FORM 10--Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-8527
DIALYSIS CORPORATION OF AMERICA
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(Exact name of registrant as specified in its charter)
Florida 59-1757642
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
27 Miller Street, Lemoyne, Pennsylvania 17043
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(Address of principal executive offices) (Zip Code)
(717) 730-6164
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(Former name, former address and former fiscal year, if changed
since last report)
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 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.
Yes [x] or No [ ]
Common Stock Outstanding
Common Stock, $.01 par value - 3,912,844 shares as of April 30, 2001.
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
INDEX
PART I -- FINANCIAL INFORMATION
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The Consolidated Condensed Statements of Operations (Unaudited) for the
three months ended March 31, 2001 and March 31, 2000 include the accounts of
the Registrant and its subsidiaries.
Item 1. Financial Statements
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1) Consolidated Condensed Statements of Operations for the three months
ended March 31, 2001 and March 31, 2000.
2) Consolidated Condensed Balance Sheets as of March 31, 2001 and
December 31, 2000.
3) Consolidated Condensed Statements of Cash Flows for the three months
ended March 31, 2001 and March 31, 2000.
4) Notes to Consolidated Condensed Financial Statements as of March 31,
2001.
Item 2. Management's Discussion and Analysis of Financial Condition and
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Results of Operations
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PART II -- OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K
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PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
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DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
March 31,
-----------------------
2001 2000
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Revenues:
Medical service revenue $3,796,149 $1,691,510
Interest and other income 123,917 98,854
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3,920,066 1,790,364
Cost and expenses:
Cost of medical services 2,460,359 1,130,308
Selling, general and administrative expenses 1,211,857 855,748
Interest expense 38,912 16,497
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3,711,128 2,002,553
Income (loss) before income taxes and
equity in affiliate loss 208,938 (212,189)
Income tax provision 17,821 16,696
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Income (loss) before equity in affiliate loss 191,117 (228,885)
Equity in affiliate loss (41,155) ---
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Net income (loss) $ 149,962 $ (228,885)
========== ==========
Earnings (loss) per share:
Basic $.04 $(.06)
==== =====
Diluted $.04 $(.06)
==== =====
See notes to consolidated condensed financial statements.
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2001 2000(A)
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(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 8,013 $ 793,666
Accounts receivable, less allowance
of $350,000 at March 31, 2001;
$306,000 at December 31, 2000 2,562,061 1,692,592
Note receivable from parent 2,200,000 2,200,000
Inventories 429,510 334,127
Prepaid expenses and other current assets 629,587 468,001
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Total current assets 5,829,171 5,488,386
Property and equipment:
Land 376,211 376,211
Buildings and improvements 2,215,579 2,207,447
Machinery and equipment 2,992,284 2,914,010
Leasehold improvements 1,747,235 1,720,625
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7,331,309 7,218,293
Less accumulated depreciation and amortization 2,230,919 2,048,148
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5,100,390 5,170,145
Advances to parent 349,425 414,339
Deferred expenses and other assets 208,616 104,512
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$11,487,602 $11,177,382
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 471,535 $ 553,704
Accrued expenses 1,033,462 689,600
Current portion of long-term debt 256,917 295,031
Income taxes payable 100,438 81,451
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Total current liabilities 1,862,352 1,619,786
Long-term debt, less current portion 1,736,267 1,755,228
Minority interest in subsidiaries 3,060 3,060
Commitments
Stockholders' equity:
Common stock, $.01 par value, authorized
20,000,000 shares; issued and outstanding
3,912,844 shares at March 31, 2001 and
3,979,844 shares at December 31, 2000 39,128 39,798
Capital in excess of par value 5,220,908 5,283,585
Retained earnings 3,047,487 2,897,525
Notes receivable from options exercised (421,600) (421,600)
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Total stockholders' equity 7,885,923 7,799,308
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$11,487,602 $11,177,382
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(A) Reference is made to the Company's Annual Report on Form 10-K for the
year ended December 31, 2000 filed with the Securities and Exchange
Commission in March 2001.
See notes to consolidated financial statements.
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31,
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2001 2000
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Operating activities:
Net income (loss) $ 149,962 $ (228,885)
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation 182,771 142,675
Amortization 583 583
Bad debt expense 73,371 42,531
Equity in affiliate loss 41,155 ---
Increase (decrease) relating to operating
activities from:
Accounts receivable (942,840) (67,558)
Inventories (95,383) (5,480)
Prepaid expenses and other current assets (161,586) 156,992
Accounts payable (82,169) (138,100)
Accrued expenses 343,862 42,670
Income tax payable 18,987 ---
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Net cash used in operating activities (471,287) (54,572)
Investing activities:
Additions to property and equipment, net of
minor disposals (113,016) (297,843)
Loan to parent --- (2,000,000)
Loan to subsidiary medical director practice (20,000) ---
Investment in affiliate (123,011) ---
Deferred expenses and other assets (2,831) (250)
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Net cash used in investing activities (258,858) (2,298,093)
Financing activities:
Decrease (increase) in advances to parent 64,914 (75,958)
Repurchase of stock (63,347) ---
Payments on long-term debt (57,075) (46,629)
Exercise of warrants --- 712,215
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Net cash (used in) provided by
financing activities (55,508) 589,628
Decrease in cash and cash equivalents (785,653) (1,763,037)
Cash and cash equivalents at beginning of period 793,666 3,659,390
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Cash and cash equivalents at end of period $ 8,013 $ 1,896,353
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See notes to consolidated condensed financial statements.
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 2001
(Unaudited)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include the accounts of Dialysis
Corporation of America ("DCA") and its subsidiaries, collectively referred to
as the "Company". All material intercompany accounts and transactions have
been eliminated in consolidation. The Company is a 61.6% owned subsidiary of
Medicore, Inc. (the "Parent"). See Note 5.
Government Regulation
A majority of the Company's revenues are attributable to payments
received under Medicare, which is supplemented by Medicaid or comparable
benefits in the states in which the Company operates. Reimbursement rates
under these programs are subject to regulatory changes and governmental
funding restrictions. Although the Company is not aware of any future rate
changes, significant changes in reimbursement rates could have a material
effect on the Company's operations. The Company believes that it is
presently in compliance with all applicable laws and regulations.
Interest and Other Income
Interest and other income is comprised as follows:
Three Months Ended
March 31,
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2001 2000
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Rental income $ 41,545 $ 38,492
Interest income from Medicore 58,697 28,188
Other interest income 13,185 27,240
Other income 10,490 4,934
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$ 123,917 $ 98,854
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Earnings (Loss) per Share
Diluted earnings (loss) per share gives effect to potential common shares
that were dilutive and outstanding during the period, such as stock options
and warrants, calculated using the treasury stock method and average market
price. No potentially dilutive securities were included in the diluted
earnings per share computation for the three months ended March 31, 2001 or
for the same period of the preceding year, as a result of exercise prices,
and for 2000 the net loss, and to include them would be anti-dilutive.
Following is a reconciliation of amounts used in the basic and diluted
computations:
Three Months Ended
March 31,
-----------------------
2001 2000
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Net income (loss) $ 149,962 $ (228,885)
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Weighted average shares 3,979,844
3,582,080
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Earnings (loss) per share:
Basic $.04 $(.06)
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Diluted $.04 $(.06)
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The Company has various potentially dilutive securities, including stock
options and warrants. See Notes 6 and 7.
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 2001
(Unaudited)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
Comprehensive Income (Loss)
Comprehensive income (loss) consists of net income (loss) for the three
months ended March 31, 2001, and for the same period of the preceding year.
New Pronouncements
In June, 1998, the Financial Accounting Standards Board issued Financial
Accounting Standards Board Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities (FAS 133). FAS 133 is effective for
fiscal quarters of fiscal years beginning after June 15, 2000. FAS 133
establishes accounting and reporting standards for derivative instruments
and for hedging activities and requires, among other things, that all
derivatives be recognized as either assets or liabilities in the statement
of financial position and that these instruments be measured at fair value.
Since the Company does not presently utilize derivative financial instruments,
the adoption of FAS 133 has had no effect on its results of operations,
financial position or cash flows.
NOTE 2--INTERIM ADJUSTMENTS
The financial summaries for the three months ended March 31, 2001 and
March 31, 2000 are unaudited and include, in the opinion of management of the
Company, all adjustments (consisting of normal recurring accruals) necessary
to present fairly the earnings for such periods. Operating results for the
three months ended March 31, 2001 are not necessarily indicative of the results
that may be expected for the entire year ending December 31, 2001.
While the Company believes that the disclosures presented are adequate to
make the information not misleading, it is suggested that these Consolidated
Condensed Financial Statements be read in conjunction with the financial
statements and notes included in the Company's audited financial statements
for the year ended December 31, 2000.
NOTE 3--LONG-TERM DEBT
In December 1988, the Company obtained a $480,000 fifteen-year mortgage
through November 2003 on its building in Lemoyne, Pennsylvania with interest
at 1% over the prime rate. The remaining principal balance under this
mortgage amounted to approximately $85,000 and $93,000 at March 31, 2001 and
December 31, 2000, respectively. Also in December 1988, the Company obtained
a $600,000 mortgage on its building in Easton, Maryland on the same terms as
the Lemoyne property. The remaining principal balance under this mortgage
amounted to approximately $107,000 and $117,000 at March 31, 2001 and December
31, 2000, respectively.
The Company through its subsidiary, DCA of Vineland, LLC, pursuant to a
December 3, 1999 loan agreement obtained a $700,000 development and equipment
line of credit with interest at 8.75% which is secured by the acquired assets
of DCA of Vineland and a second mortgage on the Company's real property in
Easton, Maryland on which an affiliated bank holds the first mortgage.
Outstanding borrowings are subject to monthly payments of interest only
through December 2001 with monthly payments thereafter of principal and
interest totaling $6,186 with any remaining balance due September 2, 2003.
This loan had an outstanding principal balance of $700,000 at March 31, 2001
and December 31, 2000.
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 2001
(Unaudited)
NOTE 3--LONG-TERM DEBT--Continued
The Company has an equipment purchase agreement for kidney dialysis
machines at its facilities with interest at rates ranging from 4.14% to
10.48% pursuant to various schedules extending through August 2005.
Financing under this agreement represents a noncash financing activity which
is a supplemental disclosure required by FAS 95, "Statement of Cash Flows."
The remaining principal balance under this agreement amounted to approximately
$1,101,000 and $1,140,000 at March 31, 2001 and December 31, 2000,
respectively.
In April 2001, the Company obtained a $788,000 five-year mortgage through
April 1, 2006 on its building in Valdosta, Georgia with interest at 8.29%.
Payments are $6,800 including principal and interest commencing May, 2001, with
a balloon payment and any unpaid interest due April 2006.
The prime rate was 8% as of March 31, 2001 and 9.5% as of December 31,
2000.
Interest payments on long-term debt amounted to approximately $26,000 for
the three months ended March 31, 2001 and $10,000 for the same period of the
preceding year.
NOTE 4--INCOME TAXES
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. For financial
reporting purposes, a valuation allowance has been recognized to offset
deferred tax assets.
Income tax payments (refunds) amounted to approximately $1,000 for the
three months ended March 31, 2001 and ($109,000) for the same period of the
preceding year.
NOTE 5--TRANSACTIONS WITH PARENT
The Parent provides certain financial and administrative services to
the Company. Central operating costs are charged on the basis of direct
usage, when identifiable, or on the basis of time spent. The amount of
expenses allocated by the Parent totaled approximately $50,000 for the
three months ended March 31, 2001, and for the same period of the preceding
year.
The Company had an intercompany advance receivable from the Parent of
approximately $349,000 and $414,000 at March 31, 2001 and December 31, 2000,
respectively, which bears interest at the short-term Treasury Bill rate.
Interest income on the intercompany advance receivable amounted to approxi-
mately $4,000 for the three months ended March 31, 2001 and $1,000 for the
same period of the preceding year. Interest is included in the intercompany
advance balance. The Company has agreed not to require repayment of the
intercompany advance receivable balance prior to April 1, 2002; therefore,
the advance has been classified as long-term at March 31, 2001.
On January 27, 2000, the Company's Parent acquired a 6% interest in Linux
Global Partners ("LGP"), a private holding company investing in Linux software
companies, and loaned LGP $1,500,000 with a 10% annual interest rate. The
Parent obtained an option to acquire an additional 2% interest in conjunction
with loaning $500,000 more to LGP, which 2% interest it acquired and
additional loan it made on March 27, 2000. The loans were originally
scheduled to mature January 26, 2001. On August 9, 2000, the Parent loaned
LGP an additional $200,000 with an annual interest rate of 10% originally
scheduled to mature in 30 days with the maturity having been extended. To
assist LGP in achieving its long-term investment objectives, the Company's
Parent agreed to extend the maturity of its notes receivable from LGP to June
30, 2001 for additional consideration consisting of 400,000 additional shares
of LGP stock and the right to convert all or part of the loans into Convertible
Preferred A shares of LGP with the same terms and conditions as a private
placement of its securities in process by LGP. Additionally, LGP has agreed
to repay all monies owed to the Parent prior to any other use of its private
placement proceeds if the Parent chooses not to convert the loans. The
Parent borrowed the funds it utilized for the loans from the Company with an
annual interest rate of 10%. The maturity of the Company's notes receivable
from the
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 2001
(Unaudited)
NOTE 5--TRANSACTIONS WITH PARENT--Continued
Parent have also been extended to June 30, 2001. Interest income on the notes
receivable from the Parent, which have the same terms as the Parent's loans
to LGP, amounted to approximately $54,000 for the three months ended March 31,
2001 and $27,000 for the same period of the preceding year. Interest
receivable on the note from the Parent amounted to approximately $240,000 at
March 31, 2001 and $186,000 at December 31, 2000 and is included in prepaid
expenses and other current assets. In January 2000, the Parent issued options
to purchase 150,000 shares of its common stock as a finder's fee in conjunction
with the Parent's investment in LGP. On May 14, 2001, our Parent received
$215,500 from LGP as repayment of the $200,000 loan with $15,500 of accrued
interest, which the Parent is repaying to us.
NOTE 6--STOCK OPTIONS
In April 1999, the Company adopted a stock option plan pursuant to which
the board of directors granted 800,000 options exercisable at $1.25 per share
to certain of it officers, directors, employees and consultants with 340,000
options exercisable through April 20, 2000 and 460,000 options exercisable
through April 20, 2004. In April 2000, the 340,000 one-year options were
exercised for which DCA received cash payment of the par value and the balance
in three-year promissory notes with the interest at 6.2%. On January 2, 2001
the Company's board of directors granted to the Company's president a five-year
option for 165,000 shares exercisable at $1.25 per share with 33,000 options
vesting January 2001 and 33,000 options vesting January 1 for each of the next
4 years.
NOTE 7--COMMON STOCK
Pursuant to a 1996 public offering, 1,150,000 shares of common stock were
issued, including 150,000 shares from exercise of the underwriters over-
allotment option, and 2,300,000 redeemable common stock purchase warrants to
purchase one common share each at an exercise price of $4.50 originally
exercisable through April 16, 1999 and extended to June 30, 2000, at which
time the remaining options expired. During 2000, approximately 170,000
warrants were exercised with net proceeds to the Company of approximately
$765,000. The underwriters received options to purchase 100,000 units each
consisting of one share of common stock and two common stock purchase warrants,
for a total of 100,000 shares of common stock and 200,000 common stock purchase
warrants, with the options exercisable at $4.50 per unit from April 17, 1997
through April 16, 2001 with the underlying warrants being substantially
identical to the public warrants except that they are exercisable at $5.40 per
share.
NOTE 8--REPURCHASE OF COMMON STOCK
In September 2000, the Company announced its intent to repurchase up to
an additional 300,000 shares of its common stock at current market prices.
The Company repurchased and cancelled approximately 77,000 shares in the
fourth quarter of 2000 with a repurchase cost of approximately $65,000 and
repurchased and cancelled an additional 67,000 shares in the first quarter
of 2001 at a cost of approximately $63,000.
NOTE 9--COMMITMENTS AND CONTINGENCIES
The Company has a 401(k) savings plan (salary deferral plan) with an
eligibility requirement of one year of service and a 21 year old age
requirement. The Company has made no contributions under this plan as of
March 31, 2001.
Item 2. Management's Discussion and Analysis of Financial Condition and
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Results of Operations
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Forward-Looking Information
The statements contained in this Quarterly Report on Form 10-Q that are
not historical are forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange
Act of the 1934. The Private Securities Litigation Reform Act of 1995
contains certain safe harbors for forward-looking statements. Certain of the
forward-looking statements include management's expectations, intentions,
beliefs and strategies regarding the future of the Company's growth and
operations, the character and development of the dialysis industry,
anticipated revenues, our need for and sources of funding for expansion
opportunities and construction, expenditures, costs and income and similar
expressions concerning matters that are not considered historical facts.
Forward-looking statements also include our statements regarding liquidity,
anticipated cash needs and availability, and anticipated expense levels in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." Such forward-looking statements are subject to substantial
risks and uncertainties that could cause actual results to materially differ
from those expressed in the statements, including the general economic,
market and business conditions, opportunities pursued or not pursued by the
Company, competition, changes in federal and state laws or regulations
affecting our operations, and other factors discussed periodically in the
Company's filings. Many of the foregoing factors are beyond our control.
Among the factors that could cause actual results to differ materially are
the factors detailed in the risks discussed in the "Risk Factors" section
included in the Company's Registration Statement Form SB-2, as filed with the
Securities and Exchange Commission (effective April 17, 1996), and Form S-3,
effective July 1, 1999, and as amended or supplemented. Accordingly, readers
are cautioned not to place undue reliance on such forward-looking statements,
which speak only as of the date made and which the Company undertakes no
obligation to revise to reflect events after the date made.
Essential to the Company is Medicare reimbursement which is a fixed rate
determined by the Health Care Financing Administration ("HCFA"). The level
of the Company's revenues and profitability may be adversely affected by
potential legislation resulting in rate cuts. Additionally, operating costs
tend to increase over the years without any comparable increases, if any, in
the prescribed dialysis treatment reimbursement rates, which usually remain
fixed and have decreased over the years. There also may be reductions in
commercial third-party reimbursement rates.
The dialysis industry is highly competitive and subject to extensive
regulation. There are a variety of anti-kickback regulations, extensive
prohibitions relating to self-referrals, violations of which are punishable
by criminal or civil penalties, including exclusion from Medicare and other
governmental programs. Although we have never been challenged under these
regulations and we believe we comply in all material respects with such laws
and regulations, there can be no assurance that there will not be
unanticipated changes in healthcare programs or laws or that we will not be
required to change our practices or experience material adverse effects as a
result of any such challenges or changes. Significant competitive factors
include quality of care and service, convenience of location and pleasant
environment. Additionally, there is intense competition for retaining
qualified nephrologists, who normally are the main source of patients for
and are responsible for the supervision of the dialysis centers. There is
also substantial competition for obtaining qualified nurses and technical
staff. Major companies, some of which are public companies or divisions of
public companies, have many more centers, physicians and financial resources
than we do, and by virtue of such have a significant advantage in competing
for acquisitions of dialysis facilities in areas targeted by the Company.
Our growth depends primarily on the availability of suitable dialysis
centers for acquisition or development in appropriate areas, and our ability
to compete with larger companies with greater personnel and financial
resources to develop these new potential dialysis centers at costs within our
budget. Our ability to retain qualified nephrologists, nursing and technical
staff at reasonable rates is also a significant factor. Management continues
to negotiate with nephrologists for the acquisition or development of new
dialysis facilities, as well as with hospitals and other health care
maintenance entities. We opened our sixth center in Vineland, New Jersey in
February, 2000 and two centers in Georgia in November 2000. We have begun
development of two additional centers in Georgia. A center in Ohio which we
manage and in which we hold a minority interest (40%) opened in February 2001.
There is no certainty as to when the new centers will commence operations, or
the number of stations or patient treatments which will result, or if the
centers will ultimately be profitable. Newly established dialysis centers,
although contributing to increased revenues, initially adversely affect
results of operations due to start-up costs and expenses with a smaller
developing patient base.
Results of Operations
Medical service revenues increased approximately $2,105,000 (124%) for
the three months ended March 31, 2001 compared to the same period of the
preceding year. This increase reflects increased revenues of our Pennsylvania
dialysis centers of approximately $381,000, increased revenues of approxi-
mately $630,000 for our New Jersey centers, and revenues of approximately
$1,094,000 for our new Georgia centers in Valdosta and Homerville, Georgia.
Although the operations of new centers have resulted in additional revenues,
some are still in the developmental stage and, accordingly, their operating
results will adversely affect results of operations until they achieve a
sufficient patient count to cover fixed operating costs.
Interest and other income increased by approximately $25,000 for the
three months ended March 31, 2001 compared to the same period of the
preceding year. This increase includes an increase of $31,000 in interest
from our Parent, including interest on a note receivable and an advance
receivable, interest on stock option notes receivable of $6,000 and a net
decrease in other interest income of $12,000 as a result of a reduction in
invested funds. See Note 1 to "Notes to Consolidated Condensed Financial
Statements."
Cost of medical services sales as a percentage of sales decreased to 65%
for the three months ended March 31, 2001 compared to 67% for the same period
of the preceding year, reflecting a decrease in healthcare salaries as a
percentage of sales which more than offset a small increase in supply costs as
a percentage of sales.
Selling, general and administrative expenses increased by approximately
$356,000 (42%) for the three months ended March 31, 2001 compared to the same
period of the preceding year. This increase reflected operations of our new
dialysis centers in Georgia, as well as increased support activities resulting
from expanded operations. Selling general and administrative expenses as a
percent of medical service revenues amounted to 32% for the three months ended
March 31, 2001, and 51% the same period for the preceding year.
Interest expense increased by approximately $22,000 for the three months
ended March 31, 2001 compared to the same period of the preceding year
primarily as a result of additional equipment financing agreements and the
Vineland loan.
Liquidity and Capital Resources
Working capital totaled $3,967,000 at March 31, 2001, which reflected an
increase of approximately $98,000 (3%) during the three months ended March 31,
2001. Included in the changes in components of working capital was a decrease
in cash and cash equivalents of $786,000, which included net cash used in
operating activities of $471,000, net cash used in investing activities of
$259,000 (including additions to property and equipment of $113,000, and
investment in the Company's 40% owned Ohio affiliate of $123,000), and net
cash used in financing activities of $56,000 (including a decrease in advances
to our Parent of $64,000, debt repayments of $57,000 and repurchases of stock
of $63,000).
We opened our sixth center in Vineland, New Jersey in February, 2000, and
our seventh and eighth centers in Georgia in November, 2000. A center in Ohio
which we manage and in which we hold a minority interest (40%), opened in
February, 2001.
Capital is needed primarily for the development of outpatient dialysis
centers. The construction of a 15 station facility, typically the size of our
dialysis facilities, costs in the range of $600,000 to $750,000 depending on
location, size and related services to be provided, which includes equipment
and initial working capital requirements. Acquisition of an existing dialysis
facility is more expensive than construction, although acquisition would
provide us with an immediate ongoing operation, which most likely would be
generating income. We presently plan to expand our operations through
construction of new centers, rather than acquisition. Development of a
dialysis facility to initiate operations takes four to six months and usually
12 months or longer to generate income. We are seeking to expand our
outpatient dialysis treatment facilities and inpatient dialysis care. Such
expansion requires capital. We have begun development of two new Georgia
centers, one located in Fitzgerald, and another in Valdosta, which is our
second Valdosta center. We are presently in different phases of negotia-
tions with physicians for additional outpatient centers. No assurance can
be given that we will be successful in implementing our growth strategy or
that financing will be available to support such expansion.
In January 2000, we loaned $1,500,000 to our parent, Medicore, Inc., at
an annual interest rate of 10%, with the loan and accrued interest originally
scheduled to be repaid on January 26, 2001. Our parent utilized this loan to
fund a loan by it to Linux Global Partners, which invests in Linux software
companies, in conjunction with which our parent acquired a 6% ownership
interest in Linux, which increased to 8% in March, 2000, for which increase
our parent borrowed an additional $500,000 from us on the same terms as the
original loan to fund a loan of the same amount to Linux Global Partners. On
August 9, 2000, our parent borrowed an additional $200,000 at 10% interest,
which additional funds it loaned to Linux Global Partners on the same terms.
Medicore extended the maturity of the loans to Linux Global Partners to June
30, 2001 for additional consideration from Linux Global Partners. The
maturity of the company's loans to the parent have been similarly extended.
On May 14, 2001, our Parent received from Linux Global Partners $215,500 as
repayment of the $200,000 loan with accrued interest, which our Parent is
repaying to us. See Note 5 to "Notes to Consolidated Condensed Financial
Statements." Thomas K. Langbein, Chairman of the Board and CEO of our
company and our parent, of which company he is also the President, is a
director of Linux Global Partners.
In September, 2000, the company announced its intent to repurchase up to
approximately 300,000 of its outstanding shares. As of March 31, 2001,
approximately 144,000 shares have been repurchased for cancellation at a cost
of $128,000. See Note 8 to "Notes to Consolidated Condensed Financial
Statements."
We have mortgages on two of our buildings, one in Lemoyne, Pennsylvania
and the other in Easton, Maryland, with a combined balance of approximately
$192,000 at March 31, 2001 and $210,000 at December 31, 2000. In April 2001,
we obtained a $788,000 five-year mortgage on our building in Valdosta,
Georgia. See Note 3 to "Notes to Consolidated Condensed Financial Statements."
We have an equipment financing agreement for kidney dialysis machines
for our facilities, which had an outstanding balance of approximately
$1,101,000 at March 31, 2001 and $1,140,000 at December 31, 2000. We through
our subsidiary, DCA of Vineland, LLC, have a $700,000 development and equipment
loan secured by the acquired assets of DCA of Vineland and a second mortgage
on our real property in Easton, Maryland. This loan had an outstanding balance
of $700,000 as of March 31, 2001 and December 31, 2000. See Note 3 to "Notes
to Consolidated Condensed Financial Statements."
Inflation
Inflationary factors have not had a significant effect on our operations.
A substantial portion of our revenue is subject to reimbursement rates
established and regulated by the federal government. These rates do not
automatically adjust for inflation. Any rate adjustments relate to legislation
and executive and Congressional budget demands, and have little to do with the
actual cost of doing business. Therefore, dialysis services revenues cannot be
voluntary increased to keep pace with increases in nursing and other patient
care costs. Increased operating costs without a corresponding increase in
reimbursement rates may adversely affect our earnings in the future.
PART II -- OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K.
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(a) Exhibits
Part I Exhibits
None
Part II Exhibits
None
(b) Reports on Form 8-K
(i) March 5, 2001, "Item 5. Other Events" re: subsidiary lease.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
DIALYSIS CORPORATION OF AMERICA
/s/ Daniel R. Ouzts
By:---------------------------------------
DANIEL R. OUZTS, Vice President/Finance
Controller and Chief Financial Officer
Dated: May 14, 2001