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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, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________________ to __________________
Commission file number 0-6906
MEDICORE, INC.
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(Exact name of registrant as specified in its charter)
Florida 59-0941551
- --------------------------------------------- -------------------
(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) 558-4000
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(Registrant's telephone number, including area code)
NOT APPLICABLE
(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 - 6,524,275 shares as of October 31, 2003.
MEDICORE, INC. AND SUBSIDIARIES
INDEX
PART I -- FINANCIAL INFORMATION
- ------ ---------------------
The Consolidated Condensed Statements of Income (Unaudited) for the
three months and nine months ended September 30, 2003 and September 30, 2002
include the accounts of the Registrant and all its subsidiaries.
Item 1. Financial Statements
- ------ --------------------
1) Consolidated Condensed Statements of Income (Unaudited) for the three
months and nine months ended September 30, 2003 and September 30,
2002.
2) Consolidated Condensed Balance Sheets as of September 30, 2003
(Unaudited) and December 31, 2002.
3) Consolidated Condensed Statements of Cash Flows (Unaudited) for the
nine months ended September 30, 2003 and September 30, 2002.
4) Notes to Consolidated Condensed Financial Statements as of September
30, 2003 (Unaudited).
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------ ---------------------------------------------------------------
Results of Operations
- ---------------------
Item 3. Quantitative and Qualitative Disclosures about Market Risk
- ------ ----------------------------------------------------------
Item 4. Controls and Procedures
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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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PART I -- FINANCIAL INFORMATION
---------------------------------
Item 1. Financial Statements
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MEDICORE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
2003 2002 2003 2002
---- ---- ---- ----
Revenues:
Sales:
Product sales $ 189,703 $ 215,550 $ 624,484 $ 677,270
Medical service revenues 7,535,530 6,698,140 21,697,427 18,501,663
----------- ----------- ----------- -----------
Total sales 7,725,233 6,913,690 22,321,911 19,178,933
Other income 226,042 208,350 630,512 649,767
Gain on sale of securities 784,005 --- 784,005 ---
----------- ----------- ----------- -----------
8,735,280 7,122,040 23,736,428 19,828,700
Cost and expenses:
Cost of sales:
Cost of product sales 115,275 114,927 389,381 401,777
Cost of medical services 4,706,470 3,980,171 13,425,840 11,091,883
----------- ----------- ----------- -----------
Total cost of sales 4,821,745 4,095,098 13,815,221 11,493,660
Selling, general and administrative
expenses 3,207,620 2,194,045 8,450,411 6,415,588
Provision for doubtful accounts 3,424 184,183 258,487 612,366
Interest expense 50,103 69,618 155,136 188,148
----------- ----------- ----------- -----------
8,082,892 6,542,944 22,679,255 18,709,762
----------- ----------- ----------- -----------
Income before income taxes, minority
interest and equity in affiliate
earnings (loss) 652,388 579,096 1,057,173 1,118,938
Income tax provision 252,920 221,307 527,271 459,130
----------- ----------- ----------- -----------
Income before minority interest and equity
in affiliate earnings (loss) 399,468 357,789 529,902 659,808
Minority interest in income of
consolidated subsidiaries 177,962 179,168 437,708 390,255
Equity in affiliate earnings (loss) 8,687 (2,232) 30,320 58,093
----------- ----------- ----------- -----------
Net income $ 230,193 $ 176,389 $ 122,514 $ 327,646
=========== =========== =========== ===========
Earnings per share:
Basic $.04 $.03 $.02 $.05
==== ==== ==== ====
Diluted $.03 $.02 $.01 $.04
==== ==== ==== ====
See notes to consolidated condensed financial statements.
MEDICORE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
September 30, December 31,
2003 2002(A)
----------- -----------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $10,789,397 $ 8,080,903
Accounts receivable, less allowance of
$743,000 at September 30, 2003 and
$842,000 at December 31, 2002 4,507,946 3,571,847
Note receivable --- 2,250,000
Receivable from sale of Techdyne 384,253 1,100,000
Inventories, less allowance for obsolescence
of $90,000 at September 30, 2003 and
$122,000 at December 31,2002 1,275,982 ,146,610
Prepaid expenses and other current assets 1,991,687 2,542,654
Deferred income taxes 467,000 467,000
----------- -----------
Total current assets 19,416,265 19,159,014
----------- -----------
Property and equipment
Land and improvements 1,027,108 1,027,108
Building and building improvements 3,233,024 3,222,663
Equipment and furniture 6,059,610 5,414,252
Leasehold improvements 3,007,926 2,730,162
----------- -----------
13,327,668 12,394,185
Less accumulated depreciation and amortization 5,365,744 4,474,339
----------- -----------
7,961,924 7,919,846
----------- -----------
Receivable from sale of Techdyne --- 295,000
Other assets 643,350 378,730
Goodwill 2,291,333 923,140
----------- -----------
Total other assets 2,934,683 1,596,870
----------- -----------
$30,312,872 $28,675,730
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 1,133,945 $ 1,409,344
Accrued expenses and other current liabilities 4,397,524 2,828,823
Current portion of long-term debt 602,000 614,362
----------- -----------
Total current liabilities 6,133,469 4,852,529
----------- -----------
Long-term debt 2,237,832 2,727,105
Deferred income taxes 744,000 744,000
Minority interest in subsidiaries 4,674,620 3,870,024
----------- -----------
Total liabilities 13,789,921 12,193,658
----------- -----------
Commitments and Contingencies
Stockholders' equity:
Common stock, $.01 par value; authorized 12,000,000 shares;
6,524,275 shares issued and outstanding at September 30, 2003;
6,572,775 shares issued and outstanding at December 31,2002 65,242 65,727
Capital in excess of par value 12,691,208 12,772,358
Retained earnings 3,766,501 3,643,987
----------- -----------
Total stockholders' equity 16,522,951 16,482,072
----------- -----------
$30,312,872 $28,675,730
=========== ===========
(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 March, 2003.
See notes to consolidated condensed financial statements.
MEDICORE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
September 30,
-------------------------
2003 2002
---- ----
Operating activities:
Net income $ 122,514 $ 327,646
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation 910,514 838,705
Amortization 1,735 3,485
Bad debt expense 258,487 612,366
Inventory obsolescence provision (credit) (15,260) (20,000)
Minority interest 437,707 390,255
Equity in affiliate (earnings) loss (30,320) (58,093)
Stock option expense 18,668 3,750
Gain on sale of securities (784,005) ---
Increase (decrease) relating to operating activities from:
Accounts receivable (1,194,586) (511,253)
Inventories (114,112) (152,922)
Prepaid expenses and other current assets 75,369 (707,202)
Accounts payable (275,399) (752,653)
Accrued expenses and other current liabilities 998,701 632,308
Income taxes payable --- (2,211,497)
----------- -----------
Net cash provided by (used in) operating activities 410,013 (1,605,105)
----------- -----------
Investing activities:
Additions to property and equipment, net of minor disposals (924,606) (531,110)
Proceeds from sale of securities 3,541,081 ---
Distributions from affiliate 77,000 ---
Notes receivable --- (110,000)
Loans to physician affiliates (150,000) ---
Earn-out payment on sale of Techdyne 1,010,747 1,105,000
Purchase of minority interests in subsidiaries (670,000) (300,000)
Capital contributions by subsidiaries' minority members 202,382 8,570
Acquisition of dialysis center (75,000) (550,000)
Other assets 4,527 17,999
----------- -----------
Net cash provided by (used in) investing activities 3,016,131 (367,541)
----------- -----------
Financing activities:
Line of credit net payments (79,157) (83,373)
Payments on long-term borrowings (422,478) (258,180)
Repurchase of company stock (66,610) (10,745)
Repurchase of stock by subsidiary (42,000) ---
Exercise of subsidiary stock options 11,250 ---
Distribution to subsidiaries' minority members (118,655) ---
----------- -----------
Net cash used in financing activities (717,650) (352,298)
----------- -----------
Increase (decrease) in cash and cash equivalents 2,708,494 (2,324,944)
Cash and cash equivalents at beginning of period 8,080,903 10,359,372
----------- -----------
Cash and cash equivalents at end of period $10,789,397 $ 8,034,428
=========== ===========
See notes to consolidated condensed financial statements.
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
September 30, 2003
(Unaudited)
NOTE 1--Summary of Significant Accounting Policies
Consolidation
The consolidated condensed financial statements include the accounts of
Medicore, Inc., and Medicore's 61% owned subsidiary, Dialysis Corporation of
America. Medicore and its subsidiaries are collectively referred to as the
"company," "Medicore," "we," "us" or "our." All material intercompany
accounts and transactions have been eliminated in consolidation. Dialysis
Corporation of America has a 40% interest in an Ohio dialysis center it
manages, which is accounted for by the equity method and not consolidated for
financial reporting purposes.
Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to
make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes.
Our 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.
Revenue Recognition
We follow 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. Product sales are recorded
pursuant to agreed upon shipping terms.
Accrued Expenses
Accrued expenses is comprised as follows:
September 30, December 31,
2003 2002
----------- -----------
Accrued compensation $ 1,361,380 $ 909,763
Due to insurance companies 1,536,101 1,271,235
Payable subsidiaries' minority
interests acquisition 670,000 ---
Insurance premiums payable 242,243 65,544
Other 587,800 582,281
----------- -----------
$ 4,397,524 $ 2,828,823
=========== ===========
Vendor Concentration
Our medical services segment purchases erythropoietin (EPO) from one
supplier which comprised 37% of medical service cost of sales for the three
months and nine months ended September 30, 2003 and 34% and 33% for the same
periods 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
service revenues for the three months and nine months ended September 30,
2003 and 27% and 25% for the same periods of the preceding year.
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
September 30, 2003
(Unaudited)
NOTE 1--Summary of Significant Accounting Policies--(Continued)
Advertising Costs
We expense advertising costs as incurred. Advertising expenses amounted
to $1,000 and $54,000 for the three months and nine months ended September
30, 2003 and $14,000 and $36,000 for the same periods of the preceding year.
Other Income
Other income is comprised as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
2003 2002 2003 2002
---- ---- ---- ----
Interest income $ 28,766 $ 86,080 $ 92,882 $ 263,464
Rental income 76,530 74,029 233,778 220,198
Management fee income 81,581 40,884 233,816 135,029
Other 39,165 7,357 70,036 31,076
---------- ---------- ---------- ----------
$ 226,042 $ 208,350 $ 630,512 $ 649,767
========== ========== ========== ==========
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 and
warrants, 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 Nine Months Ended
September 30, September 30,
------------------------- -------------------------
2003 2002 2003 2002
---- ---- ---- ----
Net income, numerator-basic computation $ 230,193 $ 176,389 $ 122,514 $ 327,646
Adjustment due to subsidiaries'
dilutive securities (17,542) (23,937) (37,915) (57,809)
---------- ---------- ---------- ----------
Net income as adjusted, numerator-diluted
computation $ 212,651 $ 152,452 $ 84,599 $ 269,837
========== ========== ========== ==========
Weighted average shares-denominator
basic computation 6,551,775 6,599,786 6,556,266 6,600,110
Effect of dilutive stock options 136,198 10,071 45,399 105,526
---------- ---------- ---------- ----------
Weighted average shares, as adjusted-
denominator diluted computation 6,687,973 6,609,857 6,601,665 6,705,636
========== ========== ========== ==========
Earnings per share:
Basic $.04 $.03 $.02 $.05
==== ==== ==== ====
Diluted $.03 $.02 $.01 $.04
==== ==== ==== ====
The company's potentially dilutive securities consist of stock options.
See Note 5.
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
September 30, 2003
(Unaudited)
NOTE 1--Summary of Significant Accounting Policies--(Continued)
Goodwill
Goodwill represents cost in excess of net assets acquired. Pursuant to
Statement of Financial Accounting Standards Board Statement 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 our acquisition of minority interests in August, 2001 and June, 2003,
and the goodwill resulting from our acquisition of Georgia dialysis centers
in April, 2002 and April, 2003, are not being amortized for book purposes and
are subject to the annual impairment testing provisions of FAS 142. See Note
10.
Stock-Based Compensation
We follow the intrinsic method of Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
interpretations in accounting for our 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. We have 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 our 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
and Dialysis Corporation of America had accounted for employee stock options
under the fair value method of that Statement.
The fair value of Dialysis Corporation of America's options was
estimated at the date of grant using a Black-Scholes option pricing model
with the following weighted-average assumptions for option grants 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 our common stock of 1.15 and 1.14, and a weighted-average expected
life of 5 years and 4 years. See Note 5.
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 our 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. Our pro
forma information, which includes the pro forma effects related to our
interest in Dialysis Corporation of America pro forma adjustments, follows:
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
September 30, 2003
(Unaudited)
NOTE 1--Summary of Significant Accounting Policies--(Continued)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
2003 2002 2003 2002
---- ---- ---- ----
Net income, as reported $ 230,193 $ 176,389 $ 122,514 $ 327,646
Stock-based employee compensation expense
under fair value method, net of
related tax effects (10,686) (9,534) (30,241) (22,104)
Pro forma net income-basic computation 219,507 166,855 92,273 305,542
Subsidiary dilutive securities (17,542) (23,937) (26,332) (57,809)
----------- ----------- ---------- -----------
Pro forma net income-diluted computation $ 201,965 $ 142,918 $ 65,941 $ 247,733
=========== =========== =========== ===========
Earnings per share:
Basic, as reported $.04 $.03 $.02 $.05
==== ==== ==== ====
Basic, pro forma $.03 $.03 $.01 $.05
==== ==== ==== ====
Diluted, as reported $.03 $.02 $.01 $.04
==== ==== ==== ====
Diluted, pro forma $.03 $.02 $.01 $.04
==== ==== ==== ====
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 our 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 applicable on a prospective basis to
guarantees issued or modified after December 31, 2002. We do not expect FIN
45 to have a material impact on our 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. We adopted the transition guidance and
annual disclosure provisions of FAS 148 commencing 2002 and have adopted the
interim disclosure provisions of FAS 148 commencing 2003. We are subject to
the expanded disclosure requirements of FAS 148, but we do not expect FAS 148
to otherwise have a material impact on our consolidated results of
operations, financial position or cash flows.
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
September 30, 2003
(Unaudited)
NOTE 1--Summary of Significant Accounting Policies--(Continued)
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. We do not expect FIN 46 to have a material impact on our
financial position or results of operations.
In May, 2003, the FASB issued Statement of Financial Accounting
Standards No. 150, "Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity" (FAS 150), which addresses
how to classify and measure certain financial instruments with
characteristics of both liabilities (or an asset in some circumstances) and
equity. FAS 150 applies to issuers' classification and measurement of
freestanding financial instruments, including those that comprise more than
one option or forward contract. FAS 150 is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise is
effective at the beginning of the first interim period beginning after June
15, 2003. We do not expect FAS 150 to have a material impact on our results
of operations, financial position or cash flows.
NOTE 2--Interim Adjustments
The financial summaries for the three months and nine months ended
September 30, 2003 and September 30, 2002, are unaudited and include, in the
opinion of our management, 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,
2003, are not necessarily indicative of the results that may be expected for
the entire year ending December 31, 2003.
While we believe 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 our latest annual report for the year ended December 31,
2002.
NOTE 3--Long-Term Debt
Our medical products division had a $350,000 line of credit with a local
Florida bank, with interest at prime plus 1% payable monthly. This line of
credit was secured by the accounts receivable and inventory of our medical
products division and had an outstanding balance of approximately $79,000 at
December 31, 2002. The line of credit and accrued interest were paid off in
January, 2003, prior to the scheduled January 22, 2003, maturity. We did not
renew this line of credit.
Dialysis Corporation of America through its subsidiary, DCA of Vineland,
LLC, pursuant to a December 3, 1999 loan agreement obtained a $700,000
development loan with annual interest accruing at the following rates: 8.75%
through December 2, 2001, 11/2% over the prime rate thereafter through
December 15, 2002, and 1% over prime thereafter. The loan is secured by a
mortgage on Dialysis Corporation of America's real property in Easton,
Maryland. Outstanding borrowings were subject to interest-only monthly
payments 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 principal plus interest with any remaining balance due
December 2, 2007. This loan had an outstanding balance of $643,000 at
September 30, 2003, and $662,000 at December 31, 2002.
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
September 30, 2003
(Unaudited)
NOTE 3--Long-Term Debt--(Continued)
In April, 2001, Dialysis Corporation of America 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 $725,000 at September 30, 2003, and
$753,000 at December 31, 2002.
Dialysis Corporation of America has an equipment purchase agreement
which provides financing for kidney dialysis machines for Dialysis
Corporation of America'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 FAS 95, "Statement of Cash Flows." The
remaining principal balance under this financing amounted to approximately
$1,472,000 at September 30, 2003, and $1,844,000 at December 31, 2002.
The prime rate was 4.00% as of September 30, 2003, and 4.25% at December
31, 2002.
Interest payments on debt amounted to approximately $59,000 and $145,000
for the three months and nine months ended September 30, 2003, and $112,000
and $196,000 for the same periods of the preceding year.
NOTE 4--Income Taxes
Dialysis Corporation of America files separate federal and state income
tax returns with its income tax liability reflected on a separate return
basis.
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 were approximately $268,000 and $604,000 for the
three months and nine months ended September 30, 2003, and $149,000 and
$2,788,000 for the same periods of the preceding year.
NOTE 5--Stock Options
On May 6, 1996, we adopted a Key Employee Stock Plan reserving 100,000
shares of our common stock for issuance from time to time to officers,
directors, key employees, advisors and consultants as bonus or compensation
for performances and or services rendered to the company or otherwise
providing substantial benefit for the company. 2,000 shares have been issued
under this Plan.
Options for 25,000 shares issued as a finder's fee in January, 2000,
were exercisable at $3.00 per share through January 31, 2002, and were
extended through January 31, 2003, in connection with which we recognized an
expense of approximately $4,000 during 2002. These options expired
unexercised.
On July 27, 2000, we granted, under our 1989 Stock Option Plan, five-
year non-qualified stock options for 820,000 shares to officers, directors
and employees of Medicore and our subsidiaries. The options are exercisable
at $1.38, the market price on the date of grant. Options for 16,000 shares
were cancelled due to employee terminations and resignations, and in June,
2001, 115,000 options were exercised leaving 689,000 options outstanding at
September 30, 2003. In September, 2003, our board of directors authorized
the granting of bonuses to our officers, directors and employees, which
bonuses were partially comprised of the exercise of one-third of the options
then held by each such officer, director and employee as of September 11,
2003.
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
September 30, 2003
(Unaudited)
NOTE 5--Stock Options--(Continued)
As part consideration for a May, 2003, consulting agreement, we granted
a stock option for 200,000 shares of common stock exercisable for two years
at $2.50 per share ,which option has a valuation pursuant to a Black-Scholes
computation of $56,000. This amount is being amortized over the one year
life of the consulting agreement commencing June, 2003, with approximately
$14,000 and $19,000 expensed during the three months and nine months ended
September 30, 2003. If we terminate the agreement, which we may do at our
discretion, the option must be exercised within six months of such
termination. See Note 6.
On September 25, 2003, we granted an option for 21,000 shares to each of
two directors for their service on several of our board committees, including
our audit committee. The options were granted under our 1989 Stock Option
Plan and are exercisable at $2.25 per share through September 24, 2006. The
options vest in equal annual increments of 7,000 shares each September 25,
2003, 2004 and 2005.
In June, 1998, Dialysis Corporation of America's board of directors
granted an option under its now expired 1995 Stock Option Plan to a board
member for 5,000 shares exercisable at $2.25 per share through June 9, 2003.
This option was exercised in June, 2003.
In April, 1999, Dialysis Corporation of America adopted a stock option
plan pursuant to which its 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 have been cancelled to date as a result of terminations. In April,
2000, the 340,000 one-year options were exercised for which Dialysis
Corporation of America received cash payment of the par value amount of
$3,400 and the balance in three-year promissory notes with interest at 6.2%.
The board of Dialysis Corporation of America extended the maturity date of
the notes to April 20, 2004. In March, 2003, 77,857 of the remaining 400,000
options outstanding were exercised with the exercise price satisfied by
director bonuses accrued in 2002, leaving 322,143 of these options
outstanding as of September 30, 2003.
In January, 2001, Dialysis Corporation of America's board of directors
granted to its Chief Executive Officer and President a five-year option for
165,000 shares exercisable at $1.25 per share with 99,000 options vested at
January, 2003, and the balance of 33,000 options vesting in equal annual
increments on January 1 for each of the next two years.
In September, 2001, Dialysis Corporation of America's board of directors
granted five-year options for an aggregate of 75,000 shares exercisable at
$1.50 per share through September 5, 2006, to certain officers, directors and
key employees. 15,000 of the options vested immediately and the remaining
60,000 options vest in equal increments of 15,000 options each September 5
commencing September 5, 2002. In March, 2003, 1,785 of these options were
exercised with the exercise price satisfied by director bonuses accrued in
2002. As of September 30, 2003, an aggregate of 45,000 of these options had
vested of which 1,785 had been exercised.
In March, 2002, Dialysis Corporation of America's board of director's
granted a five-year option to an officer for 30,000 shares exercisable at
$3.15 per share through February 28, 2007. The option was to vest in equal
annual increments of 7,500 shares each February 28 from 2003 through 2006.
7,500 options that vested in February 2003 were exercised in October 2003 and
the remaining 22,500 options expired unvested due to the July 31, 2003
resignation of the officer.
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
September 30, 2003
(Unaudited)
NOTE 5--Stock Options--(Continued)
In May, 2002, Dialysis Corporation of America's board of directors
granted five-year options for an aggregate of 10,500 options to its employees
of which 5,500 remain outstanding at September 30, 2003. Most of these
options with respect to each individual employee are for 500 shares of common
stock, with one option 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 5,000 shares have been cancelled as a result of
the termination of those optionees from their employment with Dialysis
Corporation of America.
In June, 2003, Dialysis Corporation of America's board of directors
granted to an officer a five-year stock option for 25,000 shares exercisable
at $3.60 per share through June 3, 2008. The option vests annually in
increments of 6,250 shares each June 4 from 2004 through 2007.
In August, 2003, Dialysis Corporation of America's board of directors
granted a three-year option to a director who is also a member of its audit
committee, for 5,000 shares exercisable at $4.50 per share through August 18,
2006. The option vests in two annual increments of 2,500 shares on August
19, 2004 and 2005.
NOTE 6--Commitments and Contingencies
Effective January 1, 2003, Medicore, together with our 61% owned
subsidiary Dialysis Corporation of America, established a new 401(k) plan
which, in addition to providing for regular employee contributions, contains
employer matching contribution provisions for up to 10% of that portion of
employee bonus payments that such employees elect to contribute to the Plan.
We entered into a one-year consulting agreement with an investment
relations firm in May, 2003, with a monthly fee of $4,000. The agreement
also provided for the issuance of an option for 200,000 shares of our common
stock. At our discretion, we may cancel the agreement at any time. In June,
2003, two of the partners of the investment relations firm together with
Thomas K. Langbein, our Chief Executive Officer and President, became three
of the five directors of Xandros, Inc., a majority owned subsidiary of Linux
Global Partners, Inc., which is a privately held Linux software company to
which we made loans and in which we hold an approximate 14% interest. Mr.
Langbein subsequently resigned his positions with Xandros on August 12, 2003.
See Notes 5 and 8.
NOTE 7--Business Segment Data
The following summarizes information about our three business segments:
(i) dialysis treatment centers (medical services), (ii) medical products and
(iii) new technology. The medical products and new technology divisions have
been shown separately even though not required by FAS 131. Corporate
activities include general corporate revenues and expenses. Intersegment
sales, of which there were none for the periods presented, are generally
intended to approximate market price.
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
2003 2002 2003 2002
---- ---- ---- ----
BUSINESS SEGMENT REVENUES
Medical products $ 189,868 $ 215,550 $ 628,088 $ 683,182
Medical services 7,686,821 6,800,925 22,144,453 18,824,294
New technology --- 51,529 15,000 153,752
Corporate 859,112 54,631 949,826 170,268
Elimination of corporate interest charge
to medical services (521) --- (939) ---
Elimination of medical services
interest charge to corporate --- (595) --- (2,796)
----------- ----------- ----------- -----------
$ 8,735,280 $ 7,122,040 $23,736,428 $19,828,700
=========== =========== =========== ===========
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
September 30, 2003
(Unaudited)
NOTE 7--Business Segment Data--(Continued)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
2003 2002 2003 2002
---- ---- ---- ----
BUSINESS SEGMENT PROFIT (LOSS)
Medical products $ (25,578) $ 1,878 $ (80,791) $ (32,112)
Medical services 587,470 653,420 1,439,297 1,444,346
New technology --- 51,529 15,000 153,752
Corporate 90,496 (127,731) (316,333) (447,048)
----------- ----------- ----------- -----------
$ 652,388 $ 579,096 $ 1,057,173 $ 1,118,938
=========== =========== =========== ===========
NOTE 8--Investment
During the period January, 2000 through December, 2002, we made various
loans aggregating approximately $2,450,000 with a 10% annual interest rate,
to Linux Global Partners, a company investing in Linux software companies,
one of which recently initiated the marketing of a Linux desktop operating
system. In conjunction with the original loan we acquired an ownership
interest in Linux Global Partners. In consideration for our extending the
due date on the loans on several occasions we received additional shares of
Linux Global Partners' common stock and presently own approximately 14% of
Linux Global Partners. Dialysis Corporation of America also has an ownership
interest in Linux Global Partners of approximately 2%.
Interest on the notes evidencing our loans to Linux Global Partners
amounted to approximately $15,000 during 2003 (through January 24, 2003) and
$52,000 and $154,000 for the three months and nine months ended September 30,
2002. Interest receivable on these notes amounted to approximately $492,000
at December 31, 2002, and was included in prepaid expenses and other current
assets.
The unpaid loans and accrued interest were satisfied through our
foreclosure of 4,115,815 shares of Ximian, Inc.'s series A convertible
preferred stock which were part of the collateral securing Linux Global
Partners' indebtedness to us. Xandros, Inc., a 95% owned subsidiary of Linux
Global Partners, purchased the Ximian preferred shares at the public
foreclosure sale and deposited 775,000 shares of its common stock
(approximately 1.5% of Xandros) as a good faith deposit with the full amount
due in cash. Upon Xandros' failure to make the payment, we, as the next
highest bidder, obtained the Ximian preferred stock and, in accordance with
the terms of the public auction retained the Xandros shares in satisfaction
of the indebtedness due from Linux Global Partners. Thereafter, in
connection with a third-party's acquisition of Ximian in August, 2003, we
sold the Ximian preferred stock for approximately $3,541,000 in cash proceeds
resulting in a gain of approximately $784,000. An additional approximately
$805,000 was placed in escrow, with one-half of the escrowed funds to be
released to us in one year and the other half in two years, pending
fulfillment by the parties to the Ximian acquisition of certain conditions,
at which time we would record an additional gain based on net proceeds
received.
NOTE 9--Stock Repurchases
In December, 2002, our board of directors authorized the purchase of up
to approximately 1,000,000 shares of our outstanding common stock based on
current market prices. We repurchased 48,500 shares for approximately
$70,000 during the first quarter of 2003.
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
September 30, 2003
(Unaudited)
NOTE 10--Acquisitions
In August, 2001, Dialysis Corporation of America acquired the 30%
minority interest in one of its Georgia dialysis centers, giving Dialysis
Corporation of America a 100% ownership interest in that subsidiary. 50% of
the purchase price was paid in August, 2001, with the balance paid in August,
2002. This transaction resulted in $523,000 of goodwill representing the
excess of the purchase price over the fair value of the net assets acquired.
The goodwill is being amortized for tax purposes over a 15-year period.
Dialysis Corporation of America's decision to make this investment was based
largely on its expectation of continued profitability of this center. The
party from whom Dialysis Corporation of America acquired the minority
interest is the medical director of another of Dialysis Corporation of
America's subsidiaries. See Note 1.
In April, 2002, Dialysis Corporation of America acquired a Georgia
dialysis center. This transaction resulted in $400,000 of goodwill
representing the excess of the purchase price over the fair value of the net
assets acquired. The goodwill is being amortized for tax purposes over a 15-
year period. Dialysis Corporation of America'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.
During the second quarter of 2003, Dialysis Corporation of America
acquired the assets of a Georgia dialysis center and the 30% minority
interests in each of two of its existing Georgia dialysis centers for a total
consideration of $1,415,000, of which $745,000 was paid and $670,000 is
payable in June, 2004. These acquisitions resulted in $1,368,000 of
goodwill, representing the excess of the purchase price over the fair value
of the net assets acquired. The goodwill is being amortized for tax purposes
over a 15-year period. Dialysis Corporation of America's decision to make
these acquisitions was based on its expectation of profitability resulting
from its management's evaluation of the operations of these dialysis centers.
The party from whom the 30% minority interests were purchased was the medical
director of one of the facilities at which the 30% interest was acquired and
is the medical director of three other of Dialysis Corporation of America's
Georgia dialysis facilities. See Note 1.
NOTE 11--Related Party Transactions
The 20% minority interest in DCA of Vineland, LLC, a subsidiary of
Dialysis Corporation of America, was held by a company owned by the medical
director of that facility, who became a director of Dialysis Corporation of
America in 2001. This physician was provided with the right to acquire up to
49% of DCA of Vineland. In April, 2000, another company owned by this
physician acquired an interest in DCA of Vineland, resulting in Dialysis
Corporation of America holding a 51.3% ownership interest in DCA of Vineland
and this physician's companies holding a combined 48.7% ownership interest in
DCA of Vineland. See Note 12.
In July, 2000, one of the companies owned by this physician, 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, this physician serves as medical director for each of those
dialysis facilities.
NOTE 12--Loan Transactions
Dialysis Corporation of America customarily funds the establishment and
operations of its dialysis facility subsidiaries, usually until they become
self-sufficient, including those subsidiaries in which medical directors hold
interests ranging from 20% to 49%. Except in limited circumstances, such
funding is generally made without formalized loan documents, as the operating
agreements for Dialysis Corporation of America's subsidiaries provide for
cash flow and other proceeds to first pay any such financing provided by
Dialysis Corporation of America, exclusive of any tax payment distributions.
One such loan exists with DCA of Vineland, LLC. In April, 2000, a company
owned by the Vineland medical director, acquired an interest in DCA of
Vineland for $203,000, which was applied to reduce Dialysis Corporation of
America's loan. At September 30, 2003, the principal outstanding
indebtedness of this loan was approximately $482,000. See Note 11.
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
September 30, 2003
(Unaudited)
NOTE 13--Royalty Agreement with Former Subsidiary
In July, 2003, we reached an agreement with our former subsidiary,
Viragen, Inc., pursuant to mediation proceedings following our obtaining a
partial summary judgment against Viragen in March, 2003, for amounts owed to
us under a royalty agreement with Viragen. Viragen agreed to remit $30,000
on each of August 1, 2003, August 1, 2004 and August 1, 2005, with annual
interest accruing at 5% on the August 2004 and 2005 payments. Viragen
remitted the $30,000 payment due August 1, 2003. Viragen also agreed to
commence remitting the quarterly royalty payments due under the royalty
agreement and remitted the first quarterly payment of $2,580 in October 2003.
NOTE 14--Techdyne Earn-out Payment
In April, 2003, we received the second earn-out payment of approximately
$1,011,000 under our April, 2001 agreement with Simclar International
pursuant to which we sold our 71.3% interest in Techdyne to Simclar in June,
2001 for $10,000,000. That agreement provided for three years of earn-outs
based on 3% of Techdyne's consolidated net sales with a $2,500,000 minimum
and a $5,000,000 maximum earn-out. The remaining unpaid balance from the
minimum $2,500,000 earn-out of approximately $384,000 is reflected as a
current receivable.
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 regarding forward-looking statements. Certain
of the forward-looking statements include management's expectations,
intentions and beliefs with respect to the growth of our company, the nature
of the medical products and new technology divisions in which we are engaged,
the future and development of the dialysis industry in which our 61% owned
public subsidiary, Dialysis Corporation of America, is engaged, anticipated
revenues, our business strategies and plans for future operations, our need
for sources of funding for expansion opportunities and construction,
expenditures, costs and income and similar expenses 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 "anticipates,"
"estimates," "expects," "projects," "intends," "plans," and "believes," and
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 general economic, market and business conditions,
opportunities we pursue, 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 too much reliance on such forward-looking
statements, which speak only as to the date made, and which the company
undertakes no obligation to revise to reflect events after the date made.
Essential to profitability of our dialysis operations is Medicare
reimbursement, which is at a fixed rate determined by the Center for Medicare
and Medicaid Services ("CMS"). The level of Dialysis Corporation of
America's, and therefore, our revenues and profitability may be adversely
affected by any potential legislation resulting in Medicare reimbursement
rate cuts. Operating costs in treatment tend to increase over the years.
There also may be reductions in commercial third-party reimbursement rates.
The healthcare industry is subject to extensive regulation by federal
and state authorities. There are a variety of fraud and abuse measures to
combat waste, which include anti-kickback regulations, and extensive
prohibitions relating to self-referrals, violations of any of which are
punishable by criminal or civil penalties, including exclusion from Medicare
and other governmental programs. Unanticipated changes in healthcare
programs or laws that may require Dialysis Corporation of America to
restructure its existing business practices could materially adversely affect
our financial condition. Dialysis Corporation of America has developed a
Corporate Integrity Program to assure that the dialysis operations provide
the highest level of patient care and services in a professional and ethical
manner consistent with applicable federal and state laws and regulations.
Dialysis Corporation of America's future growth depends primarily on the
availability of suitable dialysis centers for development or acquisition in
appropriate and acceptable areas, and Dialysis Corporation of America's
ability to develop these new potential dialysis centers at costs within its
budget while competing with larger companies, some of which are public
companies or divisions of public companies with more personnel and financial
resources, enabling their acquisition and/or development of facilities in
areas targeted by Dialysis Corporation of America. 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 will be acquired or developed or inpatient service
contracts with hospitals will be implemented, the number of stations or
patient treatments that may result therefrom, or if such efforts ultimately
result in profitability for the facility or under the contract. 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 until they develop.
Our venture into new technology is uncertain and competitive. We
initiated this segment in early 2000 with our investment and financing of
Linux Global Partners, a private company principally involved in making
investments in Linux operating and software systems and Linux software
development companies. Xandros, Inc., a majority owned subsidiary of Linux
Global Partners, is engaged in marketing a Linux-based desktop operating
system. Linux Global Partners remains in its initial development stage.
Linux-based software systems require development and financing and are
subject to uncertainties as to market acceptance, reliability, and other
risks associated with new technologies.
Results of Operations
Consolidated revenues, increased by approximately $1,613,000 (21%) and
$3,908,000 (20%) for the three months and nine months ended September 30,
2003, compared to the same periods of the preceding year, including a
$784,000 gain on the sale of securities recorded in the third quarter of
2003. See Note 8 to "Notes to Consolidated Condensed Financial
Statements." Sales revenues increased by approximately $812,000 (12%) and
$3,143,000 (16%) compared to the same periods of the preceding year.
Other income which is comprised of interest income, rental income,
management fee income and miscellaneous other income increased approximately
$18,000 for the three months ended September 30, 2003 and decreased
approximately $19,000 for the nine months ended September 30, 2003, compared
to the same periods of the preceding year. Interest income decreased
approximately $57,000 and $171,000 largely due to our foreclosure and sale of
collateral in payment of loans due from Linux Global Partners (see Notes 8
and 13 to "Notes to Consolidated Condensed Financial Statements").
Management fee income, which includes income related to management services
agreements between Dialysis Corporation of America and its 40% owned Toledo,
Ohio affiliate and an unaffiliated Georgia dialysis center (effective
September, 2002), increased approximately $41,000 and $99,000 for the three
months and nine months ended September 30, 2003, compared to the same periods
of the preceding year. For those same periods compared to last year, rental
income increased approximately $3,000 and $14,000, and miscellaneous other
income increased by approximately $32,000 and $39,000. See Note 1 to "Notes
to Consolidated Condensed Financial Statements."
Medical product sales revenues decreased approximately $26,000 (12%) and
$53,000 (8%) for the three months and the nine months ended September 30,
2003, compared to the same periods of the preceding year.
The decrease in the third quarter of 2003 included decreased sales to a major
customer for which we are unable at this time to predict whether sales to
this customer will return to previous levels. Management is continuing its
efforts to expand our customer base. The medical products division expanded
its product line with several diabetic disposable products; however, demand
to date for these products continues to be lower than anticipated. No
assurance can be given that our efforts to increase sales will be successful.
Medical service revenues, representing the revenues of our dialysis
division, Dialysis Corporation of America, increased approximately $837,000
(13%) and $3,196,000 (17%) for the three months and nine months ended
September 30, 2003, compared to the same periods of the preceding year. This
increase reflects the following with respect to Dialysis Corporation of
America's dialysis facilities: increased revenues of approximately $240,000
and $1,477,000 for its Pennsylvania dialysis centers; increased revenues of
approximately $5,000 for the three months and decreased revenues of
approximately $104,000 for the nine months for its New Jersey centers
reflecting termination in 2002 of two of its New Jersey acute care contracts;
decreased revenues of approximately $27,000 for the three months and
increased revenues of approximately $600,000 for the nine months for its
Georgia centers, $419,000 and $875,000 of revenues for its new Maryland
center, and $200,000 and $375,000 of revenues for its new Ohio center.
Revenues for the prior year included $27,000 of consulting fees during the
first quarter of 2002.
Cost of goods sold as a percentage of consolidated sales amounted to 62%
for the three months and nine months ended September 30, 2003, compared to
59% and 60% for the same periods of the preceding year.
Cost of goods sold for the medical products division as a percentage of
sales of medical products was 61% and 62%, for the three months and nine
months ended September 30, 2003, compared to 53% and 59% for the same periods
of the preceding year. Changes in cost of goods sold for this division
largely resulted from a change in product mix.
Cost of medical services sales as a percentage of medical service
revenues increased to 62% for the three months and nine months ended
September 30, 2003, compared to 59% and 60% for the same periods of the
preceding year reflecting costs related to (i) treatments at new dialysis
centers prior to Medicare approval of those centers for which there are no
corresponding medical service revenues and (ii) increases in the cost of
erythropoietin ("EPO") as a percentage of EPO sales revenues. Approximately
28% of medical services revenues for the three months and nine months ended
September 30, 2003, and 27% and 25% for the same periods of the preceding
year were from the administration of EPO to Dialysis Corporation of America's
patients. Cost of EPO as a percentage of EPO sales revenues increased to 83%
and 82% for the three months and nine months ended September 30, 2003
compared to 76% and 80% for the same periods of the preceding year. 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 Dialysis Corporation of America's ability to
increase its charges would increase its costs and thereby adversely impact
Dialysis Corporation of America's, and accordingly, our earnings. We cannot
predict whether further price increases, if any, will be instituted, the
extent of such increases if instituted by the manufacturer or Dialysis
Corporation of America's ability to offset any such increases.
Selling, general and administrative expenses, increased $1,014,000 and
$2,035,000 for the three months and nine months ended September 30, 2003,
compared to the same periods of the preceding year. This increase reflects
operations of Dialysis Corporation of America's new dialysis centers in
Maryland and Ohio, the cost of additional support personnel for Dialysis
Corporation of America and approximately $512,000 of officer, director and
employee bonuses recorded in the third quarter of 2003.
Provision for doubtful accounts decreased approximately $181,000 and
$354,000, for the three months and nine months ended September 30, 2003,
compared to the same periods of the preceding year reflecting Medicare bad
debt recoveries of $150,000 and $215,000 recorded during the three months and
nine months ended September 30, 2003. Without the effect of the Medicare bad
debt recoveries, the provision would have amounted to 2% of sales for the
three months and nine months ended September 30, 2003, compared to 3% for the
same periods 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 of our medical
services operation, which is the primary component of our provision, 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 dialysis centers have resulted in
additional revenues in the long term, 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. In February, 2003, Dialysis Corporation of America
opened two dialysis centers, one in Ohio and one in Maryland, and acquired
another center in Georgia in April, 2003. These new centers, as anticipated,
adversely impacted net income for the medical services division for the three
and nine month periods ended September 30, 2003. Dialysis Corporation of
America presently has four additional dialysis facilities in the initial
development stages of which one is under construction, with ongoing
negotiations for additional facilities. As our medical services division
progresses, we expect growth in revenues, but a short term negative effect on
net income based on development stage expenses. Also negatively impacting
net income of our medical services division was an atypical occurrence of the
closing by Dialysis Corporation of America of a dialysis center in Georgia
which had not been performing to expectations.
Interest expense decreased by approximately $20,000 and $33,000 for the
three months and nine months ended September 30, 2003, compared to the same
periods of the preceding year reflecting lower interest rates on variable
rate debt and reduced average borrowings. See Note 3 to "Notes to
Consolidated Condensed Financial Statements."
The prime rate was 4.00% at September 30, 2003, and 4.25% at December
31, 2002.
Equity in affiliate earnings represents equity in the earnings incurred
by Dialysis Corporation of America's Ohio affiliate, in which Dialysis
Corporation of America has a 40% ownership interest.
Liquidity and Capital Resources
Working capital totaled $13,283,000 at September 30, 2003, which
reflects a decrease of $1,024,000 (7%) during the first nine months of 2003.
The change in working capital included an increase in cash of $2,708,000
including net cash provided by operating activities of $410,000, net cash
provided by investing activities of $3,016,000 (including additions to
property, plant and equipment of $925,000, the second earn-out payment on the
sale of Techdyne of $1,011,000, $745,000 in payments relating to Dialysis
Corporation of America's acquisition of a facility and minority interests in
existing facilities, $150,000 in loans to physician affiliates, $202,000 of
capital contributions by minority members of Dialysis Corporation of
America's subsidiaries, $77,000 of distributions received from Dialysis
Corporation of America's 40% owned Ohio affiliate, and $3,541,000 of proceeds
from the sale of securities) and net cash used in financing activities of
$718,000 (including net line of credit payments of $79,000, payments on long-
term debt of $422,000, repurchase of company and subsidiary stock of
approximately $109,000, and $119,000 in distributions to the minority members
of Dialysis Corporation of America's subsidiaries). Also included in the
change in working capital was a reclassification of $2,757,000 of notes and
interest receivable from Linux Global Partners as the cost basis for Ximian
stock which was subsequently sold, the $670,000 payable on subsidiary
minority interest acquisitions and accrued officer, director and employee
bonuses of $512,000 included in accrued compensation. See Notes 8, 10, 12
and 14 to "Notes to Consolidated Condensed Financial Statements."
In January, 2003, we executed on certain of the collateral securing
Linux Global Partners' indebtedness to us, resulting in our company acquiring
4,115,815 shares of series A convertible preferred stock of Ximian, Inc.
These shares were sold in August, 2003, for which we received $3,541,000 with
an additional $805,000 placed in escrow. See Notes 8 to "Notes to
Consolidated Condensed Financial Statements."
In May, 2003, we entered into a one-year public relations consulting
agreement with an investment relations firm, which agreement we can terminate
at any time. The agreement provides for a $4,000 monthly fee and issuance of
an option for 200,000 shares of common stock. Thomas K. Langbein, our
Chairman, Chief Executive Officer and President, held executive and director
positions with Xandros, Inc. a subsidiary of Linux Global Partners, for
approximately two months until his resignation on August 12, 2003. See Notes
5 and 6 to "Notes to Consolidated Condensed Financial Statements."
In July, 2003, pursuant to a mediation agreement following a partial
summary judgment we obtained against Viragen, Inc., our former subsidiary,
Viragen agreed to abide by the terms of our royalty agreement and remitted
$30,000 to us in August, 2003. Additional $30,000 payments are due August 1,
2004 and 2005, with annual interest accruing at 5%. Royalty payments are to
be made quarterly pursuant to the royalty agreement with the first quarterly
payment of $2,580 remitted to us in October 2003. See Note 13 to "Notes to
Consolidated Condensed Financial Statements."
In April, 2003, we received the second earn-out payment on the June,
2001, sale of our interest in Techdyne. We have collected approximately
$2,116,000 of the $2,500,000 minimum earn-out. See Note 14 to "Notes to
Consolidated Condensed Financial Statements."
In December, 2002, we announced our intent to purchase up to 1,000,000
shares of our outstanding common stock based on then current market prices.
We repurchased and cancelled 48,500 shares of our outstanding common stock at
a cost of approximately $67,000 during the first quarter of 2003.
Dialysis Corporation of America has a loan secured by a mortgage on its
real property in Easton, Maryland with an outstanding balance of $643,000 at
September 30, 2003, and $662,000 at December 31, 2002. In April, 2001,
Dialysis Corporation of America obtained a $788,000 five-year mortgage on its
building in Valdosta, Georgia which had an outstanding principal balance of
$725,000 at September 30, 2003, and $753,000 at December 31, 2002. Dialysis
Corporation of America has an equipment financing agreement for kidney
dialysis machines for its facilities with an outstanding balance of
$1,472,000 at September 30, 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
medical services division's 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.
Although acquisition of an existing dialysis facility would provide us with
an immediate ongoing operation, which most likely would be generating income,
an acquisition is more expensive than construction. We presently plan to
continue expanding our medical services division's operations primarily
through construction of new centers. Development of a dialysis facility
through the commencement of its initial operations generally takes four to
six months and usually up to 12 months and possibly longer, depending on the
growth of that facility's patient base, for it to generate net 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.
Through Dialysis Corporation of America, we are expanding our outpatient
dialysis treatment facilities and inpatient dialysis care. We have opened
two new facilities in February, 2003, and acquired one in April, 2003. See
"Results of Operations" above. We also acquired the 30% minority interests
in two of our Georgia dialysis centers. See Note 10 to "Notes to
Consolidated Condensed Financial Statements." 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.
The bulk of our cash balances are carried in interest-yielding vehicles
at various rates and mature at different intervals depending on our
anticipated cash requirements.
We anticipate that current levels of working capital and working capital
from operations will be adequate to successfully meet liquidity demands for
at least the next 12 months.
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 our 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. We do not expect FIN 45 to have a
material impact on our 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 our results of operations, financial position or cash flows. 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. We do not expect FIN 46 to have a material impact on our
financial position or results of operations. See Note 1 to "Notes to
Consolidated Condensed Financial Statements."
In May, 2003, the FASB issued Statement of Financial Accounting
Standards No. 150, "Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity" (FAS 150), which is effective
for financial instruments entered into or modified after May 31, 2003. We do
not expect FAS 150 to have a material impact on our results of operations,
financial position or cash flows. See Note 1 to "Notes to Consolidated
Condensed Financial Statements."
Critical Accounting Policies and Estimates
In December, 2001, the SEC issued cautionary advice to elicit more
precise disclosure in this Item 2, "Management's Discussion and Analysis of
Financial Condition and Results of Operations," about accounting policies
management believes are most critical in portraying our 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.
Dialysis Corporation of America receives payments through reimbursement from
Medicare and Medicaid for its outpatient dialysis treatments coupled with
patients' private payments, individually and through private third-party
insurers. A substantial portion of Dialysis Corporation of America's
revenues are derived from the Medicare ERSD program, where outpatient
reimbursement rates are fixed under a composite rate structure, which
includes dialysis services and certain supplies, drugs and laboratory tests.
Certain of the ancillary services, however, are reimbursable outside of the
composite rate. Medicaid reimbursement is similar and supplemental to the
Medicare program. Dialysis Corporation of America's acute inpatient dialysis
operations are paid under contractual arrangements by the hospital or other
facility at which the services are provided. Patient private payments for
outpatient dialysis treatments, either individually or through third-party
insurers, as well as hospital or other facility payments for acute inpatient
dialysis services, are generally at higher rates than Medicare/Medicaid
reimbursement rates for dialysis services. Product sales are recognized
pursuant to stated shipping terms.
Allowance for Doubtful Accounts: We maintain an allowance for doubtful
accounts for estimated losses resulting from the inability of our customers
to make required payments and for Dialysis Corporation of America's 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 customers and patients and their insurance carriers to make
their required payments, which would have an adverse effect on cash flows and
our results of operations. Therefore, 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
specific account identification and the aging of accounts receivable to
establish an allowance for losses on accounts receivable.
Allowance for Inventory Obsolescence: We maintain an allowance for
inventory obsolescence for losses resulting from inventory items becoming
unsaleable due to loss of specific customers or changes in customers'
requirements. Based on historical and projected sales information, we
believe our allowance is adequate. However, changes in general economic,
business and market conditions could cause our customers' purchasing
requirements to change. These changes could affect our inventory
saleability; therefore, the allowance for inventory obsolescence is reviewed
regularly and changes to the allowance are updated as new information is
received.
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 against 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 FAS 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 be
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 asset 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. We attempt to pass on increased costs and expenses incurred in
our medical products division by increasing selling prices when and where
possible. In our medical services division, revenue per dialysis treatment 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 voluntarily increased to keep
pace with increases in supply costs or nursing and other patient care costs.
Increased operating costs without a corresponding increase in reimbursement
rates may adversely affect Dialysis Corporation of America's and,
accordingly, our future earnings.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
We are exposed to market risks from changes in interest rates. We have
exposure to both rising and falling interest rates.
Sensitivity of results of operations to interest rate risks on our
investments is managed by conservatively investing liquid funds in short-term
government securities and interest bearing accounts at financial institutions
in which we had approximately $10,741,000 invested as of September 30, 2003.
A 15% relative decrease in rates on our period-end investments would result
in a negative annual impact of approximately $5,000 on our results of
operations for the first nine months of 2003.
We have an interest rate exposure on debt agreements with variable
interest rates of which we had approximately $1,368,000 of such debt
outstanding as of September 30, 2003. A 15% relative increase in interest
rates on our period-end variable rate debt would result in a negative annual
impact of approximately $3,000 on our results of operations for the first
nine months of 2003.
Item 4. Controls and Procedures
As of the end of the period of this quarterly report on Form 10-Q for
the third quarter ended September 30, 2003, management carried out an
evaluation, under the supervision and with the participation of our Chief
Executive Officer and President, and the Vice President of Finance, who is
also our Principal Financial Officer, of the effectiveness of the design and
operation of our disclosure controls and procedures pursuant to Rule 13a-15
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 our company in the reports that we file 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, our Chief Executive Officer and
President and our Vice President of Finance and Principal Financial Officer
concluded that our disclosure controls and procedures are effective in timely
alerting them to material information relating to us, including our
consolidated subsidiaries, required to be included in our periodic SEC
filings.
There were no significant changes in internal controls over financial
reporting during our most recent fiscal quarter, or in other factors that
have materially affected or are reasonably likely to materially affect,
internal controls over financial reporting, including any corrective actions
with regard to significant deficiencies and material weaknesses, of which
there were none.
PART II -- OTHER INFORMATION
------------------------------
Item 5. Other Information.
- ------ ------------------
Wiss & Company, LLP, our independent accountants, have determined to
discontinue providing audit services to substantially all of its SEC
registrants, including us, and solely as a result of such determination, have
resigned as our independent accountants effective as of the date of filing of
this report with the SEC.
Wiss's report on our financial statements for the last two fiscal years
ended December 31, 2002 contained no adverse opinion or a disclaimer of
opinion, nor was qualified or modified as to any uncertainty, audit scope, or
accounting principles.
During the two most recent fiscal years ended December 31, 2002 and the
subsequent interim period to the date of Wiss's resignation, which is the
date of this quarterly report, (a) we had no disagreements with Wiss on any
matter of accounting principles or practices, financial statement disclosure,
or auditing scope or procedure, which, if not resolved to the satisfaction of
Wiss, would have caused Wiss to make reference to the subject matter of the
disagreement in connection with its report, and (b) there were no "reportable
events" as that term is defined in Item 304(a)(1)(v) of Regulation S-K
promulgated by the SEC.
We have provided Wiss with a copy of the disclosures contained in this
quarterly report and have requested that Wiss furnish to us a letter
addressed to the SEC stating whether it agrees with the statements made in
Item 5 of this quarterly report. A copy of Wiss's letter to the SEC, dated
November 10, 2003, is attached as Exhibit 16 to this quarterly report.
The audit committee of our board of directors has authorized the
appointment of Moore Stephens, P.C. to serve as our independent accountants
for the fiscal year ending December 31, 2003, subject to clarification of
certain matters. At such time Moore Stephens is formally engaged, we will
file a current report on Form 8-K reflecting the occurrence of such event.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(16) Letter of Wiss & Company, LLP addressed to the Securities and
Exchange Commission dated November 10, 2003.
(31) Rule 13a-14(a)/15d-14(a) Certifications
(i) Certification of the Chief Executive Officer pursuant to Rule
13a-14(a) of the Securities Exchange Act of 1934.
(ii) Certification of the Principal Financial Officer pursuant to
Rule 13a-14(a) of the Securities Exchange Act of 1934.
(32) Certification of Chief Executive Officer and Principal Financial
Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act
of 1934 and 18 U.S.C. Section 1350.
(b) Reports on Form 8-K
Current reports on Form 8-K were filed as follows:
(i) July 3, 2003, Item 5, "Other Events and Required FD
Disclosures" as to investor and public relations consulting
agreement (no financial statements).
(ii) July 23, 2003, Item 5, "Other Events and Required FD
Disclosures" as to a five year lease for offices and warehouse
space for the medical products division (no financial
statements).
(iii) September 16, 2003, Item 5, "Other Events and Required FD
Disclosures" as to reiteration of an earlier announcement
relating to the intention to purchase common shares (no
financial statements).
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.
MEDICORE, INC.
By /s/ DANIEL R. OUZTS
-----------------------------------
DANIEL R. OUZTS, Vice President
(Finance), Principal
Financial Officer and Treasurer
Dated: November 10, 2003
EXHIBIT INDEX
Exhibit No.
- -----------
(16) Letter of Wiss & Company, LLP addressed to the Securities and Exchange
Commission dated November 10, 2003.
(31) Rule 13a-14(a)/15d-14(a) Certifications
(i) Certification of the Chief Executive Officer pursuant to Rule 13a-
14(a) of the Securities Exchange Act of 1934.
(ii) Certification of the Principal Financial Officer pursuant to Rule
13a-14(a) of the Securities Exchange Act of 1934.
(32) Certification of Chief Executive Officer and Principal Financial Officer
pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18
U.S.C. Section 1350.
Exhibit (16)
[Letterhead of Wiss & Company LLP]
November 10, 2003
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Ladies and Gentlemen:
We have read Item 5 of Part II of Form 10-Q, the quarterly report for
the third quarter ended September 30, 2003, of Medicore, Inc. dated November
10, 2003, and are in agreement with the statements contained in the first
four paragraphs contained therein. We have no basis to agree or disagree
with the statements of the registrant in the fifth paragraph of Item 5.
/s/ Wiss & Company, LLP
Exhibit (31)(i)
CERTIFICATION
I, Thomas K. Langbein, certify that:
1. I have reviewed this quarterly report on Form 10-Q for the quarter
ended September 30, 2003 of Medicore, Inc.;
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 officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, 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 and presented in this quarterly report our
conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this quarterly report
based on such evaluation; and
(c) Disclosed in this quarterly report any change in the registrant's
internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the registrant's internal control
over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial reporting,
to the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the
design or operation of internal controls over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
control over financial reporting.
/s/ Thomas K. Langbein
Date: November 10, 2003 ------------------------------------
THOMAS K. LANGBEIN, Chief Executive Officer and
President
Exhibit (31)(ii)
CERTIFICATION
I, Daniel R. Ouzts, certify that:
1. I have reviewed this quarterly report on Form 10-Q for the quarter
ended September 30, 2003 of Medicore, Inc.;
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 officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, 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 and presented in this quarterly report our
conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this quarterly report
based on such evaluation; and
(c) Disclosed in this quarterly report any change in the
registrant's internal control over financial reporting that occurred during
the registrant's most recent fiscal quarter that has materially affected, or
is reasonably likely to materially affect, the registrant's internal control
over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial reporting,
to the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the
design or operation of internal controls over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
control over financial reporting.
/S/ Daniel R. Ouzts
Date: November 10, 2003 ------------------------------------
DANIEL R. OUZTS, Principal Financial Officer
Exhibit 32
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
AND PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 13a-14(b) OF THE SECURITIES EXCHANGE ACT OF 1934 AND
18 U.S.C. SECTION 1350
In connection with the Quarterly Report of Medicore, Inc. (the
"Company") on Form 10-Q for the third quarter ended September 30, 2003 as
filed with the Securities and Exchange Commission on the date therein
specified (the "Report"), the undersigned, Thomas K. Langbein, Chief
Executive Officer and President of the Company, and Daniel R. Ouzts, Vice
President (Finance) and Principal Financial Officer of the Company, each
certify pursuant to 18 U.S.C. Section 1350, that to the best of our
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 and President
/s/ Daniel R. Ouzts
-----------------------------------
DANIEL R. OUZTS, Vice President
(Finance) and Principal Financial
Officer
Dated: November 10, 2003