Dialysis Corporation of America
1302 Concourse Drive, Suite 204
Linthicum, MD 21090
Telephone: (410) 694-0500
Telecopier: (410) 694-0596
July 15, 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 (08527)
In response to your comments relating to our annual report on Form 10-K,
we have made the revisions you noted with one clarification to our earlier
response to the staff's prior comments forwarded to you on June 29, 2005
("Initial Response"). We appreciate your review and assistance for
compliance with the applicable disclosure requirements.
The following responses are keyed to your comments. We are providing
you with marked copies of our amendment no. 1 to our annual report on Form
10-K for the year ended December 31, 2004, to facilitate your review. Based
on the modifications, the pagination has changed (new pagination marked in
[ ]).
General
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1. We have revised the disclosures, including, among others, pages 7, 40, 41,
47, F-9 and F-11.
Item 7. Management's Discussion and Analysis of Financial Condition and
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.. . ., page 36 [page 39]
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2. Disclosed and quantified.
Liquidity and Capital Resources, page 43 [page 44]
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3. Discussion revised as requested by Section IV.B. of Financial Reporting
Release 72.
Aggregate Contractual Obligations, page 45
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4. Table revised consistent with Item 303(a)(5) of Regulation S-K and
Financial Reporting Release 67.
Critical Accounting Policies and Estimates, page 46
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5. Initial Response comment no. 2, clarified as follows:
(b) The provision for doubtful accounts is determined under a variety
of criteria, primarily the aging of the receivables, historical
collection trends, and payor mix. This is generally a reflection
of DCA's collection experience. Due to the uncertainties involved
and the lengthy period over which the collection problem with
respect to Georgia Medicaid reimbursements had persisted,
management determined that it was reasonable to include these
receivables in the provision for doubtful accounts. As a result,
DCA added $413,000 to doubtful accounts due to the issues with
Georgia Medicaid. This disclosure has been provided. See page 41
of the amended Form 10-K. Based on the above, particularly the
uncertainties involved and the lengthy period over which the
collection problem persisted, management believes such complies
with SFAS 5, including paragraphs 8, 22 and 23 of SFAS 5.
Item 15(a)(1) and (2), Financial Statements, page F-1
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Report of Independent Certified Accountants, page F-3
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6. Auditor's Report Revised; new consents are provided for each accounting
firm. See Exhibits 23.1 and 23.2.
Notes to Consolidated Financial Statements, page F-8
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7. We believe your comment (first sentence) should refer to comment four (not
six) to your initial comments dated June 22, 2005, ("Initial Comments"). We
have revised the disclosure in the Form 10-K, page 7, and Note 7 to the Notes
to the Consolidated Financial Statements, page F-25.
We believe the contract is in substance a buy/sell agreement of 80% of
the related dialysis center whose terms should be disclosed in the Notes to
the Consolidated Financial Statements. Pre-tax profits trigger the potential
sale on the sell or put side, although the purchase price is based on EBITDA.
In the dialysis services business, pre-tax profits are directly related to
the number of patients serviced or service revenues. If the dialysis center
did not achieve specified volumes of service revenues, it would never reach
the required pre-tax profit levels. EBITDA is an adjusted pre-tax profits
amount. Thus, in substance the contract meets the conditions of paragraph
10(e)(3) and is not subject to SFAS 133.
We also believe the contract is analogous to paragraph 11(c) since, as
mentioned above, we believe the contract is in substance a buy/sell agreement
or business acquisition of 80% of the related dialysis center. The terms are
contingent, since on the sell side the purchase is contingent on achieving a
certain level of pre-tax profits and the purchase price would be based on
EBITDA (an adjusted pre-tax profits amount). Also, as disclosed in the
contract, "the asset acquisition shall be subject to and governed by an asset
acquisition agreement to be negotiated and completed in good faith between
the Parties...." Accordingly, the terms of the final purchase agreement in
theory can vary from the fixed multiple times EBITDA calculation mentioned in
the contract.
Additionally, we believe any calculation of fair value would not have a
material effect on the consolidated financial position or consolidated
results of operations of the company. Also, as of the current date there has
been no purchase or sale.
Based on the above, we have concluded that the transaction is consistent
with a contract incurred in the normal course of business and we have added
additional disclosure as noted above.
Note 1, Summary of Significant Accounting Policies, page F-8
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8. Breakdown of medical services revenue provided as per paragraph 37 of
SFAS 131.
Estimates, page F-8 [F-9]
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9. Revised.
Note 10, Acquisitions, page F-25 [F-26]
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10. Recognition of goodwill, disclosure provided.
As to comment 6 to Medicore, Inc., we have also provided a response to
DCA's "Critical Accounting Policies and Estimates," page 47 of Item 7,
"Management's Discussion and Analysis of Financial Condition and . . . ."
Item 9A, "Controls and Procedures," has been modified (page 49) as we
proposed in the Initial Response to comment no. 7 of the Initial Comments.
New certifications have been provided. See Exhibits 31.1, 31.2 and
32.1.
Once again, we would appreciate expedited review to the extent you are
able to provide such, since DCA and Medicore are attempting to hold their
respective annual meetings, particularly relating to approval of the merger
and related matters, as discussed in the Registration Statement. Your
consideration to these circumstances is greatly appreciated.
Very truly yours,
Dialysis Corporation of America
/s/ Don Waite
By:--------------------------------
Don Waite, Vice President of
Finance, and Principal Financial
Officer
cc: Jeffrey Reidler, Asst. Dir. of Corp. Finance
Zafar Hasan, Staff Attorney
Oscar M. Young, Senior Staff Acct.
Tabatha Akins, Staff Acct.