DCA
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Dialysis Corporation of America
December 29, 2006
Jim B. Rosenberg
Senior Assistant Chief Accountant
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 02549
RE: Dialysis Corporation of America ("Company")
Form 10-K for the fiscal year ended December 31, 2005
File No. 0-8527
This letter is in response to your comments to our annual report Form
10-K for the fiscal year ended December 31, 2005 ("2005 Form 10-K"). We
understand you are seeking information to better understand our disclosures.
We appreciate your review and assistance for our compliance with applicable
disclosure requirements.
The following responses are keyed to your comments. Please understand
that the Company is now an accelerated filer as that term is defined in Rule
12b-2 promulgated under the Securities Exchange Act of 1934; therefore, our
annual report on Form 10-K for the fiscal year ended December 31, 2006 ("2006
Form 10-K") will be due on or before March 16, 2007. Accordingly, our
modifications as reflected in this letter would more appropriately be
reflected prospectively and will be included in the 2006 Form 10-K.
Comments and Responses
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Results of operations, page 39
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1. From your disclosure on page 39 it appears you collect co-payments
from your customers. Please provide in disclosure-type format your
operating procedures for collecting co-payments. For services
provided in which the co-payment is not made at the time service is
performed, state how your historical subsequent collections have
been for each period presented. Please clarify in disclosure-type
format what you mean on page 39 by the "co-pay is typically
limited, and therefore may lead to our under-recognition of revenue
at the time of service."
Response: Our operating procedures for collecting co-payments has been
included in the 2005 Form 10-K. Reference is made to paragraph
three (3) of page forty-one (41). Please note, that in connection
with the Company's registration statement (File No. 333-125515)
effective on August 12, 2005 ("Form S-4"), the Company received
comments from the Accounting Division of the Division of
Corporation Finance, with respect to its annual report on Form 10-K
for the fiscal year ended December 31, 2004 ("2004 Form 10-K").
The responses to those comments, after discussions and
correspondence with the staff of the Securities and Exchange
Commission, which included yourself as Senior Assistant Chief
Accountant, Oscar M. Young, Senior Staff Accountant, Tabatha Akins,
Staff Accountant, Zafar Hasan, Staff Attorney, and filing the
amended 2004 Form 10-K, were found satisfactory. This comment is
substantially similar to comments previously made for the 2004 Form
10-K to which the above-referenced paragraph, with regard to
operating procedures for collecting co-payments was a response.
Response: Please note that co-payments relate to patients whose insurance is
with non-contracted (provider not under contract with the Company)
out-of-network insurance companies. The portion of accounts
receivable represented by co-payments is minimal (see next bullet
point). Our overall historical subsequent collection experience
with this small portion of our accounts receivable has been good.
As a result of non-significance of this portion of our accounts
receivable, we do not maintain separate accounting schedules for
these receivables. Our conservative estimate of revenues related
to these receivables may initially lead to an insignificant under
recognization of revenue, which is adjusted to actual when co-
payment limits are met.
Response: The language you request clarification relating to "co-pay is
typically limited..." was also in response to the 2004 Form 10-K
staff comments. As indicated in the immediately preceding bullet
point, these co-payments are minimal, with the co-pay therefore
typically being limited.
Consolidated Financial Statements
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Note 1 - Summary of Significant Accounting Policies, page F-7
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Revenue Recognition, page F-10
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2. Please provide us in disclosure-type format your accounting policy
for collecting co-payments.
Response: Not included due to insignificance of co-payments. See above
comment no. 1 and response.
3. It appears the volume of your medical product sales operations has
increased subsequent to the completion of the company's merger with
Medicore, and the results of such activities may be material to net
income. Please provide us in disclosure-type format your
accounting policy for recognizing revenue from these sales.
Response: Medical product sales are recorded pursuant to stated shipping
terms and are typically recorded based upon delivery. This policy
was not provided due to medical products operations being
insignificant, as stated in paragraph one (1), page F-7 under
"Business" (approximately .5% of total sales revenues). In
addition, gross profit from medical product sales represented only
approximately 2.6% of operating income and 2.5% of pretax income.
4. Please disclose in a comparative tabular format, the payor mix
concentrations and related aging of accounts receivable. The aging
schedule may be based on management's own reporting criteria (i.e.
unbilled, less than 30 days, 30 to 60 days, etc.) or some other
reasonable presentation. At a minimum, the disclosure should
indicate the past due amounts and a breakdown by payor
classification (i.e. Medicare, Medicaid, Managed Care and other,
and Self-pay). We would expect Self-pay to be separately
classified from any other grouping. Provide us these disclosures.
Response: Same comment re: 2004 Form 10-K where the aging schedule was
included. Schedule A (attached), Accounts Receivable Aging
Schedules will be included in the 2006 Form 10-K annual report
under Item 7, Managements Discussion and Analysis of Financial
Condition and Results of Operations, under the subtitle of Results
of Operations. Disclosures regarding payor mix concentration are
included on page 38 and page F-7 of Note 1 to the 2005 Form 10-K.
Note 16 - Acquisition of former parent company, page F-29
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5. Please provide us your accounting analysis of the merger that
demonstrates that your accounting complies with GAAP including how
you accounted for the intercompany debt forgiven. Also, include in
the analysis the aggregate purchase price, how it was determined
and allocated to the assets acquired. Provide us all of the
disclosures required by paragraph 51 of SFAS 141 that you have not
made or tell us why the disclosures are not necessary.
Response: Our acquisition of our former parent, Medicore, Inc., resulted in
the transfer of assets and liabilities (representing the condensed
balance sheet of the parent company as of the acquisition date),
including the elimination of previous intercompany indebtedness,
between entities under common control. Accordingly, pursuant to
the provisions of paragraph 11 and paragraphs D11 and D12 of APB
16, assets and liabilities of our former parent company were
transferred at their carrying amount as presented in Note 16 on
page F-29. Note 16 also includes the other relevant disclosures
required by paragraph 51 of SFAS 141 as provided on pages F-28
through F-30, including the entity and interest acquired (page F-
28), the period for which the acquired entity's results of
operations are included in our consolidated income statement (page
F-30), the reasons for the acquisition (page F-29), and the cost of
the acquired entity consisting of the net issuance of approximately
450,000 shares to acquire net assets of approximately $10,051,000
(pages F-28 and F-29).
Form 10-Q for the quarterly period ended September 30, 2006
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6. Please explain why not including the disclosures required by
paragraph 58 of SFAS 141 was considered appropriate as it appears
you made material acquisitions during 2006. Please provide us
revisions to your current disclosures as appropriate.
Response: The acquisitions in 2006 on a combined basis were not material (see
Note 9 on page 15 of the Company's quarterly report on Form 10-Q
for the third quarter ended September 30, 2006 ("September 2006
Form 10-Q"), which relates to acquisitions. Had there been any
material acquisition or series of acquisitions, the same would have
been disclosed. See also Note 1 under "Business" of the September
2006 Form 10-Q. The aggregate purchase price of the three
acquisitions during 2006, all during the first quarter, was only
approximately $745,000.
Note 15 - Subsequent events
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7. We have read your disclosures included in this note and the
disclosures included in the last paragraph of Note 7, on page F-25
of your Form 10-K for December 31, 2005 and have the following
questions regarding the put option awarded to the non-affiliated
owner of the Georgia facility.
* Please clarify whether the put option expired unexercised on
September 25, 2005 or whether it was still exercisable at
December 31, 2005.
Response: There appears to be some confusion which is clarified by the fact
that the last paragraph of Note 7, on page F-25 of the 2005 Form
10-K relates to our Hawkinsville, Georgia facility (subject of
prior comments to the 2004 Form 10-K, which was addressed at that
time). Hawkinsville, Georgia was not addressed in the September
2006 Form 10-Q since the put option expired on September 11, 2005.
* Clarify why consolidation of this entity under FIN 46R in
earlier periods was not required.
Response: See response to immediately preceding bullet point under this
comment no. 7. The Company had a call option on the Georgia
facility, to acquire the assets of that facility, that was
scheduled to expire in September 2005. The call option was
subsequently extended through December 2006. Until such an
acquisition could be consummated, the Company would not have an
equity or financial interest in the facility that would justify
consolidation since the risks and rewards of ownership of the
facility remain with the present owner.
Further, the Toledo, Ohio put option disclosed in Note 15,
"Subsequent Events," of the September 2006 Form 10-Q, was exercised
and resulted in consolidation of the facility, disclosed in Note
13, "Proforma Financial Information Former Affiliate" in the
September 2006 Form 10-Q, addressing the FIN 46R issue as to this
subsidiary.
The Company acknowledges that:
* it is responsible for the adequacy and accuracy of the disclosure in
the filings;
* staff comments or changes to disclosure in response to staff comments
do not foreclose the Commission from taking any action with respect
to the filing; and
* it may not assert staff comments as a defense in any proceeding
initiated by the Commission or any person under the federal
securities laws of the United States.
Thank you for your consideration and cooperation.
Very truly yours,
Dialysis Corporation of America
/s/ Daniel R. Ouzts
By:----------------------------------
Daniel R. Ouzts, Vice President of
Finance, Chief Financial Officer
and Chief Accounting Officer
cc: Mary Mast, Senior Staff Accountant
Ibolya Ignat, Staff Accountant
SCHEDULE A
SEC Comment 4 Response
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Our payor mix concentrations are shown on pages 38 and also on page F-7
of Note 1.
Gross medical services accounts receivable were approximately
$12,353,000 and $10,228,000 at December 31, 2005 and December 31, 2004,
respectively, as follows:
Account Receivable Aging Schedule
Fiscal 2005
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Classification December November October September August Plus Prepayments Total
BLUE CROSS $ 641,684 $ 680,315 $ 407,726 $ 212,608 $1,488,486 $ 0 $ 3,430,819
COMMERCIAL 376,782 484,186 240,537 116,123 540,421 0 1,758,049
HMO 56,853 39,526 8,942 1,026 (6,280) 0 100,067
MEDICAID 177,240 307,818 192,304 109,923 1,221,859 0 2,009,144
MEDICARE 2,821,902 261,276 156,261 203,381 673,578 0 4,116,398
PRESUMPTIVE
ELIGIBILITY (7,913) 4,759 (7,198) 5,180 20,149 0 14,977
SELF PAY 3,534 39,221 59,803 58,320 481,831 (45,116) 597,593
HOSPITAL 82,410 1,388 (15,707) 64,627 192,991 0 325,709
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Total $4,152,492 $1,818,489 $1,042,668 $ 771,188 $4,613,035 $ (45,116) $12,352,756
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Fiscal 2004
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Classification December November October September August Plus Prepayments Total
BLUE CROSS $ 493,731 $ 519,664 $ 226,711 $ 168,276 $ 466,413 $ 0 $ 1,874,795
COMMERCIAL 436,253 508,952 280,125 135,877 454,165 0 1,815,372
HMO 47,706 54,906 8,845 (1,938) (13,002) 0 96,517
MEDICAID 132,142 259,340 182,153 73,130 1,661,193 0 2,307,958
MEDICARE 2,361,994 274,400 353,983 132,544 254,685 0 3,377,606
SELF PAY 6,643 33,190 36,383 15,122 371,460 (27,643) 435,155
HOSPITAL 204,095 114,864 1,965 0 0 0 320,924
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Total $3,682,564 $1,765,316 $1,090,165 $ 523,011 $3,194,914 $ (27,643) $10,228,327
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