Business Context and Reporting Period
Company: DAXOR CORP
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2010
Business Overview: Daxor is a medical device manufacturer focused on the BVA-100 Blood Volume Analyzer and related diagnostic kits, alongside cryobanking services (blood and semen storage). The Company maintains a significant investment portfolio, primarily in electric utility stocks, to generate income that offsets operating losses from its medical device development.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2010 | Nine Months Ended Sep 30, 2010 |
|---|---|---|
| Total Revenues | $453,281 | $1,217,885 |
| Net Income | $2,604,804 | $2,700,741 |
| Loss from Operations | $(1,284,865) | $(4,132,091) |
| Total Other Income (Investments) | $5,688,781 | $9,176,090 |
| Cash and Cash Equivalents | $107,043 | $107,043 (Balance Sheet) |
| Total Assets | $86,248,076 | $86,248,076 (Balance Sheet) |
| Loans Payable (Margin Debt) | $3,638,537 | $3,638,537 (Balance Sheet) |
| Dividends Paid Per Share | $0.25 | $0.35 |
Material Changes vs. Prior Period
- Operating Performance: Operating revenues increased 9.4% in the quarter ($453,281 vs. $414,376) primarily due to the sale of one Blood Volume Analyzer ($65,000). However, kit sales revenue decreased 12.0% due to a reduction in units sold and production cost increases not passed to customers.
- Net Income: Net income for the nine months ended September 30, 2010, was $2.70 million, a significant decrease from $7.32 million in the same period in 2009. This decline is attributed to a decrease in dividend income and a shift in investment gains.
- Investment Activity:
- Dividend Income: Decreased 26.8% for the nine-month period ($1.72M vs. $2.35M), partly due to the absence of a one-time special dividend received in 2009.
- Mark-to-Market: The Company recorded a loss of $2.36 million on mark-to-market of short positions for the nine months ended 2010, compared to a loss of $0.41 million in 2009.
- Realized Gains: Realized gains on the sale of securities were relatively flat ($9.94M in 2010 vs. $9.93M in 2009).
- Liquidity: Cash and cash equivalents decreased from $277,088 at year-end 2009 to $107,043 at September 30, 2010. Net cash used in operating activities was $3.85 million for the nine-month period.
Guidance, Outlook, Risks, and Contingencies
- SEC Legal Proceedings: On September 17, 2010, the SEC instituted administrative proceedings claiming Daxor is an unregistered investment company under the Investment Company Act of 1940. The Company intends to defend its position, arguing it is primarily an operating medical device company. An administrative trial is expected in Q1 2011.
- Key Person Risk: The Company is heavily dependent on Dr. Joseph Feldschuh (CEO/President), who manages the investment portfolio and is the Chief Scientist. The filing notes that if he were unable to continue, the Company would likely be unable to cover operating losses with dividend income alone, as option trading would cease.
- Investment Strategy: The portfolio is critical to funding operations. The Company maintains a policy of holding at least 80% of the portfolio in electric utilities and utilizes options (puts and calls) and short sales to generate income. Unrealized losses on specific holdings (Dynegy and Citigroup) were noted but deemed not "other than temporary" by management.
- Reimbursement Risk: CMS policy changes have eliminated separate reimbursement for diagnostic radiopharmaceuticals (Volumex) for Medicare outpatients, requiring hospitals to absorb costs. The impact on private insurance reimbursement remains unclear.
- Outlook: Management anticipates hiring regional managers and expanding R&D for renal function testing. No specific financial guidance was provided for the full year 2010 beyond the goal of paying a total dividend of $1.00 per share if funds are available.
- SEC Litigation Status: Verify the outcome of the administrative proceedings regarding the "investment company" classification, as a ruling against Daxor could force a change in business structure or investment strategy.
- Investment Portfolio Valuation: Review the concentration of unrealized losses in Dynegy and Citigroup and the Company's ability to hold these positions without impairment charges.
- Operating Cash Flow: Assess the sustainability of operations given the continued operating losses ($4.13M for nine months) and the reliance on investment income to fund R&D and marketing.
- Key Person Dependency: Evaluate the succession plan for Dr. Feldschuh, particularly regarding the management of the investment portfolio which is essential for liquidity.
- Customer Concentration: Note that four hospitals accounted for over 60% of Blood Volume Kit sales in the nine-month period.