SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2008
 o
    
    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 000-51954
 DCP Holding Company
  Ohio
    
    20-1291244(State or Other Jurisdiction of 
Incorporation or Organization)
    
    (IRS Employer Identification No.)100 Crowne Point Place 
Sharonville, Ohio
(Address of Principal Executive Office)
    
    45241
(Zip Code)
 
 þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer   þ
(Do not check if a smaller reporting company)
    
    Smaller Reporting Company o
 o þ




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PAGEPART I  FINANCIAL INFORMATIONItem 1.
    
    Condensed Consolidated Financial Statements (Unaudited)
    
    
    1Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    10Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    18Item 4.
    
    Controls and Procedures
    
    
    19PART II  OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    20Item 1A.
    
    Risk Factors
    
    
    20Item 2.
    
    Unregistered Sales of Equity and Use of Proceeds
    
    
    20Item 3.
    
    Defaults Upon Senior Securities
    
    
    20Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    20Item 5.
    
    Other Information
    
    
    20Item 6.
    
    Exhibits
    
    
    21Signatures
    
    
    21
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Item 1. Financial Statements.
 DCP HOLDING COMPANY AND SUBSIDIARIES
 CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
 September 30,
    
    
    December 31,2008
    
    
    2007ASSETSINVESTMENTS:Fixed maturities at fair value, cost of $500,000 and $1,109,000
at September 30, 2008 and December 31, 2007, respectively
    
    $
    497,397
    
    
    $
    1,109,683Short-term investments at fair value, cost of $5,829,162 and $4,113,020
at September 30, 2008 and December 31, 2007, respectively
    
    
    5,839,634
    
    
    
    4,112,868Total investments
    
    
    6,337,031
    
    
    
    5,222,551CASH
    
    
    1,320,907
    
    
    
    2,262,888ACCRUED INVESTMENT INCOME
    
    
    26,412
    
    
    
    34,592ACCOUNTS RECEIVABLE, net of allowance of $10,116 and $3,499
at September 30, 2008 and December 31, 2007, respectively
    
    
    518,523
    
    
    
    560,880UNBILLED ACCOUNTS RECEIVABLE (Note 2)
    
    
    24,603,983REINSURANCE RECOVERABLE ON PAID LOSSES
    
    
    13,441
    
    
    
    26,500DEFERRED ACQUISITION COSTS (Note 2)
    
    
    1,336,069PROPERTY AND EQUIPMENT, net of depreciation and amortization of $1,900,023 and $1,583,009
at September 30, 2008 and December 31, 2007 respectively.
    
    
    2,929,415
    
    
    
    2,943,338INTANGIBLE ASSETS, net of accumulated amortization of $62,980 and $51,486
at September 30, 2008 and December 31, 2007, respectively
    
    
    177,020
    
    
    
    188,532GOODWILL
    
    
    136,355
    
    
    
    136,355DEFERRED INCOME TAX
    
    
    240,462
    
    
    
    243,804OTHER ASSETS
    
    
    628,951
    
    
    
    665,791TOTAL ASSETS
    
    $
    38,268,569
    
    
    $
    12,285,231LIABILITIES AND SHAREHOLDERS EQUITYCLAIMS PAYABLE
    
    $
    2,379,226
    
    
    $
    2,490,251UNEARNED PREMIUM REVENUE (Note 2)
    
    
    25,254,146
    
    
    
    666,411OTHER PAYABLES AND ACCRUALS
    
    
    3,443,005
    
    
    
    2,118,107MORTGAGE LOAN PAYABLE
    
    
    1,170,000
    
    
    
    1,260,000CAPITAL LEASE OBLIGATION
    
    
    76,435
    
    
    
    242,877DEFERRED COMPENSATION
    
    
    591,877
    
    
    
    416,374TOTAL LIABILITIES
    
    
    32,914,689
    
    
    
    7,194,020REDEEMABLE COMMON SHARES:Class A, Redeemable Common Shares, no par valueauthorized, 7,500 shares;
issued and outstanding, 635 and 653 at September 30, 2008 and December 31, 2007, respectively
    
    
    401,620
    
    
    
    392,603Class B Redeemable Common Shares, no par valueauthorized, 100,000 shares;
issued and outstanding, 7,830 and 7,815 at September 30, 2008 and December 31, 2007, respectively
    
    
    4,952,260
    
    
    
    4,698,608Total redeemable common shares
    
    
    5,353,880
    
    
    
    5,091,211SHAREHOLDERS EQUITYPreferred Shares; no par valueauthorized, 100,000 shares; issued, noneTOTAL LIABILITIES, REDEEMABLE COMMON SHARES AND SHAREHOLDERS EQUITY
    
    $
    38,268,569
    
    
    $
    12,285,231
  1




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DCP HOLDING COMPANY AND SUBSIDIARIES
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
 For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007REVENUESPremium revenue
    
    $
    17,512,518
    
    
    $
    15,074,155
    
    
    $
    49,172,789
    
    
    $
    44,496,265Investment income
    
    
    50,426
    
    
    
    84,176
    
    
    
    168,300
    
    
    
    192,957Other income
    
    
    15,097
    
    
    
    23,786
    
    
    
    41,032
    
    
    
    74,603Total revenues
    
    
    17,578,041
    
    
    
    15,182,117
    
    
    
    49,382,121
    
    
    
    44,763,825EXPENSESHealthcare services expense
    
    
    14,157,480
    
    
    
    12,619,880
    
    
    
    40,096,263
    
    
    
    36,120,237Insurance expense:Salaries and benefit expense
    
    
    1,065,633
    
    
    
    989,866
    
    
    
    3,254,950
    
    
    
    3,048,576Commission expense and other acquisition costs
    
    
    585,700
    
    
    
    603,537
    
    
    
    1,940,757
    
    
    
    2,061,465Other insurance expense
    
    
    1,282,967
    
    
    
    1,046,098
    
    
    
    3,674,424
    
    
    
    3,310,091Total insurance expense
    
    
    2,934,300
    
    
    
    2,639,501
    
    
    
    8,870,131
    
    
    
    8,420,132Total expenses
    
    
    17,091,780
    
    
    
    15,259,381
    
    
    
    48,966,394
    
    
    
    44,540,369INCOME (LOSS) BEFORE INCOME TAX
    
    
    486,261
    
    
    
    (77,264
    )
    
    
    415,727
    
    
    
    223,456INCOME TAX EXPENSE (BENEFIT)
    
    
    180,241
    
    
    
    (23,895
    )
    
    
    155,455
    
    
    
    81,814NET INCOME (LOSS) ON REDEEMABLE COMMON SHARES
    
    $
    306,020
    
    
    $
    (53,369
    )
    
    $
    260,272
    
    
    $
    141,642BASIC EARNINGS (LOSS) PER REDEEMABLE COMMON SHARE
    
    $
    36.04
    
    
    $
    (6.34
    )
    
    $
    30.75
    
    
    $
    17.18DILUTED EARNINGS (LOSS) PER REDEEMABLE COMMON SHARE
    
    $
    36.04
    
    
    $
    (6.34
    )
    
    $
    30.75
    
    
    $
    17.09
  2




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DCP HOLDING COMPANY AND SUBSIDIARIES
 CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE COMMON SHARES AND SHAREHOLDERS EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007 (Unaudited)
 Redeemable Common Shares
    
    
    Shareholders EquityClass A
    
    
    Class B
    
    
    
    
    
    
    Other AccumulatedNumber of
    
    
    
    
    
    
    Number of
    
    
    
    
    
    
    Retained
    
    
    Comprehensive
    
    
    
    
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Earnings
    
    
    Income (Loss)
    
    
    Total
    
    
    Income (Loss)BALANCEDECEMBER 31, 2007
    
    
    653
    
    
    $
    392,603
    
    
    
    7,815
    
    
    $
    4,698,608Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    260,272
    
    
    
    
    
    
    $
    260,272
    
    
    $
    260,272Change in fair value of interest rate swap (net of income tax benefit of $4,381)
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (8,503
    )
    
    
    (8,503
    )
    
    
    (8,503
    )Unrealized gain on investments (net of income tax of $7,724)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,990
    
    
    
    14,990
    
    
    
    14,990Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    266,759Class B Common Shares issued
    
    
    
    
    
    
    
    
    
    
    93
    
    
    
    53,145Class A Common Shares exchanged for Class B Common Shares
    
    
    (13
    )
    
    
    (7,798
    )
    
    
    13
    
    
    
    7,798Common shares redemptions
    
    
    (5
    )
    
    
    (2,963
    )
    
    
    (91
    )
    
    
    (54,272
    )Accretion of common shares to redemption value
    
    
    
    
    
    
    19,778
    
    
    
    
    
    
    
    246,981
    
    
    
    (260,272
    )
    
    
    (6,487
    )
    
    
    (266,759
    )BALANCESEPTEMBER 30, 2008
    
    
    635
    
    
    $
    401,620
    
    
    
    7,830
    
    
    $
    4,952,260
    
    
    $
    
    
    
    $
    
    
    
    $Redeemable Common Shares
    
    
    Shareholders EquityClass A
    
    
    Class B
    
    
    
    
    
    
    Other AccumulatedNumber of
    
    
    
    
    
    
    Number of
    
    
    
    
    
    
    Retained
    
    
    Comprehensive
    
    
    
    
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Earnings (Deficit)
    
    
    Income (Loss)
    
    
    Total
    
    
    Income (Loss)BALANCEDECEMBER 31, 2006
    
    
    681
    
    
    $
    362,853
    
    
    
    7,438
    
    
    $
    3,963,138Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    141,642
    
    
    
    
    
    
    $
    141,642
    
    
    $
    141,642Change in fair value of interest rate swap (net of income tax benefit of $6,878)
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (13,352
    )
    
    
    (13,352
    )
    
    
    (13,352
    )Unrealized gain on investments (net of income tax of $433)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    841
    
    
    
    841
    
    
    
    841Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    129,131Cumulative effect of change in accounting principle (FIN 48)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,997
    )
    
    
    
    
    
    
    (5,997
    )Class B Common Shares issued
    
    
    
    
    
    
    
    
    
    
    432
    
    
    
    230,491Class A Common Shares exchanged for Class B Common Shares
    
    
    (20
    )
    
    
    (10,527
    )
    
    
    20
    
    
    
    10,527Common shares redemptions
    
    
    (6
    )
    
    
    (2,836
    )
    
    
    (76
    )
    
    
    (36,385
    )Accretion of common shares to redemption value
    
    
    
    
    
    
    9,402
    
    
    
    
    
    
    
    113,732
    
    
    
    (135,645
    )
    
    
    12,511
    
    
    
    (123,134
    )BALANCESEPTEMBER 30, 2007
    
    
    655
    
    
    $
    358,892
    
    
    
    7,814
    
    
    $
    4,281,503
    
    
    $
    
    
    
    $
    
    
    
    $
  3




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DCP HOLDING COMPANY AND SUBSIDIARIES
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 For the Nine Months EndedSeptember 30,2008
    
    
    2007CASH FLOWS FROM OPERATING ACTIVITIES:Net income on redeemable common shares
    
    $
    260,272
    
    
    $
    141,642Adjustments to reconcile net income
to net cash provided by operating activities:Depreciation and amortization
    
    
    328,526
    
    
    
    305,554Effects of changes in operating assets and liabilities:Accrued investment income
    
    
    8,180
    
    
    
    (18,166
    )Accounts receivable
    
    
    42,357
    
    
    
    (172,811
    )Unbilled accounts receivable
    
    
    (24,603,983
    )Reinsurance recoverable on paid losses
    
    
    13,059
    
    
    
    (15,751
    )Deferred acquisition costs
    
    
    (1,336,069
    )Other assets
    
    
    39,331
    
    
    
    (313,079
    )Claims payable
    
    
    (111,025
    )
    
    
    (1,306,197
    )Unearned premium revenue
    
    
    24,587,735
    
    
    
    45,578Other payables and accruals
    
    
    1,300,370
    
    
    
    (251,720
    )Deferred compensation
    
    
    200,470
    
    
    
    202,283Net cash
provided by (used in)  operating activities
    
    
    729,223
    
    
    
    (1,382,667
    )CASH FLOWS FROM INVESTING ACTIVITIES:Acquisition of property and equipment
    
    
    (303,092
    )
    
    
    (116,182
    )Purchases of investments
    
    
    (14,606,044
    )
    
    
    (11,179,660
    )Sales and maturities of investments
    
    
    13,498,902
    
    
    
    9,207,123Net cash used in investing activities
    
    
    (1,410,234
    )
    
    
    (2,088,719
    )CASH FLOWS FROM FINANCING ACTIVITIES:Mortgage loan repayments
    
    
    (90,000
    )
    
    
    (90,000
    )Repayment of capital lease
    
    
    (166,442
    )
    
    
    (156,664
    )Repurchase of redeemable common shares
    
    
    (32,706
    )
    
    
    (62,173
    )Redeemable common shares issued
    
    
    28,178
    
    
    
    230,491Repayments of note
    
    
    
    
    
    
    (55,417
    )Net cash used in financing activities
    
    
    (260,970
    )
    
    
    (133,763
    )DECREASE IN CASH
    
    
    (941,981
    )
    
    
    (3,605,149
    )CASHBeginning of period
    
    
    2,262,888
    
    
    
    5,208,153CASHEnd of period
    
    $
    1,320,907
    
    
    $
    1,603,004SUPPLEMENTAL
CASH FLOW INFORMATION:Cash paid for interest
    
    $
    53,783
    
    
    $
    72,189Cash paid for income taxes
    
    
    65,000
    
    
    
    335,000NON-CASH INVESTING AND FINANCING ACTIVITIES:Redeemed common shares in other payables and accruals
    
    $
    57,346
    
    
    $
    27,800Redeemable common shares issued in lieu of cash payment of deferred compensation
    
    
    24,967
  4




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DCP HOLDING COMPANY AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2008 (UNAUDITED)
 1.
    
    BASIS OF PRESENTATIONThe condensed consolidated interim financial statements included in this report have been prepared
by DCP Holding Company and subsidiaries (the Company) without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission (the Commission). In the opinion of
management, all adjustments (consisting of normal recurring accruals) necessary for a fair
presentation are reflected in the interim financial statements. These unaudited condensed
consolidated financial statements should be read in conjunction with the audited 2007 financial
statements and notes thereto as included in the DCP Holding Company Form 10-K filed with the
Commission on March 25, 2008. These unaudited condensed consolidated financial statements have been
prepared in conformity with accounting principles generally accepted in the United States of
America for interim financial statements. Certain financial information that is required in the
annual financial statements may not be required for interim financial reporting purposes and has
been condensed or omitted. Operating results for the three and nine months ended September 30,
2008 are not necessarily indicative of the results that may be expected for the year ending
December 31, 2008.The Company presents its financial statements to conform with Article 7 of the Securities and
Exchange Commission Regulation S-X for the quarterly report pursuant to Section 13-15(d) of the
Securities Exchange Act of 1934. With the amendment of its fully-insured customer contracts to be
non-cancelable by the Company, the Company meets the criteria of an insurance company as defined in
the Securities Exchange Act of 1934.2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESThe interim condensed consolidated financial statements have been prepared in accordance with the
accounting policies described in the notes to the Companys consolidated financial statements for
the year ended December 31, 2007. While management believes that the procedures followed in
preparation of interim financial information are reasonable, the accuracy of some estimated amounts
is dependent upon facts that will exist or calculations that will be made at year end. Examples of
such estimates include changes in claims payable, deferred tax accounts, deferred acquisition
costs, and accrued expenses, among others. Any adjustments related to such estimates during the
fiscal quarter were of a normal recurring nature.Premium RevenueFully-InsuredMembership contracts are written on an annual basis and are subject to
cancellation by the employer group upon thirty days written notice. The Company amended its
fully-insured dental HMO contracts and dental indemnity contracts to be non-cancelable by the
Company effective May 1, 2008 and its fully-insured dental PPO contracts to be non-cancelable by
the Company effective June 1, 2008. The Companys unearned premium revenue was approximately
$24,604,000 at September 30, 2008 for the estimated premium revenue associated with the remaining
contract periods and related amounts recorded in unbilled accounts receivable. Premiums are due
monthly in advance and are recognized evenly as revenue during the period in which the Company is
obligated to provide services to members. Any amounts not received by the end of a reporting
period are recorded as accounts receivable by the Company. Any premiums received prior to the
beginning of a reporting period are recognized as premiums received in advance and are included in
unearned premium revenue in the accompanying condensed consolidated balance sheets. Premiums
received in advance were approximately $650,000 and $666,000 at September 30, 2008 and December 31,
2007, respectively. Management has determined that as of September 30, 2008 and December 31, 2007,
respectively, no cancellation reserve is required.Self-InsuredThe Company provides administrative and claims processing services, benefit
plan design, and access to its provider networks for an administrative fee, generally to
self-insured groups. Self-insured premium revenue is based on the claims incurred by
self-insured members in accordance with agreements with self-insured employers. The Company has no
underwriting risk arising from the provision or cost of any services provided to the self-insured
groups. Consistent with the provisions of Financial Accounting Standards Board (FASB) Emerging
Issues Task Force (EITF) 99-19, Recording Revenue Gross as a Principal Versus Net as an Agent,
the Company recognizes and records self-insured premiums on a gross basis because: (i) the Company
is the primary obligor in the contractual relationship, (ii) the Company establishes the pricing
for the services provided, (iii) the Company controls the relationship with the dental service
providers, and (iv) the Company has credit risk in these contractual relationships. Self-insured
premium revenue
 5




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is recorded when the self-insured claims are incurred and is included in premium
revenue in the accompanying condensed consolidated statements of operations.Third-party administration fee revenue (ASO fees) is recognized monthly when earned and is
normally based on annual contracts with the self-insured groups. ASO fees are charged to
self-insured employer groups monthly on a per subscriber per month basis. ASO fees also include
the administrative fees the Company earns relative to the dental PPO, dental indemnity and vision
products that are underwritten by third-party insurance carriers.Healthcare Service Expense The Company compensates its providers based on agreed-upon fees for
various services. With respect to the dental HMO product, the Company generally retains 10% of
these fees (including payments on self-insured claims) in accordance with the Companys provider
agreement. Healthcare service expense is recorded net of any amounts withheld in the accompanying
condensed consolidated statements of operations. Under the terms of the Companys provider
agreement, the Company is not obligated to return to providers any amounts withheld. Withheld
amounts are retained by the Company but not reserved or retained in a separate fund. Participating
providers have no interest in the amounts withheld unless the Companys Board of Directors (the
Board) authorizes any amount to be paid to the providers.The cost of healthcare services provided to members is accrued in the period such services are
provided based on the accumulation of estimates of claims reported prior to the end of a reporting
period and of estimates of dental services provided but not reported to the Company, net of the
amounts withheld in accordance with the provider agreement.Managements estimates of dental services provided are based on the Companys historical experience
and current trends, with assistance from the Companys consulting actuary. Estimated dental claims
payable are reviewed monthly by management and are adjusted based on current information, actual
paid claims data, dental utilization statistics and other pertinent information. However, final
claim payments may differ from the established reserves. Any resulting adjustments are reflected in
current operations.Each year the Board evaluates the performance of the dental HMO plan, capital and surplus
requirements prescribed by the Ohio Department of Insurance, factors impacting the Companys
financial strength rating, funding needed to support strategic objectives for the coming years and
any other factors deemed relevant by the Board and, based on that evaluation, determines whether or
not to authorize the payment to the providers of any portion of the provider withhold. Once
authorized by the Board, such amounts are recorded as additional healthcare services expense in the
period authorized and shown as additional claims payable liability until paid.Reinsurance In the normal course of business, the Company cedes portions of its written premium
revenue. As such, the Company limits its loss exposure to that portion of the insurable risk that
it retains. However, if a reinsurer fails to honor its obligations, the Company could suffer
additional losses as the reinsurance contracts do not relieve the Company of its obligations to
policyholders. The Company terminated its reinsurance contracts effective May 31, 2008. Dental
insurance premiums ceded were approximately $121,000 and $163,000 for the nine months ended
September 30, 2008 and 2007, respectively. The healthcare services expense ceded was approximately
$107,000 and $134,000 for the nine months ended September 30, 2008 and 2007, respectively. As of
September 30, 2008 the Company has approximately $13,000 of reinsurance recoverable and prepaid
reinsurance premium net of reinsurance payable.Deferred Acquisition CostsDeferred acquisition costs are those costs that vary with and are
primarily related to the acquisition of new and renewal business. Such costs include commissions,
costs of contract issuance and underwriting, premium taxes and other costs the Company incurs to
acquire new business or renew existing business. Effective May 1, 2008, the Company defers policy
acquisition costs and amortizes them over the estimated life of the contracts in proportion to
premiums earned. The Company capitalized deferred acquisition costs of approximately $536,000 and
amortized approximately $541,000 of these capitalized costs for the three months ended September
30, 2008 and capitalized deferred acquisition costs of approximately $2,199,000 and amortized
approximately $863,000 for the nine months ended September 30, 2008. These amounts are recorded in
commission expense and other acquisition costs included in the Condensed Consolidated Statements of
Operations. Prior to the dates of the amendment of our contracts to be non-cancelable, all costs
were expensed as incurred.Use of EstimatesThe preparation of the financial statements in conformity with accounting
principles generally accepted in the United States of America 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 revenue and expenses during the reporting period. Actual results could differ from those
estimates.
 6




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##### 



3.
    
    NEW ACCOUNTING PRONOUNCEMENTSIn December 2007, the FASB issued SFAS No. 141(R), Business Combinations. SFAS No. 141(R) changes
the accounting for business combinations, including the measurement of acquirer shares issued in
consideration for a business combination, the recognition of contingent consideration, the
accounting for preacquisition gain and loss contingencies, the recognition of capitalized
in-process research and development, the accounting for acquisition-related restructuring cost
accruals, the treatment of acquisition-related transaction costs and the recognition of changes in
the acquirers income tax valuation allowance. SFAS No. 141(R) applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008, except for certain tax adjustments for
prior business combinations. The Company is evaluating the effect the adoption of SFAS No. 141(R) will have on its consolidated
financial position and results of operations.In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial
Statements-an amendment of ARB No. 51. SFAS No. 160 changes the accounting for noncontrolling
(minority) interests in consolidated financial statements, including the requirement to classify
noncontrolling interests as a component of consolidated stockholders equity, and the elimination
of minority interest accounting in results of operations with earnings attributable to
noncontrolling interests reported as part of consolidated earnings. Additionally, SFAS 160 revises
the accounting for both increases and decreases in a parents controlling ownership interest. SFAS
No. 160 is effective for fiscal years beginning after December 15, 2008, with early adoption
prohibited. The adoption of SFAS No. 160 will not have a material impact on the Companys
consolidated financial position or results of operations.In February 2008, the FASB issued FASB Staff Positions (FSP) No. 157-2, which delayed the
effective date of Financial Accounting Standard (SFAS) No. 157 Fair Value Measurementsfor
non-financial assets and non-financial liabilities that are recognized or disclosed at fair value
in the consolidated financial statements on a nonrecurring basis. This FSP delayed the effective
date to fiscal years beginning after November 15, 2008. However, this scope exception does not
apply to assets acquired and liabilities assumed in a business combination that are required to be
measured at fair value under SFAS No. 141, Business Combinations or SFAS No. 141(R), Business
Combinations. The Company adopted SFAS No. 157 as disclosed in Note 7 effective January 1, 2008
and is evaluating the effect the adoption of the remaining portion of SFAS No. 157 will have on its
consolidated financial position and results of operations.In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging
Activities-an amendment of SFAS No. 133. SFAS No. 161 requires enhanced disclosures for derivative
instruments and hedging activities regarding the impact on financial position, financial
performance, and cash flows. This statement encourages but does not require comparative
disclosures for earlier periods upon initial adoption. The effective date of SFAS 161 is the
Companys fiscal year beginning on or after January 1, 2009.In April, 2008, the FASB issued FSP 142-3, Determination of the Useful Lives of Intangible
Assets.This FSP amends the factors that should be considered in developing renewal or extension
assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142,
Goodwill and Other Intangible Assets. The intent of this FSP is to improve the consistency
between the useful life of a recognized intangible asset under SFAS No. 142 and the period of
expected cash flows used to measure the fair value of the asset. This FSP is effective for
consolidated financial statements issued for fiscal years beginning after December 15, 2008. Early
adoption is prohibited. The Company is evaluating the effect FSP 142-3 will have on its
consolidated financial position and results of operations.In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting
Principles. SFAS No. 162 identifies the sources of accounting principles and the framework for
selecting principles to be used in the preparation of financial statements of nongovernmental
entities that are presented in conformity with generally accepted accounting principles in the
United States.  This statement shall be effective 60 days following the SECs approval of the
Public Company Accounting Oversight Boards amendments to U.S. Auditing Standard (AU) section
411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting
Principles.  The adoption of SFAS No. 162 will not have a material impact on the Companys
consolidated financial position or results of operations.4.
    
    DEFERRED COMPENSATION PLANUnder the fair value recognition provisions of SFAS No. 123R, Accounting for Stock-Based
Compensation, share-based compensation cost is measured at the grant date based on the fair value
of the liability awards and is recognized as expense ratably over the vesting periods. The fair
value of the liability awards are remeasured at the end of each reporting period through the
remaining vesting period with the change in fair value recognized in earnings currently.
 7




---



##### 



In accordance with the 2006 Dental Care Plus Management Equity Incentive Plan and the Dental Care
Plus, Inc. and DCP Holding Company Deferred Compensation Plan (the Plans), Company directors and
certain key employees elected to defer portions of their director fees and employee compensation,
as applicable. For the three months ended September 30, 2008 and 2007, the Company recorded
deferred compensation expense of approximately $21,000 and $20,000, respectively, related to
deferred director fees and employee compensation. For the nine months ended September 30, 2008 and
2007, the Company recorded deferred compensation expense of approximately $76,000 and $71,000,
respectively, related to deferred director fees and employee compensation. The Plans also provide
for the directors and key employees to elect to receive awards based on the book value of the
Redeemable Common Shares and to defer receiving such amounts until termination of board membership
or employment and vesting requirements are met. Under the terms of these plans, these deferred
amounts will be paid in cash. An individual directors award vests 100% at the end of each year if
the director meets the board meeting attendance requirements. The key employee awards vest 10%,
20%, 30% and 40% at the end of each respective year in a four-year period following the grant date.
The deferred compensation expense related to these awards is recorded on a straight-line basis
during the applicable vesting period and for the three months ended September 30, 2008 and 2007,
respectively, the Company recorded deferred compensation expense of approximately $76,000 and
$38,900 related to deferred share awards. For the nine months ended September 30, 2008 and 2007,
respectively, the Company recorded deferred compensation expense of approximately $186,000 and
$115,700 related to deferred share awards.5.
    
    EARNINGS (LOSS) PER REDEEMABLE COMMON SHAREDetail supporting the computation of earnings (loss) per redeemable common share was as follows for
the three and nine months ended September 30, 2008 and 2007, respectively:
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net income (loss) accretive (dilutive) to redeemable common shareholders
    
    $
    306,020
    
    
    $
    (53,369
    )
    
    $
    260,272
    
    
    $
    141,642Weighted average outstanding redeemable common shares used to compute
basic earnings (loss) per redeemable common share
    
    
    8,491
    
    
    
    8,419
    
    
    
    8,465
    
    
    
    8,244Weighted average outstanding redeemable common shares used to compute
diluted earnings (loss) per redeemable common share
    
    
    8,491
    
    
    
    8,419
    
    
    
    8,465
    
    
    
    8,286Basic earnings (loss) per redeemable common share
    
    $
    36.04
    
    
    $
    (6.34
    )
    
    $
    30.75
    
    
    $
    17.18Diluted earnings (loss) per redeemable common share
    
    $
    36.04
    
    
    $
    (6.34
    )
    
    $
    30.75
    
    
    $
    17.09
 The Company reported diluted earnings per share for the nine months ended September 30, 2007 as a
result of 44 restricted share awards granted that had a dilutive effect on the Companys earnings
per share. The restricted share awards were redeemed and shares were issued in May of 2008.
There have been no restricted share awards granted that would have a dilutive effect on the
Companys basic earnings per share for the three and nine months ended September 30, 2008.6.
    
    SEGMENT INFORMATIONThe Company changed the composition of its reportable segments in the current year, and the amounts
in the prior period financial statements relating to reportable segments have been modified to
conform to the current composition of reportable segments. The modification of the reportable
segments was a result of changes in the structure of the Companys internal organization that
occurred in the current year. The Company manages its business with three segments: fully-insured
dental, self-insured dental and corporate, all other. Fully-insured dental consists of the
fully-insured DHMO, fully-insured PPO and fully-insured indemnity products. Self-insured dental
consists of the self-insured DHMO and self-insured indemnity products. Corporate, all other
consists primarily of certain corporate activities. After the Company assumed the underwriting risk
for its fully-insured dental PPO contracts in Ohio effective June 1, 2008, the Companys
fully-insured PPO and fully-insured indemnity products were reclassified from the corporate, all
other segment and aggregated with the fully-insured DHMO product to comprise the fully-insured
dental segment. The Company identified the segments in accordance with Statement of Financial
Accounting Standards (SFAS) No. 131, Disclosure about Segments of an Enterprise and Related
Information. These segments are consistent with information used by the Chief Executive Officer
(the chief decision maker) in managing the business. Prior to June 1, 2008, the Company managed
its business with three segments: fully-insured DHMO, self-insured DHMO and corporate, all other.
 8




---



##### 



The results of the fully-insured and self-insured dental segments are measured by gross profit. The
Company does not allocate insurance expense, investment and other income, goodwill, or other assets
or liabilities to these segments. These items are assigned to the remainder of the Companys
business, which it identifies as corporate, all other. The Company combines all gross profit and
applies that amount as a contribution to insurance expenses, resulting in a consolidated income
(loss) before taxes. The Companys gross profit was approximately $3,355,000 and $2,454,000 for the
three months ended September 30, 2008 and 2007, respectively, and was approximately $9,077,000 and
$8,376,000 for the nine months ended September 30, 2008 and 2007, respectively.Listed below is financial information required to be reported for each industry segment.
Reportable segment information is as follows for the three and nine months ended September 30, 2008
and 2007, respectively (amounts in thousands):
 Three Months Ended
    
    
    Three Months EndedSeptember 30, 2008
    
    
    September 30, 2007Revenues-
    
    
    Healthcare
    
    
    
    
    
    
    Revenues-
    
    
    HealthcareExternal
    
    
    Services
    
    
    
    
    
    
    External
    
    
    ServicesCustomers
    
    
    Expense
    
    
    Total
    
    
    Customers
    
    
    Expense
    
    
    TotalReportable segments:Fully-insured dental
    
    $
    10,484
    
    
    $
    8,184
    
    
    $
    2,300
    
    
    $
    9,371
    
    
    $
    7,859
    
    
    $
    1,512Self-insured dental
    
    
    6,937
    
    
    
    5,974
    
    
    
    963
    
    
    
    5,568
    
    
    
    4,761
    
    
    
    807Corporate, All Other
    
    
    92
    
    
    
    
    
    
    
    92
    
    
    
    135
    
    
    
    
    
    
    
    135Total
    
    $
    17,513
    
    
    $
    14,158
    
    
    
    3,355
    
    
    $
    15,074
    
    
    $
    12,620
    
    
    
    2,454Investment income
    
    
    
    
    
    
    
    
    
    
    50
    
    
    
    
    
    
    
    
    
    
    
    83Other income
    
    
    
    
    
    
    
    
    
    
    15
    
    
    
    
    
    
    
    
    
    
    
    24Insurance expense
    
    
    
    
    
    
    
    
    
    
    2,934
    
    
    
    
    
    
    
    
    
    
    
    2,638Income (loss) before income tax
    
    
    
    
    
    
    
    
    
    $
    486
    
    
    
    
    
    
    
    
    
    
    $
    (77
    )Total assets-corporate
    
    
    
    
    
    
    
    
    
    $
    38,269
    
    
    
    
    
    
    
    
    
    
    $
    11,476
 Nine Months Ended
    
    
    Nine Months EndedSeptember 30, 2008
    
    
    September 30, 2007Revenues-
    
    
    Healthcare
    
    
    
    
    
    
    Revenues-
    
    
    HealthcareExternal
    
    
    Services
    
    
    
    
    
    
    External
    
    
    ServicesCustomers
    
    
    Expense
    
    
    Total
    
    
    Customers
    
    
    Expense
    
    
    TotalReportable segments:Fully-insured dental
    
    $
    29,667
    
    
    $
    23,659
    
    
    $
    6,008
    
    
    $
    29,795
    
    
    $
    23,870
    
    
    $
    5,925Self-insured dental
    
    
    19,162
    
    
    
    16,437
    
    
    
    2,725
    
    
    
    14,325
    
    
    
    12,250
    
    
    
    2,075Corporate, All Other
    
    
    344
    
    
    
    
    
    
    
    344
    
    
    
    376
    
    
    
    
    
    
    
    376Total
    
    $
    49,173
    
    
    $
    40,096
    
    
    
    9,077
    
    
    $
    44,496
    
    
    $
    36,120
    
    
    
    8,376Investment income
    
    
    
    
    
    
    
    
    
    
    168
    
    
    
    
    
    
    
    
    
    
    
    192Other income
    
    
    
    
    
    
    
    
    
    
    41
    
    
    
    
    
    
    
    
    
    
    
    75Insurance expense
    
    
    
    
    
    
    
    
    
    
    8,870
    
    
    
    
    
    
    
    
    
    
    
    8,420Income (loss) before income tax
    
    
    
    
    
    
    
    
    
    $
    416
    
    
    
    
    
    
    
    
    
    
    $
    223Total assets-corporate
    
    
    
    
    
    
    
    
    
    $
    38,269
    
    
    
    
    
    
    
    
    
    
    $
    11,476
 Inter-segment revenues were not significant for the three and nine months ended September 30, 2008
and 2007.
 9




---



##### 



7.
    
    FAIR VALUE MEASUREMENTSEffective January 1, 2008, the Company adopted SFAS No. 157. Subsequent to the adoption of SFAS No.
157, FSP No. 157-1 excluded SFAS No. 13, Accounting for Leases, and other accounting
pronouncements that address fair value measurements for purposes of lease classification or
measurement under SFAS No. 13, from the scope of SFAS No. 157. This FSP was effective upon initial
adoption of SFAS No. 157. SFAS No. 157, as amended, provides a definition of fair value that serves
to replace and unify old fair value definitions so that consistency on the definition is achieved,
and the definition provided acts as a modification of the current accounting presumption that a
transaction price of an asset or liability equals its initial fair value. The statement also
provides a fair value hierarchy used to classify source information used in fair value measurements
that places higher importance on market-based sources. The three levels of the fair value
hierarchy defined by SFAS No. 157 are as follows:
 
    
    Level 1  Valuations based on quoted prices in active markets for identical
assets or liabilities that the entity has the ability to access.
    
    Level 2  Valuations based on significant other observable inputs other than
those included in Level 1 such as quoted prices for similar assets or liabilities,
quoted prices in markets that are not active, or other inputs that are observable
or can be corroborated by observable data for substantially the full term of the
assets or liabilities.
    
    Level 3  Valuations based on unobservable inputs such as when observable inputs
are not available or inputs that are supported by little or no market activity and
that are significant to the fair value of the assets or liabilities.
  Level 1
    
    
    Level 2
    
    
    Total BalanceAssetsFixed maturities (a)
    
    
    
    
    
    $
    497
    
    
    $
    497Short-term investments (a) (b)
    
    
    
    
    
    
    1,469
    
    
    
    1,469Deferred compensation investments (c)
    
    $
    146
    
    
    
    
    
    
    
    146Interest rate swap (c)
    
    
    
    
    
    
    14
    
    
    
    14State guarantee fund deposits (c)
    
    
    244
    
    
    
    50
    
    
    
    294Total
    
    $
    390
    
    
    $
    2,030
    
    
    $
    2,420
 
 (a)
    
    Invested in federally insured Certificates of Deposit(b)
    
    Included in short-term investments(c)
    
    Included in other assets    
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Forward-Looking statements
  10




---



##### 



Overview
    Strategy
   Highlights
 
    
    We generated net income of approximately $306,000 in the three months ended September 30,
2008 compared to a net loss of approximately $(53,000) for the three months ended September
30, 2007.
    
    We generated net income of approximately $260,000 for the nine months ended September 30,
2008 compared to net income of approximately $142,000 for the nine months ended September
30, 2007.
    
    These net income increases are primarily the result of increased membership, lower
fully-insured healthcare service utilization and the shift of a large fully-insured employer
group with high utilization to the self-insured financial arrangement.
    
    Our dental and vision product membership increased by 20,600 members, or 8.4%, from
approximately 245,000 members at December 31, 2007 to approximately 265,600 members at
September 30, 2008. Our membership at September 30, 2008 includes approximately 21,000
members in our DentaSelect dental PPO offering.
 11




---



##### 



Comparison of Results of Operations
   As of
    
    As ofSeptember 30, 2008
    
    September 30, 2007
    
    ChangeMembership:Fully-insured dental
    
    
    153,800
    
    
    
    139,800
    
    
    
    10.0
    %Self-insured dental
    
    
    97,300
    
    
    
    83,900
    
    
    
    16.0
    %Corporate, All Other
    
    
    14,500
    
    
    
    20,100
    
    
    
    (27.9
    %)Total membership
    
    
    265,600
    
    
    
    243,800
    
    
    
    8.9
    %
 September 30, 2008
    
    
    September 30, 2007
    
    
    ChangePremium revenue:Fully-insured dental
    
    $
    10,484
    
    
    $
    9,371
    
    
    
    11.9
    %Self-insured dental
    
    
    6,937
    
    
    
    5,568
    
    
    
    24.6
    %Corporate, All Other
    
    
    92
    
    
    
    135
    
    
    
    (31.9
    %)Total premium revenue
    
    
    17,513
    
    
    
    15,074
    
    
    
    16.2
    %Investment income:Corporate, All Other
    
    
    50
    
    
    
    83
    
    
    
    (39.8
    %)Other income:Corporate, All Other
    
    
    15
    
    
    
    24
    
    
    
    (37.5
    %)Total revenue
    
    
    17,578
    
    
    
    15,181
    
    
    
    15.8
    %Healthcare service expense:Fully-insured dental
    
    
    8,184
    
    
    
    7,859
    
    
    
    4.1
    %Self-insured dental
    
    
    5,974
    
    
    
    4,761
    
    
    
    25.5
    %Corporate, All Other
    
    
    
    
    
    
    
    
    
    
    0.0
    %Total health care service expense
    
    
    14,158
    
    
    
    12,620
    
    
    
    12.2
    %Insurance expense:Corporate, All Other
    
    
    2,934
    
    
    
    2,638
    
    
    
    11.2
    %Income tax provisionCorporate, All Other
    
    
    180
    
    
    
    (24
    )
    
    
    850.0
    %Net Income (Loss)
    
    $
    306
    
    
    $
    (53
    )
    
    
    677.4
    %
 12




---



##### 



Nine months ended
    
    
    Nine months endedSeptember 30, 2008
    
    
    September 30, 2007
    
    
    ChangePremium revenue:Fully-insured dental
    
    $
    29,667
    
    
    $
    29,795
    
    
    
    (0.4
    %)Self-insured dental
    
    
    19,162
    
    
    
    14,325
    
    
    
    33.8
    %Corporate, All Other
    
    
    344
    
    
    
    376
    
    
    
    (8.5
    %)Total premium revenue
    
    
    49,173
    
    
    
    44,496
    
    
    
    10.5
    %Investment income:Corporate, All Other
    
    
    168
    
    
    
    192
    
    
    
    (12.5
    %)Other income:Corporate, All Other
    
    
    41
    
    
    
    75
    
    
    
    (45.3
    %)Total revenue
    
    
    49,382
    
    
    
    44,763
    
    
    
    10.3
    %Healthcare service expense:Fully-insured dental
    
    
    23,659
    
    
    
    23,870
    
    
    
    (0.9
    %)Self-insured dental
    
    
    16,437
    
    
    
    12,250
    
    
    
    34.2
    %Corporate, All Other
    
    
    
    
    
    
    
    
    
    
    0.0
    %Total health care service expense
    
    
    40,096
    
    
    
    36,120
    
    
    
    11.0
    %Insurance expense:Corporate, All Other
    
    
    8,870
    
    
    
    8,420
    
    
    
    5.3
    %Income tax provisionCorporate, All Other
    
    
    156
    
    
    
    82
    
    
    
    90.2
    %Net Income
    
    $
    260
    
    
    $
    141
    
    
    
    84.4
    %
 Summary
   Membership
  13




---



##### 



Revenue
    Self-Insured Claim Revenue
 Self-Insured ASO Fees
  14




---



##### 



Investment Income
  Healthcare Service Expense
     Reinsurance
  15




---



##### 



Insurance Expense
  Other Income
  Income Taxes
  Liquidity and Capital Resources and Changes in Financial Condition
   Nine months ended
    
    
    Nine months endedSeptember 30, 2008
    
    
    September 30, 2007Net cash provided by (used in) operating activities
    
    $
    729
    
    
    $
    (1,382
    )Net cash used in investing activities
    
    
    (1,410
    )
    
    
    (2,089
    )Net cash used in financing activities
    
    
    (261
    )
    
    
    (134
    )Decrease in cash
    
    $
    (942
    )
    
    $
    (3,605
    )
 Cash Flow from Operating Activities
  16




---



##### 



Cash Flow from Investing Activities
  Cash Flow from Financing Activities
  Provider Withhold Funds
   Financial Condition
    17




---



##### 



Risk-Based Capital
   ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
     18




---



##### 



ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
  19




---



##### 



PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  The current state of the national economy and adverse changes in economic conditions could
adversely affect the Companys business and results of operations.
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
   Total Numberof SharesPurchased as
    
    MaximumPart of a
    
    Number of SharesPublicly
    
    that May Yet BeTotal Class A
    
    Total Class B
    
    Average price
    
    Announced
    
    Purchased Undershares
    
    shares
    
    paid
    
    Plans or
    
    the Plans orPeriod
    
    purchased
    
    purchased
    
    per share
    
    Programs
    
    ProgramsJuly 1  July 31, 2008
    
    
    1
    (a)
    
    
    23
    (a)
    
    $
    596.35
    
    
    
    0
    
    
    
    N/AAugust 1  August 31, 2008
    
    
    0
    
    
    
    12
    (a)
    
    $
    604.48
    
    
    
    0
    
    
    
    N/ASeptember 1  September
30, 2008
    
    
    0
    
    
    
    12
    (a)
    
    $
    617.07
    
    
    
    0
    
    
    
    N/A
 
 (a)
    
    Repurchased from provider shareholder in accordance with the Companys
obligations under its Amended and Restated Code of Regulations. 
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
  20




---



##### 



ITEM 6. EXHIBITS
 Exhibits31.1
    
    
    
    CEO certifications pursuant to Section 302 of Sarbanes-Oxley Act of 2002.31.2
    
    
    
    CFO certifications pursuant to Section 302 of Sarbanes-Oxley Act of 2002.32
    
    
    
    CEO and CFO certifications pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 SIGNATURES
  DCP HOLDING COMPANYNovember 14, 2008
    By: /s/ Robert C. Hodgkins, Jr.Robert C. Hodgkins, Jr.Vice President and Chief Financial Officer 21




---



##### 



Exhibit No.
    
    Item31.1
    
    Certifications pursuant to Section 302 of Sarbanes-Oxley Act of 200231.2
    
    Certifications pursuant to Section 302 of Sarbanes-Oxley Act of 200232
    
    Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002