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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 June 30, 2004
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 0-8527
DIALYSIS CORPORATION OF AMERICA
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(Exact name of registrant as specified in its charter)
Florida 59-1757642
- --------------------------------------------- -------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
1302 Concourse Drive, Suite 204, Linthicum, Maryland 21090
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(Address of principal executive offices) (Zip Code)
(410) 694-0500
----------------------------------------------------
(Registrant's telephone number, including area code)
1344 Ashton Road, Hanover, Maryland 21076
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(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 - 8,485,815 shares as of August 10, 2004.
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
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INDEX
PART I -- FINANCIAL INFORMATION
- ------ ---------------------
The Consolidated Financial Statements (Unaudited) for the three months
and six months ended June 30, 2004 and June 30, 2003, include the accounts of
the Registrant and its subsidiaries.
Item 1. Financial Statements
- ------ --------------------
1) Consolidated Statements of Income for the three months and six months
ended June 30, 2004 and June 30, 2003.
2) Consolidated Balance Sheets as of June 30, 2004 and December 31,
2003.
3) Consolidated Statements of Cash Flows for the six months ended June
30, 2004 and June 30, 2003.
4) Notes to Consolidated Financial Statements as of June 30, 2004.
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
- ------ -----------------------
PART II -- OTHER INFORMATION
- ------- -----------------
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity
- ------ ---------------------------------------------------------------------
Securities
----------
Item 4. Submission of Matters to a Vote of Security Holders
- ------ ---------------------------------------------------
Item 5. Other Information
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Item 6. Exhibits and Reports on Form 8-K
- ------ --------------------------------
PART I -- FINANCIAL INFORMATION
---------------------------------
Item 1. Financial Statements
- ----------------------------
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- ----------------------------
2004 2003 2004 2003
---- ---- ---- ----
Operating revenues:
Medical service revenue $ 9,496,608 $ 7,423,946 $17,906,132 $14,161,897
Other income 92,610 79,175 309,655 152,235
----------- ----------- ----------- -----------
9,589,218 7,503,121 18,215,787 14,314,132
----------- ----------- ----------- -----------
Operating cost and expenses:
Cost of medical services 5,738,179 4,516,757 10,900,401 8,719,370
Selling, general and administrative
expenses 2,901,470 2,377,810 5,696,940 4,526,256
Provision for doubtful accounts 200,042 159,165 348,337 255,063
----------- ----------- ----------- -----------
8,839,691 7,053,732 16,945,678 13,500,689
----------- ----------- ----------- -----------
Operating income 749,527 449,389 1,270,109 813,443
Other income (expense):
Interest income on officer/director
note 960 902 1,921 2,030
Interest expense to parent (7,758) (418) (10,776) (418)
Other income, net 21,806 23,678 44,100 36,771
----------- ----------- ----------- -----------
15,008 24,162 35,245 38,383
----------- ----------- ----------- -----------
Income before income taxes, minority
interest and equity in affiliate
earnings 764,535 473,551 1,305,354 851,826
Income tax provision 277,665 201,086 493,773 384,351
----------- ----------- ----------- -----------
Income before minority interest and
equity in affiliate earnings 486,870 272,465 811,581 467,475
Minority interest in income
of consolidated subsidiaries (130,610) (59,116) (186,442) (113,902)
Equity in affiliate earnings 31,362 6,214 50,395 21,633
----------- ----------- ----------- -----------
Net income $ 387,622 $ 219,563 $ 675,534 $ 375,206
=========== =========== =========== ===========
Earnings per share:
Basic $.05 $.03 $.08 $.05
==== ==== ==== ====
Diluted $.04 $.03 $.08 $.04
==== ==== ==== ====
See notes to consolidated financial statements.
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2004 2003(A)
----------- -----------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 772,846 $ 1,515,202
Accounts receivable, less allowance of $855,000 at
June 30, 2004; $785,000 at December 31, 2003 6,330,326 4,913,318
Inventories 1,268,979 1,043,710
Deferred income taxes 423,000 412,000
Officer loan and interest receivable 109,424 107,503
Prepaid expenses and other current assets 1,287,022 1,392,721
----------- -----------
Total current assets 10,191,597 9,384,454
----------- -----------
Property and equipment:
Land 376,211 376,211
Buildings and improvements 2,333,960 2,332,904
Machinery and equipment 7,428,886 6,039,256
Leasehold improvements 4,114,630 3,548,875
----------- -----------
14,253,687 12,297,246
Less accumulated depreciation and amortization 5,739,602 5,030,550
----------- -----------
8,514,085 7,266,696
----------- -----------
Goodwill 2,291,333 2,291,333
Other assets 696,783 661,891
----------- -----------
Total other assets 2,988,116 2,953,224
----------- -----------
$21,693,798 $19,604,374
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,181,309 $ 1,167,213
Accrued expenses 4,365,920 3,170,269
Note and accrued interest payable to parent 893,864
Current portion of long-term debt 572,000 575,000
Income taxes payable 144,732 28,949
Payable minority interest acquisition --- 670,000
----------- -----------
Total current liabilities 7,157,825 5,611,431
Advances from parent 341,071 234,094
Long-term debt, less current portion 1,823,880 2,097,355
Deferred income taxes --- 59,000
----------- -----------
Total liabilities 9,322,776 8,001,880
----------- -----------
Minority interest in subsidiaries 699,506 632,177
Commitments
Stockholders' equity:
Common stock, $.01 par value, authorized 20,000,000 shares:
8,485,815 shares issued and outstanding at June 30, 2004;
7,937,544 shares issued and outstanding at December 31, 2003 84,858 79,376
Capital in excess of par value 4,837,535 5,238,952
Retained earnings 6,749,123 6,073,589
Notes receivable from options exercised --- (421,600)
----------- -----------
Total stockholders' equity 11,671,516 10,970,317
----------- -----------
$21,693,798 $19,604,374
=========== ===========
(A) Reference is made to the company's Annual Report on Form 10-K for the
year ended December 31, 2003 filed with the Securities and Exchange
Commission in March, 2004.
See notes to consolidated financial statements.
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
June 30,
----------------------------
2004 2003
---- ----
Operating activities:
Net income $ 675,534 $ 375,206
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 713,067 575,010
Amortization 1,157 1,157
Bad debt expense 348,337 255,063
Deferred income tax benefit (70,000) ---
Minority interest 186,442 113,902
Equity in affiliate earnings (50,395) (21,633)
Increase (decrease) relating to operating activities from:
Accounts receivable (1,765,345) (1,575,368)
Inventories (225,269) (266,565)
Interest receivable on officer loan (1,921) (2,030)
Prepaid expenses and other current assets 5,868 212,911
Accounts payable 14,096 216,776)
Accrued interest on note payable to parent 8,856 ---
Accrued expenses 1,315,747 469,689
Income taxes payable 115,783 ---
----------- -----------
Net cash provided by (used in) operating activities 1,271,957 (79,434)
----------- -----------
Investing activities:
Purchase of minority interest in subsidiaries (670,000) (670,000)
Additions to property and equipment, net of minor disposals (1,960,456) (654,797)
Loans to physician affiliates --- (150,000)
Distributions from affiliate 20,400 77,000
Acquisition of dialysis center --- (75,000)
Other assets (9,324) 3,532
----------- -----------
Net cash used in investing activities (2,619,380) (1,469,265)
----------- -----------
Financing activities:
Advances from parent 106,977 130,513
Note payable to parent 885,008 ---
Payments on long-term debt (276,475) (286,461)
Exercise of stock options 5,400 11,250
Capital contributions by subsidiaries' minority members --- 141,588
Distribution to subsidiary minority members (115,843) (118,655)
----------- -----------
Net cash provided by (used in) financing activities 605,067 (121,765)
----------- -----------
Decrease in cash and cash equivalents (742,356) (1,670,464)
Cash and cash equivalents at beginning of periods 1,515,202 2,571,916
Cash and cash equivalents at end of periods $ 772,846 $ 901,452
=========== ===========
See notes to consolidated financial statements.
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004
(Unaudited)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
The company is in one business segment, kidney dialysis operations,
providing outpatient hemodialysis services, home dialysis services, inpatient
dialysis services and ancillary services associated with dialysis treatments.
The company operates 20 kidney dialysis outpatient treatment centers located
in Georgia, Maryland, New Jersey, Ohio, Pennsylvania, South Carolina and
Virginia, including the management of each of a 40% owned Ohio affiliate and
an unaffiliated Georgia center, and has one dialysis facility under
development; has agreements to provide inpatient dialysis treatments to six
hospitals; and provides supplies and equipment for dialysis home patients.
See "Consolidation."
Consolidation
The consolidated financial statements include the accounts of Dialysis
Corporation of America and its subsidiaries, collectively referred to as the
"company." Intercompany accounts and transactions have been eliminated in
consolidation. As of June 30, 2004, the company is a 57% owned subsidiary of
Medicore, Inc., its parent. The company has a 40% interest in an Ohio
dialysis center which it manages, which is accounted for on the equity method
and not consolidated for financial reporting purposes.
Stock Split
On January 28, 2004, the company effected a two-for-one stock split.
All share and per share data in the consolidated financial statements and
notes have been adjusted to reflect the two-for-one split.
Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual results could
differ from those estimates.
The company's principal estimates are for estimated uncollectible
accounts receivable as provided for in its 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. The
company's 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.
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004
(Unaudited)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
Government Regulation
A substantial portion of the company's revenues are attributable to
payments received under Medicare, which is supplemented by Medicaid or
comparable benefits in the states in which the company operates.
Reimbursement rates under these programs are subject to regulatory changes
and governmental funding restrictions. Laws and regulations governing the
Medicare and Medicaid programs are complex and subject to interpretation.
The company believes that it is in compliance with all applicable laws and
regulations and is not aware of any pending or threatened investigations
involving allegations of potential wrongdoing. While no such regulatory
inquiries have been made, compliance with such laws and regulations can be
subject to future government review and interpretation as well as significant
regulatory action including fines, penalties, and exclusions from the
Medicare and Medicaid programs.
Cash and Cash Equivalents
The company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. The carrying
amounts reported in the balance sheet for cash and cash equivalents
approximate their fair values. Although cash and cash equivalents are
largely not federally insured, the credit risk associated with these deposits
that typically may be redeemed upon demand is considered low due to the high
quality of the financial institutions in which they are invested.
Credit Risk
The company's primary concentration of credit risk is with accounts
receivable, which consist of amounts owed by governmental agencies, insurance
companies and private patients. Receivables from Medicare and Medicaid
comprised 60% of receivables at June 30, 2004 and 59% at December 31, 2003.
Inventories
Inventories, which consist primarily of supplies used in dialysis
treatments, are valued at the lower of cost (first-in, first-out method) or
market value.
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets is comprised as follows:
June 30, December 31,
2004 2003
----------- -----------
Vendor volume discounts receivable $ 196,008 $ 610,150
Prepaid expenses 892,358 478,079
Receivable from management service
contracts 104,926 130,916
Other 93,730 173,576
----------- -----------
$ 1,287,022 $ 1,392,721
=========== ===========
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004
(Unaudited)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
Accrued Expenses
Accrued expenses is comprised as follows:
June 30, December 31,
2004 2003
----------- -----------
Due to insurance companies $ 2,486,521 $ 1,759,397
Accrued compensation 983,510 985,330
Insurance premiums payable 408,905 126,736
Other 486,984 298,806
----------- -----------
$ 4,365,920 $ 3,170,269
=========== ===========
Vendor Concentration
The company purchases erythropoietin (EPO) from one supplier which
comprised 35% and 36% of the company's cost of sales for the three months and
six months ended June 30, 2004 and for the same periods of the preceding
year. There is only one supplier of EPO in the United States, and this
supplier has recently received FDA approval for an alternative product
available for dialysis patients. There are no other suppliers of any similar
drug available to dialysis treatment providers. Revenues from the
administration of EPO comprised 27% and 28% of medical service revenue for
the three months and six months ended June 30, 2004 and for the same periods
of the preceding year.
Revenue Recognition
Net revenue is recognized as services are rendered at the net realizable
amount from Medicare, Medicaid, commercial insurers, other third party payors
and directly from patients. The company occasionally provides dialysis
treatments on a charity basis to patients who cannot afford to pay. The
amount is not significant.
Goodwill
Goodwill represents cost in excess of net assets acquired. The company
adopted Statement of Financial Accounting Standards No. 142, "Goodwill and
Other Intangible Assets" (FAS 142) effective January 1, 2002. Under 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 the company's acquisition of minority interests in August,
2001 and June, 2003, and the goodwill resulting from the company's
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, which testing has indicated no
impairment for goodwill. See Note 9.
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004
(Unaudited)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
Income Taxes
Deferred income taxes are determined by applying enacted tax rates
applicable to future periods in which the taxes are expected to be paid or
recovered to differences between financial accounting and tax basis of assets
and liabilities.
Stock-Based Compensation
The company follows the intrinsic value method of Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and
related interpretations in accounting for its 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 value
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. The company has 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 the company's 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
had accounted for its employee stock options under the fair value method of
that Statement. The fair value for these options was estimated at the date
of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for options granted during 2004, 2003, 2002 and
2001, respectively: risk-free interest rate of 3.91%, 1.44%, 3.73%, and
5.40%; no dividend yield; volatility factor of the expected market price of
the company's common stock of .66, 1.07, 1.15, and 1.14, and a weighted-
average expected life of 5 years, 4.7 years, 5 years, and 4 years.
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 the company's 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.
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004
(Unaudited)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
For purposes of pro forma disclosures, the estimated fair value of
options is amortized to expense over the options' vesting period. The
company's pro forma information follows:
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- ----------------------------
2004 2003 2004 2003
---- ---- ---- ----
Net income, as reported $ 387,622 $ 219,563 $ 675,534 $ 375,206
Stock-based employee compensation
expense under fair value method,
net of related tax effects (42,136) (15,414) (59,148) (30,828)
----------- ----------- ----------- -----------
Pro forma net income $ 345,486 $ 204,149 $ 616,386 $ 344,378
=========== =========== =========== ===========
Earnings per share:
Basic, as reported $.05 $.03 $.08 $.05
==== ==== ==== ====
Basic, pro forma $.04 $.03 $.07 $.04
==== ==== ==== ====
Diluted, as reported $.04 $.03 $.08 $.04
==== ==== ==== ====
Diluted, pro forma $.04 $.02 $.07 $.04
==== ==== ==== ====
Earnings per Share
Diluted earnings per share gives effect to potential common shares that
were dilutive and outstanding during the period, consisting of stock options,
calculated using the treasury stock method and average market price.
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- ----------------------------
2004 2003 2004 2003
---- ---- ---- ----
Net income $ 387,622 $ 219,563 $ 675,534 $ 375,206
Weighted average shares-denominator
basic computation 8,322,959 7,936,390 8,315,943 7,875,346
Effect of dilutive stock options 385,031 762,362 571,179 577,397
----------- ----------- ----------- -----------
Weighted average shares, as adjusted-
denominator diluted computation 8,707,990 8,698,752 8,887,122 8,452,743
=========== =========== =========== ===========
Earnings per share:
Basic $.05 $.03 $.08 $.05
==== ==== ==== ====
Diluted $.04 $.03 $.08 $.04
==== ==== ==== ====
The company had various potentially dilutive securities during the
periods presented, consisting of stock options. See Note 7.
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004
(Unaudited)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
Other Income
Operating:
Other operating income is comprised as follows:
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- ----------------------------
2004 2003 2004 2003
---- ---- ---- ----
Management fee income $ 92,610 $ 79,175 $ 175,472 $ 152,235
Litigation settlement --- --- 134,183 ---
----------- ----------- ----------- -----------
$ 92,610 $ 79,175 $ 309,655 $ 152,235
=========== =========== =========== ===========
Non-operating:
Other non-operating income (expense) is comprised as follows:
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- ----------------------------
2004 2003 2004 2003
---- ---- ---- ----
Rental income $ 47,033 $ 53,245 $ 93,696 $ 97,247
Interest income 5,417 12,149 14,006 23,964
Interest expense (40,754) (50,913) (83,351) (104,699)
Other 10,110 9,197 19,749 20,259
----------- ----------- ----------- -----------
Other income, net $ 21,806 $ 23,678 $ 44,100 $ 36,771
=========== =========== =========== ===========
Estimated Fair Value of Financial Instruments
The carrying value of cash, accounts receivable and debt in the
accompanying financial statements approximate their fair value because of the
short-term maturity of these instruments, and in the case of debt because
such instruments either bear variable interest rates which approximate market
or have interest rates approximating those currently available to the company
for loans with similar terms and maturities.
Reclassification
Certain prior year amounts have been reclassified to conform with the
current year's presentation.
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004
(Unaudited)
NOTE 2--INTERIM ADJUSTMENTS
The financial summaries for the three months and six months ended June
30, 2004 and June 30, 2003 are unaudited and include, in the opinion of
management of the company, all adjustments (consisting of normal recurring
accruals) necessary to present fairly the earnings for such periods.
Operating results for the three months and six months ended June 30, 2004 are
not necessarily indicative of the results that may be expected for the entire
year ending December 31, 2004.
While the company believes that the disclosures presented are adequate
to make the information not misleading, it is suggested that these
consolidated financial statements be read in conjunction with the financial
statements and notes included in the company's audited financial statements
for the year ended December 31, 2003.
NOTE 3--LONG-TERM DEBT
The company, through its subsidiary, DCA of Vineland, LLC, and pursuant
to a December 3, 1999 loan agreement, obtained a $700,000 development loan
with interest at 8.75% through December 2, 2001, 11/2% over the prime rate
thereafter through December 15, 2002 and 1% over prime thereafter with an
interest rate of 5% at June 30, 2004 and December 31, 2003, secured by a
mortgage on the company's real property in Easton, Maryland. Outstanding
borrowings were subject to monthly payments of interest only 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 principal balance of $623,000 at June 30, 2004 and $636,000 at
December 31, 2003.
In April, 2001, the company 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, with an
interest rate of 6% at June 30, 2004, and December 31, 2003. Payments are
$6,800 including principal and interest commencing 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 $695,000 at June 30, 2004, and $715,000 at December 31, 2003.
The equipment financing agreement is for financing for kidney dialysis
machines for the company's dialysis facilities. Financing under the
equipment purchase agreement is a noncash financing activity, which is a
supplemental disclosure required by Financial Accounting Standards Board
Statement No. 95, "Statement of Cash Flows." There was no financing under
this agreement during the first half of 2004 or the first half of 2003. The
remaining principal balance under this financing amounted to approximately
$1,078,000 at June 30, 2004, and $1,321,000 at December 31, 2003. The
company is currently financing its equipment through its parent. See Note 5.
The prime rate was 4.00% as of June 30, 2004, and December 31, 2003.
For interest payments, see Note 11.
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004
(Unaudited)
NOTE 3--LONG-TERM DEBT--Continued
The company's two mortgage agreements contain certain restrictive
covenants that, among other things, restrict the payment of dividends above
25% of the company's net worth, require lenders' approval for a merger, sale
of substantially all the assets, or other business combination of the
company, and require maintenance of certain financial ratios. The company
was in compliance with the debt covenants at June 30, 2004, and December 31,
2003.
NOTE 4--INCOME TAXES
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.
For income tax payments, see Note 11.
NOTE 5--TRANSACTIONS WITH PARENT
The company's parent provides certain financial and administrative
services for the company. Central operating costs are charged on the basis
of time spent. In the opinion of management, this method of allocation is
reasonable. The amount of expenses allocated by the parent totaled
approximately $50,000 and $100,000 for the three months and six months ended
June 30, 2004 and for the same periods of the preceding year.
The company had an intercompany advance payable to its parent of
approximately $341,000 at June 30, 2004 and $234,000 at December 31, 2003,
which bears interest at the short-term Treasury Bill rate. Interest expense
on intercompany advances payable was approximately $1,000 and $2,000 for the
three months and six months ended June 30, 2004. Interest is included in the
intercompany advance balance. The company's parent has agreed not to require
repayment of the intercompany advance balance prior to July 1, 2005;
therefore, the advance has been classified as long-term at June 30, 2004.
On March 17, 2004, the company issued a demand promissory note to its
parent for up to $1,500,000 of financing for equipment purchases with annual
interest of 1.25% over the prime rate. The note was modified by increasing
the maximum amount of advances that can be made to $2,000,000, and by adding
to the purposes of the financing, working capital and other corporate needs.
The company borrowed approximately $885,000 under this note during the first
half of 2004 which had an interest rate of 5.25% as of June 30, 2004.
Interest expense on the note amounted to approximately $2,000 and $7,000 for
the three months and six months ended June 30, 2004. Accrued interest
payable on the note amounted to approximately $9,000 as of June 30, 2004.
NOTE 6--OTHER RELATED PARTY TRANSACTIONS
The 20% minority interest in DCA of Vineland, LLC was held by a company
owned by the medical director of that facility, who became a director of the
company in 2001 and ceased being a director at the annual meeting on June 3,
2004. In April, 2000, another company owned by this physician
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004
(Unaudited)
NOTE 6--OTHER RELATED PARTY TRANSACTIONS--Continued
acquired an interest in DCA of Vineland, resulting in DCA of Vineland being
owned 51% by the company and 49% by this physician's companies.
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), of which subsidiary company this physician also
serves as medical director.
In May, 2001, the company loaned its President and CEO $95,000 to be
repaid with accrued interest at prime minus 1% (floating prime) on or before
maturity on May 11, 2006. This demand loan is collateralized by all of the
President's stock and stock options in the company and proceeds from sale of
such stock. Interest income on the loan amounted to approximately $1,000 and
$2,000 for the three months and six months ended June 30, 2004 and for the
same periods of the preceding year. Accrued interest on the loan was
approximately $14,000 as of June 30, 2004 and $13,000 as of December 31,
2003.
Minority members in subsidiaries in certain situations may fund their
portion of required capital contributions by issuance of an interest bearing
note payable to the company which the minority member may repay through their
portion of capital distributions of the subsidiary. The 20% member in DCA of
Chevy Chase, LLC funded approximately $42,000 in capital contributions during
the first half of 2004, and $190,000 of such contributions during the same
period of the preceding year, under a note accruing interest at prime plus
2%, with interest totaling approximately $3,000 and $6,000 for the three
months and six months ended June 30, 2004 and $3,000 and $4,000 for the same
periods of the preceding year, with approximately $46,000 of distributions to
the member applied against the note and accrued interest during the first
half of 2004, with no such distributions during the same period of the
preceding year. These represent noncash investing activities, which is a
supplemental disclosure required by Financial Accounts Standards Board
Statement No. 95, "Statement of Cash Flows." See Note 11.
NOTE 7--STOCK OPTIONS
In June, 1998, the board of directors granted an option under the now
expired 1995 Stock Option Plan to a board member for 10,000 shares
exercisable at $1.13 per share through June 9, 2003. This option was
exercised in June, 2003 with the company receiving an $11,250 cash payment
for the exercise price.
In April, 1999, we adopted a stock option plan pursuant to which the
board of directors granted 1,600,000 options exercisable at $.63 per share to
certain of our officers, directors, employees and consultants with 680,000
options exercisable through April 20, 2000 and 920,000 options exercisable
through April 20, 2004, of which 120,000 options to date have been cancelled.
In April, 2000, the 680,000 one-year options were exercised for which we
received cash payment of $3,400 and the balance in three-year promissory
notes with the interest at 6.2% and which maturity was extended to April 20,
2004. All the notes were repaid with 91,800 shares of common stock with a
fair market value of approximately $521,000 on February 9, 2004. Interest
income on the notes amounted to approximately
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004
(Unaudited)
NOTE 7--STOCK OPTIONS--Continued
$3,000 for the six months ended June 30, 2004, all of which was earned during
the first quarter. In March, 2003, 155,714 of the remaining 800,000 options
outstanding were exercised for $97,322 with the exercise price satisfied by
director bonuses accrued in 2002. In January, 2004, 130,278 of these options
were exercised for $81,424 with the exercise price satisfied by director
bonuses accrued in 2003. In February, 2004, 158,306 of these options were
exercised for $98,941 with the exercise price satisfied by payment of 18,152
shares to the company for cancellation. In March, 2004, 355,702 of these
options were exercised for $222,314 with the exercise price satisfied by the
payment of 54,223 shares to the company. The exercises and share payments to
the company represent noncash investing activity, which is a supplemental
disclosure required by Financial Accounting Standards Board Statement No. 95,
"Statement of Cash Flows." See Note 11.
In January, 2001, the board of directors granted to our Chief Executive
Officer and President a five-year option for 330,000 shares exercisable at
$.63 per share with 66,000 options vesting at January, 2001, and 66,000
options vesting in equal annual increments on January 1 for each of the next
four years. In January, 2004, 56,384 of these options were exercised for
$35,240 with the exercise price satisfied by a director bonus accrued in
2003.
In September, 2001, the board of directors granted five-year options for
an aggregate of 150,000 shares exercisable at $.75 per share through
September 5, 2006, to certain officers, directors and key employees. 30,000
of the options vested immediately with the remaining 120,000 options to vest
in equal increments of 30,000 options each September 5, commencing September
5, 2002. In March, 2003, 3,570 of these options were exercised for $2,678
with the exercise price satisfied by director bonuses accrued in 2002. In
January, 2004, 4,576 of these options were exercised for $3,432 with the
exercise price satisfied by director bonuses accrued in 2003. These
exercises represent noncash investing activity, which is a supplemental
disclosure required by Financial Accounting Standards Board Statement No. 95,
"Statement of Cash Flows." See Note 11. In January, 2004, 7,200 of these
options were exercised with the company receiving a $5,400 cash payment for
the exercise price leaving 134,654 of these options outstanding as of June
30, 2004. As of June 30, 2004, an aggregate of 90,000 of these options had
vested, of which 15,346 have been exercised.
In March, 2002, the board of directors granted a five-year option to an
officer for 60,000 shares exercisable at $1.58 per share through February 28,
2007. The option was to vest in equal annual increments of 15,000 shares on
each February 28 from 2003 through 2006. The 15,000 options that had vested
in February, 2003, were exercised by the officer in October, 2003, and the
remaining 45,000 options expired unvested due to the July 31, 2003
resignation of the officer.
In May, 2002, the board of directors granted five-year options for an
aggregate of 21,000 shares to the company's employees of which 11,000 were
outstanding at June 30, 2004. Most of these options with respect to each
individual employee are for 1,000 shares of common stock, with one option for
3,000 shares. These options are exercisable at $2.05 per share through May
28, 2007, with all options having vested on May 29, 2004. Options for 10,000
shares have been cancelled as a result of the termination of the employees
holding those options.
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004
(Unaudited)
NOTE 7--STOCK OPTIONS--Continued
In June, 2003, the board of directors granted to an officer a five-year
option for 50,000 shares exercisable at $1.80 per share through June 3, 2008.
The option vests annually in increments of 12,500 shares on each June 4 from
2004 to 2007.
In August, 2003, the board of directors granted a three-year option to a
director who serves on several of the company's committees including the
audit committee, for 10,000 shares exercisable at $2.25 per share through
August 18, 2006. The option vests in two annual increments of 5,000 shares
commencing on August 19, 2004.
In January, 2004, the board of directors granted a five year option to
an employee for 20,000 shares exercisable at $3.09 per share through January
12, 2009. The option vests in annual increments of 5,000 shares on each
January 13 from 2005 through 2008.
On January 28, 2004, the company effected a two-for-one stock split of
its outstanding common stock. All option amounts and exercise prices have
been adjusted to reflect the stock split. Split-adjusted option exercise
prices resulting in a fraction of a cent have been rounded up to the nearest
cent for purposes of these notes to the financial statements of the company.
In June, 2004, the board of directors granted 145,000 stock options to
officers and directors exercisable at $4.02 per share through June 6, 2009.
15,000 options vested immediately and 130,000 options vest 25% annually
commencing June 7, 2005. See Part II, "Other Information," Item 2, "Changes
in Securities, Use of Proceeds and Issuer Purchases of Equity Securities."
NOTE 8--COMMITMENTS
Effective January 1, 1997, the company established a 401(k) savings plan
(salary deferral plan) with an eligibility requirement of one year of service
and 21 year old age requirement. The company and its parent established a
new 401(k) plan effective January, 2003, which allows employees, in addition
to regular employee contributions, to elect to have a portion of bonus
payments contributed. As an incentive to save for retirement, the company
will match 10% of an employee's contribution resulting from any bonus paid
during the year and may make a discretionary contribution with the percentage
of any discretionary contribution to be determined each year with only
employee contributions up to 6% of annual compensation considered when
determining employer matching. The company's expense for employer matching
contributions amounted to approximately $600 for the six months ended June
30, 2004, all during the first quarter, with no matching contributions for
the same periods of the preceding year.
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004
(Unaudited)
NOTE 9--ACQUISITIONS
In August, 2001, the company acquired the remaining 30% minority
interest in DCA of So. Ga., LLC, giving the company a 100% ownership
interest, for $600,000. This transaction resulted in $523,000 goodwill
representing the excess of the $600,000 purchase price over the $77,000 fair
value of the assets acquired. The goodwill is being amortized for tax
purposes over a 15-year period. The company's decision to make this
investment was based largely on the profitability of DCA of So. Ga. The
party from whom the company acquired the minority interest is the medical
director of another dialysis subsidiary of the company. See Note 1.
In April, 2002, the company acquired a dialysis center in Royston,
Georgia for $550,000. This transaction resulted in $400,000 of goodwill
representing the excess of the $550,000 purchase price over the $150,000 fair
value of the assets acquired. The goodwill is being amortized for tax
purposes over a 15-year period. The company'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, the company 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 initially and the remaining balance of $670,000 was
paid during the second quarter of 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. The company's decision to make these
acquisitions was based on its expectation of profitability resulting from
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 two other of the company's Georgia dialysis
facilities. See Note 1.
NOTE 10--LOAN TRANSACTIONS
The company customarily funds the establishment and operations of its
dialysis facility subsidiaries, usually until they become self-sufficient,
including 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 the
subsidiaries provide for cash flow and other proceeds to first pay any such
financing that the company provides, exclusive of any tax payment
distributions. One such loan exists with DCA of Vineland, LLC. In April,
2000, a company owned by the medical director of DCA of Vineland acquired an
interest in DCA of Vineland for $203,000, which was applied to reduce the
company's loan. The outstanding principal indebtedness of the company's loan
was approximately $189,000 at June 30, 2004 and $425,000 at December 31,
2003. See Note 6.
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004
(Unaudited)
NOTE 11--SUPPLEMENTAL CASH FLOW INFORMATION
The following represents non-cash financing and investing activities and
other cash flow information:
Six Months Ended
June 30,
----------------------------
2004 2003
---- ----
Interest paid (see Note 3) $ 80,000 $ 86,000
Income taxes paid (see Note 4) 453,000 336,000
Options exercise bonus (191,238 shares 2004; 159,284 shares
2003) (see Note 7) 120,000 100,000
Subsidiary minority member capital contributions funded
by notes (see Note 6) 42,000 190,000
Subsidiary minority member distributions applied against notes
and accrued interest (see Note 6) 46,000 ---
Share payment (514,008 options exercised; 72,375 shares paid)
for stock option exercises (see Note 7) 321,000 ---
Payment of note receivable of 91,800 shares of common stock
(see Note 7) 521,000 ---
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 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. Our discussion of MD&A should be read in
conjunction with our unaudited consolidated financial statements, including
the notes, included elsewhere in this Quarterly Report on Form 10-Q.
Overview
Dialysis Corporation of America provides dialysis services, primarily
kidney dialysis treatments through 20 outpatient dialysis centers, including
a 40% owned Ohio affiliate and one unaffiliated dialysis center which it
manages, to patients with chronic kidney failure, also known as end-stage
renal disease or ESRD. We provide dialysis treatments to dialysis patients
of six hospitals and medical centers through acute inpatient dialysis
services agreements with those entities. We provide homecare services,
including home peritoneal dialysis through method II services, the latter
relating to providing patients with supplies and equipment.
The following table shows the number of in-center, home peritoneal and
acute inpatient treatments performed by us through the dialysis centers we
operate, including the two centers we manage, one in which we have a 40%
ownership interest, and those hospitals and medical centers with which we
have inpatient acute service agreements for the periods presented:
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- ----------------------------
2004 2003 2004 2003
---- ---- ---- ----
In center 30,034 25,846 57,783 48,831
Home peritoneal 3,493 1,829 5,327 3,491
Acute 1,982 1,891 4,161 3,963
------ ------ ------ ------
35,509(1) 29,566(1) 67,271(1) 56,285(1)
_______________
(1) Treatments by the two managed centers included: in-center treatments of
3,205 and 6,088, for the three months and six months ended June 30, 2004
and 2,820 and 5,246 for the three months and six months ended June 30,
2003; no home peritoneal treatments; and acute treatments of 35 and 47,
for the three months and six months ended June 30, 2004, 34 and 87 for
the three months and six months ended June 30, 2003.
We also provide ancillary services associated with dialysis treatments,
including the administration of EPO for the treatment of anemia in our
dialysis patients. EPO is currently available from only one manufacturer,
and no alternative drug has been available to us for the treatment of anemia
in our dialysis patients. If our available supply of EPO were reduced either
by the manufacturer or due to excessive demand, our revenues and net income
would be adversely affected. The manufacturer of EPO could implement price
increases which would adversely affect our net income. This manufacturer has
developed another anemia drug that could possibly substantially reduce our
revenues and profit from the treatment of anemia in our patients.
ESRD patients must either obtain a kidney transplant or obtain regular
dialysis treatments for the rest of their lives. Due to a lack of suitable
donors and the possibility of transplanted organ rejection, the most
prevalent form of treatment for ESRD patients is hemodialysis through a
kidney dialysis machine. Hemodialysis patients usually receive three
treatments each week with each treatment lasting between three and five hours
on an outpatient basis. Although not as common as hemodialysis in an
outpatient facility, home peritoneal dialysis is an available treatment
option, representing the third most common type of ESRD treatment after
outpatient hemodialysis and kidney transplantation.
Approximately 56% and 57% of our medical service revenues were derived
from Medicare and Medicaid reimbursement for the three months and six months
ended June 30, 2004, compared to 61% and 60% for the same periods of the
preceding year, with rates established by CMS, and which rates are subject to
legislative changes. Over the last two years, Medicare reimbursement rates
have not increased. Dialysis is typically reimbursed at higher rates from
private payors, such as a patient's insurance carrier, as well as higher
payments received under negotiated contracts with hospitals for acute
inpatient dialysis services.
The following table shows the breakdown of our revenues by type of payor
for the periods presented:
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- ----------------------------
2004 2003 2004 2003
---- ---- ---- ----
Medicare 48% 53% 49% 51%
Medicaid and comparable programs 8 8 8 9
Hospital inpatient dialysis services 5 7 6 8
Commercial insurers and other private payors 39 32 37 32
--- --- --- ---
100% 100% 100% 100%
Our medical service revenues are derived primarily from four sources:
outpatient hemodialysis services, home peritoneal dialysis services,
inpatient hemodialysis services and ancillary services. The following table
shows the breakdown of our medical service revenues (in thousands) derived
from our primary revenue sources and the percentage of total medical service
revenue represented by each source for the periods presented:
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- ----------------------------
2004 2003 2004 2003
------------- ------------- ------------- -------------
Outpatient hemodialysis services $ 4,932 52% $ 3,651 49% $ 9,019 50% $ 6,960 49%
Home peritoneal dialysis services 606 6% 309 4% 1,016 6% 598 4%
Inpatient hemodialysis services 521 6% 489 7% 1,110 6% 1,021 7%
Ancillary services 3,438 36% 2,975 40% 6,761 38% 5,583 40%
------- ---- ------- ---- ------- ---- ------- ----
$ 9,497 100% $ 7,424 100% $17,906 100% $14,162 100%
======= ==== ======= ==== ======= ==== ======= ====
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, including anti-kickback regulations and extensive prohibitions
relating to self-referrals, violations of which are punishable by criminal or
civil penalties, including exclusion from Medicare and other governmental
programs. Unanticipated changes in healthcare programs or laws could require
us to restructure our business practices which, in turn, could materially
adversely affect our business, operations and financial condition. We have
developed a Corporate Integrity Program to assure that we provide the highest
level of patient care and services in a professional and ethical manner
consistent with applicable federal and state laws and regulations. Among the
different programs is our Compliance Program, which has been implemented to
assure our compliance with fraud and abuse laws and to supplement our
existing policies relating to claims submission, cost report preparation,
initial audit and human resources, all geared towards a cost-efficient
operation beneficial to patients and shareholders.
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 our ability to manage the development
costs for these potential dialysis centers while competing with larger
companies, some of which are public companies or divisions of public
companies with greater numbers of personnel and financial resources available
for acquiring and/or developing dialysis centers in areas targeted by us.
Additionally, there is intense competition for qualified nephrologists who
would serve as medical directors of dialysis facilities, and be responsible
for the supervision of those dialysis centers. There is no assurance as to
when any new dialysis centers or inpatient service contracts with hospitals
will be implemented, or the number of stations, or patient treatments such
center or service contract may involve, or if such center or service contract
will ultimately be profitable. It has been our experience that newly
established dialysis centers, although contributing to increased revenues,
have adversely affected our results of operations in the short term due to
start-up costs and expenses and a smaller patient base.
Results of Operations
The following table shows our results of operations (in thousands) and
the percentage of medical service revenue represented by each line item for
the periods presented:
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- ----------------------------
2004 2003 2004 2003
--------------- --------------- --------------- ---------------
Medical service revenue $ 9,497 100.0% $ 7,424 100.0% $17,906 100.0% $14,162 100.0%
Other income 93 .9 79 1.1 310 1.7 152 1.1
------- ----- ------- ----- ------- ----- ------- -----
Total operating revenues 9,590 100.9 7,503 101.1 18,216 101.7 14,314 101.1
Cost of medical services 5,738 60.4 4,516 60.8 10,901 60.9 8,720 61.6
Selling, general and
administrative expenses 2,901 30.5 2,378 32.0 5,697 31.8 4,526 32.0
Provision for doubtful accounts 200 2.1 159 2.1 348 1.9 255 1.8
------- ----- ------- ----- ------- ----- ------- -----
Total operating costs and
expenses 8,839 93.0 7,053 95.0 16,946 94.6 13,501 95.3
------- ----- ------- ----- ------- ----- ------- -----
Operating income 750 7.9 450 6.1 1,270 7.1 813 5.7
Other, net 15 .2 24 .3 35 .2 38 .3
------- ----- ------- ----- ------- ----- ------- -----
Income before income taxes,
minority interest and equity
in affiliate earnings 765 8.1 474 6.4 1,305 7.3 851 6.0
Income tax provision 278 2.9 201 2.7 494 2.8 384 2.7
------- ----- ------- ----- ------- ----- ------- -----
Income before minority interest
and equity in affiliate
earnings 487 5.2 273 3.7 811 4.5 467 3.3
Minority interest in income of
consolidated subsidiaries (131) (1.4) (59) (.8) (186) (1.0) (114) (.8)
Equity in affiliate earnings 31 .3 6 .1 50 .3 22 .2
------- ----- ------- ----- ------- ----- ------- -----
Net income $ 388 4.1% $ 220 3.0% $ 675 3.8% $ 375 2.7%
======= ===== ======= ===== ======= ===== ======= =====
Medical service revenues increased approximately $2,073,000 (28%) and
$3,744,000 (26%) for the three months and six months ended June 30, 2004,
compared to the same periods of the preceding year with the increase largely
attributable to a 21% increase in total dialysis treatments performed by the
company from 26,712 during the second quarter of 2003 to 32,269 during the
second quarter of 2004, and a 20% increase in total dialysis treatments
performed by the company from 50,952 during the first half of 2003 to 61,136
during the first half of 2004. This increase reflects increased revenues of
approximately $558,000 and $959,000 for our Pennsylvania dialysis centers,
including $248,000 revenues during the second quarter of 2004 for our new
Pottstown center; increased revenues of $182,000 and $213,000 for our New
Jersey centers; increased revenues of $180,000 and $472,000 for our Georgia
centers; increased revenues of approximately $149,000 and $554,000 for our
Maryland centers, including $11,000 revenues during the second quarter of
2004 for our new Rockville center; increased revenues of approximately
$340,000 and $676,000 for our Ohio center; revenues of approximately $247,000
and $381,000 for our new Virginia center; and revenues of approximately
$417,000 and $489,000 for our new South Carolina center. Other operating
income increased by approximately $13,000 and $158,000 for the three months
and six months ended June 30, 2004 compared to the same period of the
preceding year. This includes a litigation settlement of $134,000 during the
first quarter of 2004 and an increase in management fee income of $13,000 and
$23,000 for the three months and six months ended June 30, 2004 pursuant to
management services agreements with our 40% owned Toledo, Ohio affiliate and
our unaffiliated Georgia center.
Cost of medical services sales as a percentage of sales decreased to 60%
and 61% for the three months and six months ended June 30, 2004, compared to
61% and 62% for the same periods of the preceding year, largely due to a
decrease in payroll costs as a percentage of medical service sales.
Approximately 27% and 28% of our medical services revenues for the three
months and six months ended June 30, 2004 and for the same periods of the
preceding year was derived from the administration of EPO to our dialysis
patients. This drug is only available from one manufacturer in the United
States. Price increases for this product without our ability to increase our
charges would increase our costs and thereby adversely impact our earnings.
We cannot predict the timing, if any, or extent of any future price increases
by the manufacturer, or our ability to offset any such increases.
Selling, general and administrative expenses, those corporate and
facility costs not directly related to the care of patients, including, among
others, administration, accounting and billing, increased by approximately
$523,000 and $1,171,000 for the three months and six months ended June 30,
2004, compared to the same periods of the preceding year. This increase
reflects operations of our new dialysis centers in Pennsylvania, South
Carolina, Virginia, and Maryland, and increased support activities resulting
from expanded operations. Selling, general and administrative expenses as a
percentage of medical services revenues increased to approximately 31% and
32% for the three months and six months ended June 30, 2004, compared to 32%
for the same periods of the preceding year, including expenses of new centers
incurred prior to Medicare approval for which there were no corresponding
medical service revenues.
Provision for doubtful accounts increased approximately $41,000 and
$93,000 for the three months and six months ended June 30, 2004 compared to
the same periods of the preceding year. The provision amounted to 2% of
sales for the three months and six months ended June 30, 2004 and for the
same periods of the preceding year. Medicare bad debt recoveries of $30,000
were recorded during the first half of 2003, all during the first quarter,
with no such recoveries recorded during the first half 2004. The provision
for doubtful accounts reflects our collection experience with the impact of
that experience included in accounts receivable presently reserved, plus
recovery of accounts previously considered uncollectible from our Medicare
cost report filings. The provision for doubtful accounts 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,
and are reserved for in the allowance for doubtful accounts until they are
written off.
Other non-operating income (expense) decreased approximately $2,000 for
the three months ended June 30, 2004 and increased approximately $7,000 for
the six months ended June 30, 2004, compared to the same periods of the
preceding year. This includes a decrease in interest income of $7,000 and
$10,000, a decrease in rental income of $6,000 and $4,000, and a decrease in
interest expense of $10,000 and $21,000 reflecting lower average interest
rates on variable rate debt and reduced average borrowings. Interest expense
to our parent, Medicore, Inc., increased $7,000 and $10,000 for the three
months and six months ended June 30, 2004 compared to the same periods of the
preceding year as a result of an increase in the intercompany advance payable
to our parent and borrowings under a demand promissory note payable to our
parent. The prime rate was 4.00% at June 30, 2004, and December 31, 2003.
See Notes 1, 3 and 5 of "Notes to the Consolidated Financial Statements."
Although operations of additional centers have resulted in additional
revenues, certain of these centers are still in the developmental stage and,
accordingly, their operating results will adversely impact our overall
results of operations until they achieve a patient count sufficient to
sustain profitable operations.
We experienced same-center growth in total treatments of approximately
11% for the six months ended June 30, 2004 compared to the same periods of
the preceding year, and same-center revenues grew approximately 20%.
Management continues to search for ways to operate more efficiently and
reduce costs through process improvements. In addition, we are reviewing
technological improvements and intend to make capital investments to the
extent we are confident such improvements will improve patient care and
operating performance.
Minority interest represents the proportionate equity interests of
minority owners of our subsidiaries whose financial results are included in
our consolidated results. Equity in affiliate earnings represents our
proportionate interest in the earnings of our 40% owned Ohio affiliate whose
operating results improved for the three months and six months ended June 30,
2004 compared to the same period of the preceding year.
Liquidity and Capital Resources
Working capital totaled approximately $3,034,000 at June 30, 2004, which
reflected a decrease of $739,000 (20%) during the six months ended June 30,
2004. Included in the changes in components of working capital was a
decrease in cash and cash equivalents of $742,000, which included net cash
provided by operating activities of $1,272,000; net cash used in investing
activities of $2,619,000 (including additions to property and equipment of
$1,960,000, acquisition payments to a minority member in two of our
subsidiary dialysis centers for the remaining balance due of $670,000 to
acquire an aggregate of 30% of such member's interest in each of such
subsidiaries, and $20,000 distributions received from our 40% owned Ohio
affiliate); and net cash provided by financing activities of $605,000
(including an increase in advances payable to our parent of $107,000, notes
payable to our parent of $885,000, debt repayments of $276,000, distributions
to subsidiary minority members of $116,000, and $5,000 of receipts from the
exercise of stock options).
Our Easton, Maryland building has a mortgage to secure a development
loan for our Vineland, New Jersey subsidiary, which loan is guaranteed by us.
This loan had a remaining principal balance of $623,000 at June 30, 2004 and
$636,000 at December 31, 2003. In April, 2001, we obtained a $788,000 five-
year mortgage on our building in Valdosta, Georgia, which had an outstanding
principal balance of approximately $695,000 at June 30, 2004 and $715,000 at
December 31, 2003. See Note 3 to "Notes to Consolidated Financial
Statements."
We have an equipment financing agreement for kidney dialysis machines
for our facilities, which had an outstanding balance of approximately
$1,078,000 at June 30, 2004, and $1,321,000 at December 31, 2003. There was
no additional equipment financing during the first quarter of 2004. See Note
3 to "Notes to Consolidated Financial Statements."
During the first half of 2004, we borrowed approximately $885,000 to
finance dialysis equipment purchases under a demand promissory note to our
parent. See Note 5 to "Notes to Consolidated Financial Statements."
We opened centers in Warsaw, Virginia; Aiken, South Carolina; Pottstown,
Pennsylvania; and Rockville, Maryland during the first half of 2004. We are
in the process of developing a new dialysis center in Virginia. Payment of
the balance due of $670,000 on the purchase of minority interests in two of
our Georgia dialysis centers was made during the second quarter of 2004. See
Note 9 to "Notes to Consolidated 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
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. Acquisition of an existing dialysis
facility is more expensive than construction, although acquisition would
provide us with an immediate ongoing operation, which most likely would be
generating income. Although our expansion strategy focuses primarily on
construction of new centers, we have expanded through acquisition of dialysis
facilities and continue to review potential acquisitions. Development of a
dialysis facility to initiate operations takes four to six months and usually
up to 12 months or longer to generate 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.
We are seeking to expand our outpatient dialysis treatment facilities
and inpatient dialysis care and are presently in different phases of
negotiations with physicians for the development of additional outpatient
centers. Such expansion requires capital. We have been funding our
expansion through internally generated cash flow. Our future expansion may
require us to seek outside financing. While we anticipate that financing
will be available either from a financial institution or our parent company,
Medicore, which is currently providing us with financing, no assurance can be
given that we will be successful in implementing our growth strategy or that
adequate financing will be available to support our expansion.
Critical Accounting Policies and Estimates
The SEC has issued cautionary advice to elicit more precise disclosure
in this Item 2, MD&A, 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 net of contractual
provisions. Contractual provisions are the difference between our gross
billed revenues and what we expect to collect. We receive payments through
reimbursement from Medicare and Medicaid for our outpatient dialysis
treatments coupled with patients' private payments, individually and through
private third-party insurers. A substantial portion of our revenues are
derived from the Medicare ERSD program, which outpatient reimbursement rates
are fixed under a composite rate structure, which includes the dialysis
services and certain supplies, drugs and laboratory tests. Certain of these
ancillary services are reimbursable outside of the composite rate. Medicaid
reimbursement is similar and supplemental to the Medicare program. Our acute
inpatient dialysis operations are paid under contractual arrangements,
usually at higher contractually established rates, as are certain of the
private pay insurers for outpatient dialysis. We have developed a
sophisticated information and computerized coding system, but due to the
complexity of the payor mix and regulations, we sometimes receive more or
less than the amount expected when the services are provided. We reconcile
any differences at least quarterly.
Allowance for Doubtful Accounts: We maintain an allowance for doubtful
accounts for estimated losses resulting from the inability of our 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 patients and the insurance companies to make their required
payments, which would have an adverse effect on cash flows and our results of
operations. 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 the aging of accounts
receivable to establish an allowance for losses on accounts receivable.
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 for 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 SFAS 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 assets 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 charges 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. A substantial portion of our revenue 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
nursing and other patient care costs. Increased operating costs without a
corresponding increase in reimbursement rates may adversely affect our
earnings in the future.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We do not consider our exposure to market risks, principally changes in
interest rates, to be significant.
Sensitivity of results of operations to interest rate risks on our
investments is managed by conservatively investing funds in liquid interest
bearing accounts of which we held approximately $764,000 at June 30, 2004.
Interest rate risk on debt is managed by negotiation of appropriate
rates for equipment financing and other fixed rate obligations based on
current market rates. There is an interest rate risk associated with our
variable rate mortgage obligations, which totaled approximately $1,318,000 at
June 30, 2004, and our demand promissory note payable to our parent,
Medicore, which amounted to approximately $885,000 at June 30, 2004.
We have exposure to both rising and falling interest rates. Assuming a
relative 15% decrease in rates on our period-end investments in interest
bearing accounts and a relative 15% increase in rates on our period-end
variable rate debt would have resulted in a negative impact of approximately
$6,000 on our results of operations for the six months ended June 30, 2004.
We do not utilize financial instruments for trading or speculative
purposes and do not currently use interest rate derivatives.
Item 4. Controls and Procedures
As of the end of the period of this quarterly report on Form 10-Q for
the second quarter ended June 30, 2004, 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 and 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"). The disclosure controls and
procedures are designed to ensure that information required to be disclosed
by a company in the reports that it files 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 our internal controls over financial
reporting during our most recent fiscal quarter 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 2. Changes in Securities, Use of Proceeds and Issuer Purchases of
- ------ --------------------------------------------------------------
Equity Securities.
------------------
Equity Securities Sold by the Company During the Second Quarter Ended June
30, 2004 and Not Registered Under the Securities Act
The only issuance of equity securities by the company during the second
quarter ended June 30, 2004, was the grant in June, 2004, of five-year
options exercisable at $4.02 per share expiring June 6, 2009, to the
company's six directors and one executive officer for an aggregate of 145,000
shares of common stock. Three of the independent directors received non-
qualified options for 5,000 shares each which vested immediately. The
remaining options for 130,000 shares are incentive options and vest in equal
25% increments each year commencing June 7, 2005. These options were granted
under Section 4(2) of the Securities Act of 1933, as amended (the "Securities
Act"), the non-public offering exemption from the registration requirements
of the Securities Act, since the optionees are directors and/or executive
officers of the company, each of whom is knowledgeable and has access to
information concerning the company and its operations, financial condition
and management. The options, as are the shares of common stock obtainable
upon exercise of the options, are not publicly transferable absent
registration under the Securities Act unless an exemption from such
registration is available. Any shares obtained upon exercise of the options
will be "restricted" securities as defined in Rule 144(a)(3) of the
Securities Act, and will have a legend on each certificate indicating the
limitation of public transferability together with stop transfer instructions
placed against such shares with the company's transfer agent.
Purchases of Equity Securities By or On Behalf of the Company During the
Second Quarter Ended June 30, 2004
The company has a common stock repurchase program, which was announced
in September, 2000, for the repurchase of up to 600,000 shares at the then
current market prices of approximately $.90 (post January, 2004 split, $.45)
per share. The repurchase program was reiterated in September, 2001, and
continues. The maximum number of shares that may yet be purchased under the
plan is 240,000 shares. There were no repurchases of any equity securities
during the second quarter months of April, May and June, 2004. Repurchases
are unlikely at the current market prices. The closing price of our common
stock on August 10, 2004 was $4.06.
Item 4. Submissions of Matters to a Vote of Security Holders.
- ------ -----------------------------------------------------
We held our annual meeting of stockholders on June 3, 2004 at our
parent's offices in Hasbrouck Heights, New Jersey relating to the election of
six directors and ratification of the appointment of our independent
auditors, Moore Stephens, P.C. Proxies were not solicited, since our parent,
Medicore, Inc., owns 4,821,244 shares (approximately 57%) of our voting
equity. Each nominee, Messrs. Thomas K. Langbein, Stephen W. Everett, Bart
Pelstring, Robert W. Trause, Alexander Bienenstock, and Peter D. Fischbein,
were elected with 6,283,025 affirmative votes, approximately 74% of the
8,485,815 outstanding shares. There were no votes withheld for any of the
nominees, and no broker non-votes. The shareholders also ratified the
appointment of our auditors, Moore Stephens, P.C., for fiscal 2004 by the
same vote submitted for directors, with no votes cast against approval, no
abstentions, and no broker non-votes.
Item 5. Other Information.
- ------ ------------------
Effective August 16, 2004, Don Waite will become Vice President of
Finance and the company's Chief Financial Officer. From 1999 to 2004, Mr.
Waite was Chief Financial Officer, Vice President and Partner of Nephrology
Specialty Group, Inc., which established and operated a small chain of
outpatient dialysis clinics, which it sold in 2004 to an international
dialysis services company. For the period of 1989 to 1999, Mr. Waite was the
Area Manager for a division of a major international dialysis services
provider.
Item 6. Exhibits and Reports on Form 8-K.
- ------ ---------------------------------
(a) Exhibits
Part I Exhibits
31 Rule 13a-14(a)/15d-14(a) Certifications
31.1 Certifications of the Chief Executive Officer pursuant to
Rule 13a-14(a) of the Securities Exchange Act of 1934.
31.2 Certifications of Principal Financial Officer pursuant to
Rule 13a-14(a) of the Securities Exchange Act of 1934.
32 Section 1350 Certifications
32.1 Certifications of the Chief Executive Officer and the
Principal Financial Officer pursuant to Rule 13a-14(b) of
the Securities Exchange Act of 1934 and U.S.C. Section
1350.
Part II Exhibits
None
(b) Reports on Form 8-K
Current reports on Form 8-K were filed as follows:
(i) A report dated March 31, 2004, filed April 1, 2004, relating to
Item 5, "Other Events and Required FD Disclosure" reporting a
new executive office lease.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DIALYSIS CORPORATION OF AMERICA
/s/ DANIEL R. OUZTS
By:--------------------------------
DANIEL R. OUZTS, Vice President,
Finance, Principal Financial
Officer
Dated: August 13, 2004
EXHIBIT INDEX
-------------
Exhibit No.
31 Rule 13a-14(a)/15d-14(a) Certifications
31.1 Certifications of the Chief Executive Officer pursuant to Rule
13a-14(a) of the Securities Exchange Act of 1934.
31.2 Certifications of Principal Financial Officer pursuant to Rule
13a-14(a) of the Securities Exchange Act of 1934.
32 Section 1350 Certifications
32.1 Certifications of the Chief Executive Officer and the Principal
Financial Officer pursuant to Rule 13a-14(b) of the Securities
Exchange Act of 1934 and U.S.C. Section 1350.
Exhibit 31.1
CERTIFICATIONS
I, Stephen W. Everett, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Dialysis
Corporation of America;
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 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 the 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 control 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
controls.
/S/ Stephen W. Everett
Date: August 13, 2004 -----------------------------------
STEPHEN W. EVERETT, Chief Executive
Officer
Exhibit 31.2
CERTIFICATIONS
I, Daniel R. Ouzts, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Dialysis
Corporation of America;
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 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 the 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 control 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
controls.
/S/ Daniel R. Ouzts
Date: August 13, 2004 -----------------------------------
DANIEL R. OUZTS, Vice President of
Finance and Principal Financial Officer
Exhibit 32.1
CERTIFICATIONS 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 Dialysis Corporation of
America (the "Company") on Form 10-Q for the second quarter ended June 30,
2004 as filed with the Securities and Exchange Commission on the date therein
specified (the "Report"), the undersigned, Stephen W. Everett, Chief
Executive Officer of the Company, and Daniel R. Ouzts, Vice President of
Finance and Principal Financial Officer, 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/ Stephen W. Everett
-----------------------------------
STEPHEN W. EVERETT, Chief Executive
Officer and President
/s/ Daniel R. Ouzts
-----------------------------------
DANIEL R. OUZTS, Vice President of
Finance and Principal Financial
Officer
Dated: August 13, 2004