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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, 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
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(305) 558-4000
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check 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 August 8, 2003.
MEDICORE, INC. AND SUBSIDIARIES
INDEX
PART I -- FINANCIAL INFORMATION
- ------ ---------------------
The Consolidated Condensed Statements of Operations (Unaudited) for the
three months and six months ended June 30, 2003 and June 30, 2002 include the
accounts of the Registrant and all its subsidiaries.
Item 1. Financial Statements
- ------ --------------------
1) Consolidated Condensed Statements of Operations for the three months
and six months ended June 30, 2003 and June 30, 2002.
2) Consolidated Condensed Balance Sheets as of June 30, 2003 and
December 31, 2002.
3) Consolidated Condensed Statements of Cash Flows for the six months
ended June 30, 2003 and June 30, 2002.
4) Notes to Consolidated Condensed Financial Statements as of June 30,
2003.
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
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Item 1. Legal Proceedings
- ------ -----------------
Item 6. Exhibits and Reports on Form 8-K
- ------ --------------------------------
PART I -- FINANCIAL INFORMATION
---------------------------------
Item 1. Financial Statements
- ------ --------------------
MEDICORE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- -------------------------
2003 2002 2003 2002
---- ---- ---- ----
Revenues:
Sales:
Product sales $ 225,024 $ 220,685 $ 434,781 $ 461,720
Medical service revenues 7,423,946 6,315,478 14,161,897 11,803,523
----------- ----------- ----------- -----------
Total sales 7,648,970 6,536,163 14,596,678 12,265,243
Other income 198,176 212,700 404,470 441,417
----------- ----------- ----------- -----------
7,847,146 6,748,863 15,001,148 12,706,660
----------- ----------- ----------- -----------
Cost and expenses:
Cost of sales:
Cost of product sales 143,015 140,284 274,106 286,850
Cost of medical services 4,516,757 3,717,051 8,719,370 7,111,712
----------- ----------- ----------- -----------
Total cost of sales 4,659,772 3,857,335 8,993,476 7,398,562
Selling, general and administrative
expenses 2,739,020 2,159,305 5,242,792 4,221,543
Provision for doubtful accounts 159,165 242,156 255,063 428,183
Interest expense 51,012 61,327 105,033 118,530
----------- ----------- ----------- -----------
7,608,969 6,320,123 14,596,364 12,166,818
----------- ----------- ----------- -----------
Income before income taxes, minority
interest and equity in affiliate earnings 238,177 428,740 404,784 539,842
Income tax provision 163,086 166,087 274,351 237,823
----------- ----------- ----------- -----------
Income before minority interest and
equity in affiliate earnings 75,091 262,653 130,433 302,019
Minority interest in income of
consolidated subsidiaries 145,227 143,398 259,746 211,087
Equity in affiliate earnings 6,214 13,621 21,633 60,325
----------- ----------- ----------- -----------
Net (loss) income $ (63,922) $ 132,876 $ (107,680) $ 151,257
=========== =========== =========== ===========
(Loss) earnings per share:
Basic $(.01) $.02 $(.02) $.02
===== ==== ===== ====
Diluted $(.01) $.02 $(.02) $.02
===== ==== ===== ====
See notes to consolidated condensed financial statements.
MEDICORE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
June 30, December 31,
2003 2002(A)
----------- -----------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 6,656,651 $ 8,080,903
Accounts receivable, less allowance of $714,000 at
June 30, 2003 and $842,000 at December 31, 2002 4,897,671 3,571,847
Note receivable --- 2,250,000
Receivable from sale of Techdyne 384,253 1,100,000
Inventories, less allowance for obsolescence of $99,000 at
June 30, 2003 and $122,000 at December 31,2002 1,406,876 1,146,610
Prepaid expenses and other current assets 1,937,604 2,542,654
Deferred income taxes 467,000 467,000
----------- -----------
Total current assets 15,750,055 19,159,014
Property and equipment
Land and improvements 1,027,108 1,027,108
Building and building improvements 3,233,564 3,222,663
Equipment and furniture 5,923,771 5,414,252
Leasehold improvements 2,877,888 2,730,162
----------- -----------
13,062,331 12,394,185
Less accumulated depreciation and amortization 5,052,785 4,474,339
----------- -----------
8,009,546 7,919,846
----------- -----------
Receivable from sale of Techdyne --- 295,000
Other assets 3,414,761 378,730
----------- -----------
Goodwill 2,291,333 923,140
----------- -----------
Total other assets 5,706,094 1,596,870
----------- -----------
$29,465,695 $28,675,730
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 1,172,315 $ 1,409,344
Accrued expenses and other current liabilities 3,777,162 2,828,823
Current portion of long-term debt 580,000 614,362
----------- -----------
Total current liabilities 5,529,477 4,852,529
Long-term debt 2,392,645 2,727,105
Deferred income taxes 744,000 744,000
Minority interest in subsidiaries 4,498,113 3,870,024
----------- -----------
Total liabilities 13,164,235 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 June 30, 2003;
6,572,775 shares issued and outstanding at December 31,2002 65,242 65,727
Capital in excess of par value 12,699,911 12,772,358
Retained earnings 3,536,307 3,643,987
----------- -----------
Total stockholders' equity 16,301,460 16,482,072
----------- -----------
$29,465,695 $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)
Six Months Ended
June 30,
-------------------------
2003 2002
---- ----
Operating activities:
Net (loss) income $ (107,680) $ 151,257
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation 597,555 548,746
Amortization 1,157 2,323
Bad debt expense 255,063 428,183
Inventory obsolescence provision (credit) (23,394) ---
Minority interest 259,746 211,087
Equity in affiliate earnings (21,633) (60,325)
Stock and option compensation 4,667 3,751
Increase (decrease) relating to operating activities from:
Accounts receivable (1,580,887) (333,278)
Inventories (236,872) 5,288
Prepaid expenses and other current assets 149,307 (513,861)
Accounts payable (237,029) (508,787)
Accrued expenses and other current liabilities 378,339 273,194
Income taxes payable --- (2,322,736)
----------- -----------
Net cash used in operating activities (561,661) (2,115,158)
----------- -----------
Investing activities:
Additions to property and equipment, net of minor disposals (659,269) (475,568)
Distributions from affiliate 77,000 ---
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) ---
Capital contributions by subsidiaries' minority members 141,588 8,570
Acquisition of dialysis center (75,000) (550,000)
Other assets 5,181 15,768
----------- -----------
Net cash (used in) provided by investing activities (319,753) 103,770
----------- -----------
Financing activities:
Line of credit net (payments) borrowings (79,157) 56,627
Payments on long-term borrowings (289,665) (174,942)
Repurchase of company stock (66,611) ---
Exercise of subsidiary stock options 11,250 ---
Distribution to subsidiaries' minority members (118,655) ---
----------- -----------
Net cash used in financing activities (542,838) (118,315)
----------- -----------
Decrease in cash and cash equivalents (1,424,252) (2,129,703)
Cash and cash equivalents at beginning of period 8,080,903 10,359,372
----------- -----------
Cash and cash equivalents at end of period $ 6,656,651 $ 8,229,669
=========== ===========
See notes to consolidated condensed financial statements.
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
June 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" or "Medicore." 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.
The company's 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
The company follows 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:
June 30, December 31,
----------- -----------
2003 2002
---- ----
Accrued compensation $ 736,768 $ 909,763
Due to insurance companies 1,425,032 1,271,235
Payable subsidiaries' minority
interests acquisition 670,000 ---
Insurance premiums payable 318,154 65,544
Other 627,208 582,281
----------- -----------
$ 3,777,162 $ 2,828,823
=========== ===========
Vendor Concentration
The company's medical services segment purchases erythropoietin (EPO)
from one supplier which comprised 36% and 37% of medical service cost of
sales for the three months and six months ended June 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 27%
and 28% of medical service revenues for the three months and six months ended
June 30, 2003 and 25% and 24% for the same periods of the preceding year.
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
June 30, 2003
(Unaudited)
NOTE 1--Summary of Significant Accounting Policies--(Continued)
Advertising Costs
The company expenses advertising costs as incurred. Advertising
expenses amounted to $9,000 and $54,000 for the three months and six months
ended June 30, 2003 and $5,000 and $22,000 for the same periods of the
preceding year.
Other Income
Other income is comprised as follows:
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- -------------------------
2003 2002 2003 2002
---- ---- ---- ----
Interest income $ 26,505 $ 87,656 $ 64,116 $ 177,384
Rental income 83,247 73,599 157,248 146,169
Management fee income 79,175 42,985 152,235 94,145
Other 9,249 8,460 30,871 23,719
---------- ---------- ---------- ----------
$ 198,176 $ 212,700 $ 404,470 $ 441,417
========== ========== ========== ==========
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 Six Months Ended
June 30, June 30,
------------------------- -------------------------
2003 2002 2003 2002
---- ---- ---- ----
Net (loss) income, numerator-basic
computation $ (63,922) $ 132,876 $ (107,680) $ 151,257
Adjustment due to subsidiaries'
dilutive securities (11,711) (23,886) (20,560) (33,320)
---------- ---------- ---------- ----------
Net (loss) income as adjusted,
numerator-diluted computation $ (75,633) $ 108,990 $ (128,240) $ 117,937
========== ========== ========== ==========
Weighted average shares-denominator
basic computation 6,551,775 6,600,275 6,558,548 6,600,275
Effect of dilutive stock options
Weighted average shares, as adjusted-
denominator diluted computation --- 194,738 --- 153,253
---------- ---------- ---------- ----------
6,551,775 6,795,013 6,558,548 6,753,528
========== ========== ========== ==========
(Loss) earnings per share:
Basic $(.01) $.02 $(.02) $.02
===== ==== ===== ====
Diluted $(.01) $.02 $(.02) $.02
===== ==== ===== ====
The company's potentially dilutive securities consist of stock options.
See Note 5.
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
June 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 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 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. See Note 10.
Stock-Based Compensation
The company follows the intrinsic 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 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 has been determined as if the company and Dialysis
Corporation of America had accounted for their employee stock options under
the fair value method of that Statement. No company stock options were
granted or vested during the first three months of 2003. See Note 5.
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 the company's 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 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.
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, which includes the pro forma effects related
to the company's interest in Dialysis Corporation of America pro forma
adjustments, follows:
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
June 30, 2003
(Unaudited)
NOTE 1--Summary of Significant Accounting Policies--(Continued)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- -------------------------
2003 2002 2003 2002
---- ---- ---- ----
Net (loss) income, as reported $ (63,922) $ 132,876 $ (107,680) $ 151,257
Stock-based employee compensation expense
under fair value method, net of related
tax effects (9,433) (8,227) (18,866) (13,854)
---------- ---------- ---------- ----------
Pro forma net (loss) income-basic
computation (73,355) 124,649 (126,546) 137,403
Subsidiary dilutive securities (11,711) (23,886) (20,560) (33,320)
---------- ---------- ---------- ----------
Pro forma net (loss) income-diluted
computation $ (85,066) $ 100,763 $ (147,106) $ 104,083
========== ========== ========== ==========
(Loss) earnings per share:
Basic, as reported $(.01) $.02 $(.02) $.02
===== ==== ===== ====
Basic, pro forma $(.01) $.02 $(.02) $.02
===== ==== ===== ====
Diluted, as reported $(.01) $.02 $(.02) $.02
===== ==== ===== ====
Diluted, pro forma $(.01) $.02 $(.02) $.02
===== ==== ===== ====
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 the company's 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. The company does not
expect FIN 45 to have a material impact on its 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. The company adopted the transition
guidance and annual disclosure provisions of FAS 148 commencing 2002 and has
adopted the interim disclosure provisions of FAS 148 commencing 2003. The
company is subject to the expanded disclosure requirements of FAS 148, but
does not expect FAS 148 to otherwise have a material impact on its
consolidated results of operations, financial position or cash flows.
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
June 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. The company does not expect FIN 46 to have a material impact on
its 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. The company does not expect FAS 150 to have a material impact on
its results of operations, financial position or cash flows.
NOTE 2--Interim Adjustments
The financial summaries for the three months and six months ended June
30, 2003 and June 30, 2002, 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, 2003,
are not necessarily indicative of the results that may be expected for the
entire year ending December 31, 2003.
While the company believes 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 the company's latest annual report
for the year ended December 31, 2002.
NOTE 3--Long-Term Debt
The company's 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
the company's 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. The company 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 interest at 8.75% through December 2, 2001, 11/2% over
the prime rate thereafter through December 15, 2002, and 1% over prime
thereafter which is secured by a mortgage on Dialysis Corporation of
America'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 plus interest
with any remaining balance due December 2, 2007. This loan had an
outstanding balance of $649,000 at June 30, 2003, and $662,000 at December
31, 2002.
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
June 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 $734,000 at June 30, 2003, and $753,000 at
December 31, 2002.
The Dialysis Corporation of America equipment purchase agreement
provides financing for kidney dialysis machines for Dialysis Corporation of
America's dialysis facilities. Payments under the agreement 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 $1,589,000 at June 30,
2003, and $1,844,000 at December 31, 2002.
The prime rate was 4.00% as of June 30, 2003, and 4.25% at December 31,
2002.
Interest payments on debt amounted to approximately $42,000 and $86,000
for the three months and six ended June 30, 2003, and $35,000 and $84,000 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 $139,000 and $336,000 for the
three months and six months ended June 30, 2003, and $122,000 and $2,580,000
for the same periods of the preceding year.
NOTE 5--Stock Options
On May 6, 1996, the company adopted a Key Employee Stock Plan reserving
100,000 shares of its 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 the company
recognized an expense of approximately $4,000 during 2002. These options
expired unexercised.
On July 27, 2000, the company granted 820,000 five-year non-qualified
stock options under its 1989 Stock Option Plan to officers, directors and
employees of the company and its 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
June 30, 2003.
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
June 30, 2003
(Unaudited)
NOTE 5--Stock Options--(Continued)
As part consideration for a May, 2003, consulting agreement, the company
granted a stock option for 200,000 shares of common stock exercisable at
$2.50 for two years which 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 $4,661 expensed
during the 2nd quarter of 2003. If the agreement is terminated by the
company, the option must be exercised within six months of such termination.
See Note 6.
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. 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 these options were exercised with
the exercise price satisfied by director bonuses accrued in 2002, leaving
322,143 options outstanding as of June 30, 2003.
In January, 2001, Dialysis Corporation of America's board of directors
granted to Dialysis Corporation of America's President an option for 165,000
shares exercisable at $1.25 per share for five years from vesting with 33,000
options vesting each January 1, the vesting having commenced in 2001.
In September, 2001, Dialysis Corporation of America's board of directors
granted 75,000 five-year options exercisable at $1.50 per share through
September 5, 2006, to certain officers, directors and key employees. 15,000
of the options were non-qualified and vested immediately and the remaining
60,000 options were incentive with 15,000 options vesting each September 5,
which vesting commenced September 5, 2002. In March, 2003, 1,785 of these
options were exercised with the exercise price satisfied by director bonuses
accrued in 2002, leaving 73,215 options outstanding as of June 30, 2003.
In March, 2002, Dialysis Corporation of America's board of director's
granted a five-year incentive option for 30,000 shares exercisable at $3.15
per share through February 28, 2007, to an officer. The option vests 7,500
shares each February 28 from 2003 through 2006.
In May, 2002, Dialysis Corporation of America's board of directors
granted a total of 10,500 five-year incentive options to employees of which
6,500 remain outstanding at June 30, 2003. Most options are for 500 shares
of common stock of Dialysis Corporation of America, 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
4,000 shares have been cancelled.
In June, 2003, Dialysis Corporation of America's board of directors
granted a five-year incentive stock option for 25,000 shares exercisable at
$3.60 per share through June 3, 2008, to an officer. The options vest 6,250
shares each June 4 from 2004 through 2007.
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
June 30, 2003
(Unaudited)
NOTE 6--Commitments and Contingencies
Effective January, 2003, the company and Dialysis Corporation of America
established a new 401(k) plan containing employer match provisions on a
portion of employee contributions, and to allow employees to elect to have a
portion of bonus payments contributed.
The Company 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
common stock. The agreement is cancelable at any time by the company. Two
of the partners of the investment relations firm together with Thomas K.
Langbein, our Chief Executive Officer and President, in June, 2003 became
three of the five directors of Xandros, Inc., a majority owned subsidiary of
Linux Global Partners, Inc., a private Linux software company to which our
company made loans and holds an approximately 14% interest. Mr. Langbein
resigned his positions with Xandros on August 12, 2003. See Notes 5 and 8.
NOTE 7--Business Segment Data
The following summarizes information about the company's three business
segments, dialysis treatment centers (medical services), medical products and
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 Six Months Ended
June 30, June 30,
------------------------- -------------------------
2003 2002 2003 2002
---- ---- ---- ----
BUSINESS SEGMENT REVENUES
Medical products $ 225,024 $ 223,665 $ 438,220 $ 467,632
Medical services 7,578,614 6,417,530 14,457,632 12,023,369
New technology --- 52,223 15,000 102,223
Corporate 43,826 56,538 90,714 115,637
Elimination of corporate interest charge
to medical services (318) --- (418) ---
Elimination of medical services
interest charge to corporate --- (1,093) --- (2,201)
----------- ----------- ----------- -----------
$ 7,847,146 $ 6,748,863 $15,001,148 $12,706,660
=========== =========== =========== ===========
BUSINESS SEGMENT PROFIT (LOSS)
Medical products $ (29,967) $ (20,969) $ (55,213) $ (33,990)
Medical services 473,552 550,829 851,826 790,926
New technology --- 52,223 15,000 102,223
Corporate (205,408) (153,343) (406,829) (319,317)
----------- ----------- ----------- -----------
$ 238,177 $ 428,740 $ 404,784 $ 539,842
=========== =========== =========== ===========
NOTE 8--Investment
During the period January, 2000 through December, 2002, the company 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 which recently initiated the marketing of a Linux desktop
software system. In conjunction with the original loan the company acquired
an ownership interest in Linux Global Partners. In consideration for
extending the due date on the loans on several occasions the company received
additional shares of Linux Global Partners' common stock and
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
June 30, 2003
(Unaudited)
NOTE 8--Investment--(Continued)
presently owns 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 amounted to approximately $15,000 during 2003
(through January 24, 2003) and $52,000 and $102,000 for the three months and
six months ended June 30, 2002. Interest receivable on the notes from Linux
Global Partners 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 the
company's foreclosure of 4,115,815 shares of Ximian, Inc.'s series A
convertible preferred stock, part of the collateral for the Linux Global
Partners indebtedness. Xandros, Inc., a 95% owned subsidiary of Linux Global
Partners, purchased the 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. Xandros failed to
make the payment resulting in the company, as the next highest bidder,
obtaining the preferred stock and keeping Xandros' good faith deposit in
satisfaction of the indebtedness due from Linux Global Partners. As of June
30, 2003, the company had a combined cost basis in the Linux related
investments of approximately $2,900,000, which is included in other assets.
The company sold the preferred stock in August, 2003. See Note 13.
NOTE 9--Stock Repurchases
In December, 2002, the company's board of directors authorized the
purchase of up to approximately 1,000,000 shares of the company's outstanding
common stock based on current market prices. The company repurchased 48,500
shares for approximately $70,000 during the first quarter of 2003.
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 goodwill representing the excess
of the purchase price over the fair value of the 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 the 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 goodwill representing
the excess of the purchase price over the fair value of the 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 two of its 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 evaluation of these
dialysis center's operations was based on the expectation of profitability
resulting from its management's 30% evaluation of these dialysis centers.
The party from whom the 30% minority interests were purchased was the medical
director of one of the facilities and is the medical director of three other
of Dialysis Corporation of America's Georgia dialysis facilities. See Note
1.
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
June 30, 2003
(Unaudited)
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, LLC. 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% interest and this physician's
companies having a combined 48.7% ownership 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 facilities, usually until they become self-
sufficient, without any formalized loan documents, except in limited
instances, including those subsidiaries in which Dialysis Corporation of
America's medical directors hold interests ranging from 20% to 49%. 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 loan is with DCA of Vineland, LLC. In April, 2000, a
company owned by our Vineland medical director, acquired an interest in DCA
of Vineland, LLC for $203,000, which was applied to reduce the loan, which
loan at June 30, 2003, reflected a principal indebtedness of approximately
$482,000. See Note 11.
NOTE 13--Subsequent Events
In July, 2003, the company and its former subsidiary, Viragen, Inc.,
reached an agreement pursuant to mediation proceedings following the
company's obtaining a partial summary judgment against Viragen in March,
2003, for amounts owed the company under a royalty agreement with Viragen.
Viragen agreed to remit $30,000 each on August 1, 2003, August 1, 2004 and
August 1, 2005, with interest at 5% on the 2004 and 2005 payments. Viragen
also agreed to commence remitting the quarterly royalty payments due under
royalty agreement. Viragen remitted the $30,000 payment due August 1, 2003.
In August, 2003, the company sold the preferred stock it acquired under
a foreclosure sale, which securities previously collateralized amounts owed
the company by Linux Global Partners, for approximately $3,541,000 cash
proceeds, with an additional approximately $805,000 placed in escrow, with
one-half of the escrowed funds to be released to the company in one year and
the other one-half in two years, pending fulfillment of certain conditions.
See Note 8. The cost basis of the shares at January, 2003, the date of the
foreclosure sale, was approximately $2,800,000 exclusive of costs and
expenses.
NOTE 14--Techdyne Earn-out Payment
In April, 2003, the company received the second earn-out payment of
approximately $1,011,000 under its April, 2001, agreement with Simclar
International pursuant to which the company sold its 71.3% interest in
Techdyne to Simclar in June, 2001, for $10,000,000 with 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 "anticipate,"
"estimate," "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 pursued by the company, 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 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 regulations of federal
and state authorities. There are a variety of fraud and abuse measures to
combat waste, which include anti-kickback regulations, extensive prohibitions
relating to self-referrals, violations of which are punishable by criminal or
civil penalties, including exclusion from Medicare and other governmental
programs. There can be no assurance that there will not be unanticipated
changes in healthcare programs or laws or that Dialysis Corporation of
America will not be required to restructure its practices and will not
experience material adverse effects as a result of any such challenges or
changes. Dialysis Corporation of America has developed a Corporate Integrity
Program to assure 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, in acquiring and/or developing facilities in areas targeted by the
company. 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 or inpatient
service contracts with hospitals will be implemented, or the number of
stations, or patient treatments such may involve, or if such 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 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 involved with investments in Linux
operating systems and software companies and in the development of a Linux
desktop software system. Linux Global Partners remains in its initial and
development stage. Linux 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 $1,098,000 (16%) and
$2,294,000 (18%) for the three months and six months ended June 30, 2003,
compared to the same periods of the preceding year. Sales revenues increased
by approximately $1,113,000 (17%) and $2,331,000 (19%) 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 decreased approximately
$15,000 and $37,000 for the three months and six months ended June 30, 2003,
compared to the same periods of the preceding year. Interest income
decreased approximately $61,000 and $113,000 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 a
management services agreement between Dialysis Corporation of America and its
40% owned Toledo, Ohio affiliate and a management services agreement with an
unaffiliated Georgia dialysis center effective September, 2002, increased
approximately $36,000 and $58,000 for the three months and six months ended
June 30, 2003, compared to the same periods of the preceding year. For those
same periods compared to last year, rental income increased approximately
$9,000 and $11,000, and miscellaneous other income increased by approximately
$1,000 and $7,000. See Note 1 to "Notes to Consolidated Condensed Financial
Statements."
Medical product sales revenues increased approximately $4,000 (2%) for
the three months June 30, 2003 and decreased approximately $27,000 (6%) for
the six months ended June 30, 2003, compared to the same periods of the
preceding year. Management is continuing its efforts to be more competitive
in lancet sales through overseas purchases and expansion of its 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 less than anticipated. No assurance can be given that
efforts to increase sales will be successful.
Medical service revenues, representing the revenues of our dialysis
division, Dialysis Corporation of America, increased approximately $1,108,000
(18%) and $2,358,000 (20%) for the three months and six months ended June 30,
2003, compared to the same periods of the preceding year. This increase
reflects increased revenues of approximately $499,000 and $1,237,000 for our
Pennsylvania dialysis centers, decreased revenues of approximately $7,000 and
$110,000 for our New Jersey centers reflecting termination of our two New
Jersey acute care contracts; increased revenues of approximately $58,000 and
$627,000 for our Georgia centers, $409,000 and $456,000 revenues for our new
Maryland center, and $149,000 and $175,000 revenues for our new Ohio center.
Revenues for the prior year included $27,000 consulting fees during the first
quarter of 2003.
Cost of goods sold as a percentage of consolidated sales amounted to 61%
and 62% for the three months and six months ended June 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 was 64% and 63%, for the three months and six months ended June 30,
2003. compared to 64% and 62% 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 sales amounted to 61%
and 62% for the three months and six months ended June 30, 2003, and 59% and
60% for the same periods of the preceding year largely due to cost related to
treatments at new centers prior to Medicare approval for which there are no
corresponding medical service revenues. Approximately 27% and 28% of our
medical services revenues for the three months and six months ended June 30,
2003, and 25% and 24% for the same periods of the preceding year were from
the administration of EPO to our patients. 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 our
ability to increase our charges would increase our costs and thereby
adversely impact our earnings. We cannot predict the price increases, if
any, or the extent of such by the manufacturer, or our ability to offset any
such increases.
Selling, general and administrative expenses, increased $580,000 and
$1,021,000 for the three months and six months ended June 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 and the Georgia dialysis center we acquired in April, 2003, as well as
the cost of additional support personnel for Dialysis Corporation of America.
As a percent of consolidated sales revenue, selling, general and
administrative expenses amounted to 36% for the three months and six months
ended June 30, 2003, compared to 33% and 34% for the same periods of the
preceding year which includes expenses of new dialysis centers incurred prior
to Medicare approval for which there are no corresponding sales revenues.
Provision for doubtful accounts decreased approximately $83,000 and
$173,000, for the three months and six months ended June 30, 2003, 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, 2003, compared to 4%
and 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, 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. Dialysis Corporation of America opened its 13th and
14th dialysis centers in Ohio and Maryland in February, 2003, and acquired
another center in Georgia in April, 2003. The new centers, as anticipated,
adversely impacted net income for the three and six month periods ended June
30, 2003, for the medical services division. Dialysis Corporation of America
presently has five additional dialysis facilities in the initial development
stages of which one is under construction, with ongoing negotiations for
other facilities. As the medical services division progresses, we expect
growth in revenues, but a short term negative effect on net income based on
expenses and development stage issues. Also negatively impacting net income
of the medical services division was an atypical occurrence of closing a
dialysis center in Georgia.
Interest expense decreased by approximately $10,000 and $13,000 for the
three months and six months ended June 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 June 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 $10,221,000 at June 30, 2003, which reflects a
decrease of $4,086,000 (29%) during the first half of 2003, including
reclassification of approximately $2,800,000 of a note receivable from Linux
Global Partners and related accrued interest and foreclosure expenses, to
other assets. See Notes 8 and 13 to "Notes to Consolidated Condensed
Financial Statements." The change in working capital also included a
decrease in cash of $1,424,000 including net cash used in operating
activities of $562,000, net cash used in investing activities of $320,000
(including additions to property, plant and equipment of $659,000, the second
earn-out payment on the sale of Techdyne of $1,011,000, a $670,000
subsidiaries' minority interests acquisition payment, a $75,000 payment for
acquisition of a dialysis center, $150,000 loans to physician affiliates,
$142,000 capital contributions by subsidiaries' minority members, and $77,000
distributions received from Dialysis Corporation of America's 40% owned Ohio
affiliate) and net cash used in financing activities of $543,000 (including
net line of credit payments of $79,000, payments on long-term debt of
$290,000, repurchase of stock of approximately $67,000, and $119,000
distributions to subsidiaries' minority members).
In January, 2003, we executed on certain of the collateral securing the
Linux Global Partners' indebtedness, 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 and 13 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. Mr. Langbein held executive
and director positions with Xandros, Inc. a subsidiary of Linux Global
Partners, for a couple of 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 our partial
summary judgment against our former subsidiary, Viragen, Inc. 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, and
royalty payments are to be made pursuant to the royalty agreement. See Note
13 to "Notes to Consolidated Condensed Financial Statements."
In April, 2003, the company received the second earn-out payment on the
June, 2001, sale of its interest in Techdyne. We have collected
approximately $2,116,000 of the $2,500,000 minimum ear-out. See Note 14 to
"Notes to Consolidated Condensed Financial Statements."
In December, 2002, the company announced its intent to purchase up to
1,000,000 shares of its outstanding common stock based on then current market
prices. The company repurchased and cancelled 48,500 shares of its
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 $649,000 at
June 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 $734,000
at June 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 $1,589,000 at June 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
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. We
presently plan to continue expanding our operations primarily through
construction of new centers. 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 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." Such expansion requires capital. 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 or that additional financing will be available to support such
expansion.
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 the company's 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. The company does not expect FIN 45
to have a material impact on its 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 the company's 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. The company does not expect FIN 46 to have a material impact on
its 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. The
company does not expect FAS 150 to have a material impact on its 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 a 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 the company's 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, 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. Dialysis Corporation of America's 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. 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 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 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 dialysis 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 $6,496,000 invested as of June 30, 2003. A 15%
relative decrease in rates on our period-end investments would result in a
negative annual impact of approximately $2,000 on our results of operations
for the first half of 2003.
We have an interest rate exposure on debt agreements with variable
interest rates of which we had approximately $1,340,000 of such debt
outstanding as of June 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 $2,000 on our results of operations for the first half of
2003.
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, 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 the company's 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 the 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 the company's disclosure controls and
procedures are effective in timely alerting them to material information
relating to the company, including its consolidated subsidiaries, required to
be included in the company's 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 1. Legal Proceedings
- ------ -----------------
The litigation initiated by the company in August, 2002, against its
former subsidiary, Viragen, Inc., in the Circuit Court of the Seventeenth
Judicial Circuit, Broward County, Florida, for breach of a royalty agreement
relating to sales by Viragen and its affiliates of licensed products,
including interferon and all products or any substance or group of substances
which involve or include interferon, has been settled. The mediation
settlement agreement provides:
o Viragen (which includes affiliates) agrees to our construction of the
royalty agreement as confirmed by the court
o Viragen shall pay royalties to us on sales of all products containing
interferon as defined in the royalty agreement, regardless of whether
the products are developed by Viragen or any subsidiaries, affiliates
or affiliated companies acquired in the future
o Viragen paid us $30,000 on August 1, 2003
o Viragen agreed to pay us $30,000, plus 5% interest on $60,000 by
August 1, 2004
o Viragen agreed to pay us $30,000, plus 5% interest on $30,000 by
August 1, 2005
The litigation was dismissed with prejudice except to enforce the terms
of the settlement.
Item 6. Exhibits and Reports on Form 8-K
- ------ --------------------------------
(a) Exhibits
(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) Section 1350 Certifications
(i) 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
There were no reports on Form 8-K filed for the quarter ended June
30, 2003.
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.
/s/ Daniel R. Ouzts
By ---------------------------
DANIEL R. OUZTS, Vice President
(Finance), Principal
Financial Officer and Treasurer
Dated: August 14, 2003
EXHIBIT INDEX
Exhibit No.
- -----------
(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) Section 1350 Certifications
(i) 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.
CERTIFICATIONS
I, Thomas K. Langbein, certify that:
1. I have reviewed this quarterly report on Form 10-Q for the quarter
ended June 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)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) 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) Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c) 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
(d) 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 internal 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: August 14, 2003 ------------------------------
THOMAS K. LANGBEIN, Chief Executive Officer
and President
CERTIFICATIONS
I, Daniel R. Ouzts, certify that:
1. I have reviewed this quarterly report on Form 10-Q for the quarter
ended June 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)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) 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) Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c) 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
(d) 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 internal 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: August 14, 2003 ----------------------------------
DANIEL R. OUZTS, Principal Financial Officer
Exhibit 99(i)
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 second quarter ended June 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: August 14, 2003