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Correspondence - DCAP Response Letter re: SEC Comments - Form 10-KSB for Fiscal Year 12/31/2004

1158
Broadway

Hewlett,
New York 11557

Phone:
516-374-7600

Fax:
516-295-7216

September 19, 2005

Securities and Exchange Commission

450 Fifth Street N.W.

Washington, DC  20549

Re:      DCAP Group, Inc.

Form 10-KSB for fiscal year ended December 31, 2004

Filed March 31, 2005

File No. 000-01665

Gentlemen:

This is in response to the
Staff's comment letter dated August 25, 2005 with regard to the above referenced
filing.

      Comment
      No.

      Response

      1.

      The
      following is a revised discussion of the “Allowance for finance receivable
      losses” paragraph:

      “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 fiscal year ended December 31, 2004,
      the allowance for finance receivable losses was approximately $2,966,000
      and actual write-offs for such year, net of recoveries of previous
      write-offs, were approximately $3,148,000.”

Securities and Exchange Commission

September 19, 2005

Page 2

      2.

      The
      following is a revised discussion of our “Liquidity and Capital Resources”
      section as of December 31, 2004:

      “As
      of December 31, 2004, we had $515,899 in cash and cash equivalents and
      working capital of $5,678,700. As of December 31, 2003, we had $1,349,304
      in cash and cash equivalents and working capital of
      $5,168,694.

      Cash
      and cash equivalents decreased by $833,405 between December 31, 2003 and
      December 31, 2004 primarily due to the following:

        Net
        cash used in operating activities during the year ended December 31,
        2004 was $721,504 primarily due an increase in accounts receivable of
        $1,122,268 and a decrease in premiums payable of $2,090,840.  The
        increase in accounts receivable is attributable to our acquisition of
        the AIA (Atlantic Insurance Agency) stores in May 2004 and an increase
        in contingent fees receivable.  Premiums payable represents the
        amount of insurance premiums due to insurance carriers on policies for
        which we provide premium financing.  Upon the customer entering
        into a premium financing agreement with us, the customer makes a down
        payment to the insurance carrier generally equal to 15% of the estimated
        premium.  We agree to lend to the customer the remaining 85% of the
        estimated premium.  We make a payment of 10% of the estimated
        premium to the carrier at the time of the application for insurance.
         The remaining balance of 75% of the estimated premium is our
        premium payable.  Prior to October 2004, we remitted the balance of
        the unpaid premium upon receipt of the first periodic loan payment due
        from the customer.  In order to better manage our credit risk,
        effective October 2004, we strengthened our controls and began to remit
        the balance of the premium to the carrier only after receipt of the
        first periodic loan payment from the customer and confirmation from the
        carrier of the actual premium amount.  If the actual premium is
        greater than the amount previously estimated by the carrier, we require
        that the customer remit the difference to the carrier or amend the
        financing agreement for the revised amount prior to paying the remaining
        amount due the carrier. Premiums payable fluctuate from period to period
        depending upon the volume of premium financing contracts entered into.
         At December 31, 2003, amounts released for payment to insurers but
        not cleared by our bank were classified as premiums payable.  No
        such reclassification was made at December 31, 2004, resulting in a
        decrease in premiums payable at year end.  The cash used in
        operating activities was offset by net income for the year of $1,374,364
        with a related increase in taxes payable of $510,053 and an increase in
        accounts payable and accrued expenses of

Securities
and Exchange Commission

September
19, 2005

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      $380,629.
      The increase in accounts payable and accrued expenses of $380,629 related
      to the addition of the AIA stores mentioned above.

        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.

        We
        used $2,508,149 in investing activities during the fiscal year ended
        December 31, 2004 primarily due to an increase in our net finance
        contracts receivable of $2,347,873. Effective November 2003, we began
        providing premium finance services to our Barry Scott locations
        (following the expiration of a requirement that the locations use
        another provider), and in March 2004 we began providing premium finance
        services to our AIA offices.

        Net
        cash provided by financing activities during the year ended December 31,
        2004 was $2,396,248 primarily due to proceeds of $66,178,841 from our
        revolving loan from Manufacturers and Traders Trust Co. to fund our
        growing premium finance business and proceeds from the exercise of stock
        options and warrants of $445,676, offset by payments of $63,551,264 on
        the revolving loan.

      Our
      premium finance operations are financed pursuant to a $25,000,000
      revolving line of credit from Manufacturers and Traders Trust Co. Subject
      to certain conditions, M&T has agreed to arrange an additional
      $10,000,000 credit facility with other lenders on a “best efforts” basis.
      The line of credit bears interest at either (i) M&T’s prime rate or
      (ii) LIBOR plus 2.5%, matures on June 30, 2007 and is secured by
      substantially all of our assets. We can borrow against the line to the
      extent of 85% of eligible premium finance receivables. As of December 31,
      2004, $11,595,659 was outstanding under the loan. See
      “Business-Development-Developments During 2004” in Item 1 of this Annual
      Report for a description of the changes made in December 2004 from our
      initial line of credit with M&T to that described
above.

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

Securities
and Exchange Commission

September
19, 2005

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4

      In
      connection with our initial acquisition of the line of credit from
      M&T, we obtained a $3,500,000 secured subordinated loan to support our
      premium finance operations. In January 2005, we utilized the M&T line
      of credit to repay $1,000,000 of the subordinated debt. Effective April
      30, 2005, we are permitted, under certain circumstances, to utilize the
      line of credit to repay an additional $1,000,000 of the subordinated debt.
      The remaining balance of the loan is repayable in January 2006 and carries
      interest at the rate of 12-5/8% per annum. See “Factors That May Affect
      Future Results and Financial Condition” in this Item 6 with regard to the
      need to extend the maturity date of our subordinated debt pursuant to the
      requirements of our premium finance line of credit.”

      3.

      The
      following is a revised discussion of our commission recognition
      policy:

      “We
      recognize commission revenue from insurance policies at the
      beginning of the contract period, except for commissions that are
      receivable annually on a contingent basis, for which we recognize the
      commission revenue ratably based upon estimates of the contingent revenue
      to be received.  Refunds of commissions on the cancellation of
      insurance policies are reflected at the time of cancellation.  During
      the years ended December 31, 2004 and 2003, approximately $1,355,000 and
      $630,000, respectively, were recognized as contingent commission
      revenue.”

      4.

      The
      following is additional disclosure in accordance with Paragraph 20 of SFAS
      45:

      “Franchisees
      pay a monthly franchise fee plus an applicable percentage of co-op
      advertising expense.  We are obligated to provide marketing and
      training support to each franchisee.”

      With
      regard to Paragraph 21 of SFAS 45, the Staff is advised that our policy
      for estimating the collectibility of franchise fees is described in the
      “Allowance for doubtful accounts” footnote. The “Commission and fee
      income” footnote describes our revenue recognition policy with regard to
      franchise fees. There was only one sale of a franchise in each of the
      years ended December 31, 2004 and 2003. The selling price for each
      franchise was a one-time payment of $25,000. There were no deferred
      payments due from franchisees in connection with these sales.

      With
      regard to Paragraph 22 of SFAS 45, the Staff is advised that the majority
      of the franchise fee revenue was in the form of monthly franchise fees, as
      described above. We sold one franchise in each of the years ended December
      31, 2004 and 2003.

Securities
and Exchange Commission

September
19, 2005

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5

      The
      Staff is advised that Paragraph 23 of SFAS 45 was not applicable to our
      franchise business in 2004 as we had only one franchisor-owned store and
      we did not experience a significant change in the number of franchised
      stores.

      5.

      The
      following is additional disclosure under our “Finance income, fees and
      receivables” footnote:

      “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 26.8% per annum for the fiscal year ended December 31,
      2004.”

      6.

      The
      Staff is advised that, as of December 31, 2004, of the $23,283,106
      reflected on our balance sheet as “Finance contracts receivable”,
      approximately $16,850,000 represented eligible receivables for purposes of
      our premium finance credit agreement.

       The
      Company acknowledges that:

      the
      Company is responsible for the adequacy and accuracy of the disclosure in
      its filings;

      staff
      comments or changes to disclosure in response to staff comments do not
      foreclose the Commission from taking any action with respect to the
      filing; and

      the
      Company may not assert staff comments as a defense in any proceeding
      initiated by the Commission or any person under the federal securities
      laws of the United States.

Very
truly yours,

DCAP
GROUP, INC.

By: /s/ Barry
Goldstein

Barry
Goldstein

Chief
Executive Officer and

 President