Business Context and Reporting Period
Company: DAXOR CORP
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2009
Business Overview: Daxor is a medical device manufacturer focused on the Blood Volume Analyzer (BVA-100) and related diagnostic kits. It also operates a cryobanking subsidiary for blood and semen storage. A significant portion of the company's financial activity involves a large investment portfolio of utility stocks and derivatives used to offset operating losses.
Key Financial Metrics
Revenue (Six Months Ended June 30, 2009): $814,457 (Decreased 16.7% vs. prior year)
Net Income (Six Months): $4,695,411 (Decreased 46.8% vs. prior year)
Net Income (Three Months): $6,238,696 (Increased 314% vs. prior year)
Operating Loss (Six Months): $(2,460,602)
Cash and Cash Equivalents: $234,371 (Decreased from $2,545,040 at year-end 2008)
Investment Portfolio Value: $69,896,003 (Available-for-sale securities)
Debt: $15,493,695 in margin loans payable; $410,779 total mortgage payable.
Dividends: $0.10 per share paid in June 2009.
Material Changes vs. Prior Period
- Operating Revenue Decline: Consolidated operating revenues dropped to $814,457 for the six months ended June 30, 2009, compared to $977,500 in 2008. This was primarily due to zero sales of Blood Volume Analyzer units in the current period versus three units sold in the prior year.
- Investment Income Volatility: While realized gains on securities decreased significantly ($5.5M vs. $8.5M in prior year), the company recorded a substantial mark-to-market gain on short positions of $713,894 for the six months (compared to $2.1M in 2008). In the third quarter specifically, mark-to-market gains surged to $6.98M, driving the quarterly net income spike.
- Liquidity Reduction: Cash and cash equivalents fell by approximately $2.3 million during the six-month period, largely due to funding operating losses and capital expenditures for a construction project ($1.5M).
- Customer Concentration: Four hospital customers accounted for 61.33% of Blood Volume Kit sales for the six months ended June 30, 2009, up from 52.22% in the prior year.
Guidance, Outlook, and Risks
Outlook and Projects: Management is actively engaged in clinical trials for the BVA-100 in critical care and heart failure. A multi-center heart failure study (TEAM HF) is expected to commence in September 2009. The company is also developing a needle-free delivery device ("Max-200") and testing for Glomerular Filtration Rate (GFR).
Risks and Contingencies:
- Regulatory/Reimbursement: CMS policy changes effective Jan 1, 2008, eliminated separate Medicare reimbursement for diagnostic radiopharmaceuticals like Volumex. The impact on private insurers remains unclear.
- SEC Investigation: The company is under ongoing review by the SEC regarding its status as an unregistered investment company. The SEC issued comments on the 2008 10-K and 2009 10-Q in May 2009; the company responded in July and received a follow-up in August 2009.
- Supply Chain: Volumex syringes are filled by a single FDA-approved manufacturer. Disruption of this supply would be material.
- Legal Proceedings: A pending legal action was dismissed in the company's favor on August 5, 2009, with the appeal window closing September 4, 2009.
Investor Verification Checklist
- Investment Strategy Sustainability: Verify the reliance on investment income (dividends and mark-to-market gains) to offset consistent operating losses from the medical device segment.
- SEC Status: Monitor the outcome of the SEC's review regarding the company's classification as an unregistered investment company.
- Reimbursement Trends: Assess the impact of the CMS policy change on private insurance reimbursement rates for Volumex kits.
- Cash Burn Rate: Review the trajectory of cash reserves given the $2.3M decrease in six months and ongoing construction costs.
- Clinical Trial Results: Track the publication of results from the ICU study (expected Q1 2010) and the start of the TEAM HF study.