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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 June 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
 000-51954
 
 DCP Holding Company
  Ohio
(State or Other Jurisdiction of 
Incorporation or Organization)
    
    20-1291244
(IRS Employer Identification No.)
 100 Crowne Point Place
    
    45241Sharonville, Ohio
    
    (Zip Code)(Address of Principal Executive Office)
  
 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 JUNE 30, 2007
 PART I  FINANCIAL INFORMATIONPAGEItem 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
    
    
    17Item 4. Controls and Procedures
    
    
    18PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    19Item 1A. Risk Factors
    
    
    19Item 2. Unregistered Sales of Equity and Use of Proceeds
    
    
    19Item 3. Defaults Upon Senior Securities
    
    
    19Item 4. Submission of Matters to a Vote of Security Holders
    
    
    20Item 5. Other Information
    
    
    20Item 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
 June 30,
    
    
    December 31,2007
    
    
    2006(Unaudited)ASSETSCURRENT ASSETS:Cash
    
    $
    6,098,574
    
    
    $
    6,223,757Short-term investments at fair value, cost of $716,000 and $1,100,000
at June 30, 2007 and December 31, 2006, respectively
    
    
    714,710
    
    
    
    1,096,721Accounts receivable, net of allowance of $9,000 and $37,000
at June 30, 2007 and December 31, 2006, respectively
    
    
    361,227
    
    
    
    406,507Prepaid expense, deposits, and other
    
    
    138,952
    
    
    
    141,103Deferred federal income tax, current
    
    
    75,825
    
    
    
    75,881Total current assets
    
    
    7,389,288
    
    
    
    7,943,969INVESTMENTS
    
    
    1,249,863
    
    
    
    796,189PROPERTY, PLANT, AND EQUIPMENT:Land
    
    
    364,000
    
    
    
    364,000Building and building improvements
    
    
    2,236,866
    
    
    
    2,221,171Furniture and equipment
    
    
    1,960,832
    
    
    
    1,885,238Total property, plant, and equipment
    
    
    4,561,698
    
    
    
    4,470,409Less accumulated depreciation and amortization
    
    
    (1,470,655
    )
    
    
    (1,274,733
    )Total property, plant, and equipmentnet
    
    
    3,091,043
    
    
    
    3,195,676INTANGIBLE ASSETS, Net of accumulated amortization of $254,000 and $246,000
at June 30, 2007 and December 31, 2006, respectively
    
    
    196,206
    
    
    
    203,880GOODWILL
    
    
    136,355
    
    
    
    136,355DEFERRED FEDERAL INCOME TAX, NON-CURRENT
    
    
    11,355
    
    
    
    11,355OTHER ASSETS
    
    
    484,729
    
    
    
    511,910TOTAL ASSETS
    
    $
    12,558,839
    
    
    $
    12,799,334LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Current portion of long-term obligations
    
    $
    336,955
    
    
    $
    385,902Claims payable
    
    
    3,234,702
    
    
    
    3,987,591Accounts payable and accrued expenses
    
    
    1,725,058
    
    
    
    1,811,349Unearned premium revenue
    
    
    962,697
    
    
    
    587,963Federal income tax payable
    
    
    41,494
    
    
    
    19,238Other current liabilities
    
    
    32,244
    
    
    
    50,753Total current liabilities
    
    
    6,333,150
    
    
    
    6,842,796LONG TERM LIABILITIES:Mortgage loan payable
    
    
    1,200,000
    
    
    
    1,260,000Capital lease obligation
    
    
    132,758
    
    
    
    242,877Deferred compensation
    
    
    250,206
    
    
    
    127,670Total long-term liabilities
    
    
    1,582,964
    
    
    
    1,630,547TOTAL LIABILITIES
    
    
    7,916,114
    
    
    
    8,473,343REDEEMABLE COMMON SHARES:Class A, Redeemable Common Shares, no par valueauthorized, 7,500 shares;
issued and outstanding, 659 and 681 at June 30, 2007 and December 31, 2006, respectively
    
    
    366,282
    
    
    
    362,853Class B Redeemable Common Shares, no par valueauthorized, 100,000 shares;
issued and outstanding, 7,694 and 7,438 at June 30, 2007 and December 31, 2006, respectively
    
    
    4,276,443
    
    
    
    3,963,138Total redeemable common shares
    
    
    4,642,725
    
    
    
    4,325,991SHAREHOLDERS EQUITYPreferred Shares; no par valueauthorized, 100,000 shares; none issued
and outstandingTOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    12,558,839
    
    
    $
    12,799,334
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DCP HOLDING COMPANY AND SUBSIDIARIES
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
 For the Three Months Ended June 30,
    
    
    For the Six Months Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Premium revenue
    
    $
    14,553,860
    
    
    $
    12,330,130
    
    
    $
    29,412,927
    
    
    $
    25,162,063Operating expenses:Healthcare services expense
    
    
    11,355,944
    
    
    
    9,744,067
    
    
    
    23,500,357
    
    
    
    20,287,249Selling, general and administrative expense
    
    
    2,690,907
    
    
    
    2,416,910
    
    
    
    5,721,765
    
    
    
    4,963,107Total operating expenses
    
    
    14,046,851
    
    
    
    12,160,977
    
    
    
    29,222,122
    
    
    
    25,250,356Operating income (loss)
    
    
    507,009
    
    
    
    169,153
    
    
    
    190,805
    
    
    
    (88,293
    )Non-Operating Income (Expense):Investment income
    
    
    58,152
    
    
    
    42,327
    
    
    
    108,781
    
    
    
    83,225Other income
    
    
    17,086
    
    
    
    84,620
    
    
    
    50,817
    
    
    
    167,780Interest expense
    
    
    (23,866
    )
    
    
    (32,770
    )
    
    
    (49,682
    )
    
    
    (63,877
    )Total non-operating income
    
    
    51,372
    
    
    
    94,177
    
    
    
    109,916
    
    
    
    187,128INCOME BEFORE INCOME TAX
    
    
    558,381
    
    
    
    263,330
    
    
    
    300,721
    
    
    
    98,835INCOME TAX PROVISION
    
    
    187,676
    
    
    
    85,403
    
    
    
    105,710
    
    
    
    26,185NET INCOME ON REDEEMABLE COMMON SHARES
    
    $
    370,705
    
    
    $
    177,927
    
    
    $
    195,011
    
    
    $
    72,650BASIC EARNINGS PER REDEEMABLE COMMON SHARE
    
    $
    45.45
    
    
    $
    21.44
    
    
    $
    23.92
    
    
    $
    8.75DILUTIVE EARNINGS PER REDEEMABLE COMMON SHARE
    
    $
    45.22
    
    
    $
    21.44
    
    
    $
    23.79
    
    
    $
    8.75
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DCP HOLDING COMPANY AND SUBSIDIARIES
 CONDENSED CONSOLIDATED STATEMENT OF REDEEMABLE COMMON SHARES AND SHAREHOLDERS EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 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 income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    195,011
    
    
    
    
    
    
    $
    195,011
    
    
    $
    195,011Change in fair value of interest rate swap (net of income tax of
$1,190)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    2,311
    
    
    
    2,311
    
    
    
    2,311Unrealized loss on investments (net of income tax benefit of $1,135)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,202
    )
    
    
    (2,202
    )
    
    
    (2,202
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    195,120Cumulative effect of change in accounting principle (FIN 48)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,997
    )
    
    
    
    
    
    
    (5,997
    )Class B Common Shares issued
    
    
    
    
    
    
    
    
    
    
    292
    
    
    
    153,492Class A Common Shares exchanged for Class B Common Shares
    
    
    (18
    )
    
    
    (9,473
    )
    
    
    18
    
    
    
    9,473Common shares redeemed or repurchased
    
    
    (4
    )
    
    
    (1,724
    )
    
    
    (54
    )
    
    
    (24,157
    )Accretion of common shares to redemption value
    
    
    
    
    
    
    14,626
    
    
    
    
    
    
    
    174,497
    
    
    
    (189,014
    )
    
    
    (109
    )
    
    
    (189,123
    )BALANCEJUNE 30, 2007
    
    
    659
    
    
    $
    366,282
    
    
    
    7,694
    
    
    $
    4,276,443
    
    
    $
    
    
    
    $
    
    
    
    $
 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 income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    72,650
    
    
    
    
    
    
    $
    72,650
    
    
    $
    72,650Change in fair value of interest rate swap (net of income tax of
$8,093)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    15,709
    
    
    
    15,709
    
    
    
    15,709Unrealized loss on investments (net of income tax benefit of $354)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,053
    )
    
    
    (2,053
    )
    
    
    (2,053
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    86,306Class A Common Shares exchanged for Class B Common Shares
    
    
    (3
    )
    
    
    (1,555
    )
    
    
    3
    
    
    
    1,555Common shares redeemed or repurchased
    
    
    (5
    )
    
    
    (2,344
    )
    
    
    (361
    )
    
    
    (169,191
    )Accretion of common shares to redemption value
    
    
    
    
    
    
    8,563
    
    
    
    
    
    
    
    77,743
    
    
    
    (72,650
    )
    
    
    (13,656
    )
    
    
    (86,306
    )BALANCEJUNE 30, 2006
    
    
    683
    
    
    $
    362,640
    
    
    
    7,411
    
    
    $
    3,934,878
    
    
    $
    
    
    
    $
    
    
    
    $
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DCP HOLDING COMPANY AND SUBSIDIARIES
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 For the Six Months EndedJune 30,2007
    
    
    2006CASH FLOWS FROM OPERATING ACTIVITIES:Net income on redeemable common shares
    
    $
    195,011
    
    
    $
    72,650Adjustments to reconcile net income
to net cash provided by operating activities:Depreciation and amortization
    
    
    203,594
    
    
    
    264,970Deferred income taxes
    
    
    
    
    
    
    (114,322
    )Effects of changes in operating assets and liabilities, net of acquired assets and liabilities:Accounts receivable
    
    
    45,280
    
    
    
    (102,277
    )Prepaid expenses, deposits, and other
    
    
    2,151
    
    
    
    76,283Other assets
    
    
    (44,318
    )
    
    
    (37,765
    )Claims payable
    
    
    (752,889
    )
    
    
    (274,737
    )Unearned premium revenue
    
    
    374,734
    
    
    
    360,429Accounts payable and accrued expenses
    
    
    (92,288
    )
    
    
    15,553Deferred compensation
    
    
    122,536
    
    
    
    69,255Federal income tax payable
    
    
    22,256
    
    
    
    (75,627
    )Net cash provided by operating activities
    
    
    76,067
    
    
    
    254,412CASH FLOWS FROM INVESTING ACTIVITIES:Acquisition of property, plant and equipment
    
    
    (91,286
    )
    
    
    (36,672
    )Acquisition of business, net of acquired cash
    
    
    
    
    
    
    (25,000
    )Purchases of investments
    
    
    (700,000
    )
    
    
    (800,000
    )Maturities of investments
    
    
    700,000
    
    
    
    800,000Net cash used in investing activities
    
    
    (91,286
    )
    
    
    (61,672
    )CASH FLOWS FROM FINANCING ACTIVITIES:Mortgage loan repayments
    
    
    (60,000
    )
    
    
    (60,000
    )Repayment of capital lease
    
    
    (103,650
    )
    
    
    (97,560
    )Repayments of note
    
    
    (55,417
    )
    
    
    (47,500
    )Repurchase of redeemable common shares
    
    
    (44,389
    )
    
    
    (113,347
    )Redeemable common shares issued
    
    
    153,492Net cash used in financing activities
    
    
    (109,964
    )
    
    
    (318,407
    )DECREASE IN CASH
    
    
    (125,183
    )
    
    
    (125,667
    )CASHBeginning of period
    
    
    6,223,757
    
    
    
    5,628,987CASHEnd of period
    
    $
    6,098,574
    
    
    $
    5,503,320SUPPLEMENTAL CASH FLOW INFORMATIONCash paid for interest
    
    
    50,289
    
    
    
    64,202Cash paid for income taxes
    
    
    75,000
    
    
    
    218,000Redeemed common shares in other current liabilities
    
    
    32,244
    
    
    
    58,188
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DCP HOLDING COMPANY AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 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 six months ended June 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 June 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 $398,000 and $249,000 for the
three months ended June 30, 2007 and 2006, respectively, and approximately $802,000 and $553,000
for the six months ended June 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. 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
$11,356,000 and $9,744,000 for the three months ended June 30, 2007 and 2006, respectively, and
approximately $23,500,000 and $20,287,000 for the six months ended June 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.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 six month period ending
June 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 June 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 six month period ending June 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 June 30, 2007.The Company is primarily subject to US federal and various US 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 June 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 June 30, 2007 and 2006, respectively, the Company
recorded deferred compensation expense of approximately $23,000 and $18,000 related to deferred
director fees and employee compensation. For the six months ended June 30, 2007 and 2006,
respectively, the Company recorded deferred compensation expense of approximately $51,000 and
$37,000 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 June 30, 2007
and 2006, respectively, the Company recorded deferred compensation expense of approximately $44,400
and $18,000 related to deferred share awards. For the six months ended June 30, 2007 and 2006,
respectively, the Company recorded deferred compensation expense of approximately $76,800 and
$32,000 related to deferred share awards. In total, approximately $250,000 of deferred compensation
is included in other long-term liabilities in the accompanying June 30, 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 and six months ended June 30, 2007 and 2006, respectively:
 7




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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net income accretive to redeemable common shareholders
    
    $
    370,705
    
    
    $
    177,927
    
    
    $
    195,011
    
    
    $
    72,650Weighted average outstanding redeemable common shares used to compute
basic earnings per redeemable common share
    
    
    8,156
    
    
    
    8,299
    
    
    
    8,154
    
    
    
    8,307Weighted average outstanding redeemable common shares used to compute
diluted earnings per redeemable common share
    
    
    8,198
    
    
    
    8,299
    
    
    
    8,196
    
    
    
    8,307Basic earnings per redeemable common share
    
    $
    45.45
    
    
    $
    21.44
    
    
    $
    23.92
    
    
    $
    8.75Diluted earnings per redeemable common share
    
    $
    45.22
    
    
    $
    21.44
    
    
    $
    23.79
    
    
    $
    8.75
 7.
    
    SEGMENT INFORMATION
    Fully-Insured
    
    Self-Insured
    
    Corporate,DHMO
    
    DHMO
    
    All Other
    
    TotalThree Months Ended June 30, 2007Revenues from external customers
    
    $
    10,027
    
    
    $
    4,217
    
    
    $
    310
    
    
    $
    14,554Healthcare services expense
    
    
    7,583
    
    
    
    3,587
    
    
    
    186
    
    
    
    11,356Net investment income
    
    
    
    
    
    
    
    
    
    
    58
    
    
    
    58Interest expense
    
    
    
    
    
    
    
    
    
    
    24
    
    
    
    24Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    99
    
    
    
    99Income before taxes
    
    
    
    
    
    
    
    
    
    
    558
    
    
    
    558Income tax provision
    
    
    
    
    
    
    
    
    
    
    188
    
    
    
    188Acquisition of fixed assets
    
    
    
    
    
    
    
    
    
    
    48
    
    
    
    48Identifiable assets
    
    
    
    
    
    
    
    
    
    
    12,559
    
    
    
    12,559Three Months Ended June 30, 2006Revenues from external customers
    
    $
    9,361
    
    
    $
    2,860
    
    
    $
    109
    
    
    $
    12,330Healthcare services expense
    
    
    7,302
    
    
    
    2,442
    
    
    
    
    
    
    
    9,744Net investment income
    
    
    
    
    
    
    
    
    
    
    22
    
    
    
    22Interest expense
    
    
    
    
    
    
    
    
    
    
    33
    
    
    
    33Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    138
    
    
    
    138Income before taxes
    
    
    
    
    
    
    
    
    
    
    263
    
    
    
    263Income tax provision
    
    
    
    
    
    
    
    
    
    
    85
    
    
    
    85Acquisition of fixed assets
    
    
    
    
    
    
    
    
    
    
    29
    
    
    
    29Identifiable assets
    
    
    
    
    
    
    
    
    
    
    12,136
    
    
    
    12,136
 8




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##### Table of Contents



Fully-Insured
    
    Self-Insured
    
    Corporate,DHMO
    
    DHMO
    
    All Other
    
    TotalSix Months Ended June 30, 2007Revenues from external customers
    
    $
    20,043
    
    
    $
    8,757
    
    
    $
    613
    
    
    $
    29,413Healthcare services expense
    
    
    15,693
    
    
    
    7,489
    
    
    
    318
    
    
    
    23,500Net investment income
    
    
    
    
    
    
    
    
    
    
    109
    
    
    
    109Interest expense
    
    
    
    
    
    
    
    
    
    
    50
    
    
    
    50Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    204
    
    
    
    204Income before taxes
    
    
    
    
    
    
    
    
    
    
    301
    
    
    
    301Income tax provision
    
    
    
    
    
    
    
    
    
    
    106
    
    
    
    106Acquisition of fixed assets
    
    
    
    
    
    
    
    
    
    
    91
    
    
    
    91Identifiable assets
    
    
    
    
    
    
    
    
    
    
    12,559
    
    
    
    12,559Six Months Ended June 30, 2006Revenues from external customers
    
    $
    18,786
    
    
    $
    6,196
    
    
    $
    180
    
    
    $
    25,162Healthcare services expense
    
    
    14,976
    
    
    
    5,311
    
    
    
    
    
    
    
    20,287Net investment income
    
    
    
    
    
    
    
    
    
    
    83
    
    
    
    83Interest expense
    
    
    
    
    
    
    
    
    
    
    64
    
    
    
    64Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    265
    
    
    
    265Income before taxes
    
    
    
    
    
    
    
    
    
    
    99
    
    
    
    99Income tax provision
    
    
    
    
    
    
    
    
    
    
    26
    
    
    
    26Acquisition of fixed assets
    
    
    
    
    
    
    
    
    
    
    37
    
    
    
    37Identifiable assets
    
    
    
    
    
    
    
    
    
    
    12,136
    
    
    
    12,136
  9




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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
    10




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##### Table of Contents



Highlights
 -
    
    We generated net income of approximately $371,000 in the three months ended June 30, 2007
compared to net income of approximately $178,000 for the three months ended June 30, 2006.-
    
    We generated net income of approximately $195,000 in the six months ended June 30, 2007
compared to net income of approximately $73,000 for the six months ended June 30, 2006.-
    
    Our dental and vision products grew by 20,000 members, or 9.2%, from approximately
216,700 members at December 31, 2006 to approximately 236,700 members at June 30, 2007. Our
membership at June 30, 2007 includes approximately 11,700 members from sales related to our
DentaSelect dental PPO offering.
 Comparison of Results of Operations
   As of June 30,
    
    
    As of June 30,2007
    
    
    2006
    
    
    CHANGEMembership:Fully-insured DHMO
    
    
    144,600
    
    
    
    137,400
    
    
    
    5.2
    %Self-insured DHMO
    
    
    69,800
    
    
    
    50,000
    
    
    
    39.6
    %Corporate, All Other
    
    
    22,300
    
    
    
    13,500
    
    
    
    65.2
    %Total membership
    
    
    236,700
    
    
    
    200,900
    
    
    
    17.8
    %
 11




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##### Table of Contents



Three months
    
    
    Three monthsended
    
    
    endedJune  30, 2007
    
    
    June  30, 2006
    
    
    ChangePremium revenue:Fully-insured DHMO
    
    $
    10,027
    
    
    $
    9,361
    
    
    
    7.1
    %Self-insured DHMO
    
    
    4,217
    
    
    
    2,860
    
    
    
    47.4
    %Corporate, All Other
    
    
    310
    
    
    
    109
    
    
    
    184.4
    %Total premium revenue
    
    
    14,554
    
    
    
    12,330
    
    
    
    18.0
    %Healthcare service expense:Fully-insured DHMO
    
    
    7,583
    
    
    
    7,302
    
    
    
    3.8
    %Self-insured DHMO
    
    
    3,587
    
    
    
    2,442
    
    
    
    46.9
    %Corporate, All Other
    
    
    186
    
    
    
    
    
    
    
    100.0
    %Total healthcare service expense
    
    
    11,356
    
    
    
    9,744
    
    
    
    16.5
    %Selling, general & administrative expense:Corporate, All Other
    
    
    2,691
    
    
    
    2,417
    
    
    
    11.3
    %Investment income:Corporate, All Other
    
    
    58
    
    
    
    42
    
    
    
    38.1
    %Other income:Corporate, All Other
    
    
    17
    
    
    
    85
    
    
    
    -80.0
    %Interest expense:Corporate, All Other
    
    
    (24
    )
    
    
    (33
    )
    
    
    -27.3
    %Income tax provisionCorporate, All Other
    
    
    188
    
    
    
    85
    
    
    
    121.2
    %
 Six months
    
    
    Six monthsended
    
    
    endedJune 30, 2007
    
    
    June 30, 2006
    
    
    ChangePremium revenue:Fully-insured DHMO
    
    $
    20,043
    
    
    $
    18,786
    
    
    
    6.7
    %Self-insured DHMO
    
    
    8,757
    
    
    
    6,196
    
    
    
    41.3
    %Corporate, All Other
    
    
    613
    
    
    
    180
    
    
    
    240.6
    %Total premium revenue
    
    
    29,413
    
    
    
    25,162
    
    
    
    16.9
    %Healthcare service expense:Fully-insured DHMO
    
    
    15,693
    
    
    
    14,976
    
    
    
    4.8
    %Self-insured DHMO
    
    
    7,489
    
    
    
    5,311
    
    
    
    41.0
    %Corporate, All Other
    
    
    318

    

    
    
    
    
    
    
    100.0
    %Total healthcare service expense
    
    
    23,500
    
    
    
    20,287
    
    
    
    15.8
    %Selling, general & administrative expense:Corporate, All Other
    
    
    5,722
    
    
    
    4,963
    
    
    
    15.3
    %Investment income:Corporate, All Other
    
    
    109
    
    
    
    83
    
    
    
    31.3
    %Other income:Corporate, All Other
    
    
    51
    
    
    
    168
    
    
    
    -69.6
    %Interest expense:Corporate, All Other
    
    
    (50
    )
    
    
    (64
    )
    
    
    -21.9
    %Income tax provisionCorporate, All Other
    
    
    106
    
    
    
    26
    
    
    
    307.7
    %
 12




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Summary
   Membership
    Revenue
    13




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##### Table of Contents



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




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##### Table of Contents



Selling, General and Administrative Expenses
   Investment Income
  Other Income
   Interest Expense
  15




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##### Table of Contents



Income Taxes
  Liquidity and Capital Resources and Changes in Financial Condition
   Six months
    
    
    Six monthsended
    
    
    endedJune 30, 2007
    
    
    June 30, 2006Net cash provided by operating activities
    
    $
    76
    
    
    $
    254Net cash used in investing activities
    
    
    (91
    )
    
    
    (62
    )Net cash used in financing activities
    
    
    (110
    )
    
    
    (318
    )Decrease in cash
    
    $
    (125
    )
    
    $
    (126
    )
 Cash Flow from Operating Activities
   Cash Flow from Investing Activities
  Cash Flow from Financing Activities
  16




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##### Table of Contents



Provider Withhold Funds
   Financial Condition
      
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
   17




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##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES
  18




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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
    
    ProgramsApril 1  April 30, 2007
    
    
    3
    (a)
    
    
    45
    (a)
    
    $
    538.38
    
    
    
    0
    
    
    
    N/AMay 1  May 31, 2007
    
    
    0
    
    
    
    0
    
    
    
    N/A
    
    
    
    0
    
    
    
    N/AJune 1  June 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
  19




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##### Table of Contents



ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  Names
    
    For
    
    Withheld
    
    Not VotedFred J. Bronson, DDS
    
    
    342
    
    
    
    20
    
    
    
    304Jack M. Cook, MHA
    
    
    341
    
    
    
    21
    
    
    
    304Fred H. Peck, DDS
    
    
    341
    
    
    
    21
    
    
    
    304Molly Meakin-Rogers, MBA, CPA
    
    
    341
    
    
    
    21
    
    
    
    304Stephen T. Schuler, DMD
    
    
    341
    
    
    
    22
    
    
    
    303Mark Zigoris, DDS
    
    
    340
    
    
    
    22
    
    
    
    304
  NamesRoss A. GeigerRoger M. Higley, DDSDavid A. Kreyling, DMDDonald J. Peak, CPASanford S. Scheingold, DDSMichael Carl, DDSJames E. Kroeger, MBA, CPA
 
 ITEM 5. OTHER INFORMATION
  20




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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 COMPANYAugust 10, 2007
    By:
    /s/ Robert C. Hodgkins, Jr.Robert C. Hodgkins, Jr.Vice President and Chief Financial Officer 21




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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