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 September 30, 1997
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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.)
2337 West 76th Street, Hialeah, Florida 33016
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(Address of principal executive offices) (Zip Code)
(305) 364-1308
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [x] or No [ ]
Common Stock Outstanding
Common Stock, $.01 par value -- 3,488,844 shares as of October 31, 1997.
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
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INDEX
PART I -- FINANCIAL INFORMATION
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The Consolidated Condensed Statements of Operations (Unaudited) for the
three months and nine months ended September 30, 1997 and September 30, 1996
include the accounts of the Registrant and its subsidiaries.
Item 1. Financial Statements
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1) Consolidated Condensed Statements of Operations for the three
months and nine months ended September 30, 1997 and September 30,
1996.
2) Consolidated Condensed Balance Sheets as of September 30, 1997
and December 31, 1996.
3) Consolidated Condensed Statements of Cash Flows for the nine
months ended September 30, 1997and September 30, 1996.
4) Notes to Consolidated Condensed Financial Statements as of
September 30, 1997.
Item 2. Management's Discussion and Analysis of Financial Condition and
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Results of Operations
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PART II -- OTHER INFORMATION
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Item 5. Other Information
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Item 6. Exhibits and Reports on Form 8-K
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(10) Material Contracts
(i) Asset Purchase Agreement by and among the Company,
Dialysis Services of Florida, Inc. - Fort Walton Beach,
DCA Medical Services, Inc., Dialysis Medical, Inc.,
Renal Care Group, Inc., Renal Care Group of the South-
east, Inc. and Henry M. Haire, M.D., dated October 31,
1997 (incorporated by reference to the Company's Current
Report on Form 8-K dated November 12, 1997, Part II,
Item 7(c)(2.1)).
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 OPERATIONS
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
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1997 1996 1997 1996
---- ---- ---- ----
Revenues:
Medical service revenue $ 1,280,083 $ 968,705 $ 3,360,537 $ 2,839,730
Interest and other
income 101,971 103,534 269,492 210,029
----------- ---------- ----------- -----------
1,382,054 1,072,239 3,630,029 3,049,759
Cost and expenses:
Cost of medical services 761,832 639,437 2,050,530 1,872,937
Selling, general and
administrative expenses 492,043 395,733 1,349,235 1,155,374
Interest expense 22,114 22,461 64,193 64,316
----------- ---------- ----------- -----------
1,275,989 1,057,631 3,463,958 3,092,627
----------- ---------- ----------- -----------
Income (loss) before
income taxes and
minority interest 106,065 14,608 166,071 (42,868)
Income tax provision 48,000 62,000
----------- ---------- ----------- -----------
Income (loss) before
minority interest 58,065 14,608 104,071 (42,868)
Minority interest in
earnings (loss) of
consolidated subsidiaries 5,646 (4,532) 9,267 (6,943)
----------- ---------- ----------- -----------
Net income (loss) $ 52,419 $ 19,140 $ 94,804 $ (35,925)
=========== ========== =========== ===========
Income (loss) per
common share $.01 $.01 $.03 $(.01)
==== ==== ==== ======
See notes to consolidated condensed financial statements.
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
September 30, December 31,
1997 1996(A)
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(Unaudited)
Assets
Current Assets:
Cash and cash equivalents $ 3,545,574 $ 4,579,273
Restricted cash 143,557 137,896
Accounts receivable, less allowances
of $135,000 at September 30, 1997
and $154,000 at December 31, 1996 826,180 461,269
Inventories 147,273 156,648
Prepaid expenses and other current
assets 50,172 85,278
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Total current assets 4,712,756 5,420,364
Property and Equipment:
Land 168,358 168,358
Buildings and improvements 1,391,240 1,221,531
Machinery and equipment 1,421,419 1,144,191
Leasehold improvements 587,084 265,556
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3,568,101 2,799,636
Less accumulated depreciation 906,432 716,728
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2,661,669 2,082,908
Deferred expenses and other assets 50,704 49,017
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$ 7,425,129 $ 7,552,289
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Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 153,619 $ 148,660
Accrued expenses 275,123 182,986
Current portion of long-term debt 547,260 560,120
Income taxes payable 51,664
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Total current liabilities 1,027,666 891,766
Long-term debt, less current portion 301,185 215,466
Advances from parent 129,913 369,547
Minority interest in subsidiaries 80,773 75,472
Commitments and Contingencies
Stockholder's Equity:
Common stock, $.01 par value, authorized
20,000,000 shares; September 30, 1997 -
3,588,844 shares issued, 3,488,844 shares
outstanding; December 31, 1996 - 3,588,844
shares issued and outstanding 35,888 35,888
Capital in excess of par value 3,748,595 3,748,595
Retained earnings 2,310,359 2,215,555
Treasury stock at cost; 100,000 shares
at September 30, 1997 (206,250)
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Total stockholders' equity 5,888,592 6,000,038
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$ 7,425,129 $ 7,552,289
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(A) Reference is made to the Company's Annual Report on Form 10-K for the
year ended December 31, 1996 filed with the Securities and Exchange
Commission in March 1997.
See notes to consolidated condensed financial statements.
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
September 30,
----------------------------
1997 1996
---- ----
Operating activities:
Net income (loss) $ 94,804 $ (35,925)
Adjustments to reconcile net income
(loss) to net cash used in by
operating activities:
Depreciation 204,244 145,101
Amortization 9,715 7,879
Bad debt expense 31,210 103,734
Minority interest 9,267 (6,943)
Increase (decrease) relating to
operating activities from:
Accounts receivable (396,121) (100,245)
Inventories 9,375 (20,919)
Prepaid expenses and other
current assets 35,106 (46,796)
Accounts payable 4,959 (257,237)
Accrued expenses 92,137 (50,059)
Income taxes payable 51,664
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Net cash provided by (used in)
operating activities 146,360 (261,410)
Investing activities:
Additions to property and equipment,
net of minor disposals (610,005) (89,473)
Proceeds from restricted cash 348,286 333,314
Restricted cash (353,947) (338,615)
Deferred expenses and other assets (11,402) 119,826
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Net cash (used in) provided by
investing activities (627,068) 25,052
Financing activities:
Net proceeds from securities offering 3,445,158
(Decrease) increase in advances
from parent (242,634) 345,010
Repurchase of stock (206,250)
Payments on long-term debt (100,141) (78,439)
Proceeds from exercise of stock options 7,500
Dividend payments to minority shareholder (3,966) (6,107)
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Net cash (used in) provided by
financing activities (552,991) 3,713,122
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(Decrease) increase in cash and
cash equivalents (1,033,699) 3,476,764
Cash and cash equivalents at beginning
of period 4,579,273 1,061,351
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Cash and cash equivalents at end of period $3,545,574 $4,538,115
=========== ===========
See notes to consolidated condensed financial statements.
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
September 30, 1997
(Unaudited)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include the accounts of Dialysis
Corporation of America ("DCA") and its subsidiaries, collectively referred
to as the "Company." All material intercompany accounts and transactions
have been eliminated in consolidation. The Company is a 69.1% owned sub-
sidiary of Medicore, Inc. (the "Parent").
Interest and Other Income
Interest and other income is comprised as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
1997 1996 1997 1996
---- ---- ---- ----
Rental income $ 31,925 $ 26,912 $ 88,792 $ 75,919
Interest income 45,822 57,092 145,462 111,265
Other income 24,224 19,530 35,238 22,845
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$ 101,971 $ 103,534 $ 269,492 $ 210,029
========= ========= ========= =========
Income per Common Share
Income (loss) per share has been computed on the basis of the weighted
average number of shares outstanding plus dilutive common equivalent shares
using the modified treasury stock method for 1997 and on the basis of
weighted average shares outstanding for 1996.
New Pronouncements
In February 1997, the Financial Accounting Standards Board issued
FAS 128, "Earnings Per Share," which is required to be adopted on Decem-
ber 31, 1997. At that time, the Company will be required to change the
method currently used for computing earnings per share and to restate all
prior periods. The new requirements for calculating primary earnings per
share will exclude the dilutive effect of stock options. This change would
have increased reported earnings per share under the basic computation
required by FAS 128 to $.02 for the three months ended September 30, 1997
with earnings per share for the nine months ended September 30, 1997
remaining unchanged. Earnings per share under the diluted computation
required under FAS 128, which will include stock options using the
treasury stock method and average market price, would have yielded the
same result as the present primary computation for the three months and
nine months ended September 30, 1997. The new requirements would not have
affected reported earnings per share for the three months and nine months
ended September 30, 1996 since stock options were not included in that
computation.
Reclassifications
Certain reclassifications have been made to the 1996 financial state-
ments to conform to the 1997 presentation.
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS-(Continued)
September 30, 1997
(Unaudited)
NOTE 2--INTERIM ADJUSTMENTS
The financial summaries for the three months and nine months ended
September 30, 1997 and September 30, 1996 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 and nine months
ended September 30, 1997 are not necessarily indicative of the results
that may be expected for the entire year ending December 31, 1997.
While the Company believes that the disclosures presented are adequate
to make the information not misleading, it is suggested that these Consoli-
dated 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, 1996.
NOTE 3--LONG TERM DEBT
The remaining combined principal balance under the Company's mortgages
on its buildings in Pennsylvania and Maryland amounted to approximately
$450,000 and $504,000 at September 30, 1997 and December 31, 1996, respec-
tively. The bank has the right to demand repayment on the outstanding
balance of the borrowings under these mortgages which have accordingly
been classified as current liabilities. At December 31, 1996, the Company
was in violation of certain covenants under these loans principally
relating to net worth and debt service ratio requirements. The lender
waived compliance with these covenants through December 31, 1997.
The Company has an equipment purchase agreement for kidney dialysis
machines for its facilities in Pennsylvania and Florida. Monthly payments
were originally $4,435 commencing September 1995, including principal and
interest, through June 2000 with additional monthly payments on new
financing as follows: $2,750 on 1996 financing commencing December 1996,
including principal and interest through September 2001 with interest at
12%; additional monthly payments of $344 commencing March 1997, including
principal and interest through February 2002, with interest at 8%; addi-
tional monthly payments of $975 commencing June 1997, including principal
and interest through May 2002, with interest at 8.7%; and additional
monthly payments of $2,194 commencing July 1997, including principal and
interest through June 2002, with interest at 8.7%. The initial principal
balance of $195,130, additional financing of $124,096 in 1996, $17,000 in
March 1997, $48,000 in June 1997 and $108,000 in July 1997, net of down
payments, represent noncash financing activities which is a supplemental
disclosure required by FAS 95. The remaining principal balance under this
agreement amounted to approximately $398,000 and $272,000 at September 30,
1997 and December 31, 1996, respectively. In conjunction with the sale of
its Florida dialysis operations on October 31, 1997, the purchaser assumed
a portion of the financing liabilities which amounted to approximately
$113,000 as of September 30, 1997, which is included in the balance out-
standing of $398,000 at that date.
The prime rate was 8.5 % as of September 30, 1997 and 8.25% as of
December 31, 1996.
Interest payments on long-term debt above amounted to approximately
$21,000 and $58,000 for the three months and nine months ended September 30,
1997 and $18,000 and $55,000 for the same periods of the preceding year.
NOTE 4--INCOME TAXES
The Company was included in the consolidated federal and state income
tax returns of the Parent until the completion of its public offering in
April 1996. Subsequent to the completion of the Company's public offering,
the Company files separate federal and state income tax returns with the
income tax liability reflected on a separate return basis with its
previously available net operating loss carryforwards having been utilized
prior to completion of its public offering.
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS-(Continued)
September 30, 1997
(Unaudited)
NOTE 4--INCOME TAXES--Continued
Deferred income taxes reflect the net tax effect of temporary dif-
ferences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Income tax payments were approximately $12,000 for the three months
and nine months ended September 30, 1997 with no payments for the same
periods of the preceding year.
NOTE 5--TRANSACTIONS WITH PARENT
The Parent provides certain administrative services to the Company in-
cluding office space and general accounting assistance. These expenses and
all other central operating costs are charged on the basis of direct usage,
when identifiable, or on the basis of time spent. In the opinion of
management, this method of allocation is reasonable. The amount of
expenses allocated by the Parent totaled approximately $60,000 and
$180,000 for the three months and nine months ended September 30, 1997,
and for the same periods of the preceding year.
The Company has an intercompany advance payable to the Parent of ap-
proximately $127,000 and $370,000 at September 30, 1997 and December 31,
1996, respectively, which bears interest at the short-term Treasury Bill
rate. Interest on this intercompany advance amounted to approximately
$2,000 and $6,000 for the three months and nine months ended September 30,
1997, and $5,000 and $10,000 for the same periods of the preceding year,
which is included in the intercompany advance payable. The Parent has
agreed not to require repayment of the intercompany advances prior to
October 1, 1998 and therefore, the advances have been classified as
long-term at September 30, 1997.
NOTE 6--STOCK OPTIONS
In November, 1995, the Company adopted a stock option plan for up to
250,000 options. Pursuant to this plan, in November, 1995, the Board of
Directors granted 210,000 options to certain of its officers, directors,
employees and consultants of which 187,000 options were outstanding at
September 30, 1997. These options are exercisable for a period of five
years through November 9, 2000 at $1.50 per share.
In August 1996, the Board of Directors granted 15,000 options to the
medical directors at its three kidney dialysis centers. These options are
exercisable for a period of 3 years through August 18, 1999 at $4.75 per
share.
NOTE 7--COMMON STOCK
In June 1997, the Company reacquired 100,000 shares of its common
stock at a cost of $206,250 with these shares reflected as treasury stock
in the balance sheet.
NOTE 8--COMMITMENTS AND CONTINGENCIES
Effective January 1, 1997 the Company established a 401(k) savings
plan (salary deferral plan) with an eligibility requirement of 1 year of
service and 21 year old age requirement.
NOTE 9 - SUBSEQUENT EVENTS
On October 31, 1997, the Company concluded a sale ("Sale") of substan-
tially all of the assets of two of its 80% owned subsidiaries, Dialysis
Services of Florida, Inc. - Ft. Walton Beach ("DSF") (dialysis operations)
and Dialysis Medical, Inc. ("DMI") (Florida Method 2 home patient opera-
tions), and an in-patient hospital service agreement of its 100% owned
subsidiary,
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS-(Continued)
September 30, 1997
(Unaudited)
NOTE 9 - SUBSEQUENT EVENTS--Continued
DCA Medical Services, Inc. pursuant to an Asset Purchase Agreement. Con-
sideration for the assets sold was $5,065,000 consisting of $4,585,000 in
cash and $480,000 of the purchaser's common stock which the purchaser has
agreed to register within one year. Provided that the shares are sold
within 30 days of their registration, the purchaser has agreed to make up
any difference by which the sales proceeds are less then $480,000 in cash
or additional registered shares of the purchaser at its discretion.
The pro forma consolidated condensed financial information presented
below reflects the Sale if it had occurred on January 1, 1996 for purposes
of Statement of Operations information and as if it had occurred at the end
of the period for purposes of balance sheet information. For purposes of
pro forma statement of operations information, no assumption has been made
that expenses have been eliminated which were included in corporate expense
allocations by the Company and the Company's parent, Medicore, Inc., to the
business operations sold and which were included in the actual results of
operations of these businesses. Such expenses which amounted to approxi-
mately $105,000 and $187,000 for the nine months ended September 30, 1997
and September 30, 1996, respectively, have accordingly not been removed
when computing the below pro forma amounts.
No assumption has been included in the pro forma information as to in-
vestment income to be realized from investment of the proceeds of the Sale.
If the estimated after tax proceeds of approximately $2,985,000 based on
$4,585,000 cash proceeds at closing and estimated taxes of $1,600,000 were
assumed to have been invested in short-term Treasury Bills at the current
estimated yield of 5.15% for the entire periods presented pending decision
as to other investment of the funds, estimated interest income of $111,000
would have been earned for both the nine months ended September 30, 1997
and for the same period of the preceding year which has not been reflected
in the pro forma revenues or income information.
The summary pro forma information is not necessarily representative of
what the Company's results of operations would have been if the Sale had
actually occurred as of January 1, 1997 and may not be indicative of the
Company's financial position or operating results for any future periods.
SUMMARY PRO FORMA INFORMATION
Statement of Operations Information
- -----------------------------------
Nine Months Ended
September 30,
---------------------------
1997 1996
---- ----
Total revenue $2,114,000 $1,494,000
========== ==========
Net (loss) $ (148,000) $ (339,000)
========== ==========
Loss per common share $(.04) $(.11)
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Balance Sheet Information
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Total assets $11,694,000
===========
Total liabilities $ 3,601,000
===========
Total stockholders' equity $ 8,093,000
===========
The Company has preliminarily estimated that it will record a gain on
the Sale of approximately $2,700,000 as of October 31, 1997, representing
an estimated pre-tax gain of approximately $4,300,000, net of estimated
income taxes of approximately $1,600,000, of which approximately $528,000
of the net after tax gain relates to the 20% minority interest in two of
the subsidiaries whose assets were sold. This gain is not reflected in
the above pro forma information. The actual gain will be subject to the
actual amount of net assets sold as of October 31, 1997 and related costs
of the transaction.
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------ ---------------------------------------------------------------
Results of Operations
- ---------------------
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, as amended (the "Securities
Act"), and Section 21E of the Securities Exchange Act of 1934 (the "Ex-
change Act"), including statements regarding the Company's expectations,
intentions, beliefs, or strategies regarding the future. Forward looking
statements include the Company's statements regarding liquidity, antici-
pated cash needs and availability, and anticipated expense levels in
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" including anticipated development and acquisition of
dialysis centers, new facility completions and related anticipated costs.
All forward looking statements included in this document are based on
information available to the Company on the date hereof, and the Company
assumes no obligation to update any such forward looking statement. It is
important to note that the Company's actual results could differ materially
from those in such forward looking statements. Among the factors that
could cause actual results to differ materially are the factors detailed
in the risks discussed in the "Risk Factors" section included in the
Company's Registration Statement Form SB-2, as filed with the Securities
and Exchange Commission (effective on April 17, 1996).
The dialysis industry is highly competitive and subject to extensive
regulation, including the limitation on fees for dialysis treatments and
services. Significant competitive factors include quality of care and
service, convenience of location and pleasant environment. Additionally,
there is intense competition for retaining qualified nephrologists who
normally are the sole source of patient referrals and are responsible for
the supervision of the dialysis centers. There is also substantial compe-
tition for obtaining qualified nurses and technical staff. Major companies,
some of which are public companies or divisions of public companies, have
many more centers, physicians and financial resources than does the
Company, and by virtue of such have a significant advantage in competing
for acquisitions of dialysis facilities in areas targeted by the Company.
The Company's future growth depends primarily on the availability of
suitable dialysis centers for acquisition or development in appropriate and
acceptable areas, and the Company's ability to compete with larger com-
panies with greater personnel and financial resources to develop these
new potential dialysis centers at costs within the budget of the Company.
Its ability to retain qualified nephrologists, nursing and technical staff
at reasonable rates is also a significant factor. Management continues in
negotiations with nephrologists for the acquisition or development of new
dialysis facilities, as well as with hospitals and other health care main-
tenance entities. On July 1997, the Company opened a new center in
Carlisle, Pennsylvania. New centers are planned for New Jersey and
Pennsylvania. On October 31, 1997, the Company sold its Fort Walton
Beach, Florida dialysis operations. See Note 9 to "Notes to Consolidated
Condensed Financial Statements." Several agreements for acute inpatient
services are under review but there is no assurance that such agreements
will be completed. There is no certainty as to when any new centers or
service contracts will be implemented, or the number of stations, or
patient treatments such may involve, or if such will ultimately be
profitable. As noted below, newly established dialysis centers, although
contributing to increased revenues, also adversely affect results of
operations due to start-up costs and expenses with a smaller developing
patient base.
Results of Operations
Medical service revenue increased approximately $311,000 (32%) and
$521,000 (18%) for the three months and nine months ended September 30,
1997 compared to the same periods of the preceding year. This increase
included increased revenues of approximately $170,000 (45%) and $487,000
(52%) for the three months and nine months ended September 30, 1997
compared to the same periods of the preceding year at the Company's
dialysis center in Lemoyne, Pennsylvania which commenced treatments
in September 1995. Also included were revenues of $82,000 for the
three months and nine months ended September 30, 1997 for the Company's
new dialysis center in Carlisle, Pennsylvania which commenced treatments
in July 1997.
Interest and other income remained relatively stable for the three
months ended September 30, 1997 compared to the same period of the
preceding year and increased approximately $59,000 for the nine months
ended September 30, 1997 compared to the same period of the preceding
year largely due to interest earned on proceeds invested from the
Company's security offering completed in the second quarter of 1996.
Results of Operations-Continued
Cost of medical services sales decreased to 60% and 61% for the three
months and nine months ended September 30, 1997 compared to 66% for the
same periods of the preceding year, as a result of decreases as a per-
centage of sales in supply costs and healthcare salaries.
Selling, general and administrative expenses increased approximately
$96,000 and $194,000 for the three months and nine months ended September
30, 1997 compared to the same periods of the preceding year which included
the new dialysis center in Carlisle, Pennsylvania and some other increases
as a result of increased revenues. Selling general and administrative
expenses as a percentage of medical service revenues decreased to 38% and
40% for the three months and nine months ended September 30, 1997 compared
to 41% for the same periods of the preceding year.
Interest expense remained relatively stable for the three months and
nine months ended September 30, 1997 compared to the same periods of the
preceding year. Decreases in interest on the advances payable to the
Parent for the three months and nine months ended September 30, 1997
were offset by increases in interest on equipment purchase agreements
for dialysis machines as a result of additional equipment financing.
The prime rate was 8.5% at September 31, 1997 and 8.25% at December 31,
1996.
Liquidity and Capital Resources
Working capital totaled $6,397,000 at September 30, 1997, which re-
flected a decrease of approximately $263,000 during the nine months ended
September 30, 1997. Included in the changes in components of working
capital was a decrease in cash and cash equivalents of $1,034,000, which
included net cash provided by operating activities of $146,000, net cash
used in investing activities of $627,000 primarily relating to additions
to property and equipment (of which $483,000 are for the new Carlisle,
Pennsylvania facility with the majority of the other additions for reno-
vations and improvements to the Company building in Lemoyne, Pennsylvania)
and net cash used in financing activities of $553,000 (including a decrease
in the advances from the Parent of $243,000, repurchase of stock of
$206,000 and debt repayments of $100,000).
During 1988, the Company obtained mortgages totaling $1,080,000 on its
two buildings, one in Lemoyne, Pennsylvania and the other in Easton,
Maryland. The mortgages had a combined remaining balance of $450,000
and $504,000 at September 30, 1997 and December 31, 1996, respectively.
The bank has liens on the real and personal property of the Company,
including a lien on all rents due and security deposits from the rental
of these properties. At December 31, 1996, the Company was in default
of certain covenants principally relating to net worth and debt service
ratio requirements under these loan agreements for which the lender has
waived compliance through December 31, 1997. See Note 3 to "Notes to
Consolidated Condensed Financial Statements."
The Company has an equipment purchase agreement for kidney dialysis
machines for its Florida and Pennsylvania dialysis facilities which had a
remaining balance of $398,000 and $272,000 at September 30, 1997 and
December 31, 1996, respectively, which included additional equipment
financing of approximately $17,000 in the first quarter of 1997, $48,000
in the second quarter of 1997 and $108,000 in the third quarter of 1997.
See Note 3 to "Notes to Consolidated Condensed Financial Statements."
On October 31, 1997, the Company concluded a sale of substantially all
of the assets of its Florida dialysis operations for considerations of
$5,065,000, of which $4,585,000 was received in cash at closing and
$480,000 in common stock of the purchaser. The purchaser assumed approx-
imately $113,000 of the financing liabilities under the equipment purchase
agreement. The Company has preliminarily estimated an after tax gain of
approximately $2,700,000 of which approximately $528,000 relates to the
20% minority interest in two of the subsidiaries whose assets were sold.
See Notes 3 and 9 to "Notes to Consolidated Condensed Financial Statements."
The Company believes that current levels of working capital, in-
cluding the proceeds of its 1996 securities offering and the proceeds
from the sale of its Florida dialysis operations, will enable it to
successfully meet its liquidity demands for at least the next twelve
months.
The Company, although having sold its Florida dialysis operations in
October 1997, is seeking to expand its outpatient dialysis treatment
facilities and inpatient dialysis services. Such expansion, whether
through acquisitions of existing centers, or the development of its own
dialysis centers, requires capital, which was the basis for the Company's
1996 security offering and sale of its Florida operations. No assurance
can be given that the Company will be successful in implementing its
growth strategy or that the funds from its securities offering will be
adequate to finance such expansion.
Liquidity and Capital Resources-Continued
In June 1997, the Company repurchased 100,000 shares of its common
stock for $206,250. See Note 7 to "Notes to Consolidated Condensed
Financial Statements."
The Company commenced operations at its newly established dialysis
center in Carlisle, Pennsylvania in July 1997 and is in the process of
establishing new dialysis centers in New Jersey and Pennsylvania.
Impact of Inflation
Inflationary factors have not had a significant effect on the
Company's operations, although the Company has experienced increased
costs of supplies, salaries and general and administrative expenses.
A substantial portion of the Company's revenue is subject to reimburse-
ment 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 voluntarily increased to keep pace
with increases in nursing and other patient care costs.
PART II-OTHER INFORMATION
-------------------------
Item 5. Other Information
- ------ -----------------
The Company sold substantially all of the assets of its Florida
dialysis operations on October 31, 1997 for the aggregate consideration
of $5,065,000. See Notes 3 and 9 of "Notes to Consolidated Condensed
Financial Statements." The sale of the assets has been reported by the
Company in its Current Report on Form 8-K dated November 12, 1997.
Item 6. Exhibits and Reports on Form 8-K
- ------ --------------------------------
(a) Exhibits
Part I Exhibits
(11) Statement re: computation of per share earnings.
(27) Financial Data Schedule (for SEC use only)
Part II Exhibits
(10) Material Contracts
(i) Asset Purchase Agreement by and among the Company,
Dialysis Services of Florida, Inc. - Fort Walton
Beach, DCA Medical Services, Inc., Dialysis Medical,
Inc., Renal Care Group, Inc., Renal Care Group of the
Southeast, Inc. and Henry M. Haire, M.D., dated
October 31, 1997 (incorporated by reference to the
Company's Current Report on Form 8-K dated November
12, 1997, Part II, Item 7(c)(2.1)).
(b) Reports on Form 8-K
For the quarter ended September 30, 1997, the Company filed a
Current Report on Form 8-K on August 29, 1997 with respect to
Item 5, "Other Events" relating to an agreement for In-Hospital
Dialysis Service; there were no financial statements filed.
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/ DANIEL R. OUZTS
-------------------------------
DANIEL R. OUZTS, Vice
President/Finance, Controller,
Principal Financial Officer and
Treasurer
Dated: November 13, 1997
EXHIBIT INDEX
Exhibit
No.
- -------
Part I Exhibits
(11) Statement re: computation of per share earnings (loss)
(27) Financial Data Schedule (for SEC use only)
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
EXHIBIT 11 -- COMPUTATION OF EARNINGS (LOSS) PER SHARE
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ---------------------
1997 1996 1997 1996
---- ---- ---- ----
Primary and Fully Diluted
Weighted average shares
outstanding 3,488,884 3,585,453 3,545,987 3,119,304
========== ==========
Net effect of dilutive
stock options based on
the modified treasury
stock method 43,888 91,048
---------- ----------
3,532,732 3,637,035
========== ==========
Net income (loss) $ 52,419 $ 19,140 $ 94,804 $ (35,925)
========== ========== ========== ==========
Net income (loss) per
share $.01 $.01 $.03 $(.01)
==== ==== ==== ======