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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, 2007
 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
  o o þ
 o þ




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##### 



INDEX TO DCP HOLDING COMPANY
 REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2007
 PART I  FINANCIAL INFORMATION
  
 PAGEItem 1.
    
    Financial Statements
    
    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
    
    21Item 6.
    
    Exhibits
    
    21Signatures
    
    21EX-31.1EX-31.2EX-32
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Item 1. Financial Statements.
 DCP HOLDING COMPANY AND SUBSIDIARIES
 CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
 
 September 30,
    
    
    December 31,2007
    
    
    2006ASSETSCURRENT ASSETS:Cash
    
    $
    4,599,145
    
    
    $
    6,223,757Short-term investments at fair value, cost of $508,000 and $1,100,000
at September 30, 2007 and December 31, 2006, respectively
    
    
    507,158
    
    
    
    1,096,721Accounts receivable, net of allowance of $7,000 and $37,000
at September 30, 2007 and December 31, 2006, respectively
    
    
    577,125
    
    
    
    406,507Prepaid expense, deposits, and other
    
    
    150,344
    
    
    
    141,103Federal income tax receivable
    
    
    242,853Deferred federal income tax, current
    
    
    82,326
    
    
    
    75,881Total current assets
    
    
    6,158,951
    
    
    
    7,943,969INVESTMENTS
    
    
    1,454,026
    
    
    
    796,189PROPERTY, PLANT, AND EQUIPMENT:Land
    
    
    364,000
    
    
    
    364,000Building and building improvements
    
    
    2,236,866
    
    
    
    2,221,171Furniture and equipment
    
    
    1,989,000
    
    
    
    1,885,238Total property, plant, and equipment
    
    
    4,589,866
    
    
    
    4,470,409Less accumulated depreciation and amortization
    
    
    (1,568,776
    )
    
    
    (1,274,733
    )Total property, plant, and equipmentnet
    
    
    3,021,090
    
    
    
    3,195,676INTANGIBLE ASSETS, Net of accumulated amortization of $258,000 and $246,000
at September 30, 2007 and December 31, 2006, respectively
    
    
    192,369
    
    
    
    203,880GOODWILL
    
    
    136,355
    
    
    
    136,355DEFERRED FEDERAL INCOME TAX, NON-CURRENT
    
    
    11,355
    
    
    
    11,355OTHER ASSETS
    
    
    501,385
    
    
    
    511,910TOTAL ASSETS
    
    $
    11,475,531
    
    
    $
    12,799,334LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Current portion of long-term obligations
    
    $
    340,265
    
    
    $
    385,902Claims payable
    
    
    2,681,394
    
    
    
    3,987,591Accounts payable and accrued expenses
    
    
    1,575,748
    
    
    
    1,811,349Unearned premium revenue
    
    
    633,541
    
    
    
    587,963Federal income tax payable
    
    
    
    
    
    
    19,238Other current liabilities
    
    
    27,800
    
    
    
    50,753Total current liabilities
    
    
    5,258,748
    
    
    
    6,842,796LONG TERM LIABILITIES:Mortgage loan payable
    
    
    1,170,000
    
    
    
    1,260,000Capital lease obligation
    
    
    76,435
    
    
    
    242,877Deferred compensation
    
    
    329,953
    
    
    
    127,670Total long-term liabilities
    
    
    1,576,388
    
    
    
    1,630,547TOTAL LIABILITIES
    
    
    6,835,136
    
    
    
    8,473,343REDEEMABLE COMMON SHARES:Class A, Redeemable Common Shares, no par valueauthorized, 7,500 shares;
issued and outstanding, 655 and 681 at September 30, 2007 and December 31, 2006, respectively
    
    
    358,892
    
    
    
    362,853Class B Redeemable Common Shares, no par valueauthorized, 100,000 shares;
issued and outstanding, 7,814 and 7,438 at September 30, 2007 and December 31, 2006, respectively
    
    
    4,281,503
    
    
    
    3,963,138Total redeemable common shares
    
    
    4,640,395
    
    
    
    4,325,991SHAREHOLDERS EQUITYPreferred Shares; no par valueauthorized, 100,000 shares; none issued
and outstandingTOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    11,475,531
    
    
    $
    12,799,334
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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 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Premium revenue
    
    $
    15,074,155
    
    
    $
    13,329,637
    
    
    $
    44,496,265
    
    
    $
    38,490,972Operating expenses:Healthcare services expense
    
    
    12,619,880
    
    
    
    11,156,642
    
    
    
    36,120,237
    
    
    
    31,443,891Selling, general and administrative expense
    
    
    2,616,283
    
    
    
    2,445,663
    
    
    
    8,347,231
    
    
    
    7,408,770Total operating expenses
    
    
    15,236,163
    
    
    
    13,602,305
    
    
    
    44,467,468
    
    
    
    38,852,661Operating income (loss)
    
    
    (162,008
    )
    
    
    (272,668
    )
    
    
    28,797
    
    
    
    (361,689
    )Non-Operating Income (Expense):Investment income
    
    
    84,176
    
    
    
    56,281
    
    
    
    192,957
    
    
    
    139,506Other income
    
    
    23,786
    
    
    
    89,572
    
    
    
    74,603
    
    
    
    257,352Interest expense
    
    
    (23,218
    )
    
    
    (29,332
    )
    
    
    (72,901
    )
    
    
    (93,209
    )Total non-operating income
    
    
    84,744
    
    
    
    116,521
    
    
    
    194,659
    
    
    
    303,649INCOME (LOSS) BEFORE INCOME TAX
    
    
    (77,264
    )
    
    
    (156,147
    )
    
    
    223,456
    
    
    
    (58,040
    )INCOME TAX PROVISION (BENEFIT)
    
    
    (23,895
    )
    
    
    (38,822
    )
    
    
    81,814
    
    
    
    (12,637
    )NET INCOME (LOSS) ON REDEEMABLE COMMON SHARES
    
    $
    (53,369
    )
    
    $
    (117,325
    )
    
    $
    141,642
    
    
    $
    (45,403
    )BASIC EARNINGS (LOSS) PER REDEEMABLE COMMON SHARE
    
    $
    (6.34
    )
    
    $
    (14.52
    )
    
    $
    17.18
    
    
    $
    (5.52
    )DILUTED EARNINGS (LOSS) PER REDEEMABLE COMMON SHARE
    
    $
    (6.34
    )
    
    $
    (14.52
    )
    
    $
    17.09
    
    
    $
    (5.52
    )
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DCP HOLDING COMPANY AND SUBSIDIARIES
 CONDENSED CONSOLIDATED STATEMENT OF REDEEMABLE COMMON SHARES AND SHAREHOLDERS EQUITY  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006 (Unaudited)
 Redeemable Common Shares
    
    
    Shareholders EquityClass A
    
    
    Class BOther AccumulatedNumber of
    
    
    
    
    
    
    Number of
    
    
    
    
    
    
    Retained
    
    
    Comprehensive
    
    
    
    
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Earnings
    
    
    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 redeemed or repurchased
    
    
    (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
    
    
    $
    
    
    
    $
    
    
    
    $
 Redeemable Common Shares
    
    

Shareholders EquityClass A
    
    
    Class BOther AccumulatedNumber of
    
    
    
    
    
    
    Number of
    
    
    
    
    
    
    Retained
    
    
    Comprehensive
    
    
    
    
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Earnings
    
    
    Income (Loss)
    
    
    Total
    
    
    Income (Loss)BALANCEDECEMBER 31, 2005
    
    
    691
    
    
    $
    357,976
    
    
    
    7,769
    
    
    $
    4,024,771Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (45,403
    )
    
    
    
    
    
    $
    (45,403
    )
    
    $
    (45,403
    )Change in fair value of interest rate swap (net of income tax benefit of $906)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (1,760
    )
    
    
    (1,760
    )
    
    
    (1,760
    )Unrealized gain on investments (net of income tax of $242)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    468
    
    
    
    468
    
    
    
    468Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (46,695
    )Class A Common Shares exchanged for Class B Common Shares
    
    
    (3
    )
    
    
    (1,555
    )
    
    
    3
    
    
    
    1,555Common shares redeemed or repurchased
    
    
    (5
    )
    
    
    (2,344
    )
    
    
    (373
    )
    
    
    (175,864
    )Dilution of common shares to redemption value
    
    
    
    
    
    
    (2,702
    )
    
    
    
    
    
    
    (43,993
    )
    
    
    45,403
    
    
    
    1,292
    
    
    
    46,695BALANCESEPTEMBER 30, 2006
    
    
    683
    
    
    $
    351,375
    
    
    
    7,399
    
    
    $
    3,806,469
    
    
    $
    
    
    
    $
    
    
    
    $
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DCP HOLDING COMPANY AND SUBSIDIARIES
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 For the Nine Months EndedSeptember 30,2007
    
    
    2006CASH FLOWS FROM OPERATING ACTIVITIES:Net income (loss) on redeemable common shares
    
    $
    141,642
    
    
    $
    (45,403
    )Adjustments to reconcile net income
to net cash provided by operating activities:Depreciation and amortization
    
    
    305,554
    
    
    
    509,254Deferred income taxes
    
    
    
    
    
    
    (225,572
    )Effects of changes in operating assets and liabilities, net of acquired
assets and liabilities:Accounts receivable
    
    
    (170,619
    )
    
    
    (141,065
    )Prepaid expenses, deposits, and other
    
    
    (9,241
    )
    
    
    84,841Other assets
    
    
    (84,705
    )
    
    
    (57,102
    )Claims payable
    
    
    (1,306,197
    )
    
    
    (819,259
    )Unearned premium revenue
    
    
    45,578
    
    
    
    180,758Accounts payable and accrued expenses
    
    
    (244,871
    )
    
    
    (80,623
    )Deferred compensation
    
    
    202,283
    
    
    
    104,336Federal income tax payable/receivable
    
    
    (262,091
    )
    
    
    (19,395
    )Net cash used in operating activities
    
    
    (1,382,667
    )
    
    
    (509,230
    )CASH FLOWS FROM INVESTING ACTIVITIES:Acquisition of property, plant and equipment
    
    
    (116,182
    )
    
    
    (128,941
    )Acquisition of business, net of acquired cash
    
    
    
    
    
    
    (25,000
    )Purchases of investments
    
    
    (1,000,000
    )
    
    
    (1,300,000
    )Maturities of investments
    
    
    1,008,000
    
    
    
    1,200,000Net cash used in investing activities
    
    
    (108,182
    )
    
    
    (253,941
    )CASH FLOWS FROM FINANCING ACTIVITIES:Mortgage loan repayments
    
    
    (90,000
    )
    
    
    (90,000
    )Repayment of capital lease
    
    
    (156,664
    )
    
    
    (147,459
    )Repayments of note
    
    
    (55,417
    )
    
    
    (71,250
    )Repurchase of redeemable common shares
    
    
    (62,173
    )
    
    
    (124,046
    )Redeemable common shares issued
    
    
    230,491
    
    
    
    Net cash used in financing activities
    
    
    (133,763
    )
    
    
    (432,755
    )DECREASE IN CASH
    
    
    (1,624,612
    )
    
    
    (1,195,926
    )CASHBeginning of period
    
    
    6,223,757
    
    
    
    5,628,987CASHEnd of period
    
    $
    4,599,145
    
    
    $
    4,433,061SUPPLEMENTAL CASH FLOW INFORMATIONCash paid for interest
    
    
    72,189
    
    
    
    106,212Cash paid for income taxes
    
    
    335,000
    
    
    
    254,260Redeemed common shares in other current liabilities
    
    
    27,800
    
    
    
    54,162Acquisition of property, plant and equipment in accounts payable
    
    
    3,273
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DCP HOLDING COMPANY AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2007 (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 2006 financial
statements and notes thereto as included in the DCP Holding Company Form 10-K filed with the
Commission on March 30, 2007. 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,
2007 are not necessarily indicative of the results that may be expected for the year ending
December 31, 2007.2.
    
    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, 2006. 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 and accrued expenses, among
others. Any adjustments pursuant 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 subject to
cancellation by the employer group or the Company upon thirty days written notice. Management has
determined that as of September 30, 2007 and 2006, respectively, no cancellation reserve is
required. 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 premiums received
prior to the beginning of a reporting period are recognized as unearned premium revenue. Any
amounts not received by the end of a reporting period are recorded as accounts receivable by the
Company.Self-InsuredThe Company provides access to its provider network 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 provisions of 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 is recorded when the self-insured claims
are incurred. Amounts withheld on claims processed for self-insured contracts and under
third-party administration arrangements amounted to approximately $521,000 and $348,000 for the
three months ended September 30, 2007 and 2006, respectively, and approximately $1,300,000 and
$902,000 for the nine months ended September 30, 2007 and 2006, respectively and is included in
premium revenue in the accompanying condensed consolidated statements of income.ASO Fees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 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 and retains 10% of these fees (including payments on self-insured claims) in
accordance with the Companys provider agreement. Under the terms of the Companys provider
agreement, the Company is not obligated to return to providers
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any withheld amounts. Amounts withheld are a reduction of healthcare service expense in the
accompanying consolidated statements of income. 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.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 our 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. The Companys annual
determination of the amount of withhold payments to be made is limited to amounts withheld in the
year in which the determination is made, and payments authorized by the Board are accrued in the
fourth quarter of the fiscal year upon Board resolution.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 regularly by management and are adjusted based on current information,
adjusted based on 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.The Company incurred claim costs related to such dental care providers amounting to approximately
$12,620,000 and $11,157,000 for the three months ended September 30, 2007 and 2006, respectively,
and approximately $36,120,000 and $31,444,000 for the nine months ended September 30, 2007 and
2006, respectively.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.Reinsurance- In the normal course of business, the Company cedes portions of its written premiums
to another insurance company. 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. During 2007 the Companys reinsurer had an A.M. Best rating of A.
Dental insurance premiums ceded to its reinsurer were approximately $67,000 for the three months
ended September 30, 2006 and $163,000 for the nine months ended September 30, 2007. The healthcare
services expense ceded to this reinsurer was approximately $53,000 for the three months ended
September 30, 2007 and $134,000 for the nine months ended September 30, 2007. As of September 30,
2007 the Company has approximately $17,000 of reinsurance recoverables and prepaid reinsurance
premiums net of reinsurance payables, which is included in accounts receivable.3.
    
    NEW ACCOUNTING PRONOUNCEMENTSIn February 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 159). SFAS 159
permits entities to choose to measure many financial instruments and certain other items at fair
value. Entities that elect the fair value option will report unrealized gains and losses in
earnings at each subsequent reporting date. The fair value option may be elected on an
instrument-by-instrument basis, with few exceptions. SFAS 159 also establishes presentation and
disclosure requirements to facilitate comparisons between companies that choose different
measurement attributes for similar assets and liabilities. The requirements of SFAS 159 will be
effective for the Company beginning January 1, 2008. The Company is in the process of determining
the impact, if any, the adoption of SFAS 159 will have on its financial statements upon adoption.In September 2006, the FASB issued SFAS 157, Fair Value Measurements (SFAS 157), which
establishes a framework for measuring fair value and expands disclosure about fair value
measurements. This Statement applies under other accounting pronouncements that permit or require
fair measurement. This Statement does not require any new fair
 6




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##### Table of Contents



value measurements. The provisions of SFAS 157 will be effective for the Company beginning January
1, 2008. The Company is in the process of determining the effect, if any, the adoption of SFAS 157
will have on its financial statements.In July 2006, FASB issued FASB Interpretation No. 48 (FIN 48), Accounting for Uncertainty in
Income Taxes. FIN 48 is an interpretation of SFAS No. 109, Accounting for Income Taxes. This
Interpretation clarifies the accounting for uncertainty in income taxes recognized in an
enterprises financial statements in accordance with SFAS No. 109. This Interpretation prescribes a
recognition threshold and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return. This Interpretation
also provides guidance on de-recognition, classification, interest and penalties, accounting in
interim periods, disclosure, and transition. The provisions of FIN 48 were effective for the
Company January 1, 2007 (See Note 4).4.
    
    ACCOUNTING FOR UNCERTAIN TAX POSITIONSIn connection with the adoption of FIN 48, the Company recorded a cumulative effect adjustment of a
change in accounting principle as prescribed by FIN 48 which reduced retained earnings
approximately $6,000. The amount of unrecognized tax benefits from uncertain tax positions at
January 1, 2007 was $4,300. No changes were incurred to the unrecognized tax benefit for the nine
month period ending September 30, 2007.The FIN 48 liability is included as a current liability in accounts payable and other accrued
liabilities in the accompanying balance sheet at September 30, 2007. The entire $4,300
unrecognized tax benefit would affect the effective tax rate, if recognized.The Company recognizes interest and penalties associated with unrecognized tax benefits as part of
income tax expense. During the three and nine month period ending September 30, 2007, the Company
did not recognize any additional interest and penalties. The Company has accrued approximately
$1,700 in interest and penalties as of January 1, 2007 and September 30, 2007.The Company is primarily subject to US federal and various US state and local tax authorities. Tax
years subsequent to 2004 remain open to examination by the Internal Revenue Service, and 2003
remain open to other state and local a tax authorities.  As of September 30, 2007, there are no
U.S. federal or state returns under examination.5.
    
    DEFERRED COMPENSATION PLANIn 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, 2007 and 2006, respectively, the Company
recorded deferred compensation expense of approximately $20,000 and $19,000 related to deferred
director fees and employee compensation. For the nine months ended September 30, 2007 and 2006,
respectively, the Company recorded deferred compensation expense of approximately $71,000 and
$56,000 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 will vest 100% at the end of each
year if the director meets the board meeting attendance requirements. The key employee awards will
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. For the three months ended September 30,
2007 and 2006, respectively, the Company recorded deferred compensation expense of approximately
$38,900 and $16,000 related to deferred share awards. For the nine months ended September 30, 2007
and 2006, respectively, the Company recorded deferred compensation expense of approximately
$115,700 and $48,000 related to deferred share awards. In total, approximately $330,000 of deferred
compensation is included in other long-term liabilities in the accompanying September 30, 2007
unaudited condensed consolidated balance sheet.6.
    
    EARNINGS PER REDEEMABLE COMMON SHAREDetail supporting the computation of basic earnings per Redeemable Common Share follows for the
three and nine months ended September 30, 2007 and 2006, respectively:
 7




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Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net income (loss) accretive (dilutive) to
redeemable common shareholders
    
    $
    (53,369
    )
    
    $
    (117,325
    )
    
    $
    141,642
    
    
    $
    (45,403
    )Weighted average outstanding redeemable common
shares used to compute
basic earnings (loss) per redeemable common share
    
    
    8,419
    
    
    
    8,083
    
    
    
    8,244
    
    
    
    8,231Weighted average outstanding redeemable common
shares used to compute
diluted earnings (loss) per redeemable common share
    
    
    8,419
    
    
    
    8,083
    
    
    
    8,286
    
    
    
    8,231Basic earnings (loss) per redeemable common share
    
    $
    (6.34
    )
    
    $
    (14.52
    )
    
    $
    17.18
    
    
    $
    (5.52
    )Diluted earnings (loss) per redeemable common share
    
    $
    (6.34
    )
    
    $
    (14.52
    )
    
    $
    17.09
    
    
    $
    (5.52
    )
  7.
    
    SEGMENT INFORMATIONThe Company manages its business with three segments, fully-insured dental HMO, self-insured dental
HMO and Corporate, All Other. Corporate, All Other consists primarily of three additional product
lines: DentaSelect dental PPO, DentaPremier dental indemnity, and Vision Care Plus. The Company
identified their segments in accordance with the aggregation provisions of 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 Companys Chief Executive
Officer (the chief decision maker) in managing the business. The segment information aggregates
products with similar economic characteristics. These characteristics include the nature of
customer groups and pricing, benefits and underwriting requirements.The results of the fully insured and self-insured HMO segments are measured by gross profit. The
Company does not allocate selling, general and administrative expenses, investment and other
income, interest expense, goodwill, or other assets or liabilities, to these segments. These items
are assigned to the remainder of the business, which the Company identifies as Corporate, All
Other. The Company combines all gross profit and applies that amount as a contribution to selling,
general and administrative expenses, resulting in a consolidated income before taxes.Listed below is financial information required to be reported for each industry segment. Operating
segment information is as follows for the three months and nine months ended September 30, 2007 and
2006, respectively (amounts in thousands):
 8




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Three Months Ended
    
    
    Three Months EndedSeptember 30, 2007
    
    
    September 30, 2006Revenues-
    
    
    Healthcare
    
    
    
    
    
    
    Revenues-
    
    
    HealthcareExternal
    
    
    Services
    
    
    
    
    
    
    External
    
    
    ServicesCustomers
    
    
    Expense
    
    
    Total
    
    
    Customers
    
    
    Expense
    
    
    TotalReportable Segments:Fully-Insured DHMO
    
    $
    9,106
    
    
    $
    7,650
    
    
    $
    1,456
    
    
    $
    9,336
    
    
    $
    7,808
    
    
    $
    1,528Self-Insured DHMO
    
    
    5,568
    
    
    
    4,761
    
    
    
    807
    
    
    
    3,892
    
    
    
    3,347
    
    
    
    545Corporate, All other
    
    
    400
    
    
    
    209
    
    
    
    191
    
    
    
    102
    
    
    
    2
    
    
    
    100Total
    
    $
    15,074
    
    
    $
    12,620
    
    
    
    2,454
    
    
    $
    13,330
    
    
    $
    11,157
    
    
    
    2,173Selling, general and
administrative expense
    
    
    
    
    
    
    
    
    
    
    2,616
    
    
    
    
    
    
    
    
    
    
    
    2,446Other income
    
    
    
    
    
    
    
    
    
    
    85
    
    
    
    
    
    
    
    
    
    
    
    117Income (Loss) before
Income Tax
    
    
    
    
    
    
    
    
    
    $
    (77
    )
    
    
    
    
    
    
    
    
    
    $
    (156
    )Total Assets, Corporate
    
    
    
    
    
    
    
    
    
    $
    11,476
    
    
    
    
    
    
    
    
    
    
    $
    11,151
 Nine Months Ended
    
    
    Nine Months EndedSeptember 30, 2007
    
    
    September 30, 2006Revenues-
    
    
    Healthcare
    
    
    
    
    
    
    Revenues-
    
    
    HealthcareExternal
    
    
    Services
    
    
    
    
    
    
    External
    
    
    ServicesCustomers
    
    
    Expense
    
    
    Total
    
    
    Customers
    
    
    Expense
    
    
    TotalReportable Segments:Fully-Insured DHMO
    
    $
    29,149
    
    
    $
    23,343
    
    
    $
    5,806
    
    
    $
    28,122
    
    
    $
    22,784
    
    
    $
    5,338Self-Insured DHMO
    
    
    14,325
    
    
    
    12,250
    
    
    
    2,075
    
    
    
    10,087
    
    
    
    8,658
    
    
    
    1,429Corporate, All other
    
    
    1,022
    
    
    
    527
    
    
    
    495
    
    
    
    282
    
    
    
    2
    
    
    
    280Total
    
    $
    44,496
    
    
    $
    36,120
    
    
    
    8,376
    
    
    $
    38,491
    
    
    $
    31,444
    
    
    
    7,047Selling, general and
administrative expense
    
    
    
    
    
    
    
    
    
    
    8,347
    
    
    
    
    
    
    
    
    
    
    
    7,409Other income
    
    
    
    
    
    
    
    
    
    
    194
    
    
    
    
    
    
    
    
    
    
    
    304Income (Loss) before
Income Tax
    
    
    
    
    
    
    
    
    
    $
    223
    
    
    
    
    
    
    
    
    
    
    $
    (58
    )Total Assets, Corporate
    
    
    
    
    
    
    
    
    
    $
    11,476
    
    
    
    
    
    
    
    
    
    
    $
    11,151
  9




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Forward-Looking statements
  Overview
    Profitability Strategy
    10




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Highlights
 
    
    We had a net loss of approximately $(53,000) in the three months ended September 30, 2007
compared to a net loss of approximately $(117,000) for the three months ended September 30,
2006.
    
    We generated net income of approximately $142,000 in the nine months ended September 30,
2007 compared to a net loss of approximately $(45,000) for the nine months ended September
30, 2006.
    
    Our dental and vision products grew by 27,500 members, or 12.7%, from approximately
216,300 members at December 31, 2006 to approximately 243,800 members at September 30, 2007.
Our membership at September 30, 2007 includes approximately 13,800 members from sales
related to our DentaSelect dental PPO offering.
 Comparison of Results of Operations
   As of
    
    As ofSeptember 30, 2007
    
    September 30, 2006
    
    CHANGEMembership:Fully-insured DHMO
    
    
    133,700
    
    
    
    138,500
    
    
    
    -3.5
    %Self-insured DHMO
    
    
    83,900
    
    
    
    62,000
    
    
    
    35.3
    %Corporate, All Other
    
    
    26,200
    
    
    
    15,800
    
    
    
    65.8
    %Total membership
    
    
    243,800
    
    
    
    216,300
    
    
    
    12.7
    %
 11




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Three months ended
    
    
    Three months endedSeptember 30, 2007
    
    
    September 30, 2006
    
    
    ChangePremium revenue:Fully-insured DHMO
    
    $
    9,106
    
    
    $
    9,336
    
    
    
    -2.5
    %Self-insured DHMO
    
    
    5,568
    
    
    
    3,892
    
    
    
    43.1
    %Corporate, All Other
    
    
    400
    
    
    
    102
    
    
    
    292.2
    %Total premium revenue
    
    
    15,074
    
    
    
    13,330
    
    
    
    13.1
    %Health care service expense:Fully-insured DHMO
    
    
    7,650
    
    
    
    7,808
    
    
    
    -2.0
    %Self-insured DHMO
    
    
    4,761
    
    
    
    3,347
    
    
    
    42.2
    %Corporate, All Other
    
    
    209
    
    
    
    2
    
    
    
    10350.0
    %Total health care service expense
    
    
    12,620
    
    
    
    11,157
    
    
    
    13.1
    %Selling, general & administrative expense:Corporate, All Other
    
    
    2,616
    
    
    
    2,446
    
    
    
    7.0
    %Investment income:Corporate, All Other
    
    
    84
    
    
    
    56
    
    
    
    50.0
    %Other income:Corporate, All Other
    
    
    24
    
    
    
    90
    
    
    
    -73.3
    %Interest expense:Corporate, All Other
    
    
    (23
    )
    
    
    (29
    )
    
    
    -20.7
    %Income tax provisionCorporate, All Other
    
    
    (24
    )
    
    
    (39
    )
    
    
    -38.5
    %
 Nine months ended
    
    
    Nine months endedSeptember 30, 2007
    
    
    September 30, 2006
    
    
    ChangePremium revenue:Fully-insured DHMO
    
    $
    29,149
    
    
    $
    28,122
    
    
    
    3.7
    %Self-insured DHMO
    
    
    14,325
    
    
    
    10,087
    
    
    
    42.0
    %Corporate, All Other
    
    
    1,022
    
    
    
    282
    
    
    
    262.4
    %Total
premium revenue
    
    
    44,496
    
    
    
    38,491
    
    
    
    15.6
    %Health care service expense:Fully-insured DHMO
    
    
    23,343
    
    
    
    22,784
    
    
    
    2.5
    %Self-insured DHMO
    
    
    12,250
    
    
    
    8,658
    
    
    
    41.5
    %Corporate, All Other
    
    
    527
    
    
    
    2
    
    
    
    26250.0
    %Total
health care service expense
    
    
    36,120
    
    
    
    31,444
    
    
    
    14.9
    %Selling, general & administrative expense:Corporate, All Other
    
    
    8,347
    
    
    
    7,409
    
    
    
    12.7
    %Investment income:Corporate, All Other
    
    
    193
    
    
    
    140
    
    
    
    37.9
    %Other income:Corporate, All Other
    
    
    75
    
    
    
    257
    
    
    
    -70.8
    %Interest expense:Corporate, All Other
    
    
    (73
    )
    
    
    (93
    )
    
    
    -21.5
    %Income tax provisionCorporate, All Other
    
    
    82
    
    
    
    (13
    )
    
    
    -730.8
    %
 12




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Summary
   Membership
    Revenue
   13




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Self-Insured Claim Revenue
 Self-Insured ASO Fees
     Healthcare Service Expense
  14




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Selling, General and Administrative Expenses
   15




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##### Table of Contents



Investment Income
  Other Income
   Interest Expense
  Income Taxes
   Liquidity and Capital Resources and Changes in Financial Condition
   16




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Nine months ended
    
    
    Nine months endedSeptember 30, 2007
    
    
    September 30, 2006Net cash used in operating activities
    
    $
    (1,383
    )
    
    $
    (509
    )Net cash used in investing activities
    
    
    (108
    )
    
    
    (254
    )Net cash used in financing activities
    
    
    (134
    )
    
    
    (433
    )Decrease in cash
    
    $
    (1,625
    )
    
    $
    (1,196
    )
 Cash Flow from Operating Activities
   Cash Flow from Investing Activities
  Cash Flow from Financing Activities
  Provider Withhold Funds
   17




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Financial Condition
      
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
     18




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ITEM 4. CONTROLS AND PROCEDURES
   19




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PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  
 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, 2007
    
    2(a)
    
    22(a)
    
    $555.82
    
    0
    
    
    N/AAugust 1  August 31, 2007
    
    0
    
    0
    
    N/A
    
    0
    
    
    N/ASeptember 1  September
30, 2007
    
    0
    
    0
    
    N/A
    
    0
    
    
    N/A
 
 (a)
    
    Repurchased from provider shareholder retirees 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
 20




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ITEM 5. OTHER INFORMATION
  21




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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, 2007
    By:
    /s/ Robert C. Hodgkins, Jr.Robert C. Hodgkins, Jr.Vice President and Chief Financial Officer 22




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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