**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, 2006 |

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

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

| Commission                file number 0-1665 |
|----------------------------------------------|

**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 |
|---------------------------------------------|----------------------------------------------------------|
| Common                Stock, $.01 par value | The                NASDAQ Stock Market LLC               |

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

**(APPLICABLE      ONLY TO CORPORATE REGISTRANTS)**

**DOCUMENTS      INCORPORATED BY REFERENCE**

**INDEX**

|                                      |                                                                                                                                                                | **Page                No.** |
|-------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------|
| Forward-Looking                Statements | 1                                                                                                                                                                   |
|                                      |                                                                                                                                                                |                        |
| **PART                I**                 |                                                                                                                                                                |                        |
| Item                1.                    | Description                of Business                                                                                                                              | 2                           |
| Item                2                     | Description                of Property                                                                                                                              | 12                          |
| Item                3.                    | Legal                Proceedings                                                                                                                                    | 12                          |
| Item                4.                    | Submission                of Matters to a Vote of Security Holders                                                                                                  | 12                          |
|                                      |                                                                                                                                                                |                        |
| **PART                II**                |                                                                                                                                                                |                        |
| Item                5.                    | Market                for Common Equity, Related Stockholder Matters and Small Business                Issuer                Purchases of Equity Securities         | 13                          |
| Item                6.                    | Management’s                Discussion and Analysis or Plan of Operation                                                                                      | 14                          |
| Item                7.                    | Financial                Statements                                                                                                                                 | 28                          |
| Item                8.                    | Changes                in and Disagreements with Accountants on Accounting and Financial                Disclosure                                                  | 28                          |
| Item                8A.                   | Controls                and Procedures                                                                                                                              | 28                          |
| Item                8B.                   | Other                Information                                                                                                                                    | 29                          |
|                                      |                                                                                                                                                                |                        |
| **PART                III**               |                                                                                                                                                                |                        |
| Item                9.                    | Directors,                Executive Officers, Promoters, Control Persons and Corporate Governance;                Compliance with Section 16(a) of the Exchange Act |  30                    |
| Item                10.                   | Executive                Compensation                                                                                                                               | 33                          |
| Item                11.                   | Security                Ownership of Certain Beneficial Owners and Management and Related                Stockholder Matters                                        | 35                          |
| Item                12.                   | Certain                Relationships and Related Transactions, and Director                Independence                                                             | 38                          |
| Item** **13.                         | Exhibits                                                                                                                                                            | 40                          |
| Item                14.                   | Principal                Accountant Fees and Services                                                                                                               | 44                          |
|                                      |                                                                                                                                                                |                        |
| **Signatures**                            |                                                                                                                                                                |                        |

**PART      I**

**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 Accurate Agency, Inc. (and                related entities), which has five 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      Developments***

| ·   | Effective                March 23, 2007, the holders of approximately $1,385,000 outstanding                principal amount of our subordinated debt agreed to extend the maturity                date of the debt from September 30, 2007 to September 30, 2008. In                consideration for the extension of the due date of the subordinated                debt,                we extended the expiration date of warrants held by the debtholders                for                the purchase of 90,000 of our common shares from September 30, 2007                to                September 30, 2008. See Item 12 of this Annual                Report. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Effective                March 23, 2007, the holder of our Series A preferred shares exchanged                such                shares for an equal number of Series B preferred shares. The terms                of the                Series B preferred shares are identical to those of the Series A                preferred                shares, except that they are mandatorily redeemable on April 30,                2008 (as                opposed to April 30, 2007 for the Series A preferred shares). See                Item 12                of this Annual Report. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | On                February 2, 2007, Robert Wallach resigned as a                director. |
|--------------------|-------------------------------------------------------------------------------------------|

| ·   | In                March 2007, Commercial Mutual Insurance Company’s Board of Directors                adopted a resolution to convert Commercial Mutual from an advance                premium                insurance company to a stock property and casualty insurance company.                We                hold surplus notes of Commercial Mutual in the aggregate principal                amount                of $3,750,000. In the event the conversion occurs, we may be able                to                convert such notes into a controlling equity interest in Commercial                Mutual. See Items 1(b) and 6 of this Annual Report. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

***Developments      During 2006***

| ·   | On                January 31, 2006, we purchased from Eagle Insurance Company two surplus                notes issued by Commercial Mutual Insurance Company in the aggregate                principal amount of $3,750,000 plus accrued interest of $1,794,688.                Commercial Mutual is a New York property and casualty insurer. Eagle                is a                New Jersey property and casualty insurer that is being operated by                the New                Jersey Department of Banking and Insurance pursuant to an Order of                Rehabilitation. Eagle owns approximately 10% of our outstanding common                shares. See Items 1(b), 6, 11 and 12 of this Annual                Report. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | On                July 28, 2006, we and our premium finance subsidiary, Payments Inc.,                entered into a new revolving line of credit with Manufacturers and                Traders                Trust Company (“M&T”), which provides for a decrease in the credit                line to $20,000,000 and the elimination of M&T’s agreement to arrange                an additional $10,000,000 credit facility with other lenders on a“best                efforts” basis (see “Developments During 2004” below). The new revolver                bears interest, at our option, at either M&T’s prime lending rate                (8.25% at December 31, 2006) or LIBOR (5.35% at December 31, 2006)                plus                2.25%, and matures on June 30, 2008. The line of credit also allows                for a                $2,500,000 term loan (of the $20,000,000 credit line availability)                to be                used to provide liquidity for ongoing working capital purposes. Any                draws                against the term line bear interest at LIBOR plus 2.75%. Concurrently                with                the obtaining of the new credit line, we borrowed $1,300,000 as a                draw                against the term line. See Items 6 and 7 of this Annual Report. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

***Developments      During 2005***

*:*

| ·   | During                2005, we utilized our line of credit with M&T 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 the 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 Capital                Market (formerly called 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 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 were 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 could borrow was raised from 80% to                85% of                eligible premium finance receivables. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **(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*

*Internet*

* *

*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***

***Commercial      Mutual Insurance Company***

***Strategy***

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

| ·   | acquire                storefront agencies in New York State in order to expand our geographical                footprint |
|--------------------|---------------------------------------------------------------------------------------------------------------------------|

| ·   | increase                the size of our premium finance business, both within and outside                the DCAP                storefronts |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | seek                to increase commission revenue through Internet                marketing |
|--------------------|----------------------------------------------------------------------------------------------|

| ·   | seek                to expand our operations by acquiring businesses or other assets,                or                providing new services such as insurance underwriting through Commercial                Mutual, 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**

**PART      II**

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

***Market      Information***

|                                       |   |   | **High**  |   |   | **Low** |   |
|---------------------------------------|--------|--------|----------------|--------|--------|---------|--------|
| **2006                Calendar Year** |   |   |           |   |   |    |   |
| First                Quarter          |   | $      | 3.35           |   | $      | 2.54    |   |
| Second                Quarter         |   |   | 3.00           |   |   | 1.95    |   |
| Third                Quarter          |   |   | 2.44           |   |   | 1.52    |   |
| Fourth                Quarter         |   |   | 3.18           |   |   | 1.42    |   |

|                                       |   |   | **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    |   |

***Holders***

***Dividends***

***Recent      Sales of Unregistered Securities***

***Issuer      Purchases of Equity Securities***

|     **Period** |   |   | **Total                Number of Shares****Purchased(1**)**** |        |   | **Average                Price****Paid                per Share** |   |   | **Total                Number of Shares Purchased as Part of Publicly Announced Plans****or                Programs** |   |   | **Maximum                Number of Shares that May Yet Be Purchased Under the Plans or****Programs** |   |
|------------------------------------|--------|--------|---------------------------------------------------------------|--------|--------|-------------------------------------------------------------------|--------|--------|-----------------------------------------------------------------------------------------------------------------------|--------|--------|------------------------------------------------------------------------------------------------------|--------|
|                               |   |   |                                                          |   |   |                                                              |   |   |                                                                                                                  |   |   |                                                                                                 |   |
| 10/1/06                - 10/31/06  |   |   | 350                                                           |   | $      | 1.71                                                              |   |   | -                                                                                                                     |   |   | -                                                                                                    |   |
| 11/1/06                - 11/30/06  |   |   | 1,403                                                         |   | $      | 1.47                                                              |   |   | -                                                                                                                     |   |   | -                                                                                                    |   |
| 12/1/06                - 12/31/06  |   |   | -                                                             |   |   | -                                                                 |   |   | -                                                                                                                     |   |   | -                                                                                                    |   |
| Total                              |   |   | 1,753                                                         |   | $      | 1.51                                                              |   |   | -                                                                                                                     |   |   | -                                                                                                    |   |

| (1)   | Represents                shares acquired by “affiliated                purchaser”. |
|-----------------|-------------------------------------------------------------------------------------------------|

**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 *

* *

*Employers'      Accounting for Defined Benefit Pension and Other Postretirement      Plans*
("SFAS      158"). SFAS 158 requires an employer to recognize the overfunded or      underfunded status of a defined benefit post-retirement plan as an asset or      liability in its balance sheet and to recognize changes in funded status in      the      year in which the changes occur through comprehensive income. SFAS 158 will      have      no impact on our financial position or results of operations.

*The      Fair Value Option for Financial Assets and Financial Liabilities - Including      an      amendment of FASB Statement No. 115*

***Results      of Operations***

***Liquidity      and Capital Resources***

| ·   | Net                cash used in operating activities during the year ended December                31, 2006                was $315,607 primarily due the following: (i) a decrease in premiums                payable of $1,098,712, the accretion of discount on notes receivable                of                $905,500 and a decrease in income taxes payable of $330,262 offset                by (ii)                our net income for the year of $508,385, our depreciation and amortization                expense of $456,614, an increase in deferred income taxes of $360,000                and                an increase in accounts payable and accrued expenses of $208,522.                Premiums                payable have declined due to a change in our mix of business. We                finance                premiums for assigned risk plans, where the loan is funded in two                stages,                generally over a 30 day period. We also finance premiums with carriers                where the entire loan is funded at inception. As our mix of business                has                changed to include fewer assigned risk loans and more direct carrier                loans, there has been a reduction in the amount of our premium liability.                The decrease in income taxes payable and increase in deferred income                taxes                is the result of the accretion of the discount on the Commercial                Mutual                note receivable not being currently taxable. The increase in accounts                payable and accrued expenses was attributable to Accurate as well                as our                ability to increase payment terms of certain vendors. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | 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 $2,433,742 was used in investing activities during the year ended                December 31, 2006 primarily due to following: (i) the use of $3,075,141                in                cash to purchase the surplus notes issued by Commercial                Mutual                and the use of $1,000,786 in cash to purchase the Accurate agency                and                other business acquisitions, offset by (ii) a decrease in our net                finance                contracts receivable of $1,737,168. This decrease was the result                of a                reduction in the dollar amount of premium finance contracts entered                into                in 2006. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Net                cash provided by financing activities during the year ended December                31,                2006 was $1,984,272 primarily due to the following: (i) proceeds                of                $50,914,830 from our revolving credit line from M&T for premium                finance purposes and $1,300,000 for the purchase of the surplus notes                issued by Commercial                Mutual,                offset by (ii) payments of $49,739,009 on the revolving credit line                and                $593,846 of long-term debt. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

***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*

*If      we      obtain a controlling interest in Commercial Mutual Insurance Company, we will      face new risks and uncertainties.*

*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*
***.***

*We      have incurred, and will continue to incur, increased costs as a result of being      an SEC reporting company.*

*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, CONTROL PERSONS AND CORPORATE GOVERNANCE;      COMPLIANCE WITH SECTION 16(A) OF THE**

**EXCHANGE      ACT**

***Executive      Officers and Directors***

| **Name**                           | **Age** | **Positions                and Offices Held**                                                                                            |
|------------------------------------|---------|------------------------------------------------------------------------------------------------------------------------------------------|
|                               |    |                                                                                                                                     |
| Barry                B. Goldstein  | 54      | President,                Chairman of the Board, Chief Executive Officer, Chief Financial Officer,                Treasurer and Director |
| Morton                L. Certilman | 75      | Secretary                and Director                                                                                                    |
| Jay                M. Haft         | 71      | Director                                                                                                                                 |
| David                A. Lyons      | 57      | Director                                                                                                                                 |
| Jack                D. Seibald     | 46      | Director                                                                                                                                 |

*Barry      B. Goldstein*

*Morton      L. Certilman*

*Jay      M. Haft*

*David      A. Lyons*

*Jack      D. Seibald*

***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** |  **Salary** |  **Bonus** | **All                Other****Compensation** |  **Total** |
|----------------------------------------------------------------------|----------------|------------------|-----------------|----------------------------------------------|-----------------|
|                                                                 |           |             |            |                                         |            |
| Barry                GoldsteinChief                Executive Officer | 2006           | $350,000         | - (1)      | $54,942(2)                                   | $404,942(1)     |

| (1) | The                bonus payable to Mr. Goldstein for services rendered during 2006                has not                yet been determined. It is anticipated that such determination will                be                made by June 30, 2007. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Includes                payment on behalf of Mr. Goldstein of country club dues of                $28,532.                                                                                                                                       |

***Employment      Contracts***

**OUTSTANDING      EQUITY AWARDS AT FISCAL YEAR-END**

|   **Name**                                                                         |
|----------------------------------------------------------------------------------------------|
| **Option                  Awards**                                                           |
| **Number                  of Securities Underlying****Unexercised                  Options** | **Option                  Exercise****Price** | **Option****Expiration****Date** |
|                                                                                         | **Exercisable** |   |   |
|                                                                                         |   |   |   |
| Barry                  B. Goldstein                                                          | 66,000                  (1) | $1.50 | 5/15/07 |

| (1) | Such                options have been exercisable since May 15, 2002 and were exercised                in                full in January and February 2007. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

***Compensation      of Directors***

|  **Name**                     | **Director                Compensation Fees****Earned                or****Paid                in Cash** |  **Option****Awards**                 |  **All                Other****Compensation** |  **Total** |
|------------------------------------|----------------------------------------------------------------------------------------------------------|--------------------------------------------|----------------------------------------------------|-----------------|
|                               |                                                                                                     |                                       |                                               |            |
| Morton                L. Certilman | $19,500                                                                                                  | -                 | $49,900                (1)                         | $69,400         |
| Jay                M. Haft         | $23,625                                                                                                  | -                (2)                       | -                                                  | $23,625         |
| David                A. Lyons      | $29,125                                                                                                  |  -                (3)            | -                                                  | $29,125         |
| Jack                D. Seibald     | $24,125                                                                                                  | -                      | -                                                  | $24,125         |

| (1)   | Represents                consulting fees paid to Mr.                Certilman. |
|-----------------|---------------------------------------------------------------------------------|

| (2)   | As                of December 31, 2006, Mr. Haft held options for the purchase of 25,000                common shares. |
|-----------------|------------------------------------------------------------------------------------------------------------------------|

| (3)   | As                of December 31, 2006, Mr. Lyons held options for the purchase of                20,000                common shares. |
|-----------------|----------------------------------------------------------------------------------------------------------------------------------------|

| ·   | $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) |

**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                                                          |   | 393,400(1)(2)                                                            |   | 13.3%                                              |
| AIA                Acquisition Corp6787                Market StreetUpper                Darby, Pennsylvania                                           |   | 361,600(3)                                                               |   | 11.1%                                              |
| Eagle                Insurance Companyc/o                The Robert PlanCorporation999                Stewart AvenueBethpage,                New York  |   | 297,378(4)                                                               |   | 10.0%                                              |
| Infinity                Capital Partners, L.P.767                Third Avenue, 16th FloorNew                York, New York                             |   | 292,597(1)(5)                                                            |   | 9.9%                                               |
| Jack                D. Seibald  1336                Boxwood Drive WestHewlett                Harbor, New York                                     |   | 274,750(1)(6)                                                            |   | 9.2%                                               |
| Jay                M. Haft69                Beaver Dam RoadSalisbury,                Connecticut                                                       |   | 182,278(1)(7)                                                            |   | 6.1%                                               |

| Morton                L. Certilman 90                Merrick AvenueEast                Meadow, New York  |   | 170,248(1) |   | 5.8% |
|---------------------------------------------------------------------------------------------------------------|--------|------------|--------|------|

| David                A. Lyons252                Brookdale RoadStamford,                Connecticut   |   | 20,000(8)                                                  |   | *     |
|-----------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------|--------|-------|
| All                executive officers and                directors as a group (5                persons)  |   |                    1,040,676(1)(2)(5)(7)(8) |   | 34.5% |

| (1)    | Based                upon Schedule 13D filed under the Securities Exchange Act of 1934,                as                amended, and other information that is publicly                available.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| (2)    | Includes                (i) 8,500 shares held by Mr. Goldstein’s children, and (ii) 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. We have                been                advised that, pursuant to an Order of Rehabilitation filed with the                Superior Court of New Jersey, Mercer County on January 29, 2007,                the                Commissioner of the Department of Banking and Insurance of the State                of                New Jersey has been vested with title to the shares registered in                Eagle’s                name.                                                                                                                                                                                                                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| (5)    | Each                of (i) Infinity Capital, LLC (“Capital”), as the general partner of                Infinity Capital Partners, L.P. (“Partners”), (ii) Infinity Management,                LLC (“Management”), as the Investment Manager of Partners, and (iii)                Michael Feinsod, as the Managing Member of Capital and Management,                the                General Partner and Investment Manager, respectively, of Partners,                may be                deemed to be the beneficial owners of the shares held by Partners.                Pursuant to the Schedule 13D filed under the Securities Exchange                Act of                1934, as amended, by Partners, Capital, Management and Mr. Feinsod,                each                has sole voting and dispositive power over the                shares. |

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |

***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      |   |   | 193,300                                                                                                                                                         |   | $      | 2.34                                                                                                                     |   |   | 682,000                                                                                                                                                                                                   |         |
| Equity                  compensation plans not approved by security holders  |   |   | -0-                                                                                                                                                             |   |   | -0-                                                                                                                      |   |   | -0-                                                                                                                                                                                                       |         |
| Total                                                                        |   |   | 193,300                                                                                                                                                         |   | $      | 2.34                                                                                                                     |   |   | 682,000                                                                                                                                                                                                   |         |

**ITEM      12.**
**CERTAIN      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR      INDEPENDENCE**

***Guaranty***

***Subordinated      Debt Financing***

***Commercial      Mutual Insurance Company***

***Preferred      Stock Exchange***

***Relationship***

***Director      Independence***

*Board      of Directors*

*Audit      Committee*

*Nominating      Committee*

*Compensation      Committee*

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

| **Exhibit****Number** |  **Description                of Exhibit**                            |
|-----------------------|----------------------------------------------------------------------------|
|                  |                                                                       |
| 3(a)                  | Restated                Certificate of Incorporation (1)                   |
|                  |                                                                       |
| 3(b)                  | Certificate                of Designations of Series A Preferred Stock (2) |
|                  |                                                                       |
| 3(c)                  | Certificate                of Designations of Series B Preferred Stock     |
|                  |                                                                       |
| 3(d)                  | 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                Jay M. Haft (8)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10(g)  | Amended                and Restated Financing and Security Agreement, dated as of July 28,                2006,                by and among Payments Inc., DCAP Group, Inc. and Manufacturers and                Traders                Trust Company, in its capacity as both collateral and administrative                agent                for each of the “Lenders” and sole arranger                                                                                                                                                                                                                    |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10(h)  | Amended                and Restated Revolving Credit Note, dated July 28, 2006, in the principal                amount of $20,000,000 issued by Payments Inc. and DCAP Group, Inc.                to                Manufacturers and Traders Trust Company                                                                                                                                                                                                                                                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10(i)  | Term                Line Note, dated July 28, 2006, in the principal amount of $1,300,000                issued by Payments Inc. and DCAP Group, Inc. to Manufacturers and                Traders                Trust Company                                                                                                                                                                                                                                                                                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10(j)  | Security                Agreement, dated as of July 28, 2006, by DCAP Group, Inc, DCAP Management                Corp., DCAP Accurate, Inc., AIA-DCAP Corp., 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” |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 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)  | Reaffirmation                of and Amendment to Stock Pledge Agreements, dated as of July 28,                2006, by                DCAP Group, Inc., Barry Scott Agency, Inc., Barry Scott Companies,                Inc.                and Blast Acquisition Corp. for the benefit of Manufacturers and                Traders                Trust Company in its capacity as “Agent” for itself and other                “Lenders” |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10(n)  | Unit                Purchase Agreement, dated as of July 2, 2003, by and among DCAP Group,                Inc. and the purchasers named therein (9)                                                                                                                                                                                                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10(o)  | Security                Agreement, dated as of July 10, 2003, by and among Payments Inc.                and the                secured parties named therein (9)                                                                                                                                                                                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10(p)  | Pledge                Agreement, dated as of July 10, 2003, by and among DCAP Group, Inc.                and                the pledgees named therein (9)                                                                                                                                                                                                                                                                                                        |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10(q)  | Form                of Secured Subordinated Promissory Note, dated July 10, 2003, issued                by                DCAP Group, Inc. with respect to indebtedness in the original aggregate                principal amount of $3,500,000 (9)                                                                                                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10(r)  | Letter                agreement, dated May 25, 2005, between DCAP Group, Inc. and Jack                Seibald                as representative and attorney-in-fact with respect to the outstanding                subordinated debt                                                                                                                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10(s)  | Letter                agreement, dated March 23, 2007, between DCAP Group, Inc. and Jack                Seibald                as representative and attorney-in-fact with respect to the outstanding                subordinated debt                                                                                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10(t)  | Form                of Warrant, dated July 10, 2003, for the purchase of an aggregate                of                525,000 common shares (105,000 shares after giving effect to 1-for-5                reverse split effectuated on August 26, 2004) of DCAP Group, Inc.                (9)                                                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10(u)  | Registration                Rights Agreement, dated July 10, 2003, by and among DCAP Group, Inc.                and                the purchasers named therein (9)                                                                                                                                                                                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10(v)  | 2005                Equity Participation Plan (10)                                                                                                                                                                                                                                                                                                                                                                                                                |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10(w)  | Surplus                Note Purchase Agreement, dated as of January 31, 2006, by and between                DCAP                Group, Inc. and Eagle Insurance Company (10)                                                                                                                                                                                                                                                                                      |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10(x)  | Promissory                Note, dated January 31, 2006, in the principal amount of $1,303,434                issued                by DCAP Group, Inc. to Eagle Insurance Company (10)                                                                                                                                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10(y)  | 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)                                                                                                                                                                                                                                                       |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10(z)  | Surplus                Note, dated March 12, 1999, in the principal amount of $750,000 issued                by                Commercial Mutual Insurance Company to DCAP Group, Inc.                (10)                                                                                                                                                                                                                                                        |

|   |                                                                                                                                                                                                                                      |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 14     | Code                of Ethics (11)                                                                                                                                                                                                        |
|   |                                                                                                                                                                                                                                      |
| 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, 2004 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, 2005 and incorporated herein by                reference.                     |
|   |                                                                                                                                                                                                                                       |
| (11)   | 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                  2006 Fees** |   |   | **Fiscal                  2005 Fees** |   |
|----------------------------------------|--------|--------|---------------------------------------|--------|--------|---------------------------------------|--------|
| Audit                  Fees(1)         |   | $      | 87,425                                |   | $      | 90,200                                |   |
| Audit-Related                  Fees(2) |   |   | -                                     |   |   | -                                     |   |
| Tax                  Fees(3)           |   |   | 34,000                                |   |   | -                                     |   |
| All                  Other Fees(4)     |   |   | 15,485                                |   |   | 13,335                                |   |
| Total                  Fees            |   | $      | 136,910                               |   | $      | 103,535                               |   |

| (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, 2006 and December 31, 2005, 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)    | Tax                Fees consist of aggregate fees billed for preparation of our federal                and                state income tax returns and other tax compliance                activities.                                                                                                                                                                                                                                                                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| (4)    | 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, 2006***                                     |
|                                                                                       |

| **DCAP                    GROUP, INC. AND****SUBSIDIARIES**  **Contents***Two                    Years Ended December 31, 2006*  |
|-------------------------------------------------------------------------------------------------------------------------------------------------|

| **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-26  |

**Report        of Independent Registered Public Accounting Firm**

As        discussed in Note 2 to the consolidated financial statements, effective        January 1, 2006, the Company adopted Statement of Financial Accounting        Standards No. 123(R), *Share-Based        Payment*.

|  **DCAP                  GROUP, INC. AND****SUBSIDIARIES**              |
|------------------------------------------------------------------------------|
| ** **                                                                   |
| **Consolidated                  Balance Sheet**                              |   |   |   |   |   |   |   |
| *December                  31, 2006*                                         |   |   |   |   |   |   |   |
|                                                                         |   |   |   |   |   |   |   |
| **Assets**                                                                   |   |   |   |   |   |   |   |
|                                                                         |   |   |   |   |   |   |   |
| Current                  Assets:                                             |   |   |   |   |   |   |   |
| Cash                  and cash equivalents                                   |   |   |   |   | $ | 1,196,412 |   |
| Accounts                  receivable, net of allowance for                   |   |   |   |   |   |   |   |
| doubtful                  accounts of $66,000                                |   |   |   |   |   | 1,446,981 |   |
| Finance                  contracts receivable                                |   | $ | 16,186,559 |   |   |   |   |
| Less:                  Deferred interest                                     |   |   | (1,203,435 | ) |   |   |   |
| Less:                  Allowance for finance receivable losses               |   |   | (205,269 | ) |   | 14,777,855 |   |
| Prepaid                  income taxes                                        |   |   |   |   |   | 261,403 |   |
| Prepaid                  expenses and other current assets                   |   |   |   |   |   | 96,955 |   |
| Deferred                  income taxes                                       |   |   |   |   |   | 76,000 |   |
|                                                                         |   |   |   |   |   |   |   |
| Total                  Current Assets                                        |   |   |   |   |   | 17,855,606 |   |
|                                                                         |   |   |   |   |   |   |   |
| Property                  and Equipment, net                                 |   |   |   |   |   | 356,106 |   |
| Goodwill                                                                     |   |   |   |   |   | 2,601,257 |   |
| Other                  Intangibles, net                                      |   |   |   |   |   | 348,786 |   |
| Notes                  Receivable                                            |   |   |   |   |   | 4,007,986 |   |
| Deposits                  and Other Assets                                   |   |   |   |   |   | 233,146 |   |
| Total                  Assets                                                |   |   |   |   | $ | 25,402,887 |   |
|                                                                         |   |   |   |   |   |   |   |
| **Liabilities                  and Stockholders' Equity**                    |   |   |   |   |   |   |   |
|                                                                         |   |   |   |   |   |   |   |
| Current                  Liabilities:                                        |   |   |   |   |   |   |   |
| Revolving                  credit line                                       |   |   |   |   | $ | 10,952,345 |   |
| Accounts                  payable and accrued expenses                       |   |   |   |   |   | 1,013,181 |   |
| Premiums                  payable                                            |   |   |   |   |   | 3,062,249 |   |
| Current                  portion of long-term debt                           |   |   |   |   |   | 630,565 |   |
| Other                  current liabilities                                   |   |   |   |   |   | 166,146 |   |
| Total                  Current Liabilities                                   |   |   |   |   |   | 15,824,486 |   |
|                                                                         |   |   |   |   |   |   |   |
| Long-Term                  Debt                                              |   |   |   |   |   | 2,408,139 |   |
| Deferred                  Income Taxes                                       |   |   |   |   |   | 396,000 |   |
| Mandatorily                  Redeemable Preferred Stock                      |   |   |   |   |   | 780,000 |   |
|                                                                         |   |   |   |   |   |   |   |
| Commitments                                                                  |   |   |   |   |   |   |   |
|                                                                         |   |   |   |   |   |   |   |
| Stockholders'                  Equity:                                       |   |   |   |   |   |   |   |
| Common                  stock, $.01 par value; authorized 10,000,000 shares; |   |   |   |   |   |   |   |
| issued                  3,672,947                                            |   |   |   |   |   | 36,730 |   |
| Preferred                  stock, $.01 par value; authorized                 |   |   |   |   |   |   |   |
| 1,000,000                  shares; 0 shares issued and outstanding           |   |   |   |   |   | - |   |
| Capital                  in excess of par                                    |   |   |   |   |   | 11,633,884 |   |
| Deficit                                                                      |   |   |   |   |   | (4,497,797 | ) |
|                                                                         |   |   |   |   |   | 7,172,817 |   |
| Treasury                  stock, at cost, 776,923 shares                     |   |   |   |   |   | (1,178,555 | ) |
| Total                  Stockholders' Equity                                  |   |   |   |   |   | 5,994,262 |   |
| Total                  Liabilities and Stockholders' Equity                  |   |   |   |   | $ | 25,402,887 |   |
|                                                                         |   |   |   |   |   |   |   |
| *See                  notes to consolidated financial statements.*           |   |   |   |   |   | F-3 |   |

|  **DCAP                    GROUP, INC. AND****SUBSIDIARIES**            |
|------------------------------------------------------------------------------|
|                                                                         |
| **Consolidated                    Statements of Income**                     |   |   |   |   |   |   |   |
| *Years                    Ended December 31,*                                |   |   | **2006** |   |   | **2005** |   |
|                                                                         |   |   |   |   |   |   |   |
| Revenue:                                                                     |   |   |   |   |   |   |   |
| Commissions                    and fees                                      |   | **$** | **7,121,724** |   | $ | 7,036,599 |   |
| Premium                    finance revenue                                   |   |   | **3,960,223** |   |   | 4,982,009 |   |
| Total                    Revenue                                             |   |   | **11,081,947** |   |   | 12,018,608 |   |
|                                                                         |   |   |   |   |   |   |   |
| Operating                    Expenses:                                       |   |   |   |   |   |   |   |
| General                    and administrative expenses                       |   |   | **8,965,066** |   |   | 8,785,660 |   |
| Provision                    for finance receivable losses                   |   |   | **650,005** |   |   | 834,994 |   |
| Depreciation                    and amortization                             |   |   | **456,614** |   |   | 404,523 |   |
| Interest                    expense                                          |   |   | **824,382** |   |   | 748,307 |   |
| Total                    Operating Expenses                                  |   |   | **10,896,067** |   |   | 10,773,484 |   |
|                                                                         |   |   |   |   |   |   |   |
| Operating                    Income                                          |   |   | **185,880** |   |   | 1,245,124 |   |
|                                                                         |   |   |   |   |   |   |   |
| Other                    (Expense) Income:                                   |   |   |   |   |   |   |   |
| Interest                    income                                           |   |   | **4,454** |   |   | 18,930 |   |
| Interest                    income - notes receivable                        |   |   | **1,182,844** |   |   | - |   |
| Interest                    expense                                          |   |   | **(490,946** | **)** |   | (323,173 | ) |
| Interest                    expense - mandatorily redeemable preferred stock |   |   | **(39,000** | **)** |   | (39,121 | ) |
| Gain                    on sale of store                                     |   |   | **81,105** |   |   | - |   |
| Total                    Other (Expense) Income                              |   |   | **738,457** |   |   | (343,364 | ) |
|                                                                         |   |   |   |   |   |   |   |
| Income                    Before Provision for Income Taxes                  |   |   | **924,337** |   |   | 901,760 |   |
| Provision                    for Income Taxes                                |   |   | **415,952** |   |   | 406,000 |   |
| Net                    Income                                                |   | **$** | **508,385** |   | $ | 495,760 |   |
|                                                                         |   |   |   |   |   |   |   |
| Net                    Income Per Common Share:                              |   |   |   |   |   |   |   |
| Basic:                                                                       |   | **$** | **0.18** |   | $ | 0.18 |   |
|                                                                         |   |   |   |   |   |  |   |
| Diluted:                                                                     |   | **$** | **0.17** |   | $ | 0.17 |   |
|                                                                         |   |   |   |   |   |   |   |
| Weighted                    Average Number of Shares Outstanding:            |   |   |   |   |   |   |   |
| Basic                                                                        |   |   | **2,888,805** |   |   | 2,726,526 |   |
|                                                                         |   |   |   |   |   |   |   |
| Diluted                                                                      |   |   | **3,250,937** |   |   | 3,199,620 |   |
|                                                                         |   |   |   |   |   |   |   |
|  *See                  notes to consolidated financial statements.*     |   |   |   |   |   | F-4  |   |

|  **DCAP                    GROUP, INC. AND****SUBSIDIARIES **                                                                  |   |
|------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                     |   |
| **Consolidated                    Statement of Stockholders' Equity**                                                                    |   |
| *Years                    Ended December 31, 2006 and 2005*                                                                              |   |   |
|                                                                                                                                     |   |  Common                    Stock |   |  Preferred                    Stock |  | **Capital                      in Excess** |   |   |   |  Treasury                    Stock |   |   |   |
|                                                                                                                                     |   | Shares |   |   |   | Amount |   | Shares |   |   | Amount |  |   | of                    Par |   | (Deficit) |   | Shares |   |   |   | Amount |   | Total |   |
|                                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance,                    January 1, 2005                                                                                              |   |   | 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 theextension                        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 |   |
| Exercise                    of Stock Options                                                                                             |   |   | 127,500 |   |   |   |   |   | 1,275  |   |   | - |   |   |   |  - |   |   |   |   | 189,974  |   |   | - |   |   | - |   |   |   |   |   | - |   |   | 191,249 |   |
| Tax                    Benefit from Exercise of Stock Options                                                                            |   |   | - |   |   |   |   |   | - |   |   | - |   |   |   |  - |   |   |   |   | 42,400  |   |   | - |   |   | - |   |   |   |   |   | - |   |   | 42,400 |   |
| Stock-Based                    Payments                                                                                                  |   |   | - |   |   |   |   |   | - |   |   | - |   |   |   |  - |   |   |   |   | 29,630  |   |   | - |   |   | - |   |   |   |   |   | - |   |   | 29,630 |   |
| Net                    Income                                                                                                            |   |   | - |   |   |   |   |   | - |   |   | - |   |   |   |  - |   |   |   |   | - |   |   | 508,385  |   |   | - |   |   |   |   |   | - |   |   | 508,385 |   |
| Balance,                    December 31, 2006                                                                                            |   |   | 3,672,947 |   |   |   |   | $ | 36,730 |   |   | - |   |   |   |  - |   |   |   | $ | 11,633,884 |   | $ | (4,497,797 | ) |   | 776,923 |   |   |   |   | $ | (1,178,555 | ) | $ | 5,994,262 |   |
|                                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                     |
| *See                    notes to consolidated financial statements.*                                                                     |   |   |   |   |   |   |   |   |   | F-5 |   |

|  **DCAP                  GROUP, INC. AND****SUBSIDIARIES **      |
|----------------------------------------------------------------------------|
|                                                                       |   |   |   |   |   |   |   |
| **Consolidated                  Statements of Cash Flows**                 |   |   |   |   |   |   |   |
| *Years                  Ended December 31,*                                |   |   | **2006** |   |   | 2005 |   |
|                                                                       |   |   |   |   |   |   |   |
| Cash                  Flows from Operating Activities:                     |   |   |   |   |   |   |   |
| Net                  income                                                |   | **$** | **508,385** |   | $ | 495,760 |   |
| Adjustments                  to reconcile net income to net cash (used in) |   |   |   |   |   |   |   |
| provided                  by operating activities:                         |   |   |   |   |   |   |   |
| Depreciation                  and amortization                             |   |   | **456,614** |   |   | 404,523 |   |
| Bad                  debt expense                                          |   |   | **19,000** |   |   | - |   |
| Accretion                  of discount on notes receivable                 |   |   | **(905,500** | **)** |   | - |   |
| Amortization                  of warrants                                  |   |   | **77,526** |   |   | 71,683 |   |
| Amortization                  of debt discounts                            |   |   | **42,920** |   |   | - |   |
| Stock-based                  payments                                      |   |   | **29,630** |   |   | - |   |
| Tax                  benefit from exercise of stock options                |   |   | **42,400** |   |   |   |   |
| Gain                  on sale of store                                     |   |   | **(81,105** | **)** |   | - |   |
| Deferred                  income taxes                                     |   |   | **360,000** |   |   | 14,800 |   |
| Changes                  in operating assets and liabilities:              |   |   |   |   |   |   |   |
| Decrease                  (increase) in assets:                            |   |   |   |   |   |   |   |
| Accounts                  receivable                                       |   |   | **208,522** |   |   | 1,164,510 |   |
| Prepaid                  expenses and other current assets                 |   |   | **56,876** |   |   | 124,275 |   |
| Deposits                  and other assets                                 |   |   | **(16,706** | **)** |   | (99,957 | ) |
| Increase                  (decrease) in liabilities:                       |   |   |   |   |   |   |   |
| Premiums                  payable                                          |   |   | **(1,098,712** | **)** |   | (278,420 | ) |
| Accounts                  payable and accrued expenses                     |   |   | **347,603** |   |   | (1,042,585 | ) |
| Income                  taxes payable                                      |   |   | **(330,262** | **)** |   | (361,634 | ) |
| Other                  current liabilities                                 |   |   | **(32,798** | **)** |   | (15,773 | ) |
| Net                  Cash (Used In) Provided by Operating Activities       |   |   | **(315,607** | **)** |   | **477,182** |   |
|                                                                       |   |   |   |   |   |   |   |
| Cash                  Flows from Investing Activities:                     |   |   |   |   |   |   |   |
| Decrease                  (increase) in finance contracts receivable - net |   |   | **1,737,168** |   |   | 4,947,011 |   |
| Decrease                  in notes receivables - net                       |   |   | **42,352** |   |   | 18,427 |   |
| Proceeds                  from sale of store                               |   |   | **50,100** |   |   | - |   |
| Purchase                  of property and equipment                        |   |   | **(187,435** | **)** |   | (32,885 | ) |
| Purchase                  of notes receivable                              |   |   | **(3,075,141** | **)** |   | - |   |
| Purchase                  of business                                      |   |   | **(1,000,786** | **)** |   | (67,000 | ) |
| Net                  Cash (Used in) Provided by Investing Activities       |   |   | **(2,433,742** | **)** |   | **4,865,553** |   |
|                                                                       |   |   |   |   |   |   |   |
| Cash                  Flows from Financing Activities:                     |   |   |   |   |   |   |   |
| Proceeds                  from Term Loan                                   |   |   | **1,300,000** |   |   | - |   |
| Principal                  payments on long-term debt                      |   |   | **(593,846** | **)** |   | (2,137,760 | ) |
| Deferred                  loan costs                                       |   |   | **(88,952** | **)** |   | - |   |
| Proceeds                  from revolving credit line                       |   |   | **50,914,830** |   |   | 57,580,406 |   |
| Payments                  on revolving credit line                         |   |   | **(49,739,009** | **)** |   | (59,399,541 | ) |
| Proceeds                  from exercise of options and warrants            |   |   | **191,249** |   |   | 59,750 |   |
| Net                  Cash Provided by (Used in) Financing Activities       |   |   | **1,984,272** |   |   | **(3,897,145** | **)** |
|                                                                       |   |   |   |   |   |   |   |
| Net                  (decrease) increase in Cash and Cash Equivalents      |   |   | **(765,077** | **)** |   | 1,445,590 |   |
| Cash                  and Cash Equivalents, beginning of year              |   |   | **1,961,489** |   |   | 515,899 |   |
| Cash                  and Cash Equivalents, end of year                    |   | **$** | **1,196,412** |   | **$** | **1,961,489** |   |
|                                                                       |   |   |   |   |   |   |   |
| Supplemental                  Schedule of Non-Cash Investing               |   |   |  |   |   |   |   |
| and                  Financing Activities:                                 |   |   |   |   |   |   |   |
| Note                  payable issued for purchase of business              |   | **$** | **612,481** |   | $ | - |   |
|                                                                       |   |   |   |   |   |   |   |
| *See                  notes to consolidated financial statements.*         |   |   |   |   |   | F-6 |   |

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

| **DCAP                        GROUP, INC. AND****SUBSIDIARIES**  **Notes                        to Financial Statements***Two                        Years Ended December 31, 2006*  |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **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. Refunds of commissions on the cancellation of                insurance policies are reflected at the time of cancellation.                                                                                                                                                                                                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   | Franchise                fee revenue on initial franchisee fees is recognized when substantially                all of our contractual requirements under the franchise agreement                are                completed. Franchisees also pay a monthly franchise fee plus an applicable                percentage of advertising expense. We are obligated to provide marketing                and training support to each franchisee. During the years ended December                31, 2006 and 2005, approximately $50,000 and $65,000, 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 (“SFAS”) No. 91, "*Accounting                for Nonrefundable Fees and Costs Associated with Originating or Acquiring                Loans and Initial Direct Costs of Leases.*"                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   | Upon                the establishment of a premium finance contract, we record the gross                loan                payments as a receivable with a corresponding reduction for deferred                interest. The deferred interest is amortized to interest income using                the                interest method over the life of each loan. The weighted average                interest                rate charged with respect to financed insurance policies was approximately                26.49% and 26.55% per annum for the years ended December 31, 2006                and                2005, respectively.    |

|   | 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, 2006 and 2005, the provision for finance                receivable losses was approximately $650,000 and $900,000 (before                estimated recoveries of approximately $65,000 which reduced the provision                for finance receivable losses), respectively, and actual principal                write-offs for such year, net of actual and anticipated recoveries                of                previous write-offs, were approximately $679,000 and $732,000,                respectively. If our provision for finance receivable losses was                understated by 10% because our actual write-offs were greater than                anticipated, the effect would have been a reduction in our basic                earnings                per share by approximately $0.01 and $0.02 for the years ended December                31, 2006 and 2005, respectively. |

| F-7 |
|-----|

| **DCAP                          GROUP, INC. AND****SUBSIDIARIES**  **Notes                          to Financial Statements***Two                          Years Ended December 31, 2006*  |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | ***Goodwill                and intangible assets****-*                Goodwill represents the excess of the purchase price over fair value                of                identifiable net assets acquired from business acquisitions. In accordance                with SFAS No. 142, “*Goodwill                and Other Intangible Assets,”*goodwill                is no longer amortized, but is reviewed for impairment on an annual                basis                and between annual tests in certain circumstances. We conduct our                annual                impairment test for goodwill at the beginning of the first quarter.                We                performed the required impairment test for fiscal years 2006 and                2005 and                found no impairment of goodwill. There can be no assurance that future                goodwill impairment tests will not result in a charge to earnings. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | ***Other                Intangibles****-*SFAS                No. 142 requires purchased intangible assets other than goodwill to                be amortized over their useful lives unless those lives are determined                to                be indefinite. Purchased intangible assets are carried at cost less                accumulated amortization. Definite-lived intangible assets, which                include                customer and phone, have been assigned an estimated finite life and                are                amortized on a straight-line basis over periods ranging from 3 to                15                years.                                                                                                                                                                                                                                                                                                        |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | ***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.                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |

| F-8 |
|-----|

| **DCAP                          GROUP, INC. AND****SUBSIDIARIES**  **Notes                          to Financial Statements***Two                          Years Ended December 31, 2006*  |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | ***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, 2006 and 2005 is                as                follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |

| *Years                Ended December 31,*                                                                                 |   |   | **2006**      |   |   | 2005      |   |
|---------------------------------------------------------------------------------------------------------------------------|--------|--------|---------------|--------|--------|-----------|--------|
|                                                                                                                      |   |   |          |   |   |      |   |
| Weighted                Average Number of Shares Outstanding                                                              |   |   | **2,888,805** |   |   | 2,726,526 |   |
| Effect                of Dilutive Securities, common stock equivalents                                                    |   |   | **362,132**   |   |   | 473,094   |   |
| Weighted                Average Number of Shares Outstanding, used forcomputing                diluted earnings per share |   |   | **3,250,937** |   |   | 3,199,620 |   |

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

| *Years                Ended December 31,*                                                                |   |   | **2006**    |   |   | 2005    |   |
|----------------------------------------------------------------------------------------------------------|--------|--------|-------------|--------|--------|---------|--------|
|                                                                                                     |   |   |        |   |   |    |   |
| Net                Income                                                                                |   | **$**  | **508,385** |   | $      | 495,760 |   |
| Interest                Expense on Dilutive Convertible Preferred Stock                                  |   |   | **39,000**  |   |   | 39,121  |   |
| Net                Income Available to Common Shareholders for Diluted                Earnings Per Share |   | **$**  | **547,385** |   | $      | 534,881 |   |

|   | ***Advertising                costs -***                Advertising costs are charged to operations when the advertising                first                takes place. Included in general and administrative expenses are                advertising costs approximating $479,000 and $601,000 for the years                ended                December 31, 2006 and 2005, 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. |

| F-9 |
|-----|

| **DCAP                          GROUP, INC. AND****SUBSIDIARIES**  **Notes                          to Financial Statements***Two                          Years Ended December 31, 2006*  |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | ***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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | ***Share-based                compensation -***Prior                to January 1, 2006, we accounted for share-based compensation under                the recognition and measurement principles of Accounting Principles                Board                Opinion No. 25, "*Accounting                for Stock Issued to Employees*"                ("APB 25"). Therefore, we measured compensation expense for our                share-based compensation using the intrinsic value method, that is,                as the                excess, if any, of the fair market value of our stock at the grant                date                over the amount required to be paid to acquire the stock, and provided                the                disclosures required by SFAS 123, "*Accounting                for Stock-Based Compensation*"                (“SFAS 123”) and SFAS 148, "*Accounting                for Stock-Based Compensation-Transition and Disclosure*"                (“SFAS 148”). Effective                January 1, 2006, we began recording compensation expense associated                with stock options and other equity-based compensation in accordance                with                SFAS                No. 123 (revised 2004), “*Share-Based                Payment*”                (“SFAS 123(R)”) using the modified prospective transition method and                therefore we have not restated results for prior periods. Under the                modified prospective transition method, share-based compensation                expense                for 2006 includes (1) compensation expense for all share-based awards                granted on or after January 1, 2006 as determined based on the                grant-date fair value estimated in accordance with the provisions                of                SFAS 123(R) and (2) compensation expense for share-based                compensation awards granted prior to, but not yet vested as of,                January 1, 2006, based on the grant date fair value estimated in                accordance with the original provisions of SFAS 123. We recognize                compensation expense on a straight-line basis over the requisite                service                period of the award. ***Pro                forma financial information -***For                stock options granted prior to the adoption of SFAS 123(R), the                following table illustrates the pro forma effect on net income and                earnings per common share for the year ended December 31, 2005, as                if we                had applied the fair value recognition provisions of SFAS 123 in                determining stock-based                compensation: |

| *Year                Ended December 31, 2005*                  |   |   |    |   |
|----------------------------------------------------------------|--------|--------|---------|--------|
|                                                           |   |   |    |   |
| Net                Income, as reported                         |   | $      | 495,760 |   |
| Add:                                                           |   |   |    |   |
| Stock-based                employee compensation expense       |   |   |    |   |
| included                in reported net loss                   |   |   | **-**   |   |
| Deduct:                                                        |   |   |    |   |
| Total                stock-based employee compensation expense |   |   |    |   |
| determined                under fair value based method        |   |   | 149,361 |   |
| Net                Income, pro forma                           |   | $      | 346,399 |   |
| Net                Income Per Share:                           |   |   |    |   |
| Basic                - as reported                             |   | $      | .18     |   |
| Basic                - Pro forma                               |   | $      | .13     |   |
| Diluted                - as reported                           |   | $      | .17     |   |
| Diluted                - Pro forma                             |   | $      | .12     |   |

|   | ***Website                development costs -***                Technology and content costs are generally expensed as incurred,                except                for certain costs relating to the development of internal-use software,                including those relating to operating our website, that are capitalized                and depreciated over two years. A total of $43,160 and $172 in such                costs                were incurred during the years ended December 31, 2006 and 2005,                respectively. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| F-10 |
|------|

----

| **DCAP                          GROUP, INC. AND****SUBSIDIARIES**  **Notes                          to Financial Statements***Two                          Years Ended December 31, 2006*  |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | ***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, 2006 and 2005, there were no such adjustments                required. |

|   | ***Reclassifications                -***                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | Certain                reclassifications (including the reclassification of the premium                finance                revenue (interest and late fees) write-offs from the “Provision for                finance receivable losses” to “Premium finance revenue” (see below)) have                been made to the consolidated financial statements for the year ended                December 31, 2005 to conform to the classifications used for the                year                ended December 31, 2006. Beginning in 2005, we were able to obtain                a                complete detail of the interest and fee write-offs for the premium                finance                receivables.  Effective January 1, 2006, we began reporting the                premium finance revenue, net of the interest and fee write-offs as                illustrated below.  |

|   | *Year                Ended December 31, 2005* |
|--------|-----------------------------------------------|

| Statement                of Income Accounts            |   |   | Originally                Reported |   |   | Reclassifications |   |   | As                Restated |   |
|--------------------------------------------------------|--------|--------|------------------------------------|--------|--------|-------------------|--------|--------|----------------------------|--------|
|                                                   |   |   |                               |   |   |              |   |   |                       |   |
| Premium                finance revenue                 |   | $      | 6,884,563                          |   | $      | 1,902,554         |   | $      | 4,982,009                  |   |
| Provision                for finance receivable losses |   |   | 2,737,548                          |   |   | (1,902,554        | )      |   | 834,994                    |   |
| Net                                                    |   | $      | 4,147,032                          |   | $      | 0                 |   | $      | 4,147,032                  |   |

|   | ***New                accounting pronouncements***                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | In                July 2006, the Financial Accounting Standards Board ("FASB") issued                Financial Interpretation No. 48, “*Accounting                for Uncertainty in Income Taxes — an interpretation of FASB Statement No.                109*”                (“FIN 48”), which clarifies the accounting for uncertainty in tax                positions. FIN 48 requires that we recognize the impact of a tax                position                in our financial statements if that position is more likely than                not to be                sustained on audit, based on the technical merits of the position.                The                provisions of FIN 48 are effective in the first quarter of 2007,                with the                cumulative effect of the change in accounting principle, if any,                recorded                as an adjustment to opening retained earnings. We are currently evaluating                the impact of adopting FIN 48 on our consolidated financial                statements. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   | In                September 2006, the Securities and Exchange Commission ("SEC") released                Staff Accounting Bulletin (“SAB”) No. 108, “*Considering                the Effects of Prior Year Misstatements When Quantifying Misstatements                in                Current Year Financial Statements*”                (“SAB 108”). SAB 108 provides interpretive guidance on the SEC’s views                regarding the process of quantifying the materiality of misstatements                in                the financial statements. SAB 108 is effective for fiscal years ending                after November 15, 2006, and early application for the first interim                period of the same fiscal year is encouraged. The application of                SAB 108                did not have a material effect on our financial position or results                of                operations as of December 31, 2006 or for the year then ended.                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   | In                September 2006, the FASB issued Statement No. 157, “*Fair                Value Measurements*”                (“SFAS 157”). SFAS 157 defines fair value, establishes a framework and                gives guidance regarding the methods used in measuring fair value,                and                expands disclosures about fair value measurements. SFAS 157 is effective                for financial statements issued for fiscal years beginning after                November                15, 2007, and interim periods within those fiscal years. We are currently                evaluating the impact of adopting SFAS 157 on our consolidated financial                statements.                                                                                                                                                                                                                                                                                                                                                                        |

| F-11 |
|------|

| **DCAP                          GROUP, INC. AND****SUBSIDIARIES**  **Notes                          to Financial Statements***Two                          Years Ended December 31, 2006*  |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | In                September 2006, the FASB issued SFAS No. 158, “*Employers'                Accounting for Defined Benefit Pension and Other Postretirement                Plans*”                ("SFAS                158"). SFAS 158 requires an employer to recognize the over-funded or                underfunded status of a defined benefit post-retirement plan as an                asset                or liability in its balance sheet and to recognize changes in funded                status in the year in which the changes occur through comprehensive                income. SFAS 158 will have no impact on our financial position or                results                of operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   | In                January 2007, the FASB issued SFAS No. 159, “*The                Fair Value Option for Financial Assets and Financial Liabilities—                Including an amendment of FASB Statement No. 115*”                (“SFAS No. 159”). SFAS No. 159 is intended to improve financial                reporting by providing entities with the opportunity to mitigate                volatility in reported earnings caused by measuring related assets                and                liabilities differently without having to apply complex hedge accounting                provisions. It also establishes presentation and disclosure requirements                designed to facilitate comparisons between entities that choose different                measurement attributes for similar types of assets and liabilities.                The                statement does not affect any existing accounting literature that                requires                certain assets and liabilities to be carried at fair value, and it                does                not establish requirements for recognizing dividend income, interest                income or interest expense. It also does not eliminate disclosure                requirements included in other accounting standards. The provisions                of                SFAS 159 are effective for the fiscal year beginning after                November 15, 2007. We are currently evaluating the impact of the                provisions of SFAS No. 159. |

| **3.** | **Business                Acquisitions**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   | Effective                January 1, 2006, we acquired substantially all of the assets of Accurate                Agency of Western New York, Inc., Louisons Associates Limited and                Accurate                Agency, Inc. (collectively, “Accurate”), insurance brokerage firms with a                total of four offices located in and around Rochester, New York.                The                acquisition allows for the expansion of our geographical                footprint.                                |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   | The                aggregate purchase price was $1,600,000, including $800,000 of cash                with                the balance paid through the issuance of an $800,000 non-interest                bearing                note payable over 72 months commencing on January 10, 2007. The note                has                been recorded at its estimated present value of $612,481. The purchase                price of $1,447,022, including transaction costs of $34,541, was                allocated                as follows: |

| Goodwill                              |   | $      | 1,157,286 |   |
|---------------------------------------|--------|--------|-----------|--------|
| Intangible                Assets      |   |   | 280,686   |   |
| Property                and Equipment |   |   | 9,050     |   |
| Net                Assets Acquired    |   | $      | 1,447,022 |   |

|   | In                January 2006, we purchased the book of business, customer list and                certain                other assets of Mid-Hudson Valley Brokerage, LLC (“Mid-Hudson”) located in                Poughkeepsie, New York, for $94,505 in cash. The purchase price of                $99,245, including transactions costs of $4,740, was allocated as                follows: |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Goodwill                           |   | $      | 78,956 |   |
|------------------------------------|--------|--------|--------|--------|
| Intangible                Assets   |   |   | 20,289 |   |
| Net                Assets Acquired |   | $      | 99,245 |   |

|   | These                acquisitions are part of our strategy to expand into other regions                within                New York State. The aggregate intangible assets acquired have been                assigned to customer lists, which is subject to periodic amortization                over                a weighted average estimated useful life of four years. Our consolidated                statement of income for the year ended December 31, 2006 includes                the                revenue and expenses of Accurate and Mid-Hudson from January 2006.                Had the                transactions taken place on January 1, 2005, on a pro forma basis,                the                effect on the reported amounts for the year ended December 31, 2005                is                considered to be insignificant. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| F-12 |
|------|

| **DCAP                          GROUP, INC. AND****SUBSIDIARIES**  **Notes                          to Financial Statements***Two                          Years Ended December 31, 2006*  |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |                The                goodwill acquired in the acquisitions is expected to be deductible                for                income tax purposes and amortized over a period of 15                years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| **4.** | **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”), plus                accrued interest of $1,794,688. 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 which provided for interest                at the                rate of 7.5% per annum. The promissory note was paid in full on July                28,                2006. CMIC is a New York property and casualty insurer. Eagle is                a New                Jersey property and casualty insurer whose business is being conducted                by                the Commissioner of the New Jersey Department of Banking and Insurance                under an Order of Rehabilitation. Eagle owns approximately 10% of                our                outstanding common stock. The Surplus Notes acquired by us are past                due                and provide for interest at the prime rate or 8.5% per annum, whichever                is                less. Payments of principal and interest on the Surplus Notes may                only be                made out of the surplus of CMIC and require the approval of the New                York                State Department of Insurance. During the year ended December 31,                2006,                interest payments totaling $250,000 were received. The discount on                the                Surplus Notes and the accrued interest at the time of acquisition                are                being accreted over a 30 month period, the estimated period to collect                such amounts. Such accretion amount, together with interest on the                Surplus                Notes for the period ended December 31, 2006, is included in our                Statement                of Income as “Interest income-notes receivable.” In                March 2007, CMIC’s Board of Directors adopted a resolution to convert CMIC                from an advance premium insurance company to a stock property and                casualty                insurance company. In the event the conversion occurs, we may be                able to                convert our notes into a controlling equity interest in                CMIC. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| **5.** | **Sale                of Store**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   | During                the year ended December 31, 2006, we sold one of our retail stores                for                $125,000 in cash and notes. The sale of the store resulted in a gain                of                $81,105. In addition, concurrently with the sale, the purchaser entered                into a franchise agreement with us.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |

| **6.** | **Finance                Contract Receivables**                                                                                     |
|--------|-------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                |
|   | A                summary of the changes of the allowance for finance receivable losses                is                as follows: |

| *December                31,*                          |   |   | **2006**     |   |   | 2005     |   |
|--------------------------------------------------------|--------|--------|--------------|--------|--------|----------|--------|
|                                                   |   |   |         |   |   |     |   |
| Balance,                beginning of year              |   | **$**  | **234,029**  |   | $      | 65,957   |   |
| Provision                for Finance Receivable Losses |   |   | **650,005**  |   |   | 900,479  |   |
| Charge-offs                                            |   |   | **(678,765** | **)**  |   | (732,407 | )      |
| Balance,                end of year                    |   | **$**  | **205,269**  |   | $      | 234,029  |   |

| F-13 |
|------|

| **DCAP                          GROUP, INC. AND****SUBSIDIARIES**  **Notes                          to Financial Statements***Two                          Years Ended December 31, 2006*  |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 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. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                        |
| **7.** | **Goodwill**                                                                                                                                                                                                                                                                                                                                |
|   |                                                                                                                                                                                                                                                                                                                                        |
|   | The                changes in the carrying value of goodwill for the year ended December                31,                2006 are as follows:                                                                                                                                                                                             |

| Balance,                beginning of year                            |   | **$**  | **1,305,551** |   |
|----------------------------------------------------------------------|--------|--------|---------------|--------|
| Addition,                as a result of acquisitions                 |   |   | **1,235,706** |   |
| Addition,                as a result of contingent acquisition costs |   |   | **67,000**    |   |
| Reduction                from sale of store                          |   |   | **(7,000**    | **)**  |
| Balance,                end of year                                  |   | **$**  | **2,601,257** |   |

| **8.** | **Other                Intangibles**                                                                  |
|--------|-------------------------------------------------------------------------------------------------------|
|   |                                                                                                  |
|   | At                December 31, 2006, other intangible assets consist of the                following: |

| Gross                Carrying Amount:    |   |   |    |   |
|------------------------------------------|--------|--------|---------|--------|
| Customer                lists            |   | $      | 554,525 |   |
| Vanity                phone numbers      |   |   | 204,416 |   |
|                                     |   |   | 758,941 |   |
| Accumulated                Amortization: |   |   |    |   |
| Customer                lists            |   |   | 314,281 |   |
| Vanity                phone numbers      |   |   | 95,874  |   |
|                                     |   |   | 410,155 |   |
| Balance,                end of year      |   | $      | 348,786 |   |

|   | The                aggregate amortization expense for the years ended December 31, 2006                and                2005 was approximately $141,000 and $77,000,                respectively. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Estimated                amortization expense for the five years subsequent to December 31,                2006 is                as follows: |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------|

|  *Years                    Ending December 31,* |   |    |
|------------------------------------------------------|--------|---------|
|                                                 |   |    |
|  2007                                           |   | 101,000 |
|  2008                                           |   | 89,000  |
|  2009                                           |   | 89,000  |
|  2010                                           |   | 15,000  |
|  2011                                           |   | 14,000  |

|   | The                    remaining weighted-average amortization period as of December                    31, 2006 is                    as follows: |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------|

|  Customer                    lists       | 2.9                    years |
|-----------------------------------------------|------------------------------|
|  Vanity                    phone numbers | 8.0                    years |
|                                          | 4.5                    years |

| F-14 |
|------|

| **DCAP                              GROUP, INC. AND****SUBSIDIARIES**  **Notes                              to Financial Statements***Two                              Years Ended December 31, 2006*  |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Other                intangible assets are being amortized using the straight-line method                over                a period of four to fifteen years. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                            |
|   |                                                                                                                                                            |
| **9.** | **Property                and Equipment**                                                                                                                       |
|   |                                                                                                                                                            |
|   | At                December 31, 2006, property and equipment consists of the                following:                                                           |

|                                                            |   |   | Useful                Lives  |   |   |      |   |
|-----------------------------------------------------------------|--------|--------|-----------------------------------|--------|--------|-----------|--------|
|                                                            |   |   |                              |   |   |      |   |
| Furniture,                Fixtures and Equipment                |   |   | 5                years            |   | $      | 360,393   |   |
| Leasehold                Improvements                           |   |   | 3                - 5 years        |   |   | 268,110   |   |
| Computer                Hardware, Software and Office Equipment |   |   | 2                - 5 years        |   |   | 1,375,222 |   |
| Entertainment                Facility                           |   |   | 20                years           |   |   | 200,538   |   |
|                                                            |   |   |                              |   |   | 2,204,263 |   |
| Less                Accumulated Depreciation and Amortization   |   |   |                              |   |   | 1,848,157 |   |
|                                                            |   |   |                              |   | $      | 356,106   |   |

|    | Depreciation                expense for the years ended December 31, 2006 and 2005 was approximately                $123,000 and $119,000, respectively. |
|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |                                                                                                                                                     |
| **10.** | **Deposits                and Other Assets**                                                                                                             |
|    |                                                                                                                                                     |
|    | At                December 31, 2006, deposits and other assets consists of the                following:                                                 |

| Deferred                Loan Costs, net                                                                                                                                                |   | $      | 139,320 |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|---------|--------|
| Deposits                                                                                                                                                                               |   |   | 47,226  |   |
| Other                                                                                                                                                                                  |   |   | 46,600  |   |
|                                                                                                                                                                                   |   | $      | 233,146 |   |
|                                                                                                                                                                                   |   |   |    |   |
| Amortization                of deferred loan costs for the years ended December 31, 2006 and                2005 was                approximately $192,000 and $209,000, respectively. |   |   |    |   |

| **11.** | **Accounts                Payable and Accrued Expenses**                                                                            |
|---------|-------------------------------------------------------------------------------------------------------------------------------------|
|    |                                                                                                                                |
|    | At                December 31, 2006, accounts payable and accrued expenses consists                of the                following: |

| Accounts                Payable          |   | $      | 455,958   |   |
|------------------------------------------|--------|--------|-----------|--------|
| Interest                                 |   |   | 157,638   |   |
| Payroll                and Related Costs |   |   | 62,704    |   |
| Professional                Fees         |   |   | 106,420   |   |
| Acquisition                Costs         |   |   | 67,000    |   |
| Other                                    |   |   | 163,461   |   |
|                                     |   | $      | 1,013,181 |   |

| F-15 |
|------|

| **DCAP                          GROUP, INC. AND****SUBSIDIARIES**  **Notes                          to Financial Statements***Two                          Years Ended December 31, 2006*  |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **12.** | **Debentures                Payable**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|    | In                1971, pursuant to a plan of arrangement, we issued a series of debentures,                which matured in 1977. As of December 31, 2006, $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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| **13.** | **Revolving                Credit Facility**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|    | On                December 27, 2004, we entered into a revolving line of credit (the“Old                Revolver”) with Manufacturers and Traders Trust Co. (the “Bank”), which                provided for an increase in the credit line to $25,000,000. Subject                to                certain conditions, the Bank had agreed to arrange an additional                $10,000,000 credit facility with other lenders on a "best efforts"                basis.                The Old Revolver bore 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 was to mature on June 30, 2007.                We could                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 the Old Revolver.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|    | On                July 28, 2006, we and our premium finance subsidiary, Payments, Inc.,                entered into a new revolving line of credit (the “New Revolver”) with the                Bank, which provides for a decrease in the credit line to $20,000,000                and                the elimination of the Bank’s agreement 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 the Bank’s prime                lending rate (8.25% at December 31, 2006) or LIBOR (5.35% at December                31,                2006) plus 2.25%, and matures on June 30, 2008. The line of credit                also                allows for a $2,500,000 term loan (of the $20,000,000 credit line                availability) to be used to provide liquidity for ongoing working                capital                purposes. Any draws against the term line bear interest at LIBOR                plus                2.75%. As of July 28, 2006, we made our first draw against the term                line                of $1,300,000. The draw is repayable in quarterly principal installments                of $130,000 each, commencing September 1, 2006. The remaining principal                balance is payable on June 30, 2008. Interest is payable monthly.                The New                Revolver eliminates the personal guaranty required of our CEO of                $1,250,000 but continues his obligation on an unlimited wind-down                guaranty                and his personal guaranty as to misrepresentations that relate to                dishonest or fraudulent acts committed by him or known but not timely                reported by him. The New Revolver also allows for a reduction of                life                insurance coverage on the life of our CEO from $4,000,000 to                $1,500,000. |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|    | The                New Revolver is secured by substantially all of the assets of our                premium                finance subsidiary, Payments, Inc., and is guaranteed by DCAP Group,                Inc.                and its subsidiaries.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| **14.** | **Long-Term                Debt**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|    | At                December 31, 2006, long-term debt is comprised of the                following:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |

| Note                payable issued in connection with the purchase of Accurate,payable                in monthly installments of $11,111, including imputedinterest                at 7% per annum. Payments on the note commence in January2007                and the note matures in December 2012. (a). |   | $      | 556,555   |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|-----------|--------|
|                                                                                                                                                                                                                                                                                                        |   |   |      |   |
| Term                loan from Manufacturers & Traders Trust Co. (see Note                13)                                                                                                                                                                                                            |   |   | 1,040,000 |   |

| F-16 |
|------|

| **DCAP                          GROUP, INC. AND****SUBSIDIARIES**  **Notes                          to Financial Statements***Two                          Years Ended December 31, 2006*  |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Subordinated                loan, which bears interest at 12.625% per annum, payable semi-annually.                The principal balance is due and payable in the amount of                approximately $115,000 on September 30, 2007 and                approximately $1,385,000                on September 30, 2008. 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                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |   | (57,851   | )      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |   | 3,038,704 |   |
| Less                Current Maturities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |   | 630,565   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | $      | 2,408,139 |   |

|   | 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                Old                Revolver. The repayments reduced the outstanding principal amount                of the                subordinated loan from $3,500,000 to $1,500,000. In March 2007, holders                of                approximately $1,385,000 of the principal amount of the subordinated                loan                agreed to extend the maturity of this loan from September 30, 2007                to                September 30, 2008, and as a result has been reflected as a non-current                liability at December 31, 2006. (a)                At December 31, 2006, we reduced the amount due to Accurate by                approximately $98,000 as a result of pre-acquisition liabilities                satisfied                by us. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | Long-term                debt matures as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |

|  *Years                Ending December 31,* |   |      |
|--------------------------------------------------|--------|-----------|
|                                             |   |      |
|  2007                                       |   | $630,565  |
|  2008                                       |   | 1,942,337 |
|  2009                                       |   | 104,887   |
|  2010                                  |   | 112,246   |
|  2011                                       |   | 120,121   |
|  2012                                       |   | 128,548   |

| **15.** | **Related                Party Transaction**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|    | ***Professional                fees -***                A                law firm affiliated with one of our directors was paid legal fees                of                $139,000 and $147,000 for the years ended December 31, 2006 and 2005,                respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|    | A                director was paid a fee of $49,900 and $59,980 during the years ended                December 31, 2006 and 2005, respectively, for consulting services                in                accordance with a consulting agreement. This agreement expired on                October                31, 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|    | ***Guarantee                -***                Under our revolving line of credit which was replaced in July 2006,                our                Chairman and CEO personally guaranteed the repayment of $2,500,000                of our                revolving credit facility and was obligated on an unlimited wind-down                guaranty. In consideration of this guaranty, we paid him $50,000                in 2005                and reimbursed him for all premiums paid by him on a $2,500,000 life                insurance policy. Under our revolving line of credit entered into                in July                2006, our Chairman and CEO is obligated on a unlimited wind-down                guaranty                as long as the loan is in effect. In consideration of this guaranty,                he                was paid $50,000 in 2006. |

| F-17 |
|------|

| **DCAP                          GROUP, INC. AND****SUBSIDIARIES**  **Notes                          to Financial Statements***Two                          Years Ended December 31, 2006*  |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **16.** | **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: |

| *Years                Ended December 31,* |   |   | **2006**    |   |   | 2005    |   |
|-------------------------------------------|--------|--------|-------------|--------|--------|---------|--------|
|                                      |   |   |        |   |   |    |   |
| Current:                                  |   |   |        |   |   |    |   |
| Federal                                   |   | **$**  | **42,000**  |   | $      | 301,500 |   |
| State                                     |   |   | **12,952**  |   |   | 89,700  |   |
|                                      |   |   | **54,952**  |   |   | 391,200 |   |
| Deferred:                                 |   |   |        |   |   |    |   |
| Federal                                   |   |   | **278,000** |   |   | 11,400  |   |
| State                                     |   |   | **83,000**  |   |   | 3,400   |   |
|                                      |   |   | **361,000** |   |   | 14,800  |   |
|                                      |   | **$**  | **415,952** |   | $      | 406,000 |   |

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

| *Years                Ended December 31,*          |   |   | **2006**  |   |   | 2005   |   |
|----------------------------------------------------|--------|--------|-----------|--------|--------|--------|--------|
|                                               |   |   |      |   |   |   |   |
| Computed                Expected Tax Expense       |   |   | **34.00** | **%**  |   | 34.00  | %      |
| State                Taxes, net of federal benefit |   |   | **5.79**  |   |   | 5.74   |   |
| Permanent                Differences               |   |   | **5.21**  |   |   | 5.28   |   |
| Total                Tax Expense                   |   |   | **45.00** | **%**  |   | 45.02  | %      |

|   | At                December 31, 2006, we had net operating loss carryforwards for tax                purposes, which expire at various dates through 2019, of approximately                $1,589,000. 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 $0                and                $10,000 during the years ended December 31, 2006 and 2005, respectively,                to offset current taxable income. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The                tax effects of temporary differences which give rise to deferred                tax                assets at December 31, 2006 consist of the                following: |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| F-18 |
|------|

| **DCAP                          GROUP, INC. AND****SUBSIDIARIES**  **Notes                          to Financial Statements***Two                          Years Ended December 31, 2006*  |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Deferred                Tax Assets:                               |   |   |     |   |
|-------------------------------------------------------------------|--------|--------|----------|--------|
| Net                operating loss carryovers                      |   | $      | 550,000  |   |
| Provision                for doubtful accounts                    |   |   | 26,000   |   |
| Allowance                for loan losses                          |   |   | 82,000   |   |
| Amortization                of intangible assets                  |   |   | 91,000   |   |
| Stock                compensation expense                         |   |   | 12,000   |   |
| Gross                Deferred Tax Assets                          |   |   | 761,000  |   |
|                                                              |   |   |     |   |
| Deferred                Tax Liabilities:                          |   |   |     |   |
| Interest                on note                                   |   |   | 373,000  |   |
| Depreciation                                                      |   |   | 23,000   |   |
| Prepaid                expenses                                   |   |   | 33,000   |   |
| Amortization                of goodwill                           |   |   | 156,000  |   |
| Gross                Deferred Tax Liabilities                     |   |   | 585,000  |   |
|                                                              |   |   |     |   |
| Net                Deferred Tax Assets Before Valuation Allowance |   |   | 176,000  |   |
| Less                Valuation Allowance                           |   |   | (496,000 | )      |
| Net                Deferred Tax Liability                         |   | $      | (320,000 | )      |

| **17.** | **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,* |   |           |
|----------------------------------------------------|--------|----------------|
|                                               |   |           |
|  2007                                         |   | $ 465,000 |
|  2008                                         |   | 377,000        |
|  2009                                         |   | 215,000        |
|  2010                                         |   | 151,000        |
|  2011                                         |   | 98,000         |
|  Thereafter                                   |   | 154,000        |

|   | Rental                expense approximated $548,000 and $515,000 for the years ended December                31, 2006 and 2005, respectively.* *                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   | ***Employment                agreement****-*                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. |

| F-19 |
|------|

| **DCAP                          GROUP, INC. AND****SUBSIDIARIES**  **Notes                          to Financial Statements***Two                          Years Ended December 31, 2006*  |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|    | ***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 12 month period ending April 30, 2008                may be                payable. The additional cash consideration cannot exceed $67,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|    | ***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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| **18.** | **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. 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|    | 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 was                mandatorily redeemable by us for cash at its liquidation preference                on                April 30, 2007 (unless previously converted into our Common Stock).                In                March 2007, the holders of the Series A Preferred Stock agreed to                exchange                the Series A Preferred Stock for a new Series B Preferred Stock that                is                mandatorily redeemable by us for cash at its liquidation preference                on                April 30, 2008 (unless previously converted into our Common Stock).                Redemption of the Series B Preferred Stock can occur prior to April                30,                2008 upon a substantial sale by us, as defined. The terms of the                Series B                Preferred Stock are the same as the Series A Preferred Stock with                the                exception of the redemption date.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|    | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| **19.** | **Stockholders'                Equity**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|    | ***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. In March 2007, holders                of                approximately $1,385,000 of the principal amount of the subordinated                loan                agreed to extend the maturity date of this loan from September 30,                2007 to                September 30, 2008. 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 90,000 shares of our common                stock                from September 30, 2007 to September 30,                2008. |

| F-20 |
|------|

| **DCAP                          GROUP, INC. AND****SUBSIDIARIES**  **Notes                          to Financial Statements***Two                          Years Ended December 31, 2006*  |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | ***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. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | 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.                                                                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | Effective                January 1, 2006, our plans are accounted for in accordance with the                recognition and measurement provisions of SFAS No. 123(R), which                replaces                SFAS No. 123 and supersedes APB 25, and related interpretations.                FAS                123(R) requires compensation costs related to share-based payment                transactions, including employee stock options, to be recognized                in the                financial statements. In addition, we adhere to the guidance set                forth                within SEC SAB No. 107, which provides the Staff's views regarding                the                interaction between SFAS 123(R) and certain SEC rules and regulations                and                provides interpretations with respect to the valuation of share-based                payments for public companies.*** ***                                                                                                                                                                                                                             |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | Prior                to January 1, 2006, we accounted for similar transactions in accordance                with APB 25 which employed the intrinsic value method of measuring                compensation cost. Accordingly, compensation expense was not recognized                for fixed stock options if the exercise price of the option equaled                or                exceeded the fair value of the underlying stock at the grant                date.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | While                SFAS 123 encouraged recognition of the fair value of all stock-based                awards on the date of grant as an expense over the vesting period,                companies were permitted to continue to apply the intrinsic value-based                method of accounting prescribed by APB 25 and disclose certain pro                forma                amounts as if the fair value approach of SFAS 123 had been applied.                In                December 2002, SFAS No. 148, “*Accounting                for Stock-Based Compensation-Transition and Disclosure*,”                an amendment of SFAS 123, was issued, which, in addition to providing                alternative methods of transition for a voluntary change to the fair                value                method of accounting for stock-based employee compensation, required                more                prominent pro forma disclosures in both the annual and interim financial                statements. We complied with these disclosure requirements for all                applicable periods prior to January 1, 2006.               |

| F-21 |
|------|

| **DCAP                          GROUP, INC. AND****SUBSIDIARIES**  **Notes                          to Financial Statements***Two                          Years Ended December 31, 2006*  |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | In                adopting SFAS 123(R), we applied the modified prospective approach                to                transition. Under the modified prospective approach, the provisions                of                SFAS 123(R) are to be applied to new awards and to awards modified,                repurchased, or cancelled after the required effective date. Additionally,                compensation cost for the portion of awards for which the requisite                service has not been rendered that are outstanding as of the required                effective date shall be recognized as the requisite service is rendered                on                or after the required effective date. The compensation cost for that                portion of awards shall be based on the grant-date fair value of                those                awards as calculated for either recognition or pro-forma disclosures                under                SFAS 123.         |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | As                a result of the adoption of SFAS 123(R), our results for the year                ended                December 31, 2006 include share-based compensation expense totaling                approximately $30,000 and a tax benefit of approximately $13,500.                Such                amounts have been included in the Consolidated Statement of Income                within                general and administrative expenses. Stock compensation expense and                tax                benefit recorded under APB 25 in the Consolidated Statements of Income                for                the year ended December 31, 2005 was $0.  Stock                option compensation expense in 2006 is the estimated fair value of                options                granted amortized on a straight-line basis over the requisite service                period for entire portion of the award less an estimate for anticipated                forfeitures. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | The                weighted average estimated fair value of stock options granted in                the                years ended December 31, 2006 and 2005 was $1.46 and 1.85, respectively,                per share. The fair value of options at the date of grant was estimated                using the Black-Scholes option pricing model. During 2006, we took                into                consideration the guidance under SFAS 123(R) and SAB No. 107 when                reviewing and updating assumptions. The expected volatility is based                upon                historical volatility of our stock and other contributing factors.                The                expected term is based upon observation of actual time elapsed between                date of grant and exercise of options for all employees. Previously                such                assumptions were determined based on historical                data.                                  |

|   | 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,                  2006 and 2005: |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  *Years                  Ended December 31,* | **2006**                     | 2005                     |
|---------------------------------------------------|------------------------------|--------------------------|
|                                              |                         |                     |
|  Dividend                  Yield             | **0.00%**                    | 0.00%                    |
|  Volatility                                  | **123.23%**                  | 90.98%                   |
|  Risk-Free                  Interest Rate    | **5.00%**                    | 4.29%                    |
|  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. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| F-22 |
|------|

| **DCAP                          GROUP, INC. AND****SUBSIDIARIES**  **Notes                          to Financial Statements***Two                          Years Ended December 31, 2006*  |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | A                summary of option activity under the Plan as of December 31, 2006,                and                changes during the year then ended is as                follows: |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|     Fixed                  Stock Options |   |   | Shares  |   |   | WeightedAverageExercisePrice |   |   | WeightedAverageRemainingContractualTerm                  (years) |   |   | AggregateIntrinsicValue |   |
|--------------------------------------------------------------|--------|--------|---------|--------|--------|------------------------------|--------|--------|------------------------------------------------------------------|--------|--------|-------------------------|--------|
|                                                         |   |   |    |   |   |                         |   |   |                                                             |   |   |                    |   |
| Outstanding,                  beginning of year              |   |   | 328,025 |   | $      | 2.09                         |   |   |                                                             |   |   |                    |   |
| Granted                                                      |   |   | 20,000  |   |   | 1.77                         |   |   |                                                             |   |   |                    |   |
| Exercised                                                    |   |   | 127,500 |   |   | 1.50                         |   |   |                                                             |   |   |                    |   |
| Expired                                                      |   |   | -       |   |   | -                            |   |   |                                                             |   |   |                    |   |
| Forfeited                                                    |   |   | 27,225  |   |   | 2.84                         |   |   |                                                             |   |   |                    |   |
| Outstanding,                  end of year                    |   |   | 193,300 |   | $      | 2.34                         |   |   | 1.65                                                             |   |   | 207,610                 |   |
|                                                         |   |   |    |   |   |                         |   |   |                                                             |   |   |                    |   |
| Exercisable,                  end of year                    |   |   | 173,608 |   | $      | 2.31                         |   |   | 1.35                                                             |   |   | 183,092                 |   |

|   | The                aggregate intrinsic value of options outstanding and options exercisable                at December 31, 2006 is calculated as the difference between the                exercise                price of the underlying options and the market price of our common                stock                for the shares that had exercise prices, that were lower than the                $3.06                closing price of our common stock on December 29, 2006. The total                intrinsic value of options exercised in the years ended December                31, 2006                and 2005 was $135,150 and $126,265, respectively, determined as of                the                date of exercise. We received cash proceeds from options exercised                in the                years ended December 31, 2006 and 2005 of approximately $191,000                and                $60,000, respectively.  A                summary of the status of our non-vested shares as of December 31,                2006 and                the changes during the year ended December 31, 2006, is as                follows: |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                |   |   | Options  |   |   | Weighted                Average Grant Date                Fair Value |   |
|-----------------------------------------------|--------|--------|---------------|--------|--------|----------------------------------------------------------------------|--------|
|                                          |   |   |          |   |   |                                                                 |   |
| Nonvested                at December 31, 2005 |   |   | 30,788        |   | $      | 1.11                                                                 |   |
| Granted                                       |   |   | 20,000        |   |   | 1.46                                                                 |   |
| Vested                                        |   |   | (16,321       | )      |   | 1.53                                                                 |   |
| Forfeited                                     |   |   | (14,775       | )      |   | 2.27                                                                 |   |
| Nonvested                at December 31, 2006 |   |   | 19,692        |   | $      | 1.86                                                                 |   |

| F-23 |
|------|

| **DCAP                          GROUP, INC. AND****SUBSIDIARIES**  **Notes                          to Financial Statements***Two                          Years Ended December 31, 2006*  |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | As                of December 31, 2006 and 2005, the fair value of unamortized compensation                cost related to unvested stock option awards was approximately $39,000                and                $80,000, respectively. Unamortized compensation cost as of December                31,                2006 is expected to be recognized over a remaining weighted-average                vesting period of 1.25 years. For the year ended December 31, 2006,                the                weighted average fair value of options exercised was $2.22. The                total fair value of shares vested during the year ended December                31, 2006                was $24,966. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | ***Common                shares reserved***                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |

|  Warrants                                                   |   | 97,500  |
|------------------------------------------------------------------|--------|---------|
|                                                             |   |    |
|  Stock                Option Plan/Equity Participation Plan |   | 682,000 |

| **20.** | **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, 2006*                            |   |   | PremiumFinance |   |   | Insurance     |   |   | Other                  (1) |        |   | Total          |   |
|----------------------------------------------------------------------------|--------|--------|----------------|--------|--------|---------------|--------|--------|----------------------------|--------|--------|----------------|--------|
| Revenues                  from External Customers                          |   | **$**  | **3,960,223**  |   | **$**  | **7,121,724** |   | **$**  | **-**                      |   | **$**  | **11,081,947** |   |
| Interest                  Income                                           |   |   | **-**          |   |   | **4,287**     |   |   | **167**                    |   |   | **4,454**      |   |
| Interest                  Income-Notes Receivable                          |   |   | **-**          |   |   | **-**         |   |   | **1,182,844**              |   |   | **1,182,844**  |   |
| Interest                  Expense                                          |   |   | **809,776**    |   |   | **83,116**    |   |   | **461,436**                |   |   | **1,354,328**  |   |
| Depreciation                  and Amortization                             |   |   | **171,430**    |   |   | **220,880**   |   |   | **44,122**                 |   |   | **436,432**    |   |
| Segment                  Profit (Loss)before                  Income Taxes |   |   | **721,081**    |   |   | **1,235,740** |   |   | **(1,032,484**             | **)**  |   | **924,337**    |   |
| Segment                  Profit (Loss)                                     |   |   | **396,595**    |   |   | **679,656**   |   |   | **(567,866**               | **)**  |   | **508,385**    |   |
| Segment                  Assets                                            |   |   | **15,713,074** |   |   | **5,205,570** |   |   | **4,484,243**              |   |   | **25,402,887** |   |

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

| F-24 |
|------|

| **DCAP                          GROUP, INC. AND****SUBSIDIARIES**  **Notes                          to Financial Statements***Two                          Years Ended December 31, 2006*  |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| *Year                Ended December 31, 2005*                           |   |   | PremiumFinance |   |   | Insurance |   |   | Other                (1) |        |   | Total      |   |
|-------------------------------------------------------------------------|--------|--------|----------------|--------|--------|-----------|--------|--------|--------------------------|--------|--------|------------|--------|
|                                                                    |   |   |           |   |   |      |   |   |                     |   |   |       |   |
| Revenues                from External Customers                         |   | $      | 4,982,009      |   | $      | 7,036,599 |   | $      | -                        |   | $      | 12,018,608 |   |
| 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. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **21.** | **Major                Insurance Company** |
|---------|--------------------------------------------|

|   | At                December 31, 2006, revenue from a major insurance company consisted                of the                following: |
|--------|---------------------------------------------------------------------------------------------------------------------------------------|

|  **Company** | **%                of Total Revenue** | **Segment**   |
|-------------------|---------------------------------------|---------------|
|              |                                  |          |
|  **A**       | **22%**                               | **Insurance** |

|   | At                December 31, 2005, revenue from a major insurance company consisted                of the                following: |
|--------|---------------------------------------------------------------------------------------------------------------------------------------|

|  **Company** | **%                  of Total Revenue** | **Segment**   |
|-------------------|-----------------------------------------|---------------|
|              |                                    |          |
|  **A**       | **22%**                                 | **Insurance** |

| **22.** | **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,                2006                approximates fair value.                                                                                                                             |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| **23.** | **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                $15,000 per year. We will match 25% of the employee's contribution                up to                6%. Contributions for the years ended December 31, 2006 and 2005                approximated $17,000 and $17,000,                respectively. |

| F-25 |
|------|

| **DCAP                          GROUP, INC. AND****SUBSIDIARIES**  **Notes                          to Financial Statements***Two                          Years Ended December 31, 2006*  |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **24.** | **Supplementary                Information - Statement of Cash Flows** |
|---------|------------------------------------------------------------------------|
|    |                                                                   |
|    | Cash                paid during the years for:                         |

| *Years                Ended December 31,* |   |   | **2006**      |   |   | 2005      |   |
|-------------------------------------------|--------|--------|---------------|--------|--------|-----------|--------|
|                                      |   |   |          |   |   |      |   |
| Interest                                  |   | **$**  | **1,311,408** |   | $      | 1,149,327 |   |
|                                      |   |   |          |   |   |      |   |
| Income                Taxes               |   | **$**  | **332,038**   |   | $      | 751,791   |   |

|   | During                the year ended December 31, 2005, the holder of our Series A Preferred                Stock converted 124 shares ($124,000 face value) into 49,600 shares                of our                Common Stock |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                              |

| F-26 |
|------|

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

**SIGNATURES**

|                                       | **DCAP                GROUP, INC.**                                                                                          |
|--------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------|
| Dated:                March 27, 2007  | 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, 2007  |
|  /s/                Morton L. CertilmanMorton                L. Certilman |  Secretary                and Director                                                                                                                                                                     |  March                27, 2007             |
|   /s/                Jay M. HaftJay                M. Haft           |   Director                                                                                                                                                                                            |   March                27, 2007       |
|   /s/                David A. LyonsDavid                A. Lyons     |   Director                                                                                                                                                                                            |   March                27, 2007       |
|   /s/                Jack D. SeibaldJack                D. Seibald   |   Director                                                                                                                                                                                            |   March                27, 2007       |