**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 ended September 30, 2007[  ]
            Transition
                report under Section 13 or 15(d) of the Exchange ActFor
                the transition period
                from                                                                                     toCommission
                File
                Number:  0-1665





**DCAP
      GROUP, INC.**


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





**Delaware**
              (State
                or Other Jurisdiction of
              Incorporation
                or Organization)
            **36-2476480**
              (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 by 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: 2,969,024 shares as of October 31,
      2007.





Transitional
      Small Business Disclosure Format (check
      one):  Yes         NoX





**INDEX**




**DCAP
      GROUP, INC. AND SUBSIDIARIES**





**PART
                I.**
            **FINANCIAL
                INFORMATION****Item
                1.**
            **Financial
                Statements**Condensed
                Consolidated Balance Sheet – September 30, 2007
                (Unaudited)Condensed
                Consolidated Statements of Income - Nine months ended September 30,
                2007
                and 2006 (Unaudited)Condensed
                Consolidated Statements of Income – Three months ended September 30, 2007
                and 2006 (Unaudited)Condensed
                Consolidated Statements of Cash Flows - Nine months ended September
                30,
                2007 and 2006 (Unaudited)Notes
                to Condensed Consolidated Financial Statements - Nine months ended
                September 30, 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 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


**PART
      I.  FINANCIAL INFORMATION**




**Item
      1.                      FINANCIAL
      STATEMENTS**




**DCAP
                GROUP, INC. AND********SUBSIDIARIES****Condensed
                Consolidated Balance Sheet (Unaudited)***September
                30, 2007***Assets**Current
                Assets:Cash
                and cash equivalents
            
            
            
            
            $
            1,000,725Accounts
                receivable, net of allowance fordoubtful
                accounts of $20,000
            
            
            
            
            
            878,761Finance
                contracts receivable
            
            $
            14,732,316Less:
                Deferred Interest
            
            
            (1,122,336
            )Less:
                Allowance for doubtful accounts
            
            
            (186,457
            )
            
            
            13,423,523Prepaid
                expenses and other current assets
            
            
            
            
            
            
            418,291Deferred
                income taxes
            
            
            
            
            
            
            76,000Total
                Current Assets
            
            
            
            
            
            
            15,797,300Property
                and Equipment, net
            
            
            
            
            
            
            465,576Goodwill
            
            
            
            
            
            
            2,601,257Other
                Intangibles, net
            
            
            
            
            
            
            268,042Notes
                Receivable, net
            
            
            
            
            
            
            4,854,318Deposits
                and Other Assets
            
            
            
            
            
            
            170,969Total
                Assets
            
            
            
            
            
            $
            24,157,462**Liabilities
                and Stockholders' Equity**Current
                Liabilities:Revolving
                credit line
            
            
            
            
            
            $
            9,601,676Accounts
                payable and accrued expenses
            
            
            
            
            
            
            686,896Premiums
                payable
            
            
            
            
            
            
            3,247,542Current
                portion of long-term debt and capital lease obligations
            
            
            
            
            
            
            2,091,263Mandatorily
                redeemable preferred stock
            
            
            
            
            
            
            780,000Other
                current liabilities
            
            
            
            
            
            
            153,677Total
                Current Liabilities
            
            
            
            
            
            
            16,561,054Long-Term
                Debt and Capital Lease Obligations
            
            
            
            
            
            
            653,971Deferred
                Income Taxes
            
            
            
            
            
            
            532,201CommitmentsStockholders'
                Equity:Common
                stock, $.01 par value; authorized 10,000,000 shares;issued
                3,750,447
            
            
            
            
            
            
            37,505Preferred
                stock, $.01 par value; authorized1,000,000
                shares; 0 shares issued and outstandingCapital
                in excess of par
            
            
            
            
            
            
            11,773,130Deficit
            
            
            
            
            
            
            (4,214,619
            )7,596,016Treasury
                stock, at cost, 781,423 shares
            
            
            
            
            
            
            (1,185,780
            )Total
                Stockholders' Equity
            
            
            
            
            
            
            6,410,236Total
                Liabilities and Stockholders' Equity
            
            
            
            
            
            $
            24,157,462





*See
              notes to condensed consolidated financial statements*.
  4





**DCAP
                  GROUP, INC. AND****SUBSIDIARIES****Condensed
                  Consolidated Statements of Income (Unaudited)***Nine
                  Months Ended September 30,*
              
              2007
              
              
              2006Revenues:Commissions
                  and fees
              
              $
              4,486,855
              
              
              $
              5,390,085Premium
                  finance revenue
              
              
              2,419,506
              
              
              
              3,085,956Total
                  Revenues
              
              
              6,906,361
              
              
              
              8,476,041Operating
                  Expenses:General
                  and administrative expenses
              
              
              5,849,432
              
              
              
              6,724,954Provision
                  for finance receivable losses
              
              
              396,065
              
              
              
              496,456Depreciation
                  and amortization
              
              
              287,430
              
              
              
              319,302Premium
                  finance interest expense
              
              
              498,519
              
              
              
              604,219Total
                  Operating Expenses
              
              
              7,031,446
              
              
              
              8,144,931Operating
                  (Loss) Income
              
              
              (125,085
              )
              
              
              331,110Other
                  (Expense) Income:Interest
                  income
              
              
              7,175
              
              
              
              3,531Interest
                  income - notes receivable
              
              
              971,333
              
              
              
              858,546Interest
                  expense
              
              
              (368,713
              )
              
              
              (388,872
              )Interest
                  expense - mandatorily redeemable preferred stock
              
              
              (29,250
              )
              
              
              (29,250
              )Gain
                  on sale of stores
              
              
              65,767
              
              
              
              81,105Total
                  Other Income
              
              
              646,312
              
              
              
              525,060Income
                  Before Provision for Income Taxes
              
              
              521,227
              
              
              
              856,170Provision
                  for Income Taxes
              
              
              238,049
              
              
              
              342,468Net
                  Income
              
              $
              283,178
              
              
              $
              513,702Net
                  Income Per Common Share:Basic
              
              $
              0.10
              
              
              $
              0.18Diluted:
              
              $
              0.10
              
              
              $
              0.17Weighted
                  Average Number of Shares Outstanding:Basic
              
              
              2,962,683
              
              
              
              2,886,372Diluted
              
              
              3,288,072
              
              
              
              3,243,030
  *See
              notes to condensed consolidated financial statements*.
  5
  **DCAP
                  GROUP, INC. AND****SUBSIDIARIES****Condensed
                  Consolidated Statements of Income (Unaudited)***Three
                  Months Ended September 30,*
              
              2007
              
              
              2006Revenues:Commissions
                  and fees
              
              $
              1,359,996
              
              
              $
              1,636,855Premium
                  finance revenue
              
              
              777,638
              
              
              
              939,255Total
                  Revenues
              
              
              2,137,634
              
              
              
              2,576,110Operating
                  Expenses:General
                  and administrative expenses
              
              
              1,836,204
              
              
              
              2,120,989Provision
                  for finance receivable losses
              
              
              120,455
              
              
              
              168,514Depreciation
                  and amortization
              
              
              98,811
              
              
              
              94,681Premium
                  finance interest expense
              
              
              165,539
              
              
              
              196,669Total
                  Operating Expenses
              
              
              2,221,009
              
              
              
              2,580,853Operating
                  Loss
              
              
              (83,375
              )
              
              
              (4,743
              )Other
                  (Expense) Income:Interest
                  income
              
              
              3,267
              
              
              
              1,249Interest
                  income - notes receivable
              
              
              322,736
              
              
              
              324,299Interest
                  expense
              
              
              (119,022
              )
              
              
              (134,208
              )Interest
                  expense - mandatorily redeemable preferred stock
              
              
              (9,750
              )
              
              
              (9,750
              )Total
                  Other Income
              
              
              197,231
              
              
              
              181,590Income
                  Before Provision for Income Taxes
              
              
              113,856
              
              
              
              176,847Provision
                  for Income Taxes
              
              
              54,732
              
              
              
              70,739Net
                  Income
              
              $
              59,124
              
              
              $
              106,108Net
                  Income Per Common Share:Basic
              
              $
              0.02
              
              
              $
              0.04Diluted:
              
              $
              0.02
              
              
              $
              0.04Weighted
                  Average Number of Shares Outstanding:Basic
              
              
              2,981,024
              
              
              
              2,896,024Diluted
              
              
              3,298,073
              
              
              
              3,241,240
  *See
              notes to condensed consolidated financial statements*.
  6
  **DCAP
                  GROUP, INC. AND****SUBSIDIARIES****Condensed
                  Consolidated Statements of Cash Flows***Nine
                  Months Ended September 30,*
              
              2007
              
              
              2006Cash
                  Flows from Operating Activities:Net
                  income
              
              $
              283,178
              
              
              $
              513,702Adjustments
                  to reconcile net income to net cash provided by(used
                  in) operating activities:Depreciation
                  and amortization
              
              
              287,430
              
              
              
              319,302Bad
                  debt expense
              
              
              -
              
              
              
              1,200Deferred
                  income taxes
              
              
              136,201
              
              
              
              -Accretion
                  of discounts on notes receivable
              
              
              (740,864
              )
              
              
              (658,546
              )Amortization
                  of warrants
              
              
              34,210
              
              
              
              58,221Stock-based
                  payments
              
              
              27,820
              
              
              
              32,000Gain
                  on sale of store
              
              
              (65,767
              )
              
              
              (81,105
              )Changes
                  in operating assets and liabilities:Decrease
                  (increase) in assets:Accounts
                  receivable
              
              
              428,854
              
              
              
              390,739Prepaid
                  expenses and other current assets
              
              
              (375,741
              )
              
              
              (67,001
              )Deposits
                  and other assets
              
              
              9,221
              
              
              
              (169,797
              )Increase
                  (decrease) in liabilities:Premiums
                  payable
              
              
              185,293
              
              
              
              (702,218
              )Accounts
                  payable and accrued expenses
              
              
              (326,285
              )
              
              
              228,375Taxes
                  payable
              
              
              261,403
              
              
              
              (39,793
              )Other
                  current liabilities
              
              
              (12,469
              )
              
              
              (31,850
              )Net
                  Cash Provided by (Used in) Operating Activities
              
              
              132,484
              
              
              
              (206,771
              )Cash
                  Flows from Investing Activities:Decrease
                  in finance contracts receivable - net
              
              
              1,354,332
              
              
              
              242,585Decrease
                  in notes and other receivables - net
              
              
              59,860
              
              
              
              9,852Proceeds
                  from sale of stores
              
              
              66,300
              
              
              
              -Purchase
                  of agencies
              
              
              -
              
              
              
              (832,654
              )Purchase
                  of property and equipment
              
              
              (152,695
              )
              
              
              (86,869
              )Purchase
                  of notes
              
              
              -
              
              
              
              (1,771,707
              )Net
                  Cash Provided by (Used in) Investing Activities
              
              
              1,327,797
              
              
              
              (2,438,793
              )Cash
                  Flows from Financing Activities:Principal
                  payments on long-term debt and lease obligations
              
              
              (417,499
              )
              
              
              (235,000
              )Proceeds
                  from revolving credit line
              
              
              30,233,649
              
              
              
              41,785,558Payments
                  on revolving credit line
              
              
              (31,584,318
              )
              
              
              (38,539,375
              )Proceeds
                  from exercise of stock options
              
              
              112,200
              
              
              
              191,250Payments
                  on note payable-related party
              
              
              -
              
              
              
              (1,303,434
              )Net
                  Cash (Used in) Provided by Financing Activities
              
              
              (1,655,968
              )
              
              
              1,898,999Net
                  Decrease in Cash and Cash Equivalents
              
              
              (195,687
              )
              
              
              (746,565
              )Cash
                  and Cash Equivalents, beginning of period
              
              
              1,196,412
              
              
              
              1,961,489Cash
                  and Cash Equivalents, end of period
              
              $
              1,000,725
              
              
              $
              1,214,924Supplemental
                  Schedule of Non-Cash Investingand
                  financing activities:Note
                  payable - related party
              
              $
              -
              
              
              $
              1,303,434Note
                  payable issued for purchase of business
              
              $
              -
              
              
              $
              522,949Capital
                  lease obligations
              
              $
              89,819
              
              
              $
              -
  *See
              notes to condensed consolidated financial statements*.
  7





**DCAP
      GROUP, INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**NINE
      MONTHS ENDED SEPTEMBER 30, 2007 AND 2006 (UNAUDITED)**





1.
            The
                Condensed Consolidated Balance Sheet as of September 30, 2007, the
                Condensed Consolidated Statements of Income for the three and nine
                months
                ended September 30, 2007 and 2006 and the Condensed Consolidated
                Statements of Cash Flows for the nine months ended September 30,
                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 September 30, 2007, results
                of
                operations for the three and nine months ended September 30, 2007
                and 2006
                and cash flows for the nine months ended September 30, 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 nine months ended September 30,
      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 nine months ended September 30, 2007 and 2006, approximately $110,000 and
      $25,000, 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.”




8


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 26.4% and
      26.5%****per
      annum for the nine months ended September 30, 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.




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 nine months ended September 30, 2007 and 2006, the
      provision for finance receivable losses was $396,065and $496,456,
      respectively, and actual principal write-offs for such periods (net of
      recoveries of previous write-offs) were $434,328 and $477,293,
      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 $48,811 and $19,700 in such costs was incurred
      during the nine months ended September 30, 2007 and 2006,
      respectively.


e.           Reclassifications


Certain
      reclassifications have been made to the consolidated financial statements for
      the nine and three months ended September 30, 2006 to conform to the
      classifications used for the nine and three months ended September 30,
      2007.




9


3.
            Notes
                Receivable, Net:




As
      of
      September 30, 2007, notes receivable consist of two surplus notes, plus accrued
      interest, issued by Commercial Mutual Insurance Company (“Commercial
      Mutual”).  The surplus notes are past due and provide for interest at
      the prime rate or 8.5% per annum, whichever is less.  Payments of
      principal and interest on the surplus notes may only be made out of the surplus
      of Commercial Mutual and require the approval of the
      Insurance  Department of the State of New York.




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.  Commercial Mutual has advised us that
      it has obtained permission from the Superintendent of Insurance of the State
      of
      New York to proceed with the conversion process (subject to certain conditions
      as discussed below).




The
      conversion by Commercial Mutual to a stock property and casualty insurance
      company is subject to a number of conditions, including the approval of the
      plan
      of conversion by the Superintendent of Insurance and Commercial Mutual’s
      policyholders.  As part of the approval process, the Superintendent of
      Insurance is required to have an appraisal performed with respect to the fair
      market value of Commercial Mutual.  Such appraisal is to be based upon
      Commercial Mutual’s latest filings with the Insurance Department and any
      significant subsequent developments and is to consider the assets and
      liabilities of Commercial Mutual and any other factors bearing on its
      value.  We, as a holder of the Commercial Mutual surplus notes, at our
      option, would be able to exchange the surplus notes for an equitable share
      of
      the securities or other consideration, or both, of the corporation into which
      Commercial Mutual would be converted.  Based upon the amount payable
      on the surplus notes and the statutory surplus of Commercial Mutual, we believe
      that, following any conversion by Commercial Mutual into a stock corporation,
      we
      could hold a controlling equity interest in Commercial Mutual.  It is
      anticipated that the conversion will be completed within the next twelve
      months.  No assurances can be given that the conversion will
      occur.




4.
            Business
                Segments:




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





10


Summarized
      financial information concerning our reportable segments for the nine months
      ended September 30, 2007 and 2006 is shown in the following tables:




Nine
                  Months Ended
              
              
              
              
              PremiumSeptember
                  30, 2007
              
              Insurance
              
              
              Finance
              
              
              Other
                  (1)
              
              
              TotalRevenues
                  from externalcustomers
              
              $
              4,486,855
              
              
              $
              2,419,506
              
              
              $
              -
              
              
              $
              6,906,361Interest
                  income
              
              
              5,111
              
              
              
              -
              
              
              
              2,064
              
              
              
              7,175Interest
                  income – notesreceivable
              
              
              -
              
              
              
              
              
              
              
              971,333
              
              
              
              971,333Interest
                  expense
              
              
              63,304
              
              
              
              498,519
              
              
              
              334,659
              
              
              
              896,482Depreciation
                  andamortization
              
              
              180,085
              
              
              
              75,349
              
              
              
              31,996
              
              
              
              287,430Segment
                  profit (loss)before
                  income taxes
              
              
              494,686
              
              
              
              365,231
              
              
              
              (338,690
              )
              
              
              521,227Segment
                  net profit (loss)
              
              
              268,581
              
              
              
              200,878
              
              
              
              (186,281
              )
              
              
              283,178Segment
                  assets
              
              
              4,717,225
              
              
              
              14,119,423
              
              
              
              5,320,814
              
              
              
              24,157,462


____________





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




Nine
                  Months Ended
              
              
              
              
              PremiumSeptember
                  30, 2006
              
              Insurance
              
              
              Finance
              
              
              Other
                  (1)
              
              
              TotalRevenues
                  from externalcustomers
              
              $
              5,390,085
              
              
              $
              3,085,956
              
              
              $
              -
              
              
              $
              8,476,041Interest
                  income
              
              
              3,388
              
              
              
              -
              
              
              
              143
              
              
              
              3,531Interest
                  income – notesreceivable
              
              
              -
              
              
              
              -
              
              
              
              858,546
              
              
              
              858,546Interest
                  expense
              
              
              70,650
              
              
              
              604,219
              
              
              
              347,472
              
              
              
              1,022,341Depreciation
                  andamortization
              
              
              168,806
              
              
              
              118,446
              
              
              
              32,050
              
              
              
              319,302Segment
                  profit (loss)before
                  income taxes
              
              
              986,205
              
              
              
              529,979
              
              
              
              (660,014
              )
              
              
              856,170Segment
                  net profit (loss)
              
              
              591,723
              
              
              
              317,988
              
              
              
              (396,009
              )
              
              
              513,702Segment
                  assets
              
              
              4,812,297
              
              
              
              17,099,637
              
              
              
              4,420,689
              
              
              
              26,332,623


____________


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


11




Summarized
        financial information concerning our reportable segments for the three months
        ended September 30, 2007 and 2006 is shown in the following
        tables:




Three
                  Months EndedSeptember
                  30, 2007
              
              Insurance
              
              
              Finance
              
              
              Other
                  (1)
              
              
              TotalRevenues
                  from externalcustomers
              
              $
              1,359,996
              
              
              $
              777,638
              
              
              $
              -
              
              
              $
              2,137,634Interest
                  income
              
              
              2,178
              
              
              
              -
              
              
              
              1,089
              
              
              
              3,267Interest
                  income – notesreceivable
              
              
              -
              
              
              
              -
              
              
              
              322,736
              
              
              
              322,736Interest
                  expense
              
              
              22,751
              
              
              
              165,539
              
              
              
              106,021
              
              
              
              294,311Depreciation
                  andamortization
              
              
              63,811
              
              
              
              24,411
              
              
              
              10,589
              
              
              
              98,811Segment
                  profit (loss)before
                  income taxes
              
              
              91,687
              
              
              
              123,345
              
              
              
              (101,176
              )
              
              
              113,856Segment
                  net profit (loss)
              
              
              46,932
              
              
              
              67,841
              
              
              
              (55,649
              )
              
              
              59,124


____________





(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 EndedSeptember
                  30, 2006
              
              Insurance
              
              
              Finance
              
              
              Other
                  (1)
              
              
              TotalRevenues
                  from externalcustomers
              
              $
              1,636,855
              
              
              $
              939,255
              
              
              $
              -
              
              
              $
              2,576,110Interest
                  income
              
              
              1,216
              
              
              
              -
              
              
              
              33
              
              
              
              1,249Interest
                  income – notesreceivable
              
              
              -
              
              
              
              -
              
              
              
              324,299
              
              
              
              324,299Interest
                  expense
              
              
              24,031
              
              
              
              196,669
              
              
              
              119,927
              
              
              
              340,627Depreciation
                  andamortization
              
              
              58,314
              
              
              
              25,104
              
              
              
              11,263
              
              
              
              94,681Segment
                  profit (loss)before
                  income taxes
              
              
              235,755
              
              
              
              119,548
              
              
              
              (178,456
              )
              
              
              176,847Segment
                  net profit (loss)
              
              
              141,453
              
              
              
              71,729
              
              
              
              (107,074
              )
              
              
              106,108


____________





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






12


5.
            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 shares of our Common Stock
      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 shares of Common Stock 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.




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 shares of Common Stock 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 nine and three month periods ended September 30, 2007 include
      share-based compensation expense totaling approximately $19,000 and $9,000,
      respectively.  Our results for the nine and three months ended
      September 30, 2006 include share-based compensation expense totaling
      approximately $32,000 and $12,000, 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 entire portion of the award.




We
      did
      not grant any options under either plan during the nine and three months ended
      September 30, 2006. During the three and nine months ended September 30, 2007,
      we did not grant any options under the 1998 Stock Option Plan but did grant
      59,524 options at $2.52 per share under the 2005 Equity Participation Plan.
      The
      weighted average fair value of options granted during the three and nine months
      ended September 30, 2007 was $.78.




The
      following table represents our stock options granted, exercised, and forfeited
      during the first nine months of 2007:




13


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
            
            
            59,524
            
            
            $
            2.52
            
            
            
            -
            
            
            
            -Exercised
            
            
            (74,500
            )
            
            $
            1.51
            
            
            
            -
            
            
            
            -Forfeited/expired
            
            
            (40,200
            )
            
            $
            1.64
            
            
            
            -
            
            
            
            -Outstanding
                at
              September
                30, 2007
            
            
            138,124
            
            
            $
            2.94
            
            
            
            3.35
            
            
            $
            9,900Vested
                and Exercisable
              at
                September 30, 2007
            
            
            87,698
            
            
            $
            3.40
            
            
            
            2.57
            
            
            $
            7,272





The
      aggregate intrinsic value of options outstanding and options exercisable at
      September 30, 2007 is calculated as the difference between the exercise price
      of
      the underlying options and the market price of our shares of Common Stock for
      the shares that had exercise prices that were lower than the $2.30 closing
      price
      of our shares of Common Stock on September 30, 2007.  We received cash
      proceeds from options exercised in the nine months ended September 30, 2007
      and
      2006 of approximately $112,000 and $191,000, respectively.





As
      of
      September 30, 2007, the fair value of unamortized compensation cost related
      to
      unvested stock option awards was approximately $75,000. Unamortized compensation
      cost as of September 30, 2007 is expected to be recognized over a remaining
      weighted-average vesting period of .97 years.




6.
            Net
                Income Per Share




Basic
      net
      income per share is computed by dividing income available to common shareholders
      by the weighted-average number of shares of Common Stock outstanding. Diluted
      earnings per share reflect, in periods in which they have a dilutive effect,
      the
      impact of shares of Common Stock issuable upon exercise of stock options and
      conversion of mandatorily redeemable Preferred Stock.  The computation
      of diluted earnings per share excludes those options and warrants with an
      exercise price in excess of the average market price of our Common Stock during
      the periods presented.  The inclusion of such options and warrants in
      the computation of diluted earnings per share would have been
      anti-dilutive.  The number of excluded options and warrants were
      208,624 for the three and nine months ended September 30, 2007 and 159,800
      for
      the three and nine months ended September 30, 2006.




14


The
      reconciliation is as follows:




Nine
                Months Ended
              September
                  30,
            
            
            Three
                Months Ended
              September
                  30,2007
            
            
            2006
            
            
            2007
            
            
            2006Weighted
                Average Number of Shares Outstanding
            
            
            2,962,683
            
            
            
            2,886,372
            
            
            
            2,981,024
            
            
            
            2,896,024Effect
                of Dilutive Securities, Common Stock
              Equivalents
            
            
            325,389
            
            
            
            356,658
            
            
            
            317,049
            
            
            
            345,216Weighted
                Average Number of Shares Outstanding,
              used
                for computing diluted earnings per share
            
            
            3,288,072
            
            
            
            3,243,030
            
            
            
            3,298,073
            
            
            
            3,241,240




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




Nine
                  Months Ended
              
              
              Three
                  Months EndedSeptember
                  30,
              
              
              September
                  30,2007
              
              
              2006
              
              
              2007
              
              
              2006Net
                  Income
              
              $
              283,178
              
              
              $
              513,702
              
              
              $
              59,124
              
              
              $
              106,108Interest
                  Expense on Dilutive ConvertiblePreferred
                  Stock
              
              
              29,250
              
              
              
              29,250
              
              
              
              9,750
              
              
              
              9,750Net
                  Income Available to Common Shareholdersfor
                  Diluted Earnings Per Share
              
              $
              312,428
              
              
              $
              542,952
              
              
              $
              68,874
              
              
              $
              115,858




7.
            Extension
                of Maturity Date of Subordinated
                Debt




Effective
      March 23, 2007 and September 30, 2007, the holders of approximately $1,385,000
      and $115,000, respectively, 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 97,500 of our shares of Common Stock from
      September 30, 2007 to September 30, 2008.   The holder of the
      $115,000 of subordinated debt is a limited liability company in which our
      President, Chairman of the Board and Chief Executive Officer owns a minority
      interest.




8.
            Exchange
                of Preferred Stock




Effective
      March 23, 2007, the holder of our Series A Preferred Stock exchanged such shares
      for an equal number of shares of Series B Preferred Stock. The terms of the
      Series B Preferred Stock are identical to those of the Series A Preferred Stock,
      except that they are mandatorily redeemable on April 30, 2008 (as opposed to
      April 30, 2007 for the Series A Preferred Stock).  Such shares have
      been classified as a current liability at September 30, 2007 since they are
      due
      within one year.


15
  9.
              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.


10.
                Treasury
                    Stock


In
      June
      2007, a shareholder tendered shares of Common Stock to settle an obligation
      due
      us approximating $7,200.  The tendered shares were recorded as an
      increase in treasury stock, valued at the balance of the obligation.




16


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




***Overview***




There
      are
      71 store locations owned or franchised by us of which 66 are located in New
      York
      State.  In the New York metropolitan area, there are 44 DCAP
      franchises.  There are also 17 DCAP Insurance Barry Scott Agency
      locations and five DCAP Insurance Accurate Agency locations outside the New
      York metropolitan area (all located in central and western New York State).
      There are five DCAP Insurance Atlantic Agency locations in eastern
      Pennsylvania.  All of the DCAP Insurance Barry Scott Agency, DCAP
      Insurance Atlantic Agency and DCAP Insurance 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, DCAP Insurance Barry Scott Agency,
      DCAP Insurance Atlantic Agency and DCAP Insurance Accurate Agency 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.




17


***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 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 26.4% and 26.5% per annum for the nine months ended September
      30,
      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 nine months ended September
      30, 2007 and 2006, the provision for finance receivable losses was $396,065and $496,456,
      respectively, and actual principal write-offs for such periods (net of
      recoveries of previous write-offs) were $434,328 and $477,293,
      respectively.   If our provision for finance receivable losses
      was understated by 10% 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 nine months ended September 30, 2007 and
      2006.




18


***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 September
      30, 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***




*NineMonths endedSeptember 30, 2007compared toNineMonths endedSeptember30, 2006*




Our
      net
      income for the nine months ended September 30, 2007 was $283,178 as compared
      to
      $513,702 for the nine months ended September 30, 2006.




19


During
      the nine months ended September 30, 2007, revenues from our insurance-related
      operations were $4,486,855 as compared to $5,390,085 for the nine months ended
      September 30, 2006.  The revenue decrease of $903,230 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 $666,450 during the nine months ended September
      30,
      2007 as compared to the nine months ended September 30, 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 nine months ended September 30,
      2007
      were $875,522 less than for the nine months ended September 30,
      2006.  This decrease was primarily due to a reduction in personnel at
      our premium finance operation, a reduction in variable compensation paid to
      employees due to a reduction in policies sold at our stores, our Compensation
      Committee determining that no bonus is payable to our Chief Executive Officer
      for 2006 (and accordingly no bonus accrual being provided for  during
      the first nine months of 2007; in contrast, a bonus for 2005 was provided during
      the first nine months of 2006), a decrease in fees paid to service our premium
      finance operations, and a decrease in advertising expenses, net of
      reimbursements.




Our
      provision for finance receivable losses for the first nine months of 2007 was
      $100,391 less than for the first nine months of 2006.  This was the
      result of a lower provision for finance receivable losses in the first nine
      months of 2007 caused by a decrease in volume.




Our
      premium finance interest expense during the nine months ended September 30,
      2007
      was $105,700 less than for the nine months ended September 30,
      2006.  This decrease was the result of a decrease in the average
      outstanding balance of our revolving credit line for the nine months ended
      September 30, 2007 compared to the nine months ended September 30,
      2006.




Our
      interest income – notes receivable for the nine months ended September 30, 2007
      was $112,787 more than for the nine months ended September 30, 2006. On January
      31, 2006, we purchased surplus notes of Commercial Mutual Insurance
      Company.  We recorded eight months of interest in the first nine
      months of 2006 as compared to nine months of interest in the first nine months
      of 2007.




During
      the nine months ended September 30, 2007, our provision for income taxes was
      $238,049 as opposed to $342,468 for the nine months ended September 30,
      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 $494,686 during the nine months ended September 30,
      2007
      as compared to a net profit before income taxes of $986,205 during the nine
      months ended September 30, 2006.  This decrease was primarily due to
      decreased revenues, offset by a reduction in variable compensation paid on
      commissions generated, a reduction in advertising expense, net of
      reimbursements, 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 $365,231 during the nine months
      ended September 30, 2007 as compared to a net profit before income taxes of
      $529,979 during the nine months ended September 30, 2006.  The
      decrease was primarily due to reduced premium finance revenue in 2007, offset
      by
      reductions in personnel, provision for finance receivable losses, fees paid
      to
      service our premium finance operations, and premium financing interest
      expense.  Loss before income taxes from corporate-related items not
      allocable to reportable segments was $338,690 during the nine months ended
      September 30, 2007 as compared to $660,014 during the nine months ended
      September 30, 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 a decrease in compensation
      expense.




20


*ThreeMonths endedSeptember 30, 2007 compared to ThreeMonths endedSeptember30, 2006*




Our
      net
      income for the three months ended September 30, 2007 was $59,124 as compared
      to
      $106,108 for the three months ended September 30, 2006.




During
      the three months ended September 30, 2007, revenues from our insurance-related
      operations were $1,359,996 as compared to $1,636,855 for the three months ended
      September 30, 2006.  The revenue decrease of $276,859 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 $161,617 during the three months ended September
      30,
      2007 as compared to the three months ended September 30, 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 September 30,
      2007 were $284,785 less than for the three months ended September 30,
      2006.  This decrease was primarily due to a reduction in variable
      compensation paid to employees due to a reduction in policies sold at our
      stores, our Compensation Committee determining that no bonus is payable to
      our
      Chief Executive Officer for 2006 (and accordingly no bonus accrual being
      provided for during the third quarter of 2007; in contrast, a bonus for 2005
      was
      provided during the third quarter of 2006), a decrease in fees paid to service
      our premium finance operations and a decrease in advertising expenses, net
      of
      reimbursements.




Our
      provision for finance receivable losses for the three months ended September
      30,
      2007 was $48,059 less than for the three months ended September 30,
      2006.  This was the result of a lower provision for finance receivable
      losses in 2007 caused by a decrease in volume.




Our
      premium finance interest expense during the three months ended September 30,
      2007 was $31,130 less than for the three months ended September 30,
      2006.  This decrease was the result of a decrease in the average
      outstanding balance of our revolving credit line for the three months ended
      September 30, 2007 compared to the three months ended September 30,
      2006.




21


During
      the three months ended September 30, 2007, our provision for income taxes was
      $54,732 as opposed to $70,739 for the three months ended September 30,
      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 $91,687 during the three months ended September 30,
      2007
      as compared to a net profit before income taxes of $235,755 during the three
      months ended September 30, 2006.  This decrease was primarily due to
      decreased revenues, offset by a reduction in variable compensation paid on
      commissions generated, and a decrease in advertising expenses, net of
      reimbursements.  Our premium finance operations, on a stand-alone
      basis, generated a net profit before income taxes of $123,345 during the three
      months ended September 30, 2007 as compared to a net profit before income taxes
      of $119,548 during the three months ended September 30, 2006.  This
      increase was primarily due to reductions in provision for finance receivable
      losses, fees paid to service our premium finance operations, and premium
      financing interest expense, offset by reduced premium finance revenue in
      2007.  Loss before income taxes from corporate-related items not
      allocable to reportable segments was $101,176 during the three months ended
      September 30, 2007 as compared to $178,456 during the three months ended
      September 30, 2006. This decrease was primarily due to a decrease in
      compensation expense.




***Liquidity
      and Capital Resources***




As
      of
      September 30, 2007, we had $1,000,725 in cash and cash equivalents and a working
      capital deficit of $763,754.  As of December 31, 2006, we had
      $1,196,412 in cash and cash equivalents and working capital of
      $2,031,120.




As
      discussed below, during 2007, the holders of $1,500,000 outstanding principal
      amount of subordinated debt agreed to extend the maturity date of the debt
      from
      September 30, 2007 to September 30, 2008.  The $1,500,000 principal
      balance of these notes is included in our September 30, 2007 balance sheet
      under
“Current Liabilities.”  In addition, as discussed below, effective
      March 23, 2007, the holder of our shares of Series A Preferred Stock (which
      were
      mandatorily redeemable on April 30, 2007) exchanged such shares for an equal
      number of shares of Series B Preferred Stock, which are mandatorily redeemable
      on April 30, 2008.  The mandatorily redeemable balance of $780,000 is
      included in our September 30, 2007 balance sheet under “Current
      Liabilities.”  We plan to seek to either (i) further extend the
      maturity and redemption dates of these subordinated debt and redeemable
      Preferred Stock obligations, (ii) refinance the obligations, and/or (iii) extend
      the term of our line of credit discussed below and utilize it to satisfy a
      portion of the outstanding balance of the obligations.




We
      believe that, based on our present cash resources and the anticipated turnover
      of our existing receivables, and, assuming that our efforts with regard to
      the
      subordinated debt and redeemable Preferred Stock obligations, as discussed
      above, are successful, we will have sufficient cash on a short-term basis and
      over the next 12 months to fund our two operating business segments and our
      company-wide working capital needs.




During
      the nine months ended September 30, 2007, our cash and cash equivalents
      decreased by $195,687.  This was due primarily to the
      following:




22


·
            Net
                cash provided by operating activities during the nine months ended
                September 30, 2007 was $132,484 primarily due to the
                following:  (i) net income of $283,178, (ii) non-cash charges to
                net income of $485,661, which include depreciation and amortization,
                deferred income taxes, amortization of warrants, and stock-based
                payments
                and (iii) a decrease in accounts receivable of $428,854, which were
                offset
                primarily by the accretion of discount on notes receivable of
                $740,864.  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 due from franchisees into notes
                receivable.




·
            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 provided by investing activities during the nine months ended
                September 30, 2007 was $1,327,797 primarily due to a decrease in
                finance
                contracts receivable of $1,354,332. This reduction was caused by
                the
                financing of fewer insurance policies in 2007 than in
                2006.




·
            Net
                cash used in financing activities during the nine months ended September
                30, 2007 was $1,655,968 primarily due to the following: (i) payments
                of
                $31,584,318 on our revolving credit line with Manufacturers and Traders
                Trust Company (“M&T”) for premium finance purposes, offset by proceeds
                of $30,233,649 from the revolving credit line and (ii) principal
                payments
                on long term debt and lease obligations of
                $417,499.




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.  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 September 30, 2007, $9,601,676
      was
      outstanding under the line.  As of September 30, 2007, of the
      $14,732,316 reflected on the Balance Sheet as “Finance contracts receivable,”
approximately $11,734,011 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.




23


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.  During 2007, the holders of the $1,500,000 outstanding
      principal amount of 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.




Effective
      March 23, 2007, the holder of our Series A Preferred Stock exchanged such shares
      for an equal number of shares of Series B Preferred Stock. The Series B
      Preferred Stock is mandatorily redeemable on April 30, 2008.




***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.  The surplus notes are past
      due and provide for interest at the prime rate or 8.5% per annum, whichever
      is
      less.  Payments of principal and interest on the surplus notes may
      only be made out of the surplus of Commercial Mutual and require the approval
      of
      the Insurance  Department of the State of New York.




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.  Commercial Mutual has advised us that
      it has obtained permission from the Superintendent of Insurance of the State
      of
      New York to proceed with the conversion process (subject to certain conditions
      as discussed below).




The
      conversion by Commercial Mutual to a stock property and casualty insurance
      company is subject to a number of conditions, including the approval of the
      plan
      of conversion by the Superintendent of Insurance and Commercial Mutual’s
      policyholders.  As part of the approval process, the Superintendent of
      Insurance is required to have an appraisal performed with respect to the fair
      market value of Commercial Mutual.  Such appraisal is to be based upon
      Commercial Mutual’s latest filings with the Insurance Department and any
      significant subsequent developments and is to consider the assets and
      liabilities of Commercial Mutual and any other factors bearing on its
      value.  We, as a holder of the Commercial Mutual surplus notes, at our
      option, would be able to exchange the surplus notes for an equitable share
      of
      the securities or other consideration, or both, of the corporation into which
      Commercial Mutual would be converted.  Based upon the amount payable
      on the surplus notes and the statutory surplus of Commercial Mutual, we believe
      that, following any conversion by Commercial Mutual into a stock corporation,
      we
      could hold a controlling equity interest in Commercial Mutual.  It is
      anticipated that the conversion will be completed within the next twelve
      months.  No assurances can be given that the conversion will
      occur.




24


***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 principal executive officer and principal 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
      principal executive officer and principal financial officer, we evaluated the
      effectiveness of our disclosure controls and procedures.  Based on
      this evaluation, our principal executive officer and principal 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.




25





**PART
                II. OTHER INFORMATION****Item
                1.**
            **LEGAL
                PROCEEDINGS**None**Item
                2.**
            **UNREGISTERED
                SALES OF EQUITY SECURITIES AND USE OF PROCEEDS**


(a)  During
      the third quarter of 2007, we issued to Timothy M. Madden Consulting LLC
      (“Madden”) 3,000 shares of Common Stock in consideration of services
      rendered.  The above offering of shares was exempt from the
      registration requirements of the Securities Act of 1933 pursuant to Section
      4(2)
      thereof as a transaction not involving any public offering.  We
      reached this determination based on the following: (i) Madden represented that
      it was an “accredited investor”  and it acquired the shares for its
      own account; (ii) the certificate representing the shares bears a restrictive
      legend permitting transfer only upon the registration of the shares or pursuant
      to an exemption from such registration requirements; and (iii) we did not offer
      or sell the shares by any form of general solicitation or general
      advertising.





(b)  Not
      applicable





(c)      
      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 Stock2





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.





26


3(c)
              Certificate
                  of Designation of Series B Preferred Stock33(d)
              By-laws,
                  as amended410
              Employment
                  Agreement, dated as of August 20, 2007, by and between DCAP Management
                  Corp. and Curt Hapward31(a)
              Rule
                  13a-14(a)/15d-14(a) Certification of Principal Executive Officer
                  as
                  adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
                  200231(b)
              Rule
                  13a-14(a)/15d-14(a) Certification of Principal Financial Officer
                  as
                  adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
                  200232
              Certification
                  of Principal Executive Officer and Principal Financial Officer
                  Pursuant to
                  18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 2002


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.


27







**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.**Dated:  November
                  14, 2007
            By:
            /s/ Barry
              B. GoldsteinBarry
              B. GoldsteinPresidentBy:
            /s/
              Victor BrodskyVictor
                Brodsky
              Chief Accounting Officer