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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 March 31, 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
 
 DCP Holding Company
  Ohio
    
    20-1291244(State or Other Jurisdiction of
    
    (IRS Employer Identification No.)Incorporation or Organization)100 Crowne Point Place
    
    45241Sharonville, Ohio
    
    (Zip Code)(Address of Principal Executive Office)
  
 þ o
  o o þ
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INDEX TO DCP HOLDING COMPANY
 REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2007
 PART I  FINANCIAL INFORMATION
 PAGEItem 1. Financial Statements
    
    
    1Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    9Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    15Item 4. Controls and Procedures
    
    
    16PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    17Item 1A. Risk Factors
    
    
    17Item 2. Unregistered Sales of Equity and Use of Proceeds
    
    
    17Item 3. Defaults Upon Senior Securities
    
    
    17Item 4. Submission of Matters to a Vote of Security Holders
    
    
    17Item 5. Other Information
    
    
    17Item 6. Exhibits
    
    
    18Signatures
    
    
    18EX-31.1EX-31.2EX-32
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Item 1. Financial Statements.
 DCP HOLDING COMPANY AND SUBSIDIARIES
 CONDENSED CONSOLIDATED BALANCE SHEETS
 March 31,
    
    
    December 31,2007
    
    
    2006(Unaudited)ASSETSCURRENT ASSETS:Cash
    
    $
    4,982,893
    
    
    $
    6,223,757Short-term investments at fair value, cost of $1,200,000 and $1,100,000
at March 31, 2007 and December 31, 2006, respectively
    
    
    1,197,949
    
    
    
    1,096,721Accounts receivable, net of allowance of $33,000 and $37,000
at March 31, 2007 and December 31, 2006, respectively
    
    
    452,944
    
    
    
    406,507Prepaid expense, deposits, and other
    
    
    176,197
    
    
    
    141,103Federal income tax receivable
    
    
    74,459Deferred federal income tax, current
    
    
    147,691
    
    
    
    75,881Total current assets
    
    
    7,032,133
    
    
    
    7,943,969INVESTMENTS
    
    
    696,438
    
    
    
    796,189PROPERTY, PLANT, AND EQUIPMENT:Land
    
    
    364,000
    
    
    
    364,000Building and building improvements
    
    
    2,221,171
    
    
    
    2,221,171Furniture and equipment
    
    
    1,928,134
    
    
    
    1,885,238Total property, plant, and equipment
    
    
    4,513,305
    
    
    
    4,470,409Less accumulated depreciation and amortization
    
    
    (1,376,040
    )
    
    
    (1,274,733
    )Total property, plant, and equipmentnet
    
    
    3,137,265
    
    
    
    3,195,676INTANGIBLE ASSETS, net of accumulated amortization of $250,000 and $246,000
at March 31, 2007 and December 31, 2006, respectively
    
    
    200,043
    
    
    
    203,880GOODWILL
    
    
    136,355
    
    
    
    136,355DEFERRED FEDERAL INCOME TAX, NON-CURRENT
    
    
    15,882
    
    
    
    11,355OTHER ASSETS
    
    
    528,116
    
    
    
    511,910TOTAL ASSETS
    
    $
    11,746,232
    
    
    $
    12,799,334LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Current portion of long-term obligations
    
    $
    365,363
    
    
    $
    385,902Claims payable
    
    
    2,820,607
    
    
    
    3,987,591Accounts payable and accrued expenses
    
    
    1,894,113
    
    
    
    1,811,349Unearned premium revenue
    
    
    858,146
    
    
    
    587,963Federal income tax payable
    
    
    
    
    
    
    19,238Other current liabilities
    
    
    38,353
    
    
    
    50,753Total current liabilities
    
    
    5,976,582
    
    
    
    6,842,796LONG TERM LIABILITIES:Mortgage loan payable
    
    
    1,230,000
    
    
    
    1,260,000Capital lease obligation
    
    
    188,234
    
    
    
    242,877Deferred compensation
    
    
    187,747
    
    
    
    127,670Total long-term liabilities
    
    
    1,605,981
    
    
    
    1,630,547TOTAL LIABILITIES
    
    
    7,582,563
    
    
    
    8,473,343REDEEMABLE COMMON SHARES:Class A, Redeemable Common Shares, no par valueauthorized, 7,500 shares;
issued and outstanding, 674 and 681 at March 31, 2007 and December 31, 2006, respectively
    
    
    343,785
    
    
    
    362,853Class B Redeemable Common Shares, no par valueauthorized, 100,000 shares;
issued and outstanding, 7,489 and 7,438 at March 31, 2007 and December 31, 2006, respectively
    
    
    3,819,884
    
    
    
    3,963,138Total redeemable common shares
    
    
    4,163,669
    
    
    
    4,325,991SHAREHOLDERS EQUITYPreferred Shares; no par valueauthorized, 100,000 shares; issued, noneTOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    11,746,232
    
    
    $
    12,799,334
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DCP HOLDING COMPANY AND SUBSIDIARIES
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
 For the Three Months Ended March 31,2007
    
    
    2006Premium revenue
    
    $
    14,859,067
    
    
    $
    12,831,934Operating expenses:Healthcare services expense
    
    
    12,144,413
    
    
    
    10,543,182Selling, general and administrative expense
    
    
    3,030,858
    
    
    
    2,546,197Total operating expenses
    
    
    15,175,271
    
    
    
    13,089,379Operating loss
    
    
    (316,204
    )
    
    
    (257,445
    )Non-operating income (expense):Investment income
    
    
    50,629
    
    
    
    40,898Other income
    
    
    33,731
    
    
    
    83,160Interest expense
    
    
    (25,816
    )
    
    
    (31,108
    )Total non-operating income
    
    
    58,544
    
    
    
    92,950LOSS BEFORE INCOME TAX
    
    
    (257,660
    )
    
    
    (164,495
    )BENEFIT FOR INCOME TAX:Current
    
    
    (7,749
    )
    
    
    (19,572
    )Deferred
    
    
    (74,217
    )
    
    
    (39,646
    )Total
    
    
    (81,966
    )
    
    
    (59,218
    )NET LOSS ON REDEEMABLE COMMON SHARES
    
    $
    (175,694
    )
    
    $
    (105,277
    )BASIC AND DILUTED LOSS PER REDEEMABLE COMMON SHARE
    
    $
    (21.55
    )
    
    $
    (12.66
    )BASIC AND DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING
    
    
    8,153
    
    
    
    8,314
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DCP HOLDING COMPANY AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED STATEMENT OF REDEEMABLE COMMON SHARES AND SHAREHOLDERS EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006 (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, 2006
    
    
    681
    
    
    $
    362,853
    
    
    
    7,438
    
    
    $
    3,963,138Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (175,694
    )
    
    
    
    
    
    $
    (175,694
    )
    
    $
    (175,694
    )Change in fair value of interest rate swap (net of income
tax benefit of $2,622)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (5,090
    )
    
    
    (5,090
    )
    
    
    (5,090
    )Unrealized gain on investments (net of income tax of $242)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    975
    
    
    
    975
    
    
    
    975Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (179,809
    )Cumulative effect of change in accounting principle (FIN 48)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,997
    )
    
    
    
    
    
    
    (5,997
    )Class B Common Shares issued
    
    
    
    
    
    
    
    
    
    
    56
    
    
    
    29,632Class A
Common Shares exchanged for Class B Common Shares
    
    
    (6
    )
    
    
    (3,177
    )
    
    
    6
    
    
    
    3,177Common shares redeemed or repurchased
    
    
    (1
    )
    
    
    (512
    )
    
    
    (11
    )
    
    
    (5,636
    )Dilution of common shares to redemption value
    
    
    
    
    
    
    (15,379
    )
    
    
    
    
    
    
    (170,427
    )
    
    
    181,691
    
    
    
    4,115
    
    
    
    185,806BALANCEMARCH 31, 2007
    
    
    674
    
    
    $
    343,785
    
    
    
    7,489
    
    
    $
    3,819,884
    
    
    $
    
    
    
    $
    
    
    
    $
 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, 2005
    
    
    691
    
    
    $
    357,976
    
    
    
    7,769
    
    
    $
    4,024,771Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (105,277
    )
    
    
    
    
    
    $
    (105,277
    )
    
    $
    (105,277
    )Change in fair value of interest rate swap (net of income tax of $4,978)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    9,664
    
    
    
    9,664
    
    
    
    9,664Unrealized gain on investments (net of income tax benefit of $354)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (685
    )
    
    
    (685
    )
    
    
    (685
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (96,298
    )Class A
Common Shares exchanged for Class B Common Shares
    
    
    (3
    )
    
    
    (1,555
    )
    
    
    3
    
    
    
    1,555Common shares redeemed or repurchased
    
    
    (5
    )
    
    
    (2,344
    )
    
    
    (151
    )
    
    
    (71,323
    )Dilution of common shares to redemption value
    
    
    
    
    
    
    (7,578
    )
    
    
    
    
    
    
    (88,720
    )
    
    
    105,277
    
    
    
    (8,979
    )
    
    
    96,298BALANCEMARCH 31, 2006
    
    
    683
    
    
    $
    346,499
    
    
    
    7,621
    
    
    $
    3,866,283
    
    
    $
    
    
    
    $
    
    
    
    $
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DCP HOLDING COMPANY AND SUBSIDIARIES
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 For the Three Months EndedMarch 31,2007
    
    
    2006CASH FLOWS FROM OPERATING ACTIVITIES:Net loss on redeemable common shares
    
    $
    (175,694
    )
    
    $
    (105,277
    )Adjustments to reconcile net loss
to net cash provided by (used in) operating activities:Depreciation and amortization
    
    
    105,142
    
    
    
    127,027Deferred income taxes
    
    
    (74,217
    )
    
    
    (39,645
    )Effects of changes in operating assets and liabilities:Accounts receivable
    
    
    (46,437
    )
    
    
    (138,244
    )Prepaid expenses, deposits, and other
    
    
    (35,094
    )
    
    
    (15,719
    )Other assets
    
    
    (23,918
    )
    
    
    (18,819
    )Claims payable
    
    
    (1,166,984
    )
    
    
    (914,940
    )Unearned premium revenue
    
    
    270,183
    
    
    
    (75,318
    )Accounts payable and accrued expenses
    
    
    76,766
    
    
    
    (273,671
    )Deferred compensation
    
    
    60,077
    
    
    
    32,534Federal income tax payable
    
    
    (93,697
    )
    
    
    (237,573
    )Net cash used in operating activities
    
    
    (1,103,873
    )
    
    
    (1,659,645
    )CASH FLOWS FROM INVESTING ACTIVITIES:Acquisition of property, plant and equipment
    
    
    (42,893
    )
    
    
    (7,840
    )Purchases of investments
    
    
    (200,000
    )
    
    
    (400,000
    )Maturity of investments
    
    
    200,000
    
    
    
    400,000Net cash used in investing activities
    
    
    (42,893
    )
    
    
    (7,840
    )CASH FLOWS FROM FINANCING ACTIVITIES:Mortgage loan repayments
    
    
    (30,000
    )
    
    
    (30,000
    )Repayment of capital lease
    
    
    (51,433
    )
    
    
    (48,411
    )Repayments of note
    
    
    (23,750
    )
    
    
    (23,750
    )Repurchase of redeemable common shares
    
    
    (18,547
    )
    
    
    (5,311
    )Redeemable common shares subscribed
    
    
    29,632Net cash used in financing activities
    
    
    (94,098
    )
    
    
    (107,472
    )DECREASE IN CASH
    
    
    (1,240,864
    )
    
    
    (1,774,957
    )CASHBeginning of period
    
    
    6,223,757
    
    
    
    5,628,987CASHEnd of period
    
    $
    4,982,893
    
    
    $
    3,854,030SUPPLEMENTAL CASH FLOW INFORMATIONCash paid for interest
    
    
    26,002
    
    
    
    31,211Cash paid for income taxes
    
    
    75,000
    
    
    
    218,000Redeemed common shares in other current liabilities
    
    
    38,353
    
    
    
    68,355
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DCP HOLDING COMPANY AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 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 ended March 31, 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 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 March 31, 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 premium 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 $404,000 and $304,000 for the three months
ended March 31, 2007 and 2006, respectively and is included in premium revenue in the accompanying
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 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
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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. Commencing in 2006, 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 and will be paid on or
before March 15 of the following year.The cost of health care 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
$12,144,000 and $10,543,000 for the three months ended March 31, 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.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 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).
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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 three
month period ending March 31, 2007.The FIN 48 liability is included as a current liability in accounts payable and other accrued
liabilities in the accompanying balance sheet at March 31, 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 month period ending March 31, 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 March 31, 2007.The Company is primarily subject to U.S. federal and various state and local tax authorities. Tax
years subsequent to 2002 remain open to examination by the Internal Revenue Service, and the other
state and local a tax authorities. As of March 31, 2007, there are no U.S. federal or state
returns under examination.The Company expects to settle its entire uncertain tax position related to non-filing of an
immaterial state tax obligation within the next twelve months. It is reasonably possible that the
unrecognized tax benefit will change as a result of this settlement. However, management does not
expect any such change to be significant.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 March 31, 2007 and 2006, respectively, the Company
recorded deferred compensation expense of approximately $28,000 and $19,000 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 March 31, 2007 and 2006, respectively, the
Company recorded deferred compensation expense of approximately $32,000 and $13,000 related to
deferred share awards. In total, approximately $188,000 of deferred compensation is included in
other long-term liabilities in the accompanying March 31, 2007 unaudited condensed consolidated
balance sheet.6.
    
    EARNINGS PER REDEEMABLE COMMON SHAREDetail supporting the computation of basic earnings per Redeemable Common Share was as follows for
the three months ended March 31, 2007 and 2006, respectively:
 Three Months EndedMarch 31,2007
    
    
    2006Net income loss dilutive to redeemable common shareholders
    
    $
    (175,694
    )
    
    $
    (105,277
    )Weighted average outstanding redeemable common shares used to compute
basic and diluted loss per redeemable common share
    
    
    8,153
    
    
    
    8,314Basic and diluted loss per redeemable common share
    
    $
    (21.55
    )
    
    $
    (12.66
    )
 7




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##### Table of Contents



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 PPO, DentaPremier indemnity, and Vision Care Plus. We identified our 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 our Chief Executive Officer (the chief decision maker) in
managing our 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 our business, which we identify as Corporate, All Other. The
Company combines all gross profit and apply 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 ended March 31, 2007 and 2006, respectively
(amounts in thousands):
 Fully-Insured
    
    Self-Insured
    
    Corporate,DHMO
    
    DHMO
    
    All Other
    
    TotalThree Months Ended March 31, 2007Revenues from external customers
    
    $
    10,016
    
    
    $
    4,540
    
    
    $
    303
    
    
    $
    14,859Healthcare services expense
    
    
    8,110
    
    
    
    3,902
    
    
    
    132
    
    
    
    12,144Net investment income
    
    
    
    
    
    
    
    
    
    
    51
    
    
    
    51Interest expense
    
    
    
    
    
    
    
    
    
    
    26
    
    
    
    26Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    105
    
    
    
    105Income before taxes
    
    
    
    
    
    
    
    
    
    
    (258
    )
    
    
    (258
    )Income tax provision
    
    
    
    
    
    
    
    
    
    
    (82
    )
    
    
    (82
    )Acquisition of fixed assets
    
    
    
    
    
    
    
    
    
    
    43
    
    
    
    43Identifiable assets
    
    
    
    
    
    
    
    
    
    
    11,746
    
    
    
    11,746Three Months Ended March 31, 2006Revenues from external customers
    
    $
    9,425
    
    
    $
    3,336
    
    
    $
    71
    
    
    $
    12,832Healthcare services expense
    
    
    7,674
    
    
    
    2,869
    
    
    
    
    
    
    
    10,543Net investment income
    
    
    
    
    
    
    
    
    
    
    41
    
    
    
    41Interest expense
    
    
    
    
    
    
    
    
    
    
    31
    
    
    
    31Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    127
    
    
    
    127Income before taxes
    
    
    
    
    
    
    
    
    
    
    (164
    )
    
    
    (164
    )Income tax provision
    
    
    
    
    
    
    
    
    
    
    (59
    )
    
    
    (59
    )Acquisition of fixed assets
    
    
    
    
    
    
    
    
    
    
    8
    
    
    
    8Identifiable assets
    
    
    
    
    
    
    
    
    
    
    10,715
    
    
    
    10,715
 Inter-segment revenues were not significant for the three months ended March 31, 2007 and
2006.
 8




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Forward-Looking statements
  Overview
    Profitability Strategy
    9




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##### Table of Contents



Highlights
 
    
    We generated net loss of approximately $(176,000) in the three months ended March 31,
2007 compared to net loss of approximately $(105,000) for the three months ended March 31,
2006.
    
    Our dental and vision products grew by 18,700 members, or 8.6%, from approximately
216,700 members at December 31, 2006 to approximately 235,400 members at March 31, 2007.
Our membership at March 31, 2007 includes approximately 9,500 members from sales related to
our new DentaSelect PPO offering.
 Comparison of Results of Operations
   As of
    
    
    As ofMarch 31,
    
    
    March 31,2007
    
    
    2006
    
    
    CHANGEMembership:Fully-insured DHMO
    
    
    144,700
    
    
    
    136,000
    
    
    
    6.4
    %Self-insured DHMO
    
    
    71,200
    
    
    
    49,000
    
    
    
    45.3
    %Corporate, All Other
    
    
    19,500
    
    
    
    10,500
    
    
    
    85.7
    %Total membership
    
    
    235,400
    
    
    
    195,500
    
    
    
    20.4
    %
 10




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##### Table of Contents



Three months
    
    
    Three monthsended
    
    
    endedMarch 31,
    
    
    March 31,2007
    
    
    2006
    
    
    CHANGEPremium revenue:Fully-insured DHMO
    
    $
    10,016
    
    
    $
    9,425
    
    
    
    6.3
    %Self-insured DHMO
    
    
    4,540
    
    
    
    3,336
    
    
    
    36.1
    %Corporate, All Other
    
    
    303
    
    
    
    71
    
    
    
    326.8
    %Total premium revenue
    
    
    14,859
    
    
    
    12,832
    
    
    
    15.8
    %Healthcare service expense:Fully-insured DHMO
    
    
    8,110
    
    
    
    7,674
    
    
    
    5.7
    %Self-insured DHMO
    
    
    3,902
    
    
    
    2,869
    
    
    
    36.0
    %Corporate, All Other
    
    
    132
    
    
    
    0
    
    
    
    100.0
    %Total healthcare service expense
    
    
    12,144
    
    
    
    10,543
    
    
    
    15.2
    %Selling, general & administrative expenses:Corporate, All Other
    
    
    3,031
    
    
    
    2,546
    
    
    
    19.0
    %Investment income:Corporate, All Other
    
    
    51
    
    
    
    41
    
    
    
    24.4
    %Other income:Corporate, All Other
    
    
    34
    
    
    
    83
    
    
    
    -59.0
    %Interest expense:Corporate, All Other
    
    
    (26
    )
    
    
    (31
    )
    
    
    -16.1
    %Income tax provision:Corporate, All Other
    
    
    (82
    )
    
    
    (59
    )
    
    
    -39.0
    %
 Summary
   Membership
    11




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Revenue
   Self-Insured Claim Revenue
 Self-Insured ASO Fees
     Healthcare Service Expense
   12




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##### Table of Contents



Selling, General and Administrative Expenses
   Investment Income
  Other Income
  Interest Expense
  Income Taxes
  Liquidity and Capital Resources and Changes in Financial Condition
  13




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##### Table of Contents



Three months
    
    
    Three monthsended
    
    
    endedMarch 31, 2007
    
    
    March 31, 2006Net cash provided by (used in) operating activities
    
    $
    (1,104
    )
    
    $
    (1,660
    )Net cash used in investing activities
    
    
    (43
    )
    
    
    (8
    )Net cash used in financing activities
    
    
    (94
    )
    
    
    (107
    )Decrease in cash
    
    $
    (1,240
    )
    
    $
    (1,775
    )
 Cash Flow from Operating Activities
   Cash Flow from Investing Activities
  Cash Flow from Financing Activities
  Provider Withhold Funds
  14




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Financial Condition
      
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
    15




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##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES
  16




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##### Table of Contents



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
    
    ProgramsJanuary 1  January 31, 2007
    
    0
    
    0
    
    N/A
    
    0
    
    N/AFebruary 1  February 28, 2007
    
    0
    
    36(a)
    
    $515.21
    
    0
    
    N/AMarch 1  March 31, 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
  
 ITEM 5. OTHER INFORMATION
  17




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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 COMPANYMay 14, 2007
    
    By: /s/ Robert C. Hodgkins, Jr.

Robert C. Hodgkins, Jr.Vice President and Chief Financial Officer
 18




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##### Table of Contents



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