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, 2003
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
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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.)
1344 Ashton Road, Hanover, Maryland 21076
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(Address of principal executive offices) (Zip Code)
(410) 694-0500
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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 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 [ ]
Indicate by check whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [ ] or No [X]
Common Stock Outstanding
Common Stock, $.01 par value - 3,966,986 shares as of April 30, 2003.
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
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INDEX
PART I -- FINANCIAL INFORMATION
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The Consolidated Condensed Statements of Income (Unaudited) for the
three months ended March 31, 2003 and March 31, 2002 include the accounts of
the Registrant and its subsidiaries.
Item 1. Financial Statements
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1) Consolidated Condensed Statements of Income for the three months
ended March 31, 2003 and March 31, 2002.
2) Consolidated Condensed Balance Sheets as of March 31, 2003 and
December 31, 2002.
3) Consolidated Condensed Statements of Cash Flows for the three months
ended March 31, 2003 and March 31, 2002.
4) Notes to Consolidated Condensed Financial Statements as of March 31,
2003.
Item 2. Management's Discussion and Analysis of Financial Condition and
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Results of Operations
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Item 3. Quantitative and Qualitative Disclosures about Market Risk
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Item 4. Controls and Procedures
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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
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Item 1. Financial Statements
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DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended
March 31,
------------------------
2003 2002
---- ----
Revenues:
Medical service revenue $6,737,951 $5,488,045
Interest and other income 141,067 117,794
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6,879,018 5,605,839
Cost and expenses:
Cost of medical services 4,202,613 3,394,661
Selling, general and administrative expenses 2,148,446 1,731,349
Provision for doubtful accounts 95,898 185,414
Interest expense 53,786 54,318
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6,500,743 5,365,742
Income before income taxes, minority interest
and equity in affiliate earnings 378,275 240,097
Income tax provision 183,265 118,735
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Income before minority interest and equity in
affiliate earnings 195,010 121,362
Minority interest in income
of consolidated subsidiaries 54,786 6,168
Equity in affiliate earnings 15,419 46,704
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Net income $ 155,643 $ 161,898
========== ==========
Earnings per share:
Basic $.04 $.04
==== ====
Diluted $.04 $.04
==== ====
See notes to consolidated condensed financial statements.
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
March 31, December 31,
2003 2002(A)
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(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 2,149,790 $ 2,571,916
Accounts receivable, less allowance
of $713,000 at March 31, 2003;
$831,000 at December 31, 2002 3,952,548 3,515,958
Inventories 969,827 877,058
Deferred income taxes 392,000 392,000
Prepaid expenses and other current assets 954,980 1,735,001
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Total current assets 8,419,145 9,091,933
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Property and equipment:
Land 376,211 376,211
Buildings and improvements 2,324,734 2,322,663
Machinery and equipment 5,546,402 5,232,632
Leasehold improvements 2,957,729 2,712,953
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11,205,076 10,644,459
Less accumulated depreciation and amortization 4,136,502 3,877,738
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7,068,574 6,766,721
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Goodwill 923,140 923,140
Other assets 416,059 372,190
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Total other assets 1,339,199 1,295,330
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$16,826,918 $17,153,984
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 868,047 $ 1,373,190
Accrued expenses 2,466,389 2,594,066
Current portion of long-term debt 557,000 532,000
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Total current liabilities 3,891,436 4,499,256
Long-term debt, less current portion 2,556,990 2,727,105
Advances from parent 68,458 ---
Deferred income taxes 28,000 28,000
Minority interest in subsidiaries 298,933 172,165
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Total liabilities 6,843,817 7,426,526
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Commitments
Stockholders' equity:
Common stock, $.01 par value, authorized
20,000,000 shares: 3,966,986 shares issued and
outstanding at March 31, 2003; 3,887,344 shares
issued and outstanding at December 31, 2002 39,670 38,873
Capital in excess of par value 5,285,783 5,186,580
Retained earnings 5,079,248 4,923,605
Notes receivable from options exercised (421,600) (421,600)
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Total stockholders' equity 9,983,101 9,727,458
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$16,826,918 $17,153,984
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(A) Reference is made to the company's Annual Report on Form 10-K for the year
ended December 31, 2002 filed with the Securities and Exchange Commission
in February, 2003.
See notes to consolidated condensed financial statements.
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31,
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2003 2002
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Operating activities:
Net income $ 155,643 $ 161,898
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation 271,821 254,231
Amortization 578 1,162
Bad debt expense 95,898 185,414
Minority interest 54,786 6,168
Equity in affiliate earnings (15,419) (46,704)
Increase (decrease) relating to
operating activities from:
Accounts receivable (532,488) (258,815)
Inventories (92,769) (76,412)
Prepaid expenses and other current assets 780,021 13,144
Accounts payable (505,143) (672,385)
Accrued expenses (27,677) 93,808
Income taxes payable --- (455,000)
Net cash provided by (used in)
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operating activities 185,251 (793,491)
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Investing activities:
Additions to property and equipment, net
of minor disposals (573,674) (226,670)
Distribution from affiliate 77,000 ---
Other assets 8,554 (10,896)
Sale of minority interest in subsidiaries 4,000 ---
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Net cash used in investing activities (484,120) (237,566)
Financing activities:
Advances with parent 68,458 50,973
Payments on long-term debt (145,115) (66,461)
Distribution to subsidiary minority member (46,600) ---
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Net cash used in financing activities (123,257) (15,488)
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Decrease in cash and cash equivalents (422,126) (1,046,545)
Cash and cash equivalents at beginning of period 2,571,916 2,479,447
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Cash and cash equivalents at end of period $2,149,790 $1,432,902
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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, 2003
(Unaudited)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The consolidated condensed financial statements include the accounts of
Dialysis Corporation of America and its subsidiaries, collectively referred
to as the "company" or "Dialysis Corporation of America." All material
intercompany accounts and transactions have been eliminated in consolidation.
The company is a 61% owned subsidiary of Medicore, Inc., sometimes referred
to as the "parent." See Note 5.
Government Regulation
A substantial portion of the company's revenues is 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.
Estimates
The preparation of 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 amounts reported
in the financial statements and accompanying notes.
The company's principal estimates are for estimated uncollectible
accounts receivable as provided for in our allowance for doubtful accounts,
estimated useful lives of depreciable assets, estimates for patient revenues
from non-contracted payors, and the valuation allowance for deferred tax
assets based on the estimated realizability of deferred tax assets. Our
estimates are based on historical experience and assumptions believed to be
reasonable given the available evidence at the time of the estimates.
Actual results could differ from those estimates.
Interest and Other Income
Interest and other income is comprised as follows:
Three Months Ended
March 31,
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2003 2002
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Rental income $ 44,002 $ 42,570
Interest income 12,943 13,881
Management fee income 73,060 51,160
Other income 11,062 10,183
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$ 141,067 $ 117,794
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DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 2003
(Unaudited)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
Earnings per Share
Diluted earnings per share gives effect to potential common shares that
were dilutive and outstanding during the period, such as stock options,
calculated using the treasury stock method and average market price.
Following is a reconciliation of amounts used in the basic and diluted
computations:
Three Months Ended
March 31,
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2003 2002
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Net income $ 155,643 $ 161,898
Weighted average shares-denominator
basic computation 3,947,518 3,887,344
Effect of dilutive stock options 392,432 436,047
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Weighted average shares, as adjusted-denominator
diluted computation 4,339,950 4,323,391
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Earnings per share:
Basic $.04 $.04
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Diluted $.04 $.04
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The company's potentially dilutive securities consist of stock options.
See Note 6.
Accrued Expenses
Accrued expenses is comprised as follows:
March 31, December 31,
2003 2002
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Accrued compensation $ 617,002 $ 800,318
Due to insurance companies 1,355,549 1,271,235
Other 493,838 522,513
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$ 2,466,389 $ 2,594,066
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Vendor Concentration
The company purchases erythropoietin (EPO) from one supplier which
comprised 37% of the company's cost of sales for the first quarter of 2003
and 32% for the same period of the preceding year. There is only one
supplier of EPO in the United States without alternative products available
to dialysis treatment providers. Revenues from the administration of EPO
comprised 28% of medical services revenue for the first quarter of 2003 and
24% for the same period of the preceding year.
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 2003
(Unaudited)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
Revenue Recognition
The company follows the guidelines of SEC Staff Accounting Bulletin No.
101, "Revenue Recognition in Financial Statements" (SAB 101). Medical service
revenues are recorded as services are rendered.
Goodwill
Goodwill represents cost in excess of net assets acquired. Pursuant to
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" (FAS 142), goodwill and intangible assets with indefinite
lives are no longer amortized but are reviewed annually (or more frequently
if impairment indicators are present) for impairment. Pursuant to the
provisions of FAS 142, the goodwill resulting from the company's acquisition
of a minority interest in August 2001 and the goodwill resulting from the
company's acquisition of a Georgia dialysis center in April 2002 are not being
amortized for book purposes and are subject to the annual impairment testing
provisions of FAS 142. See Note 8.
Stock-Based Compensation
The company follows the intrinsic method of Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and
related interpretations in accounting for its employee stock options because,
as discussed below, Financial Accounting Standards Board Statement No. 123,
"Accounting for Stock-Based Compensation" (FAS 123) requires use of option
valuation models that were not developed for use in valuing employee stock
options. FAS 123 permits a company to elect to follow the intrinsic method
of APB 25 rather than the alternative fair value accounting provided under
FAS 123, but requires pro forma net income and earnings per share disclosures
as well as various other disclosures not required under APB 25 for companies
following APB 25. The company has adopted the disclosure provisions required
under Financial Accounting Standards Board Statement No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure" (FAS 148). Under APB
25, because the exercise price of the company's stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense was recognized.
Pro forma information regarding net income and earnings per share is
required by FAS 123 and FAS 148, and has been determined as if the company had
accounted for its employee stock options under the fair value method of that
Statement. The fair value for these options was estimated at the date of
grant using a Black-Scholes option pricing model with the following weighted-
average assumptions for options granted during 2002 and 2001, respectively
and vesting during 2003: risk-free interest rate of 3.73% and 5.40%; no
dividend yield; volatility factor of the expected market price of the
company's common stock of 1.15 and 1.14, and a weighted-average expected life
of 5 years and 4 years. No options were granted during the first three
months of 2003. See Note 6.
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 2003
(Unaudited)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective input assumptions including
the expected stock price volatility. Because the company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable measure of the fair
value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of
options is amortized to expense over the options' vesting period. The
company's pro forma information follows:
Three Months Ended
March 31,
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2003 2002
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Net income, as reported $ 155,643 $ 161,898
Stock-based employee compensation expense
under fair value method, net of related
tax effects (15,414) (9,040)
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Pro forma net income $ 140,229 $ 152,858
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Earnings per share:
Basic, as reported $.04 $.04
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Basic, pro forma $.04 $.04
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Diluted, as reported $.04 $.04
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Diluted, pro forma $.03 $.04
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New Pronouncements
In June 2002, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" (FAS 146) which addresses the
accounting and reporting for costs associated with exit or disposal
activities. FAS 146 requires that a liability for a cost associated in an
exit or disposal activity be recognized when the liability is incurred rather
than being recognized at the date of an entity's commitment to an exit plan,
which had been the method of recognition under Emerging Issues Task Force
Issue No. 94-3, which FAS 146 supercedes. FAS 146, which is effective for
exit or disposal activities initiated after December 31, 2002, is not
expected to have a material impact on the company's results of operation,
financial position or cash flows.
In November, 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" (FIN 45), which elaborates on the
existing disclosure requirements for most guarantees and clarifies that at
the time a company issues a guarantee, it must recognize a liability for the
fair value of the obligations it assumes under the guarantee and must
disclose that information in its interim and annual financial statements.
The disclosure requirements of FIN 45 are effective for financial statements
for periods ending after December 15, 2002. The initial recognition and
measurement provisions of FIN 45 are
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 2003
(Unaudited)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
applicable on a prospective basis to guarantees issued or modified after
December 31, 2002. The company does not expect FIN 45 to have a material
impact on its financial position or results of operations.
In December, 2002, the FASB issued Statement of Financial Accounting
Standards No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure" (FAS 148), which amends FAS 123, "Accounting for Stock-Based
Compensation," to provide alternative methods of transition when voluntarily
changing to the fair value based method of accounting for stock-based
employee compensation. FAS 148 also amends FAS 123 disclosure requirements
to require prominent disclosures in annual and interim financial statements
about the method used to account for stock-based employee compensation and
its effect on results of operations. The company adopted the transition
guidance and annual disclosure provisions of FAS 148 commencing 2002 and has
adopted the interim disclosure provision of FAS 148 commencing 2003. The
company is subject to the expanded disclosure requirements of FAS 148, but
does not expect FAS 148 to otherwise have a material impact on its
consolidated results of operations, financial position or cash flows.
In January, 2003, the FASB issued Interpretation No. 46, "Consolidation
of Variable Interest Entities" (FIN 46), which clarifies the application of
Accounting Research Bulletin No. 51, "Consolidated Financial Statements," to
certain entities in which equity investors do not have the characteristics of
a controlling financial interest or do not have sufficient equity at risk for
the entity to finance its activities without additional subordinated support
from other parties. FIN 46 requires a variable interest entity to be
consolidated by a company if that company is subject to a majority of the
risk of loss from the variable interest entity's activities or is entitled to
receive a majority of the entity's residual returns or both. The
consolidation requirements of FIN 46 apply immediately to variable interest
entities created after January 31, 2003. The consolidation requirements apply
to variable interest entities created before February 1, 2003, in the first
fiscal year or interim period beginning after June 15, 2003. Certain of the
disclosure requirements apply to financial statements issued after January
31, 2003, regardless of when the variable interest entity was established.
The company does not expect FIN 46 to have a material impact on its financial
position or results of operations.
NOTE 2--INTERIM ADJUSTMENTS
The financial summaries for the three months ended March 31, 2003 and
March 31, 2002 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, 2003 are not necessarily indicative of the
results that may be expected for the entire year ending December 31, 2003.
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, 2002.
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 2003
(Unaudited)
NOTE 3--LONG-TERM DEBT
The company through its subsidiary, DCA of Vineland, LLC, pursuant to
a December 3, 1999 loan agreement obtained a $700,000 development loan with
interest at 8.75% through December 2, 2001, 11/2% over the prime rate
thereafter through December 15, 2002 and 1% over prime thereafter secured by a
mortgage on the company's real property in Easton, Maryland. Outstanding
borrowings were subject to monthly payments of interest only through December
2, 2001, with monthly payments thereafter of $2,917 principal plus interest
through December 2, 2002 and monthly payments thereafter of $2,217 plus
interest with any remaining balance due December 2, 2007. This loan had an
outstanding principal balance of $656,000 at March 31, 2003 and $662,000 at
December 31, 2002.
In April 2001, the company obtained a $788,000 five-year mortgage through
April 2006 on its building in Valdosta, Georgia with interest at 8.29% until
March, 2002, 7.59% thereafter until December 16, 2002, and prime plus 1/2%
with a minimum of 6.0% effective December 16, 2002. Payments are $6,800
including principal and interest having commenced May, 2001, with a final
payment consisting of a balloon payment and any unpaid interest due April,
2006. The remaining principal balance under this mortgage amounted to
approximately $743,000 at March 31, 2003 and $753,000 at December 31, 2002.
The equipment purchase agreement provides financing for kidney dialysis
machines for the company's dialysis facilities. Payments under the agreement
are pursuant to various schedules extending through August 2007 with interest
at rates ranging from 4.14% to 10.48%. Financing under the equipment purchase
agreement is a noncash financing activity which is a supplemental disclosure
required by Financial Accounting Standards Board Statement No. 95, "Statement
of Cash Flows." The remaining principal balance under this financing amounted
to approximately $1,714,000 at March 31, 2003 and $1,844,000 at December 31,
2002.
The prime rate was 4.25% as of March 31, 2003 and December 31, 2002.
Interest payments on debt amounted to approximately $44,000 for the three
months ended March 31, 2003 and $57,000 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 a
portion of the deferred tax assets.
Income tax payments amounted to approximately $197,000 for the three
months ended March 31, 2003 and $543,000 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 time spent. The
amount of expenses allocated by the parent totaled approximately $50,000 for
the three months ended March 31, 2003, and for the same period of the
preceding year.
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 2003
(Unaudited)
NOTE 5--TRANSACTIONS WITH PARENT--Continued
The company had an intercompany advance payable to the parent of
approximately $68,000 at March 31, 2003 which bears interest at the short-
term Treasury Bill rate. Interest is included in the intercompany advance
balance. The company's parent has agreed not to require repayment of the
intercompany advance balance prior to April 1, 2004; therefore, the advance
has been classified as long-term at March 31, 2003.
In January, March and August, 2000, the company loaned an aggregate of
$2,200,000 to our parent at an annual interest rate of 10%, with a
substantial portion of the loan and accrued interest scheduled to be repaid
on January 26, 2001. These funds were loaned by our parent to Linux Global
Partners, Inc., a private company investing in Linux software companies and
recently through its subsidiary, initiating the development and marketing of
a Linux desktop software system. We extended the maturity of the loans to
our parent, as our parent did with Linux Global Partners, in consideration
for which we received 100,000 shares of common stock of Linux Global
Partners, increasing our ownership in Linux Global Partners to 400,000
shares, (approximately a 2% interest in Linux Global Partners) with a cost
basis of approximately $140,000 resulting from a write-off of a note secured
by 300,000 Linux Global Partners shares, which is included in deferred
expenses and other assets. In May and June 2001, our parent repaid the
outstanding loans and accrued interest due to us.
NOTE 6--STOCK OPTIONS
In June, 1998, the board of directors granted an option under the now
expired 1995 Stock Option Plan to a new board member for 5,000 shares
exercisable at $2.25 per share through June 9, 2003, which is the only
outstanding option under that plan.
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 its officers, directors, employees and consultants with
340,000 options exercisable through April 20, 2000 and 460,000 options
exercisable through April 20, 2004, of which 60,000 options to date have
been cancelled. In April, 2000, the 340,000 one-year options were exercised
for which the company received cash payment of the par value amount of $3,400
and the balance in three-year promissory notes with the interest at 6.2% and
which maturity was extended to April 20, 2004. In March, 2003, 77,857 of
these options were exercised with the exercise price satisfied by director
bonuses accrued in 2002 leaving 322,143 options outstanding as of March 31,
2003.
In January, 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 99,000 options vested at January 2003 and 33,000 options
vesting January 1 for each of the next two years.
In September, 2001, the board of directors granted 75,000 five-year
options exercisable at $1.50 per share through September 5, 2006, to certain
officers, directors and key employees. 15,000 of the options vested
immediately with the remaining 60,000 options to vest 15,000 options each
September 5, having commenced September 5, 2002. In March, 2003, 1,785 of
these options were exercised with the exercise price satisfied by director
bonuses accrued in 2002 leaving 73,215 options outstanding as of March 31,
2003.
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 2003
(Unaudited)
NOTE 6--STOCK OPTIONS--Continued
In March, 2002, the board of directors granted a five-year option for
30,000 shares exercisable at $3.15 per share through February 28, 2007, to an
officer. The option vests 7,500 each February 28 from 2003 through 2006.
In May, 2002, the board of directors granted 10,500 five-year options to
employees of which 8,000 remain outstanding at March 31, 2003. Most options
are for 500 shares of common stock of the company, with two options for 1,500
shares of common stock. All options are exercisable at $4.10 per share
through May 28, 2007, with all options vesting on May 29, 2004. Options for
2,500 shares have been cancelled.
NOTE 7--COMMITMENTS AND CONTINGENCIES
Effective January 1, 1997, the company established a 401(k) savings plan
(salary deferral plan) with an eligibility requirement of one year of service
and 21 year old age requirement. The company made no contributions under
this plan. The company and its parent established a new 401(k) plan effective
January 2003, which allows employees, in addition to regular employee
contributions, to elect to have a portion of bonus payments contributed. As
an incentive to save for retirement, the company will match 10% of an
employee's contribution.
NOTE 8--ACQUISITIONS
In August, 2001, the company acquired the remaining 30% minority
interest in DCA of So. Ga., LLC, giving the company a 100% ownership interest,
for $600,000 of which $300,000 was paid in August, 2001 and $300,000 was paid
in August, 2002. This transaction resulted in $523,000 of goodwill
representing the excess of the $600,000 purchase price over the $77,000 fair
value of the minority interest acquired. The goodwill is being amortized for
tax purposes over a 15-year period. The company's decision to make this
investment was based largely on the profitability of DCA of So. Ga. The party
from whom the company acquired the minority interest is the medical director
of another of the company's subsidiaries. See Note 1.
In April, 2002, the company acquired a dialysis center in Royston,
Georgia for $550,000. This transaction resulted in $400,000 goodwill
representing the excess of the $550,000 purchase price over the $150,000 fair
value of the assets acquired. The goodwill is being amortized for tax
purposes over a 15-year period. The company's decision to make this
investment was based on its expectation of future profitability resulting
from its review of this dialysis center's operations prior to making the
acquisition. See Note 1.
NOTE 9--RELATED PARTY TRANSACTIONS
The 20% minority interest in DCA of Vineland, LLC was held by Vineland
Dialysis Professionals, LLC, a company owned by Dr. David Blecker, who became
a director of our company in 2001. Dr. Blecker was provided with the right
to acquire up to 49% of DCA of Vineland, LLC. In April, 2000, another
company owned by Dr. Blecker, Vineland Dialysis Group, LLC, acquired a 35.9%
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 2003
(Unaudited)
NOTE 9--RELATED PARTY TRANSACTIONS--Continued
interest in DCA of Vineland, resulting in our company holding a 51.3% interest
in DCA of Vineland and Vineland Dialysis Professionals, LLC holding a 12.8%
interest. This provided Dr. Blecker's companies with a combined 48.7%
ownership of DCA of Vineland.
In July, 2000, Vineland Dialysis Professionals, one of the companies
owned by Dr. Blecker, acquired a 20% interest in DCA of Manahawkin, Inc.
(formerly known as Dialysis Services of NJ, Inc. - Manahawkin). Under
agreements with DCA of Vineland and DCA of Manahawkin, Dr. Blecker serves
as medical director for each of those dialysis facilities.
NOTE 10--LOAN TRANSACTIONS
The company customarily funds the establishment and operations of its
dialysis facilities, usually until they become self-sufficient, without any
formalized loan documents, except in limited instances, including
subsidiaries in which our medical directors hold interests ranging from 20%
to 49%. The operating agreements for our subsidiaries provide for cash flow
and other proceeds to first pay any such financing provided by the company,
exclusive of any tax payment distributions. One loan is with DCA of Vineland,
LLC. In April, 2000, Vineland Dialysis Group, one of Dr. Blecker's companies,
acquired a 35.9% interest for $203,000, which was applied to reduce the loan,
which loan at March 31, 2003 reflected a principal indebtedness of
approximately $553,000. See Note 9.
NOTE 11--SUBSEQUENT EVENTS
In April, 2003, the company acquired a dialysis center in Adel, Georgia
for $75,000. The company also ceased operations at its Homerville, Georgia
facility.
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------ ---------------------------------------------------------------
Results of Operations
---------------------
Management's Discussion and Analysis of Financial Condition and Results
of Operations, commonly known as MD&A, is our attempt to provide the investor
with a narrative explanation of our financial statements, and to provide our
shareholders and investors with the dynamics of our business as seen through
our eyes as management. Generally, MD&A is intended to cover expected effects
of known or reasonably expected uncertainties, expected effects of known
trends on future operations, and prospective effects of events that have had
a material effect on past operating results. In conjunction with our
discussion of MD&A, shareholders should read the company's consolidated
condensed financial statements, including the notes, contained in this
Quarterly Report on Form 10-Q.
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 growth of our company and our future
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, our business
strategies and plans for future operations, 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 MD&A. Words such as
"anticipate," "estimate," "expects," "projects," "intends," "plans" and
"believes" and such words and terms of similar substance used in connection
with any discussions of future operations or financial performance, identify
forward-looking statements. Such forward-looking statements, like all
statements about expected future events, 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, competition,
changes in federal and state laws or regulations affecting our operations,
and other factors discussed periodically in our 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 (Item 1, "Business") included
in our Annual Report on Form 10-K, as filed with the SEC and provided to our
shareholders. If any such events occur or circumstances arise that we have
not assessed, they could have a material adverse effect upon our revenues,
earnings, financial condition and business, as well as the trading price of
our common stock, which could adversely affect your investment in the company.
Accordingly, readers are cautioned not to place undue reliance on such
forward-looking statements, which speak only as of the date made and which we
undertake no obligation to revise to reflect events after the date made.
Dialysis Corporation of America provides dialysis services, primarily
kidney dialysis treatments through its 16 outpatient dialysis centers,
including one in which it holds a minority interest and one unaffiliated
dialysis facility which it manages. Our company also, through acute inpatient
dialysis services agreements with hospitals, provides dialysis treatments to
the hospital's dialysis patients. We also provide homecare services,
including home peritoneal dialysis and method II services, the latter
relating to providing patients with supplies and equipment. Dialysis
Corporation of America also provides ancillary services associated with
dialysis treatments, primarily the administration of EPO.
A substantial portion of our medical service revenues are derived from
Medicare and Medicaid reimbursement with rates established by the Center
for Medicare and Medicaid Services ("CMS"), and which rates are subject to
legislative changes. Medicare rates have slightly increased, but are not
related to the increasing costs of operations. Dialysis is typically
reimbursed at higher rates from private payors, such as the patient's
insurance carrier, as well as higher payments received under negotiated
contracts with hospitals for acute inpatient dialysis services.
The healthcare industry is subject to extensive regulations of federal
and state authorities. There are a variety of fraud and abuse measures to
combat waste, which include 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. 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 restructure our practice and will not experience material adverse
effects as a result of any such challenges or changes. We have a Corporate
Integrity Program to assure our company provides the highest level of patient
care and services in a professional and ethical manner consistent with
applicable federal and state laws and regulations.
Our growth depends primarily on the availability of suitable dialysis
centers for development or acquisition in appropriate and acceptable areas,
and our ability to develop these new potential dialysis centers at costs
within our budget while competing with larger companies, some of which are
public companies or divisions of public companies with more personnel and
financial resources, in acquiring and/or developing facilities in areas
targeted by us. Additionally, there is intense competition for retaining
qualified nephrologists who are responsible for the supervision of the
dialysis centers. There is no certainty as to when any new centers or
inpatient service contracts with hospitals will be implemented, or the number
of dialysis stations, or patient treatments such may involve, or if such will
ultimately be profitable. It has been our experience that newly established
dialysis centers, although contributing to increased revenues, have adversely
affected our results of operations due to start-up costs and expenses and a
smaller patient base.
Results of Operations
Medical service revenues increased approximately $1,250,000 (23%) for
the three months ended March 31, 2003, compared to the same period of the
preceding year. This increase includes increased revenues of our
Pennsylvania dialysis centers of approximately $738,000, decreased revenues
of approximately $103,000 for our New Jersey centers reflecting termination
in 2002 of our two New Jersey acute care contracts; increased revenues of
approximately $569,000 for our Georgia centers, including $445,000 for the
Georgia center acquired in April 2001; $47,000 revenues for our new Maryland
center and $26,000 revenues for our new Ohio center. Revenues for the prior
year included $27,000 consulting fees.
Interest and other income increased by approximately $23,000 for the
three months ended March 31, 2003, compared to the same period of the
preceding year. This increase includes: a decrease in interest income of
$1,000; an increase in management fee income of $22,000 pursuant to a
Management Services Agreement with our 40% owned Toledo, Ohio affiliate and
an unaffiliated Georgia center with which we entered a management services
agreement effective September, 2002; an increase in rental income of $1,000;
and an increase in miscellaneous other income of $1,000. See Note 1 to "Notes
to Consolidated Condensed Financial Statements."
Cost of medical services as a percentage of medical service revenue
amounted to 62% for the three months ended March 31, 2003 and for the same
period of the preceding year with an increase in supply costs as a percentage
of sales being offset by a comparable decrease in payroll costs.
Approximately 28% of our medical services revenues for the three months ended
March 31, 2003, and 24% for the same period of the preceding year, were from
the administration of EPO to our patients. This drug is only available from
one manufacturer in the United States which raised its price for the product
in January, 2003. Continued price increases for this product without our
ability to increase our charges will increase our costs and thereby adversely
impact our earnings. We cannot predict the price increases, if any, or the
extent of such by the manufacturer, or our ability to offset any such
increases.
Selling, general and administrative expenses, increased by approximately
$417,000 for the three months ended March 31, 2003, compared to the same
period of the preceding year. This increase reflects operations of our new
dialysis centers in Maryland and Ohio and the Georgia dialysis center we
acquired in April, 2002, as well as increased support activities resulting
from expanded operations. Selling, general and administrative expenses, as a
percent of medical service revenues remained relatively stable amounting to
approximately 32% for the three months ended March 31, 2003, and for the same
period of the preceding year.
Provision for doubtful accounts decreased approximately $90,000 for the
three months ended March 31, 2003 compared to the same period of the preceding
year. The provision amounted to 1% of sales for the three months ended March
31, 2003 compared to 3% for the same period of the preceding year. This
change reflects our collection experience with the impact of that experience
included in accounts receivable presently reserved plus recovery of
uncollectible accounts from our Medicare cost report filings. The provision
for doubtful accounts is determined under a variety of criteria, primarily
aging of the receivables and payor mix. Accounts receivable are estimated to
be uncollectible based upon various criteria including the age of the
receivable, historical collection trends and our understanding of the nature
and collectibility of the receivables with doubtful accounts reserved for in
the allowance for doubtful accounts until they are written off or collected.
Although operations of additional 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 sustain profitable operations.
Interest expense remained relatively stable with little change for the
three months ended March 31, 2003 compared to the same period of the
preceding year. The effect of additional equipment financing agreements was
offset by lower interest rates and reduced average borrowings on other debt.
The prime rate was 4.25% at March 31, 2003 and December 31, 2002.
Equity in affiliate earnings represents equity in the results of
operations of our Ohio affiliate, in which we have a 40% ownership interest.
Liquidity and Capital Resources
Working capital totaled $4,528,000 at March 31, 2003, which reflected a
decrease of approximately $65,000 (1%) during the three months ended March 31,
2003. Included in the changes in components of working capital was a decrease
in cash and cash equivalents of $422,000, including net cash provided by
operating activities of $185,000, net cash used in investing activities of
$484,000 (including additions to property and equipment of $574,000 and a
$77,000 distribution received from the company's 40% owned Ohio affiliate),
and net cash used in financing activities of $123,000 (including an increase
in advances payable to our parent of $68,000, debt repayments of $145,000 and
a $46,000 distribution to a subsidiary minority member).
Our Easton, Maryland building has a mortgage to secure a three-year
$700,000 loan for development of our Vineland, New Jersey subsidiary. This
loan, which is guaranteed by the company, had an outstanding balance of
$656,000 at March 31, 2003 and $662,000 at December 31, 2002. In April, 2001,
we obtained a $788,000 five-year mortgage on our building in Valdosta,
Georgia, which had an outstanding balance of $743,000 at March 31, 2003 and
$753,000 at December 31, 2002. We have an equipment financing agreement for
kidney dialysis machines for our facilities, which had an outstanding balance
of approximately $1,714,000 at March 31, 2003, and $1,844,000 at December 31,
2002. See Note 3 to "Notes to Consolidated Condensed Financial Statements."
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 primarily
through construction of new centers, rather than acquisition. Development of
a dialysis facility to initiate operations takes four to six months and
usually up to 12 months or longer to generate income. We consider some of
our centers to be in the developmental stage, since they have not developed
a patient base sufficient to generate and sustain earnings.
We are seeking to expand our outpatient dialysis treatment facilities
and inpatient dialysis care. We opened our 13th and 14th centers in
Cincinnati, Ohio and Chevy Chase, Maryland in February, 2003. We acquired a
dialysis center in Adel, Georgia in April, 2003, and ceased operations at our
Homerville, Georgia center, which had not been performing up to expectations.
See Note 11 to "Notes to Consolidated Condensed Financial Statements." We
are in the developmental stage for a new center in Virginia. We are
presently in different phases of negotiations with physicians for additional
outpatient centers. Such expansion requires capital. Although we presently
have the capital and financing capabilities for the current rate of expansion,
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.
We believe that current levels of working capital and available financing
alternatives will enable us to meet our liquidity demands for at least the
next 12 months as well as expand our dialysis facilities and thereby our
patient base.
New Accounting Pronouncements
In June, 2002, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 146, " Accounting for Costs
Associated with Exit or Disposal Activities" (FAS 146). FAS 146, which is
effective for exit or disposal activities initiated after December 31, 2002,
is not expected to have a material impact on the company's results of
operation, financial position or cash flows. See Note 1 to "Notes to
Consolidated Condensed Financial Statements."
In November, 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" (FIN 45), which is effective for
periods ending after December 15, 2002. The company does not expect FIN 45
to have a material impact on its financial position or results of operations.
See Note 1 to "Notes to Consolidated Condensed Financial Statements."
In December, 2002, the FASB issued Statement of Financial Accounting
Standards No. 148, "Accounting for Stock-Based Compensation-Transition and
Disclosure" (FAS 148), which amends FAS 123, "Accounting for Stock-Based
Compensation," transition requirements when voluntarily changing to the fair
value based method of accounting for stock-based compensation and also amends
FAS 123 disclosure requirements. FAS 148 is not expected to have a material
impact on the company's results of operations, financial position or cash
flow. See Note 1 to "Notes to Consolidated Condensed Financial Statements."
In January, 2003, the FASB issued Interpretation No. 46, "Consolidation
of Variable Interest Entities" (FIN 46), for which certain disclosure
requirements apply to financial statements issued after January 31, 2003.
FIN 46 contains consolidation requirements regarding variable interest
entities which are applicable depending on when the variable interest entity
was created. The company does not expect FIN 46 to have a material impact on
its financial position or results of operations. See Note 1 to "Notes to
Consolidated Condensed Financial Statements."
Critical Accounting Policies
In December, 2001, the SEC issued a cautionary advice to elicit more
precise disclosure in this Item 2, MD&A, about accounting policies management
believes are most critical in portraying the company's financial results and
in requiring management's most difficult subjective or complex judgments.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make judgments and estimates. On an on-going basis, we
evaluate our estimates, the most significant of which include establishing
allowances for doubtful accounts, a valuation allowance for our deferred tax
assets and determining the recoverability of our long-lived assets. The
basis for our estimates are historical experience and various assumptions
that are believed to be reasonable under the circumstances, given the
available information at the time of the estimate, the results of which form
the basis for making judgments about the carrying values of assets and
liabilities that are not readily available from other sources. Actual results
may differ from the amounts estimated and recorded in our financial statements.
We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our
consolidated financial statements.
Revenue Recognition: Revenues are recognized as services are rendered.
We receive payments through reimbursement from Medicare and Medicaid for our
outpatient dialysis treatments coupled with patients' private payments,
individually and through private third-party insurers. A substantial portion
of our revenues are derived from the Medicare ERSD program, which outpatient
reimbursement rates are fixed under a composite rate structure, which
includes the dialysis services and certain supplies, drugs and laboratory
tests. Certain of these ancillary services are reimbursable outside of the
composite rate. Medicaid reimbursement is similar and supplemental to the
Medicare program. Our acute inpatient dialysis operations are paid under
contractual arrangements, usually at higher contractually established rates,
as are certain of the private pay insurers for outpatient dialysis. We use a
sophisticated information and computerized coding system, but due to the
complexity of the payor mix and regulations, we sometimes receive more which
we reconcile quarterly.
Allowance for Doubtful Accounts: We maintain an allowance for doubtful
accounts for estimated losses resulting from the inability of our patients or
their insurance carriers to make required payments. Based on historical
information, we believe that our allowance is adequate. Changes in general
economic, business and market conditions could result in an impairment in the
ability of our patients and the insurance companies to make their required
payments, which would have an adverse effect on cash flows and our results of
operations. The allowance for doubtful accounts is reviewed monthly and
changes to the allowance are updated based on actual collection experience.
We use a combination of percentage of sales and the aging of accounts
receivable to establish an allowance for losses on accounts receivable.
Valuation Allowance for Deferred Tax Assets: The carrying value of
deferred tax assets assumes that we will be able to generate sufficient
future taxable income to realize the deferred tax assets based on estimates
and assumptions. If these estimates and assumptions change in the future, we
may be required to adjust our valuation allowance for deferred tax assets
which could result in additional income tax expense.
Long-Lived Assets: We state our property and equipment at acquisition
cost and compute depreciation for book purposes by the straight-line method
over estimated useful lives of the assets. In accordance with SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets," long-lived
assets are reviewed for impairment whenever events or changes in
circumstances indicate the carrying amount of the asset may not recoverable.
Recoverability of assets to be held and used is measured by comparison of the
carrying amount of an asset to the future cash flows expected to be generated
by the asset. If the carrying amount of the asset exceeds its estimated
future cash flows, an impairment charge is recognized to the extent the
carrying amount of the asset exceeds the fair value of the asset. These
computations are complex and subjective.
Goodwill and Intangible Asset Impairment: In assessing the
recoverability of our goodwill and other intangibles we must make
assumptions regarding estimated future cash flows and other factors to
determine the fair value of the respective assets. This impairment test
requires the determination of the fair value of the intangible asset. If
the fair value of the intangible assets is less than its carrying value, an
impairment loss will be recognized in an amount equal to the difference.
If these estimates or their related assumptions change in the future, we may
be required to record impairment changes for these assets. We adopted
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets," (FAS 142) effective January 1, 2002 and are required to
analyze goodwill and indefinite lived intangible assets for impairment on at
least an annual basis.
Impact of 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.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
- ------ ---------------------------------------------------------
We do not consider our exposure to market risks, principally changes in
interest rates, to be significant.
Sensitivity of results of operations to interest rate risks on our
investments is managed by conservatively investing liquid funds in interest
bearing accounts of which we held approximately $2,145,000 at March 31, 2003.
Interest rate risk on debt is managed by negotiation of appropriate
rates for equipment financing and other fixed rate obligations based on
current market rates. There is an interest rate risk associated with our
variable rate mortgage obligations, which totaled $1,400,000 at March 31,
2003.
We have exposure to both rising and falling interest rates. Assuming a
relative 15% decrease in rates on our period-end investments in interest
bearing accounts and a relative 15% increase in rates on our period-end
variable rate mortgage debt would result in a negative quarterly impact of
approximately $2,000 on our results of operations.
Item 4. Controls and Procedures
- ------ -----------------------
Within 90 days prior to the date of this quarterly report on Form 10-Q
for the first quarter ended March 31, 2003, management carried out an
evaluation, under the supervision and with the participation of our Chief
Executive Officer, President, and Vice President of Finance, our Principal
Financial Officer, of the effectiveness of the design and operation of the
company's disclosure controls and procedures pursuant to Rule 13a-14 of the
Securities Exchange Act of 1934 (the "Exchange Act"), which disclosure
controls and procedures are designed to ensure that information required to
be disclosed by a company in the reports that it files under the Exchange Act,
as is this quarterly report on Form 10-Q, is recorded, processed, summarized
and reported within required time periods specified by the SEC's rules and
forms. Based upon that evaluation, the Chief Executive Officer, President,
and Principal Financial Officer concluded that the company's disclosure
controls and procedures are effective in timely alerting them to material
information relating to the company, including its consolidated subsidiaries,
required to be included in the company's periodic SEC filings.
There were no significant changes in our internal controls or in other
factors that could significantly affect internal controls subsequent to the
date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
PART II -- OTHER INFORMATION
------- -----------------
Item 6. Exhibits and Reports on Form 8-K.
- ------ --------------------------------
(a) Exhibits
(99) Additional Exhibits
(i) Certification of Chief Executive Officer pursuant to
18 U.S.C. Section 1350 as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
(ii) Certification of Principal Financial Officer pursuant
to 18 U.S.C. Section 1350 as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
A Current Report on Form 8-K was filed on April 9, 2003 with respect
to Item 5, "Other Information," relating to an acquisition of a
dialysis facility.
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
By: /s/ TIMOTHY RUMRILL
------------------------------
TIMOTHY RUMRILL, Vice President,
Finance, Principal Financial Officer
Dated: May 12, 2003
CERTIFICATIONS
I, Thomas K. Langbein, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Dialysis
Corporation of America;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
(b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
(c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons performing
the equivalent function):
(a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data, and have identified
for the registrant's auditors any material weaknesses in internal controls;
and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
/s/ Thomas K. Langbein
Date: May 12, 2003 -----------------------------------
THOMAS K. LANGBEIN, Chief Executive
Officer
CERTIFICATIONS
I, Stephen W. Everett, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Dialysis
Corporation of America;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
(b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
(c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons performing
the equivalent function):
(a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data, and have identified
for the registrant's auditors any material weaknesses in internal controls;
and
(b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
/s/ Stephen W. Everett
Date: May 12, 2003 -----------------------------------
STEPHEN W. EVERETT, President
CERTIFICATIONS
I, Timothy Rumrill, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Dialysis
Corporation of America;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
(b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
(c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons performing the
equivalent function):
(a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data, and have identified for
the registrant's auditors any material weaknesses in internal controls; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses.
/s/ Timothy Rumrill
Date: May 12, 2003 -----------------------------------
TIMOTHY RUMRILL, Principal Financial
Officer
EXHIBIT INDEX
Exhibit No.
- ----------
(99) Additional Exhibits
(i) Certification of Chief Executive Officer pursuant to
18 U.S.C. Section 1350 as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
(ii) Certification of Principal Financial Officer pursuant to
18 U.S.C. Section 1350 as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
Exhibit 99(i)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECITON 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Dialysis Corporation of
America (the "Company") on Form 10-Q for the first quarter ended March 31,
2003 as filed with the Securities and Exchange Commission on the date therein
specified (the "Report"), I, Thomas K. Langbein, Chief Executive Officer of
the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my
knowledge:
(1) The Report fully complies with the requirements of Section 13(a) of
the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
/s/ Thomas K. Langbein
-----------------------------------
THOMAS K. LANGBEIN, Chief Executive
Officer
Dated: May 12, 2003
Exhibit 99(ii)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECITON 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Dialysis Corporation of
America (the "Company") on Form 10-Q for the first quarter ended March 31,
2003 as filed with the Securities and Exchange Commission on the date therein
specified (the "Report"), I, Timothy Rumrill, Principal Financial Officer of
the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my
knowledge:
(1) The Report fully complies with the requirements of Section 13(a) of
the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
/s/ Timothy Rumrill
-----------------------------------
TIMOTHY RUMRILL, Principal Financial
Officer
Dated: May 12, 2003