SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------------------------------
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the
Securities Act of 1934
FOR QUARTER ENDED SEPTEMBER 30, 2005
Commission File Number 0-12248
DAXOR CORPORATION
(Exact Name as Specified in its Charter)
New York 13-2682108
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
350 Fifth Ave
Suite 7120
New York, New York 10118
(Address of Principal Executive Offices & Zip Code)
Registrant's Telephone Number: (212) 244-0555
(Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12-b2 of the Exchange Act)
Yes |_| No |X|
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).
Yes |_| No |X|
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
CLASS OUTSTANDING AT September 18, 2005
---
COMMON STOCK
PAR VALUE: $.O1 per share 4,635,526
DAXOR CORPORATION AND SUBSIDIARY
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS (Unaudited)
Condensed Consolidated Balance Sheets at September 30, 2005 and
December 31, 2004 - (Unaudited) F-1
Condensed Consolidated Statements of Operations
for the three and nine months ended September 30,2005 and
2004 - (Unaudited) F-2
Condensed Consolidated Statements of Cash Flows
for the nine months ended September 30, 2005 and 2004 - (Unaudited) F-3
Notes to Condensed Consolidated Financial
Statements - (Unaudited) F-4-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 3-7
Item 3. Quantitative and Qualitative Disclosures about Market Risk 7-9
Item 4. Controls and Procedures 9
PART II. OTHER INFORMATION 10-14
Item 1. Legal Proceedings
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
DAXOR CORPORATION AND SUBSIDIARY
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Index to Financial Statements
Condensed Consolidated Balance Sheets at September 30, 2005 and
December 31, 2004 - (Unaudited) F-1
Condensed Consolidated Statements of Operations for the three and nine months
ended September 30, 2005 and 2004 - (Unaudited) F-2
Condensed Consolidated Statements of Cash Flows for the nine months ended
September 30, 2005 and 2004 - (Unaudited) F-3
Notes to Condensed Consolidated Financial Statements - (Unaudited) F-4-10
2
DAXOR CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DAXOR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS [UNAUDITED]
UNAUDITED UNAUDITED
Restated
September 30, December 31,
2005 2004
---- ----
-----------------------------------------------------------------------------------------
ASSETS
-----------------------------------------------------------------------------------------
CURRENT ASSETS
Cash and cash equivalents $ 2,207,288 $ 5,079
Available-for-sale securities 60,615,799 54,806,400
Accounts receivable 259,775 202,649
Inventory 139,338 139,338
Prepaid expenses and other current assets 162,974 453,284
------------- -------------
Total Current Assets 63,385,174 55,606,750
PROPERTY AND EQUIPMENT, NET 373,986 290,572
OTHER ASSETS 32,158 32,158
------------- -------------
Total Assets $ 63,791,318 $ 55,929,480
============= =============
-----------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
-----------------------------------------------------------------------------------------
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 207,819 $ 89,162
Loans payable 7,801,290 4,113,285
Other liabilities 8,582 8,557
Deferred option premiums 1,196,306 974,161
Deferred revenue 154,429 121,083
Deferred taxes 12,468,164 10,845,531
------------- -------------
Total Current Liabilities 21,836,590 16,151,779
============= =============
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY
Common stock, $.01 par value
Authorized - 10,000,000 shares
Issued - 5,309,750 shares
Outstanding - 4,635,526 and 4,610,826
shares at September 30, 2005 and December 31, 2004,
respectively 53,097 53,097
Additional paid in capital 10,296,552 9,821,563
Accumulated other comprehensive income 23,155,163 21,053,089
Retained earnings 14,039,126 14,486,081
Treasury stock, at cost, 674,224 and 698,924
shares, respectively (5,589,210) (5,636,129)
------------- -------------
Total Stockholders' Equity 41,954,728 39,777,701
------------- -------------
Total Liabilities and Stockholders' Equity $ 63,791,318 $ 55,929,480
============= =============
See accompanying notes to condensed consolidated financial statements.
F-1
DAXOR CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS [UNAUDITED]
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
Restated Restated
2005 2004 2005 2004
---- ---- ---- ----
Revenues:
Operating Revenues - Equipment sales and
related services $ 235,545 $ 173,438 $ 571,941 $ 432,509
Operating Revenues - Cryobanking and related services 105,250 117,986 325,426 359,004
--------------------------------------------------------------
Total Revenues 340,795 291,424 897,367 791,513
--------------------------------------------------------------
Costs and expenses:
Costs of equipment sales and related services 372,011 242,066 1,038,953 825,094
Costs of cryobanking and related services 84,516 56,215 247,143 190,235
Selling, general, and administrative 1,165,988 831,705 3,340,248 2,356,541
--------------------------------------------------------------
Total costs and expenses 1,622,515 1,129,986 4,626,344 3,371,870
--------------------------------------------------------------
Loss from operations (1,281,720) (838,562) (3,728,977) (2,580,357)
Other income (expenses):
Dividend income 969,064 516,525 2,017,760 1,483,325
Gains/ (losses) on sale of securities 1,321,733 321,232 1,403,493 747,928
Other revenues 100,844 3,817 109,759 11,103
Interest expense, net (89,698) (34,979) (193,410) (66,955)
Administrative expenses relating to portfolio investments (24,402) (13,552) (55,579) (45,154)
--------------------------------------------------------------
Total other income 2,277,541 793,043 3,282,023 2,130,247
--------------------------------------------------------------
Net income/ (loss) before income taxes 995,821 (45,519) (446,954) (450,110)
Provision for income taxes 0 0 0 0
--------------------------------------------------------------
$ 995,821 $ (45,519) $ (446,954) $ (450,110)
Net income/ (loss)
==============================================================
Weighted average number of shares outstanding - basic
and diluted 4,636,126 4,608,493 4,633,704 4,617,715
Net income/ (loss) per common equivalent share-
basic and diluted $ 0.21 $ (0.01) $ (0.10) $ (0.10)
==============================================================
See accompanying notes to condensed consolidated financial statements.
F-2
DAXOR CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS [UNAUDITED]
FOR THE NINE MONTHS ENDED
Restated
SEPTEMBER 30 SEPTEMBER 30
2005 2004
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (446,954) $ (450,110)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation & amortization 34,585 35,630
Gains on sale of investments (1,403,493) (747,928)
Change in assets and liabilities:
(Increase) in accounts receivable (57,126) (40,748)
(Increase) decrease in other current assets 290,310 (38,639)
Increase (decrease) in accounts payable, accrued
and other liabilities 118,682 (76,872)
Increase in deferred income 33,346 149,445
------------- -------------
Net cash used in operating activities (1,430,650) (1,169,222)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (117,999) (21,144)
Purchase of investments, net of sales (1,655,359) (733,345)
Proceeds from broker loans, net of repayments 3,688,005 1,292,259
Proceeds from "deferred option premiums" not closed 1,196,306 556,570
------------- -------------
Net cash provided by investing activities 3,110,953 1,094,340
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank loan -- 600,000
Purchase of treasury stock (29,944) (474,335)
Proceeds from sale of treasury stock 551,850 10,000
--------------------------------
Net cash provided by financing activities 521,906 135,665
------------- -------------
Net increase in cash and cash equivalents 2,202,209 60,783
Cash and cash equivalents at beginning of period 5,079 3,324
------------- -------------
Cash and cash equivalents at end of period $ 2,207,288 $ 64,107
============= =============
See accompanying notes to condensed consolidated financial statements
F-3
DAXOR CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2005 AND 2004
(1) BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Daxor Corporation is a medical device manufacturing company that offers
additional biotech services, such as cryobanking, through its wholly owned
subsidiary, Scientific Medical Systems Corp. The main focus of Daxor Corporation
has been the development of an instrument that rapidly and accurately measures
human blood volume. This instrument is used in conjunction with a single use
diagnostic injection and collection kit.
SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited consolidated financial statements reflect all
adjustments of a normal recurring nature, which are, in the opinion of
management, necessary for a fair statement of the financial position and results
of operations for the interim periods presented. The consolidated financial
statements are unaudited and are subject to such year-end adjustments as may be
considered appropriate and should be read in conjunction with the historical
consolidated financial statements of Daxor Corporation for the years ended
December 31, 2004, 2003 and 2002, included in Daxor Corporation's Annual Report
on Form 10-K for the fiscal year ended December 31, 2004. Operating results for
the three and nine month periods ended September 30, 2005 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2005.
These condensed consolidated financial statements have been prepared in
accordance with US GAAP and under the same accounting principles as the
consolidated financial statements included in the Annual Report on Form 10-K.
Certain information and footnote disclosures related thereto normally included
in the financial statements prepared in accordance with US GAAP have been
omitted in accordance with Rule 10-01 of Regulation S-X.
Principles of Consolidation
The consolidated financial statements include the accounts of Daxor
Corporation and Scientific Medical Systems Corp, a wholly-owned subsidiary. All
significant inter-company transactions and balances have been eliminated in
consolidation.
Segment Reporting
The Company currently reports three business segments; Equipment Sales and
Related Services, Cryobanking and Related Services, and Investment Portfolio
Activity.
The Equipment Sales and Related Services segment encompasses the activity
of the Blood Volume Analyzer equipment. This includes equipment sales, equipment
rentals, equipment delivery fees, Kit sales and service contract revenues.
The Cryobanking and Related Services segment is comprised of activity
relating to the storage of blood and semen, and related laboratory services and
handling fees.
The Investment Portfolio segment reports the activity of the Company's
Investments. This includes all earnings, realized gains and losses, and expenses
relating to the Investment Portfolio.
Cash and Cash Equivalents
Cash and cash equivalents includes time deposits and short term investments with
original maturities of three months or less. The Company's current cash
equivalents consist of U.S. Treasury Bills.
Available-for-Sale Securities
Available-for-sale securities represent investments in debt and equity
securities (primarily common and preferred stock of utility companies)that
management has determined meet the definition of available-for-sale under SFAS
No. 115, Accounting for Certain Investments in Debt and Equity Securities.
Accordingly, these investments are stated at fair market value and all
unrealized holding gains or losses are recorded in the Stockholders' Equity
section as Accumulated Other Comprehensive Income (Loss). Conversely, all
realized gains, losses and earnings are recorded in the Statement of Operations
under Other Income (Expense).
At certain times, the Company will engage in short selling of stock. When
this occurs, the short position is marked to the market and recorded as a
realized sale. Any gain or (loss) is recorded for the period presented.
F-4
DAXOR CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2005 AND 2004 (Continued)
Historical cost is used by the Company to determine all gains and losses,
and fair market value is obtained by readily available market quotes on all
securities.
Deferred Option Premiums
As part of the company's investment strategy put and call options are sold
on various stocks the company is willing to buy or sell. The premiums received
are deferred until such time as they are exercised or expire. Upon exercise, the
value of the premium will adjust the basis of the underlying security bought or
sold. Options that expire are recorded as income in the period they expire.
Revenue Recognition
The Company recognizes operational revenues from several sources. The
first source is the sale of equipment, the Blood Volume Analyzer, to customers.
The second source is the sale and associated shipping revenues of single-use
radioactive doses (Volumex) that are injected into the patient and measured by
the Blood Volume Analyzer. The third source of revenue is service contracts on
the Blood Volume Analyzer, after it has been sold to a customer. The fourth
source of revenue is the storage fees associated with cryobanked blood and semen
specimens. The fifth is lab revenues from laboratory services, and the sixth is
revenue from semen sales.
The Company currently offers three different methods of purchasing the
Blood Volume Analyzer equipment. A customer may purchase the equipment directly,
lease the equipment, or rent the equipment on a month-to-month basis. The
revenues generated by a direct sale or a monthly rental are recognized as
revenue in the period in which the sale or rental occurs. If a customer is to
select the "lease" option, the Company refers its customer to a third party
finance company with which it has established a relationship, and if the lease
is approved, the Company receives 100% of the sales proceeds from the finance
company and recognizes 100% of the revenue. The finance company then deals
directly with the customer with regard to lease payments and related
collections.
The sales of the single-use radioactive doses (Volumex) that are used in
conjunction with the Blood Volume Analyzer are recognized as revenue in the
period in which the sale occurs.
When Blood Volume Analyzer equipment has been sold to a customer, the
Company offers a one year warranty on the product, which covers all mechanical
failures. This one year warranty is effective on the date of sale of the
equipment. After the one year period expires, customers may purchase a service
contract through the Company, which is usually offered in one-year increments.
These service contracts are recorded by the Company as deferred revenue and are
amortized into income in the period in which they apply. As at September 30,
2005 and December 31, 2004, deferred revenue pertaining to these service
contracts was $10,058 and $17,465, respectively.
The storage fees associated with the cryobanked blood and semen samples
are recognized as income in the period for which the fee applies. The Company
invoices customers for storage fees for various time periods. These time periods
range from one month up to one, two or three years. The Company will only
recognize revenue for those storage fees that are earned in the current
reporting period, and will defer the remaining revenues to the period in which
they are earned. It is this revenue recognition policy that has necessitated the
restatement of the 2004 reporting periods included in these financial
statements. Effective October, 2005, the Company has altered our billing
procedure as such that clients will only be billed on a quarterly basis.
Therefore, future revenue recognition will not include deferred revenue on the
storage fees, but rather will be earned in the same period in which the invoices
are generated.
Income Taxes
The Company accounts for income taxes under the provisions of SFAS No.
109, Accounting for Income Taxes. This pronouncement requires recognition of
deferred tax assets and liabilities for the estimated future tax consequences of
events attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases and
operating loss and tax credit carry forwards. Deferred tax assets and
liabilities are measured using enacted tax rates in effect for the year in which
the differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of changes in tax rates is recognized in the
statement of operations in the period in which the enactment rate changes.
Deferred tax assets and liabilities are reduced through the establishment of a
valuation allowance at such time as, based on available evidence, it is more
likely than not that the deferred tax assets will not be realized.
Comprehensive Income (Loss)
The Company reports components of comprehensive income under the
requirements of SFAS No. 130, Reporting Comprehensive Income. This statement
establishes rules for the reporting of comprehensive income and requires certain
transactions to be presented as separate components of stockholders' equity. The
Company currently reports the unrealized holding gains and losses on
available-for-sale securities, net of deferred taxes, as accumulated other
comprehensive income (loss).
F-5
DAXOR CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2005 AND 2004 (Continued)
Product Warrantees and Related Liabilities
The Company offers a one year warranty on the Blood Volume Analyzer
equipment. This warranty is effective on the date of sale and covers all
mechanical failures of the equipment. All major components of the equipment are
purchased and warranteed by the original 3rd party manufacturers.
Once the initial one year warranty period has expired, customers may
purchase annual service contracts for the equipment. These service contracts
warranty the mechanical failures of the equipment that are not associated with
normal wear-and-tear of the components.
To date, the Company has not experienced any major mechanical failures on
any equipment sold. In addition, the majority of the potential liability would
revert to the original manufacturer. Due to this history, a liability has not
been recorded with respect to product / warranty liability.
Stock Based Compensation
The Company applies the intrinsic-value-based method of accounting
prescribed by Accounting Principles Board, or APB, Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations including Financial
Accounting Standards Board, or FASB, Interpretation No. 44, Accounting for
Certain Transactions involving Stock Compensation, an Interpretation of APB
Opinion No. 25, issued in March 2000, to account for its stock options. Under
this method, compensation expense is recorded on the date of the grant only if
the current market price of the underlying stock exceeded the exercise price.
SFAS No. 123, Accounting for Stock Based Compensation, established accounting
and disclosure requirements using a fair-value-based method of accounting for
stock-based employee compensation plans. As allowed by SFAS No. 123, the Company
has elected to continue to apply the intrinsic-value-based method of accounting
described above, and has adopted only the disclosure requirements of SFAS No.
123. The following table illustrates the effect on the net loss if the
fair-value-based method has been applied to all outstanding and unvested awards
in each period.
Three Months Ended Nine Months Ended
September 30 September 30
2005 2004 2005 2004
------------------- -------------------
Net gain/ (loss) as reported $ 995,821 $ (45,519) $(446,954) $(450,110)
Deduct total stock-based employee
compensation expense determined
under fair-value-based method, net
of tax (27,255) (10,966) (85,821) (28,014)
--------- --------- --------- ---------
Proforma net gain/(loss) $ 968,566 $ (56,485) $(532,775) $(478,124)
========= ========= ========= =========
Pro forma net loss per
common share: basic and diluted $ .21 $ (.01) $ (.11) $ (.10)
========= ========= ========= =========
1,000 and 700 stock options were issued to employees in the three months
ended September 30, 2005 and 2004, respectively, and a total of 19,000 and
25,700 were issued to employees in the nine months ended September 30, 2005 and
2004, respectively. All of these options were issued under the Company's 2004
Stock Option Plan.
These fair values were estimated using the Black-Scholes option pricing
model, based on the following assumptions:
Three Months Ended Nine Months Ended
September 30 September 30
2005 2004 2005 2004
--------------- -------------------
Dividend yield 0% 0% 0% 0%
Volatility 24.8% 22.2%-28.8% 24.8%-28.8% 22.2%-28.8%
Risk-free interest rate 3.39% .98%-1.91% .98%-5.81% .98%-1.91%
Expected term of options (in years) 3 3 3 3
F-6
DAXOR CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2005 AND 2004 (Continued)
Reclassifications
Certain reclassifications have been made to the Company's 2004 condensed
consolidated financial statements to conform with the presentation of the 2005
condensed consolidated financial statements.
Restatements
Restatements have been made to the 2004 financial statements to reflect a
change in accounting principle pertaining to the revenues recognized on long
term blood and semen storage (deferred revenues). The 2004 figures now reflect
deferred revenues for those storage fees that were invoiced to customers in
advance of services. The deferred revenues will be reclassified as income in the
periods in which they are earned.
The effects of these changes on revenues, operating income, net income and
earnings per share are summarized below.
Three months ended Nine months ended
September 30,2004 September 30,2004
Revenues $13,449 $(149,445)
Operating income $13,449 $(149,445)
Net income $13,449 $(149,445)
EPS $ 0.00 $ (0.03)
(2) AVAILABLE-FOR-SALE SECURITIES
Upon adoption of SFAS No. 115, Accounting for Certain Investments in Debt
and Equity Securities, management has determined that the company's portfolio is
best characterized as "Available-For-Sale". SFAS No. 115 requires these
securities to be recorded at their fair market values, with the offsetting
unrealized holding gains or losses being recorded as Comprehensive Income (Loss)
in the Equity section of the Balance Sheet. The adoption of this pronouncement
has resulted in an increase in the carrying value of the company's
available-for-sale securities, as at September 30, 2005 and December 31, 2004,
of approximately 145.2% and 139.3%,respectively, over its historical cost.
In accordance with the provisions of SFAS No. 115, the adjustment in
stockholders' equity has been made net of the tax effect had these gains been
realized.
The Company uses the historical cost method in the determination of its
realized and unrealized gains and losses. The following tables summarize the
Company's investments as of:
September 30, 2005
------------------
Type of Unrealized Unrealized
security Cost Fair Value Holding gains holding losses
-------- ------------- ------------- ------------- --------------
Equity $ 24,881,414 $ 60,556,699 $ 36,062,466 $ 387,181
Debt 111,058 59,100 2,195 54,153
------------- ------------- ------------- --------------
Total $ 24,992,472 $ 60,615,799 $ 36,064,661 $ 441,334
============= ============= ============= ==============
December 31, 2004
-----------------
Unrealized Unrealized
Type of security Cost Fair Value holding gains holding losses
---------------- ------------- ------------- ------------- --------------
Equity $ 22,802,568 $ 54,741,650 $ 32,125,500 $ 186,417
Debt 105,212 64,750 7,792 48,255
------------- ------------- ------------- --------------
Total $ 22,907,780 $ 54,806,400 $ 32,133,292 $ 234,672
============= ============= ============= ==============
At September 30,2005 the securities held by the Company had a market value
of $60,615,799 and a cost basis of $24,992,472 resulting in a net unrealized
gain of $35,623,327 or 142.5% of cost.
At December 31, 2004, the securities held by the Company had a market
value of $54,806,400 and a cost basis of $22,907,780 resulting in a net
unrealized gain of $31,898,620 or 139.3% of cost.
At September 30, 2005 and December 31, 2004, marketable securities,
primarily consisting of preferred and common stocks of utility companies, are
valued at fair value. Debt securities consist of Corporate Bonds & Notes. As at
September 30, 2005, these items, which have a cost of $111,058 are scheduled to
mature at various dates through May 2008. Two bonds, which have a combined cost
of $48,255 are currently in default, with maturity dates prior to December 31,
2004. Management is awaiting final settlement of the bonds, and is not yet able
to determine the amount of loss, if any, that may occur. Accordingly, the
Company has valued these bonds at zero and recorded an unrealized loss of the
entire cost of the bonds.
F-7
DAXOR CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2005 AND 2004 (Continued)
(3) SEGMENT ANALYSIS
The following table summarizes the results of each segment described in
note (1) for the nine months ending September 30, 2005
Equipment
sales Cryobanking
and related and related Investment Segment
services services portfolio Totals
=============
Revenues and income $ 571,941 $ 325,426 $ 3,421,253 $ 4,318,620
Other revenues 109,759 -- -- 109,759
------------------------------------------------------------------
Total revenues and income 681,700 325,426 3,421,253 4,428,379
==================================================================
Costs of sales and services 1,038,953 247,143 -- 1,286,096
Selling-G & A expenses 3,216,184 124,064 -- 3,340,248
Expenses related to investment income -- -- 248,989 248,989
------------------------------------------------------------------
Total Costs & expenses 4,255,137 371,207 248,989 4,875,333
------------------------------------------------------------------
------------------------------------------------------------------
Segment income/(loss) $ (3,573,437) $ (45,781) $ 3,172,264 $ (446,954)
==================================================================
The following table summarizes the results of each segment described in note (1)
for the three months ending September 30, 2005
Equipment
sales Cryobanking
and related and related Investment Segment
services services portfolio Totals
Revenues and income 235,545 $ 105,250 $ 2,290,797 $ 2,631,592
Other revenues 100,844 -- -- 100,844
------------------------------------------------------------------
Total revenues and income
336,389 105,250 2,290,797 2,732,436
==================================================================
Costs of sales and services 372,011 84,516 -- 456,527
Selling-G & A expenses 1,124,750 41,238 -- 1,165,988
Expenses related to investment income -- -- 114,100 114,100
------------------------------------------------------------------
Total Costs & expenses 1,496,761 125,754 114,100 1,736,615
------------------------------------------------------------------
------------------------------------------------------------------
Segment income/(loss) $ (1,160,372) $ (20,504) $ 2,176,697 $ 995,821
==================================================================
F-8
The following table summarizes the results of each segment described in note (1)
for the nine months ending September 30, 2004
Equipment
sales Cryobanking
and related and related Investment Segment
services services Portfolio Totals
Revenues and income $ 432,509 $ 359,004 $ 2,231,253 $ 3,022,766
Other revenues 10,929 174 -- 11,103
------------------------------------------------------------------
Total revenues and income 443,438 359,178 2,231,253 3,033,869
==================================================================
Costs of sales and services 825,094 190,235 -- 1,015,329
Selling-G & A expenses 2,216,249 140,292 -- 2,356,541
Expenses related to investment income -- -- 112,109 112,109
------------------------------------------------------------------
Total Costs & expenses 3,041,343 330,527 112,109 3,483,979
------------------------------------------------------------------
------------------------------------------------------------------
Segment income/(loss) $ (2,597,905) $ 28,651 $ 2,119,144 $ (450,110)
==================================================================
The following table summarizes the results of each segment described in note (1)
for the three months ending September 30, 2004
Equipment
sales Cryobanking
and related and related Investment Segment
services services Portfolio Totals
Revenues and income $ 173,438 $ 117,986 $ 837,757 1,129,181
Other revenues 3,643 174 -- 3,817
------------------------------------------------------------------
Total revenues and income 177,081 118,160 837,757 1,132,998
==================================================================
Costs of sales and services 242,066 56,215 -- 298,281
Selling-G & A expenses 779,748 51,957 -- 831,705
Expenses related to investment income -- -- 48,531 48,531
------------------------------------------------------------------
Total Costs & expenses 1,021,814 108,172 48,531 1,178,517
------------------------------------------------------------------
------------------------------------------------------------------
Segment income/(loss) $ (844,733) $ 9,988 $ 789,226 $ (45,519)
==================================================================
(4) PROPERTY AND EQUIPMENT
Property and equipment as at September 30, 2005 and December 31, 2004,
respectively, consist of:
2005 2004
---- ----
Machinery and equipment $ 870,964 $ 755,237
Furniture and fixtures 331,322 329,050
Leasehold improvements 295,530 295,530
----------- -----------
1,497,816 1,379,817
Accumulated depreciation (1,123,830) (1,089,245)
----------- -----------
Property and equipment, net $ 373,986 $ 290,572
=========== ===========
Depreciation expense for the three months ended September 30, 2005 and 2004 was
$10,102 and $11,750, respectively. Depreciation expense for the nine months
ended September 30, 2005 and 2004, was $34,585 and $35,630 respectively.
F-9
DAXOR CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2005 AND 2004 (Continued)
(5) LOANS PAYABLE
As at September 30, 2005 and December 31, 2004, the Company has a note
payable of $1,500,000 with a bank with an annual option to renew, and is
classified as short term. The note balance is an aggregate of borrowings (loans)
that renews as one note each year, but is subject to different interest rates
depending on the individual amount of each borrowing.
The loan bears interest at approximately 3.0% and is secured by certain
marketable securities of the Company. Short term margin debt due to brokers,
secured by the Company's marketable securities, totaled $6,301,290 at September
30, 2005 and $2,613,285 at December 31, 2004.
(6)DEFERRED OPTION PREMIUMS
As part of the company's investment strategy put and call options are sold
on various stocks the company is willing to buy or sell. The premiums received
are deferred until such time as they are exercised or expire. Upon exercise, the
value of the premium will adjust the basis of the underlying security bought or
sold. Options that expire are recorded as income in the period they expire. The
following summarizes deferred option premiums as of September 30,2005 and
December 31,2004.
-------------------------------------------------------------------------------------
Deferred option Selling price Fair Market value Unrealized
premiums Gain/(Loss)
-------------------------------------------------------------------------------------
September 30,2005 $1,196,306 $978,330 $217,976
-------------------------------------------------------------------------------------
December 31,2004 $974,161 $591,482 $382,679
-------------------------------------------------------------------------------------
(7) CURRENT INCOME TAXES
The Company, due to current losses and loss carry forwards from previous
years, has not accrued or paid taxes based on income. It has, however, paid
State and City taxes which were assessed on its Capital Base. In accordance with
SFAS No. 109, Accounting for Income Taxes, these Capital Base assessments were
not classified as income taxes.
(8) DEFERRED INCOME TAXES
Deferred income taxes result from differences in the recognition of gains
and losses on marketable securities, as well as operating loss carry forwards,
for tax and financial statement purposes. The deferred income tax results in a
liability for the marketable securities, while the operating loss carry forwards
result in a deferred tax asset.
The Company has net operating loss carryovers of $10,200,803 expiring at
various times from December 31, 2010 through December 31, 2024. Management does
not anticipate an ability to utilize these losses in the near future.
While the company has deferred taxes on unrealized portfolio gains, at
present it is not management's intention to liquidate it's holdings in order to
utilize these loss carryovers.
A valuation allowance has been recorded for the entire deferred tax asset
as a result of uncertainties regarding the realization of the asset balance due
to the history of losses and the variability of operating results.
The deferred tax liability that results from the marketable securities
does not flow through the Statement of Operations due to the classification of
the marketable securities as available-for-sale. Instead, the deferred tax
liability is recorded against the Accumulated Other Comprehensive Income, in the
Stockholders' Equity section of the Balance Sheet.
The deferred tax computations at September 30, 2005 and December 31, 2004,
computed at federal statutory rates of 35%, are as follows:
2005 2004
Deferred tax assets:
Net operating loss carry forwards $ 10,200,803 $ 4,907,369
Valuation allowance (10,200,803) (4,907,369)
------------ ------------
Total deferred tax assets 0 0
============ ============
Deferred tax liabilities:
Fair market value adjustment
for available-for-sale securities $ 12,468,164 $ 10,845,531
============ ============
F-10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Three months ended September 30, 2005 as compared with three months ended
September 30, 2004
For the three months ended September 30, 2005, operating revenues
increased to $340,795 vs. $291,424 in 2004, an increase of 17%. The increase was
due primarily to increased blood volume kit sales. The increase in kit sales can
be attributed to the sales effort of our staff. Total cost and expenses were
$1,622,515 in 2005 vs. $1,129,986 in 2004, for an increase of 44%. For the three
months ended September 30, 2005 total operating revenues and other total income
increased by 142% to $2,618,336 from $1,084,467 in 2004. This was largely
attributed to the reversal of mark-to-market losses on short positions that the
company recognized in Q2 2005 that are now profitable in Q3 2005. In the three
months ended September 30, 2005 there has been one sale of the BVA-100 blood
volume analyzer, although a number of contracts were signed for instruments on a
trial basis. A factor involved in lack of sales was a delay in the correction of
Medicare reimbursement for hospitals. Medicare reimburses hospitals separately
for the cost of the radiopharmaceutical kit, but did not issue a reimbursement
number until July 2005 which will take effect January 2006. This error did not
exist in 2004. Appropriate reimbursement is essential for marketing to hospitals
which have Medicare patients. Although the company pointed out the error in
multiple communications, the error was not corrected until July, 2005. The
Company plans to continue expanding its sales and marketing force, which
currently consists of 13 salesmen and 4 support personnel. For the 3 months 2005
vs. 2004, other revenues is inclusive back to royalties due to an investment
activity we had, and is a one-time increase in other income.
Nine months ended September 30, 2005 as compared with nine months ended
September 30, 2004
For the nine months ended September 30, 2005, operating revenues increased
to $897,367 vs. $791,513 in 2004, an increase of 13%. The increase was due
primarily to increased blood volume kit sales. Total cost and expenses were
$4,626,344 in 2005 vs. $3,371,870 in 2004, for an increase of 37%. For the nine
months ended September 30, 2005, total operating revenues and other income
increased by 43% to $4,179,390 from $2,921,760 in 2004. There were net gains on
sales of securities in 2005 of $1,403,493 up from $747,928 in 2004. Dividend
income was $2,017,760 with a net interest expense of $193,410 in 2005, as
compared to dividend income of $1,483,325 with a net interest expense of $66,955
in 2004. In 2005, the Company had a net loss of ($446,954) versus a net loss of
$(450,110)in 2004. Total Costs and Expenses increased by 37% in 2005 to
$4,626,344 vs. $3,371,870 in 2004. This was related to increased marketing
efforts as well as research and development expenses. The Company has increased
research expenses for additional features to the BVA-100. The Company has also
expanded its manufacturing staff in Oak Ridge, Tennessee. The increase in kit
sales can be attributed to these sales efforts. The sales cycles from initial
contact to a sale can be 6 to 12 months, or occasionally longer. The Company
anticipates that the sales of the BVA-100 Blood Volume Analyzers and kits will
become the major source of income for the Company. In 2005 there has been 1 sale
of the BVA-100 blood volume analyzer, although a number of contracts were signed
for instruments on a trial basis. A factor involved in lack of sales was a delay
in the correction of Medicare reimbursement for hospitals. Medicare reimburses
hospitals separately for the cost of the radiopharmaceutical kit, but did not
issue a reimbursement number for until July 2005 which will take effect January,
2006. This error did not exist in 2004. Appropriate reimbursement is essential
for marketing to hospitals which have Medicare patients. Although the company
pointed out the error in multiple communications, the error was not corrected
until July, 2005. The Company plans to continue expanding its sales and
marketing force, which currently consists of 13 salesmen and 4 support
personnel.
The Company has initiated marketing for its blood banking services. On Monday,
October 17, 2005, the company announced the publication of a case report of 2
successful pregnancies from cryopreserved semen for 21 and 28 years. The father
stored his sperm in 1972 at the age of 28. This is the world record for the
longest cryopreservation of semen resulting in live births. The successful
pregnancies were additionally notable in that they were achieved using
intrauterine artificial insemination rather tan the more complex surgical
procedure of in vitro fertilization. The Company is attempting
-4-
to develop a program with a specific hospital which would involve blood volume
measurement and autologous frozen blood storage prior to elective orthopedic
surgery. The program is called a Blood Optimization Program, and the Company has
filed for trademark status.
The Company may also initiate a separate marketing program for its semen bank
services. The Company has reported on the details of the longest case of frozen
semen resulting in a successful pregnancy and birth, which was published in the
October, 2005 issue of Fertility and Sterility magazine.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2005 the Company had total assets of $63,791,318 with
stockholders' equity of $41,954,728 as compared to total assets of $55,929,480
with stockholders' equity of $39,777,701 at December 31, 2004. The Company has
significantly increased its financial base as compared to one year ago. At
September 30, 2005, the Company has a net pre-taxed unrealized gain of
$35,623,327 and $23,155,163 of net after tax unrealized capital gains on
available-for-sale securities in its portfolio. This amount is included in the
calculation of Total Stockholders' Equity. The Company's stock portfolio had a
market value of $60,615,799 with short-term loans of $7,801,290 with 4,635,526
shares outstanding. The Company has current liabilities of $21,836,590. Included
in these liabilities are deferred taxes of $12,468,164. These deferred taxes
would occur if the Company chose to sell its entire portfolio. Current
liabilities less these deferred taxes is $9,368,426. The Company's investment
portfolio has been a critical source of supplemental income to partially offset
the continuing losses from operations. Without this income, the Company would
have been in a precarious financial situation because of its operating losses
over the past 10 years. The Company's portfolio has maintained a net value above
historical cost for each of the past 20 and three quarter years, or 83
consecutive quarters.
The Company has adequate resources for the current marketing level of its
Blood Volume Analyzer as well as capital to sustain its localized semen and
blood banking services. The Company anticipates hiring additional regional
managers to the existing sales/marketing team. It is the goal of the marketing
team to develop an individual sales team for each regional manager. The Company
is also expanding its support services personnel. The decision to develop the
marketing team was partially based on the anticipation of new publications in
peer reviewed medical journals by current users of the Blood Volume Analyzer.
All sales to leasing companies are non-recourse leases, which are not guaranteed
by the Company.
The Company's goal is to establish blood volume measurement as a standard
of care in multiple areas of medicine and surgery. It is hoped that the
publication of research studies from leading medical facilities will result in
an increase in sales in both the Blood Volume Analyzer and its associated kits.
The Company sells, as well as offers to lease or rent the BVA-100 as part
of the overall marketing plan. The Company also loans the instrument for a
limited time period, however facilities evaluating the instrument must pay for
the kits. A financing arrangement for customers was established through a
relationship with De Lage Landen (DLL) and other third party institutions. The
significance of this relationship is as sales through leases increases, Daxor
will not have to diminish its capital outlay for equipment as DLL and others
will fund the net present value of the lease upon installation of the equipment.
In an effort to obtain the best rates for our clients, the Company will also
work with other independent leasing firms. The Company will use its current
financial reserves primarily for developing and marketing the Blood Volume
Analyzer. The Company is evaluating various options to expand blood banking
services in conjunction with the use of the Blood Volume Analyzer. Additional
information on the Company is available on our website www.daxor.com .
CRITICAL ACCOUNTING POLICIES
Management's Discussion and Analysis of Financial Condition and Results of
Operations discusses the Company's condensed consolidated financial statements,
which have been prepared in accordance with US GAAP. The Company considers the
following accounting policies to be critical accounting policies.
-5-
Available-for-Sale Securities
Available-for-sale securities represent investments in debt and equity
securities (primarily common and preferred stock of utility companies)that
management has determined meet the definition of available-for-sale under SFAS
No. 115, Accounting for Certain Investments in Debt and Equity Securities.
Accordingly, these investments are stated at fair market value and all
unrealized holding gains or losses are recorded in the Stockholders' Equity
section as Accumulated Other Comprehensive Income (Loss). Conversely, all
realized gains, losses and earnings are recorded in the Statement of Operations
under Other Income (Expense).
At certain times the company will engage in short selling of stock. When
this occurs the short position is marked to the market and recorded as a
realized sale. Any gain or (loss) is recorded for the period presented.
Historical cost is used by the Company to determine all gains and losses,
and fair market value is obtained by readily available market quotes on all
securities.
Revenue Recognition
The Company recognizes operational revenues from several sources. The
first source is the outright sale of equipment, the Blood Volume Analyzer, to
customers. The second source is the sale and associated shipping revenues of
single-use radioactive doses (Volumex) that are injected into the patient and
measured by the Blood Volume Analyzer. The third source of revenue is service
contracts on the Blood Volume Analyzer, after it has been sold to a customer.
The fourth source of revenue is the storage fees associated with cryobanked
blood and semen specimens. The fifth is lab revenues from laboratory services,
and the sixth is revenue from semen sales.
The Company currently offers three different methods of purchasing the
Blood Volume Analyzer equipment. A customer may purchase the equipment directly,
lease the equipment, or rent the equipment on a month-to-month basis. The
revenues generated by a direct sale or a monthly rental are recognized as
revenue in the period in which the sale or rental occurred. If a customer is to
select the "lease" option, the Company refers its customer to a third party
finance company with which it has established a relationship, and if the lease
is approved, the Company receives 100% of the sales proceeds from the finance
company and recognizes 100% of the revenue. The finance company then deals
directly with the customer with regard to lease payments and related
collections.
The sales of the single-use radioactive doses (Volumex) that are used in
conjunction with the Blood Volume Analyzer are recognized as revenue in the
period in which the sale occurred.
When Blood Volume Analyzer equipment has been sold to a customer, the
Company offers a one year warranty on the product, which covers all mechanical
failures. This one year warranty is effective on the date of sale of the
equipment. After the one year period expires, customers may purchase a service
contract through the Company, which is usually offered in one-year increments.
These service contracts are recorded by the Company as deferred revenue and are
amortized into income in the period in which they apply.
The storage fees associated with the cryobanked blood and semen samples
are recognized as income in the period for which the fee applies. The Company
invoices customers for storage fees for various time periods. These time periods
range from one month up to one, two or three years. The Company will only
recognize revenue for those storage fees that are earned in the current
reporting period, and will defer the remaining revenues to the period in which
they are earned. Effective October, 2005, the Company has altered our billing
procedure as such that clients will only be billed on a quarterly basis.
Therefore, future revenue recognition will not include deferred revenue on the
storage fees, but rather will be earned in the same period in which the invoices
are generated.
-6-
Comprehensive Income (Loss)
The Company reports components of comprehensive income under the
requirements of SFAS No. 130, Reporting Comprehensive Income. This statement
establishes rules for the reporting of comprehensive income and requires certain
transactions to be presented as separate components of stockholders' equity. The
Company currently reports the unrealized holding gains and losses on
available-for-sale securities, net of deferred taxes, as accumulated other
comprehensive income (loss).
Product Warrantees and Related Liabilities
The Company offers a one year warranty on the Blood Volume Analyzer
equipment. This warranty is effective on the date of sale and covers all
mechanical failures of the equipment. All major components of the equipment are
purchased and warranteed by the original 3rd party manufacturers.
Once the initial one year warranty period has expired, customers may
purchase annual service contracts for the equipment. These service contracts
warranty the mechanical failures of the equipment that are not associated with
normal wear-and-tear of the components.
To date, the Company has not experienced any major mechanical failures on
any equipment sold. In addition, the majority of the potential liability would
revert to the original manufacturer. Due to this history, a liability has not
been recorded with respect to product / warranty liability.
Use of Estimates
The preparation of financial statements in conformity with US GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities as of
the dates of the financial statements and the results of operations during the
reporting periods. These also include management estimates in the calculation of
pension liabilities covering discount rates, return on plan assets and other
actuarial assumptions. Although these estimates are based upon management's best
knowledge of current events and actions, actual results could differ from those
estimates
Income Taxes
The Company accounts for income taxes under the provisions of SFAS No.
109, Accounting for Income Taxes. This pronouncement requires recognition of
deferred tax assets and liabilities for the estimated future tax consequences of
event attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases and
operating loss and tax credit carry forwards. Deferred tax assets and
liabilities are measured using enacted tax rates in effect for the year in which
the differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of changes in tax rates is recognized in the
statement of operations in the period in which the enactment rate changes.
Deferred tax assets and liabilities are reduced through the establishment of a
valuation allowance at such time as, based on available evidence, it is more
likely than not that the deferred tax assets will not be realized.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Securities and Exchange Commission's rule related to market risk disclosure
requires that we describe and quantify our potential losses from market risk
sensitive instruments attributable to reasonably possible market changes. Market
risk sensitive instruments include all financial or commodity instruments and
other financial instruments that are sensitive to future changes in interest
rates, currency exchange rates, commodity prices or other market factors.
We are not exposed to market risks from changes in foreign currency rates. The
company maintains an investment portfolio primarily consisting of electric
utility companies
-7-
which are publicly traded common and preferred stock. These are categorized as
available-for-sale securities.
In addition to receiving income from dividends, the company also has an
investment policy of selling puts on stocks that it is willing to own. Such
options usually have a maturity of less than 1 year. The company will also sell
covered calls on securities within its investment portfolio. Covered calls
involve stocks, which usually do not exceed 10% of the value of the company's
portfolio and have never exceeded 15% of the company's portfolio value.
The company will, at times, sell naked or uncovered calls, as well as, engage in
short sales as part of a strategy to mitigate risk. Such short sales are usually
less than 10% of the company's portfolio value, and have never exceeded 15% of
the company's portfolio value. Unrealized gains or losses on short sales or
naked calls are marked to the market. They may, therefore, cause a fluctuation
in the reporting of total other income. This has occurred in the third quarter
of 2005.
The company's investment strategy is reviewed at least once a year, and more
frequently as needed, at board meetings. The company's investing policy permits
investment in non-electric utilities for up to 10% of the corporate portfolio
value. The company's unrealized gains vs. unrealized losses are usually more
than 10 to 1.
At the most recent third quarter computation, net unrealized gains were
$36,064,661 and net unrealized losses were $441,334 for a ratio of 81.7 to 1.
The results from option strategies are variable and within the past 5 years have
represented from 2.1% to 33.2% of total investment income. Annual income from
dividends has been relatively stable and has varied from $1,842,583 to
$2,062,364.
Certain utility preferred stocks have call provisions which may enable them to
be called away from the company. The call price, in all instances, is higher
than the company's cost for the stock. The yields on such preferred stocks may
be significantly higher than current available yields. Such stocks, therefore,
could not be replaced with similar yields. Currently, approximately 2.3% of the
company's portfolio falls into this category.
The company's portfolio value is exposed to fluctuations in the general value of
electric utilities. An increase of interest rates could affect the company in
two ways; one would be to put downward pressure on the valuation of utility
stocks as well as increase the company's cost of borrowing.
Because of the size of the unrealized gains in the company's portfolio, the
company does not anticipate any changes which could reduce the value of the
company's utility portfolio below historical cost. Electric utilities operate in
an environment of federal, state and local regulations, and they may
disproportionately affect an individual utility. The company exposure to
regulator risk is mitigated due to it's diversity of holdings consisting of 70
separate stocks.
-8-
Item 4. Controls and Procedures
The Company's Chief Executive Officer and Chief Financial Officer have
evaluated the effectiveness of our disclosure controls and procedures as defined
by the Securities and Exchange Commission (SEC),as of the end of the period
covered by this report. Based upon that evaluation, our Chief Executive Officer
and Chief Financial Officer concluded that our disclosure controls and
procedures are effective in timely alerting them to information required to be
included in our periodic Securities and Exchange Commission filings. There was
no significant change in our internal control over financial reporting that
occurred during the quarter ended September 30, 2005, that materially affected
or is reasonably likely to materially affect, the Corporation's internal control
over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
31.1 Certification of Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Principal Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
32.2 Certification of Principal Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
(b) There were no reports on Form 8-k filed.
-9-
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATE: November 21, 2005 By: /s/ JOSEPH FELDSCHUH, M.D.
--------------------------
JOSEPH FELDSCHUH, M.D.,
President and Chief Executive
Officer
DATE: November 21, 2005 By: /s/ STEPHEN FELDSCHUH
---------------------
STEPHEN FELDSCHUH
Vice President of Operations
And Chief Financial Officer
-10-