DXR

DAXOR CORP (DAXR) - Q1 2008 Filing Summary

Business Context and Reporting Period

This Form 10-Q covers the three-month period ended March 31, 2008. Daxor Corporation operates two primary business segments: Equipment Sales and Related Services (Blood Volume Analyzer and Volumex kits) and Cryobanking and Related Services (blood and semen storage). The company also maintains a significant investment portfolio, which serves as a critical source of income to offset operating losses.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Decline: Total operating revenues decreased 16.8% to $420,913. This was primarily due to zero Blood Volume Analyzer (BVA) equipment sales in Q1 2008 compared to two units sold in Q1 2007 ($130,500 revenue). However, Volumex kit sales revenue increased 24.4% due to a larger installed base of analyzers (53 units vs. 36 units).
• Profit Surge: Net income more than doubled to $7.3 million, driven almost entirely by investment activities rather than core operations. The company reported a realized gain on the sale of securities of $5.83 million (vs. $1.63 million in 2007) and a mark-to-market gain on short positions of $2.18 million.
• Operating Loss: The core business continued to operate at a loss of $1.27 million, slightly wider than the $1.21 million loss in the prior year, due to sustained R&D and SG&A expenses.
• Liquidity: Cash and cash equivalents increased significantly to $1.11 million from $78,625, aided by financing activities (net proceeds from margin payable) and a reduction in securities borrowed liabilities.

Outlook, Risks, and Management Commentary

• Reimbursement Risk: A significant policy change by the Centers for Medicare and Medicaid Services (CMS) effective January 1, 2008, eliminated separate reimbursement for diagnostic radiopharmaceuticals (Volumex) for outpatient services. Hospitals must now absorb the cost. Management states the impact on future revenue is currently unquantifiable, though industry groups are attempting to reverse the ruling.
• Personal Holding Company (PHC) Status: The company meets the criteria for a Personal Holding Company. While undistributable PHC income was approximately $7.3 million for the quarter, management plans to eliminate this liability by year-end via dividends or realizing losses on securities. Consequently, no current tax provision was recorded.
• Investment Strategy: The portfolio remains heavily weighted toward electric utility stocks (85%+ policy). The company utilizes covered calls, puts, and short sales (up to 15% of portfolio) to generate income. Unrealized gains on the portfolio totaled $33.9 million at quarter-end.
• Capital Resources: Management believes current resources are adequate for existing R&D and marketing but may not support a nationwide expansion of the sales force without additional capital. Recent attempts to raise capital were deemed disadvantageous to shareholders.

Key Facts for Investor Verification

• Revenue Concentration: Three hospital customers accounted for 38.02% of total consolidated sales in Q1 2008.
• Single Supplier Risk: Volumex syringes are filled by a single FDA-approved manufacturer. Discontinuation by this supplier would materially impact the business.
• Investment Volatility: Net income is heavily dependent on the performance of the investment portfolio and mark-to-market adjustments on short positions, which are not indicative of core business health.
• Deferred Tax Liability: A deferred tax liability of $11.85 million exists related to unrealized capital gains on the investment portfolio, which would become payable if the portfolio were liquidated.
• Uninsured Brokerage Exposure: Approximately $24.8 million in securities and $4.7 million in cash held at brokerage firms exceed SIPC insurance limits.