Dialysis Corporation of America
1302 Concourse Drive, Suite 204
Linthicum, Maryland 21090
Telephone: (410) 694-0500
Telecopier: (410) 694-0596
August 2, 2005
Jim B. Rosenberg
Senior Assistant Chief Accountant
Securities and Exchange Commission
450 Fifth Street
Washington, D.C. 02549
RE: Form 10-K for the fiscal year ended December 31, 2004
Dialysis Corporation of America (0-8527)
This is in response to the comments discussed by the accounting staff
with us on Friday afternoon, July 29, 2005, in particular, Thomas K.
Langbein, Chairman of the Board of Dialysis Corporation of America ("DCA" or
the "company"), and its parent, Medicore, Inc. ("Medicore"), Stephen W.
Everett, President and Chief Executive Officer of DCA, Don Waite, Vice
President, Finance and Chief Financial Officer of DCA, Daniel R. Ouzts, Vice
President, Treasurer and Chief Accounting Officer of DCA and Vice President,
Finance, Principal Financial Officer, Treasurer and Chief Accounting Officer
of Medicore, and Angelo J. Coppolino, CPA and Principal, and Frank J.
Lamendola, CPA and Principal of Moore Stephens, P.C., the independent
registered public accounting firm for DCA and Medicore. We sincerely wish to
thank Oscar Young, Senior Staff Accountant, and Tabatha Akins, Staff
Accountant, for their communications and comments to assist us in resolving
the remaining issues to our annual report on Form 10-K for the year ended
December 31, 2004 ("Form 10-K"), in order for DCA to be able to expeditiously
move forward with respect to its merger registration statement on Form S-4
filed with the Commission on June 3, 2005 (file No. 333-125515).
The following responses are keyed to the staff's oral comments of July
29, 2005. We are providing you with marked copies of our amendment no. 1
(this is the second draft of amendment no. 1, the first draft dated July 15,
2005, not yet filed) to our Form 10-K (current draft includes all former and
current amendments, collectively referred to as "Form 10-K/A1"). To
facilitate your review, please note the recent changes to pages 1, 7, 41, 47,
48, 50, 51, 71, (signature page), F-3, F-25, F-26, the consents, exhibits
23.1 and 23.2, the certifications, exhibits 31.1, 31.2 and 32.2, and the
filing cover letter.
Other than Comment No. 1, all responses to the staff's oral comments of
July 29, 2005 relate and will be identified to your comment letter to DCA
dated July 11, 2005 (referred to as "Staff Comment Letter").
Comments and Responses
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Comment No. 1. As to original comment letter dated June 22, 2005, items 1-3,
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(a) advise where disclosure is documented in the Form 10-K/A1; (b) provide
any further information not disclosed in the recent draft; or (c) advise why
such information is not disclosed.
Response: All comments have been responded to:
Item 7. Management's Discussion and Analysis of Financial Condition and
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.. . . page 36
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Results of Operations, page 39 [page 38]
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Item 1. Bullet points 1 and 2, see page 41 to Form 10-K/A1; bullet point
3, see pages 40 and 47 (as modified) to Form 10-K/A1.
Item 2. See page 41 to Form 10-K/A1.
Item 3. Bullet points 1 and 2, see page 40 to Form 10-K/A1; bullet
points 3 and 4, responded to in June 29, 2005 response letter with Schedule
A, "Account Receivables Table"; bullet point 5, see page 41 to Form 10-K/A1
Comment No. 2. Clarification of Georgia center put/call options and purchase
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price possibly affected by EBITDA.
Response:
Staff Comment Letter
Notes to Consolidated Financial Statements, page F-8
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Item 7
Our opinion at March 31, 2005 and December 31, 2004 that the calculation of
fair value of the put and call options on the Georgia dialysis center would
not have had a material effect on the consolidated financial position or
consolidated results of operations of the company is based upon the
following:
Both the put and call option were set at a level that in management's opinion
was below the estimated fair value purchase price for a dialysis center at
March 31, 2005 and December 31, 2004. It was management's opinion that at
those dates neither the put nor the call would be exercised. Based on the
above, there was no potential liability estimated, since the fair value of
the acquisition exceeded the put. No asset was recorded because although the
fair value purchase price exceeded the call, such amount was discounted due
to management's opinion that neither the put nor call would be exercised at
those dates. This resulted in a potential asset of approximately $10,000 to
$15,000 at March 31, 2005 and December 31, 2004, which was deemed immaterial.
See pages 7 and F-25.
Comment No. 3. Out of network revenues; qualitative and quantitative
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estimates; SAB Topic 13 (SAB 104).
No specific comment in Staff Comment Letter (comment made to Medicore,
Critical Accounting Policies and Estimates, page 52, Item 6).
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Response:
Disclosure clarified and expanded (see page 47).
Please note that DCA estimates out of network revenues on a case by case
basis. The DCA staff collects all available information on each individual
claim. This includes contacting the patients' insurance company and
requesting out of network payor rates, deductible, and co-payment
information. If DCA is not given satisfactory information from the insurance
company, it then utilizes other sources such as a review of historical
payments from this particular insurance provider for other patients. If DCA
has no experience with the insurance company, its staff then looks to similar
plan types with other insurers for its estimates. Typically within a two to
four month period DCA will receive a payment for services rendered. At that
point DCA will adjust its revenues recognized to reflect the payor rate given
by the insurance company. All future revenues for this patient are then
recognized based on DCA's experience with that insurance company's payment
history. As indicated under "Critical Accounting Policies and Estimates,
Revenue Recognition" of the Form 10-K/A1 (page 47), DCA adheres to the
guidelines of SAB Topic 13 (SAB 104) in recognizing revenue for out-of-
network providers. DCA's historic experience and internal controls provide a
basis for both making reasonable estimates of revenues for out-of-network
providers and identifying on a timely basis any necessary changes to
estimates.
Comment No. 4. Georgia Medicaid accounts receivable and recoverability;
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probable and reasonable estimates.
Response:
Staff Comment Letter
Critical Accounting Policies and Estimates, page 46 [page 47]
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Item 5
As a result of previously disclosed problems DCA experienced with the state
of Georgia's Medicaid Program, DCA performed a complete review of all
outstanding Georgia Medicaid claims. Due to the inaccuracies and malfunctions
of the Georgia Medicaid "lock-in" process, it was not until the final quarter
of 2004 that DCA was made aware that certain patients were ineligible for
payment. As a result of this review and our growing body of knowledge of
Georgia's Medicaid program, it was determined that it was probable that
$413,000 of the outstanding Georgia Medicaid balance was uncollectible. In
accordance with SFAS 5, paragraphs 8, 22 and 23, this amount was provided for
in the estimated allowance for doubtful accounts.
Form 10-K/A1 disclosure modified and clarified. We have also revised the
allowance for the doubtful accounts portion of our Critical Accounting
Policies and Estimates to reflect our adherence to SFAS 5. See pages 41 and
47; also pages 7 and F-25.
Comment No. 5. Subsidiary Stock Option Exercises.
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Not applicable to DCA.
Comment No. 6. Recognition of goodwill; disclose factors.
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Response:
Staff Comment Letter
Note 10--Acquisitions, page F-25 [page F-26]
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Item 10
Expanded and clarified (see page F-26).
Comment No. 7. Discontinued Operations.
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Not applicable to DCA.
Very truly yours,
Dialysis Corporation of America
/s/ Don Waite
By:---------------------------------
Don Waite, Vice President of
Finance, and Chief Financial
Officer
cc: Jeffrey Reidler, Asst. Dir. of Corp. Finance
Zafar Hasan, Staff Attorney
Oscar M. Young, Senior Staff Acct.
Tabatha Akins, Staff Acct.