DCP Holding 10-Q 2007 Q2 Quarterly report

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                    

Commission File Number000-51954

DCP Holding Company

(Exact name of Registrant as specified in its Charter)

Ohio
(State or Other Jurisdiction of
Incorporation or Organization) 20-1291244
(IRS Employer Identification No.)

100 Crowne Point Place	45241
Sharonville, Ohio	(Zip Code)
(Address of Principal Executive Office)

REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE: (513) 554-1100

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesþ Noo

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated file, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filero Accelerated filero Non-accelerated filerþ

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Noþ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of June 30, 2007 there were 659 of the Registrant’s Class A Redeemable Common Shares outstanding and 7,694 of the Registrant’s Class B Redeemable Common Shares outstanding.

TABLE OF CONTENTS

INDEX TO DCP HOLDING COMPANY

REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2007

PART I – FINANCIAL INFORMATION
	PAGE
Item 1. Financial Statements		1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		10
Item 3. Quantitative and Qualitative Disclosures About Market Risk		17
Item 4. Controls and Procedures		18
PART II – OTHER INFORMATION
Item 1. Legal Proceedings		19
Item 1A. Risk Factors		19
Item 2. Unregistered Sales of Equity and Use of Proceeds		19
Item 3. Defaults Upon Senior Securities		19
Item 4. Submission of Matters to a Vote of Security Holders		20
Item 5. Other Information		20
Item 6. Exhibits		21
Signatures		21
EX-31.1
EX-31.2
EX-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)
ASSETS
CURRENT ASSETS:
Cash	$	6,098,574		$	6,223,757
Short-term investments at fair value, cost of $716,000 and $1,100,000 at June 30, 2007 and December 31, 2006, respectively		714,710			1,096,721
Accounts receivable, net of allowance of $9,000 and $37,000 at June 30, 2007 and December 31, 2006, respectively		361,227			406,507
Prepaid expense, deposits, and other		138,952			141,103
Deferred federal income tax, current		75,825			75,881
Total current assets		7,389,288			7,943,969
INVESTMENTS		1,249,863			796,189
PROPERTY, PLANT, AND EQUIPMENT:
Land		364,000			364,000
Building and building improvements		2,236,866			2,221,171
Furniture and equipment		1,960,832			1,885,238
Total property, plant, and equipment		4,561,698			4,470,409
Less accumulated depreciation and amortization		(1,470,655	)		(1,274,733	)
Total property, plant, and equipment—net		3,091,043			3,195,676
INTANGIBLE ASSETS, Net of accumulated amortization of $254,000 and $246,000 at June 30, 2007 and December 31, 2006, respectively		196,206			203,880
GOODWILL		136,355			136,355
DEFERRED FEDERAL INCOME TAX, NON-CURRENT		11,355			11,355
OTHER ASSETS		484,729			511,910
TOTAL ASSETS	$	12,558,839		$	12,799,334
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current portion of long-term obligations	$	336,955		$	385,902
Claims payable		3,234,702			3,987,591
Accounts payable and accrued expenses		1,725,058			1,811,349
Unearned premium revenue		962,697			587,963
Federal income tax payable		41,494			19,238
Other current liabilities		32,244			50,753
Total current liabilities		6,333,150			6,842,796
LONG TERM LIABILITIES:
Mortgage loan payable		1,200,000			1,260,000
Capital lease obligation		132,758			242,877
Deferred compensation		250,206			127,670
Total long-term liabilities		1,582,964			1,630,547
TOTAL LIABILITIES		7,916,114			8,473,343
REDEEMABLE 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			362,853
Class 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			3,963,138
Total redeemable common shares		4,642,725			4,325,991
SHAREHOLDERS’ EQUITY—Preferred Shares; no par value—authorized, 100,000 shares; none issued and outstanding
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	12,558,839		$	12,799,334

See notes to unaudited condensed consolidated financial statements.

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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			2006
Premium revenue	$	14,553,860		$	12,330,130		$	29,412,927		$	25,162,063
Operating expenses:
Healthcare services expense		11,355,944			9,744,067			23,500,357			20,287,249
Selling, general and administrative expense		2,690,907			2,416,910			5,721,765			4,963,107
Total operating expenses		14,046,851			12,160,977			29,222,122			25,250,356
Operating income (loss)		507,009			169,153			190,805			(88,293	)
Non-Operating Income (Expense):
Investment income		58,152			42,327			108,781			83,225
Other income		17,086			84,620			50,817			167,780
Interest expense		(23,866	)		(32,770	)		(49,682	)		(63,877	)
Total non-operating income		51,372			94,177			109,916			187,128
INCOME BEFORE INCOME TAX		558,381			263,330			300,721			98,835
INCOME TAX PROVISION		187,676			85,403			105,710			26,185
NET INCOME ON REDEEMABLE COMMON SHARES	$	370,705		$	177,927		$	195,011		$	72,650
BASIC EARNINGS PER REDEEMABLE COMMON SHARE	$	45.45		$	21.44		$	23.92		$	8.75
DILUTIVE EARNINGS PER REDEEMABLE COMMON SHARE	$	45.22		$	21.44		$	23.79		$	8.75

See notes to unaudited condensed consolidated financial statements.

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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’ Equity
	Class A						Class B									Other Accumulated
	Number of						Number of						Retained			Comprehensive						Comprehensive
	Shares			Amount			Shares			Amount			Earnings			Income (Loss)			Total			Income (Loss)
BALANCE—DECEMBER 31, 2006		681		$	362,853			7,438		$	3,963,138
Net income													$	195,011					$	195,011		$	195,011
Change in fair value of interest rate swap (net of income tax of $1,190)																$	2,311			2,311			2,311
Unrealized loss on investments (net of income tax benefit of $1,135)																	(2,202	)		(2,202	)		(2,202	)
Total comprehensive loss																						$	195,120
Cumulative effect of change in accounting principle (FIN 48)														(5,997	)					(5,997	)
Class B Common Shares issued								292			153,492
Class A Common Shares exchanged for Class B Common Shares		(18	)		(9,473	)		18			9,473
Common 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’ Equity
	Class A						Class B									Other Accumulated
	Number of						Number of						Retained			Comprehensive						Comprehensive
	Shares			Amount			Shares			Amount			Earnings			Income (Loss)			Total			Income (Loss)
BALANCE—DECEMBER 31, 2005		691		$	357,976			7,769		$	4,024,771
Net income													$	72,650					$	72,650		$	72,650
Change in fair value of interest rate swap (net of income tax of $8,093)																$	15,709			15,709			15,709
Unrealized loss on investments (net of income tax benefit of $354)																	(2,053	)		(2,053	)		(2,053	)
Total comprehensive loss																						$	86,306
Class A Common Shares exchanged for Class B Common Shares		(3	)		(1,555	)		3			1,555
Common 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		$			$			$

See notes to unaudited condensed consolidated financial statements.

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DCP HOLDING COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

	For the Six Months Ended
	June 30,
	2007			2006
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income on redeemable common shares	$	195,011		$	72,650
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		203,594			264,970
Deferred 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			76,283
Other assets		(44,318	)		(37,765	)
Claims payable		(752,889	)		(274,737	)
Unearned premium revenue		374,734			360,429
Accounts payable and accrued expenses		(92,288	)		15,553
Deferred compensation		122,536			69,255
Federal income tax payable		22,256			(75,627	)
Net cash provided by operating activities		76,067			254,412
CASH 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			800,000
Net 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		153,492
Net cash used in financing activities		(109,964	)		(318,407	)
DECREASE IN CASH		(125,183	)		(125,667	)
CASH—Beginning of period		6,223,757			5,628,987
CASH—End of period	$	6,098,574		$	5,503,320
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest		50,289			64,202
Cash paid for income taxes		75,000			218,000
Redeemed common shares in other current liabilities		32,244			58,188

See accompanying notes to unaudited condensed consolidated financial statements.

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DCP HOLDING COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2007 (UNAUDITED)

1.	BASIS OF PRESENTATION
	The 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 POLICIES
	The 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 PRONOUNCEMENTS
	In 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 POSITIONS
	In 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 PLAN
	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 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 SHARE
	Detail 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:

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	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2007		2006		2007		2006
Net income accretive to redeemable common shareholders	$	370,705	$	177,927	$	195,011	$	72,650
Weighted average outstanding redeemable common shares used to compute basic earnings per redeemable common share		8,156		8,299		8,154		8,307
Weighted average outstanding redeemable common shares used to compute diluted earnings per redeemable common share		8,198		8,299		8,196		8,307
Basic earnings per redeemable common share	$	45.45	$	21.44	$	23.92	$	8.75
Diluted earnings per redeemable common share	$	45.22	$	21.44	$	23.79	$	8.75

7. SEGMENT INFORMATION

The Company manages its business with three segments, fully-insured dental HMO, self-insured dental HMO and Corporate, All Other. Corporate, All Other consists primarily of three additional product lines: DentaSelect dental PPO, DentaPremier dental indemnity, and Vision Care Plus. The Company identified their segments in accordance with the aggregation provisions of Statement of Financial Accounting Standards (“SFAS”) No. 131, Disclosure about Segments of an Enterprise and Related Information. These segments are consistent with information used by the Company’s Chief Executive Officer (the chief decision maker) in managing their business. The segment information aggregates products with similar economic characteristics. These characteristics include the nature of customer groups and pricing, benefits and underwriting requirements.

The results of the fully insured and self-insured HMO segments are measured by gross profit. The Company does not allocate selling, general and administrative expenses, investment and other income, interest expense, goodwill, or other assets or liabilities, to these segments. These items are assigned to the remainder of the business, which the Company identifies as Corporate, All Other. The Company combines all gross profit and 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 and six months ended June 30, 2007 and 2006, respectively (amounts in thousands):

	Fully-Insured		Self-Insured		Corporate,
	DHMO		DHMO		All Other		Total
Three Months Ended June 30, 2007
Revenues from external customers	$	10,027	$	4,217	$	310	$	14,554
Healthcare services expense		7,583		3,587		186		11,356
Net investment income						58		58
Interest expense						24		24
Depreciation and amortization						99		99
Income before taxes						558		558
Income tax provision						188		188
Acquisition of fixed assets						48		48
Identifiable assets						12,559		12,559
Three Months Ended June 30, 2006
Revenues from external customers	$	9,361	$	2,860	$	109	$	12,330
Healthcare services expense		7,302		2,442				9,744
Net investment income						22		22
Interest expense						33		33
Depreciation and amortization						138		138
Income before taxes						263		263
Income tax provision						85		85
Acquisition of fixed assets						29		29
Identifiable assets						12,136		12,136

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

Inter-segment revenues were not significant for the three and six months ended June 30, 2007 and 2006.

9

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking statements

     Portions of this report, including this discussion and the information contained in the condensed notes to the consolidated financial statements contain forward-looking statements under the Private Securities Litigation Reform Act of 1995. You can identify forward-looking statements by terminology such as “may,” “might,” “will,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “project,” “predict,” “intend,” “potential,” “likely will result,” or the negative of such terms or similar expressions. These forward-looking statements reflect our current expectations and views about future events and speak only as of the date of this report. The forward-looking statements are subject to risks, uncertainties and other factors that could cause actual events or results to differ materially from those expressed or implied by the forward-looking statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements, include, among others: claims costs exceeding our estimates, a downgrade in our financial strength rating, competitive pressures, changes in demand for dental benefits and other economic conditions, the loss of a significant customer or broker, the occurrence or non-occurrence of circumstances beyond our control and those items described in Item 1A – Risk Factors of the Company’s Form 10-K for the fiscal year ended December 31, 2006. We do not undertake any obligation to publicly update or revise any forward-looking statements to reflect future events, information or circumstances that arise after the date this report is filed.

Overview

     Headquartered in Cincinnati, Ohio, we offer to employer groups of all sizes dental HMO, dental PPO, dental indemnity and vision PPO benefit plans and related services. As of June 30, 2007, we had approximately 236,700 members in our dental and vision benefit programs with approximately 1,861 dentists participating in our networks of providers.

     We manage our 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 PPO. Our dental HMO products and all of our other product lines are marketed to employer groups.

     The results of our fully-insured and self-insured HMO segments are measured by gross profit. We do not measure the results of our corporate, all other segment. We do not allocate selling, general and administrative expenses, investment and other income, interest expense, goodwill, or other assets or liabilities to our fully-insured and self-insured segments. These items are retained in our Corporate, All Other segment. Our segments do not share overhead costs and assets. We do, however, measure the contributions of each of our fully-insured and self-insured segments to costs retained in our corporate, all other segment.

Profitability Strategy

     Our strategy to drive profitability focuses on providing solutions for employers to the rising cost of dental care by leveraging our growing networks of participating dentists and deploying a variety of products that give employer groups and members more choices. Additionally, we have increased the diversification of our membership base, not only through our newer products, but also by entering new geographic territories. Although we expect our dental PPO and indemnity products to be important drivers of growth in the years ahead, we expect to migrate a substantial number of members from those products to our flagship Dental Care Plus HMO products.

     In our markets, there has been limited growth in recent years in the number of individuals enrolled in dental benefit plans. However, there has been a shift of membership out of the more expensive dental indemnity products into the dental PPO products that offer both less expensive in-network benefits and out-of-network benefits. At the same time, members have migrated away from dental HMO products with very limited provider networks. While these dental HMO products are the least expensive, employers and members have focused their attention on the dental PPO products that offer broad provider access with the cost control associated within a contracted provider network for the in-network portion of the dental services rendered.

     In our original eight-county service area, our provider network analysis indicates that our dental HMO provider network includes participation by over 85% of the licensed dental providers in the market. In that market, our dental HMO provides the broad provider access of a dental PPO along with effective utilization and cost control features.

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     We have experienced steady growth in membership and revenue in both the fully-insured and self-insured dental HMO product during the last five years. We attribute this growth to our broad provider network, competitive premium rates for our fully-insured business and administrative services only (“ASO”) fees for our self-insured business, and our commitment to providing outstanding customer service to all of our constituencies (employer groups, members, insurance brokers, and dentists).

     The introduction of the DentaPremier dental indemnity product in 2003 has created new business opportunities for us with employer groups in our original eight-county service area that have a portion of their employees who reside outside the Cincinnati area. The introduction of the DentaSelect dental PPO product has been instrumental to our new sales in the Dayton, Ohio and Central Kentucky markets.

     Many factors affect our operating results, such as our ability to: (a) accurately and consistently establish competitive premiums and ASO fees; (b) establish and maintain a competitive and efficient cost structure and; (c) design and implement plan benefit levels that are commensurate with our dental and administrative costs. Two important factors that affect our profitability are the competitive pricing environment and market conditions. With respect to pricing, there is a tradeoff between sustaining or increasing underwriting margins versus increasing or decreasing enrollment. With respect to market conditions, economies of scale affect our administrative overhead.

     As a result of a decline in preference for tightly managed dental HMO products, dental costs have become increasingly comparable among our larger competitors. Dental costs are subject to a high rate of inflation due to many factors, including new higher priced technologies and dental procedures, increasing capacity and supply of dental services, new dental service techniques and therapies, an aging population, lifestyle challenges including obesity and smoking, the tort liability system, and government regulations. Product design and consumer involvement have become more important drivers of dental services consumption, and administrative expense efficiency is becoming a more significant driver of margin sustainability. Consequently, we continually evaluate our administrative expense structure and attempt to realize administrative expense savings through productivity gains.

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

     The following discussion primarily deals with our results of operations for the three months ended June 30, 2007, or the 2007 quarter, the three months ended June 30, 2006, or the 2006 quarter, the six months ended June 30, 2007, or the 2007 period, and the six months ended June 30, 2006 or the 2006 period.

     The following table presents certain membership and financial data for our three segments (dollar amounts in thousands):

	As of June 30,		As of June 30,
	2007		2006		CHANGE
Membership:
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	%

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	Three months			Three months
	ended			ended
	June 30, 2007			June 30, 2006			Change
Premium 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 provision
Corporate, All Other		188			85			121.2	%

	Six months			Six months
	ended			ended
	June 30, 2007			June 30, 2006			Change
Premium 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 provision
Corporate, All Other		106			26			307.7	%

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Summary

     Net income on Redeemable Common Shares increased by $193,000 from $178,000, or $21.44 per Redeemable Common Share, in the 2006 quarter to $371,000, or $45.45 per Redeemable Common Share, in the 2007 quarter. The increase in net income for the 2007 quarter was primarily due to an increase in operating income of $338,000, from operating income of $169,000 in the 2006 quarter to $507,000 in the 2007 quarter. The higher operating income in the 2007 quarter was partially offset by a $68,000 decrease in other income primarily due to the cancellation of the Humana Dental network lease contract in October of 2006. However, investment income increased by $16,000, from $42,000 in the 2006 quarter to $58,000 in the 2007 quarter, and interest expense decreased by $9,000, from $33,000 in the 2006 quarter to $24,000 in the 2007 quarter.

     While premium revenue less healthcare services expense for the 2007 quarter increased by $612,000 as compared to the 2006 quarter, selling, general and administrative (“SG&A”) expense for the 2007 quarter was $2,691,000, $274,000 higher than the $2,417,000 for the 2006 quarter. This increase is primarily attributable to (1) higher salary and benefits costs; (2) higher in-house commissions; (3) higher broker commission expense; (4) higher accounting and auditing fees and (5) higher professional consulting expense related to Sarbanes-Oxley compliance.

Membership

     Our fully-insured dental HMO membership increased approximately 7,200 members, or 5.2%, from June 30, 2006 to June 30, 2007. This membership increase is attributable to new fully insured dental HMO sales in the Cincinnati/Northern Kentucky market of approximately 10,100 members, offset by the reduction of approximately 2,900 dental HMO members due to a limited number of employer groups that did not renew their contracts with Dental Care Plus in the last 12 months.

     Our self-insured dental HMO membership increased by approximately 19,800 members, or 39.6%, from approximately 50,000 members as of June 30, 2006 to approximately 69,800 members on June 30, 2007 as a result of our adding a number of large new self-insured groups in Southwestern Ohio and Northern Kentucky.

     Dental indemnity membership increased 32.4% to approximately 4,500 members as of June 30, 2007 from approximately 3,400 members on June 30, 2006. These dental indemnity members represent the out-of-area members for employer groups based in Ohio and Kentucky. Our ability to offer out-of-area dental indemnity coverage has allowed us to sell new employer groups with out-of-area employees. At June 30, 2007, there were approximately 11,600 members in the fully-insured dental PPO product, many of which had converted from the Adenta dental product. Additionally, on June 30, 2007 we had approximately 6,200 members in the fully-insured Vision Care Plus product. Except for approximately 5,900 Dental Care Plus dental PPO members at June 30, 2007, the dental indemnity product, the dental PPO product and the fully-insured vision product are all underwritten by third party insurance carriers.

Revenue

     Fully-insured dental HMO premium revenue for the 2007 quarter increased approximately $666,000, or 7.1%, compared to the 2006 quarter. Approximately $549,000 of this premium revenue increase is attributable to membership volume increases in the dental HMO product line and approximately $219,000 of this premium revenue increase is associated with dental HMO premium rate increases negotiated with employer groups at their annual renewals. These increases were offset by a decrease in Adenta premium revenue of approximately $102,000, from approximately $102,000 in the 2006 quarter to approximately $0 in the 2007 quarter as the Adenta membership transferred to our dental PPO product or to another dental carrier.

     Fully-insured dental HMO premium revenue for the 2007 period increased approximately $1,257,000, or 6.7%, compared to the 2006 period. Approximately $1,216,000 of this premium revenue increase is attributable to membership volume increases in the dental HMO product line and approximately $367,000 of this premium revenue increase is associated with dental HMO premium rate increases negotiated with employer groups at their annual renewals. These increases were offset by a decrease in Adenta premium revenue of approximately $326,000, from approximately $326,000 in the 2006 period to approximately $0 in the 2007 period as the Adenta membership transferred to our dental PPO product or to another dental carrier.

     Total self-insured revenue for the 2007 quarter increased approximately $1,357,000, or 47.4%, compared to the 2006 quarter. This increase is attributable to the 39.6% increase in self-insured HMO membership and a provider fee schedule increase implemented at the beginning of 2007. Total self-insured revenue for the 2007 period increased approximately $2,561,000, or 41.3%, compared to the 2006 quarter. This increase is attributable to the 39.6% increase in self-insured HMO membership and a provider fee schedule increase implemented at the beginning of 2007. The self-insured segment revenue has two components:

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     Self-Insured Claim Revenue- Self-insured claim revenue for the 2007 quarter increased approximately $1.3 million, or 47.4%, compared to the 2006 quarter. This increase is due to increased self-insured dental HMO membership along with a fee schedule increase implemented at the beginning of 2007. Self-insured claim revenue for the 2007 period increased approximately $2.4 million, or 41.4%, compared to the 2006 period. This increase is due to increased self-insured dental HMO membership along with a fee schedule increase implemented at the beginning of 2007.

     Self-Insured ASO Fees- Self-insured ASO fees for the 2007 quarter increased approximately $64,000, or 38.2%, compared to the 2006 quarter. Self-insured ASO fees for the 2007 period increased approximately $135,000, or 40.6%, compared to the 2006 quarter. These increases are primarily attributable to the 39.6% increase in self-insured HMO membership. We provide access to our Dental Care Plus provider network for an administrative fee, generally to self-insured groups. Our ASO fee revenue is recognized monthly when earned and is normally based on annual contracts with the self-insured groups.

     Corporate, All Other premium revenue is derived from our fully-insured dental indemnity product, our fully-insured dental PPO products and our fully-insured vision product. In aggregate corporate, all other premium revenue increased by approximately $201,000, or 184.4%, from $109,000 in the 2006 quarter to $310,000 in the 2007 quarter. In the 2007 period, corporate, all other premium revenue increased by approximately $433,000, or 240.6%, from $180,000 in the 2006 period to $613,000 in the 2007 period.

     The dental indemnity product is underwritten by a third party insurance carrier and we are paid a portion of its premium in the form of administrative fees that cover our related costs and broker commissions. These dental indemnity administrative fees decreased approximately $7,000, from $45,000 in the 2006 quarter to $38,000 in the 2007 quarter.

     The Dental Care Plus fully-insured dental PPO was introduced in the third quarter of 2006. The fully-insured PPO premium revenue was approximately $215,000 in the 2007 quarter and $381,000 in the 2007 period. Our other dental PPO product is underwritten by third party insurance carriers and we are paid a portion of its premium in the form of administrative fees that cover our related costs and broker commissions. These dental PPO administrative fees decreased by approximately $27,000, or 63.0%, in the 2007 quarter compared to the 2006 quarter and by approximately $4,000, or 5.6%, in the 2007 period compared to the 2006 period. These dental PPO administrative fees have decreased as a result of the transitioning of the dental PPO to the fully-insured dental PPO product at renewal.

     In addition, our fully-insured vision product is underwritten by a third party insurance carrier and we are paid a portion of its premium in the form of administrative fees that cover our related costs and broker commissions. These vision product administrative fees increased by approximately $18,000, or 86.7%, from approximately $21,000 in the 2007 quarter to approximately $40,000 in the 2006 quarter. In the 2007 period these vision product administrative fees increased by approximately $44,000, or 56.1%, from approximately $34,000 in the 2006 period to approximately $78,000 in the 2007 period.

Healthcare Service Expense

     Fully-insured healthcare services expense for the 2007 quarter increased approximately $281,000, or 3.8%, compared to the 2006 quarter. This increase is attributable to both the 5.2% increase in dental HMO membership and the provider fee schedule increase implemented at the beginning of 2007. On a per member per month basis, fully-insured healthcare services expense increased by 2.6% in the 2007 quarter compared to the 2006 quarter. This per member per month increase is primarily the result of the fee schedule increase effective January 1, 2007 of approximately 2.4% .

     Fully-insured healthcare services expense for the 2007 period increased approximately $717,000, or 4.8%, compared to the 2006 period. This increase is attributable to both the 5.2% increase in dental HMO membership and the provider fee schedule increase implemented at the beginning of 2007. On a per member per month basis, fully-insured healthcare services expense increased by 1.9% in the 2007 period compared to the 2006 period. Given the fee schedule increase effective January 1, 2007 was approximately 2.4%, there was a slight decrease in utilization on a per member per month basis or a less expensive mix of services provided in the 2007 period compared to the 2006 period. The fully-insured healthcare services expense attributable to the Adenta, Inc. membership was approximately $226,000 for the 2006 quarter. There was no healthcare services expense attributable to Adenta membership in the 2007 quarter.

     Self-insured healthcare services expense for the 2007 quarter increased approximately $1.1 million, or 46.9%, compared to the 2006 quarter. This increase is attributable to both the 39.6% increase in self-insured dental HMO membership and the provider fee schedule increase implemented at the beginning of 2007. Self-insured healthcare services expense for the 2007 period increased approximately $2.2 million, or 41.0%, compared to the 2006 period. This increase is attributable to both the 39.6% increase in self-insured dental HMO membership and the provider fee schedule increase implemented at the beginning of 2007.

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Selling, General and Administrative Expenses

     Consolidated selling, general and administrative, or SG&A, expenses for the 2007 quarter increased approximately $274,000, or 11.3%, compared to the 2006 quarter. Total SG&A expenses as a percentage of total premium revenue, or SG&A expense ratio, was 18.5% for the 2007 quarter, decreasing 110 basis points from the 2006 quarter ratio of 19.6%. SG&A expenses for the 2007 period increased approximately $759,000, or 15.3%, compared to the 2006 period. Total SG&A expenses as a percentage of total premium revenue, or SG&A expense ratio, was 19.5% for the 2007 period, decreasing 20 basis points from the 2006 period ratio of 19.7%. These SG&A expense increases are primarily attributable to: (1) salaries and benefits increases due to the addition of sales and marketing and provider relations staff for the expansion in the Dayton, Louisville and Lexington markets and the addition of finance staff to support our expanded activities; (2) in-house commission and broker commission expense increases due to the increases in membership and the higher prevailing commission rates in the Kentucky markets and; (3) professional services expense increases including accounting fees and other professional consulting fees.

     Depreciation and amortization expense for the 2007 quarter decreased approximately $39,000, or 28.3%, compared to the 2006 quarter. Depreciation and amortization expense for the 2007 period decreased approximately $61,000, or 23.0%, compared to the 2006 period. These decreases were due primarily to a decrease in the amortization of the identifiable assets acquired in the acquisition of Adenta after the write down of the intangible asset associated with the Adenta network lease contract with Humana Dental in July of 2006.

Investment Income

     Investment income for the 2007 quarter increased approximately $16,000, or 38.1%, compared to the 2006 quarter. Investment income for the 2007 period increased approximately $26,000, or 31.3%, compared to the 2006 period. These increases are attributable to an increase in the amount invested in short-term investments such as FDIC insured bank certificates of deposit and U.S. Government security mutual funds in the 2007 quarter and 2007 period compared to the 2006 quarter and a slight increase in prevailing interest rates.

Other Income

     Other income for the 2007 quarter decreased approximately $68,000, or 80.0%, compared to the 2006 quarter. Dental provider network leasing revenue decreased by $57,000, or 94.0%, from approximately $60,000 in the 2006 quarter to approximately $3,000 in the 2007 quarter. The decrease is primarily attributable to the loss of the revenue associated with the Humana Dental lease of the Adenta provider network that was terminated in October of 2006. This decrease in other income also included an $11,000 decrease in rental revenue earned from leasing a portion of the office building owned by our subsidiary, Dental Care Plus.

     Other income for the 2007 period decreased approximately $117,000, or 69.6%, compared to the 2006 period. Dental provider network leasing revenue decreased by $110,000, or 89.2%, from approximately $123,000 in the 2006 period to approximately $13,000 in the 2007 period. The decrease is primarily attributable to the loss of the revenue associated with the Humana Dental lease of the Adenta provider network that was terminated in October of 2006. This decrease in other income also included a $7,000 decrease in rental revenue earned from leasing a portion of the office building owned by our subsidiary, Dental Care Plus.

Interest Expense

     Interest expense for the 2007 quarter was approximately $24,000, a decrease of approximately $9,000, or 27.3% from the 2006 quarter. Interest expense for the 2007 period was approximately $50,000, a decrease of approximately $14,000, or 21.9% from the 2006 period. These decreases are primarily attributable to a decrease in the amount of obligations outstanding during the 2007 quarter and the 2007 period, offset by a slight increase in the prevailing interest rates associated with our variable rate contractual obligations.

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Income Taxes

     The effective tax rate during the 2007 quarter slightly increased to 33.6% as compared to 32.4% in the 2006 quarter. The higher effective tax rate during the 2007 quarter is attributable to lower estimated state and local taxes in the 2007 quarter. The effective tax rate for the 2007 quarter is lower than the federal statutory rate as a result of the combined impact of state and local income tax deductions. The effective tax rate during the 2007 period increased to 35.2% as compared to 26.5% in the 2006 period. The lower effective tax rate of the 2006 period reflects a favorable impact of state and local tax credits.

Liquidity and Capital Resources and Changes in Financial Condition

     Our primary sources of cash include receipts of premiums, ASO fees, investment and other income, as well as the proceeds from the sale or maturity of our investment securities and from borrowings. Our primary uses of cash include disbursements for claims payments, SG&A expenses, interest expense, taxes, purchases of investment securities, capital expenditures, acquisitions, and payments on borrowings. Because premiums are collected in advance of claims payments, our business should normally produce positive cash flows during a period of increasing enrollment. Conversely, cash flows would be negatively affected during a period of shrinking enrollment. We have recently been experiencing improving operating cash flows associated with growth in both fully-insured and self-insured dental HMO enrollment.

     Cash decreased approximately $125,000, or 2.0%, for the 2007 period to approximately $6.1 million from $6.2 million as of December 31, 2006. The change in cash for the 2007 and 2006 periods is summarized as follows (in thousands):

	Six months			Six months
	ended			ended
	June 30, 2007			June 30, 2006
Net cash provided by operating activities	$	76		$	254
Net 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

     In the six months ended June 30, 2007, approximately $76,000 of cash was provided by operating activities. Non-cash depreciation and amortization expense was approximately $204,000 in the 2007 period compared to approximately $265,000 in the 2006 period. This decrease is primarily associated with the decrease in the amortization of the Adenta intangible assets acquired in June of 2005 after the impairment of the Adenta intangible asset associated with the Humana Dental network lease contract in July of 2006. In addition, approximately $75,000 of cash was used related to income taxes.

     In the 2007 period, accounts receivable decreased by approximately $45,000 due to more effective accounts receivable collection activities. Our claims payable liability decreased by approximately $753,000 in the 2007 period, from $3,988,000 at December 31, 2006 to $3,235,000 at June 30, 2007. This decrease is primarily due to a $900,000 board-approved payment to our Dental Care Plus participating providers in respect of claim amounts withheld in 2006. The increase in our unearned premium liability of approximately $375,000 is also associated with an increase in monthly billings along with the earlier payment of premiums by employer groups in June of 2007 compared to December of 2006. Accounts payable and accrued expenses decreased by approximately $92,000 in the 2007 period primarily due to a decrease in accrued broker commissions. The remaining effects of changes in operating assets and liabilities represent fluctuations in these assets and liabilities that are not unusual and are consistent with the 2006 period.

Cash Flow from Investing Activities

     In the six months ended June 30, 2007, we invested approximately $91,000 in building improvements, furniture and fixtures and computer equipment. In addition, seven of the Company’s FDIC insured certificates of deposit matured and the proceeds were reinvested.

Cash Flow from Financing Activities

     In the six months ended June 30, 2007, we made the scheduled principal payments of $60,000 related to our office building mortgage, approximately $104,000 related to our capital lease financing for our new dental administration system, and approximately $55,000 related to our Adenta note payable. During the 2007 period we also repurchased Redeemable Common Shares with a value of approximately $44,000, which was offset by the issuance of Redeemable

16

Common Shares with a value of approximately $153,000. There were no new financing commitments executed in the 2007 period.

Provider Withhold Funds

     In most cases, the fees of our participating providers for covered dental services under the dental HMO are subject to a 10% withhold by us. Accordingly, our dental HMO network providers are paid 90% of the agreed fees for covered services as set forth on the applicable fee schedule. The amounts withheld are not retained in a separate fund and we have no obligation to pay any portion of the amounts withheld to the providers. The dental providers have no vested rights in the amounts withheld unless our Board of Directors authorizes that any amounts withheld shall be paid to the providers, and then vesting is only to the extent of such amounts authorized to be paid by the Board. Once authorized for payment by the Board, such amounts are recorded as claims payable liabilities until paid.

     In the 2007 period, we paid $900,000 to participating providers that was authorized by the Board in December of 2006. In the 2006 period, we paid $300,000 to participating providers that was authorized by the Board in December of 2005.

Financial Condition

     Our consolidated cash and short-term investments were approximately $6.1 million at June 30, 2007. Our consolidated cash and short-term investments decreased by approximately $500,000 from approximately $7.3 million as of December 31, 2006 to approximately $6.8 million as of June 30, 2007. Based on total expenses for the six months ended June 30, 2007, we estimate that we had approximately 42 days of cash and short-term investments on hand at June 30, 2007.

     This decrease in cash and short-term investments from December 31, 2006 to June 30, 2007 is primarily due to the $76,000 of cash provided by operating activities, the $91,000 of cash used in investing activities and the $110,000 of cash used in financing activities discussed above along with a shift of approximately $454,000 in investments from short term investments to long-term investments during this period. We expect to generate positive cash flow from operations during the balance of 2007.

     On January 3, 2006 we entered into an agreement with a commercial bank for a $500,000 working capital line of credit. Interest is payable based on the prime borrowing rate that was 8.25% as of June 30, 2007. The Company paid interest expense of $158 in 2006 and incurred no interest expense in the 2007 period related to this line of credit. As of June 30, 2007, there was no amount outstanding on this line of credit.

     Together, our premium revenues, cash, short term investments and working capital line of credit we believe are sufficient to meet our short term and long term liquidity needs. In the short term, we are obligated to make payments related to our contractual obligations such as our building mortgage, computer system capital lease, and our operating leases and other commitments. In the long term, we will continue to be obligated to make payments related to our contractual obligations delineated above. We will also be obligated in certain circumstances to repurchase the Redeemable Common Shares of our provider shareholders who die, are permanently disabled, or retire. Our Board of Directors establishes limitations on the amount of share redemptions each year. While we are not able to estimate future Redeemable Common June 30, 2007, we believe our cash balances, investment securities, operating cash flows, and borrowing capacity, taken together, provide adequate resources to fund ongoing operating and regulatory requirements and fund future expansion opportunities and capital expenditures in the foreseeable future.

     We operate as a holding company in a highly regulated industry. We are primarily dependent upon management fees that we receive from our subsidiaries. We also receive dividends from our subsidiaries from time to time. The dividends from our subsidiary, Dental Care Plus, are subject to regulatory restrictions.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

     Market risk is the risk that we will incur investment losses or increased interest expense due to adverse changes in market rates and prices. Our market risk exposures are substantially related to our investment portfolio and the impact of interest rate changes on these securities. In addition, interest rate changes can affect future interest expense for debt obligations that have a variable rate of interest associated with them.

     At June 30, 2007 and December 31, 2006, our investment portfolio consisted solely of FDIC-insured bank certificates of deposit and U.S. government security mutual funds. We have evaluated the impact on the fixed maturity portfolio’s fair value considering an immediate 100 basis point change in interest rates. A 100 basis point increase in interest rates would result in an approximate $1,330 decrease in fair value, whereas a 100 basis point decrease in interest rates would result in an approximate $1,330 increase in fair value. While the certificates of deposit with a cost of $1,900,000 at June 30, 2007 and $1,900,000 at December 31, 2006 are all classified as available for sale, our practice has

17

been to hold these certificates of deposit to their maturity dates, thus avoiding the realization of any unrealized losses associated with these investments due to recent interest rate increases.

     At June 30, 2007 and December 31, 2006, we had a mortgage note with a bank with an outstanding principal balance of $1,320,000 and $1,380,000, respectively, with a variable rate based on LIBOR plus 1.75%. However, in June of 2003 we entered into a variable to fixed interest rate swap contract that effectively eliminated the interest rate risk exposure on all but $300,000 of the outstanding loan principal. Management estimates that a 100 basis point increase in interest rates would decrease our annual pre-tax earnings by $3,000.

     There have been no material changes in our exposures to market risk for the period ended June 30, 2007.

ITEM 4. CONTROLS AND PROCEDURES

     An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Securities and Exchange Act Rules 13a-15(e) and 15d-15(e)) as of June 30, 2007. Based on the evaluation, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2007.

18

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     We are not a party to any pending legal proceedings that we believe would, individually or in the aggregate, have a material adverse effect on our financial condition, results of operations or cash flows.

ITEM 1A. RISK FACTORS

     There have been no material changes to the factors disclosed in Item 1A. Risk Factors in our Registration Statement on Form 10-K filed on March 30, 2007.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

     There have been no additional unregistered sales of equity securities in the quarter ended June 30, 2007 other than those previously reported on a Form 8K.

     We repurchased and retired 3 Class A Redeemable Common Shares and 45 Class B Redeemable Common Shares during the three months ended June 30, as follows:

Total Number

of Shares

Purchased as

Maximum

Part of a

Number of Shares

Publicly

that May Yet Be

Total Class A

Total Class B

Average price

Announced

Purchased Under

shares

shares

paid

Plans or

the Plans or

Period

purchased

purchased

per share

Programs

Programs

April 1 – April 30, 2007

3

(a)

45

(a)

$

538.38

0

N/A

May 1 – May 31, 2007

0

0

N/A

0

N/A

June 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

     None.

19

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     The Company’s annual meeting of shareholders was held on April 25, 2007. At the meeting, the shareholders voted to re-elect certain persons to the Board of Directors for a term expiring at the 2009 annual meeting of shareholders. The individuals listed below were elected to the Company’s Board of Directors, each to hold office until the designated annual meeting or until his successor is elected and qualified, or until his earlier resignation. The table below indicates the votes for, votes withheld as well as shares not voted for the election of the six nominees.

Names	For		Withheld		Not Voted
Fred J. Bronson, DDS		342		20		304
Jack M. Cook, MHA		341		21		304
Fred H. Peck, DDS		341		21		304
Molly Meakin-Rogers, MBA, CPA		341		21		304
Stephen T. Schuler, DMD		341		22		303
Mark Zigoris, DDS		340		22		304

     The following are the names of each other director whose term of office as a director continued after the 2007 annual meeting of shareholders (in this case, for terms expiring at the 2008 annual meeting of shareholders):

Names

Ross A. Geiger

Roger M. Higley, DDS

David A. Kreyling, DMD

Donald J. Peak, CPA

Sanford S. Scheingold, DDS

Michael Carl, DDS

James E. Kroeger, MBA, CPA

ITEM 5. OTHER INFORMATION

     None.

20

ITEM 6. EXHIBITS

Exhibits
31.1	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

     Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned therein to duly authorized.

	DCP HOLDING COMPANY
August 10, 2007	By:	/s/Robert C. Hodgkins, Jr.
		Robert C. Hodgkins, Jr.
		Vice President and Chief Financial Officer

21

INDEX TO EXHIBITS

Exhibit No.	Item
31.1	Certifications pursuant to Section 302 of Sarbanes-Oxley Act of 2002
31.2	Certifications pursuant to Section 302 of Sarbanes-Oxley Act of 2002
32	Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002