DAXOR CORP 10-Q Summary: Quarter Ended September 30, 2009
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended September 30, 2009, and the nine-month period ended on that date. DAXOR Corporation is a medical device manufacturer focused on the Blood Volume Analyzer (BVA-100) and related diagnostic kits, alongside a cryobanking subsidiary (Scientific Medical Systems Corp). The company maintains a significant investment portfolio, primarily in electric utility stocks, which generates income used to offset operating losses from its core medical device business.
Key Financial Metrics
| Metric | 9 Months Ended Sep 30, 2009 | 9 Months Ended Sep 30, 2008 | 3 Months Ended Sep 30, 2009 | 3 Months Ended Sep 30, 2008 |
|---|---|---|---|---|
| Total Operating Revenue | $1,228,833 | $1,428,753 | $414,376 | $451,253 |
| Net Income | $7,321,253 | $15,227,192 | $2,625,842 | $6,401,342 |
| Loss from Operations | ($3,708,035) | ($3,714,775) | ($1,247,433) | ($1,221,723) |
| Total Other Income (Investments) | $11,613,102 | $21,666,967 | $3,946,122 | $9,948,065 |
| Cash and Equivalents (End of Period) | $59,003 | $4,036,181 | $59,003 | $4,036,181 |
| Loans Payable (Margin Debt) | $2,552,593 | $12,017,162 | $2,552,593 | $12,017,162 |
| Available-for-Sale Securities | $61,448,255 | $68,339,143 | $61,448,255 | $68,339,143 |
| Diluted EPS | $1.71 | $3.43 | $0.62 | $1.47 |
Material Changes vs. Prior Period
- Operating Revenue Decline: Consolidated operating revenues decreased 14.0% for the nine months ended September 30, 2009, compared to the prior year. This was primarily due to zero sales of Blood Volume Analyzer equipment in the current period versus four units sold in the same period of 2008. Conversely, revenue from consumable kit sales increased 8.1% due to higher volume.
- Investment Income Volatility: Net income is heavily dependent on investment gains. Realized gains on the sale of securities dropped 49.4% year-over-year for the nine-month period ($9.2M vs $18.3M). However, dividend income increased 21.7% due to a one-time special dividend.
- Liquidity Position: Cash and cash equivalents plummeted from $2.55 million at year-end 2008 to $59,003 at September 30, 2009. This reduction was driven by the repayment of margin loans and funding of operating losses, despite net cash provided by investing activities.
- Debt Reduction: Margin debt (loans payable) was significantly reduced from $12.0 million at December 31, 2008, to $2.6 million at September 30, 2009.
Outlook, Risks, and Management Commentary
- Investment Strategy: Management continues to rely on a diversified portfolio of electric utility stocks, utilizing covered calls, put options, and limited short sales to generate income. The portfolio has maintained a net value above historical cost for 99 consecutive quarters.
- R&D Focus: The company is advancing three key projects: Glomerular Filtration Rate (GFR) testing, Total Body Albumin Analysis, and radiation contamination wipes. Development is also underway for the "Max-200," a needle-free delivery device for Volumex.
- Clinical Trials: A study on blood volume analysis in ICU patients was completed with results expected in Q1 2010. A new multi-center heart failure study (TEAM HF) is scheduled to begin in Q1 2010.
- Regulatory and Legal Risks:
- SEC Wells Notices: The company and its CEO received Wells Notices in 2005 and 2007 regarding potential violations of the Investment Company Act. In November 2009, the SEC invited a new submission based on recent operations.
- Reimbursement Policy: CMS policy changes effective Jan 1, 2008, eliminated separate Medicare reimbursement for diagnostic radiopharmaceuticals like Volumex. The impact on private insurers remains unclear.
- Customer Concentration: Four hospitals accounted for 62.7% of Blood Volume Kit sales in the first nine months of 2009.
- Capital Resources: Management stated that while current resources are adequate for existing operations, they may not be sufficient to expand the marketing force nationally without raising additional capital, which was recently explored but deemed disadvantageous.
Key Facts for Investor Verification
- Operating Loss vs. Net Income: Verify the sustainability of net income, which is entirely driven by investment portfolio performance rather than core medical device operations, which remain loss-making.
- Cash Burn Rate: Confirm the company's ability to fund operations and R&D with only $59,003 in cash on hand, despite significant unrealized gains in the investment portfolio.
- SEC Investigation Status: Monitor the outcome of the SEC's request for a new Wells submission regarding the company's status as an unregistered investment company.
- Customer Concentration: Assess the risk associated with four hospitals representing over 60% of kit sales revenue.
- Reimbursement Trends: Track whether private insurers follow the CMS lead in denying separate reimbursement for Volumex kits.