0001019056-11-000540.txt : 20110513 0001019056-11-000540.hdr.sgml : 20110513 20110513094045 ACCESSION NUMBER: 0001019056-11-000540 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20110331 FILED AS OF DATE: 20110513 DATE AS OF CHANGE: 20110513 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: 11838063 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_1q11.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 March 31, 2011
Commission File Number 001-09999

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 o No o

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 o

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
o
Accelerated Filer o
 
 
 
 
 
Non-accelerated filer
o (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
 
4,226,137 OUTSTANDING AT May 10, 2011
PAR VALUE: $.01 per share
 
 

 
 

 

DAXOR CORPORATION AND SUBSIDIARY
 
TABLE OF CONTENTS
 
PART I. FINANCIAL INFORMATION
     
 
 
 
 
 
 
 
Item 1.
FINANCIAL STATEMENTS
 
 
 
 
 
 
 
 
 
 
 
Index to Financial Statements
 
 
 
 
 
 
 
 
 
 
 
 
2
 
 
 
 
 
 
 
 
 
 
3
 
 
 
 
 
 
 
 
 
 
4
 
 
 
 
 
 
 
 
 
 
5-20
 
 
 
 
 
 
 
 
 
21-27
 
 
 
 
 
 
 
 
 
28-31
 
 
 
 
 
 
 
 
 
31
 
 
 
 
 
 
 
 
 
 
       
 
 
32
 
 
 
 
 
 
 
 
 
32
 
 
 
 
 
 
 
 
 
33
 
 
 
 
 
 
 
 
 
33
 
 
 
 
 
 
 
 
 
33
 
 
 
 
 
 
 
 
 
33
 
 
 
 
 
 
 
 
 
34
 

 
 

 

DAXOR CORPORATION AND SUBSIDIARY

 
 
UNAUDITED
March 31,
2011
 
 
December 31,
2010
 
ASSETS
 
 
 
 
 
 
 
 
 
 
 
 
 
CURRENT ASSETS
 
 
 
 
 
 
Cash and cash equivalents
 
$
71,414
 
 
$
57,741
 
Receivable from broker
 
 
34,501,544
 
 
 
32,382,439
 
Available-for-sale securities, at fair value
 
 
53,188,438
 
 
 
53,876,071
 
Accounts receivable, net of allowance for doubtful accounts of $125,402 in 2011 and $125,402 in 2010
 
 
196,487
 
 
 
178,820
 
Inventory
 
 
388,356
 
 
 
363,634
 
Prepaid expenses and other current assets
 
 
159,745
 
 
 
130,560
 
Total Current Assets
 
 
88,505,984
 
 
 
86,989,265
 
 
 
 
 
 
 
 
 
 
Property and equipment, net
 
 
4,123,490
 
 
 
4,168,992
 
Other assets
 
 
37,158
 
 
 
37,158
 
 
 
 
 
 
 
 
 
 
Total Assets
 
$
92,666,632
 
 
$
91,195,415
 
 
 
 
 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CURRENT LIABILITIES
 
 
 
 
 
 
 
 
Accounts payable and accrued liabilities
 
$
1,182,374
 
 
$
436,542
 
Loans payable
 
 
4,945,132
 
 
 
4,638,197
 
Income taxes payable
 
 
777,108
 
 
 
2,986,800
 
Mortgage payable, current portion
 
 
335,403
 
 
 
46,798
 
Put and call options, at fair value
 
 
3,390,048
 
 
 
4,330,069
 
Securities borrowed, at fair value
 
 
28,463,708
 
 
 
22,406,036
 
Deferred revenue
 
 
38,466
 
 
 
51,920
 
Deferred income taxes
 
 
7,437,730
 
 
 
9,003,946
 
Total Current Liabilities
 
 
46,569,969
 
 
 
43,900,308
 
 
 
 
 
 
 
 
 
 
LONG TERM LIABILITIES
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage payable, less current portion
 
 
 
 
 
300,063
 
 
 
 
 
 
 
 
 
 
Total Liabilities
 
 
46,569,969
 
 
 
44,200,371
 
 
 
 
 
 
 
 
 
 
STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
Common stock, $.01 par value, Authorized - 10,000,000 shares Issued – 5,316,550 shares Outstanding – 4,226,137 and 4,226,137 shares at March 31, 2011 and December 31, 2010, respectively
 
 
53,165
 
 
 
53,165
 
Additional paid in capital
 
 
10,675,228
 
 
 
10,675,228
 
Accumulated other comprehensive income
 
 
15,318,153
 
 
 
14,890,272
 
Retained earnings
 
 
31,654,079
 
 
 
32,980,341
 
Treasury stock, at cost, 1,090,413 and 1,090,413 shares at March 31, 2011 and December 31, 2010, respectively
 
 
(11,603,962
)
 
 
(11,603,962
)
Total Stockholders’ Equity
 
 
46,096,663
 
 
 
46,995,044
 
Total Liabilities and Stockholders’ Equity
 
$
92,666,632
 
 
$
91,195,415
 
 
See accompanying notes to unaudited condensed consolidated financial statements.
 
 
2

 

DAXOR CORPORATION AND SUBSIDIARY
FOR THE THREE MONTHS ENDED

 
 
March 31,
2011
 
 
March 31,
2010
 
REVENUES:
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Revenues – equipment sales and related services
 
$
295,830
 
 
$
316,385
 
Operating Revenues – cryobanking and related services
 
 
81,639
 
 
 
79,887
 
 
 
 
 
 
 
 
 
 
Total Revenues
 
 
377,469
 
 
 
396,272
 
 
 
 
 
 
 
 
 
 
Cost of Sales:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of equipment sales and related services
 
 
154,231
 
 
 
185,961
 
Cost of cryobanking and related services
 
 
11,223
 
 
 
5,816
 
 
 
 
 
 
 
 
 
 
Total Cost of Sales
 
 
165,454
 
 
 
191,777
 
 
 
 
 
 
 
 
 
 
Gross Profit
 
 
212,015
 
 
 
204,495
 
 
 
 
 
 
 
 
 
 
OPERATING EXPENSES:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Research and development expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Research and development-equipment sales and related services
 
 
645,827
 
 
 
836,863
 
 
 
 
 
 
 
 
 
 
Research and development-cryobanking and related services
 
 
43,763
 
 
 
55,102
 
 
 
 
 
 
 
 
 
 
Total Research and Development Expenses
 
 
689,590
 
 
 
891,965
 
 
 
 
 
 
 
 
 
 
Selling, General & Administrative Expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Selling, general, and administrative- equipment sales and related services
 
 
1,537,877
 
 
 
481,744
 
Selling, general, and administrative- cryobanking and related services
 
 
160,485
 
 
 
172,942
 
 
 
 
 
 
 
 
 
 
Total Selling, General & Administrative Expenses
 
 
1,698,362
 
 
 
654,686
 
 
 
 
 
 
 
 
 
 
Total Operating Expenses
 
 
2,387,952
 
 
 
1,546,651
 
 
 
 
 
 
 
 
 
 
Loss from Operations
 
 
(2,175,937
)
 
 
(1,342,156
)
 
 
 
 
 
 
 
 
 
Other Income (Expenses):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dividend income-investment portfolio
 
 
573,666
 
 
 
568,408
 
Realized gains on sale of securities, net
 
 
3,744,373
 
 
 
6,076,382
 
Mark to market of short positions
 
 
(4,468,429)
 
 
 
(4,772,764
)
Other revenues
 
 
3,094
 
 
 
3,041
 
Interest expense
 
 
(30,648
)
 
 
(6,264
)
Administrative expense relating to portfolio investments
 
 
(32,394
)
 
 
(34,974
)
 
 
 
 
 
 
 
   
Total Other Income (Expenses)
 
 
(210,338
)
 
 
1,833,829
 
 
 
 
 
 
 
 
 
 
(Loss) Income before Income Taxes
 
 
(2,386,275
)
 
 
491,673
 
 
 
 
 
 
 
 
 
 
Income Tax (Benefit) Expense
 
 
(1,060,013
)
 
 
584,092
 
Net Loss
 
$
(1,326,262
)
 
$
(92,419
)
 
 
 
 
 
 
 
 
 
Comprehensive Loss:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Loss
 
$
(1,326,262
)
 
$
(92,419
)
Unrealized Gain on Securities Held for Sale, Net of Deferred Income Taxes
 
 
427,881
 
 
 
(852,942
)
Comprehensive Loss
 
$
(898,381
)
 
$
(945,361
)
 
 
 
 
 
 
 
 
 
Weighted average number of shares outstanding – basic and diluted
 
 
4,226,137
 
 
 
4,247,285
 
 
 
 
 
 
 
 
 
 
Net loss per common equivalent share – basic and diluted
 
$
(0.31
)
 
$
(0.02
)
 
See accompanying notes to unaudited condensed consolidated financial statements.

 
3

 
 
DAXOR CORPORATION AND SUBSIDIARY
FOR THE THREE MONTHS ENDED

 
 
March 31,
2011
 
 
March 31,
2010
 
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
 
 
 
 
Net Loss
 
$
(1,326,262)
 
 
$
(92,419
)
Adjustment to reconcile net loss to net cash used in operating activities:
 
 
 
 
 
 
 
 
Depreciation
 
 
81,461
 
 
 
73,726
 
Deferred income taxes
 
 
(1,795,014
)
 
 
(2,003,401
)
Realized gains on sale of investments
 
 
(3,744,373
)
 
 
(6,076,382
)
Mark to market adjustments on options & short sales
 
 
4,468,429
 
 
 
4,772,764
 
 
 
 
 
 
 
 
 
 
Change in operating assets and liabilities:
 
 
 
 
 
 
 
 
(Increase) Decrease in accounts receivable
 
 
(17,667
)
 
 
27,639
 
Increase in prepaid expenses & other current assets
 
 
(29,185
)
 
 
(25,106
)
(Increase) Decrease in inventory
 
 
(24,722)
 
 
 
5,561
 
Increase (Decrease) in accounts payable and accrued liabilities
 
 
745,832
 
 
 
(156,534
)
(Decrease) Increase in income taxes payable
 
 
(2,209,692)
 
 
 
1,579,596
 
Decrease in deferred revenue
 
 
(13,454)
 
 
 
(9,330)
 
 
 
 
 
 
 
 
 
 
Net cash used in operating activities
 
 
(3,864,647
)
 
 
(1,903,886
)
 
 
 
 
 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
 
 
 
 
Purchase of property and equipment
 
 
(35,959
)
 
 
(119,676
)
Increase in receivable due from broker
 
 
(6,329,653
)
 
 
(12,830,507
)
Increase in securities borrowed, at fair market value
 
 
6,057,672
 
 
 
13,032,707
 
Purchases of put and call options
 
 
(45,351
)
 
 
(46,866
)
Proceeds from sales of put and call options
 
 
2,451,867
 
 
 
5,116,310
 
Acquisition of available for sale securities
 
 
(6,774,540
)
 
 
(6,465,841
)
Proceeds from sale of available for sale securities
 
 
4,048,258
 
 
 
2,755,031
 
 
 
 
 
 
 
 
 
 
Net cash(used in) provided by investing activities
 
 
(627,706)
 
 
 
1,441,158
 
 
 
 
 
 
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
 
 
 
 
Proceeds from margin loan payable
 
 
11,170,537
 
 
 
8,549,797
 
Repayment of margin loan payable
 
 
(6,653,053
)
 
 
(8,236,403
)
Purchase of treasury stock
 
 
 
 
 
(43,205
)
Repayment of mortgage payable
 
 
(11,458
)
 
 
(10,651
)
Net cash provided by financing activities
 
 
4,506,026
 
 
 
259,538
 
 
 
 
 
 
 
 
 
 
Net increase (decrease) in cash and cash equivalents
 
 
13,673
 
 
 
(203,190
)
 
 
 
 
 
 
 
 
 
Cash and cash equivalents at beginning of period
 
 
57,741
 
 
 
277,088
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents at end of period
 
$
71,414
 
 
$
73,898
 
 
 
 
 
 
 
 
 
 
Supplemental Disclosures of Cash Flow Information:
 
 
 
 
 
 
 
 
Cash paid during the period for:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest
 
$
30,648
 
 
$
7,383
 
Income taxes
 
$
2,952,052
 
 
$
1,013,017
 

See accompanying notes to unaudited condensed consolidated financial statements.
 
 
4

 

DAXOR CORPORATION AND SUBSIDIARY
March 31, 2011
(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, 2010 and 2009, included in Daxor Corporation’s Annual Report and Form 10-K for the fiscal year ended December 31, 2010 which was filed on March 29, 2011. The December 31, 2010 condensed consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. Operating results for the three month period ended March 31, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011.

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 accounts for its investments under the provision of FASB ASC 820, “Fair Value Measurements and Disclosures” (“ASC 820”). ASC 820 defines fair value, establishes a framework for measuring fair value under GAAP and enhances disclosures about fair value measurements. Fair value is defined under ASC 820 as 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 on the measurement date. ASC 820 establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair values which are discussed below.

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets include corporate-owned key person life insurance policies.
 
 
5

 

DAXOR CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011 (Continued)
(Unaudited)

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. This category includes auction rate securities where independent pricing information was not able to be obtained.

The Company’s marketable securities are valued using Level 1 observable inputs utilizing quoted market prices in active markets. These marketable securities are summarized in Note 2, Available for Sale Securities.

On January 1, 2010, the Company adopted the provisions of FASB ASU No. 2010-06, “Improving Disclosures about Fair Value Measurements” (“ASU 2010-06”). This update provides amendments to Subtopic 820-10 that requires new disclosure as follows: 1) Transfers in and out of Levels 1 and 2. A reporting entity should disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers. 2) Activity in Level 3 fair value measurements. In the reconciliation for fair value measurements using significant unobservable inputs (Level 3), a reporting entity should present separately information about purchases, sales, issuances, and settlements (that is, on a gross basis rather than as one net number). This update provides amendments to Subtopic 820-10 that clarify existing disclosures as follows: 1) Level of disaggregation. A reporting entity should provide fair value measurement disclosures for each class of assets and liabilities. A class is often a subset of assets or liabilities within a line item in the statement of financial position. A reporting entity needs to use judgment in determining the appropriate classes of assets and liabilities. 2) Disclosures about inputs and valuation techniques. A reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. Those disclosures are required for fair value measurements that fall in either Level 2 or Level 3.The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The adoption of the ASU 2010-06 did not have an impact on the Company’s financial statements.

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.
 
 
6

 

DAXOR CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011 (Continued)
(Unaudited)

Receivable from Broker

The Receivable from Brokers includes cash proceeds from the sales of securities and dividends. These proceeds are invested in dividend bearing money market accounts. The restricted cash is held by the brokers to satisfy margin requirements.

The following table summarizes Receivable from Broker at March 31, 2011 and December 31, 2010:
 
Description
 
(Unaudited)
March 31, 2011
 
 
December 31, 2010
 
Money Market Accounts
 
$
5,905,250
 
 
$
10,115,798
 
Restricted Cash
 
 
28,596,294
 
 
 
22,266,641
 
Total Receivable from Broker
 
$
34,501,544
 
 
$
32,382,439
 
 
 
7

 

DAXOR CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011 (Continued)
(Unaudited)

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 .

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 20% 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. Investments 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 usually does not exceed 10% of the value 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 Company may have short 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
September 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.

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 loss per share calculations for the three months ended March 31, 2011 and March 31, 2010:

    Three months ended     Three months ended   
 
 
March 31, 2011
 
 
March 31, 2010
 
Basic and diluted shares
 
 
4,226,137
 
 
 
4,247,285
 
Net Loss
 
$
(1,326,262)
 
 
$
(92,419)
 
Basic and diluted loss per share
 
$
(0.31)
 
 
$
(0.02)
 
 
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 47,300 and 61,800 for the three months ended March 31, 2011 and 2010, respectively.

 
9

 
 
DAXOR CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011 (Continued)
(Unaudited)
 
Dividends

In 2008, Management instituted a policy of paying dividends when funds are available. No dividends were paid for the three months ended March 31, 2011 and 2010.

The Board of Directors voted to declare a dividend of $0.15 per share on May 11, 2011. The dividend will be payable on Thursday, June 16, 2011 to shareholders of record on Wednesday, June 1, 2011.

(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 March 31, 2011 (Unaudited)
 
Type of Security
 
Market Value
 
 
Cost of Securities
 
 
Net Unrealized Gain
 
 
Unrealized Gains
 
 
Unrealized Losses
 
Common Stock
 
$
51,059,913
 
 
$
27,997,433
 
 
$
23,062,480
 
 
$
23,616,392
 
 
$
(553,912
)
Preferred Stock
 
 
2,128,525
 
 
 
1,626,216
 
 
 
502,309
 
 
 
512,559
 
 
 
(10,250
)
Total Equity Securities
 
$
53,188,438
 
 
$
29,623,649
 
 
$
23,564,789
 
 
$
24,128,951
 
 
$
(564,162
)

Summary of Unrealized Losses of Available for Sale Securities as of March 31, 2011 (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
 
$
1,282,080
 
 
$
58,058
 
 
$
3,285,473
 
 
$
506,104
 
 
$
4,567,553
 
 
$
564,162
 

Summary of Unrealized Gains on Available for Sale Securities as of March 31, 2011 (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
 
$
6,621,868
 
 
$
246,309
 
 
$
41,999,017
 
 
$
23,882,642
 
 
$
48,620,885
 
 
$
24,128,951
 

 
10

 

DAXOR CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011 (Continued)
(Unaudited)

Summary of Available for Sale Securities as of December 31, 2010
 
Type of Security
 
Market Value
 
 
Cost of Securities
 
 
Net Unrealized Gain
 
 
Unrealized Gains
 
 
Unrealized Losses
 
Common Stock
 
$
51,808,717
 
 
$
29,341,744
 
 
$
22,466,973
 
 
$
23,044,040
 
 
$
(577,067
)
Preferred Stock
 
 
2,067,354
 
 
 
1,626,215
 
 
 
441,139
 
 
 
454,032
 
 
 
(12,893
)
Total Equity Securities
 
$
53,876,071
 
 
$
30,967,959
 
 
$
22,908,112
 
 
$
23,498,072
 
 
$
(589,960
)

Daxor Corporation
Summary of Unrealized Losses on Available for Sale Securities
As at December 31, 2010

 
 
Less Than Twelve Months
 
 
Twelve Months or Greater
 
 
Total
 
 
 
Fair Value
 
 
Unrealized Loss
 
 
Fair Value
 
 
Unrealized Loss
 
 
Fair Value
 
 
Unrealized Loss
 
Marketable Equity Securities
 
$
8,263,313
 
 
$
74,480
 
 
$
2,216,443
 
 
$
515,480
 
 
$
10,479,756
 
 
$
589,960
 
 
Daxor Corporation
Summary of Unrealized Gains on Available for Sale Securities
As at December 31, 2010

 
 
Less Than Twelve Months
 
 
Twelve Months or Greater
 
 
Total
 
 
 
Fair Value
 
 
Unrealized Gains
 
 
Fair Value
 
 
Unrealized Gains
 
 
Fair Value
 
 
Unrealized Gains
 
Marketable Equity Securities
 
$
2,423,702
 
 
$
384,011
 
 
$
40,972,613
 
 
$
23,114,061
 
 
$
43,396,315
 
 
$
23,498,072
 

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 March 31, 2011 and December 31, 2010, available for sale securities consisted mostly of preferred and common stocks of utility companies. At March 31, 2011 and December 31, 2010, 96.00% and 96.16% of the market value of the Company’s available for sale securities was made up of common stock, respectively.

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 believes that it’s exposure to regulatory risk is mitigated due to the diversity of holdings consisting of 70 separate common and preferred stocks. As of March 31, 2011 there were five holdings of common stock which comprised 49.92% of the total market value of the available for sale investments. These five holdings are Entergy, Bank of America, Exelon, First Energy and National Grid.
 
 
11

 
 
DAXOR CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011 (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. 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 March 31, 2011, 71.23% or $401,859 of the total unrealized losses of $564,162 was comprised of the following two securities: $220,146 for Citigroup Inc. and $181,713 for USEC.

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 March 31, 2011 on either position.
 
 
12

 
 
DAXOR CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011 (Continued)
(Unaudited)

(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.

The following table summarizes the results of each segment described above for the three months ended March 31, 2011 (unaudited).
 
 
 
March 31, 2011
 
 
 
Equipment
Sales &
Related
Services
 
 
Cryobanking
& Related
Services
 
 
Investment
Activity
 
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 
$
295,830
 
 
$
81,639
 
 
$
 
 
$
377,469
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of sales
 
 
154,231
 
 
 
11,223
 
 
 
 
 
 
165,454
 
Research and development expenses
 
 
645,827
 
 
 
43,763
 
 
 
 
 
 
689,590
 
Selling, general and administrative expenses
 
 
1,537,877
 
 
 
160,485
 
 
 
 
 
 
1,698,362
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Expenses
 
 
2,337,935
 
 
 
215,471
 
 
 
 
 
 
2,553,406
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating loss
 
 
(2,042,105
)
 
 
(133,832
)
 
 
 
 
 
(2,175,937
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Investment loss, net
 
 
 
 
 
 
 
 
(182,784)
 
 
 
(182,784)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other income (expense)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense, net
 
 
(6,339
)
 
 
 
 
 
(24,309
)
 
 
(30,648
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other income
 
 
3,094
 
 
 
 
 
 
 
 
 
3,094
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Other Expense
 
 
(3,245
)
 
 
 
 
 
(24,309
)
 
 
(27,554
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loss before income taxes
 
 
(2,045,350
)
 
 
(133,832
)
 
 
(207,093)
 
 
 
(2,386,275)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income tax expense (benefit)
 
 
95,000
 
 
 
 
 
 
(1,155,013)
 
 
 
(1,060,013)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net (loss) income
 
$
(2,140,350
)
 
$
(133,832
)
 
$
947,920
 
 
$
(1,326,262)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total assets
 
$
4,817,566
 
 
$
159,084
 
 
$
87,689,982
 
 
$
92,666,632
 

 
13

 

DAXOR CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011 (Continued)
(Unaudited)

The following table summarizes the results of each segment described above for the three months ended March 31, 2010 (unaudited).

 
 
March 31, 2010
 
 
 
Equipment
 
 
 
 
 
 
 
 
 
 
 
 
Sales &
 
 
Cryobanking
 
 
 
 
 
 
 
 
 
Related
 
 
& Related
 
 
Investment
 
 
 
 
 
 
Services
 
 
Services
 
 
Activity
 
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 
$
316,385
 
 
$
79,887
 
 
$
 
 
$
396,272
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of sales
 
 
185,961
 
 
 
5,816
 
 
 
 
 
 
191,777
 
Research and development expenses
 
 
836,863
 
 
 
55,102
 
 
 
 
 
 
891,965
 
Selling, general and administrative expenses
 
 
481,744
 
 
 
172,942
 
 
 
 
 
 
654,686
 
Total Expenses
 
 
1,504,568
 
 
 
233,860
 
 
 
 
 
 
1,738,428
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating loss
 
 
(1,188,183
)
 
 
(153,973
)
 
 
 
 
 
(1,342,156
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Investment income, net
 
 
 
 
 
 
 
 
1,837,052
 
 
 
1,837,052
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other income (expense)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense, net
 
 
(7,146
)
 
 
314
 
 
 
568
 
 
 
(6,264
)
Other income
 
 
3,041
 
 
 
 
 
 
 
 
 
3,041
 
Total Other Income (Expense)
 
 
(4,105
)
 
 
314
 
 
 
568
 
 
 
(3,223
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income (loss) before income taxes
 
 
(1,192,288
)
 
 
(153,659
)
 
 
1,837,620
 
 
 
491,673
 
Income tax expense
 
 
36,000
 
 
 
 
 
 
548,092
 
 
 
584,092
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net (loss) income
 
$
(1,228,288
)
 
$
(153,659
)
 
$
1,289,528
 
 
$
(92,419
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total assets
 
$
4,914,496
 
 
$
207,007
 
 
$
81,876,482
 
 
$
86,997,985
 

 
14

 

DAXOR CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011 (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 $4,945,132 at March 31, 2011 and $4,638,197 at December 31, 2010. The interest rate on the Company’s margin debt at March 31, 2011 was 1.108%

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 March 31, 2011, the Company recorded a loss from marking put and call options to market of ($3,107,583). For the three months ended March 31, 2010, the Company recorded a loss from marking put and call options to market of ($1,974,287). 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.
 
 
15

 
 
DAXOR CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011 (Continued)
(Unaudited)

The following summarizes the Company’s Put and Call Options as of March 31, 2011 (unaudited) and December 31, 2010:
 
Put and Call Options
 
Selling Price
 
 
Fair Market
Value
 
 
Unrealized
Gain
 
March 31, 2011
 
$
5,849,022
 
 
$
3,390,047
 
 
$
2,458,975
 
December 31, 2010
 
$
9,896,627
 
 
$
4,330,069
 
 
$
5,566,558
 

(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 $28,463,708 and $22,406,036 as of March 31, 2011 and December 31, 2010.

(7) CURRENT INCOME TAXES

The Company accrues income taxes in interim periods based upon its estimated annual effective tax rate.

The current income tax (benefit) expense for the three months ended March 31, 2011 and 2010 (unaudited) is comprised of the following:
 
 
 
March 31,
 
 
March 31,
 
 
 
2011
 
 
2010
 
Regular tax and Alternative Minimum Tax (AMT)
 
$
585,566
 
 
$
1,784,468
 
Personal Holding Company Tax (PHC)
 
 
54,435
 
 
 
767,025
 
State Franchise Taxes
 
 
95,000
 
 
 
36,000
 
Total Current Income Tax Provision
 
 
735,001
 
 
 
2,587,493
 
Deferred Income Taxes
 
 
(1,795,014
)
 
 
 (2,003,401
)
Total Income Tax (Benefit) Expense
 
$
(1,060,013
)
 
$
584,092
 

 
16

 

DAXOR CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011 (Continued)
(Unaudited)

(8) DEFERRED INCOME TAXES

The deferred income tax liability is computed at the federal statutory rate of 35% and comprised of the following:
 
 
 
(unaudited)
March 31,
2011
 
 
December 31,
2010
 
 
 
 
 
 
 
 
Deferred Tax Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
Fair value adjustment for available-for-sale securities
 
$
8,247,676
 
 
$
8,017,839
 
Mark to market short positions
 
 
(901,484
)
 
 
856,641
 
Property and equipment
 
 
153,014
 
 
 
168,941
 
Other
 
 
(61,476
 
 
(39,475
)
 
 
   
 
 
   
 
 
 
$
7,437,730
 
 
$
9,003,946
 

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 March 31, 2011 stocks representing 99.66% 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 March 31, 2011 the fair market value of securities in excess of the SIPC insured limit is $1,952,017 and the cash on deposit in excess of the insured limit is $4,814,168.
 
 
17

 

DAXOR CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011 (Continued)
(Unaudited)

For the three months ended March 31, 2011, the sales of Blood Volume Kits accounted for 67.37% of the Company’s total consolidated operating revenue. There were four customers (hospitals) that accounted for 57.89% of the Company’s sales of Blood Volume Kits.

For the three months ended March 31, 2010, the sales of Blood Volume Kits accounted for 67.81% of the Company’s total consolidated operating revenue. There were four customers (hospitals) that accounted for 56.65% 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.

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. This change in Medicare’s reimbursement policy was still in effect at March 31, 2011.

On March 21, 2010, the U.S. House of Representatives passed The “Patient Protection and Affordable Care Act (H.R.3590).” This legislation was signed into law by President Obama on March 23, 2010. 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. Although it is possible that increased coverage could lead to greater access to our products and services if the reimbursement rate is lower, this would limit the benefit to Daxor and could have a negative effect on our operating results and our business.

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.

From time to time, the Company is the subject of legal proceedings arising in the ordinary course of business. The Company does not believe that any proceedings currently pending or threatened will have a material adverse effect on its business or results of operations.

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.

 
18

 
 
DAXOR CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011 (Continued)
(Unaudited)

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 disclosed in its Form 10-Q for September 30, 2010 and Form 10-K for December 31, 2010 that the SEC instituted administrative proceedings pursuant to the Investment Company Act of 1940 on September 17, 2010. The New York City staff of the Enforcement Division of the SEC is claiming that Daxor is primarily an investment company and not primarily an operating company.

The Company has disclosed in previous public filings that it is dependent upon earnings from its investment portfolio to fund operations and that a single individual, Dr. Joseph Feldschuh, makes all investment decisions.

The administrative proceeding took place from March 7, 2011 through March 9, 2011 in New York City. The Company feels strongly that the extensive documentation of its history of operations presented at the administrative proceeding will demonstrate that it is primarily an operating medical instrumentation and biotechnology company and not primarily an investment company

The Administrative Law Judge is required to issue an opinion no later than 300 days from September 17, 2010 pursuant to Rule 360 (a) (2) of the Commission’s Rules of Practice.

There is a risk that Daxor will be found to be an investment company as a result of this administrative proceeding. If Daxor is found to be an Investment Company, we may attempt to register with the Internal Revenue Service (“IRS”) as a Regulated Investment Company (“RIC”). There is no guarantee that the Company would meet the requirements imposed by the Internal Revenue Code for qualification as an RIC.

However, one requirement of being an RIC is that Daxor would have to distribute at least 90% of its investment company taxable income and 90% of its net tax-exempt income to its shareholders annually. If Daxor would not meet this requirement, it would be taxed as Regular Corporation and still be liable for Income Tax and Personal Holding Company Tax.

The management of the Company believes the additional disclosures that would be necessary if Daxor were to become an RIC would not materially affect investment policies and practices currently in place. The management also believes that the operating segments of the Company would also not be materially affected if Daxor was compelled to become an RIC.

(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 March 31, 2011 and March 31, 2010 was $3,094 and $3,041.

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, 2010 and 2009. Jonathan Feldschuh is expected to provide a limited amount of consultative help in the filing of the additional patents in 2011.

(11) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

On January 1, 2011, the Company adopted Accounting Statement Update (ASU) 2009-13, “Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements,” which eliminates the residual method of allocation, and instead requires companies to use the relative selling price method when allocating revenue in a multiple deliverable arrangement. When applying the relative selling price method, the selling price for each deliverable shall be determined using vendor specific objective evidence of selling price, if it exists, otherwise using third-party evidence of selling price. If neither vendor specific objective evidence nor third-party evidence of selling price exists for a deliverable, companies shall use their best estimate of the selling price for that deliverable when applying the relative selling price method. The Company has elected to adopt this guidance prospectively for all revenue arrangements entered into or materially modified after the date of adoption. The adoption of the provisions of ASU 2009-13 did not have a material effect on the financial position, results of operations or cash flows of the Company.
 
 
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DAXOR CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011 (Continued)
(Unaudited)

On January 1, 2011, the Company adopted Accounting Standards Update 2010-20, “Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.” ASU 2010-20 is intended to provide additional information to assist financial statement users in assessing an entity’s risk exposures and evaluating the adequacy of its allowance for credit losses. The amendments in ASU 2010-20 encourage, but do not require, comparative disclosures for earlier reporting periods that ended before initial adoption. However, an entity should provide comparative disclosures for those reporting periods ending after initial adoption. The adoption of ASU 2010-20 did not have a material effect on the financial position, results of operations or cash flows of the Company.

On January 1, 2011, the Company adopted ASU 2010-06, “Improving Disclosures about Fair Value Measurements,” to require additional disclosures related to activity within Level 3 of the fair value hierarchy. The adoption of ASU 2010-06 did not have a a material effect on the financial position, results of operations or cash flows of the Company.

Management does not believe that any other recently issued, but not yet effective, accounting standard if currently adopted would have a material effect on the accompanying financial statements.
 
 
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CAUTION REGARDING FORWARD-LOOKING STATEMENTS

The following discussion of the our financial condition and results of our operations should be read in conjunction with the Condensed Consolidated Financial Statements and Notes thereto included elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2010. This Quarterly Report on Form 10-Q contains forward-looking statements based on our current expectations, assumptions, estimates and projections about us and our industry. These forward-looking statements are usually accompanied by words such as “believes,” “may,” “should,” “anticipates,” “estimates,” “expects,” “future,” “intends,” “hopes,” “plans,” and similar expressions, and the negative thereof. Forward-looking statements involve risks and uncertainties and our actual results may differ materially from the results anticipated in these forward-looking statements as a result of certain factors.

BUSINESS OVERVIEW

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 and marketing 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 that the Company also sells to its customers.

RECENT DEVELOPMENTS

Blood volume derangements are associated with a variety of medical and surgical conditions. It is well established that clinical assessments of blood volume using physical examination or simple blood tests are frequently inadequate to determine total blood volume. Daxor is therefore actively supporting blood volume research in several strategic areas including Heart Failure, Critical Care/Trauma, and Transfusion Decisions during Surgery. These therapeutic areas are ones in which patient diagnosis and/or treatment may be greatly improved by the information obtained from a blood volume analysis, as outlined below.

Heart Failure

Heart failure, a major cause of morbidity and mortality among the elderly, is a serious public health problem. Expenditures related to the care of heart failure patients approach $38 billion annually, which makes congestive heart failure the most expensive condition covered by Medicare. The majority of patients treated for heart failure must be treated with medications which produce drastic changes in their blood volumes.

Daxor has previously sponsored several studies to assess the benefits of blood volume analysis in heart failure patients. One landmark study, conducted by Dr. Stuart Katz when he was an Investigator at the Columbia Presbyterian Medical Center, categorized patients as hypervolemic (volume expanded), normovolemic (having a normal blood volume), or hypovolemic (volume contracted) and recorded their outcomes over time. At the end of one year, 39% of the hypervolemic patients had died or received an urgent heart transplant. In contrast, none of the normovolemic or hypovolemic patients died or received an urgent transplant. At the end of two years, 55% of hypervolemic patients had died or received an urgent heart transplant, while the normovolemic patients continued to have a 0% mortality rate. This study showed a remarkable correlation between blood volume and outcome and suggested that effectively treating patients to normovolemia may dramatically improve their outcomes.

This study also examined the accuracy of clinical assessment of volume status in these patients. Experienced cardiologists assessed patients’ blood volume status using standard laboratory tests and physical examination. When choosing between three possible choices—decreased, normal, or increased blood volume—specialists were correct only 51% of the time in categorizing these severely ill cardiac patients relative to the direct measurement results provided by the BVA-100. This study was cited in the American College of Cardiology/American Heart Association guidelines for the treatment of chronic heart failure in support of the recommendation to assess blood volume status of heart failure patients at every doctor’s visit.

Daxor recently began to enroll patients in a multi-center study which is a follow-up to this earlier study. The TEAM-HF ( T reatment to E uvolemia/Normovolemia by A ssessment and M easured Blood Volume in H eart F ailure) Study will enroll a total of 300 patients from thirteen (13) participating medical centers. The TEAM-HF Study will compare heart failure management strategies based on clinical assessment of volume status versus direct measurement of blood volume using the BVA-100 to determine whether use of blood volume data leads to decreases in re-hospitalization and mortality, and improved function and quality of life for heart failure patients. Dr. Stuart Katz, who is now the Director of the Heart Failure Program at New York University, is extending his previous research by serving as the National Principal Investigator for this study. Data collection and management for the TEAM-HF Study is being performed by an independent Data Collection Center – the Nathan S. Kline Institute for Psychiatric Research. Daxor has also retained the services of three statisticians, two of whom are faculty members at New York University, to assist with data analysis for the TEAM-HF Study.
 
 
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In addition, Daxor is currently supporting a study which will determine whether use of blood volume measurement to help guide fluid removal by ultrafiltration (UF) in patients hospitalized with decompensated Heart Failure (HF) leads to improved outcomes. The 50 patients who enroll in this interventional study will undergo 4 blood volume measurements: (1) immediately before UF, (2) 30 minutes after UF is complete, (3) at 30-day follow-up and (4) at 90-day follow-up. Patients will be randomized into two groups: in the experimental group, the physician will be given the BVA-100 results, which – in conjunction with continuous hematocrit monitoring – will guide fluid removal during UF. In the control group, the physician will not be given the BVA-100 results. In this case, fluid removal will be based upon physicians’ clinical assessment. Some of the outcomes that will be compared between the two groups include survival, rehospitalization, the incidence of decreased kidney function, and the need for long-term hemodialysis. This study is currently in progress, and 23 patients have enrolled to date. The Principal Investigator for this study is Dr. Mitchell Saltzberg, the Medical Director of the Heart Failure program at the Christiana Care Health System.

Daxor also provided support – along with Medtronic, Inc. – for a clinical study to assess whether the OptiVol ® implantable cardiac device is able to provide an accurate estimate of patients’ blood volume status. At the present time, it is difficult to accurately identify increases in blood volume that may predict which patients are likely to experience a worsening of symptoms and future heart failure events. One invasive method that is sometimes used to identify early blood volume increases is Medtronic’s OptiVol ® system, which continuously monitors the thoracic fluid status of heart failure patients. The objective of this study is to determine whether there is a correlation between intrathoracic impedance, as measured by Medtronic’s OptiVol ® system, and total blood and plasma volume as measured by Daxor’s non-invasive BVA-100. This study, which is being led by Dr. Adrian Van Bakel, the Medical Director of the Heart Failure and Cardiac Transplant Program of the Medical University of South Carolina, was recently completed and the data is currently being analyzed.

Critical Care/Trauma

Optimal management of fluid status is an essential component of critical care medicine. At the present time, physicians rely on imprecise clinical signs and symptoms to guide their fluid resuscitation decisions. Direct blood volume measurement can be used to take the guesswork out of volume assessment and to enable more precise and appropriate treatment.

Dr. Mihae Yu and colleagues at the Queen’s Medical Center in Honolulu, Hawaii, have been studying the use of blood volume measurement in the critical care unit. They have performed blood volume measurement in the surgical intensive care unit and recorded how the results have influenced their treatment decisions. Some of their results were published in the February 2009 issue of the American Journal of Surgery . The findings were based on 86 blood volume measurements from 40 patients, and showed that blood volume measurement results led to a change in treatment plan 36% of the time. Among patients who received a pulmonary artery catheter (PAC) for hemodynamic measurements, treatment would have been changed 50% of the time if blood volume data had been available to treating physicians. Among patients who did not receive PAC measurement, treatment would have changed 33% of the time if the blood volume data had been available.

Dr. Yu recently completed a major study, partially funded by Daxor, in which blood volume measurement was conducted in the intensive care unit. The purpose of the study was to determine whether survival and length of hospital stay could be improved by incorporating blood volume measurement into treatment decisions in the intensive care unit. They found that use of the BVA-100 to guide fluid and red blood cell management led to a significant improvement in mortality in critically ill surgical patients with septic shock, severe sepsis, severe respiratory failure and/or cardiovascular collapse. Patients in the control group, whose resuscitation was guided by findings from pulmonary artery catheterization (PAC) demonstrated statistically significant untreated volume abnormalities and red blood cell deficiencies more often than patients in the group who were resuscitated based on blood volume measurement data (48% vs. 37% and 33% vs. 16%, respectively). This correlated with significantly greater mortality for patients in the control group (24% mortality) than for patients in the blood volume measurement group (8% mortality; P=0.03). These findings indicate that blood volume analysis permits more accurate assessment of patients’ volume status and more precise fluid resuscitation and saves lives. Their most recent findings were published in the March 2011 issue of the medical journal Shock.

        Daxor also supported a second study of blood volume analysis in critically injured trauma patients. This study, which assessed blood volume changes over a three-day period, was led by Dr. Marty Schreiber, Chief of Trauma at the Oregon Health and Science University. They found that the peripheral hematocrit – which is traditionally used as a marker for blood loss – does not provide an adequate estimate of red blood cell volume in critically ill patients who have been fluid resuscitated. Although the peripheral hematocrit was relatively accurate in patients with normal or contracted blood volumes, based on comparison to the results of direct blood volume measurement, it was quite inaccurate in patients with expanded blood volumes. In fact, the peripheral hematocrit led to overdiagnosis of anemia in 46.7% of critically ill patients with expanded blood volumes. These findings were published in the March 2011 issue of The Journal of Trauma.

 
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Transfusion Decisions During Surgery

Effective volume management during surgery requires accurate assessment of a patient’s need for transfusions. The decision to transfuse a patient depends on appropriately balancing the benefits vs. risks of transfusion for each patient at any given time. Blood volume measurement, by quantifying a patient’s blood volume prior to surgery, can provide important information about how much blood loss a patient can safely sustain.

Daxor recently sponsored a study of blood volume changes throughout cardiac surgery as measured by the BVA-100. This study was led by Principal Investigator Dr. Mark Nelson at the Virginia Commonwealth University. Three sequential blood volume analyses were conducted: (1) before surgery; (2) immediately after surgery; (3) and 2 hours after transfer to the intensive care unit. The hypothesis was that red cell volume would be well conserved as a result of cell salvage and transfusion practices employed in the operating room. The preliminary findings from this study demonstrated a greater than anticipated loss of red cells and total blood volume during and after surgery. These results were presented at the 2010 Society of Cardiovascular Anesthesiologists meeting and are expected to be published in the near future.

RESULTS OF OPERATIONS

Three months ended March 31, 2011 as compared with three months ended March 31, 2010:

Operating Revenues and Expenses

        For the three months ended March 31, 2011, consolidated operating revenues decreased to $377,469 from $396,272 for the same period in 2010, a decrease of $18,803 or 5.0% which was mainly due to a reduction in kit sales. There were no Blood Volume Analyzers sold during the quarters ended March 31, 2011 and March 31, 2010.

The Company sold 809 Volumex Kits during the quarter ended March 31, 2011 versus 858 for the quarter ended March 31, 2010 for a decrease of 49 kits or 5.7%. Revenue from Blood Volume Kit Sales decreased to $254,307 from $272,608 during the same period for a reduction of $18,301 or 6.7%.

There were 56 Blood Volume Analyzers placed at March 31, 2011 versus 55 at March 31, 2010. For the three months ended March 31, 2011, the Company provided 44 Volumex doses free of charge to facilities utilizing the BVA-100 for research versus 113 during the same period in 2010.
 
 
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The following tables provide gross margin information on Equipment Sales & Related Services for the three months ended March 31, 2011 and March 31, 2010:
 
Equipment Sales and Related Services:
 
Kit Sales
Three Months Ended
March 31, 2011
 
 
Equipment
Sales and Other
Three Months Ended
March 31, 2011
 
 
Total
Three Months Ended
March 31, 2011
 
Revenue
 
$
254,307
 
 
$
41,523
 
 
$
295,830
 
Cost of Goods Sold
 
 
123,741
 
 
 
30,490
 
 
 
154,231
 
Gross Profit
 
$
130,566
 
 
$
11,033
 
 
$
141,599
 
Gross Profit Percentage
 
 
51.3
%
 
 
26.6
%
 
 
47.9
%
 
Equipment Sales and Related Services:
 
Kit Sales
Three Months Ended
March 31, 2010
 
 
Equipment
Sales and Other
Three Months Ended
March 31, 2010
 
 
Total
Three Months Ended
March 31, 2010
 
Revenue
 
$
272,608
 
 
$
43,777