**SECURITIES      AND EXCHANGE COMMISSION**

**WASHINGTON,      D.C. 20549**

**FORM      10-KSB**

| (x)    | **ANNUAL                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF                1934** |
|--------|------------------------------------------------------------------------------------------------------------------|
|   | For                the fiscal year ended                                                                         | December                31, 2005 |

| (                ) | **TRANSITION                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF                1934** |
|--------------------|----------------------------------------------------------------------------------------------------------------------|
|               | For                the transition period from                                                                        | to |   |

|   |   |   |
|--------|--------|--------|

**DCAP      GROUP, INC.**

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

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

| (516)                374-7600                                                        |
|--------------------------------------------------------------------------------------|
| (Issuer’s                telephone number, including area                code) |

| Title                of each class | Name                of each exchange on which registered |
|------------------------------------|----------------------------------------------------------|
| None                               |                                                     |

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

**(APPLICABLE      ONLY TO CORPORATE REGISTRANTS)**

**DOCUMENTS      INCORPORATED BY REFERENCE**

----

**INDEX**

|                                                       |                                                                                                                                                         | **Page                No.** |
|------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------|
| Explanatory                Note/Forward-Looking Statements | 1                                                                                                                                                            |
| **PART                I**                                  |                                                                                                                                                         |                        |
| Item                1.                                     | Description                of Business                                                                                                                       | 2                           |
| Item                2                                      | Description                of Property                                                                                                                       | 10                          |
| Item                3.                                     | Legal                Proceedings                                                                                                                             | 10                          |
| Item                4.                                     | Submission                of Matters to a Vote of Security Holders                                                                                           | 10                          |
| **PART                II**                                 |                                                                                                                                                         |                        |
| Item                5.                                     | Market                for Common Equity, Related Stockholder Matters and Small Business                Issuer                Purchases of Equity Securities  | 12                          |
| Item                6.                                     | Management=s                Discussion and Analysis or Plan of Operation                                                                                     | 13                          |
| Item                7.                                     | Financial                Statements                                                                                                                          | 26                          |
| Item                8.                                     | Changes                in and Disagreements with Accountants on Accounting and Financial                Disclosure                                           | 26                          |
| Item                8A.                                    | Controls                and Procedures                                                                                                                       | 26                          |
| Item                8B.                                    | Other                Information                                                                                                                             | 26                          |
| **PART                III**                                |                                                                                                                                                         |                        |
| Item                9.                                     | Directors,                Executive Officers, Promoters and Control Persons; Compliance with                Section                16(a) of the Exchange Act | 27                          |
| Item                10.                                    | Executive                Compensation                                                                                                                        | 30                          |
| Item                11.                                    | Security                Ownership of Certain Beneficial Owners and Management and Related                Stockholder Matters                                 | 31                          |
| Item                12.                                    | Certain                Relationships and Related Transactions                                                                                                | 34                          |
| Item** **13.                                          | Exhibits                                                                                                                                                     | 36                          |
| Item                14.                                    | Principal                Accountant Fees and Services                                                                                                        | 39                          |
| **Signatures**                                             |                                                                                                                                                         |                        |

----

**PART          I**

**Explanatory          Note**

**Forward-Looking          Statements**

----

**ITEM          1.**
**DESCRIPTION          OF BUSINESS**

| **(a)** | **Business                    Development** |
|---------|---------------------------------------------|

***General***

| ·   | franchising,                  ownership and operation of storefront insurance agencies under                  the DCAP,                  Barry Scott, Atlantic Insurance and Accurate Agency brand                  names |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | premium                  financing of insurance policies for our DCAP, Barry Scott, Atlantic                  Insurance and Accurate Agency clients as well as clients of non-affiliated                  entities |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | granted                  franchises for the use of the DCAP trade                  name |
|--------------------|-----------------------------------------------------------------------------------------|
| ·   | sold                  our interest in a number of storefronts but retained them as DCAP                  franchises |
|--------------------|---------------------------------------------------------------------------------------------------------------------|
| ·   | as                  discussed below, purchased                  the assets of AIA Acquisition Corp., which has five store locations                  that                  operate under the Atlantic Insurance brand name, and Accurate Agency,                  Inc.                  (and related entities), which has four store locations and operate                  under                  the Accurate Agency brand name |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | changed                  our business model with respect to our premium finance operations                  from                  selling finance contracts to third parties to internally financing                  those                  contracts |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

***Recent          Development***

***Developments          During 2005***

*:*

| ·   | During                  2005, we utilized our line of credit with Manufacturers and Traders                  Trust                  Co. (“M&T”), our premium finance lender, to repay an aggregate of                  $2,000,000 of our $3,500,000 subordinated                  debt. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| ·   | Effective                  May 25, 2005, the holders of the remaining $1,500,000 outstanding                  principal amount of our subordinated debt agreed to extend the                  maturity                  date of the debt from January 10, 2006 to September 30, 2007. This                  extension was given to satisfy a requirement of M&T that arose in                  connection with the increase in our revolving line of credit to                  $25,000,000 and the extension of the line to June 30, 2007, as                  described                  under “Developments During 2004” below. In consideration for the extension                  of the due date of our subordinated debt, we extended the expiration                  date                  of warrants held by the debtholders for the purchase of 97,500                  of our                  common shares from January 10, 2006 to September 30, 2007. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | On                  November 15, 2005, we entered into an agreement for the acquisition                  of                  substantially all of the assets of Accurate Agency, Inc., Louisons                  Associates Limited and Accurate Agency of Western New York, Inc.,                  insurance brokerage firms with a total of four offices located                  in and                  around Rochester, New York that operate under the Accurate Agency                  brand.                  The transaction was consummated effective as of January 1, 2006.                  The                  acquisition is part of our strategy to expand our operations into                  other                  regions of New York State. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

***Developments          During 2004***

| ·   | Effective                  August 26, 2004, we effected a one-for-five reverse split of our                  common                  shares. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | On                  October 7, 2004, our common shares began trading on the NASDAQ                  Small Cap                  Market. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------|
| ·   | In                  December 2004, we increased our premium finance line of credit                  with                  M&T from $18,000,000 to $25,000,000 and extended the term of the                  line                  to June 30, 2007. Subject to certain conditions, M&T has agreed to                  arrange an additional $10,000,000 credit facility with other lenders                  on a                  “best efforts” basis. The terms of the new line of credit agreement are                  similar to our previous line of credit agreement with M&T, except that                  the interest rate was reduced from M&T’s prime lending rate plus 1.5%                  to, at our option, either (i) M&T’s prime lending rate or (ii) LIBOR                  plus 2.5%, and the amount that we can borrow was raised from 80%                  to 85% of                  eligible premium finance receivables. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

***Developments          During 2003***

| ·   | Effective                  May 1, 2003, we acquired substantially all of the assets of AIA                  Acquisition Corp., an insurance brokerage firm with five offices                  located                  in eastern Pennsylvania that operate under the Atlantic Insurance                  brand.                  The acquisition allowed for the expansion of our geographical footprint                  outside New York State and allowed for us to capitalize on operational                  and                  administrative efficiencies. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| ·   | In                  July 2003, in connection with the change in our premium finance                  operations                  business model, as discussed above, we obtained an $18,000,000                  revolving                  line of credit from M&T that was due to expire in July 2005. Interest                  on this loan was payable at the rate of prime plus 1.5%. Concurrently,                  we                  obtained a $3,500,000 secured subordinated loan, that was initially                  repayable in January 2006 and carries interest at the rate of 12-5/8%                  per                  annum. In connection with the $3,500,000 debt financing, we issued                  warrants for the purchase of 105,000 common shares at an exercise                  price of                  $6.25 per share. The warrants initially expired on January 10,                  2006. See                  “Developments During 2004” and “Developments During 2005”                  above. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **(b)** | **Business                    of Issuer** |
|---------|-------------------------------------------|

***General***

----

***Insurance          Agencies***

*Insurance          Brokerage*

| ·   | property                  and casualty insurance for motorcycles, boats and                  livery/taxis |
|--------------------|-----------------------------------------------------------------------------------------------------------|
| ·   | life                  insurance |
|--------------------|---------------------------------|
| ·   | business                  insurance |
|--------------------|-------------------------------------|
| ·   | homeowner’s                  insurance |
|--------------------|----------------------------------------------|
| ·   | excess                  coverage |
|--------------------|----------------------------------|

*Franchises*

*Automobile          Club*

----

*Income*
*Tax          Return Preparation *

*Structure          and Operations*

| ·   | marketing,                  sales and underwriting |
|--------------------|----------------------------------------------------|
| ·   | office                  and logistics |
|--------------------|---------------------------------------|
| ·   | computer                  information |
|--------------------|---------------------------------------|
| ·   | sales                  training |
|--------------------|---------------------------------|
| ·   | bookkeeping                  and accounting |
|--------------------|---------------------------------------------|
| ·   | processing                  services |
|--------------------|--------------------------------------|
| ·   | assistance                  with regard to the hiring of employees |
|--------------------|--------------------------------------------------------------------|
| ·   | assistance                  with regard to the writing of local                  advertising |
|--------------------|----------------------------------------------------------------------------------------------|
| ·   | advice                  regarding potential carriers for certain                  customers |
|--------------------|---------------------------------------------------------------------------------------------|

----

***Premium          Financing***

***Strategy***

| ·   | promote                  franchise sales by providing proprietary products and services                  that may                  not be available elsewhere |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| ·   | acquire                  storefront agencies in the Northeast in order to expand our geographical                  footprint |
|--------------------|------------------------------------------------------------------------------------------------------------------------------|
| ·   | increase                  the size of our premium finance business, both within and outside                  the DCAP                  storefronts, including the introduction of our business in other                  states |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | seek                  to expand our operations by acquiring businesses or other assets                  which we                  believe will complement or enhance our                  business |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

***Competition***

***Government          Regulation***

| ·   | regulating                  the interest rates, fees and service charges we may charge our                  customers |
|--------------------|-----------------------------------------------------------------------------------------------------------------------|
| ·   | imposing                  minimum capital requirements for our premium finance subsidiary                  or                  requiring surety bonds in addition to or as an alternative to such                  capital                  requirements |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | governing                  the form and content of our financing                  agreements |
|--------------------|----------------------------------------------------------------------------------------------|
| ·   | prescribing                  minimum notice and cure periods before we may cancel a customer’s policy                  for non-payment under the terms of the financing                  agreement |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | prescribing                  timing and notice procedures for collecting unearned premium from                  the                  insurance company, applying the unearned premium to our customer’s premium                  finance account, and, if applicable, returning any refund due to                  our                  customer |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| ·   | requiring                  our premium finance company to qualify for and obtain a license                  and to                  renew the license each year |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | conducting                  periodic financial and market conduct examinations and investigations                  of                  our premium finance company and its                  operations |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | requiring                  prior notice to the regulating agency of any change of control                  of our                  premium finance company |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------|

***Employees***

**ITEM          2.**
**DESCRIPTION          OF PROPERTY**
** **

**ITEM          3.**
**LEGAL          PROCEEDINGS**

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

----

|                                   | **Number                    of Shares** |
|----------------------------------------|-----------------------------------------|
|                                   | **For**                                 | **Withheld** |
|                                   |                                    |   |
| Barry                    B. Goldstein  | 1,849,268                               | 2,385 |
| Morton                    L. Certilman | 1,849,088                               | 2,565 |
| Jay                    M. Haft         | 1,849,231                               | 2,422 |
| David                    A. Lyons      | 1,849,353                               | 2,300 |
| Jack                    D. Seibald     | 1,849,353                               | 2,300 |
| Robert                    M. Wallach   | 1,421,396                               | 430,257 |

| For                                 | 907,819 |
|-------------------------------------|---------|
| Against                             | 196,955 |
| Abstentions                         | 107,260 |
| Broker                    Non-Votes | 639,619 |

----

**PART          II**

**ITEM          5.**
**MARKET          FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER          PURCHASES OF EQUITY SECURITIES**
** **

***Market          Information***

|                                      |   |   | **High**  |   |   | **Low** |   |
|-------------------------------------------|--------|--------|----------------|--------|--------|---------|--------|
| **2005                    Calendar Year** |   |   |           |   |   |    |   |
| First                    Quarter          |   | $      | 7.95           |   | $      | 4.95    |   |
| Second                    Quarter         |   |   | 6.35           |   |   | 3.00    |   |
| Third                    Quarter          |   |   | 4.75           |   |   | 3.02    |   |
| Fourth                    Quarter         |   |   | 3.50           |   |   | 2.58    |   |

|                                      |   |   | **High**  |   |   | **Low** |   |
|-------------------------------------------|--------|--------|----------------|--------|--------|---------|--------|
| **2004                    Calendar Year** |   |   |           |   |   |    |   |
| First                    Quarter          |   | $      | 7.35           |   | $      | 4.75    |   |
| Second                    Quarter         |   |   | 6.60           |   |   | 5.45    |   |
| Third                    Quarter          |   |   | 6.30           |   |   | 4.50    |   |
| Fourth                    Quarter         |   |   | 8.25           |   |   | 6.86    |   |

***Holders***

***Dividends***

----

***Recent          Sales of Unregistered Securities***

***Issuer          Purchases of Equity Securities***

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

***Overview***

*** ***
***.***

***Critical          Accounting Policies***

----

*Commission          and fee income*

*Finance          income, fees and receivables*

----

*Allowance          for finance receivable losses *

*Goodwill          and intangible assets*

*Stock-based          compensation*

----

*Recent          Accounting Pronouncements *

154,          “Accounting Changes and Error Corrections,” which replaces APB Opinion No. 20,“Accounting Changes,” and SFAS No. 3, “Reporting Accounting Changes in Interim          Financial Statements,” and changes the requirements for the accounting for and          reporting of a change in accounting principle. SFAS No. 154 applies to          all          voluntary changes in accounting principle and to changes required by an          accounting pronouncement when the pronouncement does not include specific          transition provisions. SFAS No. 154 requires retrospective application          of          changes in accounting principle to prior periods' financial statements          unless it          is impracticable to determine either the period-specific effects or the          cumulative effect          of          the change. APB Opinion No. 20 previously required that most voluntary          changes          in accounting principle be recognized by including the cumulative effect          of the          change in net income for the period of the change in accounting principle.          SFAS          No. 154 carries forward without change the guidance contained in APB Opinion          No.          20 for reporting the correction of an error in previously issued financial          statements and a change in accounting estimate. SFAS No. 154 also carries          forward the guidance in APB Opinion No. 20 requiring justification of a          change          in accounting principle on the basis of preferability. SFAS No. 154 is          effective          for accounting changes and corrections of errors made in fiscal years beginning          after December 15, 2005, with early adoption permitted. Our adoption of          SFAS No.154          will          not have an impact on our financial condition or results of operations.          

----

***Results          of Operations***

----

----

***Liquidity          and Capital Resources***

| ·   | Net                  cash provided by operating activities during the year ended December                  31,                  2005 was $477,182 primarily due our net income for the period of                  $495,760,                  depreciation and amortization of $404,523 and a decrease in accounts                  receivable of $1,164,510, offset by a decrease in premiums payable                  of                  $278,420, a decrease in accounts payable and accrued expenses of                  $1,042,585 and a decrease in income taxes payable of $361,634.                  The                  decrease in accounts receivable is primarily attributable to the                  collection in 2005 of the 2004 contingent fees receivable. No such                  contingent fees were earned in 2005 since the payment of these                  fees was                  discontinued by the insurance carriers in 2005. Premiums payable                  represents the amount of insurance premiums due to insurance carriers                  on                  policies for which we provide premium financing. Upon the customer                  entering into a premium financing agreement with us, the customer                  makes a                  down payment to the insurance carrier generally equal to 15% of                  the                  estimated premium. We agree to lend to the customer the remaining                  85% of                  the estimated premium. We make a payment of 10% of the estimated                  premium                  to the carrier at the time of the application for insurance. The                  remaining                  balance of 75% of the estimated premium is our premium payable.                  Prior to                  October 2004, we remitted the balance of the unpaid premium upon                  receipt                  of the first periodic loan payment due from the customer. In order                  to                  better manage our credit risk, effective October 2004, we strengthened                  our                  controls and began to remit the balance of the premium to the carrier                  only                  after receipt of the first periodic loan payment from the customer                  and                  confirmation from the carrier of the actual premium amount. If                  the actual                  premium is greater than the amount previously estimated by the                  carrier, we                  require that the customer remit the difference to the carrier or                  amend the                  financing agreement for the revised amount prior to paying the                  remaining                  amount due the carrier. Premiums payable fluctuate from period                  to period                  depending upon the volume of premium financing contracts entered                  into.                  Premiums payable decreased because of a decline in the dollar amount                  of                  premium finance contracts entered into in 2005. At December 31,                  2005,                  amounts released for payment to insurers but not cleared by our                  bank were                  classified as premiums payable. No such reclassification was made                  at                  December 31, 2004, resulting in less of a decrease in premiums                  payable at                  December 31, 2005. The decrease in accounts payable and accrued                  expenses                  resulted from payments to our franchisees of their portion of the                  contingent receivable discussed above and the decrease in income                  taxes                  payable resulted from payments of income taxes in 2005. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | 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. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| ·   | Cash                  of $4,865,553 was provided by investing activities during the year                  ended                  December 31, 2005 primarily due to a decrease in our net finance                  contracts                  receivable of $4,947,011. This was the result of a reduction in                  the dollar                  amount of premium finance contracts entered into in                  2005. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | Net                  cash used by financing activities during the year ended December                  31, 2005                  was $3,897,145 primarily due to proceeds of $57,580,406 from our                  revolving                  loan from M&T for premium finance purposes, offset by payments of                  $59,399,541 on the revolving loan and payments of a portion of                  our                  subordinated loan of $2,000,000. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

***Off-Balance          Sheet Arrangements***

***Factors          That May Affect Future Results and Financial          Condition***

*Because          our core product is personal automobile insurance, our business may be          adversely          affected by negative developments in the conditions in this          industry.*

*Because          substantially all of our insurance-related operations are located in New          York          and Pennsylvania, our business may be adversely affected by conditions          in these          states.*

*Our          inability to refinance our current line of credit or obtain additional          required          financing would have an adverse effect on our premium finance          revenue*
***.***

----

*Increases          in interest rates would have an adverse effect on our premium finance          operations.*

*If          we          lose key personnel or are unable to recruit qualified personnel, our ability          to          implement our business strategies could be delayed or          hindered.*

*Reductions          in the New York involuntary automobile insurance market may adversely affect          our          premium finance business.*

*The          volatility of premium pricing and commission rates could adversely affect          our          operations.*

----

*We          are subject to regulation that may restrict our ability to earn          profits.*

*As          a          holding company, we are dependent on the results of operations of our operating          subsidiaries and the regulatory and contractual capacity of our premium          finance          subsidiary to pay dividends to us.*

*Our          premium finance subsidiary is subject to capital requirements, and our          failure          to meet these standards could subject us to regulatory          actions.*

----

*Our          business is highly competitive, which may make it difficult for us to market          our          core products effectively and profitably.*

*A          decline in the number of insurance companies offering insurance products          in our          markets would adversely affect our business. *

*We          may have difficulties in managing our expansion into new geographic markets,          and          we may not be successful in identifying agency acquisition candidates or          integrating their operations.*

----

*We          may seek to expand through acquisitions of complementary businesses or          other          assets which involve additional risks that may adversely affect          us.*

*We          are materially dependent upon the operations of our third party premium          finance          servicing agent.*

*We          rely on our information technology and telecommunication systems, and the          failure of these systems could materially and adversely affect our          business*
***.***

*The          enactment of tort reform could adversely affect our business.*

----

**ITEM          7.**
**FINANCIAL          STATEMENTS**

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

**ITEM          8A.**
**CONTROLS          AND PROCEDURES**

**ITEM          8B**
**OTHER          INFORMATION**

----

**PART          III**

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

***Executive          Officers and Directors***

| **Name**                               | **Age** | **Positions                    and Offices Held**                                                                                                                   |
|----------------------------------------|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Barry                    B. Goldstein  | 53      | President,                    Chairman of the Board, Chief Executive Officer, Chief Financial                    Officer,                    Treasurer and Director |
| Morton                    L. Certilman | 74      | Secretary                    and Director                                                                                                                           |
| Jay                    M. Haft         | 70      | Director                                                                                                                                                            |
| David                    A. Lyons      | 56      | Director                                                                                                                                                            |
| Jack                    D. Seibald     | 45      | Director                                                                                                                                                            |
| Robert                    M. Wallach   | 53      | Director                                                                                                                                                            |

*Barry          B. Goldstein*

*Morton          L. Certilman*

----

*Jay          M. Haft*

*David          A. Lyons*

*Jack          D. Seibald*

----

*Robert          M. Wallach*

***Family          Relationships***

***Term          of Office***

***Audit          Committee***

***Audit          Committee Financial Expert***

***Section            16(a) Beneficial Ownership Reporting Compliance***

----

***Code          of Ethics for Senior Financial Officers***

**ITEM          10.**
** **
**EXECUTIVE          COMPENSATION**

***Summary          Compensation Table***

| **Name                    and****Principal                    Position**        | **Year**                          | **Annual                    Compensation** | **Long                    Term Compensation Awards****Shares                    Underlying Options** | **All                    Other****Compensation** |
|---------------------------------------------------------------------------------|-----------------------------------|--------------------------------------------|------------------------------------------------------------------------------------------------------|--------------------------------------------------|
| **Salary**                                                                      | **Bonus**                         |
|                                                                            |
| Barry                    B. GoldsteinChief                    Executive Officer | 2005                              | $350,000                                   | $100,000(1)                                                                                          | -                                                | - |
| 2004                                                                            |   350,000               | 100,000(2)                                 | -                                                                                                    | -                                                |
| 2003                                                                            |                      300,000 | 50,000(3)                                  | -                                                                                                    | -                                                |

| (1) | Paid                    in August 2005 for services rendered during 2004.                   |
|-----|---------------------------------------------------------------------------------------------|
| (2) | Paid                    in June 2004 for services rendered during 2003.                     |
| (3) | Paid                    in March 2003 for services rendered during                    2002. |

***Option***
** **
***Tables***

**OPTION          GRANTS IN FISCAL YEAR ENDED DECEMBER 31, 2005**

| **Name**                              | **Number                    of Common****Shares                    Underlying****Options                    Granted** | **Percentage                    of Total****Options                    Granted to****Employees                    in Fiscal Year** | **Exercise                    Price** | **Expiration                    Date** |
|---------------------------------------|-----------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------|----------------------------------------|
|                                  |
| Barry                    B. Goldstein | -                                                                                                                     | -                                                                                                                                  | -                                     | -                                      |

----

**AGGREGATED          OPTION EXERCISES IN FISCAL YEAR **

**ENDED          DECEMBER 31, 2005 AND FISCAL YEAR-END OPTION VALUES**

| **Name**                              | **Number                    of****Shares                    Acquired****on                    Exercise** | **Value****Realized** | **Number                    of Shares Underlying****Unexercised                    Options****at                    December 31, 2005****Exercisable/Unexercisable** | **Value                    of Unexercised****In-the-Money                    Options****at                    December 31, 2005****Exercisable/Unexercisable** |
|---------------------------------------|----------------------------------------------------------------------------------------------------------|-----------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                  |
| Barry                    B. Goldstein | 40,000                                                                                                   | $64,400               | 166,000                    / -0-                                                                                                                                     | $179,280                    / $ -0-                                                                                                                            |

***Long-Term          Incentive Plan Awards***

***Compensation          of Directors***

| ·   | $15,000                  per annum |
|--------------------|------------------------------------|
| ·   | additional                  $5,000 per annum for committee chair |
|--------------------|------------------------------------------------------------------|
| ·   | $500                  per Board meeting attended ($250 if                  telephonic) |
|--------------------|----------------------------------------------------------------------------------------|
| ·   | $250                  per committee meeting attended ($125 if                  telephonic) |
|--------------------|--------------------------------------------------------------------------------------------|

***Employment          Contracts, Termination of Employment and***
** **
***Change-in-Control          Arrangements***

**ITEM          11.**
** **
**SECURITY          OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND**
** **
**MANAGEMENT          AND RELATED STOCKHOLDER MATTERS**

***Security          Ownership***

----

| **Name                    and Address****of                    Beneficial Owner**                                                                                            |   | **Number                    of Shares****Beneficially                    Owned**                                                                                                                                                            |   | **Approximate****Percent                    of Class**  |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------|
| Barry                    B. Goldstein1158                    BroadwayHewlett,                    New York                                                               |   | 386,400(1)(2)                                                                                                                                                                                                                               |   | 13.0%                                                        |
| AIA                    Acquisition Corp6787                    Market StreetUpper                    Darby, Pennsylvania                                                |   | 361,600(3)                                                                                                                                                                                                                                  |   | 11.3%                                                        |
| Eagle                    Insurance Companyc/o                    The Robert Plan Corporation999                    Stewart AvenueBethpage,                    New York  |   | 297,378(4)                                                                                                                                                                                                                                  |   | 10.3%                                                        |
| Robert                    M. Wallach c/o                    The Robert Plan Corporation999                    Stewart AvenueBethpage,                    New York  |   | 297,378(5)                                                                                                                                                                                                                                  |   | 10.3%                                                        |
| Jack                    D. Seibald  1336                    Boxwood Drive WestHewlett                    Harbor, New York                                          |   | 274,750(1)(6)                                                                                                                                                                                                                               |   | 9.3%                                                         |
| Jay                    M. Haft  69                    Beaver Dam RoadSalisbury,                    Connecticut                                                     |   | 182,278(1)(7)                                                                                                                                                                                                                               |   | 6.2%                                                         |
| Morton                    L. Certilman 90                    Merrick AvenueEast                    Meadow, New York                                                     |   | 151,701(1)                                                                                                                                                                                                                                  |   | 5.2%                                                         |
| David                    A. Lyons252                    Brookdale RoadStamford,                    Connecticut                                                          |   | 20,000(8)                                                                                                                                                                                                                                   |   | *                                                            |
| All                    executive officers and                    directors as a group (6                    persons)                                                         |   | 1,312,507(1)(2)(6)                                                      (7)(8)(9)               |   | 43.0%                                                        |

| (1) | Based                    upon Schedule 13D filed under the Securities Exchange Act of                    1934, as                    amended. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------|

----

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2)    | Includes                    (i) 66,000 shares issuable upon the exercise of options that                    are currently                    exercisable, (ii) 8,500 shares held by Mr. Goldstein’s children, and (iii)                    11,900 shares held in a retirement trust for the benefit of Mr.                    Goldstein.                    Mr. Goldstein disclaims beneficial ownership of the shares held                    by his                    children and retirement trust. Excludes shares owned by AIA Acquisition                    Corp. of which members of Mr. Goldstein’s family are principal                    stockholders.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| (3)    | Based                    upon Schedule 13G filed under the Securities Exchange Act of                    1934, as                    amended, and other information that is publicly available. Includes                    312,000 shares issuable upon the conversion of preferred shares                    that are                    currently convertible.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| (4)    | Eagle                    is a wholly-owned subsidiary of The Robert Plan                    Corporation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| (5)    | Represents                    shares owned by Eagle, of which Mr. Wallach, one of our directors,                    is a                    Vice President. Eagle is a wholly-owned subsidiary of The Robert                    Plan                    Corporation, of which Mr. Wallach is President, Chairman and                    Chief                    Executive Officer.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| (6)    | Represents                    (i) 113,000 shares owned jointly by Mr. Seibald and his wife,                    Stephanie                    Seibald; (ii) 100,000 shares owned by SDS Partners I, Ltd., a                    limited                    partnership (“SDS”); (iii) 3,000 shares owned by Boxwood FLTD Partners, a                    limited partnership (“Boxwood”); (iv) 33,000 shares owned by Stewart                    Spector IRA (“S. Spector”); (v) 3,000 shares owned by Barbara Spector IRA                    Rollover (“B. Spector”); (vi) 4,000 shares owned by Karen Dubrowsky IRA                    (“Dubrowsky”); and (vii) 18,750 shares issuable upon the exercise of                    currently exercisable warrants. Mr. Seibald has voting and dispositive                    power over the shares owned by SDS, Boxwood, S. Spector, B. Spector                    and                    Dubrowsky. The amount reflected as owned by S. Spector includes                    30,000                    shares issuable upon the exercise of currently exercisable                    warrants. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| (7)    | Includes                    (i) 25,000 shares issuable upon the exercise of currently exercisable                    options and (ii) 3,076 shares held in a retirement trust for                    the benefit                    of Mr. Haft.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| (8)    | Represents                    shares issuable upon the exercise of currently exercisable                    options.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| (9)    | Includes                    shares owned by Eagle, of which Mr. Wallach is a Vice President.                    Mr.                    Wallach is also President, Chairman and Chief Executive Officer                    of The                    Robert Plan, Eagle’s parent.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |

***Securities          Authorized for Issuance Under Equity Compensation          Plans***

| ·   | All                  compensation plans previously approved by security holders;                  and |
|--------------------|-------------------------------------------------------------------------------------------------------|
| ·   | All                  compensation plans not previously approved by security                  holders. |
|--------------------|-------------------------------------------------------------------------------------------------------|

----

**EQUITY          COMPENSATION PLAN INFORMATION**

|                                                                                | **Number                    of securities to be issued upon exercise of outstanding options,                    warrants                    and rights****(a)** | **Weighted                    average exercise price of outstanding options, warrants and                    rights****(b)** | **Number                    of securities remaining available for future issuance under equity                    compensation plans (excluding securities reflected in column                    (a))****(c)** |
|-------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Equity                    compensation plans approved by security holders      | 328,025                                                                                                                                                    | $2.09                                                                                                                   | 481,475                                                                                                                                                                                                    |
| Equity                    compensation plans not approved by security holders  | -0-                                                                                                                                                        | -0-                                                                                                                     | -0-                                                                                                                                                                                                        |
| Total                                                                          | 328,025                                                                                                                                                    | $2.09                                                                                                                   | 481,475                                                                                                                                                                                                    |

**ITEM          12.**
** **
**CERTAIN          RELATIONSHIPS AND RELATED TRANSACTIONS**

***Guaranty***

***Subordinated          Debt Financing***

----

***Commercial          Mutual Insurance Company***

***Relationship***

----

**ITEM          13.**
**EXHIBITS**

| **Exhibit****Number** |  **Description                    of Exhibit**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|-----------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 3(a)                  | Restated                    Certificate of Incorporation (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 3(b)                  | Certificate                    of Designation of Series A Preferred Stock (2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 3(c)                  | By-laws,                    as amended (3)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10(a)                 | 1998                    Stock Option Plan, as amended (4)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10(b)                 | Employment                    Agreement, dated as of May 10, 2001, between DCAP Group, Inc.                    and Barry                    Goldstein (5)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10(c)                 | Amendment                    No. 1, dated as of March 18, 2003 (but effective as of January                    1, 2003),                    to Employment Agreement between DCAP Group, Inc. and Barry Goldstein                    (6)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10(d)                 | Amendment                    No. 2, dated as of June 29, 2004 (but effective as of January                    1, 2004), to                    Employment Agreement between DCAP Group, Inc. and Barry Goldstein                    (7)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10(e)                 | Amendment                    No. 3, dated as of March 22, 2005, to Employment Agreement between                    DCAP                    Group, Inc. and Barry Goldstein (6)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10(f)                 | Stock                    Option Agreement, dated as of May 15, 2002, between DCAP Group,                    Inc. and                    Barry Goldstein (4)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10(g)                 | Stock                    Option Agreement, dated as of May 15, 2002, between DCAP Group,                    Inc. and                    Jay M. Haft (8)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10(h)                 | Financing                    and Security Agreement, dated December 27, 2004, by and among                    Manufacturers and Traders Trust Company and Payments Inc., among                    others                    (6)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10(i)                 | Revolving                    Credit Note, dated December 27, 2004, in the principal amount                    of                    $25,000,000 issued by Payments Inc. to Manufacturers and Traders                    Trust                    Company (6)                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10(j)                 | Security                    Agreement, dated December 27, 2004, by DCAP Group, Inc, DCAP                    Management                    Corp., AIA-DCAP Corp., Aard-Vark Agency, Ltd., Barry Scott Agency,                    Inc.,                    Barry Scott Companies, Inc., Barry Scott Acquisition Corp., Baron                    Cycle,                    Inc., Blast Acquisition Corp., Dealers Choice Automotive Planning,                    Inc.,                    IAH, Inc. and Intandem Corp. for the benefit of Manufacturers                    and Traders                    Trust Company in its capacity as “Agent” for itself and other “Lenders”                    (6) |

----

|   |                                                                                                                                                                                                                                                                                                                                                              |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10(k)  | Pledge,                    Assignment and Security Agreement, dated December 27, 2004, by                    DCAP Group,                    Inc. for the benefit of Manufacturers and Traders Trust Company                    in its                    capacity as “Agent” for itself and other “Lenders” (6)                           |
|   |                                                                                                                                                                                                                                                                                                                                                              |
| 10(l)  | Pledge,                    Assignment and Security Agreement, dated December 27, 2004, by                    Blast                    Acquisition Corp. for the benefit of Manufacturers and Traders                    Trust                    Company in its capacity as “Agent” for itself and other “Lenders”                    (6) |
|   |                                                                                                                                                                                                                                                                                                                                                              |
| 10(m)  | Unit                    Purchase Agreement, dated as of July 2, 2003, by and among DCAP                    Group,                    Inc. and the purchasers named therein (9)                                                                                                                                                                                    |
|   |                                                                                                                                                                                                                                                                                                                                                              |
| 10(n)  | Security                    Agreement, dated as of July 10, 2003, by and among Payments Inc.                    and the                    secured parties named therein (9)                                                                                                                                                                                      |
|   |                                                                                                                                                                                                                                                                                                                                                              |
| 10(o)  | Pledge                    Agreement, dated as of July 10, 2003, by and among DCAP Group,                    Inc. and                    the pledgees named therein (9)                                                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                              |
| 10(p)  | Form                    of Secured Subordinated Promissory Note, dated July 10, 2003,                    issued by                    DCAP Group, Inc. with respect to aggregate principal indebtedness                    of                    $3,500,000 (9)                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                              |
| 10(q)  | Form                    of Warrant, dated July 10, 2003, for the purchase of an aggregate                    of                    525,000 shares of common stock of DCAP Group, Inc. (9)                                                                                                                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                                              |
| 10(r)  | Registration                    Rights Agreement, dated July 10, 2003, by and among DCAP Group,                    Inc. and                    the purchasers named therein (9)                                                                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                              |
| 10(s)  | Letter                    agreement, dated October 31, 2003, between DCAP Group, Inc. and                    Barry                    Goldstein (10)                                                                                                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                              |
| 10(t)  | Letter                    agreement, dated November 1, 2004, between DCAP Group, Inc. and                    Morton L.                    Certilman (6)                                                                                                                                                                                                           |
|   |                                                                                                                                                                                                                                                                                                                                                              |
| 10(u)  | 2005                    Equity Participation Plan                                                                                                                                                                                                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                              |
| 10(v)  | Surplus                    Note Purchase Agreement, dated as of January 31, 2006, by and                    between DCAP                    Group, Inc. and Eagle Insurance Company                                                                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                              |
| 10(w)  | Promissory                    Note, dated January 31, 2006, in the principal amount of $1,303,434                    issued                    by DCAP Group, Inc. to Eagle Insurance Company                                                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                              |
| 10(x)  | Surplus                    Note, dated April 1, 1998, in the principal amount of $3,000,000                    issued by                    Commercial Mutual Insurance Company to DCAP Group,                    Inc.                                                                                                                                            |

----

|   |                                                                                                                                                                                                                                                      |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10(y)  | Surplus                    Note, dated March 12, 1999, in the principal amount of $750,000                    issued by                    Commercial Mutual Insurance Company to DCAP Group, Inc.                                                        |
|   |                                                                                                                                                                                                                                                      |
| 14     | Code                    of Ethics (10)                                                                                                                                                                                                                    |
|   |                                                                                                                                                                                                                                                      |
| 21     | Subsidiaries                                                                                                                                                                                                                                              |
|   |                                                                                                                                                                                                                                                      |
| 23     | Consent                    of Holtz Rubenstein Reminick LLP                                                                                                                                                                                               |
|   |                                                                                                                                                                                                                                                      |
| 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 Chief Executive Officer and Chief Financial Officer Pursuant                    to 18                    U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the                    Sarbanes-Oxley Act of 2002 |

| (1)    | Denotes                    document filed as an exhibit to our Quarterly Report on Form                    10-QSB for                    the period ended September 30, 2004 and incorporated herein by                    reference.                          |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                           |
| (2)    | Denotes                    document filed as an exhibit to our Current Report on Form 8-K                    for an                    event dated May 28, 2003 and incorporated herein by                    reference.                                       |
|   |                                                                                                                                                                                                                                                           |
| (3)    | Denotes                    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.                               |
|   |                                                                                                                                                                                                                                                           |
| (4)    | Denotes                    document filed as an exhibit to our Annual Report on Form 10-KSB                    for the                    fiscal year ended December 31, 2002 and incorporated herein by                    reference.                         |
|   |                                                                                                                                                                                                                                                           |
| (5)    | Denotes                    document filed as an exhibit to our Quarterly Report on Form                    10-QSB for                    the period ended June 30, 2001 and incorporated herein by                    reference.                               |
|   |                                                                                                                                                                                                                                                           |
| (6)    | Denotes                    document filed as an exhibit to our Annual Report on Form 10-KSB                    for the                    fiscal year ended December 31, 2005 and incorporated herein by                    reference.                         |
|   |                                                                                                                                                                                                                                                           |
| (7)    | 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.                               |
|   |                                                                                                                                                                                                                                                           |
| (8)    | Denotes                    document filed as an exhibit to our Quarterly Report on Form                    10-QSB for                    the period ended March 31, 2001 and incorporated herein by                    reference.                              |
|   |                                                                                                                                                                                                                                                           |
| (9)    | Denotes                    document filed as an exhibit to Amendment No. 1 to our Current                    Report on                    Form 8-K for an event dated May 28, 2003 and incorporated herein                    by                    reference. |

----

|   |                                                                                                                                                                                                                                   |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (10)   | Denotes                    document filed as an exhibit to our Annual Report on Form 10-KSB                    for the                    fiscal year ended December 31, 2003 and incorporated herein by                    reference. |

**ITEM          14.**
**PRINCIPAL          ACCOUNTANT FEES AND SERVICES**

| **Fee                      Category**      | **Fiscal                      2005 Fees** | **Fiscal                      2004 Fees** |
|--------------------------------------------|-------------------------------------------|-------------------------------------------|
| Audit                      Fees(1)         | $90,200                                   | $73,000                                   |
| Audit-Related                      Fees(2) | -                                         | -                                         |
| Tax                      Fees              | -                                         | -                                         |
| All                      Other Fees(3)     |                        13,335        |  12,250                              |
| Total                      Fees            | $103,535                        | $85,250                              |

| (1)    | Audit                    Fees consist of aggregate fees billed for professional services                    rendered                    for the audit of our annual financial statements and review of                    the interim                    financial statements included in quarterly reports or services                    that are                    normally provided by the independent auditors in connection with                    statutory                    and regulatory filings or engagements for the fiscal years ended                    December                    31, 2005 and December 31, 2004, respectively. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| (2)    | Audit-Related                    Fees consist of aggregate fees billed for assurance and related                    services                    that are reasonably related to the performance of the audit or                    review of                    our financial statements and are not reported under “Audit Fees.”                                                                                                                                                                                                                                                                                                          |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| (3)    | All                    Other Fees consist of aggregate fees billed for products and                    services                    provided by Holtz Rubenstein Reminick LLP, other than those disclosed                    above. These fees related to the audits of our wholly-owned subsidiary,                    DCAP Management Corp., and general accounting consulting                    services.                                                                                                                                                                                                                                          |

----

| **DCAP                GROUP, INC. AND****SUBSIDIARIES**                                    |
|--------------------------------------------------------------------------------------------|
| **REPORT                ON AUDITS OF CONSOLIDATED****FINANCIAL                STATEMENTS** |
|                                                                                       |
| ***Two                Years Ended December 31, 2005***                                     |
|                                                                                       |

----

| **DCAP                GROUP, INC. AND****SUBSIDIARIES**   |
|---------------------------------------------------------------------|
| **Contents**                                                        |
| *Two                Years Ended December 31, 2005*             | *Pages* |

| **Consolidated                Financial Statements**                                                                                                                                                                                                                                                                                      |                                     |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------|
| Report                of Independent Registered Public Accounting FirmConsolidated                Balance SheetConsolidated                Statements of IncomeConsolidated                Statement of Stockholders' EquityConsolidated                Statements of Cash FlowsNotes                to Consolidated Financial Statements | F-2F-3F-4F-5F-6F-7                - F-22 |
|                                                                                                                                                                                                                                                                                                                                      |                                     |
|                                                                                                                                                                                                                                                                                                                                      |                                     |

----

**Report      of Independent Registered Public Accounting Firm**

----

|   **DCAP                  GROUP, INC. AND**                        |   |
|------------------------------------------------------------------------------|--------|
|  **SUBSIDIARIES**                                                       |   |
|                                                                         |   |   |   |   |   |
| **Consolidated                  Balance Sheet**                              |   |   |   |   |   |
| *December                  31, 2005*                                         |   |   |   |   |   |
|                                                                         |   |   |   |   |   |
| **Assets**                                                                   |   |   |   |   |   |   |   |
|                                                                         |   |   |   |   |   |   |   |
| Current                  Assets:                                             |   |   |   |   |   |   |   |
| Cash                  and cash equivalents                                   |   |   |   |   | $ | 1,961,489 |   |
| Accounts                  receivable, net of allowance for                   |   |   |   |   |   |   |   |
| doubtful                  accounts of $47,000                                |   |   |   |   |   | 1,699,503 |   |
| Finance                  contracts receivable                                |   | $ | 18,153,533 |   |   |   |   |
| Less:                  Deferred interest                                     |   |   | (1,404,481 | ) |   |   |   |
| Less:                  Allowance for finance receivable losses               |   |   | (234,029 | ) |   | 16,515,023 |   |
| Prepaid                  expenses and other current assets                   |   |   |   |   |   | 148,528 |   |
| Deferred                  income taxes                                       |   |   |   |   |   | 77,000 |   |
| Total                  Current Assets                                        |   |   |   |   |   | 20,401,543 |   |
|                                                                         |   |   |   |   |   |   |   |
| Property                  and Equipment, net                                 |   |   |   |   |   | 293,870 |   |
| Goodwill                                                                     |   |   |   |   |   | 1,305,551 |   |
| Other                  Intangibles, net                                      |   |   |   |   |   | 189,429 |   |
| Deposits                  and Other Assets                                   |   |   |   |   |   | 319,694 |   |
| Total                  Assets                                                |   |   |   |   | $ | 22,510,087 |   |
|                                                                         |   |   |   |   |   |   |   |
| **Liabilities                  and Stockholders' Equity**                    |   |   |   |   |   |   |   |
|                                                                         |   |   |   |   |   |   |   |
| Current                  Liabilities:                                        |   |   |   |   |   |   |   |
| Revolving                  credit line                                       |   |   |   |   | $ | 9,776,524 |   |
| Accounts                  payable and accrued expenses                       |   |   |   |   |   | 665,578 |   |
| Premiums                  payable                                            |   |   |   |   |   | 4,160,961 |   |
| Current                  portion of long-term debt                           |   |   |   |   |   | 235,000 |   |
| Income                  taxes payable                                        |   |   |   |   |   | 68,859 |   |
| Other                  current liabilities                                   |   |   |   |   |   | 172,784 |   |
| Total                  Current Liabilities                                   |   |   |   |   |   | 15,079,706 |   |
|                                                                         |   |   |   |   |   |   |   |
| Long-Term                  Debt                                              |   |   |   |   |   | 1,364,623 |   |
| Deferred                  Revenue                                            |   |   |   |   |   | 26,160 |   |
| Deferred                  Income Taxes                                       |   |   |   |   |   | 37,000 |   |
| Mandatorily                  Redeemable Preferred Stock                      |   |   |   |   |   | 780,000 |   |
|                                                                         |   |   |   |   |   |   |   |
| Commitments                                                                  |   |   |   |   |   |   |   |
|                                                                         |   |   |   |   |   |   |   |
| Stockholders'                  Equity:                                       |   |   |   |   |   |   |   |
| Common                  stock, $.01 par value; authorized 10,000,000 shares; |   |   |   |   |   |   |   |
| issued                  3,545,447                                            |   |   |   |   |   | 35,455 |   |
| Preferred                  stock, $.01 par value; authorized                 |   |   |   |   |   |   |   |
| 1,000,000                  shares; 0 shares issued and outstanding           |   |   |   |   |   | - |   |
| Capital                  in excess of par                                    |   |   |   |   |   | 11,371,880 |   |
| Deficit                                                                      |   |   |   |   |   | (5,006,182 | ) |
|                                                                         |   |   |   |   |   | 6,401,153 |   |
| Treasury                  stock, at cost, 776,923 shares                     |   |   |   |   |   | (1,178,555 | ) |
| Total                  Stockholders' Equity                                  |   |   |   |   |   | 5,222,598 |   |
| Total                  Liabilities and Stockholders' Equity                  |   |   |   |   | $ | 22,510,087 |   |
|                                                                         |   |   |   |   |   |   |   |
| *See                  notes to consolidated financial statements.*           |   |   |   |   |   | F-3 |   |

----

|  **DCAP                  GROUP, INC. AND**                            |   |
|----------------------------------------------------------------------------|--------|
|  **SUBSIDIARIES**                                                     |   |
|                                                                       |   |   |   |   |   |
| **Consolidated                  Statements of Income**                     |   |   |   |   |   |
| *Years                  Ended December 31,*                                |   | **2005** |   | 2004 |   |
|                                                                       |   |   |   |   |   |
| Revenue:                                                                   |   |    |   |    |   |
| Commissions                  and fees                                      |   | **$****7,036,599** |   | $7,126,398 |   |
| Premium                  finance revenue                                   |   |  **6,884,563** |   |  7,961,617 |   |
| Total                  Revenue                                             |   |  **13,921,162** |   |  15,088,015 |   |
|                                                                       |   |    |   |    |   |
| Operating                  Expenses:                                       |   |    |   |    |   |
| General                  and administrative expenses                       |   |  **8,785,660** |   |  8,586,657 |   |
| Provision                  for finance receivable losses                   |   |  **2,737,548** |   |  2,965,796 |   |
| Depreciation                  and amortization                             |   |  **404,523** |   |  425,384 |   |
| Premium                  finance interest expense                          |   |  **748,307** |   |  688,315 |   |
| Total                  Operating Expenses                                  |   |  **12,676,038** |   |  12,666,152 |   |
|                                                                       |   |    |   |    |   |
| Operating                  Income                                          |   |  **1,245,124** |   |  2,421,863 |   |
|                                                                       |   |    |   |    |   |
| Other                  (Expense) Income:                                   |   |    |   |    |   |
| Interest                  income                                           |   |  **18,930** |   |  10,006 |   |
| Interest                  expense                                          |   | ** (323,173)** |   |  (530,905) |   |
| Interest                  expense - mandatorily redeemable preferred stock |   | ** (39,121)** |   |  (45,200) |   |
| Total                  Other (Expense) Income                              |   | ** (343,364)** |   |  (566,099) |   |
|                                                                       |   |    |   |    |   |
| Income                  Before Provision for Income Taxes                  |   |  **901,760** |   |  1,855,764 |   |
| Provision                  for Income Taxes                                |   |  **406,000** |   |  481,400 |   |
| Net                  Income                                                |   | **$****495,760** |   | $1,374,364 |   |
|                                                                       |   |    |   |    |   |
| Net                  Income Per Common Share:                              |   |    |   |    |   |
| Basic:                                                                     |   | **$****0.18** |   | $0.55 |   |
|                                                                       |   |   |   |   |   |
| Diluted:                                                                   |   | **$****0.17** |   | $0.44 |   |
|                                                                       |   |    |   |   |   |
| Weighted                  Average Number of Shares Outstanding:            |   |    |   |    |   |
| Basic                                                                      |   |  **2,726,526** |   |  2,501,462 |   |
|                                                                       |   |    |   |    |   |
| Diluted                                                                    |   |  **3,199,620** |   |  3,225,303 |   |
|                                                                       |   |    |   |    |   |
|                                                                       |   |    |   |    |   |
|                                                                       |   |    |   |    |   |
|                                                                       |   |    |   |    |   |
|                                                                       |   |    |   |    |   |
|                                                                       |   |   |   |   |   |   |   |
|                                                                       |   |   |   |   |   |   |   |
|                                                                       |   |   |   |   |   |   |   |
|                                                                       |   |   |   |   |   |   |   |
|                                                                       |   |   |   |   |   |   |   |
|                                                                       |   |   |   |   |   |   |   |
|                                                                       |   |   |   |   |   |   |   |
|                                                                       |   |   |   |   |   |   |   |
| *See                  notes to consolidated financial statements.*         |   |   |   |   |   | F-4 |   |

----

|  **DCAP                    GROUP, INC. AND**                                          |   |
|--------------------------------------------------------------------------------------------|--------|
|  **SUBSIDIARIES**                                                                     |   |
|                                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Consolidated                    Statement of Stockholders' Equity**                      |   |
| *Years                    Ended December 31, 2005 and 2004*                                |   |   |
|                                                                                       |   |  Common                    Stock |   |  Preferred                    Stock | Capital                      in Excess |   |   |   |  Treasury                    Stock |   |   |   |
|                                                                                       |   | Shares |   |   |   | Amount |   | Shares |   |   |   | Amount |   | of                    Par |   | Deficit |   | Shares |   |   |   | Amount |   | Total |   |
|                                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance,                    January 1, 2004                                                |   |   | 3,213,530 |   |   |   |   | $ | 32,136 |   |   | - |   |   |   |   | $ | - |   | $ | 10,517,953 |   | $ | (6,876,306 | ) |   | 742,923 |   |   |   |   | $ | (928,655 | ) | $ | 2,745,128 |   |
| Exercise                    of Stock Options and Warrants                                  |   |   | 235,817 |   |   |   |   |   | 2,358 |   |   | - |   |   |   |   |   | - |   |   | 443,318 |   |   | - |   |   | - |   |   |   |   |   | - |   |   | 445,676 |   |
| Tax                    Benefit from Exercise of Stock Options                              |   |   | - |   |   |   |   |   | - |   |   | - |   |   |   |   |   | - |   |   | 79,560 |   |   | - |   |   | - |   |   |   |   |   | - |   |   | 79,560 |   |
| Treasury                    Stock Acquired                                                 |   |   | - |   |   |   |   |   | - |   |   | - |   |   |   |   |   | - |   |   | - |   |   | - |   |   | 34,000 |   |   |   |   |   | (249,900 | ) |   | (249,900 | ) |
| Net                    Income                                                              |   |   | - |   |   |   |   |   | - |   |   | - |   |   |   |   |   | - |   |   | - |   |   | 1,374,364 |   |   | - |   |   |   |   |   | - |   |   | 1,374,364 |   |
| Balance,                    December 31, 2004                                              |   |   | 3,449,347 |   |   |   |   |   | 34,494 |   |   | - |   |   |   |   |   | - |   |   | 11,040,831 |   |   | (5,501,942 | ) |   | 776,923 |   |   |   |   |   | (1,178,555 | ) |   | 4,394,828 |   |
| Conversion                    of Mandatorily Redeemable Preferred                    Stock |   |   | 49,600 |   |   |   |   |   | 496 |   |   | - |   |   |   |   |   | - |   |   | 123,504 |   |   | - |   |   | - |   |   |   |   |   | - |   |   | 124,000 |   |
| Exercise                    of Stock Options                                               |   |   | 46,500 |   |   |   |   |   | 465 |   |   | - |   |   |   |   |   | - |   |   | 59,285 |   |   | - |   |   | - |   |   |   |   |   | - |   |   | 59,750 |   |
| Extension                    of Warrants in consideration for the                          |   |   | - |   |   |   |   |   | - |   |   | - |   |   |   |   |   | - |   |   | - |   |   | - |   |   | - |   |   |   |   |   | - |   |   | - |   |
| extension                    of the due date of Subordinated Debt                          |   |   | - |   |   |   |   |   | - |   |   | - |   |   |   |   |   | - |   |   | 148,260 |   |   | - |   |   | - |   |   |   |   |   | - |   |   | 148,260 |   |
| Net                    Income                                                              |   |   | - |   |   |   |   |   | - |   |   | - |   |   |   |   |   | - |   |   | - |   |   | 495,760 |   |   | - |   |   |   |   |   | - |   |   | 495,760 |   |
| Balance,                    December 31, 2005                                              |   |   | 3,545,447 |   |   |   |   | $ | 35,455 |   |   | - |   |   |   |   | $ | - |   | $ | 11,371,880 |   | $ | (5,006,182 | ) |   | 776,923 |   |   |   |   | $ | (1,178,555 | ) | $ | 5,222,598 |   |
|                                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                       |   |   |
| *See                    notes to consolidated financial statements.*                       |   |   |   |   |   |   |   |   |   | F-5 |   |

----

|  **DCAP                    GROUP, INC. AND**                                     |   |
|---------------------------------------------------------------------------------------|--------|
|  **SUBSIDIARIES**                                                                |   |
|                                                                                  |   |   |   |   |   |
| **Consolidated                    Statements of Cash Flows**                          |   |   |   |   |   |
| *Years                    Ended December 31,*                                         |   | **2005** |   | 2004 |   |
|                                                                                  |   |   |   |   |   |
| Cash                    Flows from Operating Activities:                              |   |   |   |   |   |   |   |
| Net                    income                                                         |   | **$** | **495,760** |   | $ | 1,374,364 |   |
| Adjustments                    to reconcile net income to net cash                    |   |   |   |   |   |   |   |
| provided                    by (used in) operating activities:                        |   |   |   |   |   |   |   |
| Depreciation                    and amortization                                      |   |   | **404,523** |   |   | 425,384 |   |
| Bad                    debt expense                                                   |   |   | **-** |   |   | 7,388 |   |
| Amortization                    of warrants                                           |   |   | **71,683** |   |   | 58,800 |   |
| Deferred                    income taxes                                              |   |   | **14,800** |   |   | (54,800 | ) |
| Changes                    in operating assets and liabilities:                       |   |   |   |   |   |   |   |
| Decrease                    (increase) in assets:                                     |   |   |   |   |   |   |   |
| Accounts                    receivable                                                |   |   | **1,164,510** |   |   | (1,122,268 | ) |
| Prepaid                    expenses and other current assets                          |   |   | **124,275** |   |   | (132,172 | ) |
| Deposits                    and other assets                                          |   |   | **(99,957** | **)** |   | (64,555 | ) |
| (Decrease)                    increase in liabilities:                                |   |   |   |   |   |   |   |
| Premiums                    payable                                                   |   |   | **(278,420** | **)** |   | (2,090,840 | ) |
| Accounts                    payable and accrued expenses                              |   |   | **(1,042,585** | **)** |   | 380,629 |   |
| Income                    taxes payable                                               |   |   | **(361,634** | **)** |   | 510,053 |   |
| Other                    current liabilities                                          |   |   | **(15,773** | **)** |   | (13,487 | ) |
| Net                    Cash Provided by (Used in) Operating Activities                |   |   | **477,182** |   |   | (721,504 | ) |
|                                                                                  |   |   |   |   |   |   |   |
| Cash                    Flows from Investing Activities:                              |   |   |   |   |   |   |   |
| Decrease                    (increase) in finance contracts receivable - net          |   |   | **4,947,011** |   |   | (2,347,873 | ) |
| Decrease                    in notes and other receivables - net                      |   |   | **18,427** |   |   | 16,847 |   |
| Purchase                    of property and equipment                                 |   |   | **(32,885** | **)** |   | (110,123 | ) |
| Business                    acquisitions                                              |   |   | **(67,000** | **)** |   | (67,000 | ) |
| Net                    Cash Provided by (Used in) Investing Activities                |   |   | **4,865,553** |   |   | (2,508,149 | ) |
|                                                                                  |   |   |   |   |   |   |   |
| Cash                    Flows from Financing Activities:                              |   |   |   |   |   |   |   |
| Principal                    payments on long-term debt and capital lease obligations |   |   | **(2,137,760** | **)** |   | (161,491 | ) |
| Proceeds                    from revolving loan                                       |   |   | **57,580,406** |   |   | 66,178,841 |   |
| Payments                    on revolving loan                                         |   |   | **(59,399,541** | **)** |   | (63,551,264 | ) |
| Deferred                    loan costs                                                |   |   | **-** |   |   | (265,614 | ) |
| Proceeds                    from exercise of stock options and warrants               |   |   | **59,750** |   |   | 445,676 |   |
| Purchase                    of treasury stock                                         |   |   | **-** |   |   | (249,900 | ) |
| Net                    Cash (Used in) Provided by Financing Activities                |   |   | **(3,897,145** | **)** |   | 2,396,248 |   |
|                                                                                  |   |   |   |   |   |   |   |
| Net                    Increase (Decrease) in Cash and Cash Equivalents               |   |   | **1,445,590** |   |   | (833,405 | ) |
| Cash                    and Cash Equivalents, beginning of year                       |   |   | **515,899** |   |   | 1,349,304 |   |
| Cash                    and Cash Equivalents, end of year                             |   | **$** | **1,961,489** |   | $ | 515,899 |   |
|                                                                                  |   |   |   |   |   |   |   |
|                                                                                  |   |   |   |   |   |   |   |
|                                                                                  |   |   |   |   |   |   |   |
|                                                                                  |   |   |   |   |   |   |   |
|                                                                                  |   |   |   |   |   |   |   |
|                                                                                  |   |   |   |   |   |   |   |
| *See                    notes to consolidated financial statements.*                  |   |   |   |   |   | F-6 |   |

----

**DCAP          GROUP, INC. AND**

**SUBSIDIARIES**

| **Notes                    to Financial Statements**   |
|--------------------------------------------------------|
| *Two                    Years Ended December 31, 2005* |

| **1.** | **Organization                and Nature of Business**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   | DCAP                Group, Inc. and Subsidiaries (referred to herein as "we" or "us")                operate                a network of retail offices and franchise operations engaged in the                sale                of retail auto, motorcycle, boat, business, and homeowner's insurance,                and                provide premium financing of insurance policies for customers of                our                offices as well as customers of non-affiliated entities. We also                provide                automobile club services for roadside emergencies and tax preparation                services.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| **2.** | **Summary                of Significant Accounting Policies**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   | ***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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   | ***Commission                and fee income -**** *We                recognize commission revenue from insurance policies at the beginning                of                the contract period, except for commissions that were received annually                on                a contingent basis in 2004, for which we recognized the commission                revenue                ratably during the fiscal year based on estimates of the contingent                revenue to be received. Full fiscal year figures for 2004 for such                contingent commissions were based upon amounts actually received                from                insurers for the fiscal year. Refunds of commissions on the cancellation                of insurance policies are reflected at the time of cancellation.                During                the year ended December                31, 2004, approximately $1,463,000 was recognized as contingent commission                revenue. There has been an industry-wide change in the method by                which                insurance brokers are compensated by insurers, many of which no longer                pay                contingent commissions. As a result, in 2005, our base commissions                have                increased and no contingent commission revenue has been recognized                for the                year ended December 31, 2005. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   | 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 advertising expense. We are obligated to provide marketing                and training support to each franchisee. During the years ended December                31, 2005 and 2004, approximately $65,000 and $25,000, respectively,                was                recognized as initial franchise fee income.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   | Fees                for income tax preparation are recognized when the services are completed.                Automobile club dues are recognized equally over the contract                period.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   | ***Allowance                for doubtful accounts -***                Management must make estimates of the uncollectability of accounts                receivable. Management specifically analyzed accounts receivable                and                analyzes historical bad debts, customer concentrations, customer                credit-worthiness, current economic trends and changes in customer                payment                terms when evaluating the adequacy of the allowance for doubtful                accounts.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   | ***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                26.55% and 26.17% per annum for the years ended December 31, 2005                and                2004, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |

----

**DCAP      GROUP, INC. AND**

**SUBSIDIARIES**

| **Notes                  to Financial Statements**   |
|------------------------------------------------------|
| *Two                  Years Ended December 31, 2005* |

|   | 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****-*                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 account balance, including unrealized interest, is written                off.                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                years ended December 31, 2005 and 2004, the provision for finance                receivable losses was approximately $2,963,000 (before estimated                recoveries of approximately $225,000 which reduced the provision                for                finance receivable losses) and $2,966,000, respectively, and actual                write-offs for such year, net of actual and anticipated recoveries                of                previous write-offs, were approximately $2,795,000 and $3,147,000,                respectively. If our provision for finance receivable losses was                understated by 5% because our actual write-offs were greater than                anticipated, the effect would have been a reduction in our basic                earnings                per share by approximately $0.03 and $0.04 for the years ended December                31, 2005 and 2004, respectively. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   | ***Goodwill                and intangible assets****-*                In                January 2002, we adopted SFAS No. 142, "Goodwill and Intangible Assets".                SFAS No. 142 requires, among other things, that companies no longer                amortize goodwill, but instead test goodwill for impairment at least                annually. In addition, SFAS No. 142 requires that we identify reporting                units for the purpose of assessing potential future impairment of                goodwill, reassess the useful lives of other existing recognized                intangible assets and cease amortization of intangible assets with                an                indefinite useful life.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   | 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 December 31,                2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   | ***Property                and equipment****-*** **Property                and equipment are stated at cost. Depreciation is provided using                the                straight-line method over the estimated useful lives of the related                assets. Leasehold improvements are being amortized using the straight-line                method over the estimated useful lives of the related assets or the                remaining term of the lease.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   | ***Deferred                loan costs****-*Deferred                loan costs are amortized on a straight-line basis over the related                term of                the loan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   | ***Concentration                of credit risk -**** *We                invest our excess cash in deposits and money market accounts with                major                financial institutions and have not experienced losses related to                these                investments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   | All                finance contracts receivable are repayable in less than one year.                In the                event of a default by the borrower, we are entitled to cancel the                underlying insurance policy financed and receive a refund for the                unused                term of such policy from the insurance carrier. We structure the                repayment                terms in an attempt to minimize principal losses on finance contract                receivables.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |

----

**DCAP        GROUP, INC. AND**

**SUBSIDIARIES**

| **Notes                  to Financial Statements**                    |
|-----------------------------------------------------------------------|
| *Two                  Years Ended December 31,                  2005* |

|   | We                perform ongoing credit evaluations and generally do not require                collateral.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | ***Cash                and cash equivalents -***                We                consider all highly liquid debt instruments with a maturity of three                months or less, as well as bank money market accounts, to be cash                equivalents.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | ***Estimates                -***                The preparation of financial statements in conformity with generally                accepted accounting principles requires management to make estimates                and                assumptions that affect the reported amounts of assets and liabilities                and                disclosure of contingent assets and liabilities at the date of the                financial statements and the reported amounts of revenues and expenses                during the reporting period. Actual results could differ from those                estimates. The most significant estimates include the allowance for                finance receivable losses. It is reasonably possible that events                could                occur during the upcoming year which could change such                estimates. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | ***Net                income per share -***                Basic net income per share is computed by dividing income available                to                common shareholders by the weighted-average number of common shares                outstanding. Diluted earnings per share reflect, in periods in which                they                have a dilutive effect, the impact of common shares issuable upon                exercise                of stock options and conversion of mandatorily redeemable preferred                stock.                                                                                                                                                                                                                                                                                                                           |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | The                reconciliation for the years ended December 31, 2005 and 2004 is                as                follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |

|                                                                                                                      |   | **2005** |          | 2004   |   |
|---------------------------------------------------------------------------------------------------------------------------|--------|----------|---------------|--------|--------|
|                                                                                                                      |   |     |          |   |   |
| Weighted                Average Number of Shares Outstanding                                                              |   |     | **2,726,526** |   |   | 2,501,462 |   |
| Effect                of Dilutive Securities, common stock equivalents                                                    |   |     | **473,094**   |   |   | 723,841 |   |
| Weighted                Average Number of Shares Outstanding, used forcomputing                diluted earnings per share |   |     | **3,199,620** |   |   | 3,225,303 |   |

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

| *Years                Ended December 31,*                                                                |   |   | **2005**    |   |   | 2004      |   |
|----------------------------------------------------------------------------------------------------------|--------|--------|-------------|--------|--------|-----------|--------|
|                                                                                                     |   |   |        |   |   |      |   |
| Net                Income                                                                                |   | **$**  | **495,760** |   | $      | 1,374,364 |   |
| Interest                Expense on Dilutive Convertible Preferred Stock                                  |   |   | **39,121**  |   |   | 45,200    |   |
| Net                Income Available to Common Shareholders for Diluted                Earnings Per Share |   | **$**  | **534,881** |   | $      | 1,419,564 |   |

|   | ***Advertising                costs -***                Advertising costs are charged to operations when the advertising                first                takes place. Included in general and administrative expenses are                advertising costs approximating $601,000 and $629,000 for the years                ended                December 31, 2005 and 2004, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | ***Impairment                of long-lived assets -***                We                review long-lived assets and certain identifiable intangibles to                be held                and used for impairment on an annual basis and whenever events or                changes                in circumstances indicate that the carrying amount of an asset exceeds                the                fair value of the asset. If other events or changes in circumstances                indicate that the carrying amount of an asset that we expect to hold                and                use may not be recoverable, we will estimate the undiscounted future                cash                flows expected to result from the use of the asset or its eventual                disposition, and recognize an impairment loss. The impairment loss,                if                determined to be necessary, would be measured as the amount by which                the                carrying amount of the assets exceeds the fair value of the assets.                A                similar evaluation is made in relation to goodwill, with any impairment                loss measured as the amount by which the carrying value of such goodwill                exceeds the expected undiscounted future cash                flows. |

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**DCAP      GROUP, INC. AND**

**SUBSIDIARIES**

| **Notes                  to Financial Statements**                    |
|-----------------------------------------------------------------------|
| *Two                  Years Ended December 31,                  2005* |

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | ***Income                taxes -***                Deferred tax assets and liabilities are determined based upon the                differences between financial reporting and tax bases of assets and                liabilities, and are measured using the enacted tax rates and laws                that                will be in effect when the differences are expected to                reverse.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   | ***New                accounting pronouncements -***In                December 2004, the Financial Accounting Standards Board ("FASB")                issued                Statement of Financial Accounting Standard ("SFAS") No. 123 (revised                2004)                "Share-Based Payment" (SFAS No. 123R) that addresses the accounting                for                share-based payment transactions in which a company receives employee                services in exchange for (a) equity instruments of the company or                (b)                liabilities that are based on the fair value of the company's equity                instruments or that may be settled by the issuance of such equity                instruments. SFAS No. 123R addresses all forms of share-based payment                awards, including shares issued under employee stock purchase plans,                stock                options, restricted stock and stock appreciation rights. SFAS No.                123R                eliminates the ability to account for share-based compensation                transactions using APB Opinion No. 25, "Accounting for Stock Issued                to                Employees", that was provided in Statement 123 as originally issued.                Under                SFAS No. 123R companies are required to record compensation expense                for                all share-based payment award transactions measured at fair value.                This                statement is effective for quarters ending after December 15, 2005.                We                have not yet determined the impact of applying the various provisions                of                SFAS No. 123R.  In                March 2005, the FASB issued Interpretation No. 47, "Accounting for                Conditional Asset Retirement Obligations" (FIN 47). FIN 47 requires                an                entity to recognize a liability for the fair value of a legal obligation                to perform asset-retirement activities that are conditional on a                future                event if the amount can be reasonably estimated. The Interpretation                provides guidance to evaluate whether fair value is reasonably estimable.                FIN 47 is effective no later than the end of fiscal years ending                after                December                15, 2005. FIN 47 did not have a material impact on our financial                position                or results of operations. In                May 2005, the FASB issued SFAS No. 154,                "Accounting Changes and Error Corrections," which replaces APB Opinion                No.                20, "Accounting Changes," and SFAS No. 3, "Reporting Accounting Changes                in                Interim Financial Statements," and changes the requirements for the                accounting for and reporting of a change in accounting principle.                SFAS No.                154 applies to all voluntary changes in accounting principle and                to                changes required by an accounting pronouncement when the pronouncement                does not include specific transition provisions. SFAS No. 154 requires                retrospective application of changes in accounting principle to prior                periods' financial statements unless it is impracticable to determine                either the period-specific effects or the cumulative effect                of the change. APB Opinion No. 20 previously required that most voluntary                changes in accounting principle be recognized by including the cumulative                effect of the change in net income for the period of the change in                accounting principle. SFAS No. 154 carries forward without change                the                guidance contained in APB Opinion No. 20 for reporting the correction                of                an error in previously issued financial statements and a change in                accounting estimate. SFAS No. 154 also carries forward the guidance                in APB                Opinion No. 20 requiring justification of a change in accounting                principle                on the basis of prefer ability. SFAS No. 154 is effective for accounting                changes and corrections of errors made in fiscal years beginning                after                December 15, 2005, with early adoption permitted. Our adoption of                SFAS No.                154                will not have an impact on our financial condition or results of                operations. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   | In                February 2006, the FASB issued SFAS No. 155 "Accounting for Certain                Hybrid                Financial Instruments," an amendment of FASB Statements No. 133 and                140.                SFAS No. 155 improves financial reporting by eliminating the exemption                from applying Statement No. 133 to interests in securitized financial                assets so that similar instruments are accounted for similarly regardless                of the form of the instruments. This Statement also improves financial                reporting by allowing a preparer to elect fair value measurement                at                acquisition, at issuance, or when a previously recognized financial                instrument is subject to a remeasurement (new basis) event, on an                instrument-by-instrument basis, in cases in which a derivative would                otherwise have to be bifurcated. This Statement is effective for                all                financial instruments acquired or issued after the beginning of an                entity's first fiscal year that begins after September 15, 2006.                Earlier                adoption is permitted as of the beginning of an entity's fiscal year,                provided the entity has not yet issued financial statements, including                financial statements for any interim period for that fiscal year.                Provisions of this Statement may be applied to instruments that an                entity                holds at the date of adoption on an instrument-by-instrument basis.                SFAS                No. 155 is not expected to have a material impact on our financials                condition or results of operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
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**DCAP      GROUP, INC. AND**

**SUBSIDIARIES**

| **Notes                  to Financial Statements**                    |
|-----------------------------------------------------------------------|
| *Two                  Years Ended December 31,                  2005* |

|   | ***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 $172 and $16,746 in such              costs              were incurred during the years ended December 31, 2005 and 2004,              respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   | ***Comprehensive                income (loss) -***                Comprehensive income (loss) refers to revenue, expenses, gains and                losses                that under generally accepted accounting principles are included                in                comprehensive income but are excluded from net income as these amounts                are                recorded directly as an adjustment to stockholders' equity. At December                31, 2005 and 2004, there were no such adjustments                required.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   | ***Stock                based compensation -***We                apply APB Opinion No. 25, "Accounting for Stock Issued to Employees,"                and                related interpretations in accounting for our plans and do not recognize                compensation expense for our employee stock-based compensation plans.                We                have also adopted the disclosure provisions of SFAS No. 148 "Accounting                for Stock-Based Compensation - Transition and Disclosure." This                pronouncement requires prominent disclosures in both annual and interim                financial statements about the method of accounting for stock-based                employee compensation and the effect of the method used on reporting                results. Had we recorded compensation expense for the stock options                based                on the fair value at the grant date for awards in the years ended                December                31, 2005 and 2004, consistent with the provisions of SFAS 123, our                net                income and net income per share would have been adjusted to the following                pro forma amounts: |

| *Years                Ended December 31,*                                                                                                           |   |   | **2005**    |   |   | 2004      |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|-------------|--------|--------|-----------|--------|
|                                                                                                                                                |   |   |        |   |   |      |   |
| Net                Income, as reported                                                                                                              |   | **$**  | **495,760** |   | $      | 1,374,364 |   |
| Deduct:                Stock-based employee compensation expense determined under fair value                based method, net of related tax effect |   |   | **149,361** |   |   | 142,828   |   |
| Net                Income, pro forma                                                                                                                |   |   | **346,399** |   |   | 1,231,536 |   |
| Basic                Income Per Share, as reported                                                                                                  |   |   | **.18**     |   |   | .55       |   |
| Basic                Income Per Share, pro forma                                                                                                    |   |   | **.13**     |   |   | .49       |   |
| Diluted                Income Per Share, as reported                                                                                                |   |   | **.17**     |   |   | .44       |   |
| Diluted                Income Per Share, pro forma                                                                                                  |   |   | **.12**     |   |   | .40       |   |

|   | The                fair value of each option grant is estimated on the date of grant                using                the Black-Scholes option-pricing model. The following weighted average                assumptions were used for grants during the years ended December 31,                2005 and 2004: |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| *Years                Ended December 31,* |   |   | **2005**                   |   |   | 2004                   |   |
|-------------------------------------------|--------|--------|----------------------------|--------|--------|------------------------|--------|
|                                      |   |   |                       |   |   |                   |   |
| Dividend                Yield             |   |   | **0.00**                   | **%**  |   | 0.00                   | %      |
| Volatility                                |   |   | **90.98**                  | **%**  |   | 100.85                 | %      |
| Risk-Free                Interest Rate    |   |   | **4.29**                   | **%**  |   | 3.50                   | %      |
| Expected                Life              |   |   | **5                years** |   |   | 5                years |   |

|   | The                Black-Scholes option valuation model was developed for use in estimating                the fair value of traded options, which have no vesting restrictions                and                are fully transferable. In addition, option valuation models require                the                input of highly subjective assumptions including the expected stock                price                volatility. Because our stock options have characteristics significantly                different from those of traded options, and because changes in the                subjective input assumptions can materially affect the fair value                estimate, in management's opinion, the existing models do not necessarily                provide a reliable single measure of the fair value of our stock                options. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |

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**DCAP        GROUP, INC. AND**

**SUBSIDIARIES**

| **Notes                    to Financial Statements**                      |
|---------------------------------------------------------------------------|
| *Two                    Years Ended December 31,                    2005* |

|   | ***Reclassifications                -***                Certain reclassifications (including reclassification of interest                expense                on long-term debt from premium finance interest expense to other                income                (expense)-interest expense) have been made to the consolidated financial                statements for the year ended December 31, 2004 to conform with the                classifications used for the year ended December 31,                2005. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |

| **3.** | **Finance                Contract Receivables**                                                                                     |
|--------|-------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                |
|   | A                summary of the changes of the allowance for finance receivable losses                is                as follows: |

| *December                31,*                          |   |   | **2005**       |   |   | 2004       |   |
|--------------------------------------------------------|--------|--------|----------------|--------|--------|------------|--------|
|                                                   |   |   |           |   |   |       |   |
| Balance,                beginning of year              |   | **$**  | **65,957**     |   | $      | 247,509    |   |
| Provision                for Finance Receivable Losses |   |   | **2,962,895**  |   |   | 2,965,796  |   |
| Charge-offs                                            |   |   | **(2,794,823** | **)**  |   | (3,147,348 | )      |
| Balance,                end of year                    |   | **$**  | **234,029**    |   | $      | 65,957     |   |

|   | Finance                receivables are collateralized by the unearned premiums of the related                insurance policies. These finance receivables have an average remaining                contractual maturity of approximately four months, with the longest                contractual maturity being approximately ten months. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                        |
| **4.** | **Goodwill**                                                                                                                                                                                                                                                                                                                                |
|   |                                                                                                                                                                                                                                                                                                                                        |
|   | The                changes in the carrying value of goodwill for the year ended December                31,                2005 are as follows:                                                                                                                                                                                             |

| Balance,                  beginning of year                            |   | **$**  | **1,238,551** |   |
|------------------------------------------------------------------------|--------|--------|---------------|--------|
| Addition,                  as a result of contingent acquisition costs |   |   | **67,000**    |   |
| Balance,                  end of year                                  |   | **$**  | **1,305,551** |   |

| **5.** | **Other                Intangibles**                                                                  |
|--------|-------------------------------------------------------------------------------------------------------|
|   |                                                                                                  |
|   | At                December 31, 2005, other intangible assets consist of the                following: |

| Gross                Carrying Amount:    |   |   |    |   |
|------------------------------------------|--------|--------|---------|--------|
| Customer                lists            |   | $      | 253,550 |   |
| Vanity                phone numbers      |   |   | 204,416 |   |
|                                     |   |   | 457,966 |   |
| Accumulated                Amortization: |   |   |    |   |
| Customer                lists            |   |   | 186,292 |   |
| Vanity                phone numbers      |   |   | 82,245  |   |
|                                     |   |   | 268,537 |   |
| Balance,                end of year      |   | $      | 189,429 |   |

----

**DCAP      GROUP, INC. AND**

**SUBSIDIARIES**

| **Notes                  to Financial Statements**                    |
|-----------------------------------------------------------------------|
| *Two                  Years Ended December 31,                  2005* |

|   | The                  aggregate amortization expense for the years ended December 31,                  2005 and                  2004 was approximately $77,000 and $77,000,                  respectively. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Estimated                amortization expense for the five years subsequent to December 31,                2005 is                as follows: |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------|

|   | *Years                  Ending December 31,* |   |          |
|--------|----------------------------------------------|--------|---------------|
|   |                                         |   |          |
|   | 2006                                         |   | $ 68,000 |
|   | 2007                                         |   | 26,000        |
|   | 2008                                         |   | 14,000        |
|   | 2009                                         |   | 14,000        |
|   | 2010                                         |   | 14,000        |

|   | The                remaining weighted-average amortization period as of December 31,                2005 is                as follows: |
|--------|----------------------------------------------------------------------------------------------------------------------------------------|

|   | Customer                Lists       | 1.06                years |
|--------|-------------------------------------|---------------------------|
|   | Vanity                Phone Numbers | 9.00                years |
|   |                                | 3.41                years |

|   | Other                intangible assets are being amortized using the straight-line method                over                a period of four to fifteen years. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                            |
| **6.** | **Property                and Equipment**                                                                                                                       |
|   |                                                                                                                                                            |
|   | At                December 31, 2005, property and equipment consists of the                following:                                                           |

|                                                            |   |   | Useful                Lives |   |   |      |   |
|-----------------------------------------------------------------|--------|--------|-----------------------------|--------|--------|-----------|--------|
|                                                            |   |   |                        |   |   |      |   |
| Furniture,                Fixtures and Equipment                |   |   | 5                years      |   | $      | 347,139   |   |
| Leasehold                Improvements                           |   |   | 3                - 5 years  |   |   | 257,816   |   |
| Computer                Hardware, Software and Office Equipment |   |   | 2                - 5 years  |   |   | 1,208,135 |   |
| Entertainment                Facility                           |   |   | 20                years     |   |   | 200,538   |   |
|                                                            |   |   |                        |   |   | 2,013,628 |   |
| Less                Accumulated Depreciation and Amortization   |   |   |                        |   |   | 1,719,758 |   |
|                                                            |   |   |                        |   | $      | 293,870   |   |

|   | Depreciation                expense for the years ended December 31, 2005 and 2004 was approximately                $119,000 and $113,000, respectively. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                     |
| **7.** | **Deposits                and Other Assets**                                                                                                             |
|   |                                                                                                                                                     |
|   | At                December 31, 2005, deposits and other assets consists of the                following:                                                 |

| Deferred                Loan Costs, net |   | $      | 188,360 |   |
|-----------------------------------------|--------|--------|---------|--------|
| Deposits                                |   |   | 40,750  |   |
| Other                                   |   |   | 90,584  |   |
|                                    |   | $      | 319,694 |   |

----

**DCAP          GROUP, INC. AND**

**SUBSIDIARIES**

| **Notes                      to Financial Statements**                        |
|-------------------------------------------------------------------------------|
| *Two                      Years Ended December 31,                      2005* |

| **8.** | **Accounts                Payable and Accrued Expenses**                                                                            |
|--------|-------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                |
|   | At                December 31, 2005, accounts payable and accrued expenses consists                of the                following: |

| Accounts                Payable          |   | $      | 241,814 |   |
|------------------------------------------|--------|--------|---------|--------|
| Interest                                 |   |   | 144,388 |   |
| Payroll                and Related Costs |   |   | 57,843  |   |
| Professional                Fees         |   |   | 96,213  |   |
| Acquisition                Costs         |   |   | 67,000  |   |
| Other                                    |   |   | 58,320  |   |
|                                     |   | $      | 665,578 |   |

| **9.**  | **Debentures                Payable**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|    | In                1971, pursuant to a plan of arrangement, we issued a series of debentures,                which matured in 1977. As of December 31, 2005, $154,200 of these                debentures has not been presented for payment. Accordingly, this                balance                has been included in other current liabilities in the accompanying                consolidated balance sheet. Interest has not been accrued on the                remaining                debentures payable. In addition, no interest, penalties or other                charges                have been accrued with regard to any escheat                obligation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| **10.** | **Revolving                Credit Facility**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|    | In                July 2003, we obtained an $18,000,000 revolving line of credit from                Manufacturers and Traders Trust Co. (the "Bank"). The line bore interest                at the Bank's prime lending rate plus 1.5%, and was to mature on                July 31,                2005. We could borrow against the line to the extent of 80% of eligible                premium finance receivables.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|    | On                December 27, 2004, we entered into a new revolving line of credit                (the                "New Revolver") with the Bank, which provides for an increase in                the                credit line to $25,000,000. Subject to certain conditions, the Bank                has                agreed to arrange an additional $10,000,000 credit facility with                other                lenders on a "best efforts" basis. The New Revolver bears interest,                at our                option, at either (i) the Bank's prime lending rate (7.25% at December                31, 2005) or (ii) LIBOR (4.34% at December 31, 2005) plus 2.5%, and                matures on June 30, 2007. We can borrow against the line to the extent                of                85% of eligible premium finance receivables. As                of December 31, 2005, $9,776,524 was outstanding under this line.                As                of December 31, 2005, of the $18,153,533 reflected on the Balance                Sheet as                "Finance contracts receivable," approximately $13,825,000 represents                eligible receivables for purposes of our finance credit agreement. |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|    | The                line is secured by substantially all of the assets of our premium                finance                subsidiary and a $4,000,000 life insurance policy on our Chairman                and CEO,                and is guaranteed by DCAP Group, Inc. and subsidiaries.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|    | Our                Chairman and CEO had guaranteed the payment of $2,500,000 of the                line                through April 30, 2005. The guarantee was reduced to $1,250,000 effective                April 30, 2005 and, subject to certain conditions, may be eliminated                effective April 30, 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |

| **11.** | **Long-Term                  Debt**                                                                   |
|---------|-------------------------------------------------------------------------------------------------------|
|    |                                                                                                  |
|    | At                  December 31, 2005, long-term debt is comprised of the                  following: |

----

**DCAP        GROUP, INC. AND**

**SUBSIDIARIES**

| **Notes                    to Financial Statements**                      |
|---------------------------------------------------------------------------|
| *Two                    Years Ended December 31,                    2005* |

| Note                payable issued in connection with the purchase of Barry Scott Companies,                due in August 2006, plus interest at 5%                                                                                                                                                                                                                                                                                                                           |   | $      | 235,000   |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|-----------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |   |      |   |
| Subordinated                loan, which bears interest at 12.625% per annum, payable monthly.                The                principal balance is due and payable on September 30, 2007. The loan                is                subordinate to the revolving credit facility, and is secured by a                security                interest in the assets of our premium finance subsidiary and a pledge                of                our subsidiary's stock. |   |   | 1,500,000 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |   |      |   |
| Unamortized                value of stock purchase warrants issued in connection with subordinated                loan                                                                                                                                                                                                                                                                                                                                                        |   |   | (135,377  | )      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |   | 1,599,623 |   |
| Less                Current Maturities                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |   | 235,000   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | $      | 1,364,623 |   |

|   | In                each of January 2005 and May 2005, we repaid $1,000,000 of the                subordinated loan (an aggregate of $2,000,000) with proceeds of the                new                revolving credit line. The repayments reduced the outstanding principal                amount of the subordinated loan from $3,500,000 to                $1,500,000. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                       |
|   | Long-term                debt matures as follows:                                                                                                                                                                                                                                                                                                                          |

| *Years                  Ending December 31,* |   |                                                                                                                                                                                   |
|----------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                         |   |                                                                                                                                                                                   |
| 2006                                         |   | $                                            235,000 |
| 2007                                         |   | 1,500,000                                                                                                                                                                              |

| **12.** | **Related                Party Transaction**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|    | ***Professional                fees -***                A                law firm affiliated with one of our directors was paid legal fees                of                $147,000 and $242,000 for the years ended December 31, 2005 and 2004,                respectively.                                                                                                                                                                                                                                                                                                                                              |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|    | A                director was paid a fee of $59,880 and $9,980 during the years ended                December 31, 2005 and 2004, respectively, for consulting services                in                accordance with a consulting agreement. This agreement expired on                October                31, 2005 and was renewed for one year with an annual fee of $59,880                payable in equal monthly installments.                                                                                                                                                                                   |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|    | ***Guarantee                -***                Our Chairman and CEO personally guaranteed the repayment of $2,500,000                of                our revolving credit facility. In consideration of this guaranty,                we have                agreed to pay him $50,000 per annum and reimburse him for all premiums                paid by him on a $2,500,000 life insurance policy as long as his                guarantee                remains in effect. He was paid $50,000 in each of the years ended                December                31, 2005 and 2004. See                Note 10. |

| **13.** | **Income                  Taxes**                                                                                                                                                                                                                                                                                                                                                     |
|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |                                                                                                                                                                                                                                                                                                                                                                                  |
|    | We                  file a consolidated U.S. Federal Income Tax return that includes                  all                  wholly-owned subsidiaries. State tax returns are filed on a consolidated                  or separate basis depending on applicable laws. The provision for                  income                  taxes is comprised of the                  following: |

----

**DCAP      GROUP, INC. AND**
**SUBSIDIARIES**

| **Notes                  to Financial Statements**                    |
|-----------------------------------------------------------------------|
| *Two                  Years Ended December 31,                  2005* |

| *Years                Ended December 31,* |   |   | **2005**    |   |   | 2004    |   |
|-------------------------------------------|--------|--------|-------------|--------|--------|---------|--------|
|                                      |   |   |        |   |   |    |   |
| Current:                                  |   |   |        |   |   |    |   |
| Federal                                   |   | **$**  | **301,500** |   | $      | 418,856 |   |
| State                                     |   |   | **89,700**  |   |   | 117,344 |   |
|                                      |   |   | **391,200** |   |   | 536,200 |   |
| Deferred:                                 |   |   |        |   |   |    |   |
| Federal                                   |   |   | **11,400**  |   |   | (46,500 | )      |
| State                                     |   |   | **3,400**   |   |   | (8,300  | )      |
|                                      |   |   | **14,800**  |   |   | (54,800 | )      |
|                                      |   | **$**  | **406,000** |   | $      | 481,400 |   |

|   | A                reconciliation of the federal statutory rate to our effective tax                rate is                as follows: |
|--------|--------------------------------------------------------------------------------------------------------------------------------------|

| *Years                Ended December 31,*          |   |   | **2005**  |   |   | 2004   |   |
|----------------------------------------------------|--------|--------|-----------|--------|--------|--------|--------|
|                                               |   |   |      |   |   |   |   |
| Computed                Expected Tax Expense       |   |   | **34.00** | **%**  |   | 34.00  | %      |
| State                Taxes, net of federal benefit |   |   | **5.74**  |   |   | 5.79   |   |
| Permanent                Differences               |   |   | **5.28**  |   |   | 2.35   |   |
| Change                in Valuation Allowance       |   |   | **-**     |   |   | (16.20 | )      |
| Total                Tax Expense                   |   |   | **45.02** | **%**  |   | 25.94  | %      |

|   | At                December 31, 2005, we had net operating loss carryforwards for tax                purposes, which expire at various dates through 2019, of approximately                $1,600,000. These net operating loss carryforwards are subject to                Internal                Revenue Code Section 382, which places a limitation on the utilization                of                the federal net operating loss to approximately $10,000 per year,                as a                result of a greater than 50% ownership change of DCAP Group, Inc.                in 1999.                We utilized net operating loss carryforwards of approximately $10,000                and                $438,000 during the years ended December 31, 2005 and 2004 to offset                current taxable income. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The                tax effects of temporary differences which give rise to deferred                tax                assets at December 31, 2005 consist of the                following: |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Deferred                Tax Assets:                               |   |   |     |   |
|-------------------------------------------------------------------|--------|--------|----------|--------|
| Net                operating loss carryovers                      |   | $      | 544,000  |   |
| Provision                for doubtful accounts                    |   |   | 11,000   |   |
| Allowance                for loan losses                          |   |   | 106,000  |   |
| Amortization                of intangible assets                  |   |   | 54,000   |   |
| Gross                Deferred Tax Assets                          |   |   | 715,000  |   |
|                                                              |   |   |     |   |
| Deferred                Tax Liabilities:                          |   |   |     |   |
| Depreciation                                                      |   |   | 48,000   |   |
| Prepaid                Expenses                                   |   |   | 40,000   |   |
| Amortization                of goodwill                           |   |   | 91,000   |   |
| Gross                Deferred Tax Liabilities                     |   |   | 179,000  |   |
|                                                              |   |   |     |   |
| Net                Deferred Tax Assets Before Valuation Allowance |   |   | 536,000  |   |
| Less                Valuation Allowance                           |   |   | (496,000 | )      |
| Net                Deferred Tax Asset                             |   | $      | 40,000   |   |

----

**DCAP        GROUP, INC. AND**
**SUBSIDIARIES**

| **Notes                    to Financial Statements**                      |
|---------------------------------------------------------------------------|
| *Two                    Years Ended December 31,                    2005* |

|   | We                    recorded a reduction in our valuation allowance against our net                    deferred                    tax assets of approximately $300,000 for the year ended December                    31,                    2004. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **14.** | **Commitments**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|    | ***Leases                -***                We, and each of our affiliates, lease office space under noncancellable                operating leases expiring at various dates through December 31, 2015.                Many                of the leases are renewable and include additional rent for real                estate                taxes and other operating expenses. The minimum future rentals under                these                lease commitments for leased facilities and office equipment are                as                follows: |

|   | *Years                Ending December 31,* |   |           |
|--------|--------------------------------------------|--------|----------------|
|   |                                       |   |           |
|   | 2006                                       |   | $ 489,000 |
|   | 2007                                       |   | 429,000        |
|   | 2008                                       |   | 338,000        |
|   | 2009                                       |   | 199,000        |
|   | 2010                                       |   | 151,000        |
|   | Thereafter                                 |   | 251,000        |

|   | Rental                expense approximated $515,000 and $507,000 for the years ended December                31, 2005 and 2004, respectively.* *                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   | ***Employment                agreements****-*                During 2004, we amended our employment agreement with an officer,                increasing the minimum salary to $350,000 per annum for the remainder                of                the agreement. The employment agreement also provides for discretionary                bonuses and other perquisites commonly found in such agreements.                During                2005, we amended the agreement with the officer, pursuant to which,                among                other things, the term of the agreement has been extended to April                1, 2007                and the officer shall be entitled, under certain circumstances, to                a                payment equal to one and one-half times his then annual salary in                the                event of the termination of his employment following a change of                control. |

|    | ***Acquisition*** **-**In                connection with the 2003 acquisition of AIA Acquisition Corp. ("AIA"),                additional contingent cash consideration based upon the EBITDA of                the                combined operations of AIA and our wholly-owned subsidiary, Barry                Scott                Companies, Inc., during the 24 month period ending April 30, 2008                may be                payable. The additional cash consideration cannot exceed $67,000                in any 12                month period, or an aggregate of $134,000 for the 24 month                period. |
|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|    | ***Litigation                -***** **From                time to time, we are involved in various lawsuits and claims incidental                to                our business. In the opinion of management, the ultimate liabilities,                if                any, resulting from such lawsuits and claims will not materially                affect                our financial position.                                                                                                                                                                                                                                    |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| **15.** | **Mandatorily                Redeemable Preferred Stock**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|    | On                May 8, 2003, we issued 904 shares of $.01 par value 5.0% Series A                Preferred Stock in connection with the acquisition of substantially                all of                the assets of AIA Acquisition Corp. The Series A Preferred Stock                has a                liquidation preference of $1,000 per share. Dividends on the Series                A                Preferred Stock are cumulative and are payable in cash.                                                                                                                                                                    |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|    | Each                share of the Series A Preferred Stock is convertible at the option                of the                holder at any time into shares of our Common Stock, par value $.01                per                share, at a conversion rate of $2.50 per                share.                                                                                                                                                                                                                                                                                                                                                 |

----

**DCAP      GROUP, INC. AND**

**SUBSIDIARIES**

| **Notes                    to Financial Statements**                      |
|---------------------------------------------------------------------------|
| *Two                    Years Ended December 31,                    2005* |

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    | On                January 15, 2005, the preferred stockholder converted 124 shares                of Series                A Preferred Stock into 49,600 shares of our Common                Stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|    | Subject                to legal availability of funds, the Series A Preferred Stock is                mandatorily redeemable by us for cash at its liquidation preference                on or                after April 30, 2007 (unless previously converted into our Common                Stock).                Redemption of the Series A Preferred Stock could occur prior to April                30,                2007 upon a substantial sale by us, as defined.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|    | In                accordance with SFAS No. 150, "Accounting for Certain Financial                Instruments with Characteristics of both Liabilities and                Equity",                the Series A Preferred Stock has been reported as a liability, and                the                preferred dividends have been classified as interest                expense.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| **16.** | **Stockholders'                Equity**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|    | ***Reverse                stock split -***On                August 23, 2004, our Board of Directors authorized a one-for-five                reverse                stock split effected at the close of business on August 25, 2004                to                stockholders of record on such date. The $.01 par value per share                remains                the same and $128,544 was reclassified from Common Stock to capital                in                excess of par value effective January 1, 2004. Per share information                for                all periods presented have been adjusted to give effect for the                one-for-five reverse stock split.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|    | In                connection with the reverse split, our Certificate of Incorporation                was                amended to reduce the number of authorized shares from 40,000,000                to                10,000,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|    | ***Preferred                stock -***                During 2001, we amended our Certificate of Incorporation to provide                for                the authority to issue 1,000,000 shares of Preferred Stock, with                a par                value of $.01 per share. Our Board of Directors has the authority                to issue                shares of Preferred Stock from time to time in a series and to fix,                before                the issuance of each series, the number of shares in each series                and the                designation, liquidation preferences, conversion privileges, rights                and                limitations of each series.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|    | ***Warrants                -**** *On                July 10, 2003, in connection with the issuance of the subordinated                debt,                we issued warrants to purchase 105,000 shares of our Common Stock                at an                exercise price of $6.25 per share (the "Warrants"). The Warrants                were                valued at $147,000 and were being amortized as additional interest                expense                over the term of the associated debt. The Warrants were scheduled                to                expire on January 10, 2006. Effective May 25, 2005, the holders of                $1,500,000 outstanding principal amount of our subordinated debt                agreed to                extend the maturity date of the debt from January 10, 2006 to September                30, 2007. This extension was given to satisfy a requirement of our                premium                finance lender that arose in connection with the increase in our                revolving                line of credit to $25,000,000 and the extension of the line to June                30,                2007. In consideration for the extension of the due date of our                subordinated debt, we extended the expiration date of Warrants held                by the                debt holders for the purchase of 97,500 shares of our Common Stock                from                January 10, 2006 to September 30, 2007. The extension of the Warrants                was                valued at approximately $148,000 and is being amortized as additional                interest expense over the extension period. |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|    | ***Stock                options -***                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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |

----

**DCAP        GROUP, INC. AND**

**SUBSIDIARIES**

| **Notes                      to Financial Statements**                        |
|-------------------------------------------------------------------------------|
| *Two                      Years Ended December 31,                      2005* |

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | 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. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   | A                summary of the status of our stock option plans as of December 31,                2005                and 2004, and changes during the years then ended, is presented                below:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |

|  *Years              Ended December 31,*                                            |   | **2005** |        | 2004   |   |
|------------------------------------------------------------------------------------------|--------|----------|-------------|--------|--------|
|    Fixed                Stock Options                                     |   |     | **Shares**  |   |   | **Weighted****Average****Exercise****Price** |   |   | Shares |   |   | WeightedAverageExercisePrice |   |
|                                                                                     |   |     |        |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Outstanding,                beginning of year                                            |   |     | **408,800** |   | **$**  | **2.68** |   |   | 630,500 |   | $ | 3.31 |   |
| Granted                                                                                  |   |     | **45,000**  |   |   | **2.95** |   |   | 87,300 |   |   | 6.56 |   |
| Exercised                                                                                |   |     | **(46,500** | **)**  |   | **1.28** |   |   | (194,000 | ) |   | 1.29 |   |
| Expired                                                                                  |   |     | **-**       |   |   |   |   |   | (90,000 | ) |   | 13.45 |   |
| Forfeited                                                                                |   |     | **(79,275** | **)**  |   | **6.10** |   |   | (25,000 | ) |   | 4.10 |   |
| Outstanding,                end of year                                                  |   |     | **328,025** |   | **$**  | **2.09** |   |   | 408,800 |   | $ | 2.68 |   |
|                                                                                     |   |     |        |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Options                Exercisable, end of year                                          |   |     | **297,013** |   | **$**  | **1.89** |   |   | 280,950 |   | $ | 1.99 |   |
|                                                                                     |   |     |        |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted-Average                Fair Values ofOptions                Granted During Year |   |     |        |   |   |   |   | **$** | **1.85** |   |   |   |   | $ | 4.79 |   |

|   | The                following table summarizes information about stock options outstanding                at                December 31, 2005: |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------|

|   |                                                                        | Options                Outstanding |                                    | Options                Exercisable |
|--------|-----------------------------------------------------------------------------|------------------------------------|-----------------------------------------|------------------------------------|
|   | Exercise                Price                                               | NumberOutstanding                  | WeightedAverageRemainingContractualLife | WeightedAverageExercisePrice       |   | NumberOutstanding | WeightedAverageExercisePrice |
|   |                                                                        |                               |                                    |                               |   |   |   |
|   | $1.50                - 2.84                                                 | 281,000                            | 1.79                yrs.                | $1.65                              |   | 260,500 | $1.56 |
|   | $3.10                - 4.10                                                 | 32,000                             | 4.15                yrs.                | $3.48                              |   | 29,000 | $3.41 |
|   |                          $7.39 | 15,025                             | 3.86                yrs.                | $7.39                              |   | 7,513 | $7.39 |

|   | ***Common                shares reserved*** |
|--------|---------------------------------------------|

| Warrants                                                   |   |   | 105,000 |   |
|------------------------------------------------------------|--------|--------|---------|--------|
|                                                       |   |   |    |   |
| Stock                Option Plan/Equity Participation Plan |   |   | 809,500 |   |

----

**DCAP        GROUP, INC. AND**

**SUBSIDIARIES**

| **Notes                      to Financial Statements**                        |
|-------------------------------------------------------------------------------|
| *Two                      Years Ended December 31,                      2005* |

| **17.** | **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. |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|    | Revenue,                interest income, interest expense, depreciation and amortization,                profit                and loss, and assets pertaining to the segments in which we operate                are                presented below.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |

| ***Year                Ended December 31, 2005***        |   |   | PremiumFinance |   |   | Insurance     |   |   | Other                (1 | )      |   | Total          |   |
|----------------------------------------------------------|--------|--------|----------------|--------|--------|---------------|--------|--------|-------------------------|--------|--------|----------------|--------|
|                                                     |   |   |           |   |   |          |   |   |                    |   |   |           |   |
| Revenues                from External Customers          |   | **$**  | **6,884,563**  |   | **$**  | **7,036,599** |   | **$**  | **-**                   |   | **$**  | **13,921,162** |   |
| Interest                Income                           |   |   | **-**          |   |   | **705**       |   |   | **18,225**              |   |   | **18,930**     |   |
| Interest                Expense                          |   |   | **748,307**    |   |   | **54,873**    |   |   | **307,421**             |   |   | **1,110,601**  |   |
| Depreciation                and Amortization             |   |   | **200,278**    |   |   | **154,410**   |   |   | **49,479**              |   |   | **404,523**    |   |
| Segment                Profit (Loss) before Income Taxes |   |   | **1,230,570**  |   |   | **1,602,330** |   |   | **(1,931,140**          | **)**  |   | **901,760**    |   |
| Segment                Profit (Loss)                     |   |   | **738,342**    |   |   | **961,174**   |   |   | **(1,203,756**          | **)**  |   | **495,760**    |   |
| Segment                Assets                            |   |   | **18,014,122** |   |   | **3,618,894** |   |   | **877,071**             |   |   | **22,510,087** |   |

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

| *Year                Ended December 31, 2004*                          |   |   | PremiumFinance |   |   | Insurance |   |   | Other                (1 | )      |   | Total      |   |
|------------------------------------------------------------------------|--------|--------|----------------|--------|--------|-----------|--------|--------|-------------------------|--------|--------|------------|--------|
|                                                                   |   |   |           |   |   |      |   |   |                    |   |   |       |   |
| Revenues                from External Customers                        |   | $      | 7,961,617      |   | $      | 7,126,398 |   | $      | -                       |   | $      | 15,088,015 |   |
| Interest                Income                                         |   |   | -              |   |   |      |   |   | 10,006                  |   |   | 10,006     |   |
| Interest                Expense                                        |   |   | 688,315        |   |   | 74,247    |   |   | 501,858                 |   |   | 1,264,420  |   |
| Depreciation                and Amortization                           |   |   | 212,391        |   |   | 179,478   |   |   | 33,515                  |   |   | 425,384    |   |
| Segment                Profit (Loss)before                Income Taxes |   |   | 2,087,404      |   |   | 1,743,276 |   |   | (1,974,916              | )      |   | 1,855,764  |   |
| Segment                Profit (Loss)                                   |   |   | 1,252,442      |   |   | 1,045,966 |   |   | (924,044                | )      |   | 1,374,364  |   |
| Segment                Assets                                          |   |   | 21,742,126     |   |   | 4,706,150 |   |   | 1,052,919               |   |   | 27,501,195 |   |

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

| **18.** | **Major                Customers** |
|---------|------------------------------------|

|   | At                December 31, 2005, revenue from major customers consisted of the                following: |
|--------|--------------------------------------------------------------------------------------------------------------|

|   | **Customer** | **%                of Total Revenue** | **Segment**   |
|--------|--------------|---------------------------------------|---------------|
|   |         |                                  |          |
|   | **A**        | **19%**                               | **Insurance** |

----

**DCAP          GROUP, INC. AND**

**SUBSIDIARIES**

| **Notes                        to Financial Statements**                          |
|-----------------------------------------------------------------------------------|
| *Two                        Years Ended December 31,                        2005* |

|   | At                December 31, 2004, revenue from major customers consisted of the                following: |
|--------|--------------------------------------------------------------------------------------------------------------|

|   | Customer | %                of Total Revenue | Segment   |
|--------|----------|-----------------------------------|-----------|
|   |     |                              |      |
|   | A        | 22%                               | Insurance |

| **19.** | **Fair                Value of Financial Instruments**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|    | The                methods and assumptions used to estimate the fair value of the following                classes of financial instruments were:                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|    | ***Current                Assets and Current Liabilities***:                The carrying values of cash, accounts receivables, finance contract                receivables and payables and certain other short-term financial                instruments approximate their fair value.                                                                                                                                                                                                                                                                                                             |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|    | ***Long-Term                Debt***:                The fair value of our long-term debt, including the current portion,                was                estimated using a discounted cash flow analysis, based on our assumed                incremental borrowing rates for similar types of borrowing arrangements.                The carrying amount of variable and fixed rate debt at December 31,                2005                approximates fair value.                                                                                                                             |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| **20.** | **Retirement                Plan**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|    | Qualified                employees are eligible to participate in a salary reduction plan                under                Section 401(k) of the Internal Revenue Code. Participation in the                plan is                voluntary, and any participant may elect to contribute up to a maximum                of                $12,000 per year. We will match 25% of the employee's contribution                up to                6%. Contributions for the years ended December 31, 2005 and 2004                approximated $17,000 and $26,000,                respectively. |

| **21.** | **Supplementary                Information - Statement of Cash Flows** |
|---------|------------------------------------------------------------------------|
|    |                                                                   |
|    | Cash                paid during the years for:                         |

| *Years                Ended December 31,* |   |   | **2005**      |   |   | 2004      |   |
|-------------------------------------------|--------|--------|---------------|--------|--------|-----------|--------|
|                                      |   |   |          |   |   |      |   |
| Interest                                  |   | **$**  | **1,149,327** |   | $      | 1,160,798 |   |
|                                      |   |   |          |   |   |      |   |
| Income                Taxes               |   | **$**  | **751,791**   |   | $      | 30,927    |   |

| **22.** | **Subsequent                Events**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|    | ***Business                acquisition -***Effective*** ***January                1, 2006 we completed the acquisition of substantially all of the                assets of                Accurate Agency of Western New York, Inc., Louisons Associates Limited                and                Accurate Agency, Inc., insurance brokerage firms with a total of                four                offices located in and around Rochester, New York. The purchase price                for                the assets was approximately $1,600,000. ***Purchase                of notes receivable -***On                January 31, 2006, we purchased from Eagle Insurance Company (“Eagle”) two                surplus notes issued by Commercial Mutual Insurance Company (“CMIC”) in                the aggregate principal amount of $3,750,000 (the “Surplus Notes”). The                aggregate purchase price for the Surplus Notes was $3,075,141, of                which                $1,303,434 was paid to Eagle by delivery of a six month promissory                note.                CMIC is a New York property and casualty insurer. Eagle is a New                Jersey                property and casualty insurer under the administrative supervision                of the                New Jersey Department of Banking and Insurance and owns approximately                10%                of our outstanding common stock. |

----

**DCAP          GROUP, INC. AND**

**SUBSIDIARIES**

| **Notes                        to Financial Statements**                          |
|-----------------------------------------------------------------------------------|
| *Two                        Years Ended December 31,                        2005* |

|    |                                                                                                                                                                                    |
|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **23.** | **Fourth                Quarter Adjustment**                                                                                                                                            |
|    |                                                                                                                                                                                    |
|    | In                the fourth quarter of 2005 we recorded an adjustment to increase                our                allowance for finance receivable losses by approximately $170,000. |

----

**SIGNATURES**

|                                       | **DCAP                GROUP, INC.**                                                                                                        |
|--------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------|
| Dated:                March 27, 2006  | By:                  /s/ Barry B. Goldstein  Barry                B. Goldstein  Chief                Executive Officer |

| **Signature**                                                                      | **Capacity**                                                                                                                                                                                                    | **Date**                                  |
|------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------|
|                                                                               |                                                                                                                                                                                                            |                                      |
|   /s/                Barry B. GoldsteinBarry                B. Goldstein | President,                Chairman of the Board, Chief Executive Officer, Chief                Financial Officer, Treasurer and Director (Principal                Executive, Financial and Accounting Officer) |   March                27, 2006 |
|  /s/                Morton L. CertilmanMorton                L. Certilman     |   Secretary                and Director                                                                                                                                                               |   March                29, 2006 |
|   /s/                Jay M. Haft  Jay                M. Haft   |   Director                                                                                                                                                                                            |   March                29, 2006 |
|   /s/                David A. Lyons David                A. Lyons   |   Director                                                                                                                                                                                            |   March                29, 2006 |
|   /s/                Jack D. Seibald Jack                D. Seibald |   Director                                                                                                                                                                                            |   March                28, 2006 |
|   Robert                M. Wallach                                       |   Director                                                                                                                                                                                            |   March                __, 2006 |