SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
FOR THE FISCAL YEAR ENDED COMMISSION FILE NUMBER
December 31, 1996 0-12248
Daxor Corporation
(Exact name of Registrant as specified in its charter)
New York 13-2682108
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
350 Fifth Avenue
Suite 7120
New York, New York 10118
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (212) 244-0555
Securities registered pursuant to Section 12(b) of the Act:
Common Shares, $.01 par value
(Title of Class)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
and (2) has been subject to such filing requirements for the past
90 days.
Yes (X) No ( )
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-X is not contained herein,
and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this form 10-K. [ ]
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As at March 27, 1997, the aggregate market value of the voting
stock held by non-affiliates of the Registrant was $ 14,842,230.
The market value of Common Stock of the Registrant, par value
$.01 per share, was computed by reference to the closing price of
one share on such date, as reported by the American Stock
Exchange, which was $ 9.75.
----------------------------------
The number of shares outstanding of the Registrant's Common
Stock, par value $.01 per share, as of March 27, 1997: 4,712,709
shares.
-----------------------------------
Documents incorporated by reference: The information required by
Part III is incorporated by reference from the proxy statement
for the 1996 Annual Meeting of Shareholders.
<PAGE>
PART I.
Item 1. Business
The Daxor Corporation (the "Company") was formed in 1971, to
develop cryopreservation technology for the freezing techniques
of human semen. The Company's Idant Laboratory division
("Idant"), was the first human semen bank developed in the
United States for general public use. In 1985, Idant developed
the first autologous blood bank in the United States where
individuals could store their own blood. In 1985, the Company
also initiated the development of an instrument for the
measurement of the total amount of blood in the human body, the
Blood Volume Analyzer (BVA-100).
The Company has completed successful testing the BVA-100. The
instrument utilizes an isotope (Albumin I-131) which is injected
into a patient from whom blood samples are drawn at timed
intervals. The instrument provides an accurate and rapid
measurement of the total volume of blood in the human body. The
technique currently employed takes 4-8 hours and is rarely
performed in most hospitals. The BVA-100 will provide
preliminary results within 20 minutes and complete results
within 35 minutes. The instrument will also calculate the
normal blood volume of a specific individual. It will, for
example, provide a very accurate measurement of the amount of
blood lost by a patient during surgery. Current methods of
estimating blood loss are frequently inaccurate, and many have
errors as large as 35%. At the present time, there is no
similar instrument on the market. The instrument will require
the use of a separate kit which will require FDA approval. The
isotope in the kit has previously been specifically approved by
the FDA for the measurement of blood volume. On March 20, 1996,
the Company received approval for its U.S. patent application
for the injection kit. The patent is for an injection syringe
which will be used to provide a fixed quantitative amount of
isotope for use with the BVA-100. To date over 300 patients
have had their blood volumes measured utilizing these
measurement techniques. The repeatability of the test is
estimated to be + 2%. In 1991, the Company received a U.S.
patent for the Blood Volume Analyzer itself and is the first
U.S. patent issued for an instrument which successfully measures
the total amount of blood in the human body. In November 1992,
the Company received a European patent for its Blood Volume
Analyzer covering 12 countries. On March 26, 1996, the Company
received a Japanese patent for its BVA-100. This is the first
patent ever issued in Japan to measure human blood volume. On
July 18, 1996, the Company reached an agreement with Oxford
Instruments, Inc., NMG. (Oxford) to manufacture the Blood Volume
Analyzer for Daxor at the Oak Ridge, TN facility of Oxford.
Oxford is an international corporation
specializing in precision instrumentation. Daxor established an
engineering division in Oak Ridge, headed by Vice
President of Engineering, Ronald H. Baldry.
The introduction and approval of the Company's Blood Volume
Analyzer has been delayed by the lack of Albumin I-131. Squibb
<PAGE>
Pharmaceuticals, who was the only U.S. F.D.A.-approved
manufacturer who was producing the isotope Albumin I-131 ,
transferred its license to Iso-Tex Diagnostics. Iso-Tex has
experienced multiple delays in the approval process of the
isotope. In 1996, Iso-Tex received FDA approval for the
manufacturing of Albumin I-131, after a delay of eight years.
In 1985, the Company established the first facility in the
United States for long-term autologous (self-storage) blood
banking. The Company began exploring the possibility of
long-term blood storage by utilizing freezing technology in
1974. However, market surveys indicated that the public
underappreciated the risk free alternative of autologous blood
banking because of a misperception that the traditional blood
banking system was safe despite evidence that there were many
risks from blood transfusions. The blood banking industry is a
group of for-profit and not-for-profit corporations whose total
revenue is estimated to exceed six billion dollars. These
groups have a large financial stake in the continuity of the
current system and have vigorously opposed the creation of
autologous frozen blood banks.
Utilizing cryobiology technology, frozen blood has been shown to
be capable of being stored for up to 20 years. The present
donor systems of blood transfusions presents risks to those
individuals receiving blood. A risk which can be avoided by
utilizing one's previously stored blood. There are
approximately 12 - 15 million blood transfusions administered
annually. One third of the blood utilized in New York City is
imported from sources outside of NYS and overseas because of
severe shortages. At the present time, an individual has a
1-in-50 chance of contracting hepatitis from transfused blood
and a much smaller but still real risk of contracting AIDS. A
new hepatitis virus contaminant, Hepatitis G, has just been
discovered to be present in thousands of blood transfusion
products. Autologous storage of blood protects an individual
against these and other multiple problems associated with
transfusions. The concept that the "safest blood is one's own"
is specifically endorsed by the American Medical Association, a
committee of the National Institute of Health, and transfusion
committees of multiple hospitals.
Daxor's Idant division was formed in 1971, and established the
world's first human sperm bank for storage of human semen and
donor semen for artificial insemination. Idant provides frozen
semen to physicians for use in artificial insemination. The
semen is obtained from third-party donors who are anonymous to
the recipients. The donors are recruited and screened by Idant
with their physical characteristics matched to the extent
practicable to the needs of the recipient. Idant also offers
its "sperm bank" storage facilities for use by men undergoing
vasectomies and patients undergoing chemotherapy and radiation
treatment, who are in danger of becoming sterile. This division
also provides fertility testing services. The Company maintains
the largest human sperm bank in the U.S.
<PAGE>
From August 21, 1995 through May 16 1996, the Idant semen bank
and blood bank had been operating on a partial storage basis
only. On August 21, 1995, Daxor's New York State licenses were
revoked without a hearing. Some of these licenses date back 25
years and the Company has responded with multiple lawsuits,
which are more completely described in the Legal Proceedings
section of this report. (section 5) On May 16, 1996, the New
York State Appellate Court, First Department ordered in a
unanimous 5 - 0 decision that Daxor's facilities be reopened.
The Company has filed a $100 million RICO/anti trust suit
against the New York Blood Center and certain New York State Department
of Health officials.
BLOOD BANKING
In December 1985, Daxor received the first FDA registration in
the U.S. for long-term frozen autologous blood banking. The
Company has had research interests in the cryobanking of blood
for over 20 years. The current donor system of blood banking
exposes a transfusion recipient to the dangers of infections
such as AIDS and hepatitis. There are over 50,000 cases of
hepatitis from transfusions annually despite testing, of which a
significant number develop into major illnesses. The current
system of AIDS screening does not completely eliminate AIDS
carriers as donors; it only reduces the risk of an AIDS carrier
donating blood. Other viral diseases, such as the cytomegalo
virus, are also transmitted via blood transfusion and are not
detected by current screening methods. Blood matching of minor
subtypes is never done and an individual has less than one
chance in 100,000 of receiving a perfect match from an unrelated
stranger. Approximately 5% of all transfusions result in
transfusion reactions. Another major problem is the fact that
diseases such as hepatitis and AIDS my be undetectable for six
months or longer in healthy appearing, infected carriers. In
March 1996, the NY Times reported a case of a blood donor
infected with AIDS who donated 33 times before his condition was
ever detected. Daxor introduced the quarantine concept to both
sperm banking and blood banking. Under the quarantine concept,
donated blood and sperm specimens are frozen and stored for a
minimum of six months and the donor is then retested for
infectious diseases such as AIDS and hepatitis before his
donation can be released for use. In 1987, Daxor signed the
first U.S. corporate contract with Warner Communications to
develop a pool of frozen autologous blood and frozen quarantined
donor blood. Frozen quarantined donor blood, is blood from
donors which has been stored for a minimum of 6 months and the
donors then retested for AIDS and hepatitis. Infected carriers
of AIDS and hepatitis may be undetectable by standard antibody
tests for periods of up to six months (and on rare occasions
even longer). Quarantined frozen blood provides a much safer
form of donated blood than refrigerated blood in which the donor
is tested once and the blood must be used within 42 days or
less. The utilization of frozen quarantined blood also permits
transfusion of multiple units of blood from a single donor.
This significantly diminishes the risk as compared to when the
same quantity is obtained from multiple donors.
<PAGE>
Compounding the risks of infection and other complications, is
the frequent withholding of blood from severely anemic patients
by their physicians because of these known risks of transfusion.
It is a common medical practice to replace the first three pints
of lost blood with three pints of sterile salt water or the
equivalent. This problem has not been brought to public
attention, but is widely known among physicians who have treated
patients who have lost blood. The number of patients who suffer
major complications, including sudden death, from
undertransfusion is unknown but significant.
These complications and problems can be avoided by autologous
storage (self-storage) of blood by individuals. The Company
believes that a considerable educational process will be
required to establish the desirability of autologous blood
storage and to overcome opposition to any change in the current
blood banking system from established tax-exempt (non-profit)
and profit-making entities who have great financial stakes in
insuring the continuity of the present donor system. The
Company views its entry into this field as a major long-term
commitment. The current blood banking system is a monopoly, or
semi-monopoly, in most areas and is controlled by tax-exempt
organizations. One such non-taxpayer had "excess revenues"
(i.e. profits) in excess of 50 million dollars in a recent year.
These organizations, while maintaining a public posture of
altruism, have been very aggressive in trying to maintain a
monopoly on the supply of blood resources and the income derived
from these blood banking activities. In N.Y.S., the prime
supplier of blood in the lower NYS, Long Island and NYC region
is the New York Blood Center. In the upper region of NYS, the
Red Cross is the prime supplier of blood. Some individual
hospitals have small in-house blood banks which provide a small
portion of the hospitals transfusion needs. All hospitals
within the region are dependent for their blood banking needs
from the regional blood center structure in their geographic
area.
Under the present system, it is a common practice to fractionate
or separate whole blood into red blood cells, platelets, and
plasma. Plasma contains the clotting elements of blood plus
antibodies. Sometimes patients continue to bleed because they
are transfused with red cells and salt water and no clotting
factors. This can cause the patient to require even more
transfusions than if they had been initially transfused with
whole blood. Anyone who bleeds loses all of these components
simultaneously. However, they regularly receive only partial
replacement. As a result, when a patient receives complete
replacement of one pint of blood, for example, he could receive
red cells from one donor, platelets from another donor and
plasma from yet another donor. A patient who requires complete
replacement of 3 units of whole blood could be exposed to 9
different donors, each of whom is capable of transmitting an
infection such as AIDS or hepatitis. The Red Cross and others
have claimed that directed donation (i.e. a donation from a
known source) is not safer than blood from an unknown source.
Under the frozen quarantined blood banking system that Idant
developed, directed donations will be far safer. This is
because instead of having 9 donors the recipient would receive 3
units of whole blood from one donor. In addition, the risk of
sensitization which increases with each donor would also be
reduced by the same amount when blood from a single donor is
used. Also, the use of doubly tested quarantined donor blood
significantly reduces infection risks as compared to single
tested donor blood.
<PAGE>
Another major problem addressed by Daxor's blood program is the
severe shortage of blood. At the present time, 1/3 of the blood
and blood products used in the New York region are imported from
Europe, and out of state sources. France, Germany and Japan
have been rocked by blood banking scandals in which AIDS
contaminated blood was transfused despite knowledge by officials
that the blood was dangerous. In France, senior blood banking
officials have been sentenced to jail terms. The shortage of
blood compounded by the risk from blood transfusion have made it
a common practice to replenish individuals who have lost as much
as 3 pints of blood with only salt water. In some cases
individuals who have lost as much as 4 pints of blood are
replaced only by salt water. The human body, depending on its
size, holds only 7 to 12 pints of blood. The practice of
replacing blood with salt water, widely known to physicians, is
almost unknown to the public at large. This practice of
replacing blood with water leads to a significant number of
unreported heart attacks, strokes, and sudden deaths every year.
Some patients who receive salt water instead of blood develop a
condition called pulmonary edema, where their lungs fill up with
water. Patients who develop these complications rarely have
their complications attributed to the severe undertransfusion
they have received. In the case of sudden death, the autopsy
will reveal the heart attack or stroke which will usually be
listed as the cause of death instead of the real cause, which is
inadequate replacement of blood. Blood volume depletion is very
difficult to prove as a cause of death. In animals bled
experimentally, death comes rapidly and with almost no warning
as the brain is deprived of blood, with sudden loss of
consciousness followed by sudden death. The practice of keeping
patients, including elderly patients, severely blood- depleted,
would end if a safe and adequate source of blood were available.
The Company plans to develop a nationwide network of autologous
blood banks. This would possibly eliminate the shortage of
blood, and the blood would be virtually AIDS-free and would be
markedly less likely to transmit infection than the current
system of donor blood transfusion. The special features of the
Idant blood bank would include quarantined doubly tested frozen
donor blood. The major Daxor advance is the provision of
multiple units of donor blood from a single donor. These
concepts could provide significant competition for the current
blood banking system which has serious risks because diseases
such as AIDS and hepatitis may be undetectable for periods as
long as six months from infected individuals, and occasionally
even longer. The Company's concept faces fierce opposition from
tax-exempt blood banks which have often held a geographic
monopoly position. (see RICO/anti trust lawsuit)
<PAGE>
In the late 1980's, the use of autologous blood was encouraged
by increasing numbers of hospitals. These programs, however,
are short-term programs in which liquid blood (unfrozen) is kept
up to 42 days prior to use. In these programs individuals who
face elective surgery are encouraged to store between 2-5 pints
of blood in a 5-week period prior to surgery. Some patients are
even bled 72 hours prior to surgery. This practice usually
results in a patient being operated upon in an anemic
(blood-thinned) or blood-depleted state because almost no one is
able to replace blood at the rate at which it has been removed.
It is generally acknowledged that the more blood-depleted an
individual is, the greater the risk of a complication. The
decision to operate on individuals in a blood-depleted state is
a compromise between increasing the risk of surgery in a
blood-depleted state and the risks from donor transfusions. It
is significant that the FDA guidelines for donors will not
permit blood donations more frequently than once in 8 weeks,
except in certain circumstances. These new practices of self
donation violate these medical guidelines and may place the
patients at greater risk than if non-autologous donors had been
used.
Under Daxor's program these risks are eliminated by obtaining
blood donations which are frozen over an extended period of
time, instead of days and weeks, just prior to surgery.
Therefore, the patient does not become depleted. Patients
undergoing surgery who had stored blood under the Company's
program would not begin their surgery in a blood-depleted state
as contrasted to patients who had their blood taken just prior
to surgery.
In 1991, the Company's president, Dr. Joseph Feldschuh, authored
a book entitled "Safe Blood" which was published by the Free
Press division of Macmillan Publishers. This book provides a
detailed exposition of the problems and risks of the current
blood banking system as well as an explanation of the mechanics
of a family frozen blood program. The book details the use of
quarantined donor blood and the advantages of obtaining multiple
units of blood from a single donor. The book was specifically
written to counter the false and misleading information which is
provided to the public by the so-called 'non-profit' blood
collecting agencies. This practice of splitting blood into
multiple components further increases the risk of multiple
exposure for a specific quantity of blood.
<PAGE>
The current blood supply is and has been dangerous because there
have been no competitive alternatives to the current monopoly
structure. A blood transfusion is the most intimate contact one
can have with another human being. It is more intimate than
sexual contact, yet the public has almost no control or choice
from whom transfusions are obtained. At the present time only a
few states in the Unites States have so called "Safe Blood"
acts. These legislative changes provide individuals such basic
rights as the right to have access to ones own stored blood as
well as the right to choose a donor.
In 1993 and 1995, a bill had been introduced in the New York
State legislature to guarantee these rights. It was also
lobbied against by New York State blood bank regulators. It was
blocked by intensive lobbying efforts of the blood banking
industry's representatives. This bill, called the
Vellela-Weisenberg-Polonetsky Safe Blood Act, will be
reintroduced. Presently, in New York, a hospital may take a
patient's blood prior to surgery and give that blood to another
patient without the first patients' permission even if that
patient is left blood depleted. Blood banks may skim off the
plasma without a patient's knowledge or permission and transfuse
only the red cells. Blood banking monopolies are also protected
in many states from liabilities by special blood shield laws
which often protect them from lawsuits of negligence and their
false claims about the safety of their blood supply. The
proposed New York State Safe Blood Act, if enacted, will mandate
informed consent disclosure of the risks of transfusion and the
alternatives available to a transfusion candidate.
Daxor family blood banking programs provide for donor exposure
reduction by the following steps: 1) Storage of an individual's
whole blood (i.e. both the red blood cells and the plasma). 2)
Donor Reduction Program. Utilization of multiple units of
frozen blood from a single donor where additional blood is
necessary. For example, a person who has stored 2 units of
whole blood comprising 2 units of red cells and 2 units of
plasma could provide that blood to another individual who would
be exposed to only a single donor for the quantity of blood
which would currently be directed from four separate donors. 3)
Utilization of Quarantined, Doubly Tested Blood. In 1985,
Daxor's Idant Laboratory division was the first sperm bank in
the United States to initiate the concept of quarantined sperm
to reduce the risk of AIDS and hepatitis. The public is unaware
that the current tests for the AIDS virus does not actually test
for the virus, but is only a test for the antibodies to the
virus which usually take months to appear. A blood or sperm
donor recently infected with AIDS therefore will test negative
on the standard test, but will be capable of transmitting AIDS
to the recipient of the donation. A blood donor receiving a
blood product from someone infected with the AIDS virus has
almost a 100% guarantee of becoming infected. Some of these
people, in turn, will infect other members of their family with
the AIDS virus. Elizabeth Glazer is an example of a widely
publicized case of a woman who received a single AIDS infected
unit of blood and then, in turn, infected two of her children.
There have been many cases where an individual infected from a
transfusion infects other family members.
<PAGE>
To prevent this problem, in 1985, Daxor's Idant laboratory
division started the first quarantine in the United States (and
possibly the world) for sperm donors whereby a sperm donor's
semen was stored for a minimum of six months and the donor
retested a second time. Most AIDS infected individuals will
develop antibodies within 6 months so that a second negative
test would indicate that the six month old semen was AIDS free.
This concept was adopted by the American Association of Tissue
Banks in 1986, and is now the law in states which regulate sperm
banking. In 1987, Idant adopted a similar concept for its blood
bank, encouraging individuals to be retested so that their blood
would meet the criteria for "quarantined blood". Daxor was the
first blood bank in the United States to offer this service. It
is the only blood bank in New York State to provide such blood
and may possibly be the only facility in the United States
providing this type of blood. At the present time, there is a
95% chance that an individual will require a transfusion within
one's lifetime. The utilization of autologous storage combined
with a quarantined donor blood program, could reduce the risk of
donor exposure by over 90%.
There is an important parallel between sperm banking and blood
banking. In the 1970's, Idant was alone in advocating frozen
semen in the use in artificial insemination. It was not until
the 1980's when the safety and advantages of sperm banks
(whereby donors could be properly tested before their semen was
released) was appreciated by the general medical community.
Today, frozen semen is the standard in the land and the use of
untested fresh donor semen is illegal in many states.
To date, privately held blood banking companies focusing
primarily on storage facilities have not been profitable. The
many factors behind the slow acceptance of the concept have
been: 1) Monopoly practices of tax-exempt blood suppliers. 2)
The use of exclusive supply contracts between these
organizations and their hospitals. Some of these contracts may
be in violation of anti trust laws. 3) Relationships between
regulators and blood bank monopolies enforcement activities of
some regulatory agencies which provide extremely difficult entry
barriers to innovators wishing to provide competing or
alternative services. Some individuals within the regulatory
agencies have been openly and aggressively hostile towards
services such as frozen blood banking which Daxor provides.
The passage of "Safe Blood" acts by various states is a major
step towards protecting the rights of the public. We believe a
federal law will provide uniform protection to patients
throughout the United States.
<PAGE>
It is a goal of the Company to develop a network of Family
Frozen Blood Banks which will also have sperm banking
capabilities throughout the United States. The Company believes
that as the public becomes increasingly aware of the deceptions
about the safety and inadequacy of current blood transfusion
practices, that individuals will seek to provide this essential
form of insurance for themselves. The anti trust suit has the
potential for ending the regional blood bank monopoly structure
within the United States.
In March 1994, Daxor assisted the development of U.S. Cryobanks
of Florida which provides both semen and blood banking. Daxor
has a 29% interest in U.S. Cryobanks of Florida, which is under
independent management.
Measurement of Human Blood Volume
The diagnostic data to be provided by the Company's blood volume
measurement equipment would be usable by physicians in a variety
of medical fields, including critical care, cardiology,
pediatrics and surgery, to identify and quantify the amount of
blood loss the patient has suffered, to determine the percentage
of red blood cells or hemoglobin the patient has lost, and to
help to determine the need for continuing treatment. An
estimated 12 million blood transfusions per year are performed
in U.S. hospitals. The Company believes that, if its blood
volume measurement equipment were available in a hospital, it
would be feasible for the hospital to routinely perform a blood
volume test on every patient for whom a blood transfusion
appeared to be indicated. Blood volume measurement would also
provide a valuable diagnostic tool in treating certain types of
heart and kidney disease. At the present time multiple medical
conditions are associated with inadequate blood volume and
occasionally excess blood volume.
The ability to accurately measure the quantity or volume of
blood in an individual would be expected to be particularly
useful in surgical situations. The standard methods of
estimating the amount of blood an individual has are called the
hematocrit or hemoglobin.
These tests actually measure the thickness of or quantity of red
blood cells in an individual's blood rather than the blood
volume itself. Blood is composed of cells, primarily red cells
for carrying oxygen, white cells for fighting infections, and
platelets, small cells used for clotting purposes. The
remainder of the blood is called the plasma, which is primarily
water in which are suspended the cells with various clotting
factors and special blood proteins. When an individual bleeds,
the body will attempt to maintain the same total blood volume by
the transfer of water from other parts of the body into the
circulatory system. This process causes a thinning of the blood
called anemia. The thinning process may take hours or many days
to occur or may never occur completely. When the blood thinning
process has not occurred completely, the hematocrit will
overestimate the amount of blood the individual actually has.
<PAGE>
The more rapid the blood loss, the less likely the hematocrit
will reflect the true picture of the patient's blood volume.
For example, an individual who has just donated a pint of blood
(usually over a 6-10 minute period) obviously has one pint less
blood at the end of the donation than at the beginning. Yet a
hematocrit measurement at the beginning and at the end of the
donation may be almost unchanged, therefore giving no indication
that the individual has just lost a pint of blood. Surgery is a
situation in which individuals lose relatively large quantities
of blood in a short time. Despite infusion of saline (salt
water) and other blood substitutes, the hematocrit is frequently
very misleading at the end of surgery as to the quantity of
blood lost. Patients may have lost 25 to 35 percent more blood
than estimated from hematocrit measurement and the weighing of
blood-soaked sponges. Patients losing more than 3 pints may
have circulatory collapse when undergoing anesthesia. Even the
loss of 1-2 pints in an individual with heart disease may have
serious consequences.
The Blood Volume Analyzer, BVA-100, will permit patients to have
their blood volume measured to within an estimated accuracy of
PLUS or MINUS 2% prior to surgery. It will also permit
estimates of +or
-5% during surgery within 20 minutes and +2% within 35 minutes.
The instrument will also calculate the normal blood volume for a
specific individual. The normal blood volume for an individual
is related to a complex interplay of height and weight. The
instrument will provide these calculations. The instrument will
calculate the deficit or excess of both the red cells and the
plasma. The provision of this type of data in the opinion of
the Company will provide critical information in a timely
fashion not only in surgery but in other conditions such as
heart failure and kidney failure.
The Company has developed a special injection kit which is used
with the machine for each test. The injection system provides a
quantitative highly precise injection. The system can be used
in this situation where a precise injection is needed. The
injection system received the first United States patent ever
issued for such a kit on March 20, 1996. The Company, in 1991,
received a U.S. patent on the instrument itself, 12 European
patents the following year, and a Japanese patent on March 26,
1996. On May 23, 1996, after an eight year delay the Company
obtained an FDA approved source for Albumin I-131. Iso-Tex
Diagnostics received the license for production of Albumin I-131
and will supply the product to the Company. This development
permitted the Company to proceed with an agreement for the
manufacturing of the Blood Volume Analyzer.
The Company believes that the most significant market for its
blood volume measurement equipment consists of the approximately
8,000 hospitals and large clinics in the United States and other
hospitals outside the U.S. The Company believes that there is
an international market of 10 - 14 thousand potential users of
its BVA-100. In addition, many physicians conducting extensive
practices in cardiology, radiology or internal medicine might
purchase equipment and related test kits for diagnostic use.
The Company plans to demonstrate its blood volume equipment at
trade shows across the United States and to market the equipment
to the nation's hospitals on both an outright sale and lease
basis. The Company will use its own capital to develop lease
programs where hospitals will not purchase the equipment, but
will commit to use a minimum number of kits per week. This
marketing approach has been successfully used by other medical
technology equipment manufacturers. The Company may possibly be
in a position to market the BVA-100 overseas before final
approval in the United States. In addition, the Company may
attempt to enter into distribution contracts with one or more
large hospital supply companies. The Company will train
hospital technicians to utilize its products and expects to
supply test kits to users of its equipment on a continuing
basis.
<PAGE>
The Company will have the BVA-100 manufactured by Oxford
Instruments, Inc., N.M.G. on a sub- contract basis. The Company
is in the process of retaining the service of a syringe
manufacturer for its quantitative injection kit. The Company
plans to manufacture its own kits, but is also considering the
possibility of working with a radio-pharmaceutical corporation
to dispense the kits.
Patent and Copyright Protection
The Company in 1991, after a five-year application period,
received a United States patent on its Blood Volume Analyzer
(BVA-100). This is the only patent ever issued for an
instrument dedicated to the measurement of total human blood
volume for a specific individual. In 1992, the Company received
a European patent covering 12 countries. On March 26, 1996, the
Company received a Japanese patent for the BVA-100. The patent
application was originally filed in 1989, and is the first
patent ever issued in Japan to measure human blood volume. The
Japanese patent provides protection until the year 2009. The
instrument is designed to work with an injection kit to be
manufactured by the Company. It is theoretically possible to
use the Blood Volume Analyzer without the kit by preparing the
reagents used for the test. However, the cost and time for such
preparations would be uneconomical and it is unlikely that a
purchaser of the instrument would use it without purchasing the
reagent kit. On March 20, 1996, the Company received approval
for its U.S. patent application for injection kit, which is
specifically designed to be used with the instrument. This is
the first United States patent ever issued for a system which
permits a fixed quantitative amount of isotope to be injected
for diagnostic purposes. The injection system was specifically
designed for use with the BVA-100. However, it can be used for
other diagnostic test purposes where a precise complete
quantitative injection of a diagnostic reagent is required.
Patent protection will extend for 17 years from the official
date of issuance.
Idant Laboratory Division
Idant pioneered both the technology and the commercial
application of long-term preservation of human sperm for use in
artificial insemination. The division provides frozen semen and
services to physicians worldwide. As of February 1, 1997, Idant
held approximately 55,000 human semen units in long-term storage
at its central New York City facility. The Company maintains the
largest human sperm bank in the United States. The Company's
sperm banking services were particularly closed from August 21,
1995 to May 16, 1996. During this timeframe the Company could
only maintain the stored specimens of its existing clients but
could not accept new client depositors. The sperm bank and
blood bank has returned to full operation after a unanimous 5 -
0 decision of the Appellate Court, First Department to reopen
Idant's facilities. The Company recently had an inspection by
the American Association of Tissue Banks (AATB). At the present
time there are only 5 semen banks, out of approximately 300+
semen banks, in the United States that are accredited by the
AATB. The Company is awaiting the results of this inspection.
At the present time none of the licensed New York State sperm
banks have passed the AATB accreditation process.
<PAGE>
Use of Frozen Sperm for Artificial Insemination by Donors
Idant, in 1985, was the first semen bank to institute an AIDS
quarantine period for frozen semen. In 1989, New York State and
a number of other states enacted laws requiring sperm banks to
freeze and quarantine sperm for a minimum of six months with
donors being tested at the beginning and at the end of the
six-month period. By storing semen from a large cross- section
of sperm donors, Idant can closely match the physical
characteristics of the sperm donor (the Company maintains a
complete physical description of each donor on file and matches
multiple physical characteristics and additional special
characteristics sought by the family) to those of the sterile
father. The Company also provides, on request, special screening
for rare hereditary recessive genetic traits. The increased
likelihood of a child who resembles his recipient father can
make the child, who results from artificial insemination, much
more psychologically acceptable to the father. In February,
1988, the Centers for Disease Control and the American Fertility
Society both officially endorsed frozen semen as the only
recommended form of semen for use in artificial insemination.
By eliminating the requirement of immediate donor availability,
a physician utilizing frozen semen can more precisely match
ovulation and insemination times. In addition, the use of
frozen semen may enable a couple to utilize the same donor for
future children, regardless of the availability of the donor at
the time they desire a future child.
The Company is very selective in its choice of donors and
estimates that only 5 - 10 percent of all donors are ultimately
accepted as semen donors. Idant recruits these donors from the
approximately 130 colleges and schools of advanced learning in
the New York metropolitan area and does not accept donors from
the public at large. Prospective donors are also screened on
the basis of a three-generation family medical history and a
battery of over 30 blood tests, including tests for AIDS and
multiple forms of hepatitis. All semen specimens are checked
for viability of sperm, cultured to insure germ-free condition
and screened for various forms of hereditary and metabolic
disorders. Idant also screens semen for genetic diseases common
to persons of the prospective donor's racial or ethnic
background. The Company, upon request, also screens for rare
genetic traits. Doctors who use fresh semen face potentially
large lawsuits from patients who become infected. Fresh semen
always involves the risk of infection.
<PAGE>
The FDA has instituted tissue bank regulations. Semen banking
is considered a form of tissue banking, therefore, in the near
future the FDA will develop specific regulations for semen
banks. The FDA regulations are expected to be extremely strict
with regard to Quality Assurance, i.e. tracking systems. The
Company believes that many smaller semen banks will not be able
to comply with these regulations. This may result in a
consolidation within the industry.
Storage of Sperm for Personal Use
The Company's sperm bank facilities contain stored sperm
specimens which should remain viable for many years. Semen
stored for 23 years, at minus 321 degrees, has shown minimal
change when a small amount of a sample was thawed and examined
(the Company has had documented normal births from semen stored
16 years). The Company's facilities are used by men who, for a
variety of reasons, anticipate impairment of their ability to
father children and by men who have been found to be marginally
fertile. These men may now be able to have children by use of
techniques that increase their fertility by treating their sperm
to artificially inseminate their partners. The facilities are
also used by men who plan to undergo sterilization by vasectomy,
but who believe that they might desire children in the future.
Artificial insemination using stored sperm is much more
effective and less expensive than present techniques of
vasectomy reversal. In addition, patients with a variety of
diseases, including many types of cancer, store semen prior to
undergoing treatment by chemotherapy or radiation. By utilizing
cryogenic preservation facilities, these patients, who are
frequently in their teens or twenties, will be able to father
their own children after treatment despite the high risk of
sterility and birth defects associated with treatments. The
Company receives referrals for these services from multiple
sources, primarily physicians.
<PAGE>
Different technologies and methods have been used for freezing
semen. Historically, sperm banking had a poor reputation for
effective preservation of human semen. However, the Company's
preservation techniques and methods overcame the difficulties
associated with freezing human semen. Dr. Jack Shuber of Mount
Sinai Hospital of Toronto reported almost identical pregnancy
rates with frozen semen as with fresh semen based on treatments
of 193 patients verifying the effectiveness of Idant techniques.
In addition, Dr. I. Ray King of Knoxville, Tennessee, completed
an independent study which showed markedly higher pregnancy
ratios in artificial inseminations using Idant semen as opposed
to semen obtained from competing semen bank. In Dr. King's
study, Idant semen produced a 17.5% rate of pregnancy per
insemination cycle and a 67.1% cumulative percentage of
pregnancies over 11 cycles, as opposed to results of 10.3% and
42.3%, respectively, for its competitor. These results are
significant when compared to studies using frozen semen from a
variety of sources, which showed pregnancy rates from artificial
insemination by thawed donor sperm to be much lower than results
of artificial insemination by "fresh" donor sperm. Idant
periodically spot- checks its bank storage to test viability of
selected specimens of stored semen; results of these
spot-checks have shown sperm samples held in excess of 23 years
to have almost no loss in viability or change in condition.
A major, recent development has been the ability to achieve
pregnancy by injecting a single sperm into a human egg. The
fertilized egg is then placed within the uterus. This means that
individuals with very low sperm counts may still be able to have
their own children.
The Company is engaged in an area which requires a high degree
of diligence. The Company utilizes a semen identification and
quality control program which has 21 check points for
identification and verification from the time the specimen is
received from a patient storing his specimen and its eventual
use by the patient's wife. A key part of the identification
system is a numbering and labeling system in which the patient's
specimen receives a unique (used only once) code number. The
patient participates in the identification and labeling of his
own specimen. This unique number is placed on the patient's
aluminum storage canister and on the plastic straw containers
which contain the patient's semen. The patient collects his
semen in a special container with this code number. The
patient's semen is mixed with a cryoprotective agent which
prevents damage when the specimen is frozen. There is only a
single physical transfer from the collection container to the
storage straws. There are a total of 21 check points before the
specimen is ready for long-term storage. Idant's system is
designed so that the original storage straws can be used
directly for insemination. When specimens are shipped to the
physician there are an additional five check points with two (2)
initial checks at the time of receipt of the specimen. Prior to
use the physician should go through another triple check: (a)
the shipping documents (b) the tags on the semen holder which
contain the patient's code number, his name and social security
number and most significantly (c) the plastic straws themselves.
In fact patients can participate with their physician in this
checking process. Utilized as designed the Idant semen
collection system is virtually fool-proof.
<PAGE>
Proprietary Technology and Procedures
The Company uses a customized carousel canister system in its
sperm bank storage system. This permits retrieval of specimens
from lower levels without removal of upper specimens. Only a
few other sperm banks in the U.S. are known to have such a
system. Most other banks use a "rack and cane" pull-up system
which requires removal of upper specimens from the tank to
retrieve specimens at lower levels. In such a bank, a specimen
may be exposed to a temperature change of -321 degrees
Farenheight (the temperature of the liquid nitrogen) to room
temperature of 78 degrees farenheight
more than 100 times during its storage lifetime. This will
result in a gradual degradation of the specimen. In the Idant
system the specimen remains under liquid nitrogen almost
continuously while in storage.
Research into preservation of human sperm has shown that without
tightly controlled conditions, a marked drop-off in viability of
sperm (i.e., the number of live, active sperm in a sample which
could be expected to fertilize an egg) occurs within one to two
years of storage. In addition, frequent handling of specimens
decreases the viability of sperm. Based on this research, Idant
has developed technology and complex procedures designed to
minimize exposure of the sperm to the dangers of rise in
temperature and handling. For its long-term sperm storage,
Idant utilizes a non-patented proprietary technique of staged
freezing combined with the use of Cryopreservation agents, prior
to storage of the semen in liquid nitrogen at -321 degrees
Farenheight. Levels of liquid nitrogen in its sperm bank storage tanks are
continuously monitored. The liquid nitrogen tanks can maintain their
temperature for over one week without additional liquid
nitrogen. The Company has technicians on call during night
hours as back-up for emergencies. The freezing systems do not
require electric power for maintenance of temperature levels.
In addition, the Company has established and follows a complex
procedure for collection, processing and retrieval designed to
minimize the handling of specimens. The Company also uses
liquid nitrogen in connection with its shipments of sperm as a
means of maintaining stable, low temperature. The Company
believes that its quality control and strict adherence to
shipping, storage and handling procedures designed to minimize
the exposure of its stored sperm to changes which would impair
viability are major reasons for Idant's recognition in the
industry as a major source for effective, viable frozen semen.
<PAGE>
Marketing
Idant markets its sperm banking services directly to physicians,
primarily through attendance at medical trade shows and
conferences at which its services are described. In addition,
Idant offers education services in the use of frozen semen and
advances in artificial insemination. The Company's work in both
semen preservation and blood banking has been featured multiple
times on all national television networks as well as
international networks and in national magazine and major
newspapers. The Company's frozen blood banking program has been
marketed to a minimal extent due to the legal battles with the
New York State Department of Health (NYSDOH). The department of
health's actions have severely damaged the Company's attempt to
market its innovative, frozen blood banking program. The
Company's recent court victories will place the Company in an
improved position to market its blood banking products. The New
York Blood Center has recently been the target of intensive FDA
investigation due to improper blood banking practices. Blood
products, some dating as far back to 1991, which were
distributed by the NY Blood Center have been recalled by the
FDA. Most of these blood products have already been transfused
into patients, therefore, cannot be recalled. The NY Blood
Center and key officials in the NYSDOH who control blood banking
are being sued under RICO/anti trust laws by Daxor. The Company
believes that the attempts to destroy private frozen blood
banking have failed. The continuing revelations about the
dangers of the current system will enable the Company to better
market its blood banking programs. With regard to marketing its
frozen blood banking program, the Company will focus on two
themes, (a) "that the only safe blood is one's own," and (b)
"that in the event that one does not have his/her own blood
stored, the safest option is quarantined, donor blood which has
been doubly tested. Daxor's blood storage clients undergo a
broader testing profile than the standard minimum required tests
by the FDA. The Company intends to emphasize these differences.
The Company intends to market its Blood Volume Analyzer on both
a sale and loaner basis to potential users, which are expected
to primarily be hospitals and surgi-centers. The Company
anticipates utilizing a loaner plan coupled with utilization of
a specific number of blood volume measurement kits per week.
This type of marketing approach is common in the laboratory
equipment industry and will permit hospitals to test the Blood
Volume Analyzer without first making a commitment to purchase an
instrument. The Company will supply technicians to each user
for educational and training purposes. The Company has also
received indications of interest from other medical device
distributors to market the BVA-100 when it is approved. The
Company will evaluate whether it is optimal for Daxor to do its
own marketing, or to market with a major distributor to
facilitate rapid market penetration. One of the objectives of
the Company in the marketing program will be to document the
accurate measurement of blood volume as cost-effective in
situations where blood transfusions are required. The current
medical environment is highly oriented towards the concept of
cost-effectiveness. The Company believes that accurate
measurement of blood volume will prevent catastrophic
complications, such as strokes or heart attacks, in patients who
have been under transfused. Surgical patients who have suffered
strokes or heart attacks due to under transfusion may require
increased days of hospitalization. There are approximately 4
million Americans who receive blood transfusions annually. The
Company will focus its marketing theme on the concept that if a
patient is being considered for a blood transfusion, which could
be potentially lethal, then that patient should have an accurate
blood volume measurement taken.
<PAGE>
Consultation, Laboratory Management and Training Program
Daxor provides consultation with regard to the requisite
personnel, equipment and facilities for small specialized
medical laboratories and blood banks, and offers on a contract
basis, to design, staff and manage such facilities. Where Daxor
provides management services for laboratories on an on-going
basis, it employs and supervises laboratory personnel,
establishes and maintains procedures and provides additional
continuing services.
Competition
The medical technology market is intensely competitive.
However, there are no competing instruments manufactured or
marketed which perform semi-automatic blood volume analysis,
such as the BVA-100. The Company believes that its receipt of a
United States, European and Japanese patent for its blood volume
analyzer provides significant protection against any future
potential competition in the blood volume analysis field. The
receipt of the U.S. patent for the injection kit system provides
significant additional protections as the Company believes that
the kits will be a major source of revenue. The Company
believes that its main hindrance to market acceptability will be
the need to demonstrate that its blood volume measurement
equipment is capable of producing accurate data on a cost
effective basis. Test kit costs will be modest relative to cost
of a transfusion and the critical information derived from the
test.
There are at least 250 - 300 sperm banks in the United States
operated by either commercial entities or by academic
institutions. Frozen semen was pioneered in the United States
by Daxor's Idant Semen Bank. The entry of the FDA into the
regulation of donor semen is expected to result in major changes
in the industry. The FDA's strict regulatory stance on blood
banking safety has resulted in the closure of many testing
facilities throughout the United States. The Company
anticipates a similar closure of many marginal sperm banking
facilities as a result of the new FDA sperm banking regulations.
The Company believes that Idant's reputation has been damaged by
the false charges of the New York State Department of Health,
and the nine month partial closure of its Semen Bank and Blood
Bank. The Company believes that it will be able to regain its
outstanding reputation in the field and is awaiting the results
of its American Association of Tissue Banks (AATB) inspection.
Blood Banking services are provided by a broad spectrum of
organizations. Approximately one- half of the blood supply used
for transfusions is supplied by the American Red Cross and its
branches. The other portion is supplied by various other
tax-exempt and for-profit organizations. Some hospitals operate
their own donor services, but require the services of outside
vendors such as the Red Cross and the New York Blood Center for
adequate supplies of blood products. The current practice in
the blood banking field has been to split blood into various
components such as red cells, platelets and plasma, which are
then sold as separate units. Components of the plasma are
usually sold to pharmaceutical companies which manufacture
separate clotting and diagnostic factors. In many regions,
blood banking is a monopoly or semi-monopoly structure. Blood
banks almost uniformly do the minimum required testing on
collected donor blood. Hospitals usually have one primary
supplier and occasionally a supplemental suppliers of donor
blood. Many hospitals are very dependent on their primary
geographic supplier of donor blood. The primary supplier is
usually a monopoly, which may have exclusive contracts with the
hospitals that they supply. Patients have almost no choice with
respect to storage of their own blood prior to needing a
transfusion except in the infrequent situation (less than 5%)
where patients need a transfusion for elective surgery. The
blood banking industry has historically been opposed to the
concept of frozen autologous storage of blood, even during a
period when 1 in 10 transfused patients contracted hepatitis.
The development of frozen autologous blood banking and
quarantined frozen blood banking programs by tax paying
corporations such as Daxor has been met by an extreme hostile
response from the monopolistic controllers of donor blood. The
advent of frozen autologous blood banking poses a fundamental
threat to the status quo of the current donor blood industry.
These organizations, as far back as 1983, conducted internal
reviews of the amount of income that they would lose for each
percentage of the population that elected to store their own
blood. Blood banking organizations have repeatedly made false
claims concerning the availability of stored frozen blood. The
New York Blood Center is the primary supplier of blood in lower
NYS and the Red Cross is the primary supplier in the upper
region of NYS. A number of hospitals maintain a small in house
blood bank to supplement their blood supply which are
inadequate for their internal needs. Therefore, they are very
dependent on their blood suppliers.
<PAGE>
Daxor's program of quarantined donor blood and multiple units of
donor blood from a single donor provides a basic fundamental
threat to the existing blood banking system. Frozen blood
banking incorporating quarantined blood and multi-unit single
donor blood is demonstrably far safer than the existing blood
banking system.
Daxor believes that it has been extensively damaged by the
collusive actions of the New York Blood Center and key members
of the blood banking regulatory agency of New York State
Department of Health (NYSDOH).
Daxor believes that the availability of safer frozen blood to
the public, utilizing either autologous blood or quarantined
donor blood, would result in a basic change in the blood banking
system. Sperm donors are usually paid. Sperm banking operates
at a much higher level of donor testing safety and donated sperm
is now usually quarantined at all AATB member sperm banks. The
advent of quarantined frozen blood with paid donors could have a
negative financial impact on tax exempt organizations which rely
on free donors. Fifteen years ago, the majority of semen
donations for artificial insemination derived from utilization
of fresh semen with limiting testing of donors. Today, almost
all donor semen is derived from frozen donor semen which has
been quarantined for a minimum of six months and the donor
retested. Despite the advantages of frozen blood programs, such
as Daxor's, more than 99% of all donated blood used for
transfusion is derived from refrigerated blood and transfused in
under 42 days and where the donor has only been tested
initially.
The Company is aware of two other lawsuits instituted by small
private blood banks against the American Red Cross. A
successful conclusion of the Company's anti trust suit against
the New York Blood Center will enable the Company to provide
blood transfusion products that are clearly safer.
Regulation
The Idant Sperm Bank was first licensed by New York City in 1971
and its Blood Bank in 1985. In 1989, Idant's blood bank was
temporarily closed for four months after a number of false
charges by an inspector of the New York City Department of
Health. Following a hearing in the fall of 1989, Idant had its
full Blood Bank license restored by the New York City Department
of Health. The City inspector primarily responsible for the
false charges against Idant took the Fifth Amendment against
self-incrimination five times just prior to the hearings being
stopped by mutual agreement; he was permitted to resign shortly
thereafter. This same inspector was caught at night drilling a
hole into one of Daxor's blood bank freezers. New York City
reimbursed Daxor for the damaged freezer. The New York State
Department of Health unexpectedly removed Idant's state permit
in January 1990, just after New York City had restored its blood
bank permit. The Company believes that the difficulties with
the New York State Department of Health (NYSDOH) are the result
a concerted effort by a combination of key regulators acting in
conjunction with a major blood banking semi- monopoly system to
destroy Daxor's frozen blood banking program. In 1987, the
signing of the Warner Communication contract for quarantined
frozen blood and autologous blood provided for the development
of frozen quarantined blood pools. This concept, if successful,
would have a major financial impact on the New York Blood Center
and any other blood banking semi- monopoly. The Company's
president, Dr. Joseph Feldschuh, has been an outspoken critic of
the blood banking establishment and has written a book entitled
"Safe Blood" published by the Free Press division of the
Macmillan Publishing Company which details deficiencies in the
current blood banking system.
<PAGE>
In NYS, blood banking and semen banking regulations are under
the control of Dr. Jeanne Linden. Blood banking regulations are
developed by a quasi governmental body, the Council on Human
Blood and Transfusion Services, which enacts blood banking
regulations. Individuals such as Dr. Celso Bianco of the New
York Blood Center, representatives of the Red Cross, and
advisors to these organizations serve on this committee. In
1988, one member of the Council on Human Blood and Transfusion
Services told Dr. Feldschuh that, "Idant would be put out of
business." Since 1985, Idant has been inspected annually by the
FDA and continuously approved for operation, inspected by New
York City since 1985, and approved annually, and has been
inspected and accredited by the American Association of Blood
Banks annually since 1986. Since January 1990, the state has
blocked renewal of Idant's laboratory license and issued a
provisional semen bank license. Despite approval, from the
other aforementioned organizations, the NYSDOH has repeatedly
denied Idant's licenses. The Company operated legally on the
basis of its New York City licenses. In response to the
repetitive denial of its state license the Company instituted a
number of legal actions. In 1994, the New York City and State
licensing functions were merged and the state assumed sole
control of all licensing. The background of the state's actions
have been extensively described in a 2nd quarter 1995 special
report that was issued to shareholders in November 1995. (see
Legal Proceedings section and Special Reports I [2nd Quarter
1995], II [3rd Quarter 1995] , & III [Mid-Year Review 1996],
previously sent to shareholders.)
<PAGE>
On August 21, 1995, Daxor was ordered to close all of its
facilities, including its blood bank and semen bank, on minor
charges unrelated to either its semen bank or blood bank without
a hearing. This action was a culmination of a campaign dating
back to at least 1989, to terminate Daxor's blood banking
services. Daxor initiated a $ 100 million RICO/Anti trust suit
against a number of key officials in both the city and state
Departments of Health and Dr. Celso Bianco from the New York
Blood Center. Daxor also instituted an immediate appeal. Daxor
has tape recordings documenting perjury by inspectors of the
NYSDOH and also has extensive evidence of falsified inspection
reports.
The August 21, 1995, closure order by the State Health
Department attempted to force the 3,000 blood and semen
depositors to transfer their semen and blood specimens to
another facility within 30 days of the closure order or have
said specimens destroyed. A class action suit was instituted on
behalf of the depositors before Supreme Court Justice Stuart
Cohen, which prevented this from taking place. Justice Cohen
prevented the full closure of the Idant Semen and Blood Banks
and ordered the appointment of an independent expert to evaluate
the conditions of operation at the Idant Semen and Blood Banks.
Dr. Stanley Leibo, an internationally recognized expert in
cryobanking of both sperm and blood was selected by the Court
from a list supplied by the New York State Department of Health.
Dr. Leibo investigated the conditions at Idant and a number of
other licensed New York State sperm banks. In his report of
summary of findings (respectfully submitted on May 3, 1996), Dr.
Leibo reported that Idant was a facility of "excellence" and
that other facilities that were inspected had such serious flaws
that he considered them unacceptable. With respect to blood
banking, Dr. Leibo further stated that there were no other New
York State licensed facilities in or out of New York State that
provided comparable frozen blood banking services to the public.
After reviewing this report, Justice Cohen immediately issued an
injunction against the NYSDOH enjoining any further attempts to
coerce Daxor's clients to ship their frozen tissue specimens to
other facilities. In a separate action, on January 29, 1996,
the Company had a hearing in the Appellate Court, First
Department, concerning the issue of revocation of its licenses
without a hearing. In an interim decision on May 16, 1996, in a
unanimous 5 - 0 decision the five judge panel of the Appellate
Court, First Department, found that Daxor's rights to due
process had been violated and ordered the restoration of Daxor's
licenses. This was followed by a final decision on May 30,
1996, ordering the reopening of Daxor's facilities. Daxor's
Idant division have been reopened, with the exception of its
satellite laboratory, Scientific Medical Systems, because the
surgi-center which it serviced signed a contract with another
laboratory. The Company is presently negotiating to regain this
service contract when it is available for renewal.
<PAGE>
With respect to the blood bank, in it's 11 1/2 year history,
Idant has never shipped out a unit of infected donor blood. In
the 26-year history of its Sperm Bank, there has never been a
reported case of recipient infection due to any donor semen
shipped by Idant.
The Idant Blood was inspected by the FDA in May 1994, February
1995 and February 1996, and had no violations noted. The Idant
blood bank is subject to inspection and regulation by the FDA.
Idant has been inspected annually since 1985, by the FDA and
received the first FDA registration for a frozen autologous
blood bank in the United States. The FDA has two levels of
inspection and approval. A blood bank operating primarily
within a state is inspected, and if approved receives a
"registration certificate". A blood bank which ships blood
interstate and is a manufacturer of blood components must
receive an interstate license. Interstate licensing inspections
and requirements are particularly intensive with respect to
documentation requirements. Members of the New York State
Department of Health have claimed that Daxor cannot ship
autologous blood outside NYS without an interstate license
because it has only a FDA registration. The majority of NYS
blood banks have only a FDA registration and not an interstate
license. The FDA has specifically informed Daxor that it can
ship autologous blood interstate without a license and that it
can ship special directed donor blood (such as quarantined donor
blood) without an interstate license in the event of a
documented emergency. The Company has applied for an FDA
interstate license for the shipment of blood. An interstate
license would permit the routine shipment of non-autologous
donor blood between states. The Company intends to fully
develop its concept of quarantined, doubly tested donor blood.
The development, testing, production and marketing of medical
devices are subject to regulation by the FDA under the Federal
Food, Drug and Cosmetic Act, and may be subject to regulation by
similar agencies in various states and foreign countries. The
governing status and regulations generally require manufacturers
to comply with regulatory requirements designed to assure the
safety and effectiveness of medical devices. Daxor filed a
510(k) application for its Blood Volume Analyzer on November 4,
1996. The application is currently under review. The Company
also submitted a 510(k) application for its quantitative
injection kit system on February 3, 1997, which is currently
under review.
<PAGE>
Employees
On March 27, 1997, the Company had 30 employees. None of the
Company's employees are covered by a collective bargaining
agreement. The Company believes that its employee relations are
satisfactory.
Item 2. Properties
In February 1992, the Company signed a thirteen year lease for a
new facility at the Empire State Building. The initial space
was for 6,000 square feet, with option provisions in the lease
for up to 24,000 square feet. Future minimum rental payments
under this non-cancelable lease are as follows: 1996-$168,832,
1997 - $168,832, and 1998 - $168,832. The lease also contains
CPI escalation clauses. The new facility was completed in July
of 1992 and the Company moved in that same month. In March,
1994, the Company obtained an additional 1,000 square feet
space.
In February 1996, the Company incorporated Daxor Health
Services, Inc., a wholly owned subsidiary in Florida. Daxor
acquired a 25% interest of Therapeutic Rehabilitation Services,
a privately held Florida company engaged in rehabilitative
services. Rehabilitation services are provided primarily to
Medicare recipients through a third party intermediary. The
intermediary has experienced difficulties in obtaining complete
reimbursement from Medicare. The Company has discontinued
providing additional services until it can obtain reimbursement
for services previously rendered.
Item 3. Legal Proceedings
As a result of the failed Resimmo offer in July 1992, the
Company has had two class action lawsuits initiated against it.
These actions have been described in previous 10K filings. In
1996, there was no legal activities regarding these suits. The
Company believes there is no merit to these lawsuits. The
Company is considering instituting legal action to countersue
the claimants for frivolous claims.
The Company has been involved in legal proceedings with the New
York State Department of Health relating to its licenses to
operate a laboratory and sperm and blood bank. It has also
instituted a RICO/anti trust suit against several key employees
of the New York Department of Health and the New York Blood
Center. These actions are as follows:
<PAGE>
1.Daxor Corp., et al. v. State of New York Department of Health,
et al. (Court of Appeals). This proceeding was instituted by
Daxor to challenge the determination of the State Department of
Health to revoke all licenses issued to, and to deny all
licensure applications for, Daxor's New York health care
facilities. The Court (Tompkins, J.) heard argument on the
petition on June 23, 1995, and by decision and order dated July
17, 1995, denied Daxor's application. An appeal from that
decision was filed on November 6, 1995, with the Supreme Court,
Appellate Division, First Department. The Appellate Division,
in a 5 - 0 decision, unanimously ruled in favor of Daxor and
reversed the decision on May 16, 1996. The State was denied
leave to appeal the decision to the Court of Appeals by the
Appellate Division. This order resulted in the reopening of
Daxor's Idant Blood Bank and Semen Bank. The State was granted
leave by the Court of Appeals to appeal this matter.
2.Daxor Corp., et al. v. Linden, New York Blood Center, et al.
(United States District Court, Southern District, Case No 95
Civ. 7847 [KTD]). Daxor instituted a $100 million anti trust,
Racketeering Influenced Corrupt Organizations Act and an action
pursuant to 42 USC s 1983 for violations of its civil rights
against the New York Blood Center and New York State Department
of Health employees. This action has the potential of allowing
the corporation to recoup losses and attorney fees generated as
a result of the unfair practices used against it. The
defendants filed motions to dismiss the complaint. The matter
is pending a decision by the court. In the interim, Daxor
served notices of deposition which were dishonored by the
defendants. Daxor will be making a motion to compel the
depositions.
3.Daxor and Yaker, et al. v. DeBuono, (Supreme Court, New York
County; Index No. 122485/95). Justice Cohen. This is a class
action instituted by blood bank and sperm bank depositors of
Daxor against the Department of Health to enjoin the Department
of Health from mandating the removal of the class' property from
the Daxor tissue banks premises. On May 3, 1996, Justice Cohen
received a report from the court appointed expert who found
Daxor to be a facility of excellence. Justice Cohen
specifically ordered the State to refrain interfering with
Daxor's operations until after the First Department decided
index #10754/95. On May 16, 1996, the Appellate Court, First
Department ruled 5 - 0 in Daxor's favor.
4.Daxor Corp., et al. v. State of New York Department of Health,
et al. (Supreme Court, New York County; Index No. 131181/94).
This matter was instituted by Daxor challenging the
constitutionality of the State Health Department's semen bank
regulations. The State was deposed. It was revealed during
deposition that the State had improperly failed to serve a cache
of documents that substantiate claims made by Daxor against the
DOH.
Daxor is currently deposing the Department of Health employees
who drafted the regulation. They have admitted to an ignorance
of semen banking. These employees have also disagreed with each
other about definitions of terms used by the regulations and
various implications of the regulations. The State, in an
effort to forestall further damaging depositions, moved for
summary judgment.
5.Daxor, et, al. v. State of New York, (Court of Claims; Claim
No. 90213). Daxor instituted a claim for defamation against the
State of New York resulting from the dissemination of false
information regarding Daxor to the media. The Court of Claims
judge dismissed the action, claiming that despite the State's
admission that it supplied various documents to the New York
Daily News, that there was no evidence that the State supplied
documents to the New York Daily News. The appeal has been
briefed for the Appellate Division, Third Department, and will
be approved in he April term.
6.Idant v. DeBuono, (Supreme Court, Albany County; Index No.
471/96). This is a petition instituted pursuant to CPLR Article
78, appealing the decision of the New York State Department of
Health for revoking Idant's Semen Bank license. The basis of
this action is that the Department of Health revoked the license
in violation of Public Health Law section 4366. The matter was
argued and submitted to Justice Canefield. Justice Canefield
has transferred this case to the Appellate Division, Third
Department. The Court cited numerous important allegations of
bias by the State which necessitates transfer of the matter to
the Appellate Division, Third Department for argument in the May
1997 term.
<PAGE>
7.Daxor, et al. v. Amy Clyde, et al. (Supreme Court, New York
County; Index No. 122486/95). Daxor instituted an action for
defamation against Amy Clyde, the author of a 1995 article, and
K-III Corp., the owner of New York Magazine, which published the
defamatory article. Discovery is proceeding. This proceeding
remains ongoing.
8.Idant Laboratories, et al. v. State of New York Department of
Health, et al. (Supreme Court, New York County; Index No.
105052/94). Idant commenced suit challenging the State Health
Department's denial of Idant's clinical laboratory and blood
bank licensure operations for the periods including 1991-1993.
By decision and order dated April 13, 1995, Justice Friedman
denied Idant's petitions. The matter was briefed and argued to
the Appellate Division in November 1996. The Court has not yet
rendered a decision.
9.Gregory Pollinger v. Joseph Feldschuh, Idant Laboratories and
Daxor Corporation. (Supreme Court, New York County; Index No.
122560/95). Former Daxor semen bank client depositor claims
that his specimens were not viable. The Company obtained an
independent analysis of the specimen and it was found that the
specimens were viable. The Company considers the case without
merit. The Company has instituted a counter claim.
10.Idant v. The Department of Health of the City of New York.
The action was an appeal of the City Department of Health's
decision to prohibit Daxor from performing Semen Analysis. This
matter was argued before the February 1996 Term of the Appellate
Division. In a unanimous 5 - 0 decision, the Appellate Court,
First Department ruled in Daxor's favor and denied the City
Department of Health the right to appeal. New York City no
longer regulates laboratories or blood banks.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Company's
shareholders during the fourth quarter of 1996.
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
The common stock is traded on the American Stock Exchange under
the symbol DXR.
<TABLE>
<S> <C> <C>
1995
High Low
First Quarter...................... 8 7/8 5 5/8
Second Quarter..................... 7 1/8 5 7/8
Third Quarter...................... 7 1/4 6 1/4
Fourth Quarter..................... 7 1/4 6
1996
High Low
First Quarter...................... 8 3/4 6 1/4
Second Quarter..................... 13 7/8 8
Third Quarter...................... 15 1/2 9 3/4
Fourth Quarter..................... 15 5/8 12 3/8
</TABLE>
On March 27, 1997, the Company had approximately 329 holders of
record of the Common Stock. The Company believes there are
approximately 2500 beneficial holders.
The Company has never paid any cash dividends on the Common
Stock. Any future dividends will be dependent upon the
Company's earnings, financial condition and other relevant
factors.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain selected financial data
with respect to the Company and is qualified in its entirety by
reference to the financial statements and notes thereto, from
which these data were derived, included elsewhere in the report.
<TABLE>
<S> <C> <C> <C> <C> <C>
Selected Operations
Statement Data:
Year Ended December 31,
1996 1995 1994 1993 1992
Operating revenues $ 717,308 $ 1,864,552 $ 1,844,416 $ 1,926,415 $ 1,967,588
Dividend income 2,132,173 2,209,962 2,157,735 2,164,691 3,035,478
Gains (losses) on
Sale of investments 16,354 674,421 584,982 708,407 1,128,650
--------- --------- --------- --------- ---------
Total revenues 2,865,835 4,748,935 4,587,135 4,799,513 6,131,716
--------- --------- --------- --------- ---------
Costs and Expenses:
Operations of
laboratories 819,722 1,041,275 1,016,832 998,401 867,994
Selling, general and
administrative 2,080,969 2,369,660 1,585,533 1,309,105 1,137,647
Interest expenses, net
of interest income 74,175 (113,973) 11,116 181,353 392,591
--------- ---------- --------- --------- ---------
Total costs
and expense 2,974,866 3,296,962 2,613,481 2,488,859 2,398,232
--------- --------- --------- --------- ---------
Net income or (loss) before
income taxes (109,031) 1,451,973 1,973,654 2,310,654 3,733,484
Provision for
income taxes 3,134 164,858 165,519 160,309 302,424
---------- --------- --------- --------- ---------
Net income $ (112,165)$ 1,287,115 $ 1,808,135 $ 2,150,345 $ 3,431,060
=========== ========= ========= ========= =========
Weighted average
number of
shares outstanding 4,722,709 4,872,481 5,122,188 5,154,955 5,179,305
Net income per
common equivalent
share ($0.02) $0.26 $0.35 $ 0.42 $0.66
Selected Balance
Sheet Data: Year Ended December
31,
1996 1995 1994 1993 1992
Working capital $31,006,579 $31,598,345 $28,739,806 $23,966,425 $20,586,020
Total assets 37,288,804 37,744,621 35,012,638 29,112,282 32,634,921
Total liabilities 5,507,384 5,891,790 5,813,458 4,681,643 10,339,973
Shareholders'
Equity 32,052,831 32,052,831 29,199,180 24,430,639 22,294,948
Return on equity 0.00% 4.41% 7.40% 9.64% 17.97%
Return on equity is calculated by dividing the Company's net
income for the period by the shareholders' equity at the
beginning of the period.
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
Idant Laboratories contributed 65%, 85% and 82% of operating
revenues in 1996, 1995 and 1994 respectively with the remainder
coming from contract laboratory work and from Florida
Rehabilitation Services. The Company has been injured by false
claims by New York State Health Department Officials concerning
its anonymous semen donor program. The August 21, 1995, closure
order by the NYSDOH without a hearing on alleged violations
unrelated to Idant's semen or blood bank has had a continuing
negative impact on the Company's revenues and earnings. On May
30, 1996, the Company's Semen and Blood Banks were reopened.
The Company also has received no revenue from a satellite
laboratory, which contributed approximately 15% to revenues
prior to the closure order. A number of other legal actions,
including a RICO/Anti trust suit have been initiated against the
New York Blood Center and a number of key NYSDOH officials. If
the Company prevails in its suit, the Company could receive
recovery of legal fees and monetary compensation for lost
business. The Company in 1995, acquired a 29% interest in U. S.
Cryobanks in Altamonte Springs, Florida, a suburb of Orlando.
In February 1996, the Company acquired a 25% interest in
Therapeutic Rehabilitation Services and incorporated Daxor
Health Services, Inc. in Florida. This operation has been
unprofitable to date. The Company's Blood Volume Analyzer is
currently under 510K review by the FDA. The potential market
for the Blood Volume Analyzer is significantly larger than the
Company's current operations.
YEAR ENDED DECEMBER 31, 1996 AS COMPARED TO DECEMBER 31, 1995
Total revenues were $2,865,835 in 1996, down from the
$4,748,935 reported in 1995. Dividend income earned on the
Company's securities portfolio was $2,132,173, a decrease from
the $2,209,962 reported in 1995. Gains on the sale of
investments were $16,354 in 1996 as compared to $674,421 in
1995. Net income before income taxes was a loss of $109,031 in
1995 vs. $1,451,973 in 1995. The drop in revenues was directly
caused by NYSDOH actions against the Company
YEAR ENDED DECEMBER 31, 1995 AS COMPARED TO DECEMBER 31, 1994
Total revenues were $4,748,935 in 1995, up from the $4,587,135
reported in 1994. Dividend income earned on the Company's
securities portfolio was $2,209,962, an increase from the
$2,157,735 reported in 1994. Gains on the sale of investments
were $607,163 in 1995 as compared to $435,198 in 1994. Net
income before income taxes was $1,451,973 in 1994 vs. $2,613,481
in 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company's management has pursued a policy of maintaining
sufficient liquidity and capital resources in order to assure
continued availability of necessary funds for the viability and
projected growth of all ongoing projects.
The Company continues to maintain its diversified securities
portfolio comprised primarily of high-yielding electric utility
preferred and common stocks. The income derived from these
investments has helped to offset increases in operating, selling
and general and administrative expenses and thus to maintain our
fees at a competitive level. The portfolio also provides for
the availability of funds as needed for new projects and the
expansion of existing sources of revenue.
At December 31, 1996, the Company's short term debt was
$1,636,067 vs. $1,536,609 in 1995. At year end 1996,
shareholders' equity was $31,781,420. At year end 1995, the
Company had shareholders' equity of $32,052,831. At year end
1994, shareholders' equity was $29,199,180. Shareholders'
equity has thus increased $2,853,651 over the two year period
from year end 1994.
During 1996, after an eight year delay, the Company obtained an
FDA approved source for Albumin I-131, when Iso-Tex Diagnostics
received approval from the FDA. The Company has since entered
into a manufacturing contract with Oxford NMG of Oakridge TN, to
produce the Blood Volume Analyzer (BVA-100).The Company plans to
offer to lease, as well as sell, its Blood Volume Analyzer
(BVA-100) and could use its internal funds to provide some
leases if an independent leasing agent were not available.
The Company plans to develop a comprehensive national network of
cryo-centers (freezing facilities). Such centers will include
frozen autologous blood banking, sperm banking, and possibly
cord blood banking. A victory in the anti trust action would be
important in the timing of such a decision. Should these plans
proceed, the Company might require additional financing to
sustain such operations until they become profitable, although
present capital is sufficient for the initial phases.
Year end 1996, finds the Company in a satisfactory financial
position with adequate funds available for its immediate
anticipated needs. However, should the opportunity arise for
the Company to proceed with its planned expansion as a
nationwide network of cryo centers, there would be a need for
additional capital. Legal fees and obstructive actions of the
NYSDOH have caused a decline in both revenues and profitability
for the Company. A successful resolution of these suits would
result in recovery of these costs.
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and the schedules listed on the index
to Financial Statements and Schedules are filed with and as part
of this report.
Item 9.DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
Not applicable.
PART III.
In connection with the 1996 Annual Meeting of Shareholders of
Registrant, Registrant intends to furnish shareholders with
proxy materials which set forth the information required by
Items 10, 11, 12, and 13 of Part III. Copies of such material
will be duly filed with the Securities and Exchange Commission
pursuant to rule 14a-6 promulgated under the Securities Exchange
Act of 1934, as amended, not later than 120 days after the end
of the fiscal year covered by this Annual Report on Form 10-K.
PART IV.
Item 14. FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES,
EXHIBITS, AND REPORTS ON FORM 8-K
(a)Financial Statement, Financial Statement Schedules and
Exhibits filed.
1. Financial statements and schedules shown by index on
page 21.
(b) DAXOR filed no current reports on Form 8-K during the
last quarter of the fiscal year ending December 31, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities and Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the
undersigned, thereto duly authorized.
DAXOR CORPORATION
by: /s/ Joseph Feldschuh
Joseph Feldschuh, M.D.
President and Chief
Executive Officer
Chairman of the Board
Dated: March 30, 1997
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
dates indicated.
Signature Title
Date
/s/ Joseph Feldschuh President and Director March 30, 1997
Joseph Feldschuh, M.D. (Principal Executive Officer)
/s/ Octavia Atanasiu Corporate Treasurer March 30, 1997
Octavia Atanasiu Accounting Supervisor
(Principal Financial Officer)
/s/ Stephen M. Moss Director March 30, 1997
Stephen M. Moss, Ph.D.
/s/ Veronica Schwendemann Director March 30, 1997
Veronica Schwendemann
/s/ James Lombard Director March 30, 1997
James Lombard
/s/ Martin Wolpoff Director March 30, 1997
Martin Wolpoff
Board of Directors:
Name Title
Dr. Joseph Feldschuh Chairman, President, & CEO
Stephen Moss Director
James Lombard Director
Martin Wolpoff Director
Veronica Schwendemann Director
<PAGE>
DAXOR CORPORATION
Item 14(a) (1). Index to Financial Statements
The following statements and schedules of Daxor Corporation are
submitted herewith:
<TABLE>
<S> <C>
Page
Report of Independent Accountants............ F-1
Financial Statements as at December 31, 1996 and 1995
and for the three years ended December 31, 1996
Balance Sheets........................................... F-2
Statements of Income..................................... F-3
Statements of Shareholders' Equity....................... F-3
Statements of Cash Flows................................. F-4
Notes to Financial Statements............................. F-5
Schedule I - Marketable Securities - Other Investments -
Year ended December 31,1996............................. F-9
Schedule IX - Short-term Borrowings - Years ended
December 31, 1996, 1995, and 1994.........................F-9
Schedule X - Supplementary Income Statement Information -
Years ended December 31, 1996, 1995, and 1994............ F-9
</TABLE>
All other schedules for which provision is made in the
applicable accounting regulations of the Securities and Exchange
Commission are not required under the related instructions, are
inapplicable or the required information is set forth in the
financial statements filed herewith, including notes thereto,
and therefore have been omitted.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders of Daxor Corporation:
We have audited the accompanying consolidated balance sheets of
Daxor Corporation as at December 31, 1996 and 1995, the related
statements of income, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1996.
Our audits also included the financial statement schedules
listed in the Index at Item F-9.
These financial statements and financial statement schedules are
the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial
statements and financial statement schedules based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all
material respects, the financial position of Daxor Corporation
as at December 31, 1996 and 1995, and the results of their
operations and its cash flows for each of the three years in the
period ended December 31, 1996 in conformity with generally
accepted accounting principles. Also, in our opinion, such
financial statement schedules, when considered in relation to
the basic financial statements taken as a whole, present fairly
in all material respects the information set forth herein.
Frederick A. Kaden & Co.
Franklin Square, New York
March 30, 1997
F-1
<PAGE>
DAXOR CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<S> <C> <C>
BALANCE SHEETS
December 31,
1996 1995
ASSETS
Current assets:
Cash ............................... $ 123,115 $ 1,987
Marketable securities at Fair Value
December 31, 1996 and December 31,
1995(Notes 1 and 2................ 35,574,526 35,735,073
Accounts receivable(Note 3)......... 611,555 409,196
Accounts receivable-Related Parties
(Note 12).......................... 115,008 172,951
Other current assets................ 235,858 764,695
Tax refunds receivable.............. 153,901 206,233
---------- ----------
Total current assets................ 36,813,963 37,290,135
---------- ----------
Equipment and Improvements: (Note 4)
Storage tanks....................... 125,815 125,815
Leasehold improvements, furniture
and equipment..................... 714,142 628,617
Laboratory equipment................ 274,418 274,418
---------- ---------
1,114,375 1,028,850
Less accumulated depreciation and
amortization...................... (671,519) (606,180)
---------- ---------
Net equipment and improvements.... 422,856 422,670
---------- ---------
Other assets........................ 31,985 31,816
---------- ---------
Total assets........................ $ 37,288,804 $37,744,621
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities $ 136,551 $ 323,815
Loans payable (Notes 1 and 2)............. 1,636,067 1,536,609
Other liabilities (Note 5)............ 14,834 93,056
Deferred Taxes (Note 1)................. 3,719,932 3,738,310
---------- ----------
Total current liabilities........... 5,507,384 5,691,790
---------- ----------
Commitments and contingencies (Note 6)
Shareholders' equity:
Common Stock par value $.01 per share:
authorized 10,000,000 shares: issued and
outstanding 4,712,709 shares December 31,
1996 and 4,742,709 shares December 31, 1995 53,097 53,097
Additional paid-in capital................ 8,579,803 8,579,803
Net unrealized holding gains on available
-for-sale securities (Note 1)............. 7,194,158 7,119,401
Retained earnings......................... 19,226,044 19,338,209
Treasury Stock............................ (3,271,682) (3,037,679)
---------- ----------
Total shareholders' equity............... $31,781,420 $32,052,831
---------- ----------
Total liabilities and shareholders' equity $37,288,804 $37,744,621
=========== ===========
See accompanying notes to financial statements.
</TABLE>
F-2
<PAGE>
DAXOR CORPORATION
<TABLE>
CONSOLIDATED STATEMENTS
OF INCOME
<S> <C> <C> <C>
Year Ended December 31,
1996 1995 1994
Revenues:
Operating revenues (Note 12).. $ 717,308 $ 1,864,552 $ 1,844,418
Dividend income............... 2,132,173 2,209,962 2,157,735
Gains (losses) on sale
of securities........... 214,607 607,163 435,198
Gains (losses) on sale of
options and commodities.... (198,253) 67,258 149,784
--------- -------- --------
Total revenues................ 2,865,835 4,748,935 4,587,135
--------- --------- ---------
Costs and expenses:
Operations of
laboratories (Note 7)....... 819,722 1,041,275 1,016,832
Selling, general, and
administrative............ 2,080,969 2,369,660 1,585,533
Interest expense net of
interest income(Note 8)... 74,175 (113,973) 11,116
--------- ---------- ---------
Total costs and expenses.... 2,974,866 3,296,962 2,613,481
--------- --------- ---------
Net income or (loss) before
income taxes ............ (109,031) 1,451,973 1,973,654
--------- --------- ---------
Provision for income
taxes (Note 9)....... 3,134 164,858 165,519
--------- --------- ---------
Net income or (loss)........ $ (112,165) $ 1,287,115 $ 1,808,135
========= ========= =========
Weighted average number
of shares outstanding 4,722,709 4,872,481 5,122,188
========= ========= =========
Net income or (loss)
per common equivalent
share................... ($0.02) $0.26 $0.35
========== ========= ==========
See accompanying notes to financial statements
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Consolidated Statements of Common Stock Issued and Outstanding
Shareholders' Equity
Three Years Ended December 31, 1996
Common stock Additional
Number Paid-in Retained Treasury
of Shares Amount Capital Earnings Stock
Balance at January 1, 1994 5,153,830 $ 53,097 $ 8,579,803$16,242,959$(445,220)
Net Income for the year
ended December 31, 1994.. 1,808,135
Purchase of treasury stock (86,200) (510,022)
- -------------------------------------------------------------------------------
Balance at
December 31, 1994 5,067,630 53,097 8,579,803 18,051,094 (955,242)
Net Income for the year
ended December 31, 1995. 1,287,115
Purchase of Treasury Stock. (324,921) (2,082,437)
- -------------------------------------------------------------------------------
Balance at
December 31, 1995 4,742,709 53,097 8,579,803 19,338,209(3,037,679)
Net income for the year
ended December 31, 1996.. (112,165)
Purchase of Treasury Stock (30,000) (234,003)
- -------------------------------------------------------------------------------
Balance at
December 31, 1996 $4,712,709 $ 53,097$8,579,803$19,226,044$(3,271,682)
========== ====== ========= ========= =========
See accompanying notes to financial statements.
</TABLE>
F-3
<PAGE>
DAXOR CORPORATION
<TABLE>
<S> <C> <C> <C>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
1996 1995 1994
Cash flows from operating activities:
Net income or (loss)...........$ (112,165) $ 1,287,115 $ 1,808,135
-------- --------- ---------
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation & Amortization... 65,339 59,304 59,987
(Gain) loss on sale
of investments............ (16,354) (674,421) (584,982)
Change in assets and liabilities:
(Increase) decrease
in accounts receivable (202,359) (193,365) (1,966)
(Increase) decrease
in accounts receivable-
Related Parties 57,943 (172,951) 0
(Increase) decrease in other
current assets 528,837 (292,388) (169,488)
(Increase) decrease in tax
refunds receivable 52,232 0 25,000
(Increase) decrease in other
assets net of goodwill
amortization.............. (169) 9,344 (5,152)
Increase (decrease) in accounts
payable, accrued expenses and
other liabilities net of
"short sales"............... (187,234) 312,777 (101,519)
Total adjustments.............. 298,335 (951,700) (778,120)
--------- -------- ---------
Net cash provided
by operating activities.... 186,170 335,415 1,030,015
--------- -------- ---------
Cash flows from investing activities:
Payment for purchase of equipment
and improvements............ (85,525) ( 63,760) ( 49,995)
Net cash provided or (used) in
purchase and sale of investments 149,502 3,997,024 (135,557)
Net proceeds (repayments) of
loans from brokers used to
purchase investments....... 990,259 (827,996) 62,966
Proceeds from "short sales"
not closed....... 5,527 83,779 100,256
------- -------- --------
Net cash used in investing
activities........ 1,059,763 3,189,047 (22,330)
--------- --------- ---------
Cash flows from financing activities:
Repayment of bank loan........ (900,000) (1,500,000) (700,000)
Payment for purchase of
treasury stock....... 9,198 (2,082,437) (510,022)
--------- ---------- ---------
Net cash used in financing
activities........ (1,124,805) (3,582,437) (1,210,022)
---------- ----------- ----------
Net increase (decrease) in
cash and cash equivalents.. 121,128 ( 57,975) (202,337)
Cash and cash equivalents at
beginning of year......... 1,987 59,962 262,299
---------- ----------- ----------
Cash and cash equivalents at
the end of year $ 123,115 $ 1,987 $ 59,962
========== =========== ===========
See accompanying note to financial statements.
</TABLE>
F-4
<PAGE>
DAXOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The accompanying financial statements as at December 31, 1996
and 1995 and for the three years ended December 31, 1996 have
been prepared in conformity with principles of accounting
applicable to a going concern. Daxor Corporation operates in
the medical services and technology industry.
The consolidated financial statements include the accounts of
the Company and its subsidiary. All significant intercompany
transactions and balances have been eliminated in consolidation.
(1) Marketable Securities
Upon adoption of FASB No. 115, management has determined that
the Company's portfolio is best characterized as
"Available-For-Sale". This has resulted in the balance sheet
carrying value of the Company's marketable securities
investments, as of December 31, 1996 and December 31, 1995,
being increased approximately 44.26% and 43.64% respectively
over its historical cost. A corresponding increase in
shareholders' equity has been effectuated. In accordance with
the provisions of FASB No. 115, the adjustment in shareholders'
equity to reflect the Company's unrealized gains has been made
net of the tax effect had these gains been realized.
<TABLE>
The following tables summarize the company's investments as of:
December 31, 1996
<S> <C> <C> <C> <C>
Type of Cost Fair Value Unrealized Unrealized
security Holding gains Holding losses
Equity $24,635,436 $35,548,401 $13,375,737 $2,462,772
Debt 25,000 26,125 1,125 0
----------- ----------- ----------- -----------
Total $24,660,436 $35,574,526 $13,376,862 $2,462,772
=========== =========== =========== ===========
December 31, 1995
Type of Cost Fair Value Unrealized Unrealized
Security holding gains holding
losses
Equity $24,851,151 $35,673,901 $13,470,588 $ 2,647,838
Debt 26,212 61,172 34,960 0
----------- ----------- ---------- -----------
Totals $24,877,363 $35,735,073 $13,436,628 $ 2,647,838
=========== =========== =========== ===========
</TABLE>
At December 31, 1996, the securities held by the Company had a
market value of $35,574,526 and a cost basis of $24,660,436
resulting in a net unrealized gain of $10,914,090 or 44.26% of
cost.
At December 31,1995, the securities held by the Company had a
market value of $35,735,073 and a cost basis of $24,877,363
resulting in a net unrealized gain of $10,857,710 or 43.64% of
cost.
At December 31, 1996, and December 31, 1995, marketable
securities, primarily consisting of preferred and common stocks
of utility companies, are valued at fair value.
F-5
<PAGE>
DAXOR NOTES TO STATEMENTS - CONTINUED
CORPORATION
(2) Loans Payable
As at December 31, 1996, and December 31, 1995, the Company had
loans outstanding aggregating $200,000 and $1,100,000 borrowed
on a short term basis from a bank, which are secured by certain
marketable securities of the Company. The loans bear interest
at approximately 7.6%.
Short-term margin debt due to brokers, secured by the Company's
marketable securities, totalled $1,426,869 at December 31, 1996
and $436,609 at December 31, 1995.
(3) Accounts Receivable
Accounts receivable are deemed to be fully collectible.
(4) Equipment and Improvements
Depreciation of equipment and improvements is taken using the
straight line method. For 1996, 1995 and 1994 the charge to
income for depreciation under this method were $65,339, $59,304,
and $54,380 respectively.
The cost of maintenance and repairs is charged to expense as
incurred. The cost of betterments and additions are capitalized
and depreciated over the life of the asset. The cost of assets
disposed of or determined to be non-revenue producing, together
with the related accumulated depreciation applicable thereto, is
eliminated from the accounts, and any gain or loss is
recognized.
(5) Other Liabilities
At December 31, 1996 and December 31, 1995 the Company also
maintained a short position in certain marketable securities.
These positions were sold for $5,527 at December 31, 1996 and
$83,779 at December 31, 1995, and had respective market values
of $1,613 and $71,589 resulting in an unrealized gain of $3,914
at December 31, 1996 and $12,190 at December 31, 1995.
(6) Commitments and Contingencies
(A) Operating Leases
Future minimum rental payments under this non-cancelable
operating lease are as follows:
<TABLE>
<S> <C>
1997 $168,832
1998 $168,832
1999 $168,832
2000 $168,832
2001 $168,832
</TABLE>
Rent expense for all non-cancelable operating leases was
$257,477, $233,187, and $205,036 for the years ended
December 31, 1996, 1995, and 1994 respectively.
(B) Contingent Liabilities
The Company has pending several claims incurred in the normal
course of business which, in the opinion of management, based on
the advice of outside legal counsel, will not have a material
effect on the financial statements.
The Company is also involved in several legal proceedings with
the State of New York Department of Health over licenses to
operate its facilities.
Effective at the close of business on August 21, 1995, New York
State Department of Health has ordered the Company to cease
operations of its clinical laboratories, blood bank and tissue
bank.
F-5
<PAGE>
DAXOR NOTES TO STATEMENTS - CONTINUED
CORPORATION
After litigation, the NYS Appellate court, in a 5-0 opinion,
ordered that Daxor Corporation be granted all rights to operate
the above facilities.
During the period the Company was denied the ability to
operate, it sustained severe loss of revenues as reflected in
the current years operations. It is pursuing all legal means to
recover these as well as other claims for damages against the
NYS Department of Health. At this time the results of this
litigation is not determinable.
(7) Research and Development Expenses
Research and development expenses were $ 213,266, $206,149
and $195,269 for 1996, 1995, and 1994 respectively. All
research and development costs are expensed in the year they
occur.
(8) Interest Expense and Income
Interest expense was $78,212, $205,413, and $231,349 and
interest income was $4,037, $319,386, and $220,233 in 1996,
1995, and 1994 respectively.
(9) Income Taxes
The following is a reconciliation of the federal statutory
tax rate of 34% for 1996, 1995, and 1994, with the provision for
income taxes:
<TABLE>
<S> <C> <C> <C>
Year Ended December 31,
1996 1995 1994
Statutory tax rate 0 $493,671 $ 671,042
Dividend exclusion
expenses (344,454) (324,447)
Miscellaneous non-deductible
expenses 218 347
Tax benefit of capital loss
carryback/carryover (198,894)
State and city taxes 3,134 15,150 17,471
------ -------- --------
Provision for income taxes 3,134 $164,585 $165,519
------ -------- --------
Effective tax rate 0% 11.34% 8.39%
------ -------- --------
</TABLE>
(10) Shareholders' Equity
During 1996, the Company purchased 30,000 shares of its own
stock at a cost of $234,003.
(11) Subsidiaries
On January 9, 1996 Daxor Health Services, Inc. was formed as a
wholly owned subsidiary for the purpose of providing various
forms of therapy for individuals in nursing homes and assisted
care facilities. Results of operations have been consolidated
in the financial statements of Daxor Corporation.
(12) Related Party Transactions
Purchases by Daxor Corporation from related parties amounted to
$19,890 for 1996. They are included in the current cost of
Operations of Laboratories.
Gross revenues $ 295,780
Related Costs and Expenses (approximately) 262,000
F-5
<PAGE>
SCHEDULE I
MARKETABLE SECURITIES -- OTHER INVESTMENTS
<TABLE>
The following tables summarize the company's investments as of:
December 31, 1996
<S> <C> <C> <C> <C>
Type of Cost Fair Value Unrealized Unrealized
security Holding gains Holding losses
Equity $24,635,436 $35,548,401 $13,375,73 $2,462,772
Debt 25,000 26,125 1,125 0
----------- ----------- ----------- ----------
Total $24,660,436 $35,574,526 $13,376,862 $2,462,772
=========== =========== =========== ==========
</TABLE>
<TABLE>
SCHEDULE IX
SHORT-TERM BORROWINGS
Years Ended December 31, 1996, 1995, 1994
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------
Column A Column B Column C Column D Column E Column F
- ------------------------------------------------------------------------------
Category of Balance at Weighted Maximum Average Weighted
aggregate the end of average amount amount average
short-term the period interest rate outstanding outstanding interest
borrowings at end of during this duringthis rates during
period period period the period
- -------------------------------------------------------------------------------
1996
Banks 200,000 7.23% $1,100,000 $625,000 7.21%
Brokers 1,426,869 6.94% $482,613 $1,426,869 6.97%
- -------------------------------------------------------------------------------
All
Categories 1,626,869 7.03% $1,582,613 $2,051,869 7.06%
===============================================================================
1995
Banks $1,100,000 6.89% $2,600,000 $1,702,000 6.67%
Brokers $436,609 7.64% $534,628 $232,654 7.61%
- -------------------------------------------------------------------------------
All
Categories $1,536,609 7.28% $3,134,628 $1,952,654 7.02%
===============================================================================
1994
Banks $2,600,000 6.61% $3,300,000 $2,970,000 6.32%
Brokers $1,264,605 6.05% 1,304,584 587,000 7.56%
- -------------------------------------------------------------------------------
All
Categories $3,864,605 7.18% $4,604,584 $3,457,000 6.94%
===============================================================================
</TABLE>
The average borrowings were determined on the basis of the
amounts outstanding at each month- end. The weighted interest
rate during the year was computed by dividing actual interest
expense in each year by average short-term borrowings in such
year.
F-9
<PAGE>
<TABLE>
SCHEDULE X
SUPPLEMENTARY INCOME STATEMENT INFORMATION
COLUMN A Column B
Item
Charged to costs and expenses
Year ended December 31,
<S> <C> <C> <C>
1996 1995 1994
Maintenance and repairs............... $ - $ - $ -
Depreciation and amortization of
intangible assets, pre-operating
costs and similar deferral.......... 65,339 59,304 59,987
Taxes, other than payroll and income
taxes............................... - - -
Royalties............................. --- --- ---
Advertising costs..................... - - -
- - less than 1% of total revenues for the year.
</TABLE>
F-9
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 123,115
<SECURITIES> 35,574,526
<RECEIVABLES> 611,555
<ALLOWANCES> 0
<INVENTORY> 158,000
<CURRENT-ASSETS> 36,813,963
<PP&E> 1,114,375
<DEPRECIATION> (671,519)
<TOTAL-ASSETS> 37,288,804
<CURRENT-LIABILITIES> 5,507,384
<BONDS> 0
0
0
<COMMON> 53,097
<OTHER-SE> 31,781,420
<TOTAL-LIABILITY-AND-EQUITY> 37,288,804
<SALES> 717,308
<TOTAL-REVENUES> 2,865,835
<CGS> 819,722
<TOTAL-COSTS> 2,974,866
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 74,175
<INCOME-PRETAX> (109,031)
<INCOME-TAX> 3,134
<INCOME-CONTINUING> (112,165)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (112,165)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
