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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, 2008
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number 000-51954
 
 DCP Holding Company
  Ohio
    
    20-1291244(State or Other Jurisdiction of 
Incorporation or Organization)
    
    (IRS Employer Identification No.)100 Crowne Point Place 
Sharonville, Ohio
(Address of Principal Executive Office)
    
    45241
(Zip Code)
  
 þ o
  Large accelerated filer
o
    
    Accelerated filer
o
    
    Non-accelerated filer
þ
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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PAGEPART I  FINANCIAL INFORMATIONItem 1. Condensed Consolidated Financial Statements (Unaudited)
    
    
    1Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    10Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    17Item 4. Controls and Procedures
    
    
    17PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    17Item 1A. Risk Factors
    
    
    17Item 2. Unregistered Sales of Equity and Use of Proceeds
    
    
    18Item 3. Defaults Upon Senior Securities
    
    
    18Item 4. Submission of Matters to a Vote of Security Holders
    
    
    18Item 5. Other Information
    
    
    18Item 6. Exhibits
    
    
    19Signatures
    
    
    19EX-31.1EX-31.2EX-32
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Item 1. Financial Statements.
 DCP HOLDING COMPANY AND SUBSIDIARIES
 CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
 March 31,
    
    
    December 31,2008
    
    
    2007ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    4,884,072
    
    
    $
    5,517,908Short-term investments at fair value, cost of $750,000 and $858,000
at March 31, 2008 and December 31, 2007, respectively
    
    
    754,918
    
    
    
    857,848Accounts receivable, net of allowance of $2,895 and $3,499
at March 31, 2008 and December 31, 2007, respectively
    
    
    387,918
    
    
    
    587,380Prepaid expense, deposits, and other
    
    
    247,282
    
    
    
    240,797Federal income tax receivable
    
    
    87,915Deferred income tax, current
    
    
    142,429
    
    
    
    142,429Total current assets
    
    
    6,504,534
    
    
    
    7,346,362INVESTMENTS
    
    
    1,215,494
    
    
    
    1,109,683PROPERTY, PLANT, AND EQUIPMENT:Land
    
    
    364,000
    
    
    
    364,000Building and building improvements
    
    
    2,236,866
    
    
    
    2,236,866Furniture and equipment
    
    
    1,990,081
    
    
    
    1,925,481Total property, plant, and equipment
    
    
    4,590,947
    
    
    
    4,526,347Less accumulated depreciation and amortization
    
    
    (1,679,771
    )
    
    
    (1,583,009
    )Total property, plant, and equipmentnet
    
    
    2,911,176
    
    
    
    2,943,338INTANGIBLE ASSETS, net of accumulated amortization of approximately $55,000 and $51,000
at March 31, 2008 and December 31, 2007, respectively
    
    
    184,694
    
    
    
    188,532GOODWILL
    
    
    136,355
    
    
    
    136,355DEFERRED INCOME TAX, NON-CURRENT
    
    
    102,231
    
    
    
    101,375OTHER ASSETS
    
    
    471,378
    
    
    
    459,586TOTAL ASSETS
    
    $
    11,525,862
    
    
    $
    12,285,231LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Current portion of long-term obligations
    
    $
    308,234
    
    
    $
    343,624Claims payable
    
    
    2,053,933
    
    
    
    2,490,251Accounts payable and accrued expenses
    
    
    1,953,747
    
    
    
    1,917,966Unearned premium revenue
    
    
    774,948
    
    
    
    666,411Federal income tax payable
    
    
    
    
    
    
    137,497Other current liabilities
    
    
    84,142
    
    
    
    62,644Total current liabilities
    
    
    5,175,004
    
    
    
    5,618,393LONG TERM LIABILITIES:Mortgage loan payable
    
    
    1,110,000
    
    
    
    1,140,000Capital lease obligation
    
    
    
    
    
    
    19,253Deferred compensation
    
    
    463,525
    
    
    
    416,374Other long term liabilities
    
    
    5,363Total long-term liabilities
    
    
    1,578,888
    
    
    
    1,575,627TOTAL LIABILITIES
    
    
    6,753,892
    
    
    
    7,194,020REDEEMABLE COMMON SHARES:Class A, Redeemable Common Shares, no par valueauthorized, 7,500 shares;
issued and outstanding, 650 and 653 at March 31, 2008 and December 31, 2007, respectively
    
    
    367,901
    
    
    
    392,603Class B Redeemable Common Shares, no par valueauthorized, 100,000 shares;
issued and outstanding, 7,782 and 7,815 at March 31, 2008 and December 31, 2007, respectively
    
    
    4,404,069
    
    
    
    4,698,608Total redeemable common shares
    
    
    4,771,970
    
    
    
    5,091,211SHAREHOLDERS EQUITYPreferred Shares; no par valueauthorized, 100,000 shares; issued, noneTOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    11,525,862
    
    
    $
    12,285,231
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DCP HOLDING COMPANY AND SUBSIDIARIES
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
 For the Three Months EndedMarch 31,2008
    
    
    2007Premium revenue
    
    $
    15,534,196
    
    
    $
    14,859,067Operating expenses:Healthcare services expense
    
    
    12,921,998
    
    
    
    12,144,413Selling, general and administrative expense
    
    
    3,128,681
    
    
    
    3,030,858Total operating expenses
    
    
    16,050,679
    
    
    
    15,175,271Operating loss
    
    
    (516,483
    )
    
    
    (316,204
    )Non-Operating Income (Expense):Investment income
    
    
    65,790
    
    
    
    50,629Other income
    
    
    13,739
    
    
    
    33,731Interest expense
    
    
    (19,542
    )
    
    
    (25,816
    )Total non-operating income
    
    
    59,987
    
    
    
    58,544LOSS BEFORE INCOME TAX
    
    
    (456,496
    )
    
    
    (257,660
    )INCOME TAX BENEFIT
    
    
    (160,412
    )
    
    
    (81,966
    )LOSS ON REDEEMABLE COMMON SHARES
    
    $
    (296,084
    )
    
    $
    (175,694
    )BASIC AND DILUTED LOSS PER REDEEMABLE COMMON SHARE
    
    $
    (35.05
    )
    
    $
    (21.55
    )
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DCP HOLDING COMPANY AND SUBSIDIARIES
 CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE COMMON SHARES AND SHAREHOLDERS EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007 (Unaudited)
 Redeemable Common Shares
    
    
    Shareholders EquityClass A
    
    
    Class B
    
    
    
    
    
    
    Other AccumulatedNumber of
    
    
    
    
    
    
    Number of
    
    
    
    
    
    
    Retained
    
    
    Comprehensive
    
    
    
    
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Earnings (Deficit)
    
    
    Income (Loss)
    
    
    Total
    
    
    Income (Loss)BALANCEDECEMBER 31, 2007
    
    
    653
    
    
    $
    392,603
    
    
    
    7,815
    
    
    $
    4,698,608Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (296,084
    )
    
    
    
    
    
    $
    (296,084
    )
    
    $
    (296,084
    )Change in fair value of
interest rate swap (net of
income tax benefit of $11,006)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (21,366
    )
    
    
    (21,366
    )
    
    
    (21,366
    )Unrealized gain on
investments (net of
income tax of $10,152)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,706
    
    
    
    19,706
    
    
    
    19,706Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (297,744
    )Common shares
redemptions
    
    
    (3
    )
    
    
    (1,791
    )
    
    
    (33
    )
    
    
    (19,706
    )Accretion (dilution) of
common shares to
redemption value
    
    
    
    
    
    
    (22,911
    )
    
    
    
    
    
    
    (274,833
    )
    
    
    296,084
    
    
    
    1,660
    
    
    
    297,744BALANCEMARCH 31, 2008
    
    
    650
    
    
    $
    367,901
    
    
    
    7,782
    
    
    $
    4,404,069
    
    
    $
    
    
    
    $
    
    
    
    $
 Redeemable Common Shares
    
    
    Shareholders EquityClass A
    
    
    Class B
    
    
    
    
    
    
    Other AccumulatedNumber of
    
    
    
    
    
    
    Number of
    
    
    
    
    
    
    Retained
    
    
    Comprehensive
    
    
    
    
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Earnings (Deficit)
    
    
    Income (Loss)
    
    
    Total
    
    
    Income (Loss)BALANCEDECEMBER 31, 2006
    
    
    681
    
    
    $
    362,853
    
    
    
    7,438
    
    
    $
    3,963,138Net 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
redemptions
    
    
    (1
    )
    
    
    (512
    )
    
    
    (11
    )
    
    
    (5,636
    )Accretion (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
    
    
    $
    
    
    
    $
    
    
    
    $
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DCP HOLDING COMPANY AND SUBSIDIARIES
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 For the Three Months EndedMarch 31,2008
    
    
    2007CASH FLOWS FROM OPERATING ACTIVITIES:Net loss on redeemable common shares
    
    $
    (296,084
    )
    
    $
    (175,694
    )Adjustments to reconcile net income
to net cash provided by operating activities:Depreciation and amortization
    
    
    100,599
    
    
    
    105,142Deferred income taxes
    
    
    
    
    
    
    (74,217
    )Effects of changes in operating assets and liabilities:Accounts receivable
    
    
    199,462
    
    
    
    (46,437
    )Prepaid expenses, deposits, and other
    
    
    (6,485
    )
    
    
    (35,094
    )Other assets
    
    
    (19,825
    )
    
    
    (23,918
    )Claims payable
    
    
    (436,318
    )
    
    
    (1,166,984
    )Unearned premium revenue
    
    
    108,537
    
    
    
    270,183Accounts payable and accrued expenses
    
    
    35,781
    
    
    
    76,766Deferred compensation
    
    
    47,151
    
    
    
    60,077Federal income tax payable/receivable
    
    
    (225,412
    )
    
    
    (93,697
    )Net cash used in operating activities
    
    
    (492,594
    )
    
    
    (1,103,873
    )CASH FLOWS FROM INVESTING ACTIVITIES:Acquisition of property, plant and equipment
    
    
    (64,599
    )
    
    
    (42,893
    )Purchases of investments
    
    
    (300,000
    )
    
    
    (200,000
    )Maturities of investments
    
    
    308,000
    
    
    
    200,000Net cash used in investing activities
    
    
    (56,599
    )
    
    
    (42,893
    )CASH FLOWS FROM FINANCING ACTIVITIES:Mortgage loan repayments
    
    
    (30,000
    )
    
    
    (30,000
    )Repayment of capital lease
    
    
    (54,643
    )
    
    
    (51,433
    )Repayments of note
    
    
    
    
    
    
    (23,750
    )Repurchase of redeemable common shares
    
    
    
    
    
    
    (18,547
    )Redeemable common shares issued
    
    
    
    
    
    
    29,632Net cash used in financing activities
    
    
    (84,643
    )
    
    
    (94,098
    )DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (633,836
    )
    
    
    (1,240,864
    )CASH AND CASH EQUIVALENTSBeginning of period
    
    
    5,517,908
    
    
    
    6,223,757CASH AND CASH EQUIVALENTSEnd of period
    
    $
    4,884,072
    
    
    $
    4,982,893SUPPLEMENTAL CASH FLOW INFORMATIONCash paid for interest
    
    $
    19,210
    
    
    $
    26,002Cash paid for income taxes
    
    
    65,000
    
    
    
    75,000NON-CASH INVESTING AND FINANCING ACTIVITIES:Redeemed common shares in other current liabilities
    
    $
    21,497
    
    
    $
    38,353
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DCP HOLDING COMPANY AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2008 (UNAUDITED)
 1.
    
    BASIS OF PRESENTATIONThe condensed consolidated interim financial statements included in this report have been prepared
by DCP Holding Company and subsidiaries (the Company) without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission (the Commission). In the opinion of
management, all adjustments (consisting of normal recurring accruals) necessary for a fair
presentation are reflected in the interim financial statements. These unaudited condensed
consolidated financial statements should be read in conjunction with the audited 2007 financial
statements and notes thereto as included in the DCP Holding Company Form 10-K filed with the
Commission on March 25, 2008. These unaudited condensed consolidated financial statements have been
prepared in conformity with accounting principles generally accepted in the United States of
America for interim financial statements. Certain financial information that is required in the
annual financial statements may not be required for interim financial reporting purposes and has
been condensed or omitted. Operating results for the three months ended March 31, 2008 are not
necessarily indicative of the results that may be expected for the year ending December 31, 2008.2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESThe interim condensed consolidated financial statements have been prepared in accordance with the
accounting policies described in the notes to the Companys consolidated financial statements for
the year ended December 31, 2007. While management believes that the procedures followed in
preparation of interim financial information are reasonable, the accuracy of some estimated amounts
is dependent upon facts that will exist or calculations that will be made at year end. Examples of
such estimates include changes in claims payable, deferred tax accounts 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, 2008 and December 31, 2007, 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 in the
accompanying condensed consolidated balance sheets. 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 the 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 $541,000 and $404,000 for the
three months ended March 31, 2008 and 2007, respectively, and is included in premium revenue in the
accompanying condensed consolidated statements of operations.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, dental indemnity and
vision products that are underwritten by third party insurance carriers.Healthcare Service Expense The Company compensates its providers based on agreed-upon fees for
various services. With respect to the dental HMO product, the Company generally retains 10% of
these fees (including payments on self-insured claims) in accordance with the Companys provider
agreement. Under the terms of the Companys provider
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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 operations. Withheld amounts are retained by the Company but not reserved or retained in a
separate fund. Participating providers have no interest in the amounts withheld unless the
Companys Board of Directors (the Board) authorizes any amount to be paid to the providers.The cost of healthcare services provided to members is accrued in the period such services are
provided based on the accumulation of estimates of claims reported prior to the end of a reporting
period and of estimates of dental services provided but not reported to the Company, net of the
amounts withheld in accordance with the provider agreement.Managements estimates of dental services provided are based on the Companys historical experience
and current trends, with assistance from the Companys consulting actuary. Estimated dental claims
payable are reviewed regularly by management and are adjusted based on current information, actual
paid claims data, dental utilization statistics and other pertinent information. However, final
claim payments may differ from the established reserves. Any resulting adjustments are reflected in
current operations.Each year the Board evaluates the performance of the dental HMO plan, capital and surplus
requirements prescribed by the Ohio Department of Insurance, factors impacting the Companys
financial strength rating, funding needed to support strategic objectives for the coming years and
any other factors deemed relevant by the Board and, based on that evaluation, determines whether or
not to authorize the payment to the providers of any portion of the provider withhold. Once
authorized by the Board, such amounts are recorded as additional healthcare services expense in the
period authorized and shown as additional claims payable liability until paid.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 premium
revenue. As such, the Company limits its loss exposure to that portion of the insurable risk that
it retains. However, if a reinsurer fails to honor its obligations, the Company could suffer
additional losses as the reinsurance contracts do not relieve the Company of its obligations to
policyholders. Dental insurance premiums ceded were approximately $69,300 and $41,700 for the three
months ended March 31, 2008 and 2007, respectively. The healthcare services expense ceded was
approximately $63,800 and $33,200 for the three months ended March 31, 2008 and 2007, respectively.
As of March 31, 2008 the Company has approximately $36,800 of reinsurance recoverable and prepaid
reinsurance premium net of reinsurance payable, which is included in accounts receivable in the
accompanying condensed consolidated balance sheets.3.
    
    NEW ACCOUNTING PRONOUNCEMENTSIn February 2008, the Financial Accounting Standards Board (FASB) issued FASB Staff Positions
(FSP) No. 157-2, which delayed the effective date of Financial Accounting Standard (SFAS) No.
157 Fair Value Measurementsfor non-financial assets and non-financial liabilities that are
recognized or disclosed at fair value in the consolidated financial statements on a nonrecurring
basis. This FSP is effective for fiscal years beginning after
November 15, 2008. However, this scope exception does not apply to assets acquired and liabilities assumed in a business combination
that are required to be measured at fair value under SFAS
No. 141, Business Combinations or SFAS No. 141(R), Business Combinations. The Company is evaluating the effect FSP No. 157-2 will have on
their consolidated financial position and results of operations.In December 2007, the FASB issued SFAS No. 141(R), Business Combinations. SFAS No. 141(R) changes
the accounting for business combinations including the measurement of acquirer shares issued in
consideration for a business combination, the recognition of contingent consideration, the
accounting for preacquisition gain and loss contingencies, the recognition of capitalized
in-process research and development, the accounting for acquisition-related restructuring cost
accruals, the treatment of acquisition-related transaction costs and the recognition of changes in
the acquirers income tax valuation allowance. SFAS No. 141(R) applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008, except for certain tax adjustments for
prior business combinations. The Company is evaluating the effect SFAS No. 141(R) will have on
their consolidated financial position and results of operations.In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial
Statements-an amendment of ARB No. 51. SFAS No. 160 changes the accounting for noncontrolling
(minority) interests in
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consolidated financial statements including the requirements to classify noncontrolling interests
as a component of consolidated stockholders equity, and the elimination of minority interest
accounting in results of operations with earnings attributable to noncontrolling interests reported
as part of consolidated earnings. Additionally, SFAS 160 revises the accounting for both increases
and decreases in a parents controlling ownership interest. SFAS No. 160 is effective for fiscal
years beginning after December 15, 2008, with early adoption prohibited. The Company does not
expect the adoption of SFAS No. 160 to have a material impact on their consolidated financial
position or results of operations.In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging
Activities-an amendment of SFAS No. 133. SFAS No. 161 requires enhanced disclosures for derivative
instruments and hedging activities regarding the impact on financial position, financial
performance, and cash flows. This statement encourages but does not require comparative
disclosures for earlier periods upon initial adoption. The effective date of SFAS 161 is the
Companys fiscal year beginning January 1, 2009. The Company is in the process of evaluating the
new disclosure requirements under SFAS No. 161.In April, 2008, the FASB issued FSP 142-3, Determination of the Useful Lives of Intangible
Assets. This FSP amends the factors that should be considered in developing renewal or extension
assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142,
Goodwill and Other Intangible Assets. The intent of this FSP is to improve the consistency
between the useful life of a recognized intangible asset under SFAS No. 142 and the period of
expected cash flows used to measure the fair value of the asset. This FSP is effective for
consolidated financial statements issued for fiscal years beginning after December 15, 2008. Early
adoption is prohibited. The Company has not yet evaluated the impact of FSP 142-3 on their
consolidated financial statements.4.
    
    DEFERRED COMPENSATION PLANUnder the fair value recognition provisions of SFAS No. 123R, Accounting for Stock-Based
Compensation, share-based compensation cost is measured at the grant date based on the fair value
of the liability awards and is recognized as expense ratably over the vesting periods. The fair
value of the liability awards are remeasured at the end of each reporting period through the
remaining vesting period with the change in fair value recognized in earnings currently.In accordance with the 2006 Dental Care Plus Management Equity Incentive Plan and the Dental Care
Plus, Inc. and DCP Holding Company Deferred Compensation Plan (the Plans), Company directors and
certain key employees elected to defer portions of their director fees and employee compensation,
as applicable. For the three months ended March 31, 2008 and 2007, the Company recorded deferred
compensation expense of approximately $33,000 and $28,000, respectively, related to deferred
director fees and employee compensation. The Plans also provide for the directors and key
employees to elect to receive awards based on the book value of the Redeemable Common Shares and to
defer receiving such amounts until termination of board membership or employment and vesting
requirements are met. Under the terms of these plans, these deferred amounts will be paid in cash.
An individual directors award vests 100% at the end of each year if the director meets the board
meeting attendance requirements. The key employee awards vests 10%, 20%, 30% and 40% at the end of
each respective year in a four-year period following the grant date. The deferred compensation
expense related to these awards is recorded on a straight-line basis during the applicable vesting
period and for the three months ended March 31, 2008 and 2007, respectively, the Company recorded
deferred compensation expense of approximately $58,000 and $32,000 related to deferred share
awards.5.
    
    EARNINGS (LOSS) PER REDEEMABLE COMMON SHAREDetail supporting the computation of basic earnings (loss) per redeemable common share was as
follows for the three months ended March 31, 2008 and 2007, respectively:
 Three Months EndedMarch 31,2008
    
    
    2007Net loss dilutive to redeemable common shareholders
    
    $
    (296,084
    )
    
    $
    (175,694
    )Weighted average outstanding redeemable common
shares used to compute
basic and diluted loss per redeemable common share
    
    
    8,448
    
    
    
    8,153Basic and diluted loss per redeemable common share
    
    $
    (35.05
    )
    
    $
    (21.55
    )
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##### Table of Contents



6.
    
    SEGMENT INFORMATIONThe Company manages its business within three segments, fully-insured dental HMO, self-insured
dental HMO and Corporate, All Other. Corporate, All Other consists primarily of certain corporate
activities and three additional product lines: DentaSelect dental PPO, DentaPremier dental
indemnity, and Vision Care Plus. 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 dental 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. The
Companys gross profit was approximately $2,612,000 and $2,715,000 for the three months ended March
31, 2008 and 2007, respectively.Listed below is financial information required to be reported for each industry segment.
Reportable segment information is as follows for the three months ended March 31, 2008 and 2007,
respectively (amounts in thousands):
 Three Months Ended
    
    
    
    
    
    
    Three Months EndedMarch 31, 2008
    
    
    
    
    
    
    March 31, 2007Revenues-
    
    
    Healthcare
    
    
    
    
    
    
    Revenues-
    
    
    HealthcareExternal
    
    
    Services
    
    
    
    
    
    
    External
    
    
    ServicesCustomers
    
    
    Expense
    
    
    Total
    
    
    Customers
    
    
    Expense
    
    
    TotalReportable segments:Fully-Insured DHMO
    
    $
    8,825
    
    
    $
    7,265
    
    
    $
    1,560
    
    
    $
    10,016
    
    
    $
    8,110
    
    
    $
    1,906Self-Insured DHMO
    
    
    6,010
    
    
    
    5,141
    
    
    
    869
    
    
    
    4,540
    
    
    
    3,902
    
    
    
    638Corporate, All Other
    
    
    699
    
    
    
    516
    
    
    
    183
    
    
    
    303
    
    
    
    132
    
    
    
    171Total
    
    $
    15,534
    
    
    $
    12,922
    
    
    
    2,612
    
    
    $
    14,859
    
    
    $
    12,144
    
    
    
    2,715Selling, general and
administrative
expense
    
    
    
    
    
    
    
    
    
    
    3,129
    
    
    
    
    
    
    
    
    
    
    
    3,031Non-operating income
    
    
    
    
    
    
    
    
    
    
    60
    
    
    
    
    
    
    
    
    
    
    
    59Loss before income tax
    
    
    
    
    
    
    
    
    
    $
    (457
    )
    
    
    
    
    
    
    
    
    
    $
    (257
    )Total assets-corporate
    
    
    
    
    
    
    
    
    
    $
    11,526
    
    
    
    
    
    
    
    
    
    
    $
    11,476
  7.
    
    FAIR VALUE MEASUREMENTSEffective January 1, 2008, the Company adopted SFAS No. 157. Subsequent to the adoption of SFAS No.
157, FSP No. 157-1 excluded SFAS No. 13, Accounting for Leases, and other accounting
pronouncements that address fair value measurements for purposes of lease classification or
measurement under SFAS No. 13, from the scope of SFAS No. 157. This FSP was effective upon initial
adoption of SFAS No. 157. SFAS No. 157, as amended provides a definition of fair value that serves
to replace and unify old fair value definitions so that consistency on the definition is achieved,
and the definition provided acts as a modification of the current accounting presumption that a
transaction price of an asset or liability equals its initial fair value. The statement also
provides a fair value hierarchy used to classify source information used in fair value measurements
that places higher importance on market-based sources. The three levels of the fair value
hierarchy defined by SFAS No. 157 are as follows:
 
    
    Level 1  Valuations based on quoted prices in active markets for identical
assets or liabilities that the entity has the ability to access.
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##### Table of Contents




    
    Level 2  Valuations based on significant other observable inputs other than
those included in Level 1 such as quoted prices for similar assets or liabilities,
quoted prices in markets that are not active, or other inputs that are observable
or can be corroborated by observable data for substantially the full term of the
assets or liabilities.
    
    Level 3  Valuations based on unobservable inputs such as when observable inputs
are not available or inputs that are supported by little or no market activity and
that are significant to the fair value of the assets or liabilities.
 The following table presents for each of the fair value levels, the Companys assets and
liabilities that are measured at fair value on a recurring basis as of March 31, 2008 (amounts in
thousands).
 Level 1
    
    
    Level 2
    
    
    Total BalanceAssetsShort-term investments
    
    
    
    
    
    $
    755
    
    
    $
    755Investments
    
    
    
    
    
    
    1,215
    
    
    
    1,215Deferred
compensation asset (a)
    
    $
    173
    
    
    
    
    
    
    
    173State guarantee fund deposits (a)
    
    
    246
    
    
    
    50
    
    
    
    296Total
    
    
    419
    
    
    
    2,020
    
    
    
    2,439LiabilitiesInterest rate swap (b)
    
    
    
    
    
    
    5
    
    
    
    5Total
    
    $
    
    
    
    $
    5
    
    
    $
    5
 
 (a)
    
    Included in other assets(b)
    
    Included in other long term liabilities The Company measures fair value using the following valuation methodologies. The Company uses
quoted market prices to determine the fair value of the deferred
compensation asset and
certain state guarantee fund deposits; such items are classified as Level 1 of the fair-value
hierarchy. Examples include government securities and exchange-traded equity securities. The
Company obtains prices from independent vendors to determine the fair value of the majority of its
short-term investments and investments portfolio whereby the
significant observable inputs the independent vendors use include the
interest rate yields, duration and maturities obtained from the new
issues market, weekly offering sheets, secondary trading markets and
dealer quotes; such items are classified as Level 2 of the fair value
hierarchy. The
remainder of the short-term investments, investments and state
guarantee fund deposits are fair valued using
a discounted cash flow method whereby the significant observable inputs include the maturity date
and the interest rate yield; such items are classified as Level 2 of the fair-value hierarchy.
Examples include brokered and non-brokered certificates of deposit. The Company obtains a price
from an independent vendor to determine the fair value of the interest rate swap. The independent
vendor uses a discounted cash flow method whereby the significant observable inputs include the
replacement interest rates of similar swap instruments in the market and swap curves; such items
are classified as Level 2 of the fair value hierarchy.Certain assets and liabilities are measured at fair value on a non-recurring basis, and therefore,
are not included in the table above. These include long-lived assets such as certain plant,
property and equipment items, intangible assets and goodwill, as well as assets measured at cost
that are written down to fair value during a period as a result of an impairment. For the three
months ended March 31, 2008, there were no assets or liabilities that were required to be measured
at fair value on a non-recurring basis.Effective January 1, 2008, the Company adopted SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities-Including an Amendment of FASB Statement No. 115. The Company
did not elect to adopt the fair value option for any balance sheet item that has not already been
measured at fair value in accordance with other generally accepted
accounting principles.
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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 $296,000 for the three months ended March 31, 2008
compared to a net loss of approximately $176,000 for the three months ended March 31, 2007.
    
    Our dental and vision products grew by 8,500 members, or 3.5%, from approximately 245,000
members at December 31, 2007 to approximately 253,500 members at March 31, 2008. Our
membership at March 31, 2008 includes approximately 17,000 members from sales related to our
DentaSelect dental PPO offering.
 Comparison of Results of Operations
   As of
    
    
    As ofMarch 31, 2008
    
    
    March 31, 2007
    
    
    CHANGEMembership:Fully-insured DHMO
    
    
    128,100
    
    
    
    144,700
    
    
    
    -11.5
    %Self-insured DHMO
    
    
    93,100
    
    
    
    71,200
    
    
    
    30.8
    %Corporate, all other
    
    
    32,300
    
    
    
    19,500
    
    
    
    65.6
    %Total membership
    
    
    253,500
    
    
    
    235,400
    
    
    
    7.7
    %
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##### Table of Contents



Three months ended
    
    
    Three months endedMarch 31, 2008
    
    
    March 31, 2007
    
    
    ChangePremium revenue:Fully-insured DHMO
    
    $
    8,825
    
    
    $
    10,016
    
    
    
    -11.9
    %Self-insured DHMO
    
    
    6,010
    
    
    
    4,540
    
    
    
    32.4
    %Corporate, All Other
    
    
    699
    
    
    
    303
    
    
    
    130.7
    %Total premium revenue
    
    
    15,534
    
    
    
    14,859
    
    
    
    4.5
    %Healthcare service expense:Fully-insured DHMO
    
    
    7,265
    
    
    
    8,110
    
    
    
    -10.4
    %Self-insured DHMO
    
    
    5,141
    
    
    
    3,902
    
    
    
    31.8
    %Corporate, All Other
    
    
    516
    
    
    
    132
    
    
    
    290.9
    %Total healthcare service expense
    
    
    12,922
    
    
    
    12,144
    
    
    
    6.4
    %Selling, general & administrative expense:Corporate, All Other
    
    
    3,129
    
    
    
    3,031
    
    
    
    3.2
    %Investment income:Corporate, All Other
    
    
    66
    
    
    
    51
    
    
    
    29.4
    %Other income:Corporate, All Other
    
    
    14
    
    
    
    34
    
    
    
    -58.8
    %Interest expense:Corporate, All Other
    
    
    (20
    )
    
    
    (26
    )
    
    
    -23.1
    %Income tax provisionCorporate, All Other
    
    
    (160
    )
    
    
    (82
    )
    
    
    95.1
    %
 Summary
   Membership
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Revenue
   Self-Insured Claim Revenue
 Self-Insured ASO Fees
   13




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Healthcare Service Expense
    Reinsurance
  Selling, General and Administrative Expenses
  14




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Investment Income
  Other Income
  Interest Expense
  Income Taxes
  Liquidity and Capital Resources and Changes in Financial Condition
   Three months ended
    
    
    Three months endedMarch 31, 2008
    
    
    March 31, 2007Net cash used in
operating activities
    
    $
    (492
    )
    
    $
    (1,104
    )Net cash used in
investing activities
    
    
    (57
    )
    
    
    (43
    )Net cash used in
financing activities
    
    
    (85
    )
    
    
    (94
    )Decrease in cash
    
    $
    (634
    )
    
    $
    (1,241
    )
 Cash Flow from Operating Activities
  15




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Cash Flow from Investing Activities
  Cash Flow from Financing Activities
  Provider Withhold Funds
   Financial Condition
     16




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
     
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
  
 PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
 17




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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
  18




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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 15, 2008
    By:
    /s/ Robert C. Hodgkins, Jr.Robert C. Hodgkins, Jr.Vice President and Chief Financial Officer 19




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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