Cautionary Notice Regarding Forward-Looking Information

The statements contained in this quarterly report on Form 10-Q for the quarter ended September 30, 2008, that are not historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"). In addition, from time to time, we or our representatives have made or may make forward looking statements, orally or in writing, and in press releases. The Private Securities Litigation Reform Act of 1995 contains certain safe harbors for forward-looking statements. Certain of the forward-looking statements include management's expectations, intentions, beliefs and strategies regarding the growth of our company and our future operations, the character and development of the dialysis industry, anticipated revenues, our need for and sources of funding for expansion opportunities and construction, expenditures, costs and income, and similar expressions 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 this Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations," commonly known as MD&A. Words such as "anticipate," "estimate," "expect," "project," "intend," "plan" and "belief," and words and terms of similar substance used in connection with any discussions of future operating or financial performance identify forward-looking statements. Such forward-looking statements, like all statements about expected future events, are based on assumptions and are subject to substantial risks and uncertainties that could cause actual results to materially differ from those expressed in the statements, including the general economic, market and business conditions, opportunities pursued or not pursued, competition, changes in federal and state laws or regulations affecting the company and 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 Item 1A, "Risk Factors," beginning on page 22 of our Annual Report on Form 10-K for the year ended December 31, 2007. If any of 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 our company. Accordingly, readers are cautioned not to place too much reliance on such forward-looking statements. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements contained in this quarterly report. You should read this quarterly report on Form 10-Q, with any of the exhibits attached and the documents incorporated by reference, completely and with the understanding that the company's actual results may be materially different from what we expect.

The forward-looking statements speak only as of the date of this quarterly report, and except as required by law, we undertake no obligation to rewrite or update such statements to reflect subsequent events.

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 consolidated financial statements (unaudited), including the notes, included elsewhere in this report on Form 10-Q.

Overview

Dialysis Corporation of America provides dialysis services, primarily kidney dialysis treatments through 36 outpatient dialysis centers, including one dialysis center which we previously managed and acquired effective January 1, 2008 in which we have an 80% ownership interest, to patients with chronic kidney failure, also known as end-stage renal disease or ESRD. We provide dialysis treatments to dialysis patients of hospitals and medical centers through acute inpatient dialysis services agreements with those entities. We also provide homecare services, including home peritoneal dialysis and home hemodialysis.

Quality Clinical Results

Our goal is to provide consistent quality clinical care to our patients from caring and qualified doctors, nurses, patient care technicians, social workers and dietitians. We have demonstrated an unwavering commitment to quality renal care through our continuous quality improvement initiatives. We strive to maintain a leadership position as a quality provider in the dialysis industry and often set our goals to exceed the national average standards.

Kt/V is a formula that measures the amount of dialysis delivered to the patient based on the removal of urea, an end product of protein metabolism. Kt/V provides a means to determine an individual dialysis prescription and to monitor the effectiveness or adequacy of the dialysis treatment as delivered to the patient. It is critical to strive to achieve a Kt/V level of greater than 1.2 for as many patients as possible. Approximately 97% of our patients had a Kt/V level greater than 1.2, for the third quarter ended September 30, 2008, compared to approximately 96% for the second quarter ended June 30, 2008.

Anemia is a shortage of oxygen-carrying red blood cells. Because red blood cells bring oxygen to all the cells in the body, anemia causes severe fatigue, heart disorders, difficulty concentrating, reduced immune function, and other problems. Anemia is common among renal patients, caused by insufficient erythropoietin, iron deficiency, repeated blood losses, and other factors. Anemia can be detected with a blood test for hemoglobin or hematocrit. It is ideal to have as many patients as possible with hemoglobin levels above 11. Approximately 82% of our patients had a hemoglobin level greater than 11 for the third quarter ended September 30, 2008 and for the second quarter ended June 30, 2008.

Vascular access is the "lifeline" for hemodialysis patients. The Center for Medicare and Medicaid Services, CMS, has indicated that fistulas are the "gold standard" for establishing access to a patient's circulatory system in order to provide life sustaining dialysis. Approximately 58% of our patients were dialyzed with a fistula during the third quarter ended September 30, 2008, compared to approximately 55% for the second quarter ended June 30, 2008.

Patient Treatments

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 one center we previously managed until January 1, 2008 when we
acquired an 80% interest in the center, and those hospitals and medical centers
with which we have inpatient acute service agreements for the periods presented:

                                Three Months Ended             Nine Months Ended
                                   September 30,                 September 30,
                                 2008          2007           2008          2007
        In-center                 63,281       57,841         183,816       168,970
        Home and peritoneal        4,202        3,997          11,775        12,026
        Acute                      1,442        2,281           6,585         5,666
                                  68,925       64,119 (1)     202,176       186,662 (1)

(1) Treatments by the managed Georgia center include: in-center treatments of 2,719 and 7,900 for the three months and nine months ended September 30, 2007, and home treatments of 110 and 390 for these same periods, with no acute treatments for these periods.

Same Center Growth

We endeavor to increase same center growth by adding quality staff and management and attracting new patients to our existing facilities. We seek to accomplish this objective by rendering high caliber patient care in convenient, safe and pleasant conditions. We believe that we have adequate space and stations within our facilities to accommodate greater patient volume and maximize our treatment potential. We experienced approximately a 6% increase in dialysis treatments for the first nine months of 2008 and for the first nine months of 2007 at centers that were operable during the entire first nine months of the preceding year.

New Business Development

Our 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. We currently have one dialysis facility under development that we intend to manage pursuant to a management services agreement with provisions pursuant to which we can acquire a controlling interest in the future. Additionally, we are in various stages of discussions relating to several other opportunities, both acquisition and de novo developments. 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.

Start-up Losses

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. These losses are typically a result of several months of pre-opening costs, and six to eighteen months of post opening costs, in excess of revenues. We consider new dialysis centers to be "start-up centers" through their initial twelve months of operations, or when they achieve consistent profitability, whichever is sooner. For the three months and nine months ended September 30, 2008, we incurred approximately $339,000 and $577,000 in pre-tax losses for start-up centers compared to $82,000 and $400,000 for the same periods of the preceding year.

EPO Utilization

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 a bio-engineered protein that stimulates the production of red blood cells. A deteriorating kidney loses its ability to regulate the red blood cell counts, resulting in anemia. EPO is currently available from only one manufacturer, who has developed an additional product which can be administered to patients less frequently than EPO. To date this product has not had an adverse impact on our operations. If our available supply of EPO was reduced, either by the manufacturer or due to excessive demand, or there was a significant increase in the use of the alternative product, our revenues and net income would be adversely affected. The manufacturer of EPO could implement price increases which would adversely affect our net income considering the large portion of our overall supply costs represented by EPO.

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.

Reimbursement

Approximately 56% of our medical services revenues for the first nine months of 2008 were derived from Medicare and Medicaid reimbursement with rates established by CMS, and which rates are subject to legislative changes. 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 breakdown of our revenues by type of payor and the breakdown of our medical services revenues (in thousands) derived from our primary revenue sources and the percentage of total medical services revenue represented by each source for the periods presented are provided in Note 1 to "Notes to Consolidated Financial Statements."

Compliance

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 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 assists in our compliance with fraud and abuse laws and supplements 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.

Results of Operations

The following table shows our unaudited results of operations (in thousands):

                                              Three Months Ended           Nine Months Ended
                                                 September 30                September 30,
                                              2008          2007           2008          2007
Medical service revenue                    $   21,586     $  18,820     $   62,300     $  53,535
Product sales                                     274           272            881           804
Total sales revenues                           21,860        19,092         63,181        54,339
Management fee income                               -            81              -           210
Total operating revenues                       21,860        19,173         63,181        54,549

Cost of medical services                       12,805        11,167         37,825        32,464
Cost of product sales                             158           163            493           489
Total cost of sales revenues                   12,963        11,330         38,318        32,953
Corporate selling, general and
administrative                                  2,764         2,130          7,602         5,672
Facility selling, general and
administrative                                  3,312         2,715          9,390         8,308
Total, selling, general and
administrative                                  6,076         4,845         16,992        13,980
Stock compensation expense                         82            53            239           254
Depreciation and amortization                     709           673          2,050         1,964
Provision for doubtful accounts                   500           450          1,579         1,159
Total operating costs and expenses             20,330        17,351         59,178        50,310

Operating income                                1,530         1,822          4,003         4,239

Other (expense) income, net                         -           (47 )          (28 )         (84 )

Income before income taxes and minority
interest                                        1,530         1,775          3,975         4,155

Income tax provision                              511           581          1,196         1,447

Income before minority interest                 1,019         1,194          2,779         2,708

Minority interest in income of
consolidated subsidiaries                        (144 )        (267 )         (792 )        (644 )

Net income                                 $      875     $     927     $    1,987     $   2,064

Medical services revenue increased approximately $2,766,000 (15%) and $8,766,000 (16%) for the three months and nine months ended September 30, 2008, compared to the same periods of the preceding year. Medical services revenue for the three months and nine months ended September 30, 2008 includes approximately $188,000 and $296,000 of amounts previously included in excess insurance liability that was determined to be non-refundable compared to approximately $97,000 and $313,000 for the same periods of the preceding year. Dialysis treatments performed increased from 64,119 during the third quarter of 2007 to 68,925 during the third quarter of 2008, a 7% increase, and from 186,662 during the first nine months of 2007 to 202,176 during the first nine months of 2008, an 8% increase, which includes treatments at a center in which we acquired an 80% interest effective January 1, 2008 that we previously managed. The increase in treatments includes treatments at two centers we acquired during the first quarter of 2007 that were in operation throughout the first nine months of 2008, two centers opened during late 2007, treatments at the center in which we acquired an 80% interest effective January 1, 2008 and treatments at our new Pennsylvania center that opened during the third quarter of 2008. Some of our patients carry commercial insurance which may require an out of pocket co-pay by the patient, which is often uncollectible by us. This co-pay is typically limited, and therefore may lead to our under-recognition of revenue at the time of service. We routinely recognize these revenues as we become aware that these limits have been met.

We record contractual adjustments based on fee schedules for a patient's insurance plan except in circumstances where the schedules are not readily determinable, in which case rates are estimated based on similar insurance plans and subsequently adjusted when actual rates are determined. Out-of-network providers generally do not provide fee schedules and coinsurance information and, consequently, represent the largest portion of contractual adjustment changes. Based on historical data we do not anticipate that a change in estimates would have a significant impact on our financial condition, results of operations or cash flows.

Operating income was approximately $1,530,000 and $4,003,000 for the three months and nine months ended September 30, 2008 compared to approximately $1,822,000 and $4,239,000 for the same periods of the preceding year, including start-up costs associated with our new centers of $339,000 and $577,000 for the three months and nine months ended September 30, 2008 compared to $82,000 and $400,000 for the same periods of the preceding year. In addition to the increased startup costs, the decrease in operating income for the nine months ended September 30, 2008 compared to the same period of the preceding year reflects an additional provision for doubtful accounts in the second quarter of 2008 resulting from a change in payor mix from government based reimbursement to commercial reimbursement, which has more collection risks and specific amounts determined to be uncollectable.

Other operating income, representing management fee income pursuant to a management services agreement with an unaffiliated center in which we acquired an 80% interest effective January 1, 2008, ceased effective with the first quarter of 2008 as a result of our acquisition of that center. This acquisition resulted in the center becoming consolidated at which point management fee income eliminates for financial reporting purposes.

Cost of medical services sales as a percentage of sales amounted to 59% for the three months and 61% for the nine months ended September 30, 2008, and for the same periods of the preceding year.

Approximately 29% of our medical services revenue for the three months and 28% for the nine months ended September 30, 2008, derived from the administration of EPO to our dialysis patients compared to 26% and 27% for the same periods of the preceding year.

Our medical products division represents a minor portion of our operations with operating revenues of $274,000 and $881,000 for the three months and nine months ended September 30, 2008 compared to $272,000 and $804,000 for the same periods of the preceding year (1.3% and 1.4% of operating revenues for the three months and nine months ended September 30, 2008 compared to 1.4% and 1.5% for the same periods of the preceding year). Operating income for the medical products division was $36,000 and $151,000 for the three months and nine months ended September 30, 2008 and $42,000 and $104,000 for the same periods of the preceding year (2.4% and 3.8% of operating income for the three months and nine months ended September 30, 2008 compared to 2.3% and 2.4% for the same periods of the preceding year).

Cost of sales for our medical products division amounted to 58% and 56% of sales of that division for the three months and nine months ended September 30, 2008 compared to 60% and 61% for the same periods of the preceding year. Cost of sales for this division is largely related to product mix.

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 $1,231,000 (25%) and $3,012,000 (22%) for the three months and nine months ended September 30, 2008, compared to the same periods of the preceding year. This increase reflects operations of our new dialysis centers and increased support activities resulting from expanded operations. Included are expenses of new centers incurred prior to Medicare approval for which there were no corresponding medical services revenue. Selling, general and administrative expenses as a percentage of medical services revenue amounted to approximately 28% and 27% for the three months and nine months ended September 30, 2008, and 25% and 26% for the same periods of the preceding year.

Provision for doubtful accounts increased approximately $50,000 and $420,000 for the three months and nine months ended September 30, 2008, compared to the same periods of the preceding year reflecting an additional provision in the second quarter of 2008 resulting from a change in payor mix from government based reimbursement to commercial reimbursement, which has more collection risks, and specific amounts determined to be uncollectable. The provision amounted to 2% of medical services revenue for the three months and nine months ended September 30, 2008 and the same periods of the preceding year, including Medicare bad debt recoveries of $196,000 and $357,000 during the three months and nine months ended September 30, 2008, compared to approximately $30,000 and $171,000 for the same periods of the preceding year. Without the effect of Medicare bad debt recoveries the provision would have amounted to 3% for the three months and nine months ended September 30, 2008 and 3% and 2% for the same periods of the preceding year. 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.

Days sales outstanding were 89 as of September 30, 2008, compared to 93 as of December 31, 2007. Days sales outstanding are impacted by the expected and typical slower receivable turnover at our new centers opened and by payor mix. Based on our collection experience with the different payor groups comprising our accounts receivable, our analysis indicates that our allowance for doubtful accounts reasonably estimates the amount of accounts receivable that we will ultimately not collect.

After a patient's insurer has paid the applicable coverage for the patient, the patient is billed for the applicable co-payment or balance due. If payment is not received from the patient for his applicable portion, collection letters and billings are sent to that patient until such time as the patient's account is determined to be uncollectible, at which time the account will be charged against the allowance for doubtful accounts. Patient accounts that remain outstanding four months after initial collection efforts are generally considered uncollectible.

Non-operating income (expense) was nominal for the three months ended September 30, 2008 and amounted to approximately $(29,000) for the nine months ended September 30, 2008, compared to approximately $(47,000) and $(84,000) for the same periods of the preceding year, which included for the respective periods, increases in rental income of $4,000 and $16,000, decreases in interest income of $13,000 and $55,000, largely resulting from lower interest rates earned on invested funds, decreases in interest expense of $77,000 and $123,000 resulting from reduced average borrowings and lower interest rates on borrowed funds, and decreases of $20,000 and $29,000 in miscellaneous other income for the three months and nine months ended September 30, 2008.

Although operations of additional centers have resulted in additional revenues, certain of these centers are still in the start-up 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.

Minority interest represents the proportionate equity interests of minority owners of our subsidiaries whose financial results are included in our consolidated results.

Liquidity and Capital Resources

Working capital totaled approximately $18,307,000 at September 30, 2008, which reflected a decrease of $305,000 during the nine months ended September 30, 2008. Included in the changes in components of working capital was: an increase . . .