Notes
                to Condensed Consolidated Financial Statements - Three months ended
                March
                31, 2007 and 2006 (Unaudited)**Item
                2.**
            **Management's
                Discussion and Analysis or Plan of Operation****Item
                3.**
            **Controls
                and Procedures****PART
                II****.**
            **OTHER
                INFORMATION****Item
                1.**
            **Legal
                Proceedings****Item
                2.**
            **Unregistered
                Sales of Equity Securities and Use of Proceeds****Item
                3.**
            **Defaults
                Upon Senior Securities****Item
                4.**
            **Submission
                of Matters to a Vote of Security Holders****Item
                5.**
            **Other
                Information****Item
                6.**
            **Exhibits****SIGNATURES**







2


Forward-Looking
      Statements




This
      Quarterly Report contains forward-looking statements as that term is defined
      in
      the federal securities laws. The events described in forward-looking statements
      contained in this Quarterly Report may not occur. Generally these statements
      relate to business plans or strategies, projected or anticipated benefits or
      other consequences of our plans or strategies, projected or anticipated benefits
      from acquisitions made or to be made by us, or projections involving anticipated
      revenues, earnings or other aspects of our operating results. The words "may,"
      "will," "expect," "believe," "anticipate," "project," "plan," "intend,"
      "estimate," and "continue," and their opposites and similar expressions are
      intended to identify forward-looking statements. We caution you that these
      statements are not guarantees of future performance or events and are subject
      to
      a number of uncertainties, risks and other influences, many of which are beyond
      our control, that may influence the accuracy of the statements and the
      projections upon which the statements are based. Factors which may affect our
      results include, but are not limited to, the risks and uncertainties discussed
      in Item 6 of our Annual Report on Form 10-KSB for the year ended December 31,
      2006 under “Factors That May Affect Future Results and Financial
      Condition”.




Any
      one
      or more of these uncertainties, risks and other influences could materially
      affect our results of operations and whether forward-looking statements made
      by
      us ultimately prove to be accurate. Our actual results, performance and
      achievements could differ materially from those expressed or implied in these
      forward-looking statements. We undertake no obligation to publically update
      or
      revise any forward-looking statements, whether from new information, future
      events or otherwise.













3


**DCAP
                GROUP, INC. AND**
              **SUBSIDIARIES****Condensed
                Consolidated Balance Sheet (Unaudited)***March
              31, 2007***Assets**Current
                AssetsCash
                and cash equivalents
            
            
            
            
            $
            1,047,343Accounts
                receivable, net of allowance for
              doubtful
                accounts of $66,000
            
            
            
            
            
            1,112,391Finance
                contracts receivable
            
            $
            16,252,948Less:
                Deferred interest
            
            
            (1,270,150
            )Less:
                Allowance for finance receivable losses
            
            
            (205,264
            )
            
            14,777,534Prepaid
                income taxes
            
            
            
            
            
            188,294Prepaid
                expenses and other current assets
            
            
            
            
            
            189,379Deferred
                income taxes
            
            
            
            
            
            76,000Total
                Current Assets
            
            
            
            
            
            17,390,941Property
                and Equipment, net
            
            
            
            
            
            367,664Goodwill
            
            
            
            
            
            2,601,257Other
                Intangibles, net
            
            
            
            
            
            315,603Notes
                Receivable, net
            
            
            
            
            
            4,207,284Deposits
                and Other Assets
            
            
            
            
            
            230,440Total
                Assets
            
            
            
            
            $
            25,113,189**Liabilities
                and Stockholders’ Equity**Current
                Liabilities:Revolving
                credit line
            
            
            
            
            $
            10,165,638Accounts
                payable and accrued expenses
            
            
            
            
            
            878,151Premiums
                payable
            
            
            
            
            
            3,533,023Current
                portion of long-term debt
            
            
            
            
            
            655,800Other
                current liabilities
            
            
            
            
            
            234,295Total
                Current Liabilities
            
            
            
            
            
            15,466,907Long-Term
                Debt
            
            
            
            
            
            2,283,226Deferred
                Income Tax
            
            
            
            
            
            396,000Mandatorily
                Redeemable Preferred Stock
            
            
            
            
            
            780,000CommitmentsStockholders’
                Equity:Common
                stock, $.01 par value; authorized 10,000,000 shares;
              issued
                3,738,947
            
            
            
            
            
            37,390Preferred
                stock; $.01 par value; authorized
              1,000,000
                shares; 0 shares issued and outstanding
            
            
            
            
            
            -Capital
                in excess of par
            
            
            
            
            
            11,737,224Deficit
            
            
            
            
            
            (4,409,003
            )7,365,611Treasury
                stock, at cost, 776,923 shares
            
            
            
            
            
            (1,178,555
            )Total
                Stockholders’ Equity
            
            6,187,056Total
                Liabilities and Stockholders’ Equity
            $
            25,113,189





*See
      notes to condensed consolidated financial statements* .




4


**DCAP
                GROUP, INC. AND**
              **SUBSIDIARIES****Condensed
                Consolidated Statements of Income (Unaudited)***Three
                Months Ended March 31,*
            
            
            *2007*
            
            
            *2006*Revenues:Commissions
                and fees
            
            $
            1,613,239
            
            $
            1,893,177Premium
                finance revenue
            
            
            790,695
            
            
            974,513Total
                Revenues
            
            
            2,403,934
            
            
            2,867,690Operating
                Expenses:General
                and administrative expenses
            
            
            2,062,821
            
            
            2,289,509Provision
                for finance receivable losses
            
            
            163,056
            
            
            169,625Depreciation
                and amortization
            
            
            96,458
            
            
            111,304Premium
                finance interest expense
            
            
            165,818
            
            
            189,097Total
                Operating Expenses
            
            
            2,488,153
            
            
            2,759,535Operating
                (Loss) Income
            
            
            (84,219
            )
            
            108,155Other
                (Expense) Income:Gain
                on sale of book of business
            
            
            62,467
            
            
            -Interest
                income
            
            
            1,353
            
            
            1,358Interest
                income - notes receivable
            
            
            324,298
            
            
            212,293Interest
                expense
            
            
            (132,705
            )
            
            (100,872
            )Interest
                expense - mandatorily redeemable preferred stock
            
            
            (9,750
            )
            
            (9,750
            )Total
                Other Income
            
            
            245,663
            
            
            103,029Income
                Before Provision for Income Taxes
            
            
            161,444
            
            
            211,184Provision
                for Income Taxes
            
            
            72,650
            
            
            84,404Net
                Income
            
            $
            88,794
            
            $
            126,780Net
                Income Per Common Share:Basic
            
            $
            0.03
            
            $
            0.04Diluted
            
            $
            0.03
            
            $
            0.04Weighted
                Average Number of Shares OutstandingBasic
            
            
            2,941,491
            
            
            2,866,746Diluted
            
            
            3,283,525
            
            
            3,238,861







*See
      notes to condensed consolidated financial statements.*


5





**DCAP
                GROUP, INC. AND**
              **SUBSIDIARIES****Condensed
                Consolidated Statements of Cash Flows
                (Unaudited)***Three
                months ended March 31,*
            
            
            *2007*
            
            
            *2006*Cash
                Flows From Operating Activities:Net
                income
            
            $
            88,794
            
            $
            126,780Adjustments
                to reconcile net income to net cash
              provided
                by operating activities:Depreciation
                and amortization
            
            
            96,458
            
            
            111,304Accretion
                of discount on notes receivable
            
            
            (246,951
            )
            
            (164,637
            )Amortization
                of warrants
            
            
            19,305
            
            
            19,611Stock
                based payments
            
            
            5,000
            
            
            10,000Gain
                on sale of book of business
            
            
            (62,467
            )
            
            -Changes
                in operating assets and liabilities:Decrease
                (increase) in assets:Accounts
                receivable
            
            
            334,590
            
            
            286,483Prepaid
                expenses and other current assets
            
            
            (92,424
            )
            
            (10,318
            )Deposits
                and other assets
            
            
            2,172
            
            
            (107,694
            )Increase
                (decrease) in liabilities:Premiums
                payable
            
            
            470,774
            
            
            675,051Accounts
                payable and accrued expenses
            
            
            (135,030
            )
            
            302,433Taxes
                payable
            
            
            73,109
            
            
            (201,399
            )Other
                current liabilities
            
            
            68,149
            
            
            (3,801
            )Net
                Cash Provided by Operating Activities
            
            
            621,479
            
            
            1,043,813Cash
                Flows from Investing Activities:Decrease
                (increase) in finance contracts receivable - net
            
            
            321
            
            
            (1,702,770
            )Decrease
                in notes and other receivables - net
            
            
            35,663
            
            
            4,870Purchase
                of notes
            
            
            -
            
            
            (1,771,707
            )Proceeds
                from sale of book of business
            
            
            63,000
            
            
            -Purchase
                of agencies
            
            
            -
            
            
            (832,654
            )Purchase
                of property and equipment
            
            
            (51,825
            )
            
            (10,135
            )Net
                Cash Provided by (Used in) Investing Activities
            
            
            47,159
            
            
            (4,312,394
            )Cash
                Flows from Financing Activities:Principal
                payments on long-term debt
            
            
            (130,000
            )
            
            -Proceeds
                from revolving credit line
            
            
            10,293,546
            
            
            15,457,856Payments
                on revolving credit line
            
            
            (11,080,253
            )
            
            (12,979,566
            )Proceeds
                from exercise of stock options
            
            
            99,000
            
            
            191,250Net
                Cash (Used in) Provided by Financing Activities
            
            
            (817,707
            )
            
            2,669,540Net
                Decrease in Cash and Cash Equivalents
            
            
            (149,069
            )
            
            (599,041
            )Cash
                and Cash Equivalents, beginning of period
            
            
            1,196,412
            
            
            1,961,489Cash
                and Cash Equivalents, end of period
            
            $
            1,047,343
            
            $
            1,362,448Supplemental
                Schedule of Non-Cash Investing
              and
                Financing Activities:Note
                payable issued for purchase of notes receivable
            
            $
            -
            
            $
            1,303,434Note
                payable issued for purchase of agencies
            
            $
            -
            
            $
            550,371








*See
      notes to condensed consolidated financial statements.*





6


**DCAP
      GROUP, INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**THREE
      MONTHS ENDED MARCH 31, 2007 AND 2006 (UNAUDITED)**





1.
            The
                Condensed Consolidated Balance Sheet as of March 31, 2007, the Condensed
                Consolidated Statements of Income for the three months ended March
                31,
                2007 and 2006 and the Condensed Consolidated Statements of Cash Flows
                for
                the three months ended March 31, 2007 and 2006 have been prepared
                by us
                without audit. In our opinion, the accompanying unaudited condensed
                consolidated financial statements contain all adjustments necessary
                to
                present fairly in all material respects our financial position as
                of March
                31, 2007, results of operations for the three months ended March
                31, 2007
                and 2006 and cash flows for the three months ended March 31, 2007
                and
                2006.




This
      report should be read in conjunction with our Annual Report on Form 10-KSB
      for
      the year ended December 31, 2006.




The
      results of operations and cash flows for the three months ended March 31, 2007
      are not necessarily indicative of the results to be expected for the full
      year.




2.
            Summary
                of Significant Accounting
                Policies




a.
            Principles
                of consolidation




The
      accompanying consolidated financial statements include the accounts of all
      subsidiaries and joint ventures in which we have a majority voting interest
      or
      voting control. All significant intercompany accounts and transactions have
      been
      eliminated.




b.
            Revenue
                recognition




We
      recognize commission revenue from insurance policies at the beginning of the
      contract period. Refunds of commissions on the cancellation of insurance
      policies are reflected at the time of cancellation.




Franchise
      fee revenue on initial franchisee fees is recognized when substantially all
      of
      our contractual requirements under the franchise agreement are completed.
      Franchisees also pay a monthly franchise fee plus an applicable percentage
      of
      co-op advertising expense. We are obligated to provide marketing and training
      support to each franchisee. During the three months ended March 31, 2007 and
      2006, approximately $50,000 and $0, respectively, was recognized as initial
      franchise fee income.




Automobile
      club dues are recognized equally over the contract period.




For
      our
      premium finance operations, we are using the interest method to recognize
      interest income over the life of each loan in accordance with Statement of
      Financial Accounting Standard No. 91, “Accounting for Nonrefundable Fees and
      Costs Associated with Originating or Acquiring Loans and Initial Direct Costs
      of
      Leases.”




Upon
      the
      establishment of a premium finance contract, we record the gross loan payments
      as a receivable with a corresponding reduction for deferred interest. The
      deferred interest is amortized to interest income using the interest method
      over
      the life of each loan. The weighted average interest rate charged with respect
      to financed insurance policies was approximately 26.5% and 26.6% **** per
      annum
      for the three months ended March 31, 2007 and 2006, respectively.




7


Delinquency
      fees are earned when collected. Upon completion of collection efforts, after
      cancellation of the underlying insurance policies, any uncollected earned
      interest or fees are charged off.




c.
            Allowance
                for finance receivable losses




Customers
      who purchase insurance policies are often unable to pay the premium in a lump
      sum and, therefore, require extended payment terms. Premium finance involves
      making a loan to the customer that is backed by the unearned portion of the
      insurance premiums being financed. No credit checks are made prior to the
      decision to extend credit to a customer. Losses on finance receivables include
      an estimate of future credit losses on premium finance accounts. Credit losses
      on premium finance accounts occur when the unearned premiums received from
      the
      insurer upon cancellation of a financed policy are inadequate to pay the balance
      of the premium finance account. After collection attempts are exhausted, the
      remaining principal balance is written off against the allowance for finance
      receivable losses and the unrealized actual interest and late fees are charged
      against the premium finance revenue. We review historical trends of such losses
      relative to finance receivable balances to develop estimates of future losses.
      However, actual write-offs may differ materially from the write-off estimates
      that we used. For the three months ended March 31, 2007 and 2006, the provision
      for finance receivable losses was $163,056 and $169,625, respectively, and
      actual principal write-offs for such periods (net of recoveries of previous
      write-offs) were $169,819 and $150,519, respectively.




d.  Website
      Development Costs




Technology
      and content costs are generally expensed as incurred, except for certain costs
      relating to the development of internal-use software, including those relating
      to operating our website, that are capitalized and depreciated over two years.
      A
      total of $43,160 and $29,785 in such costs was incurred during the three months
      ended March 31, 2007 and 2006, respectively.




e.  Reclassifications




Certain
      reclassifications have been made to the consolidated financial statements for
      the three months ended March 31, 2006 to conform to the classifications used
      for
      the three months ended March 31, 2007.




3.
            Business
                Segments




We
      currently have two reportable business segments: Insurance and Premium Finance.
      The Insurance segment sells retail auto, motorcycle, boat, life, business,
      and
      homeowner's insurance and franchises. In addition, this segment offers tax
      preparation services and automobile club services for roadside emergencies.
      Insurance revenues are derived from activities within the United States, and
      all
      long-lived assets are located within the United States. The Premium Finance
      segment offers property and casualty policyholders loans to finance the policy
      premiums.




8


Summarized
                financial information concerning our reportable segments is shown
                in the
                following tables:




Three
                Months
              EndedMarch
                31, 2007
            
            
            Insurance
            
            
            Premium
              Finance
            
            
            Other
                (1)
            
            
            TotalRevenues
                from external
              customers
            
            $
            1,613,239
            
            $
            790,695
            
            $
            -
            
            $
            2,403,934Interest
                income
            
            
            1,269
            
            
            -
            
            
            84
            
            
            1,353Interest
                income - notes receivable
            
            
            -
            
            
            -
            
            
            324,298
            
            
            324,298Interest
                expense
            
            
            31,070
            
            
            165,818
            
            
            111,385
            
            
            308,273Depreciation
                and
              amortization
            
            
            59,870
            
            
            25,469
            
            
            11,119
            
            
            96,458Segment
                profit (loss)
              before
                income taxes
            
            
            238,087
            
            
            68,846
            
            
            (145,489
            )
            
            161,444Segment
                profit (loss)
            
            
            130,948
            
            
            37,865
            
            
            (80,019
            )
            
            88,794Segment
                assets
            
            
            4,986,760
            
            
            15,410,643
            
            
            4,715,786
            
            
            25,113,189


______________




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




Three
                Months
              EndedMarch
                31, 2006
            
            
            Insurance
            
            
            Premium
              Finance
            
            
            Other
                (1)
            
            
            TotalRevenues
                from external
              customers
            
            $
            1,893,177
            
            $
            974,513
            
            $
            -
            
            $
            2,867,690Interest
                income
            
            
            1,273
            
            
            -
            
            
            85
            
            
            1,358Interest
                expense - notes receivable
            
            
            -
            
            
            -
            
            
            212,293
            
            
            212,293Interest
                expense
            
            
            23,111
            
            
            189,097
            
            
            87,511
            
            
            299,719Depreciation
                and
              amortization
            
            
            54,027
            
            
            46,985
            
            
            10,292
            
            
            111,304Segment
                profit (loss)
              before
                income taxes
            
            
            340,354
            
            
            134,931
            
            
            (264,101
            )
            
            211,184Segment
                profit (loss)
            
            
            204,282
            
            
            80,958
            
            
            (158,460
            )
            
            126,780Segment
                assets
            
            
            4,674,796
            
            
            19,563,487
            
            
            3,898,762
            
            
            28,137,045


________________




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




4.
            Employee
                Stock Compensation




In
      November 1998, we adopted the 1998 Stock Option Plan, which provides for the
      issuance of incentive stock options and non-statutory stock options. Under
      this
      plan, options to purchase not more than 400,000 of our common shares were
      permitted to be granted, at a price to be determined by our Board of Directors
      or the Stock Option Committee at the time of grant. During 2002, we increased
      the number of common shares authorized to be issued pursuant to the 1998 Stock
      Option Plan to 750,000. Incentive stock options granted under this plan expire
      no later than ten years from date of grant (except no later than five years
      for
      a grant to a 10% stockholder). Our Board of Directors or the Stock Option
      Committee will determine the expiration date with respect to non-statutory
      options granted under this plan.




9


In
      December 2005, our shareholders ratified the adoption of the 2005 Equity
      Participation Plan, which provides for the issuance of incentive stock options,
      non-statutory stock options and restricted stock. Under this plan, a maximum
      of
      300,000 common shares may be issued pursuant to options granted and restricted
      stock issued. Incentive stock options granted under this plan expire no later
      than ten years from date of grant (except no later than five years for a grant
      to a 10% stockholder). Our Board of Directors or the Stock Option Committee
      will
      determine the expiration date with respect to non-statutory options, and the
      vesting provisions for restricted stock, granted under this plan.




Our
      results for the three month periods ended March 31, 2007 and 2006 include
      share-based compensation expense totaling approximately $5,000 and $10,000,
      respectively. Such amounts have been included in the Condensed Consolidated
      Statements of Income within general and administrative expenses.




Stock
      option compensation expense in 2007 and 2006 is the estimated fair value of
      options granted amortized on a straight-line basis over the requisite service
      period for the entire portion of the award.




We
      did
      not grant any options under either plan during the three months ended March
      31,
      2007 or 2006.




The
      following table represents our stock options granted, exercised, and forfeited
      during the first quarter of 2007.




Stock
                Options
            
            
            Number
                of Shares
            
            
            Weighted
                Average Exercise Price per Share
            
            
            Weighted
                Average Remaining Contractual Term
            
            
            Aggregate
              Intrinsic
              ValueOutstanding
                at
              January
                1, 2007
            
            
            193,300
            
            $
            2.09
            
            
            -
            
            
            -Granted
            
            
            -
            
            
            -
            
            
            -
            
            
            -Exercised
            
            
            (66,000
            )
            $
            1.50
            
            
            -
            
            
            -Forfeited/expired
            
            
            
            
            
            
            
            
            -
            
            
            -Outstanding
                at
              March
                31, 2007
            
            
            127,300
            
            $
            2.78
            
            
            2.07
            
            $
            53,500Vested
                and Exercisable
              at
                March 31, 2007
            
            
            110,017
            
            $
            2.81
            
            
            1.75
            
            $
            45,758





10


The
      aggregate intrinsic value of options outstanding and options exercisable at
      March 31, 2007 is calculated as the difference between the exercise price of
      the
      underlying options and the market price of our common shares for the shares
      that
      had exercise prices that were lower than the $2.40 closing price of our common
      shares on March 31, 2007. We received cash proceeds from options exercised
      in the three months ended March 31, 2007 and 2006 of approximately $99,000
      and
      $191,000, respectively.





As
      of
      March 31, 2007, the fair value of unamortized compensation cost related to
      unvested stock option awards was approximately $37,000. Unamortized compensation
      cost as of March 31, 2007 is expected to be recognized over a remaining
      weighted-average vesting period of 1.15 years.




5.
            Net
                Income Per Share




Basic
                net income per share is computed by dividing income available to
                common
                shareholders by the weighted-average number of common shares outstanding.
                Diluted earnings per share reflect, in periods in which they have
                a
                dilutive effect, the impact of common shares issuable upon exercise
                of
                stock options and conversion of mandatorily redeemable preferred
                stock.




The
      reconciliation for the three months ended March 31, 2007 and 2006 is as
      follows:




Three
                Months Ended March 31,
            
            
            2007
            
            
            2006Weighted
                Average Number of Shares Outstanding
            
            
            2,941,491
            
            
            2,866,746Effect
                of Dilutive Securities, common share equivalents
            
            
            342,034
            
            
            372,115Weighted
                Average Number of Shares Outstanding,
              used
                for computing diluted earnings per share
            
            
            3,283,525
            
            
            3,238,861





Net
      income available to common shareholders for the computation of diluted earnings
      per share is computed as follows:





Three
                Months Ended March 31,
            
            
            2007
            
            
            2006Net
                Income
            
            $
            88,794
            
            $
            126,780Interest
                Expense on Dilutive Convertible Preferred Shares
            
            
            9,750
            
            
            9,750Net
                Income Available to Common Shareholders for
              Diluted
                Earnings Per Share
            
            $
            98,544
            
            $
            136,530





6.
            Extension
                of Maturity Date of Subordinated
                Debt




Effective
      March 23, 2007, the holders of approximately $1,385,000 outstanding principal
      amount of our subordinated debt agreed to extend the maturity date of the debt
      from September 30, 2007 to September 30, 2008. In consideration for the
      extension of the due date of the subordinated debt, we extended the expiration
      date of warrants held by the debtholders for the purchase of 90,000 of our
      common shares from September 30, 2007 to September 30, 2008.




11


7.
            Exchange
                of Preferred Shares




Effective
      March 23, 2007, the holder of our Series A preferred shares exchanged such
      shares for an equal number of Series B preferred shares. The terms of the Series
      B preferred shares are identical to those of the Series A preferred shares,
      except that they are mandatorily redeemable on April 30, 2008 (as opposed to
      April 30, 2007 for the Series A preferred shares).




8.
            Sale
                of Book of Business




In
      March
      2007, we sold the book of business of one of our stores for $63,000 in cash.
      The
      sale resulted in a gain of $62,467.




12


**Item
      2.** **MANAGEMENT'S
      DISCUSSION AND ANALYSIS OR PLAN OF OPERATION** **.**




***Overview***




There
      are
      70 store locations owned or franchised by us of which 65 are located in New
      York
      State. In the New York metropolitan area, there are 43 DCAP franchises. There
      are also 18 Barry Scott locations and four Accurate Agency locations outside
      the
      New York metropolitan area (all located in central and western New York State).
      There are five Atlantic Insurance locations in eastern Pennsylvania. All of
      the
      Barry Scott, Atlantic Insurance and Accurate Agency locations are wholly-owned
      by us.




Our
      insurance storefronts serve as insurance agents or brokers and place various
      types of insurance on behalf of customers. We focus on automobile, motorcycle
      and homeowner’s insurance and our customer base is primarily individuals rather
      than businesses.




The
      stores receive commissions from insurance companies for their services. We
      receive fees from the franchised locations in connection with their use of
      the
      DCAP name. Neither we nor the stores currently serve as an insurance company
      and
      therefore do not assume underwriting risks; however,
      as discussed below, Commercial Mutual Insurance Company is seeking to convert
      from an advance premium insurance company to a stock property and casualty
      insurance company. In the event of such conversion, the surplus notes issued
      by
      Commercial Mutual and held by us may be converted into a controlling equity
      interest in Commercial Mutual.




Payments
      Inc., our wholly-owned subsidiary, is an insurance premium finance agency that
      offers premium financing to clients of DCAP, Barry Scott, Atlantic Insurance
      and
      Accurate offices, as well as non-affiliated insurance agencies. We currently
      operate within the states of New York, Pennsylvania and New Jersey.




We
      also
      offer automobile club services for roadside emergencies. Income tax preparation
      services are also offered in connection with the franchise operation of the
      DCAP
      stores.




***Critical
      Accounting Policies***




Our
      consolidated financial statements include accounts of DCAP Group, Inc. and
      all
      majority-owned and controlled subsidiaries. The preparation of financial
      statements in conformity with accounting principles generally accepted in the
      United States requires our management to make estimates and assumptions in
      certain circumstances that affect amounts reported in our consolidated financial
      statements and related notes. In preparing these financial statements, our
      management has utilized information available including our past history,
      industry standards and the current economic environment, among other factors,
      in
      forming its estimates and judgments of certain amounts included in the
      consolidated financial statements, giving due consideration to materiality.
      It
      is possible that the ultimate outcome as anticipated by our management in
      formulating its estimates inherent in these financial statements might not
      materialize. In addition, application of the critical accounting policies below
      involves the exercise of judgment and use of assumptions as to future
      uncertainties and, as a result, actual results could differ from these
      estimates. Further, other companies may utilize different estimates, which
      may
      impact comparability of our results of operations to those of companies in
      similar businesses.




13


***Commission
      and fee income***




We
      recognize commission revenue from insurance policies at the beginning of the
      contract period. Refunds of commissions on the cancellation of insurance
      policies are reflected at the time of cancellation.




Franchise
      fee revenue from initial franchise fees is recognized when substantially all
      of
      our contractual requirements under the franchise agreement are completed.
      Franchisees also pay a monthly franchise fee plus an applicable percentage
      of
      advertising expense. We are obligated to provide marketing and training support
      to each franchisee.




Franchise
      fee income is recognized when substantially all of our contractual requirements
      under the franchise agreement are completed.




Automobile
      club dues are recognized equally over the contract period.




***Finance
      income, fees and receivables***




For
      our
      premium finance operations, we are using the interest method to recognize
      interest income over the life of each loan in accordance with Statement of
      Financial Accounting Standard (“SFAS”) No. 91, “Accounting for Nonrefundable
      Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct
      Costs of Leases.”




Upon
      the
      establishment of a premium finance contract, we record the gross loan payments
      as a receivable with a corresponding reduction for deferred interest. The
      deferred interest is amortized to interest income using the interest method
      over
      the life of each loan. The weighted average interest rate charged with respect
      to financed insurance policies was approximately 26.5% and 26.6% per annum
      for
      the three months ended March 31, 2007 and 2006, respectively. Delinquency fees
      are earned when collected. Upon completion of collection efforts, after
      cancellation of the underlying insurance policies, any uncollected earned
      interest or fees are charged off.




***Allowance
      for finance receivable losses***




Losses
      on
      finance receivables include an estimate of future credit losses on premium
      finance accounts. Credit losses on premium finance accounts occur when the
      unearned premiums received from the insurer upon cancellation of a financed
      policy are inadequate to pay the balance of the premium finance loan amount,
      which includes accrued interest and late fees. The majority of these shortfalls
      result in the write-off of the remaining principal balance against the allowance
      for finance receivable losses and the unrealized actual interest and late fees
      are charged against the premium finance revenue. We review historical trends
      of
      such losses relative to finance receivable balances to develop estimates of
      future losses. However, actual write-offs may differ materially from the
      write-off estimates that we used. For the three months ended March 31, 2007
      and
      2006, the provision for finance receivables losses was approximately $163,056
      and $169,625, respectively, and actual principal write-offs for such periods
      (net recoveries of previous write-offs) were approximately $169,819 and
      $150,519, respectively. If our provision for finance receivable losses was
      understated by 15% because our actual write-offs were greater than anticipated,
      the effect would have been a reduction in our earnings per share by
      approximately $0.01 (basic) for the three months ended March 31, 2007 and
      2006.







14




***Goodwill
      and intangible assets***




The
      carrying value of goodwill was initially reviewed for impairment as of
      January 1, 2002, and is reviewed annually or whenever events or changes in
      circumstances indicate that the carrying amount might not be recoverable. If
      the
      fair value of the operations to which goodwill relates is less than the carrying
      amount of those operations, including unamortized goodwill, the carrying amount
      of goodwill is reduced accordingly with a charge to expense. Based on our most
      recent analysis, we believe that no impairment of goodwill exists at March
      31,
      2007.




***Stock-Based
      Compensation***




We
      account for stock-based compensation in accordance with SFAS No. 123 (revised
      2004) “Share-Based Payment” (“SFAS 123R”). Under the provisions of SFAS 123R,
      stock-based compensation cost is estimated at the grant date based on the
      award’s fair-value as calculated by a Black Scholes Merton option pricing model
      (the “Black Scholes model”) and is recognized as expense ratably over the
      requisite service period. The Black Scholes model requires various highly
      judgmental assumptions including volatility, forfeiture rates, and expected
      option life. If any of the assumptions used in the model change significantly,
      stock-based compensation expense may differ materially in the future from that
      recorded in the current period.




***Income
      Taxes***




Effective
      January 1, 2007, we began to measure and record tax contingency accruals in
      accordance with Financial Accounting Standards Board Interpretation No. 48,
      “Accounting for Uncertainty in Income Taxes” (“FIN 48”).  Under FIN 48, we
      recognize the tax benefit from an uncertain tax position only if it is more
      likely than not that the tax position will be sustained upon examination by
      the
      taxing authorities, based on the technical merits of the position. We measure
      tax benefits in our financial statements from such a position as the largest
      benefit that has a greater than 50% likelihood of being realized upon ultimate
      settlement. The impact on our reassessment of our tax positions in
      accordance with FIN 48 did not have a material impact on our results of
      operations, financial condition or liquidity.




***Results
      of Operations***




Our
      net
      income for the three months ended March 31, 2007 was $88,794 as compared to
      $126,780 for the three months ended March 31, 2006.




During
      the three months ended March 31, 2007, revenues from our insurance-related
      operations were $1,613,239 as compared to $1,893,177 for the three months ended
      March 31, 2006. The revenue decrease of $279,938 was primarily attributable
      to
      the sale of fewer insurance policies in 2007 than in 2006. Such reduction in
      sales was generally caused by the continued heightened competition from the
      voluntary insurance market which is offering lower premium rates to the
      non-standard insured.




Premium
      finance revenues decreased $183,818 during the three months ended March 31,
      2007
      as compared to the three months ended March 31, 2006. This decrease is a direct
      result of the decrease in the number of policies sold as discussed in the
      paragraph above.




Our
      general and administrative expenses for the three months ended March 31, 2007
      were $226,688 less than for the three months ended March 31, 2006. This decrease
      was primarily due to a reduction in variable compensation paid to employees
      due
      to a reduction in policies sold, no bonus, if any, having as yet been determined
      for our Chief Executive Officer during the first quarter of 2007 (a bonus was
      provided during the first quarter of 2006) and a decrease in fees paid to
      service our premium finance operations, offset by an increase in advertising
      expenses.




15


Our
      provision for finance receivable losses for the first quarter of 2007 was $6,569
      less than for the first quarter of 2006. This was the result of a lower
      provision for finance receivable losses in the first quarter of 2007 caused
      by a
      decrease in volume, offset by greater write off of principal amounts of our
      finance contracts receivable in 2007 as compared to 2006.




Our
      depreciation and amortization expense for the three months ended March 31,
      2007
      was $14,846 less than for the three months ended March 31, 2006. This decrease
      was primarily the result of reducing our deferred debt expense asset (which
      is
      the basis for a portion of our amortization expense) when we reduced our
      revolving credit line in July 2006.




Our
      premium finance interest expense during the three months ended March 31, 2007
      was $23,279 less than for the three months ended March 31, 2006. This decrease
      was the result of a decrease in the average outstanding balance of our revolving
      credit line for the three months ended March 31, 2007 compared to the three
      months ended March 31, 2006.




Our
      interest income - notes receivable for the three months ended March 31, 2007
      was
      $112,005 more than for the three months ended March 31, 2006. On January 31,
      2006, we purchased surplus notes of Commercial Mutual Insurance Company. We
      recorded two months of interest in the first quarter of 2006 as compared to
      three months of interest in the first quarter of 2007.




Our
      interest expense for the three months ended March 31, 2007 was $31,833 more
      than
      for the three months ended March 31, 2006. This increase was the result of
      borrowings against our revolving credit line to pay off the promissory note
      given in connection with the purchase of the Commercial Mutual surplus
      notes.




During
      the three months ended March 31, 2007, our provision for income taxes was
      $72,650 as opposed to $84,404 for the three months ended March 31, 2006. This
      was due primarily to the lower income before income taxes in 2007.




Our
      insurance-related operations, on a stand-alone basis, generated a net profit
      before income taxes of $238,087 during the three months ended March 31, 2007
      as
      compared to a net profit before income taxes of $340,354 during the three months
      ended March 31, 2006. This decrease was primarily due to decreased revenues,
      offset by a reduction in variable compensation paid on commissions generated
      and
      the gain on the sale of the book of business of one of our stores. Our premium
      finance operations, on a stand-alone basis, generated a net profit before income
      taxes of $68,846 during the three months ended March 31, 2007 as compared to
      a
      net profit before income taxes of $134,931 during the three months ended March
      31, 2006. The decrease was primarily due to reduced premium finance revenue
      in
      2007, offset by a reduction in fees paid to service our premium finance
      operations. Loss before income taxes from corporate-related items not allocable
      to reportable segments was $145,489 during the three months ended March 31,
      2007
      as compared to $264,101 during the three months ended March 31, 2006. This
      decrease was primarily due to an increase in interest income-notes receivable
      related to the purchase of the surplus notes issued by Commercial Mutual, and
      the absence of a bonus determination for our Chief Executive Officer during
      the
      initial quarter of 2007.




16


***Liquidity
      and Capital Resources***




As
      of
      March 31, 2007, we had $1,047,343 in cash and cash equivalents and working
      capital of $1,924,034. As of December 31, 2006, we had $1,196,412 in cash and
      cash equivalents and working capital of $2,031,120.




During
      the three months ended March 31, 2007, our cash and cash equivalents decreased
      by $149,069. This was due primarily to the following:




·
            Net
                cash provided by operating activities during the three months ended
                March
                31, 2007 was $621,479 primarily due to the following: (i) a decrease
                in
                accounts receivable of $334,590 and an increase in premiums payable
                of
                $470,774, offset by (ii) the accretion of discount on notes receivable
                of
                $246,951. The decrease in accounts receivable is primarily the result
                of a
                January 2007 payment of a revenue accrual from an insurance company,
                which
                did not continue in 2007 and the conversion of certain amounts from
                franchisees into notes receivable. The increase in premiums payable
                is the
                result of our financing more policies in March 2007 than in December
                2006.




·
            Though
                fluctuations in our premium finance business impact our cash position
                and
                daily operations, our cash flows from operating activities do not
                reflect
                changes in the premium finance contract receivables or borrowing
                under our
                revolving credit facility associated with that business. Changes
                in the
                premium finance contract receivables are considered investing activities
                as they include the making and collection of loans and borrowings
                under
                our revolving line of credit are considered financing
                activities.




·
            Net
                cash used in financing activities during the three months ended March
                31,
                2007 was $817,707 primarily due to the following: (i) proceeds of
                $10,293,546 from our revolving credit line with Manufacturers and
                Traders
                Trust Company (“M&T”) for premium finance purposes and for the
                purchase of the surplus notes issued by Commercial Mutual Insurance
                Company, offset by (ii) payments of $11,080,253 on the revolving
                credit
                line.




Our
      premium finance operations are financed pursuant to a $20,000,000 revolving
      line
      of credit from M&T entered into on July 28, 2006, which replaced our
      revolving line of credit agreement with M&T dated December 27, 2004. The
      line of credit bears interest at either (i) M&T’s prime rate or (ii) LIBOR
      plus 2.25%, matures on June 30, 2008 and is secured by substantially all of
      our
      assets. We can borrow against the line to the extent of 85% of eligible premium
      finance receivables. As of March 31, 2007, $10,165,638 was outstanding under
      the
      line. As of March 31, 2007, of the $16,252,948 reflected on the Balance Sheet
      as
“Finance contracts receivable,” approximately $12,887,318 represents eligible
      receivables for purposes of our finance credit agreement. The line of credit
      also allows for a $2,500,000 term loan (of the $20,000,000 credit line
      availability) to be used to provide liquidity for ongoing working capital
      purposes. Any draws against this line bear interest at LIBOR plus 2.75%. As
      of
      July 28, 2006, we made our first draw of $1,300,000 against the term line.
      The
      draw is repayable in quarterly principal installments of $130,000 each,
      commencing September 1, 2006. The remaining principal balance is payable on
      June
      30, 2008. Interest is payable monthly.




We
      have
      no current commitments for capital expenditures. However, we may, from time
      to
      time, consider acquisitions of complementary businesses, products or
      technologies.




17


In
      connection with our initial acquisition of the line of credit from M&T, we
      obtained a $3,500,000 secured subordinated loan to support our premium finance
      operations. During 2005, we utilized the M&T line of credit to repay an
      aggregate of $2,000,000 of the subordinated debt. The remaining balance of
      the
      loan was due in January 2006 and carries interest at the rate of 12-5/8% per
      annum. In May 2005, we obtained an extension of the maturity date of the
      remaining subordinated debt to September 30, 2007. In March 2007, holders of
      approximately $1,385,000 of the outstanding principal amount of the subordinated
      debt agreed to extend the maturity date of the debt from September 30, 2007
      to
      September 30, 2008. We have the right to prepay the subordinated debt (subject
      to M&T’s consent) without penalty.




***Commercial
      Mutual Insurance Company***




On
      January 31, 2006, we purchased $3,750,000 of surplus notes issued by Commercial
      Mutual Insurance Company for a price of $3,075,141, of which $1,303,434 was paid by
      delivery of a six month promissory note which provided for interest at the
      rate
      of 7.5% per annum. The promissory note was paid in full on July 28, 2006.
      Accrued but unpaid interest on the surplus notes totaled $1,794,688 at the
      time
      of the purchase.




In
      March
      2007, Commercial Mutual’s Board of Directors adopted a resolution to convert
      Commercial Mutual from an advance premium insurance company to a stock property
      and casualty insurance company. In the event the conversion occurs, we may
      be
      able to convert the surplus notes we hold into a controlling equity interest
      in
      Commercial Mutual.




***Off-Balance
      Sheet Arrangements***




We
      have
      no off-balance sheet arrangements that have or are reasonably likely to have
      a
      current or future effect on our financial condition, changes in financial
      condition, revenues or expenses, results of operations, liquidity, capital
      expenditures or capital resources that is material to investors.




**Item
      3.**  **CONTROLS
      AND PROCEDURES**




We
      maintain disclosure controls and procedures (as defined in Exchange Act Rule
      13a-15(e)) that are designed to assure that information required to be disclosed
      in our Exchange Act reports is recorded, processed, summarized and reported
      within the time periods specified in the Securities and Exchange Commission’s
      rules and forms, and that such information is accumulated and communicated
      to
      management, including our Chief Executive Officer and Chief Financial Officer,
      as appropriate, to allow timely decisions regarding required
      disclosures.




As
      required by Exchange Act Rule 13a-15(b), as of the end of the period covered
      by
      this Quarterly Report, under the supervision and with the participation of
      our
      Chief Executive Officer and Chief Financial Officer, we evaluated the
      effectiveness of our disclosure controls and procedures. Based on this
      evaluation, our Chief Executive Officer and Chief Financial Officer concluded
      that our disclosure controls and procedures were effective as of that
      date.




There
      was
      no change in our internal control over financial reporting during our most
      recently completed fiscal quarter that has materially affected, or is reasonably
      likely to materially affect, our internal control over financial
      reporting.






18


**PART
                II.****OTHER
                INFORMATION****Item
                1.**
            **LEGAL
                PROCEEDINGS**None**Item
                2.**
            **UNREGISTERED
                SALES OF EQUITY SECURITIES AND USE OF
                PROCEEDS**None**Item
                3.**
            **DEFAULTS
                UPON SENIOR SECURITIES**None**Item
                4.**
            **SUBMISSION
                OF MATTERS TO A VOTE OF SECURITY HOLDERS**None**Item
                5.**
            **OTHER
                INFORMATION**None**Item
                6.**
            **EXHIBITS**3(a)
            Restated
                Certificate of Incorporation13(b)
            Certificate
                of Designation of Series A Preferred
                Stock23(c)
            Certificate
                of Designation of Series B Preferred
                Stock33(d)
            By-laws,
                as amended431
            Rule
                13a-14(a)/15d-14(a) Certification as adopted pursuant to Section
                302 of
                the Sarbanes-Oxley Act of 200232
            Certification
                of Chief Executive Officer and Chief Financial Officer Pursuant to
                18
                U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002





1
          Denotes document filed as an exhibit to our Quarterly Report on Form 10-QSB
          for
          the period ended September 30, 2004 and incorporated herein by
          reference.
 2
 Denotes
          document filed as an exhibit to our
          Current Report on Form 8-K for an event dated May 28, 2003 and incorporated
          herein by reference.
 3Denotes
          document filed
          as an exhibit to our Annual Report on Form 10-KSB for the year ended December
          31, 2006 and incorporated herein by reference.
 4Denotes
          document filed as an exhibit to our Quarterly Report on Form 10-QSB for
          the
          period ended June 30, 2005 and incorporated herein by reference.


19




**SIGNATURES**




In
      accordance with the requirements of the Exchange Act, the registrant caused
      this
      report to be signed on its behalf by the undersigned, thereunto duly
      authorized.




**DCAP
                GROUP, INC.**Date: May
              11,
              2007
            By:
            /s/ Barry
              B.
              GoldsteinBarry
              B. GoldsteinPresident
              (Principal
                  Executive, Financialand
                  Accounting Officer)