-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, V+XiLl3aHqoC+mfVvQpxToA2QiSAlE60Z6dBARKd2qGje1by0HqEdMADiE1uUPbX mpuY3ekcXp7a6ZFxpSiwfg== 0001019056-10-001027.txt : 20100813 0001019056-10-001027.hdr.sgml : 20100813 20100813095229 ACCESSION NUMBER: 0001019056-10-001027 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20100630 FILED AS OF DATE: 20100813 DATE AS OF CHANGE: 20100813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DAXOR CORP CENTRAL INDEX KEY: 0000027367 STANDARD INDUSTRIAL CLASSIFICATION: SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841] IRS NUMBER: 132682108 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09999 FILM NUMBER: 101013295 BUSINESS ADDRESS: STREET 1: 350 FIFTH AVENUE STREET 2: SUITE 7120 CITY: NEW YORK STATE: NY ZIP: 10118 BUSINESS PHONE: 2122440555 MAIL ADDRESS: STREET 1: 350 5TH AVENUE STREET 2: SUITE 7120 CITY: NEW YORK STATE: NY ZIP: 10118 FORMER COMPANY: FORMER CONFORMED NAME: IDANT CORP DATE OF NAME CHANGE: 19730823 10-Q 1 daxor_2q10.htm FORM 10-Q Unassociated Document


UNITED STATES
 
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 June 30, 2010
Commission File Number 001-09999
 
DAXOR CORPORATION
(Exact Name as Specified in its Charter)

New York
 
13-2682108
(State or Other Jurisdiction of
 Incorporation or Organization)
 
(I.R.S. Employer
 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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to post and submit such files)
Yes o No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
  Large Accelerated filer       ¨   Accelerated Filer       ¨
  Non-accelerated filer   ¨ (Do not check if a smaller reporting company)   Smaller reporting company       x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o 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: COMMON STOCK
 
4,237,818 OUTSTANDING AT August 9, 2010
PAR VALUE: $.01 per share
 
 
 
 
 

 
 
DAXOR CORPORATION AND SUBSIDIARY
 
TABLE OF CONTENTS

PART I.
FINANCIAL INFORMATION
 
 
 
Item 1.
FINANCIAL STATEMENTS
 
 
 
 
Index to Financial Statements
   
     
1
     
2-3
     
4
     
5-23
   
24-34
   
34-37
   
37
         
   
   
38
   
39
   
40
   
40
   
40
   
41
   
42
 
 
 

 
 
DAXOR CORPORATION AND SUBSIDIARY

   
UNAUDITED
June 30, 2010
   
December 31, 2009
 
ASSETS
           
             
CURRENT ASSETS
           
Cash and cash equivalents
  $ 213,402     $ 277,088  
Receivable from broker
    26,154,410       16,629,427  
Available-for-sale securities, at fair value
    48,806,148       53,270,726  
Accounts receivable, net of allowance for doubtful accounts of $91,658 in 2010 and $92,421 in 2009
    195,416       240,615  
Inventory
    434,441       454,407  
Prepaid expenses and other current assets
    160,458       104,431  
Total Current Assets
    75,964,275       70,976,694  
                 
Property and equipment, net
    4,223,413       4,173,138  
Other assets
    37,158       37,158  
                 
Total Assets
  $ 80,224,846     $ 75,186,990  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
                 
CURRENT LIABILITIES
               
Accounts payable and accrued liabilities
  $ 579,031     $ 533,631  
Loans payable
    609,756        
Income taxes payable
    2,697,111       943,075  
Mortgage payable, current portion
    45,078       43,431  
Put and call options, at fair value
    8,245,304       4,249,123  
Securities borrowed, at fair value
    18,415,718       10,771,279  
Deferred revenue
    54,220       46,902  
Deferred income taxes
    6,190,257       10,627,351  
Total Current Liabilities
    36,836,475       27,214,792  
                 
LONG TERM LIABILITIES
               
                 
Mortgage payable, less current portion
    323,865       346,861  
                 
Total Liabilities
    37,160,340       27,561,653  
                 
STOCKHOLDERS’ EQUITY
               
Common stock, $.01 par value, Authorized - 10,000,000 shares Issued – 5,316,550 shares Outstanding – 4,240,018 and 4,250,318 shares at June 30, 2010 and December 31, 2009, respectively
    53,165       53,165  
Additional paid in capital
    10,675,228       10,675,228  
Accumulated other comprehensive income
    11,894,639       16,016,375  
Retained earnings
    31,913,492       32,241,597  
Treasury stock, at cost, 1,076,532 and 1,066,232 shares at June 30, 2010 and December 31, 2009, respectively
    (11,472,018 )     (11,361,028 )
Total Stockholders’ Equity
    43,064,506       47,625,337  
Total Liabilities and Stockholders’ Equity
  $ 80,224,846     $ 75,186,990  

See accompanying notes to unaudited condensed consolidated financial statements.
 
 
1

 
 
DAXOR CORPORATION AND SUBSIDIARY

   
June 30, 2010
   
June 30, 2009
 
             
REVENUES:
           
             
Operating Revenues – equipment sales and related services
  $ 274,343     $ 293,635  
Operating Revenues – cryobanking and related services
    93,989       86,785  
                 
Total Revenues
    368,332       380,420  
                 
Cost of Sales:
               
                 
Cost of equipment sales and related services
    156,329       192,310  
                 
Cost of cryobanking and related services
    9,082       9,776  
                 
Total Cost of Sales
    165,411       202,086  
                 
Gross Profit
    202,921       178,334  
                 
OPERATING EXPENSES:
               
                 
Research and development expenses:
               
                 
Research and development-equipment sales and related services
    687,115       606,473  
                 
Research and development-cryobanking and related services
    47,454       47,032  
                 
Total Research and Development Expenses
    734,569       653,505  
                 
Selling, General & Administrative Expenses:
               
                 
Selling, general, and administrative- equipment sales and related services
    817,469       676,707  
Selling, general, and administrative- cryobanking and related services
    155,953       194,228  
                 
Total Selling, General & Administrative Expenses
    973,422       870,935  
                 
Total Operating Expenses
    1,707,991       1,524,440  
                 
Loss from Operations
    (1,505,070 )     (1,346,106 )
                 
Other Income (Expenses):
               
                 
Dividend income-investment portfolio
    518,858       636,412  
Realized gains on sale of securities, net
    5,815,777       327,410  
Mark to market of short positions
    (4,644,235 )     7,095,451  
Other revenues
    3,042       2,964  
Interest expense, net of interest income of $259 and $0
    (8,919 )     (59,828 )
Administrative expense relating to portfolio investments
    (31,043 )     (31,414 )
                 
Total Other Income
    1,653,480       7,970,995  
Income before Income Taxes
    148,410       6,624,889  
                 
Income Tax (Benefit) Expense
    (39,946 )     386,193  
                 
Net Income
  $ 188,356     $ 6,238,696  
                 
Comprehensive (Loss) Income:
               
                 
Net Income
  $ 188,356     $ 6,238,696  
Unrealized Gain (Loss) on Securities Held for Sale, Net of Deferred Income Taxes
    (3,268,794 )     7,664,238  
Comprehensive Income (Loss)
  $ (3,080,438 )   $ 13,902,934  
                 
Weighted average number of shares outstanding – basic and diluted
    4,242,285       4,263,918  
                 
Net income per common equivalent share – basic and diluted
  $ 0.04     $ 1.46  
                 
Dividends paid per common share
  $ 0.10     $ 0.10  

See accompanying notes to unaudited condensed consolidated financial statements.
 
 
2

 
 
DAXOR CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS [UNAUDITED]
FOR THE SIX MONTHS ENDED

   
June 30, 2010
   
June 30, 2009
 
             
REVENUES:
           
             
Operating Revenues – equipment sales and related services
  $ 590,728     $ 638,598  
Operating Revenues – cryobanking and related services
    173,876       175,859  
                 
Total Revenues
    764,604       814,457  
                 
Cost of Sales:
               
                 
Cost of equipment sales and related services
    342,290       332,349  
Cost of cryobanking and related services
    14,898       22,205  
                 
Total Cost of Sales
    357,188       354,554  
                 
Gross Profit
    407,416       459,903  
                 
OPERATING EXPENSES:
               
                 
Research and development expenses:
               
                 
Research and development-equipment sales and related services
    1,523,978       1,171,651  
Research and development-cryobanking and related services
    102,556       94,411  
                 
Total Research and Development Expenses
    1,626,534       1,266,062  
                 
Selling, General & Administrative Expenses:
               
                 
Selling, general, and administrative- equipment sales and related services
    1,299,213       1,290,491  
Selling, general, and administrative- cryobanking and related services
    328,895       363,952  
                 
Total Selling, General & Administrative Expenses
    1,628,108       1,654,443  
                 
Total Operating Expenses
    3,254,642       2,920,505  
                 
Loss from Operations
    (2,847,226 )     (2,460,602 )
                 
Other Income (Expenses):
               
                 
Dividend income-investment portfolio
    1,087,266       1,623,509  
Realized gains on sale of securities, net
    11,892,159       5,451,444  
Mark to market of short positions
    (9,416,999 )     776,927  
Other revenues
    6,083       5,927  
Interest expense, net of interest income of $1,378 and $6,526
    (15,183 )     (127,527 )
Administrative expense relating to portfolio investments
    (66,017 )     (63,300 )
                 
Total Other Income
    3,487,309       7,666,980  
                 
Income before Income Taxes
    640,083       5,206,378  
Income Tax Expense
    544,146       510,967  
                 
Net Income
  $ 95,937     $ 4,695,411  
                 
Comprehensive (Loss) Income:
               
                 
Net Income
  $ 95,937     $ 4,695,411  
Unrealized Loss on Securities Held for Sale, Net of Deferred Income Taxes
    (4,121,736 )     (2,181,331 )
Comprehensive Income (Loss)
  $ (4,025,799 )   $ 2,514,080  
                 
Weighted average number of shares outstanding – basic
    4,244,785       4,274,801  
                 
Net income per common equivalent share – basic
  $ 0.02     $ 1.10  
                 
Weighted average number of shares outstanding-diluted
    4,244,785       4,296,801  
                 
Net income per common equivalent share – diluted
  $ 0.02     $ 1.09  
                 
Dividends paid per common share
  $ 0.10     $ 0.10  

See accompanying notes to unaudited condensed consolidated financial statements.
 
 
3

 
 
DAXOR CORPORATION AND SUBSIDIARY

   
June 30, 2010
   
June 30, 2009
 
             
CASH FLOWS FROM OPERATING ACTIVITIES:
               
Net Income
  95,937      4,695,411  
                 
Adjustment to reconcile net income to net cash used in operating activities:
               
Depreciation
    148,802       141,811  
Non-cash compensation expense associated with employee stock compensation plans
          12,082  
Deferred income taxes
    (2,217,697 )     (1,646,620 )
Bad debt allowance
    (763 )      
Realized gains on sale of investments
    (11,892,159 )     (5,451,444 )
Mark to market adjustments on options & short sales
    9,416,999       (776,927 )
                 
Change in operating assets and liabilities:
               
Decrease (Increase) in accounts receivable
    45,962       (9,441 )
Increase in prepaid expenses & other current assets
    (56,027 )     (10,942 )
Decrease (Increase) in inventory
    19,966       (24,441 )
Increase (Decrease) in accounts payable and accrued liabilities
    45,400       (71,085 )
Increase (Decrease) in income taxes payable
    1,754,036       (544,710 )
Increase in deferred revenue
    7,318       14,866  
                 
Net cash used in operating activities
    (2,632,226 )     (3,671,440 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Purchase of property and equipment
    (199,077 )     (1,498,225 )
Increase in receivable due from broker
    (8,980,681 )     (66,740 )
Increase in securities borrowed, at fair market value
    7,644,439       147,874  
Purchases of put and call options
    (214,795 )     (2,642,230 )
Proceeds from sales of put and call options
    8,841,903       16,219,854  
Acquisition of available for sale securities
    (11,172,887 )     (32,326,598 )
Proceeds from sale of available for sale securities
    7,140,565       17,367,808  
                 
Net cash provided by (used in) investing activities
    3,059,467       (2,798,257 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Proceeds from margin loan payable
    15,800,028       42,758,318  
Repayment of margin loan payable
    (15,734,574 )     (36,662,318 )
Proceeds from loans from officers
          1,140,000  
Repayment of loans from officers
          (1,140,000 )
Repayment of bank loan
          (1,285,000 )
Proceeds from bank loan
          250,000  
Purchase of treasury stock
    (110,990 )     (456,001 )
Dividends paid
    (424,042 )     (426,152 )
Repayment of mortgage payable
    (21,349 )     (19,819 )
Net cash provided by (used in) financing activities
    (490,927 )     4,159,028  
                 
Net decrease in cash and cash equivalents
    (63,686 )     (2,310,669 )
                 
Cash and cash equivalents at beginning of period
    277,088       2,545,040  
                 
Cash and cash equivalents at end of period
  $ 213,402     $ 234,371  
                 
Supplemental Disclosures of Cash Flow Information:
               
Cash paid during the period for:
               
Interest
  $ 16,561     $ 134,053  
Income taxes
  $ 1,018,517     $ 2,707,010  

See accompanying notes to unaudited condensed consolidated financial statements.

 
4

 
 
DAXOR CORPORATION AND SUBSIDIARY
June 30, 2010
(Unaudited)
 
(1) BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
 
BUSINESS
 
Daxor Corporation (the “Company”) is a medical device manufacturing company that offers additional biotech services, such as cryobanking, through its wholly owned subsidiary, Scientific Medical Systems Corp. The Company provides long-term frozen blood and semen storage services to enable individuals to store their own blood and semen. 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 condensed 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 condensed 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, 2009, 2008 and 2007, included in Daxor Corporation’s Annual Report and Form 10-K for the fiscal year ended December 31, 2009. The December 31, 2009 condensed consolidated balance sheet data was derived from audited financial statements but does not include all disclosures r equired by accounting principles generally accepted in the United States of America. Operating results for the three and six month periods ended June 30, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010.
 
These condensed consolidated financial statements have been prepared in accordance with Generally Accepted Accounting Principles in the United States of America (“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 8-03 of Regulation S-X.
 
Management has evaluated subsequent events through the date of this filing.
 
Fair Value of Financial Instruments
 
The carrying amounts of financial instruments, including cash and cash equivalents, accounts receivable and payable, accrued liabilities, deferred option premiums and loans payable approximate fair value because of their short maturities. The carrying amount of the mortgage payable is estimated to approximate fair value as the mortgage carries a market rate of interest.
 
Fair Value Measurements
 
The Company utilizes the provisions of FASB ASC 820 - Fair Value Measurements (“ASC 820”) for all financial instruments and non-financial instruments accounted for at fair value on a recurring basis. ASC 820 establishes the framework for measuring fair value and expands related disclosures. Broadly, the ASC 820 framework requires fair value to be determined based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. ASC 820 establishes market or observable inputs as the preferred source of values, followed by unobservable inputs or assumptions based on hypothetical transactions in the absenc e of market inputs.
 
 
·
Level 1, is defined as observable inputs being quoted prices in active markets for identical assets;
     
 
·
Level 2, is defined as observable inputs including quoted prices for similar assets; and
     
 
·
Level 3, is defined as unobservable inputs in which little or no market data exists, therefore requiring assumptions based on the best information available.
 
 
5

 
 
DAXOR CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2010 (Continued)
(Unaudited)
 
Effective January 1, 2009, the Company adopted the provisions of FASB ASC 820-10 with respect to non-financial assets and liabilities. This pronouncement defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. The adoption of FASB ASC 820-10 did not have any impact on the Company’s consolidated financial statements as of and for the three and six months ended June 30, 2010.
 
On January 1, 2010, the Company adopted the new provisions of ASU No. 2010-06 - Fair Value Measurements and Disclosures (Topic 820), Improving Disclosures about Fair Value Measurements (the “ASU”). The ASU amended standards require disclosures about inputs and valuation techniques used to measure fair value as well as disclosures about significant transfers, beginning in the first quarter of 2010. The impact on the Company’s disclosures was not significant. Additionally, these amended standards require presentation of disaggregated activity within the reconciliation for fair value measurements using significant unobservable inputs (Level 3), beginning in the first quarter of 2011. We do not expect these new standards to significantly impact our consolidate d financial statements.
 
 
6

 
 
DAXOR CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2010 (Continued)
(Unaudited)
 
Available-for-Sale Securities
 
Available-for-sale securities represent investments in debt and equity securities (primarily common and preferred stock of electric utility companies) that management has determined meet the definition of available-for-sale under FASB ASC 320 - Accounting for Certain Investments in Debt and Equity Securities (“ASC 320”). 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 (Level 1 inputs).
 
Put and Call Options at fair value
 
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. In accordance with FASB ASC 815 - Accounting for Derivative Instruments and Hedging Activities, these options are marked to market for each reporting period using readily available market quotes (Level 1 inputs), and this fair value adjustment is recorded as a gain or loss in the Statement of Operations.
 
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.
 
All proceeds of the put and call options which are equity contracts are shown net of the mark to market adjustment in the current liability section of the balance sheet as Put and call options, at fair value.
 
Receivable from Broker
 
The Receivable from Brokers represents cash proceeds from the sales of securities and dividends. These proceeds are invested in dividend bearing money market accounts. Certain cash is restricted by the brokers for margin requirements. Restricted cash totaled $19,547,810 and $10,567,129 as of June 30, 2010 and December 31, 2009, respectively.
 
Securities borrowed at fair value
 
When a call option that has been sold short is exercised, this creates a short position in the related common stock. The recorded cost of these short positions is the amount received on the sale of the stock plus the proceeds received from the underlying call option. These positions are shown on the Balance Sheet as “Securities borrowed at fair value” and the carrying value is reduced or increased at the end of each quarter by the mark to market adjustment which is recorded in accordance with ASC 320.

 
7

 
 
DAXOR CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2010 (Continued)
(Unaudited)
 
Investment Goals, Strategies and Policies
 
The Company’s investment goals, strategies and policies are as follows:
 
 
1.
The Company’s investment goals are capital preservation, maintaining returns on capital with a high degree of safety and generating income from dividends and option sales to help offset operating losses.
     
 
2.
In order to achieve these goals, the Company maintains a diversified securities portfolio comprised primarily of electric utility common and preferred stocks. The Company also sells covered calls on portions of its portfolio and also sells puts on stocks it is willing to own. It also sells uncovered calls and may have net short positions in common stock up to 15% of the value of the portfolio. The Company’s net short position may temporarily rise to 15% of the Company’s portfolio without any specific action because of changes in valuation, but should not exceed this amount. The Company’s investment policy is to maintain a minimum of 80% of its portfolio in electric utilities. The Board of Directors has authorized this minimum to be temporarily lowered to 70% when Company management deems it to be necessary. Inves tments in utilities are primarily in electric companies. Investments in non-utility stocks will generally not exceed 20% of the value of the portfolio.
     
 
3.
Investment in speculative issues, including short sales, maximum of 15%.
     
 
4.
Limited use of options to increase yearly investment income.
     
   
a.
The use of “Call” Options. Covered options can be sold up to a maximum of 20% of the value of the portfolio. This provides extra income in addition to dividends received from the Company’s investments. The risk of this strategy is that investments may be called away, which the Company may have preferred to retain. Therefore, a limitation of 20% is placed on the amount of stock on which options can be written. The amount of the portfolio on which options are actually written is usually between 3-10% of the portfolio. The historical turnover of the portfolio is such that the average holding period is in excess of five years for available for sale securities.
       
   
b.
The use of “Put” options. Put options are written on stocks which the Company is willing to purchase. While the Company does not have a high rate of turnover in its portfolio, there is some turnover; for example, due to preferred stocks being called back by the issuing Company, or stocks being called away because call options have been written. If the stock does not go below the put exercise price, the Company records the proceeds from the sale as income. If the put is exercised, the cost basis is reduced by the proceeds received from the sale of the put option. There may be occasions where the cost basis of the stock is lower than the market price at the time the option is exercised.
       
   
c.
Speculative Short Sales/Short Options. The Company normally limits its speculative transactions to no more than 15% of the value of the portfolio. The Company may sell uncovered calls on certain stocks. If the stock price does not rise to the price of the call, the option is not exercised and the Company records the proceeds from the sale of the call as income. If the call is exercised, the Company will have a short position in the related stock. The Company then has the choice of covering the short position, or selling a put against it. If the put is exercised, then the short position is covered. The Company’s current accounting policy is to mark to the market at the end of each quarter any short positions, and include it in the income statement. While the Com pany may have so-called speculative positions equal to 15% of its accounts, in actual practice the net short stock positions usually account for less than 10% of the assets of the Company.
       
 
5.
In the event of a merger, the Company will elect to receive shares in the new company if this is an option. If the proposed merger is a cash only offer, the Company will receive cash and be forced to sell the stock.

 
8

 

DAXOR CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2010 (Continued)
(Unaudited)
 
It is possible that the market value of a stock may go below our cost after we purchase it even though we considered the stock to be undervalued relative to the market at the time we purchased it. When that occurs, we follow the provisions of SEC Staff Accounting Bulletin: Codification of Staff Accounting Bulletins, Topic 5-M (“SAB 5-M”): Miscellaneous Accounting, Other Than Temporary Investments in Debt and Equity Securities in determining whether an investment is other than temporarily impaired.
 
Reclassifications
 
Certain reclassifications have been made to the Company’s June 30, 2009 condensed consolidated statement of operations to conform to the June 30, 2010 presentation.
 
Inventory
 
Inventory is stated at the lower of cost or market, using the first-in, first-out method (FIFO), and consists primarily of finished goods.
 
Earnings per Share
 
The Company computes earnings per share in accordance with ASC 260 - Earnings per Share. Basic earnings per common share is computed by dividing income or loss available to common stockholders by the weighted average number of common shares outstanding for the period. . Diluted earnings per common share are based on the average number of common shares outstanding during each period, adjusted for the effects of outstanding stock options.
 
The following table summarizes the earnings per share calculations for the three months ended June 30, 2010 and June 30, 2009:

   
Three months ended
June 30, 2010
   
Three months ended
June 30, 2009
 
Basic and diluted shares
    4,242,285       4,263,918  
Net Income
  $ 188,356     $ 6,238,696  
Basic and diluted income per share
  $ 0.04     $ 1.46  

Certain stock options were not included in the computation of the earnings per share due to their anti-dilutive effect. The number of anti-dilutive options totaled 55,800 and 66,300 for the three months ended June 30, 2010 and 2009, respectively
 
 
9

 
 
DAXOR CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2010 (Continued)
(Unaudited)
 
The following table summarizes the earnings per share calculations for the six months ended June 30, 2010 and June 30, 2009:  

   
Six months ended
June 30, 2010
   
Six months ended
June 30, 2009
 
Basic shares
    4,244,785       4,274,801  
Dilutions: stock options
          22,000  
Diluted shares
    4,244,785       4,296,801  
Net Income
  $ 95,937     $ 4,695,411  
Basic earnings per share
  $ 0.02     $ 1.10  
Diluted earnings per share
  $ 0.02     $ 1.09  

Certain stock options were not included in the computation of the earnings per share due to their anti-dilutive effect. The number of anti-dilutive options totaled 55,800 and 66,300 for the six months ended June 30, 2010 and 2009, respectively
 
Dividends
 
On May 10, 2010, the Company declared a dividend of $0.10 per share. The dividend was paid on June 16, 2010 to shareholders of record on June 1, 2010. The Company paid a total dividend of $1.35 per share in 2009.
 
In 2008, Management instituted a policy of paying dividends when funds are available. The goal of management is to pay a total dividend of $1.00 per share in 2010 provided funds are available.
 
(2) AVAILABLE-FOR-SALE SECURITIES
 
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:
 
Summary of Available for Sale Securities as of June 30, 2010 (Unaudited)

Type of Security
 
Market Value
   
Cost of Securities
   
Net
Unrealized Gain
   
Unrealized Gains
   
Unrealized Losses
 
Common Stock
  $ 46,777,997     $ 28,527,440     $ 18,250,557     $ 21,382,605     $ (3,132,048 )
Preferred Stock
    2,028,151       1,979,264       48,887       391,398       (342,511 )
Total Equity Securities
  $ 48,806,148     $ 30,506,704     $ 18,299,444     $ 21,774,003     $ (3,474,559 )

Summary of Unrealized Losses of Available for Sale Securities as of June 30, 2010 (Unaudited) 
 
    Less Than Twelve Months     Twelve Months or Greater     Total  
   
Fair Value
   
Unrealized Loss
   
Fair Value
   
Unrealized Loss
   
Fair Value
   
Unrealized Loss
 
Marketable Equity Securities
  $ 2,678,135     $ 815,297     $ 3,828,021     $ 2,659,262     $ 6,506,156     $ 3,474,559  
 
 
10

 
 
DAXOR CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2010 (Continued)
(Unaudited)
 
Summary of Unrealized Gains on Available for Sale Securities as of June 30, 2010 (Unaudited) 
 
    Less Than Twelve Months     Twelve Months or Greater     Total  
   
Fair Value
   
Unrealized Gains
   
Fair Value
   
Unrealized Gains
   
Fair Value
   
Unrealized Gains
 
Marketable Equity Securities
  $ 1,360,229     $ 175,951     $ 40,939,763     $ 21,598,052     $ 42,299,992     $ 21,774,003  

Summary of Available for Sale Securities as of December 31, 2009

Type of Security
 
Market Value
   
Cost of Securities
   
Net
Unrealized Gain
   
Unrealized Gains
   
Unrealized Losses
 
Common Stock
  $ 51,207,654     $ 26,673,055     $ 24,534,599     $ 26,771,744     $ (2,237,145 )
Preferred Stock
    2,063,072       1,957,094       105,978       370,187       (264,209 )
Total Equity Securities
  $ 53,270,726     $ 28,630,149     $ 24,640,577     $ 27,141,931     $ (2,501,354 )

Summary of Unrealized Losses of Available for Sale Securities as of December 31, 2009
 
    Less Than Twelve Months     Twelve Months or Greater     Total  
   
Fair Value
   
Unrealized Loss
   
Fair Value
   
Unrealized Loss
   
Fair Value
   
Unrealized Loss
 
Marketable Equity Securities
  $ 2,874,316     $ 1,451,436     $ 1,917,505     $ 1,049,918     $ 4,791,821     $ 2,501,354  
 
Summary of Unrealized Gains on Available for Sale Securities as of December 31, 2009 
 
    Less Than Twelve Months     Twelve Months or Greater     Total  
   
Fair Value
   
Unrealized Gains
   
Fair Value
   
Unrealized Gains
   
Fair Value
   
Unrealized Gains
 
Marketable Equity Securities
  $ 4,025,079     $ 696,783     $ 44,453,826     $ 26,445,148     $ 48,478,905     $ 27,141,931  

Our investment policy calls for a minimum of 80% of the value of our portfolio of Available for Sale Securities to be maintained in utility stocks. This percentage may be temporarily decreased to 70% if deemed necessary by management. Operating under this policy, Management’s investment strategy is to purchase utility stocks which it considers to be undervalued relative to the market in anticipation of an increase in the market price.
 
At June 30, 2010 and December 31, 2009, available for sale securities consisted mostly of preferred and common stocks of utility companies. At June 30, 2010 and December 31, 2009, 95.84% and 96.13% of the market value of the Company’s available for sale securities was made up of common stock, respectively.
 
 
11

 
 
DAXOR CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2010 (Continued)
(Unaudited)
 
The Company’s portfolio value is exposed to fluctuations in the general value of electric utilities. An increase of interest rates could put downward pressure on the valuation of utility stocks.
 
Electric utilities operate in an environment of federal, state and local regulations, and they may disproportionately affect an individual utility. The Company’s exposure to regulatory risk is mitigated due to the diversity of holdings consisting of 80 separate common and preferred stocks. As of June 30, 2010 there were three holdings of common stock which comprised 35.70% of the total market value of the available for sale investments. These three holdings are FirstEnergy, Exelon and Entergy
 
It is possible that the market value of a stock may go below our cost after we purchase it even though we considered the stock to be undervalued relative to the market at the time we purchased it. When that occurs, we follow the provisions of SEC Staff Accounting Bulletin: Codification of Staff Accounting Bulletins, Topic 5-M (“SAB 5-M”): Miscellaneous Accounting, Other Than Temporary Investments in Debt and Equity Securities in determining whether an investment is other than temporarily impaired. The factors we review and/or consider include the following:
 
 
·
The extent to which the market value has been less than cost.
     
 
·
An evaluation of the financial condition of an issuer including a review of their profit and loss statements for the most recent completed fiscal year and the preceding two years.
     
 
·
The examination of the general market outlook of the issuer. This could include but is not limited to the issuer having a unique product or technology which would appear likely to have a positive impact on future earnings.
     
 
·
A review of the general market conditions.
     
 
·
Our intent and ability to retain the investment for a period of time sufficient to allow for the anticipated recovery in market value.
     
 
·
Specific adverse conditions related to the financial health of, and business outlook for, the issuer.
     
 
·
Changes in technology in the industry and its affect on the issuer.
     
 
·
Changes in the issuer’s credit rating.
 
Unrealized Losses on Available for Sale Securities
 
At June 30, 2010, 65.7% or $2,283,478 of the total unrealized losses of $3,474,559 was comprised of the following two securities: $1,575,237 for Dynegy, Inc. (“Dynegy”) and $708,241 for Citigroup Inc. (“Citigroup”).
 
Dynegy, Inc.
 
At June 30, 2010, Daxor owned 213,240 shares of Dynegy with a cost basis of $11.24 per share and a market value of $3.85 per share.
 
Between August 4, 2010 and August 11, 2010, Daxor sold 46,180 shares of Dynegy for a total realized loss of $ 530,665. This loss will be recognized during the quarter ending September 30, 2010. The sale of these 46,180 shares reduced the cost basis of the Company’s holdings of Dynegy to $10.25 per share.
 
In order to generate tax savings and lower the cost basis on the remaining shares, the Company intends to sell approximately an additional 100,000 shares during the quarters ending September 30, 2010 and December 31, 2010 and recognize any related losses during the periods in which the securities are sold. If the additional 100,000 shares were sold at $2.78, the market value of August 12, 2010, the Company would incur a realized loss of $941,830 and reduce its cost basis in Dynegy to $7.33 per share on the remaining units that were owned at June 30, 2010.
 
 
12

 
 
DAXOR CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2010 (Continued)
(Unaudited)
 
The book value of Dynegy at June 30, 2010 is $24.02 per share which is more than double our cost basis at June 30, 2010 of $11.24 per share. The stock price of Dynegy has a record of historical volatility, being at $8.90 per share in April 2009 and going up to $12.75 per share in September 2009.
 
Dynegy’s liquidity improved from $1.9 billion at December 31, 2009 to $2.0 billion at June 30, 2010. The liquidity at June 30, 2010 consisted of $500 million in cash on hand and marketable securities and $1.5 billion in unused availability under the company’s credit facility. Dynegy’s current ratio improved from $191 million at December 31, 2009 to $796 million at June 30, 2010.
 
As of August 2, 2010, the liquidity remained at approximately $2.0 billion, which consisted of $600 million in cash on hand, and marketable securities and $1.4 billion in unused availability under the company’s credit facility.
 
In 2009, Dynegy was able to repurchase approximately $830 million of bonds due in 2011 and 2012 which largely eliminated near term bond maturities until 2015.
 
Dynegy reported a net loss of $46 million for the six months ended June 30, 2010 versus a loss of $680 million for the six months ended June 30, 2009. The loss in the first six months of 2009 is largely due to assets which were sold at a loss.
 
According to Dynegy management, the results for the first six months of 2010 were impacted by lower demand. However, this was partially offset by stronger market pricing in two key operating regions.
 
Dynegy recently reported that they spent $600 million to cut emissions of pollutants at its power plants in Illinois and that the total investment for this project should be approximately $1 billion. Dynegy is also switching to low sulfur coal and expects their coal fired plants in Illinois to cut emissions of nitrogen oxides, sulfur dioxide and mercury by approximately 90%.
 
Dynegy has low cost power generation plants spread across seven states which use coal, oil and natural gas. The generating capacity is geographically diverse with 43% in the Midwest, 32% in the West and 25% in the Northeast. This geographic diversity prevents the Company from becoming too dependent on one part of the Country.
 
The generating capacity is also diverse with 34% from natural gas-fired combined-cycle capacity, 25% from natural gas-fired peaking capacity, 31% from baseload coal/oil capacity and 10% from dual fuel capacity. This diversity of generating capacity helps to minimize the impact of any potential volatility in commodity prices.
 
Daxor management has determined that an impairment charge is not necessary at June 30, 2010 on Dynegy after taking the recent decline in the stock price into account because Dynegy is a geographically diverse low cost producer of electricity with a diverse generating capacity. These two factors protect the Company from being overly dependent on one region of the country or one type of commodity.
 
The stock price of Dynegy has decreased by 28% from July 1, 2010 through August 12, 2010, going from $3.85 per share to $2.78 per share. The stock price has a history of volatile fluctuations and it was trading as high as $12.75 in September 2009. The recent market price is well below the book value of $24.02 per share at June 30, 2010 which would seem to indicate that the stock is strongly undervalued. The recent repurchase of bonds and improved liquidity position have also helped to strengthen Dynegy’s balance sheet.
 
Citigroup Inc.
 
At June 30, 2010, Daxor owned 309,407 shares of Citigroup with a cost basis of $6.05 per share and a market value of $3.76 per share. On August 10, 2010, the market value of Citigroup was $4.00 per share which is $2.05 or 34% less than our cost basis of $6.05 per share.
 
During the first quarter of 2009, the stock was at $1.00 per share and as of August 10, 2010, was trading at $4.00 per share. The stock price has increased by 21% from January 1, 2010 through August 10, 2010, going from $3.31 per share to $4.00 per share.
 
Citigroup reported net income of $7.1 billion in the first six months of 2010 versus $5.9 billion in the first six months of 2009. Their provision for credit losses and benefits declined to $6.7 billion which is the lowest level since the first quarter of 2008. The growth in net income is attributable to improved revenues, continued monitoring of expenses and a decline in the cost of credit.
 
Citigroup has reduced headcount to 259, 000 at June 30, 2010 versus 375,000 at the peak level in 2007. Total Operating Expenses were 1% lower during the six months ended June 30, 2010 as compared to the same period in 2009.
 
 
13

 
 
DAXOR CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2010 (Continued)
(Unaudited)
 
During 2009, Citigroup repaid $20 billion of TARP (Troubled Asset Relief Program) trust preferred securities and exited a loss sharing agreement. As a result of these transactions, effective in 2010, Citigroup is no longer deemed to be a beneficiary of “exceptional financial assistance” under TARP. As of December 31, 2009, the United States Treasury Department owned 27% of Citigroup’s stock.
 
In order to be “well capitalized” under federal bank regulatory agency definitions, a bank holding company must have a Tier 1 Capital Ratio of at least 6%, a Total Capital Ratio of at least 10% , and a Leverage ratio of at least 3%, and not be subject to a Federal Reserve Board directive to maintain higher capital levels. At June 30, 2010, the Tier 1 Capital was 12.0%, Total Capital was 15.6% and Leverage was 6.6%. Citigroup is considered “well capitalized” under the federal regulatory agency definitions at June 30, 2010.
 
The operating environment for Citigroup continues to be difficult but the stock price has been trending upward since the first quarter of 2009 and the profit of the core business more than doubled in 2009 versus 2008. Management at Citigroup has substantially reduced operating expenses and headcount which should help operating results in future periods. Citigroup is no longer deemed to be a beneficiary of “exceptional financial assistance” under TARP and is considered to be “well capitalized” under the federal regulatory agency definitions at June 30, 2010.
 
After considering the available positive and negative evidence in addition to the ability of Daxor to hold the stock until the market price exceeds our cost, management has determined that an impairment charge is not necessary at June 30, 2010 on Citigroup.
 
Daxor Corporation
Summary of Unrealized Losses on Dynegy, Inc and Citigroup, Inc..
As of June 30, 2010

           Less Than Twelve Months    
Tweleve Months or Greater
   
Total
 
Security
 
Total Cost
   
Fair Value
   
Unrealized Loss
   
Fair Value
   
Unrealized Loss
   
Fair Value
   
Unrealized
Loss
 
Dynegy, Inc.
  $ 2,396,211     $ 309,001     $ 301,894     $ 511,973     $ 1,273,343     $ 820,974     $ 1,575,237  
Citigroup, Inc.
    1,871,611                   1,163,370       708,241       1,163,370       708,241  
Total
  $ 4,267,822     $ 309,001     $ 301,894     $ 1,675,343     $ 1,981,584     $ 1,984,344     $ 2,283,478  
 
(3) SEGMENT ANALYSIS
 
The Company has two operating segments: Equipment Sales and Related Services, and Cryobanking and Related Services.
 
The Equipment Sales and Related Services segment comprises the Blood Volume Analyzer equipment and related activity. This includes equipment sales, equipment rentals, equipment delivery fees, BVA-100 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.
 
Although not deemed an operating segment: the Company reports a third business segment; Investment activity. This segment reports the activity of the Company’s investment portfolio. This includes all earnings, gains and losses, and expenses relating to these investments.
 
 
14

 
 
DAXOR CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2010 (Continued)
(Unaudited)
 
The following table summarizes the results of each segment described above for the three months ended June 30, 2010 (unaudited).

   
June 30, 2010
 
   
Equipment Sales &
Related Services
   
Cryobanking & Related Services
   
Investment Activity
   
Total
 
                         
Revenues
  $ 274,343     $ 93,989     $     $ 368,332  
                                 
Expenses
                               
Cost of sales
    156,329       9,082             165,411  
Research and development expenses
    687,115       47,454             734,569  
Selling, general and administrative expenses
    817,469       155,953             973,422  
                                 
Total Expenses
    1,660,913       212,489             1,873,402  
                                 
Operating loss
    (1,386,570 )     (118,500 )           (1,505,070 )
                                 
Investment income, net
                1,659,357       1,659,357  
 
                               
Other income (expense)
                               
                                 
Interest expense, net
    (7,100 )     (18 )     (1,801 )     (8,919 )
                                 
Other income
    3,042                   3,042  
Total Other Income (Expense)
    (4,058 )     (18 )     (1,801 )     (5,877 )
                                 
Income (loss) before income taxes
    (1,390,628 )     (118,518 )     1,657,556       148,410  
Income tax (benefit )expense
                (39,646 )     (39,946 )
                                 
Net income (loss)
  $ (1,390,628 )   $ (118,518 )   $ 1,697,502     $ 188,356  
                                 
Total assets
  $ 5,066,572     $ 197,715     $ 74,960,559     $ 80,224,846  

 
15

 
 
DAXOR CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2010 (Continued)
(Unaudited)
 
The following table summarizes the results of each segment described above for the three months ended June 30, 2009 (unaudited).

   
June 30, 2009
 
   
Equipment Sales &
Related Services
   
Cryobanking & Related Services
   
Investment Activity
   
Total
 
                                 
Revenues
  $ 293,635     $ 86,785     $     $ 380,420  
                                 
Expenses
                               
Cost of sales
    192,310       9,776             202,086  
Research and development expenses
    641,946       47,032             688,978  
Selling, general and administrative expenses
    641,234       194,228             835,462  
Total Expenses
    1,475,490       251,036             1,726,526  
                                 
Operating loss
    (1,181,855 )     (164,251 )           (1,346,106 )
                                 
Investment income, net
                8,027,859       8,027,859  
 
                               
Other income (expense)
                               
                                 
Interest expense, net
    (7,880 )           (51,948 )     (59,828 )
Other income
    2,964                   2,964  
Total Other Income (Expense)
    (4,916 )           (51,948 )     (56,864 )
                                 
Income (loss) before income taxes
    (1,186,771 )     (164,251 )     7,975,911       6,624,889  
                                 
Income tax expense
    22,500       1,000       362,693       386,193  
                                 
Net income (loss)
  $ (1,209,271 )   $ (165,251 )   $ 7,613,218     $ 6,238,696  
                                 
Total assets
  $ 4,553,201     $ 192,426     $ 70,173,256     $ 74,918,883  

 
16

 
 
DAXOR CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2010 (Continued)
(Unaudited)

The following table summarizes the results of each segment described above for the six months ended June 30, 2010 (unaudited).

   
June 30, 2010
 
   
Equipment Sales &
Related Services
   
Cryobanking & Related Services
   
Investment Activity
   
Total
 
                         
Revenues
  $ 590,728     $ 173,876     $     $ 764,604  
                                 
Expenses
                               
Cost of sales
    342,290       14,898             357,188  
Research and development expenses
    1,523,978       102,556             1,626,534  
Selling, general and administrative expenses
    1,299,213       328,895             1,628,108  
                                 
Total Expenses
    3,165,481       446,349             3,611,830  
                                 
Operating loss
    (2,574,753 )     (272,473 )           (2,847,226 )
                                 
Investment income, net
                3,496,409       3,496,409  
 
                               
Other income (expense)
                               
                                 
Interest expense, net
    (14,246 )     296       (1,233 )     (15,183 )
                                 
Other income
    6,083                   6,083  
Total Other Income (Expense)
    (8,163 )     296       (1,233 )     (9,100 )
                                 
Income(loss) before income taxes
    (2,582,916 )     (272,177 )     3,495,176       640,083  
                                 
Income tax expense
    36,000             508,146       544,146  
                                 
Net income (loss)
  $ (2,618,916 )   $ (272,177 )   $ 2,987,030     $ 95,937  
                                 
Total assets
  $ 5,066,572     $ 197,715     $ 74,960,559     $ 80,224,846  

 
17

 
 
DAXOR CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2010 (Continued)
(Unaudited)

The following table summarizes the results of each segment described above for the six months ended June 30, 2009 (unaudited).

 
 
June 30, 2009
 
 
 
Equipment Sales &
Related Services
   
Cryobanking
& Related
Services
   
Investment Activity
   
Total
 
                         
Revenues
 
$
638,598
   
$
175,859
   
$
   
$
814,457
 
 
                               
Expenses
                               
Cost of sales
   
332,349
     
22,205
     
     
354,554
 
Research and development expenses
   
1,207,124
     
94,411
     
     
1,301,535
 
Selling, general and administrative expenses
   
1,255,018
     
363,952
     
     
1,618,970
 
Total Expenses
   
2,794,491
     
480,568
     
     
3,275,059
 
                                 
Operating loss
   
(2,155,893
)
   
(304,709
)
   
     
(2,460,602
)
 
                               
Investment income, net
   
     
     
7,788,580
     
7,788,580
 
                                 
Other income (expense)
                               
                                 
Interest expense, net
   
(15,775
)
   
     
(111,752
)
   
(127,527
)
Other income
   
5,927
     
     
     
5,927
 
                                 
Total Other Income (Expense)
   
(9,848
)
   
     
(111,752
)
   
(121,600
)
 
                               
Income (loss) before income taxes
   
(2,165,741
)
   
(304,709
)
   
7,676,828
     
5,206,378
 
                                 
Income tax expense
   
30,000
     
1,000
     
479,967
     
510,967
 
                                 
Net income (loss)
 
$
(2,195,741
)
 
$
(305,709
)
 
$
7,196,861
   
$
4,695,411
 
 
                               
Total assets
 
$
4,553,201
   
$
192,426
   
$
70,173,256
   
$
74,918,883
 
 
 
18

 

DAXOR CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2010 (Continued)
(Unaudited)
 
(4) LOANS AND MORTGAGE PAYABLE
 
LOANS PAYABLE
 
Short-term debt to brokers (margin debt), is secured by the Company’s marketable securities, and totaled $609,756 at June 30, 2010 and $0 at December 31, 2009. The interest rate on the Company’s margin debt at June 30, 2010 was 1.099%
 
MORTGAGE PAYABLE
 
Daxor financed the purchase of the land and buildings in Oak Ridge, Tennessee with a $500,000 10-year mortgage, with the first five years fixed at 7.49%. On January 2, 2012, there is a single payment of $301,972 for the remaining principal and interest on the mortgage. The Company has the option of making this payment or refinancing the mortgage for an additional five year term at a fixed rate of interest that would be set on January 2, 2012.

(5) PUT AND CALL OPTIONS AT FAIR VALUE
 
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. These options are marked to market for each reporting period using readily available market quotes, and this fair value adjustment is recorded as a gain or loss in the Statement of Operations.
 
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.
 
For the three months ended June 30, 2010, the Company recorded a loss from marking put and call options to market of ($3,384,096). For the three months ended June 30, 2009, the Company recorded income from marking put and call options to market of $6,978,826. These amounts are included in the Statements of Operations as part of mark to market of short positions.
 
For the six months ended June 30, 2010, the Company recorded a loss from marking put and call options to market of ($5,362,299). For the six months ended June 30, 2009, the Company recorded income from marking put and call options to market of $713,894. These amounts are included in the Statements of Operations as part of mark to market of short positions.
 
All proceeds of the put and call options which are equity contracts are shown net of the mark to market adjustment in the current liability section of the balance sheet as Put and call options, at fair value.
 
The following summarizes the Company’s Put and Call Options as of June 30, 2010 (unaudited) and December 31, 2009:

Put and Call Options
 
Selling Price
   
Fair
Market
Value
   
Unrealized
(Loss) Gain
 
June 30, 2010
  $ 8,239,358     $ 8,245,304     $ (5,946 )
December 31, 2009
    9,605,476       4,249,123       5,356,353  
 
 
19

 
 
DAXOR CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2010 (Continued)
(Unaudited)
 
(6) SECURITIES BORROWED AT FAIR VALUE
 
The Company maintains short positions in certain marketable securities. The liability for short sales of securities is included in “Securities borrowed at fair market value” in the accompanying balance sheets. The respective market values of these positions were $18,415,718 and $10,771,279 as of June 30, 2010 and December 31, 2009.
 
(7) CURRENT INCOME TAXES
 
The Company accrues income taxes in interim periods based upon its estimated annual effective tax rate.
 
The current income tax expense for the three months ended June 30, 2010 and 2009(unaudited) is comprised of the following:
 
   
June 30, 2010
   
June 30, 2009
 
Regular tax and Alternative Minimum Tax (AMT)
  $ 151,822     $ (123,413 )
Personal Holding Company Tax (PHC)
    22,528       (60,000 )
State Franchise Taxes
          23,500  
Total Current Income Tax Provision
    174,350       (159,913 )
Deferred Income Taxes
    (214,296 )     546,106  
Total Income Tax Expense (Benefit)
  $ (39,946 )   $ 386,193  
 
The current income tax expense for the six months ended June 30, 2010 and 2009(unaudited) is comprised of the following:

   
June 30, 2010
   
June 30, 2009
 
Regular tax and Alternative Minimum Tax (AMT)
  $ 1,936,290     $ 1,521,587  
Personal Holding Company Tax (PHC)
    789,553       605,000  
State Franchise Taxes
    36,000       31,000  
Total Current Income Tax Provision
    2,761,843       2,157,587  
Deferred Income Taxes
    (2,217,697 )     (1,646,620 )
Total Income Tax Expense
  $ 544,146     $ 510,967  

(8) DEFERRED INCOME TAXES
 
The deferred income tax liability is comprised of the following:
 
   
June 30, 2010
(unaudited)
   
December 31,2009
 
             
Deferred Tax Liabilities (Assets):
           
Fair market value adjustment for available-for-sale securities
  $ 6,404,805     $ 8,624,202  
Mark to market on short positions
    (342,974 )     1,874,723  
Property and Equipment
    128,426       128,426  
                 
    $ 6,190,257     $ 10,627,351  
 
 
20

 

DAXOR CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2010 (Continued)
(Unaudited)
 
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, any increase or decrease in the deferred tax liability is recorded as an adjustment to accumulated other comprehensive income which is in the stockholders’ equity section of the balance sheet.
 
(9) CERTAIN CONCENTRATIONS AND CONTINGENCIES
 
Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of the common stock of marketable electric utilities. At June 30, 2010, stocks representing 99.97% of the market value of common stocks held by the Company were listed on the New York Stock Exchange (NYSE). The Company maintains its investments in four different brokerage accounts, three at UBS and one at TD Ameritrade. UBS and TD Ameritrade provide supplemental insurance up to the face value of the securities in excess of the SIPC limit of $500,000.
 
Both of these brokerage houses are well known in the industry and management does not believe that these securities bear any risk of loss over and above the basic risk that a security bears through the normal activity of the securities markets. However, at June 30, 2010 the fair market value of securities in excess of the SIPC insured limit is $1,656,181 and the cash on deposit in excess of the insured limit is $4,594,618.
 
For the three months ended June 30, 2010, the sales of Blood Volume Kits accounted for 63.25% of the Company’s total consolidated operating revenue. There were four customers (hospitals) that accounted for 60.35% of the Company’s sales of Blood Volume Kits.
 
For the three months ended June 30, 2009, the sales of Blood Volume Kits accounted for 76.67% of the Company’s total consolidated operating revenue. There were four customers (hospitals) that accounted for 58.13% of the Company’s sales of Blood Volume Kits.
 
For the six months ended June 30, 2010, the sales of Blood Volume Kits accounted for 65.16% of the Company’s total consolidated operating revenue. There were four customers (hospitals) that accounted for 58.77% of the Company’s sales of Blood Volume Kits.
 
For the six months ended June 30, 2009, the sales of Blood Volume Kits accounted for 75.06% of the Company’s total consolidated operating revenue. There were four customers (hospitals) that accounted for 61.33% of the Company’s sales of Blood Volume Kits.
 
Management believes that the loss of any one of these customers would have an adverse effect on the Company’s consolidated business for a short period of time. All of these four hospitals have purchased their BVA-100 equipment. The Company has not had any situations in which a hospital, after having purchased a blood volume analyzer, discontinued purchasing Volumex kits. This suggests that, when more hospitals purchase equipment, they will continue with ongoing purchase of Volumex kits. The Company continues to seek new customers, so that any one hospital will represent a smaller percentage of overall sales.
 
As disclosed in our previous filings, the Centers for Medicare and Medicaid Services (CMS) implemented a significant policy change affecting the reimbursement for all diagnostic radiopharmaceutical products and contrast agents which was effective as of January 1, 2008. As a result of this policy change, diagnostic radiopharmaceuticals such as Daxor’s Volumex are no longer separately reimbursable by Medicare for outpatient services. At this time, it is still unclear if this policy change will also be implemented by private third party health insurance companies.
 
The reimbursement policy for hospital outpatients through December 31, 2007 included payment for both the cost of the procedure to perform a blood volume analysis (BVA) and the radiopharmaceutical (Daxor’s Volumex radiopharmaceutical). CMS’s policy now only includes the reimbursement for the procedure and would require the hospital to absorb the cost of the radiopharmaceutical. There will be an upward adjustment for the procedure code to include some of the costs of the radiopharmaceutical. However, this upward adjustment does not entirely cover the costs associated with the procedure and the radiopharmaceutical.
 
 
21

 
 
DAXOR CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2010 (Continued)
(Unaudited)
 
In response to Medicare’s change in its reimbursement policy for diagnostic radiopharmaceuticals, Daxor has lobbied CMS both individually and as a member of the Society of Nuclear Medicine’s APC Task Force, which is a select group of representatives from industry and healthcare that represents the more than 16,000 nuclear medicine professionals in the United States. One of the missions of the APC Task Force is to work directly with the CMS in an attempt to amend the current policy limiting the reimbursement of diagnostic radiopharmaceuticals for outpatient diagnostic services. There is no guarantee that the APC task force will be successful in their efforts to persuade the CMS to amend their policy of limiting the reimbursement of diagnostic radiopharmaceuticals for outpatient diagnostic services.
 
On March 23, 2010, the “Patient Protection and Affordable Care Act” was signed into law by President Obama. The goal of this legislation is to make health care more accessible to Americans. At this time, we are unable to quantify how this legislation will affect our operating income.
 
The Company’s Volumex syringes are filled by an FDA approved radiopharmaceutical manufacturer. This manufacturer is the only one approved by the FDA in the United States to manufacture Volumex for interstate commerce. If this manufacturer were to cease filling the Volumex syringes for Daxor, the Company would have to make alternative arrangements to insure a supply of Volumex. The effect of such a disruption on Daxor’s business could be material.
 
The Company has no legal proceedings pending. From time to time, the Company is the subject of legal proceedings arising in the ordinary course of business.
 
In 2005 and 2007, the Company and Dr. Joseph Feldschuh, its President and Chief Executive Officer, respectively, received Wells Notices from the Securities and Exchange Commission (“SEC”) requesting their comments on the SEC Staff’s view that the Company was in violation of Section 7(a) of the Investment Company Act in that it was operating as an unregistered investment company. The Company and Dr. Feldschuh responded to those requests when made. The Company has not received a closing notice or other substantive response from the SEC to either of these submissions. No conclusions regarding disposition of our cash management policy should be drawn from the lack of a closing notice or other substantive response to our submissions to the SEC in response to the Wells Notices.
 
In November 2009, the staff of the Northeast Regional Office of the SEC contacted the Company and invited both the Company and Dr. Feldschuh to make a new Wells submission based upon more recent operations and results. The Company and Dr. Feldschuh responded to the staff’s invitation on December 20, 2009. The Company has not received a closing notice or other substantive response from the SEC to this submission. No conclusions regarding disposition of our cash management policy should be drawn from the lack of a closing notice or other substantive response to our submission to the SEC in response to the Wells Notice.
 
(10) RELATED PARTY TRANSACTIONS
 
The Company subleases a portion of its New York City office space to the President of the Company for five hours per week. This sublease agreement has no formal terms and is executed on a month to month basis.
 
The amount of rental income received from the President of the Company for the three months ended June 30, 2010 and June 30, 2009 was $3,042 and $2,964.
 
The amount of rental income received from the President of the Company for the six months ended June 30, 2010 and June 30, 2009 was $6,083 and $5,927.
 
Jonathan Feldschuh is the co-inventor of the BVA-100 Blood Volume Analyzer and is the son of Dr. Joseph Feldschuh, the Chief Executive Officer and President of Daxor. He was paid $18,720 annually for the years ended December 31, 2009 and 2008. Jonathan Feldschuh is expected to provide a limited amount of consultative help in the filing of the additional patents in 2010.
 
 
22

 
 
DAXOR CORPORATION AND SUBSIDIARY
NO