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 1934

For the quarterly period ended September 30, 2004
                               ------------------

[  ]     Transition report under Section 13 or 15(d) of the Exchange Act

For the transition period from                        to
                                ----------------------  ------------------------

Commission File Number:  0-1665

                                DCAP GROUP, INC.
                                ----------------
        (Exact Name of Small Business Issuer as Specified in its Charter)

         Delaware                                           36-2476480
         --------                                           -----------
(State or Other Jurisdiction of                             (I.R.S Employer
Incorporation or Organization)                              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)

                     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: 2,512,424 shares as of October
31, 2004.

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


<PAGE>


                                      INDEX

                        DCAP GROUP, INC. AND SUBSIDIARIES


PART I.   FINANCIAL INFORMATION
-------   ---------------------

Item 1.   Financial Statements
          --------------------

          Condensed Consolidated Balance Sheet - September 30, 2004 (Unaudited)

          Condensed  Consolidated  Statements  of  Income  - Nine  months  ended
          September 30, 2004 and 2003 (Unaudited)

          Condensed  Consolidated  Statements  of  Income - Three  Months  ended
          September 30, 2004 and 2003 (Unaudited)

          Condensed  Consolidated  Statements  of Cash Flows - Nine months ended
          September 30, 2004 and 2003 (Unaudited)

          Notes to  Condensed  Consolidated  Financial  Statements - Nine months
          ended September 30, 2004 and 2003 (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
<PAGE>


Explanatory Note
----------------

     All references in this Quarterly Report to numbers of common shares and per
share information give retroactive  effect to the one-for-five  reverse split of
our common shares effected as of August 26, 2004.

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, 2003 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
<PAGE>
PART I.  FINANCIAL INFORMATION
         ---------------------

Item 1.  FINANCIAL STATEMENTS
         --------------------

                        DCAP GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheet (Unaudited)
--------------------------------------------------------------------------------
September 30, 2004
--------------------------------------------------------------------------------

Assets

Current Assets:
  Cash and cash equivalents                                       $  2,247,163
  Accounts receivable, net of allowance for
     doubtful accounts of $62,000                                    1,973,081
  Finance contracts receivable                     $25,980,085
      Less: Deferred Interest                       (1,841,522)
      Less: Allowance for doubtful accounts           (169,804)     23,968,759
                                                   -----------
  Prepaid expenses and other current assets                            234,515
                                                                  --------------
Total Current Assets                                                28,423,518

Property and Equipment, net                                            420,967
Goodwill                                                             1,171,551
Other Intangibles, net                                                 285,698
Deposits and Other Assets                                              319,027
                                                                  -------------
Total Assets                                                       $30,620,761
                                                                  ============

Liabilities and Stockholders' Equity

Current Liabilities:
  Revolving credit line                                            $13,512,193
  Accounts payable and accrued expenses                                907,859
  Premiums payable                                                   6,419,638
  Current portion of long-term debt                                    125,000
  Income taxes payable                                                 657,532
  Other current liabilities                                            365,039
                                                                  -------------
Total Current Liabilities                                           21,987,261
                                                                  -------------

Long-Term Debt                                                       3,661,500
                                                                  -------------
Other Liabilities                                                       32,003
                                                                  -------------
Mandatorily Redeemable Preferred Stock                                 904,000
                                                                  -------------

Commitments

Stockholders' Equity:
  Common Stock, $.01 par value; 10,000,000
      shares authorized; 3,255,347 shares issued                        32,553
  Preferred Stock, $.01 par value; 1,000,000
     shares authorized; 0 shares issued and outstanding                      -
  Capital in excess of par                                          10,712,533
  Deficit                                                           (5,780,434)
                                                                  -------------
                                                                     4,964,652
Treasury Stock, at cost, 742,923 shares                               (928,655)
                                                                  -------------
Total Stockholders' Equity                                           4,035,997
                                                                  -------------
Total Liabilities and Stockholders' Equity                         $30,620,761
                                                                  ============

--------------------------------------------------------------------------------
See notes to condensed consolidated financial statements.

                                       4
<PAGE>


                        DCAP GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Income (Unaudited)
--------------------------------------------------------------------------------
Nine months ended September 30,                         2004            2003
--------------------------------------------------------------------------------

Revenues:
    Commissions and fees                             $ 5,326,539   $  4,600,853
    Premium finance revenue                            6,049,173      1,074,406
                                                     --------------------------
                                                      11,375,712      5,675,259
                                                     --------------------------

Operating Expenses:
    General and administrative expenses                8,345,040      4,675,907
    Depreciation and amortization                        313,423        165,189
    Premium finance interest expense                     932,146         92,651
                                                     --------------------------
Total Operating Expenses                               9,590,609      4,933,747
                                                     --------------------------

Operating Income                                       1,785,103        741,512
                                                   ----------------------------

Other (Expense) Income:
    Interest income                                        7,212          7,597
    Interest expense                                     (24,965)       (44,962)
    Interest expense -
        mandatorily redeemable preferred stock           (33,900)       (18,833)
    Gain on sale of stores                                     -         89,700
    Gain on sale of book of business                           -         88,962
                                                   ----------------------------
                                                         (51,653)       122,464
                                                   ----------------------------

Income Before Provision for (Benefit of) Income Taxes   1,733,450       863,976

Provision for (Benefit of) Income Taxes                   637,578      (182,922)
                                                   ----------------------------

Income from Continuing Operations                       1,095,872     1,046,898

Discontinued Operations:
    Loss from discontinued operations                           -       (46,096)
                                                   ----------------------------

Net Income                                            $ 1,095,872    $1,000,802
                                                   ============================

Net Income Per Common Share:
  Basic:
    Income from continuing operations                $       0.44    $     0.43
    Loss from discontinued operations                           -         (0.02)
                                                   ----------------------------
         Net income                                  $       0.44    $     0.41
                                                   ============================

  Diluted:
    Income from continuing operations                $       0.35    $     0.40
    Loss from discontinued operations                           -         (0.02)
                                                   ----------------------------
         Net income                                  $       0.35    $     0.38
                                                   ============================

Weighted Average Number of Shares Outstanding:
    Basic                                               2,491,333     2,470,680
                                                   ============================

    Diluted                                             3,244,947     2,681,088
                                                   ============================

--------------------------------------------------------------------------------
See notes to condensed consolidated financial statements.

                                       5
<PAGE>

<TABLE>
<CAPTION>

                        DCAP GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Income (Unaudited)
----------------------------------------------------------------------------------------------
Three months ended September 30,                                    2004            2003
----------------------------------------------------------------------------------------------

Revenues:

<S>                                                           <C>               <C>
    Commissions and fees                                      $  1,853,700      $  1,585,191
    Premium finance revenue                                      2,094,087           377,134
                                                               -----------------------------
                                                                 3,947,787         1,962,325
                                                               -----------------------------

Operating Expenses:
    General and administrative expenses                          2,955,019         1,732,745
    Depreciation and amortization                                  102,957            90,271
    Premium finance interest expense                               337,434            92,651
                                                               -----------------------------
Total Operating Expenses                                         3,395,410         1,915,667
                                                               -----------------------------

Operating Income                                                   552,377            46,658
                                                               -----------------------------

Other (Expense) Income:
    Interest income                                                  1,771             2,794
    Interest expense                                                (6,846)          (11,168)
    Interest expense -
        mandatorily redeemable preferred stock                     (11,300)          (11,041)
    Gain on sale of book of business                                     -            88,962
                                                               -----------------------------
                                                                   (16,375)           69,547
                                                               -----------------------------

Income Before Provision for (Benefit of) Income Taxes              536,002           116,205

Provision for (Benefit of) Income Taxes                            161,191          (188,586)
                                                               -----------------------------

Net Income                                                     $   374,811    $      304,791
                                                               =============================

Net Income Per Common Share:
    Basic                                                      $      0.15   $          0.12
                                                               =============================

    Diluted                                                    $      0.12   $          0.11
                                                               =============================

Weighted Average Number of Shares Outstanding:
    Basic                                                         2,512,497        2,470,680
                                                               =============================

    Diluted                                                       3,245,876        2,811,636
                                                               =============================

</TABLE>


--------------------------------------------------------------------------------
See notes to condensed consolidated financial statements.

                                       6
<PAGE>
<TABLE>
<CAPTION>
                        DCAP GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)
-------------------------------------------------------------------------------------------------
Nine months ended September 30,                                       2004              2003
-------------------------------------------------------------------------------------------------

Cash Flows from Operating Activities:
<S>                                                             <C>               <C>
  Net income                                                    $   1,095,872     $  1,000,802
  Adjustments to reconcile net income to net cash
    provided by operating activities:
       Depreciation and amortization                                  313,423          165,189
       Bad debt expense                                                     -           42,098
       Amortization of warrants                                        44,100                -
       Gain on sale of stores                                               -          (89,700)
       Gain on sale of book of business                                     -          (88,962)
       Deferred income tax benefit                                          -         (200,000)
       Changes in operating assets and liabilities:
         Decrease (increase) in assets:
           Accounts receivable                                       (176,721)        (478,848)
           Prepaid expenses and other current assets                 (123,606)        (222,475)
           Deposits and other assets                                 (114,474)         (82,745)
         Increase (decrease) in liabilities:
           Premiums payable                                          (110,581)       5,830,101
           Accounts payable and accrued expenses                     (419,670)          91,107
           Income taxes payable                                       657,532                -
           Other current liabilities                                  152,849          (25,296)
                                                                -------------------------------
Net Cash Provided by Operating Activities                           1,318,724        5,941,271
                                                                -------------------------------

Cash Flows from Investing Activities:
  Increase in finance contracts receivable - net                   (4,884,598)     (11,819,646)
  Decrease in notes and other receivables - net                        12,493           19,441
  Business acquisition                                                      -          (39,039)
  Purchase of property and equipment                                 (129,605)         (74,535)
  Proceeds from disposition of discontinued subsidiary                      -          500,000
  Proceeds on sale of book of business                                      -          112,925
  Proceeds from sale of stores                                              -          141,383
                                                                -------------------------------
Net Cash Used in Investing Activities                              (5,001,710)     (11,159,471)
                                                                -------------------------------

Cash Flows from Financing Activities:
   Principal payments on long-term debt                              (158,263)        (368,965)
   Proceeds from long-term debt                                             -        3,500,000
   Proceeds from revolving credit line                             51,895,399        3,387,479
   Payments on revolving credit line                              (47,351,288)        (770,018)
   Proceeds from exercise of warrants                                 194,997                -
                                                                -------------------------------
Net Cash Provided by Financing Activities                           4,580,845        5,748,496
                                                                ------------------------------

Net Increase in Cash and Cash Equivalents                             897,859          530,296
Cash and Cash Equivalents, beginning of period                      1,349,304          607,403
                                                                -------------------------------
Cash and Cash Equivalents, end of period                           $2,247,163       $1,137,699
                                                                ===============================
</TABLE>

--------------------------------------------------------------------------------
See notes to condensed consolidated financial statements.

                                       7
<PAGE>


                        DCAP GROUP, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
            NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003 (UNAUDITED)

1.   The Condensed  Consolidated  Balance  Sheet as of September  30, 2004,  the
     Condensed  Consolidated  Statements of Income for the three and nine months
     ended September 30, 2004 and 2003 and the Condensed Consolidated Statements
     of Cash Flows for the nine months  ended  September  30, 2004 and 2003 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, 2004, results of operations for the
     three and nine months ended  September 30, 2004 and 2003 and cash flows for
     the nine months ended September 30, 2004 and 2003.

     This report  should be read in  conjunction  with our Annual Report on Form
     10-KSB for the year ended December 31, 2003.

     The  results  of  operations  and  cash  flows  for the nine  months  ended
     September  30,  2004 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 (except for contingent  commissions that are receivable
     annually,  which we recognize on a ratable  basis) and on  automobile  club
     dues equally over the contract period.  Franchise fee revenue is recognized
     when substantially all of our contractual  requirements under the franchise
     agreement are  completed.  Refunds of commissions  on the  cancellation  of
     insurance policies are reflected at the time of cancellation.

     Prior to July 14, 2003, premium financing fee revenue was earned based upon
     the  origination  of premium  finance  contracts sold by agreement to third
     parties.  The  contract  fee gave  consideration  to an  estimate as to the
     collectability  of the  loan  amount.  Periodically,  actual  results  were
     compared to estimates previously recorded, and adjusted accordingly.

     On July 14, 2003, we changed our business model with respect to our premium
     finance  operations  from selling  finance  contracts  to third  parties to
     internally  financing those  contracts.  To accomplish  this, we obtained a
     credit facility and commenced recording interest and fee-based revenue over
     the life of each loan  (generally 9 to 10 months) and expenses of operating
     a finance company, such as servicing, bad debts and interest expense.

     Thus, rather than recording a one-time fee per contract (as we did prior to
     July 14, 2003),  we are now  recording  income and expense over the life of
     each  contract,  as  well  as  receivables  and  payables  relating  to the
     operations of a premium finance  company.  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
<PAGE>

     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. 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 $47,043  and $40,500 in such costs
     was  incurred  during the nine months  ended  September  30, 2004 and 2003,
     respectively.

     d. Reclassifications
        -----------------

     Certain  reclassifications  have  been made to the  consolidated  financial
     statements for the nine months ended September 30, 2003 to conform with the
     classifications used for the nine months ended September 30, 2004.

3.   Business Segments:

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

     In December  2002, we disposed of our Hotel segment as part of a settlement
     agreement.  Accordingly,  the segment  information  shown in the  following
     table  excludes  the  activity of this  segment  for the nine months  ended
     September 30, 2004 and 2003.

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

<TABLE>
<CAPTION>
     Nine Months Ended                            Premium
     September 30, 2004          Insurance        Finance          Other(1)         Total
     -----------------------    ----------      ----------        ---------      -----------
<S>                             <C>             <C>               <C>            <C>
     Revenues from external
       customers                $5,326,539      $6,049,173        $       -      $11,375,712
     Interest income                 7,212               -                -            7,212
     Interest expense               57,682         932,146            1,183          991,011
     Depreciation and
       amortization                128,458         161,934           23,031          313,423
     Segment profit (loss)
       before income taxes       1,284,412       1,379,568         (930,530)       1,733,450
     Segment profit (loss)         770,647         827,741         (502,516)       1,095,872
     Segment assets              3,915,060      25,680,697        1,025,004       30,620,761

     ------------
     (1)  Column  represents  corporate-related  items  and,  as it  relates  to
          segment  profit  (loss),  income,  expense and assets not allocated to
          reportable segments.
</TABLE>
                                       9
<PAGE>

<TABLE>
<CAPTION>

     Nine Months Ended                                Premium
     September 30, 2003            Insurance          Finance         Other(1)           Total
     ------------------------      ---------         ----------       --------           -----
<S>                                <C>               <C>             <C>             <C>
     Revenues from external
          customers                $4,600,853        $1,074,406      $        -      $5,675,259
     Interest income                    1,223                 -           6,374           7,597
     Interest expense                  63,795            92,651               -         156,446
     Depreciation and
         amortization                 111,848            46,341               -         165,189
     Segment profit (loss)
         before income taxes          795,501           604,361        (535,886)        863,976
     Segment profit (loss)            795,501           604,361        (352,964)      1,046,898
     Segment assets                 3,046,295        12,598,948       1,200,361      16,845,604
     ----------

     (1)  Column  represents  corporate-related  items  and,  as it  relates  to
          segment  profit  (loss),  income,  expense and assets not allocated to
          reportable segments.
</TABLE>
4.   Stock Options
     -------------

     We have elected the  disclosure  only  provisions of Statement of Financial
     Accounting  Standard No. 123,  "Accounting  for  Stock-Based  Compensation"
     ("FASB 123") in accounting for our employee stock options.  Accordingly, no
     compensation  expense has been  recognized.  Had we  recorded  compensation
     expense for the stock options based on the fair value at the grant date for
     awards in the nine and  three  months  ended  September  30,  2004 and 2003
     consistent  with the  provisions of SFAS 123, our net income and net income
     per share would have been adjusted as follows:

<TABLE>
<CAPTION>
                                                     Nine  Months Ended                 Three Months Ended
                                                        September 30,                      September 30,
                                                 ---------------------------       ----------------------------
                                                     2004           2003                2004             2003
                                                  ------------  -------------      ------------      ----------


<S>                                               <C>            <C>                   <C>            <C>
     Net income, as reported                      $1,095,872     $1,000,802            $374,811       $304,791

     Deduct:  Total stock-based employee
     compensation expense determined
     under fair value based method, net
     of related tax effects                          (50,000)       (59,000)            (17,000)       (23,000)
                                                   ---------      ---------             -------        -------

     Pro forma net income                         $1,045,872       $941,802            $357,811       $281,791
                                                   =========      =========             =======        =======

     Net income per share:
              Basic - as reported                      $0.44          $0.41               $0.15          $0.12
                                                        ----           ----                ----           ----
              Basic - pro forma                        $0.42          $0.38               $0.14          $0.11
                                                        ----           ----                ----           ----

              Diluted - as reported                    $0.35          $0.38               $0.12          $0.11
                                                        ----           ----                ----           ----
              Diluted - pro forma                      $0.33          $0.36               $0.11          $0.10
                                                        ----           ----                ----           ----
</TABLE>


                                       10



<PAGE>


5.   Sale of Stores and Book of Business
     -----------------------------------

     During the nine months ended  September 30, 2003, we sold two of our retail
     offices (part of our Insurance  segment) and the book of business  relating
     to one store for cash consideration  aggregating approximately $254,000 and
     a note receivable of approximately  $97,000. These sales resulted in a gain
     of  approximately  $179,000.  The assets  included  accounts  receivable of
     approximately  $97,000,  goodwill  with a carrying  amount of $57,000,  and
     fixed assets with a carrying amount of approximately  $10,000. In addition,
     concurrently with the sale of the two retail stores, the purchasers entered
     into franchise agreements with us.

6.   Income Taxes
     ------------

     Our tax  benefit  for the three and nine months  ended  September  30, 2003
     reflects the  anticipated  utilization  of  estimated  net  operating  loss
     carryforwards  that had previously  been fully reserved and the reversal of
     approximately 50% of the valuation  allowance relating to the net operating
     loss carryforward not subject to Internal Revenue Code Section 382. Our tax
     provision  for the three and nine months ended  September  30, 2004 differs
     from  statutory  rates as it results from an  underaccrual  of the 2003 tax
     benefit.

7.   Net Income Per Share
     --------------------

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

     The reconciliation is as follows:

<TABLE>
<CAPTION>
                                             Nine Months Ended               Three Months Ended
                                                September 30,                   September 30,
                                             2003            2004             2003           2004
                                          ---------       ---------        ---------      ---------
<S>                                       <C>             <C>              <C>            <C>
      Weighted Average Number
         of Shares Outstanding            2,491,333       2,470,680        2,512,497      2,470,680

      Effect of Dilutive Securities,
          Common Stock Equivalents          753,614         210,408          733,379        340,956
                                          ---------       ---------        ---------      ---------

      Weighted Average Number of
          Shares Outstanding, used for
          computing diluted earnings
          per share                       3,244,947       2,681,088        3,245,876      2,811,636
                                          =========       =========        =========      ==========
</TABLE>



                                       11
<PAGE>

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

<TABLE>
<CAPTION>
                                                          Nine Months Ended             Three Months Ended
                                                            September 30,                  September 30,
                                                      2004               2003          2004            2003
                                                  -----------        -----------     ---------       ---------

<S>                                               <C>                <C>             <C>             <C>
     Net Income                                   $1,095,872         $1,000,802      $374,811        $304,791
     Interest Expense on Dilutive
         Convertible Preferred Stock                  33,900             18,833        11,300          11,041
                                                  ----------         ----------      --------        --------
     Net Income Available to Common
         Shareholders for Diluted Earnings
         Per Share                                $1,129,772         $1,019,635      $386,111        $315,832
                                                  ==========         ==========      ========        ========
</TABLE>

8.   Exercise of Warrants
     --------------------

     During the nine months ended  September 30, 2004,  warrants were  exercised
     for the purchase of 22,727 common shares at an exercise  price of $5.50 per
     share and 19,090 common shares at an exercise price of $3.65 per share.

9.   Reverse Stock Split
     -------------------

     On August 26, 2004, we effected a one-for-five  reverse split of our common
     shares.  The $0.01 par value per share was not  changed  as a result of the
     reverse split and $130,218 was transferred  from common stock to capital in
     excess of par value. Total shares outstanding  decreased from 12,562,487 to
     2,512,424 as a result of the reverse  split.  All  references to numbers of
     common  shares and per share  information  give  retroactive  effect to the
     one-for-five reverse split.

     In  connection  with the reverse  split,  the number of  authorized  common
     shares was reduced from 40,000,000 to 10,000,000.

                                       12

<PAGE>

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

     Overview

     We operate 25  storefronts,  including  19 Barry Scott  locations  acquired
through our August 2002  acquisition  of Barry Scott  Companies,  Inc., and five
Atlantic  Insurance  locations  acquired  through  our May 2003  acquisition  of
substantially all the assets of AIA Acquisition Corp. We also have 42 franchised
DCAP locations.

     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. The stores also offer automobile
club services for roadside assistance and income tax preparation services.

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

     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.  However,  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. In addition,  other companies may utilize different estimates,  which
may impact  comparability  of our results of operations to those of companies in
similar businesses.

     Commission and fee income

     We recognize commission revenue from insurance policies at the beginning of
the contract  period,  except for  contingent  commissions  that are  receivable
annually,  for which we recognize the  commission  revenue  ratably.  Refunds of
commissions on the cancellation of insurance  policies are reflected at the time
of cancellation.

                                       13
<PAGE>

     Franchise  fee  revenue  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

     Finance income  consists of interest,  service fees and  delinquency  fees.
Finance income,  other than  delinquency  fees, is recognized using the interest
method or similar  methods that produce a level yield over the life of each loan
(generally nine to ten months). Delinquency fees are earned when collected.

     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. The majority of these shortfalls result
in the write-off of such interest.  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.

     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, 2004.

     Stock-based compensation

     We apply the  intrinsic  value-based  method of  accounting  prescribed  by
Accounting  Principles  Board  Opinion No. 25,  Accounting  for Stock  Issued to
Employees,  and related  interpretations,  to account for  stock-based  employee
compensation  plans and report pro forma  disclosures in our Form 10-QSB filings
by  estimating  the fair value of  options  issued  and the  related  expense in
accordance with SFAS No. 123. Under this method, compensation cost is recognized
for awards of common  shares or stock  options to our  directors,  officers  and
employees  only if the  quoted  market  price of the stock at the grant date (or
other  measurement  date,  if later) is greater than the amount the grantee must
pay to acquire the stock.

                                       14

<PAGE>




     Results of Operations

     Our  operating  income for the nine  months  ended  September  30, 2004 was
$1,785,103 as compared to $741,512 for the nine months ended September 30, 2003.

     During  the  nine  months  ended  September  30,  2004,  revenues  from our
insurance-related  operations  were $5,326,539 as compared to $4,600,853 for the
nine months ended  September  30, 2003.  The increase was  generally  due to the
revenues of our Atlantic  Insurance stores (whose assets were acquired effective
May 1, 2003) as well as an increase in  contingent  commissions  during the 2004
period.

     Premium finance revenues increased  $4,974,767 during the nine months ended
September  30, 2004 as compared to the nine months ended  September 30, 2003, as
indicated by the following table:

                                                  Nine Months Ended
                                                    September 30,
                                                 2004           2003
                                             ------------------------

     Revenue from sale of receivables        $        -    $  683,497
     Interest and late fee revenue            6,049,173       390,909
                                             ----------    ----------

              Total                          $6,049,173    $1,074,406
                                             ==========    ==========

     During the period from January 1, 2003 until July 13, 2003,  we  recognized
premium finance revenue from the sale of premium finance  receivables to a third
party and recorded a one-time fee per contract. On July 14, 2003, we obtained an
$18,000,000  two-year line of credit from Manufacturers and Traders Trust Co. to
finance our premium finance operations.  Concurrently, we obtained $3,500,000 in
funding from a private  placement of  subordinated  debt and warrants to support
our premium finance operations.  We then began utilizing these credit facilities
and commenced  recording  interest and  fee-based  revenue over the life of each
loan and the expenses of operating a finance  company,  such as  servicing,  bad
debts and  interest  expense.  Thus,  rather than  recording a one-time  fee per
contact, we are recording income and expense over the life of each contract.

     Effective November 2003, we began providing premium finance services to our
Barry Scott  locations  (following  the  expiration  of a  requirement  that the
locations use another  provider),  and in March 2004 we began providing  premium
finance services to our Atlantic Insurance offices.

     Our general and administrative expenses for the nine months ended September
30, 2004 were $3,669,133 more than for the nine months ended September 30, 2003.
This increase was primarily due to the expenses of our Atlantic Insurance stores
(whose assets were acquired effective May 1, 2003) and the expenses of operating
a finance company, as discussed above, which we commenced on July 14, 2003.

     Our  depreciation  and  amortization  expense  for the  nine  months  ended
September  30, 2004 was $148,234  more than for the nine months ended  September
30, 2003.  This increase was primarily the result of our recording  amortization
of costs associated with obtaining the financing


                                       15
<PAGE>

discussed above.

     During the nine months  ended  September  30,  2004,  we  incurred  premium
finance  interest  expense of $932,146  as  compared to $92,651  during the nine
months ended  September 30, 2003.  This increase was the result of the change in
our premium finance business in July 2003 as discussed above.

     In May 2003, we issued  redeemable  preferred shares in connection with the
acquisition of the assets of AIA Acquisition Corp. and incurred interest expense
of $33,900  during the nine  months  ended  September  30,  2004 as  compared to
$18,833 during the nine months ended September 30, 2003.

     During the nine months ended  September 30, 2003, we sold two of our stores
and the book of business relating to one store, resulting in a gain of $178,662.
No such sales occurred during the nine months ended September 30, 2004.

     During the nine months ended  September 30, 2004,  our provision for income
taxes was  $637,578 as opposed to a tax benefit of $182,922  for the nine months
ended  September  30,  2003.  This  was  primarily  due to the  reversal  of the
valuation  allowance on our net operating loss carryforwards for the nine months
ended  September 30, 2003. Our tax provision for the nine months ended September
30, 2004 differs from statutory  rates as it results from an underaccrual of the
2003 tax benefit.

     Our insurance-related  operations,  on a stand-alone basis, generated a net
profit before income taxes of $1,284,412  during the nine months ended September
30, 2004 as compared to a net profit before income taxes of $795,501  during the
nine months ended  September 30, 2003. This increase was primarily the result of
the  inclusion  of AIA's  operations  and an increase in  contingent  commission
revenue during the 2004 period. Our premium finance operations, on a stand-alone
basis,  generated a net profit before income taxes of $1,379,568 during the nine
months ended  September 30, 2004 as compared to a net profit before income taxes
of $604,361  during the nine months ended  September 30, 2003.  The increase was
primarily  due to increased  profits  resulting  from the change in our business
model as discussed above. Loss before income taxes from corporate-related  items
not allocable to reportable  segments was $930,530  during the nine months ended
September  30,  2004 as  compared  to  $535,886  during  the nine  months  ended
September  30,  2003.  This  increase was  primarily  due to the gain on sale of
stores and book of business  during the nine  months  ended  September  30, 2003
while no sale of stores or book of  business  occurred  during  the nine  months
ended September 30, 2004 as well as increased salary expense and the purchase of
directors  and  officers  liability  insurance  during  the  nine  months  ended
September 30, 2004.

     In January  2003,  we  discontinued  the  operations  of the  International
Airport Hotel in San Juan,  Puerto Rico.  During the nine months ended September
30, 2003, this  discontinued  operation  generated a net loss of $46,096.  There
were no such operations during the nine months ended September 30, 2004.

     An action  was  recently  brought by the New York  State  Attorney  General
against Marsh & McLennan  Companies,  the nation's leading  insurance  brokerage
firm,  alleging,  among other things,  that it had improperly steered clients to
insurers with whom it had lucrative  contingent  commission

                                       16
<PAGE>


arrangements.  As a result of the  ongoing  investigation  of this matter by the
Attorney  General's  office  and  others,  we  anticipate  that  there may be an
industry-wide  change in the method by which insurance  brokers are compensated.
We do not believe that any such change would have a material  adverse  effect on
our results of operations.

     Liquidity and Capital Resources

     As of September  30, 2004, we had  $2,247,163 in cash and cash  equivalents
and working capital of $6,436,257. As of December 31, 2003, we had $1,349,304 in
cash and cash equivalents and working capital of $5,168,694.

     During  the  nine  months  ended  September  30,  2004,  our  cash and cash
equivalents increased by $897,859. This was due to the following:

     o    Net cash provided by operating activities was $1,318,724 primarily due
          our net income for the period of $1,095,872, plus an increase in taxes
          payable of  $657,532  and  deprecation  and  amortization  expenses of
          $313,423,  offset  by a  decrease  in  accounts  payable  and  accrued
          expenses of $419,670.

     o    We  used  $5,001,710  in  investing  activities  primarily  due  to an
          increase in our net finance contracts receivable of $4,884,598.

     o    Net cash provided by financing activities was $4,580,845 primarily due
          to  proceeds  of  $51,895,399  from our  revolving  credit  line  from
          Manufacturers  and  Traders  Trust Co. for premium  finance  purposes,
          offset by payments of $47,351,288 on the revolving line.

     Liquidity  at  September  30,  2004  was  sufficient,  in  the  opinion  of
management,  to meet  our  cash  requirements  for the 12  month  period  ending
September 30, 2005.

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

     Our Chief  Executive  Officer  and Chief  Financial  Officer  conducted  an
evaluation of the effectiveness of our disclosure controls and procedures. Based
on this  evaluation,  our Chief Executive  Officer and Chief  Financial  Officer
concluded  that our  disclosure  controls and  procedures  were  effective as of
September  30, 2004 in alerting him in a timely  manner to material  information
required  to be  included  in our SEC  reports.  In  addition,  no change in our
internal  control over financial  reporting  occurred  during the fiscal quarter
ended September 30, 2004 that has materially  affected,  or is reasonably likely
to materially affect, our internal control over financial reporting.


                                       17

<PAGE>


PART II.  OTHER INFORMATION
          -----------------

Item 1.   LEGAL PROCEEDINGS
          -----------------

          None

Item 2.   UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
          -----------------------------------------------------------

          None

Item 3.   DEFAULTS UPON SENIOR SECURITIES
          -------------------------------

          None

Item 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
          ---------------------------------------------------

          None

Item 5.   OTHER INFORMATION
          -----------------

          None

Item 6.   EXHIBITS
          --------

          3(a) Restated Certificate of Incorporation, as amended

          3(b) Certificate   of  Amendment  of  the  Restated   Certificate   of
               Incorporation, filed August 25, 2004

          3(c) By-laws, as amended(1)

          10   Employment  Agreement,  dated  September 24, 2004, by and between
               DCAP Group, Inc. and Jack Willis

          31   Rule  13a-14(a)/15d-14(a)  Certification  as adopted  pursuant to
               Section 302 of the Sarbanes-Oxley Act of 2002

          32   Certification of the Chief Executive  Officer and Chief Financial
               Officer  pursuant to 18 U.S.C.  Section 1350, as adopted Pursuant
               to Section 906 of the Sarbanes-Oxley Act of 2002

--------
1 Denotes  document  filed as an exhibit to our Quarterly  Report on Form 10-QSB
for the period ended June 30, 2004 and incorporated herein by reference.

                                       18
<PAGE>


                                   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 9, 2004               By: /s/ Barry Goldstein
                                           -------------------------------------
                                           Barry Goldstein
                                           President, Chairman of the Board,
                                           Chief Executive Officer, Chief
                                           Financial Officer and Treasurer
                                           (Principal Executive, Financial and
                                           Accounting Officer)




                                       19