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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, 1997 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. [ ]
As at March 25, 1998, the aggregate market value of the voting stock held
by non-affiliates of the Registrant was $ 24,786,141. 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 $ 15.4375.
The number of shares outstanding of the Registrant's Common Stock, par
value $.01 per share, as of March 25, 1998: 4,797,709 shares.
Documents incorporated by reference: The information required by Part III
is incorporated by reference from the proxy statement for the 1998 Annual
Meeting of Shareholders.
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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, the Company 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). In 1985, Idant also developed the first
autologous blood bank in the United States where individuals could store
their own blood. The Company is involved in a dispute with the New York
State Department of Health concerning its blood and semen banking
operations. The Company has the only semen bank in the state of New York,
out of more than 50 licensed banks, which is accredited by the American
Association of Tissue Banks. The Company's frozen blood bank is the only
blood bank in New York that allows people to store their own blood for up
to ten years.
Measurement of Human Blood Volume
The Company received the first US patent for a semi-automated instrument
to measure human blood volume in 1991. In March 1996, the Company
received a patent for a quantitative injection kit to be used in
conjunction with the instrument. The injection kit permits a quantitative
injection with a precision of 99.8%. Measurement of human blood volume
has been available for forty years, but has required four to eight hours
of highly precise preparation and technician time for a result to be
obtained. Because of this precise blood volume measurements have been
infrequently performed outside of research situations. The Company's
Blood Volume Analyzer permits accurate blood volumes to be obtained
within eighteen to thirty-five minutes. In September 1997, the Company
received clearance from the FDA to market its Blood Volume Analyzer, and
in January 1998, the Company received clearance from the FDA to market
the associated injection kit. The disposable injection kit is essential
to the rapid performance of blood volume analysis.
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 the plasma 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.
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 +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 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 will overestimate the amount of blood the
individual actually has.
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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 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. The
instrument could theoretically be used without the kit, but then the user
would need several hours to obtain results. In addition, the costs of
preparing a kit substitute would most likely be greater to any user than
the purchase cost of the kit itself. The cost of a kit to hospitals is
estimated to be about 1/5 of the cost a hospital could charge for the
test.
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 10-14,000 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. 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. The company will attempt to
obtain an oversees market.
The Company has an agreement with Oxford Instruments, Inc., N.M.G. to
manufacture its instrument on a subcontract basis. The Company also has
an agreement with Wellport instruments to manufacture the quantitative
injection kit assembly. The Company is also working with a
radiopharmaceutical company to fill and dispense its kits. It plans to
establish service centers and may also manufacture its own kits.
BLOOD BANKING
In 1985, the Company established the first facility in the United States
for long-term autologous (self-storage) blood banking. 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 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 system 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 15-18 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. 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.
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 is a
significant number of hepatitis cases 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 cytomegalovirus, 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
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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.
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 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
under-transfusion is unknown but significant. Patients who have decreased
blood volume are termed 'Hypovolemic'. The Blood volume Analyzer has the
potential to detect such individuals before complications from
under-transfusion occurs. Physicians who fear the complications of
transfusion with potentially contaminated blood do not have these
concerns when patients use autologous blood (self-storage). The Company
believes that an 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 ensuring 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 N.Y.S, Long Island and N.Y.C region is the
New York Blood Center. In the upper region of N.Y.S, 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.
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.
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 4)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. If Daxor is
forced to discontinue its ongoing lawsuits from its blood banking
operation in New York, it would eliminate the losses from its operation.
Some members of the pubic however, deprived of these services might lose
their lives as a consequence of the discontinuation of these services.
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Semen (Sperm) Banking
Idant pioneered both the technology and the commercial application of
long-term preservation of human sperm for use in artificial insemination.
The division has provided frozen semen services to physicians worldwide.
As of February 1, 1996, 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 partially closed from August 21,
1995 to May 16, 1996. During this time, 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 had returned to full
operation after unanimous 5-0 decision of the Appellate court, first
department, to reopen Idant's facilities. Judge Cohen issued an order
that the deposits of both semen and blood bank clients should not be
interfered with. On June 3, 1997, the New York State Court of Appeals
reversed the Appellate Court decision where facts could be presented. ).
. The Company has however been blocked from taking new blood and semen
bank clients. In a separate 1996 court action, New York Supreme Court
Justice Stuart Cohen chose an expert from a list supplied by the New York
State Department of Health to inspect the Idant facility. The expert, Dr.
Stanly Leibo, reported in 1996 and 1997 that the Idant facilities were of
the highest caliber. At the present time, none of the licensed New York
State sperm banks have passed the AATB accreditation process.
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.
Storage of Sperm for Personal Use
The Company's sperm bank facilities contain stored sperm which should
remain viable for many years. Semen stored for 23 years, at minus 321
degrees, has shown minimal change (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 cancer
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.
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.
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(degree)F (the temperature
of the liquid nitrogen) to room temperature of 78(degree)F more than 100 times
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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. The Company is aware of
only one other semen bank which uses the carousel system for long term
storage of semen. Unless the company is able to prevail in court or
resolve its suit with the New York Department of Health, it will however
not continue semen banking in New York.
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 U.S. 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.
Marketing
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 plans to provide its instruments and kits
initially to teaching hospitals for testing purposes. The Company will
supply technicians to each user for educational and training purposes.
The Company has also received indications from some medical device
distributors to market the BVA-100. The Company will evaluate whether it
is optimal for Daxor to do its own marketing, or 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
measure 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.
The Company is considering moving its semen and blood banking operations
out of New York State. At the present time discussions are taking place
with Health Department representatives concerning resolution of various
suits. The marketing of the Blood volume Analyzer is not expected to be
impacted by the New York State dispute. The Company's marketing will be
focused primarily on the Blood Volume Analyzer.
Competition
The medical technology market is intensely competitive. There are,
however, 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 protection 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 300 sperm banks in the United States operated by
either commercial entities or by academic institutions. The Company
believes that increased public awareness of the efficacy of frozen semen
stored by it along with recent medical journal articles emphasizing the
necessity for careful screening of donors for artificial insemination
will result in an increasing use of frozen semen for this purpose. The
Company believes that the accreditation by the American Association of
Tissue Banks, as well as the report of the independent court-appointed
expert, has helped restore the credibility of Idant's semen bank. The
Idant semen bank is the only semen bank in the State of New York out
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of more than fifty that is accredited by the American Association of
Tissue Banks. The Company believes its semen bank has been targeted
because of opposition to private blood banking. The Company cannot
predict the outcome of the dispute with the Health Department, but
believes it 's primary effect is in New York State.
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 for adequate supplies of blood
products. 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.
Daxor believes that it has been extensively damaged by the collusive
actions of the New York Blood Center and regulators are opposed to
private frozen blood banking and options it provides to the public.
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. Daxor believes that
the opposition to private frozen blood banking can be counted by
increasing demands by members of the public for safer forms of blood
banking.
Regulation
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. The FDA clearance for marketing of the Blood Volume Analyzer,
BVA-100, and the associated quantitative injection kit marks one of the
most important milestones in the history of Daxor.
Since 1989, Daxor/Idant has been involved in an on-going legal battle
with the New York State Department of Health. From 1971-1994, Idant had a
New York City clinical laboratory license, and from 1985 to 1994, when it
opened its autologous blood bank. Since 1989, a key representative of the
New York Health Department initiated a process to deny Daxor its State
licenses, which dated back to 1978. In 1994, the State and City licensing
functions were combined. The state proposed to deny Daxor its blood and
semen banking licenses without a due-process hearing. In 1996, a
five-judge Appellate Court ruled unanimously in Daxor's favor, despite
the Health Department's claim that these were new licenses, and ordered
Daxor's licenses restored. In June 1997, The Court of Appeals
unexpectedly reversed the Appellate Court decision, stating that these
were new licenses and that Daxor was not entitled to due-process. Since
June 1997, the Idant semen bank and blood bank have been operating on a
limited storage basis. Blood and Semen storage clients have been
protected by a court order that allows them to receive their storage
deposits without Court interference. Patients who have used their blood
during this time frame have not been able to replenish the blood that
they had previously stored. Fundamental to the dispute is the Department
of Health's repeated attempt to block evidence of clear discriminatory
bias in its treatment of Daxor. At the present time, the issue of
due-process has been submitted to the US Supreme Court for possible
consideration. The Company's previous 10K filings, as well as Special
Reports I, II, III, and Year-End Update 1997, describe in detail the
background to these disputes. These filings describe evidence of perjury
by members of the Department of Health and detail the basis for the
Company's belief that there are serious conflicts of interest by key
members of the Department. Daxor has filed a $55 million lawsuit in the
Court of Claims which details the discriminatory treatment. For example,
the FDA has charged the New York Blood center with improperly testing
blood shipped out between September 1991, and November 1996. In December
1997, two of its managers were sentenced to prison, and its major testing
laboratory is or has been closed. These actions came about primarily from
FDA inspectors and Federal action. In contrast, the New York state
Department of Health took no action against the Blood Bank director
responsible for the violations, who served for years on the Transfusion
council with New York State Regulators. In the 27 year history of its
sperm bank and 12 year history of its blood bank, Idant has never shipped
out a unit of infected donor blood or semen. Discussions are currently
under-way which may end these lawsuits.
Employees
On March 20, 1997, the Company had 31 employees. None of the Company's
employees are covered by a collective bargaining agreement. The Company
believes that its employee relations are good.
7
<PAGE>
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: 1995-$168,832, 1996 - $168,832, and 1997 - $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.
Item 3. Legal Proceedings
The Company, as a result of the Ressimo offer in July 1992, has had two
class action lawsuits initiated against it, in regard to a preliminary
partial take-over offer at $20.00/share. After Ressimo withdrew the
offer, the suits were instituted. The Company always maintained that the
lawsuits were frivolous and without merit. The suits were withdrawn in
March 1998 after Daxor agreed not to press its counter-claims for a
frivolous lawsuit.
The Company is involved in several proceedings with the New York State
Department of Health relating to its licenses to operate a laboratory and
sperm and blood bank. These actions are as follows:
1. Idant Laboratories, et al. v. State of New York Department of
Health, et al. Appellate Division First Department, (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 Freeman denied Idant's petitions. The Appellate
Court dismissed action as moot in light of the decision of the
Court of Appeals finding that there is no right to a hearing on
a renewal of license.
2. 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. Action dismissed by the
Appellate Division as moot in light of Court of Appeal's
decision. A motion to reargue was made and is pending.
3. Daxor Corp., et al. v. State of New York Department of Health,
et al. (Supreme Court, New York County; Index No. 10754/95).
This proceeding was instituted by Daxor to challenge the
determination of the State Department of Health to revoke all
the licenses issued to, and to deny all licensure applications
for, Daxor's New York health care facilities. The Court of
Appeals dismissed the action, finding that there is no right to
a hearing for a license renewal.
4. 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 Department of
Health employee. The court dismissed, finding that in light of
the Court of appeal's decision, Daxor would be estopped from
litigating the issues raised in the complaint. A motion to
reargue has been filed and a notice of appeal has been filed.
5. 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 the article, and
K-III Corp., the owner of the New York Magazine, which published
the defamatory article. Discovery is proceeding. This proceeding
remains ongoing.
6. Daxor and Yaker, et al. v. DeBuono, (Supreme Court, New York
County; Index No. 122485/95). Justice Weisberg. This is a class
action instituted by tissue 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 bank's premises. Daxor has made a motion in this case to
compel the Department of Health to issue licenses for 1998. The
motion will be heard on April 8, 1998.
7. Idant v. DeBuono, (Third Department; 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. This appeal was dismissed as moot
based upon the Court of Appeal's decision that Daxor did not
have a property interest in a license.
8. Daxor v. State, (New York Court of Claims). An action was
commenced against the state for its denial of Equal Protection
under the laws for Daxor. The action alleges that the state has
issued licenses to blood and semen banks that have had a pattern
of dangerous violations, while the state will not license
Daxor's facilities, the only facility in New York to be
accredited by the American Association of Tissue 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 1997.
8
<PAGE>
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.
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
1997
High Low
---- ---
First Quarter...................... 13 3/4 9 3/8
Second Quarter..................... 11 3/4 7 1/2
Third Quarter...................... 13 3/4 8 1/2
Fourth Quarter..................... 14 1/2 10 3/4
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 paid a single cash dividend, $.50, on the Common Stock in
1997. Any future dividends will be dependent upon the Company's earnings,
financial condition and other relevant factors.
9
<PAGE>
<TABLE>
<CAPTION>
Selected Operations
Statement Data:
Year Ended December 31,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Operating revenues $ 529,737 $ 717,308 $ 1,864,552 $ 1,844,418 $ 1,926,415
Dividend income 2,138,755 2,132,173 2,209,962 2,157,735 2,164,691
Gains (losses) on sale
investments 144,681 16,354 674,421 584,982 708,407
----------- ----------- ----------- ----------- -----------
Total revenues 2,813,173 2,865,835 4,748,935 4,587,135 4,799,513
----------- ----------- ----------- ----------- -----------
Costs and expenses:
Operations of
laboratories 628,729 819,722 1,041,275 1,016,832 998,401
Selling, general and
administrative 2,161,626 2,080,969 2,369,660 1,585,533 1,309,105
Interest expenses, net
of interest income 167,452 74,175 (113,973) 11,116 181,353
----------- ----------- ----------- ----------- -----------
Total costs and expenses 2,957,807 2,974,866 3,296,962 2,613,481 2,488,859
----------- ----------- ----------- ----------- -----------
Net income or (loss) before
income taxes (144,634) (109,031) 1,451,973 1,973,654 2,310,654
Provision for income taxes 14,219 3,134 164,858 165,519 160,309
----------- ----------- ----------- ----------- -----------
Net income or (loss) $ (158,853) $ (112,165) $ 1,287,115 $ 1,808,135 $ 2,150,345
=========== =========== =========== =========== ===========
Weighted average number of
shares outstanding 4,696,876 4,722,709 4,872,481 5,122,188 5,154,955
----------- ----------- ----------- ----------- -----------
Net income per common
equivalent share $ (0.03) $ (0.02) $ 0.26 $ 0.35 $ 0.42
=========== =========== =========== =========== ===========
- --------------------------------------------------------------------------------------------------------------
<CAPTION>
Selected Balance Sheet Data:
Year Ended December 31,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Working capital 32,501,404 31,306,579 31,598,345 28,739,806 23,966,425
Total assets 41,322,592 37,288,804 37,744,621 35,012,638 29,112,282
Total liabilities* 8,404,868 5,507,384 5,691,790 5,813,458 4,681,643
Shareholders' equity 31,781,420 32,052,831 29,199,180 24,430,639
Return on equity* 0.00% 0.00% 4.41% 7.40% 9.64%
</TABLE>
* 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.
* Total liabilities include deferred taxes of $5,690,967 for unrealized
gains.
10
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Idant Laboratories contributed 100%, 65% and 85% of operating revenues in
1997, 1996 and 1995 respectively. The Company has been injured by false
claims by New York State Health Department officials who have conducted
an ongoing series of actions to block private frozen blood banking. The
company has been unable to accept new blood or semen donors since June,
1997. The Court of Appeals overturned a previous decision in favor of
Daxor. As a result, the Company continues to have a severely dimished
return in its cryobanking operations. The Company has been repeatedly
denied due-process hearings, and has now appealed to the U.S. Supreme
Court. 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. This company is in
the process of obtaining additional private funding, and Daxor may
transfer some of its operations to this facility. The Blood volume
Analyzer and is quantitative injection it have been cleared for marketing
by the FDA. The potential market for the Blood Volume Analyzer is
significantly larger than the Company's current operations, and is
believed to exceed $100 million per year. The Company intends to focus
its marketing efforts on the Blood Volume Analyzer. The Company may
consider closing its private blood banking operations within New York
State.
YEAR ENDED DECEMBER 31, 1997 AS COMPARED TO DECEMBER 31, 1996
Total revenues were $2,813,173 in 1997, down from the $2,865,835 reported
in 1996. Dividend income earned on the Company's securities portfolio was
$2,138,755, an increase from the $2,132,173 reported in 1996. Gains on
the sale of investments was $144,681 in 1997 as compared to $16,354 in
1996. Net income before income taxes was a loss of $158,853 in 1997 vs.
$109,031 in 1996.
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, an 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 $109,031 in 1996 vs. $1,451,973
in 1995.
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, 1997, the Company's short term debt was $2,494,639 vs.
$1,636,067 in 1996. At year end 1997, shareholders' equity was
$32,917,724. At year end 1996, the Company had shareholders' equity of
$31,781,420. At December 31, 1997 the Company's security portfolio had a
market value of $40,347,085 vs. $35,574,526 in 1996.
During 1997, the Company obtained an FDA clearance for marketing the
Blood Volume Analyzer, BVA-100. The Company has since entered into a
manufacturing contract with Oxford NMG of Oakridge TN, to produce the
Blood Volume Analyzer(BVA-100). In the initial phase of marketing, the
Company will lend the instrument and supplies to a limited number of
teaching hospitals for testing purposes. The Company plans to offer to
lease, as well as sell, its Blood
11
<PAGE>
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 1997, 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.
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 14.
(b) DAXOR filed no current reports on Form 8-K during the last
quarter of the fiscal year ending December 31, 1996.
12
<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, 1998
--------------
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, 1998
- ------------------------- (Principal Executive Officer)
Joseph Feldschuh, M.D.
/s/Robert Rosenthal Vice President March 30, 1998
- -------------------------
Robert Rosenthal
/s/ Octavia Atanasiu Corporate Treasurer March 30, 1998
- ------------------------- Accounting Supervisor
Octavia Atanasiu (Principal Financial Officer)
/s/ Virginia Fitzpatrick Corporate Secretary March 30, 1998
- -------------------------
Virginia Fitzpatrick
/s/ Stephen M. Moss Director March 30, 1998
- -------------------------
Stephen M. Moss, Ph.D.
/s/ Bruce Hack Director March 30, 1998
- -------------------------
Bruce Hack
/s/ James Lombard Director March 30, 1998
- -------------------------
James Lombard
/s/ Martin Wolpoff Director March 30, 1998
- -------------------------
Martin Wolpoff
Board of Directors:
Name Title
Dr. Joseph Feldschuh Chairman, President, & CEO
Stephen Moss Director
James Lombard Director
Martin Wolpoff Director
Bruce Hack Director
<PAGE>
DAXOR CORPORATION
Item 14(a) (1). Index to Financial Statements
The following statements and schedules of Daxor Corporation are submitted
herewith:
Page
----
Report of Independent Accountants F-1
Financial Statements as at December 31, 1997 and 1996
and for the three years ended December 31, 1997
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, 1997 F-9
Schedule IX - Short-term Borrowings - Years ended
December 31, 1997, 1996, and 1995 F-9
Schedule X - Supplementary Income Statement Information -
Years ended December 31, 1997, 1996, and 1995 F-9
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, 1997 and 1996, the related statements of
income, shareholders' equity and cash flows for each of the three years
in the period ended December 31, 1997. 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,
1997 and 1996, and the results of their operations and its cash flows for
each of the three years in the period ended December 31, 1997 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 23, 1997
F-1
<PAGE>
<TABLE>
<CAPTION>
DAXOR CORPORATION
FINANCIAL STATEMENTS
====================================================================================================================
CONSOLIDATED BALANCE SHEETS
December 31,
1997 1996
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
- --------------------------------------------------------------------------------------------------------------------
CURRENT ASSETS
Cash $ 60,768 $ 123,115
Marketable Securities at Fair Value
December 31,1997 and December 31,
1996. (Notes 1 and 2) 40,347,085 35,574,526
Accounts receivable (Note 3) 173,098 611,555
Accounts receivable-Related parties (Note 12) 104,350 115,008
Other current assets 215,090 235,858
Tax refunds receivable 5,881 153,901
------------ ------------
Total Current Assets 40,906,272 36,813,963
EQUIPMENT AND IMPROVEMENTS (Note 4)
Storage tanks 125,815 125,815
Leasehold improvements, furniture
and equipment 714,774 714,142
Laboratory equipment 274,418 274,418
------------ ------------
1,115,007 1,114,375
Less: Accumulated depreciation and amortiation 730,503 (671,519)
------------ ------------
Net equipment and improvements 384,504 442,856
Other Assets 31,816 31,985
Total Assets $ 41,322,592 $ 37,288,804
============ ============
- --------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 188,572 $ 136,551
Loans payable (Notes 1 and 2) 2,494,639 1,636,067
Other Liabilities (Note 5) 30,690 14,834
Deferred Taxes (Note 1) 5,690,967 3,719,932
------------ ------------
Total Liabilities 8,404,868 5,507,384
Commitments and contigencies (Note 6)
SHAREHOLDERS' EQUITY
Common stock, par value $.01 per share:
Authorized 10,000,000 shares: issued and
outstanding shares 4,690,709 December 31,
1996 and 4,712,709 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) 11,047,170 7,194,158
Retained earnings 16,713,436 19,226,044
Treasury stock (3,475,782) (3,271,682)
------------ ------------
Total Shareholders' Equity 32,917,724 31,781,420
Total Liabilities and Shareholders' Equity $ 41,322,592 $ 37,288,804
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
F-2
<PAGE>
<TABLE>
<CAPTION>
DAXOR CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Revenues:
- ------------------------------------------------------------------------------------------------------------------------------
Operating revenues (Note 12) $ 529,737 $ 717,308 $ 1,864,552
Dividend income 2,138,755 2,132,173 2,209,962
Gains on sale of securities 131,618 214,607 607,163
Gains (losses) on sale of options and commodities 13,063 (198,253) 67,258
----------- ----------- -----------
Total Revenues 2,813,173 2,865,835 4,748,935
----------- ----------- -----------
- ------------------------------------------------------------------------------------------------------------------------------
Costs and expenses:
- ------------------------------------------------------------------------------------------------------------------------------
Operations of Laboratories 628,729 819,722 1,041,275
Selling, General, and Administrative 2,161,626 2,080,969 2,369,660
Interest expense, net of interest income 167,452 74,175 (113,973)
----------- ----------- -----------
Total costs and expenses 2,957,807 2,974,866 3,296,962
----------- ----------- -----------
Net Income Before Income Taxes (144,634) (109,031) 1,451,973
Provision for income taxes (Note 9) 14,219 3,134 164,858
----------- ----------- -----------
Net Income $ (158,853) $ (112,165) $ 1,287,115
=========== =========== ===========
Weighted Average Number of Shares Outstanding 4,696,876 4,722,709 4,872,481
=========== =========== ===========
Net Income per Common Equivalent Share $ (0.03) $ (0.02) $ 0.26
=========== =========== ===========
See accompanying notes to consolidated financial statements
<CAPTION>
==============================================================================================================================
DAXOR CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
Three Years Ended December 31, 1997
Common stock Additional
Number Paid-in Retained Treasury
of Shares Amount Capital Earnings Stock
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1,1995 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 December 31,1995 4,742,709 53,097 8,579,803 19,338,209 (3,037,679)
- ------------------------------------------------------------------------------------------------------------------------------
Net loss for the year ended
December 31,1996 (112,165)
Purchase of Treasury Stock (30,000) (234,003)
---------- ------- ------------ ------------- -------------
- ------------------------------------------------------------------------------------------------------------------------------
Balance December 31,1996 4,712,709 53,097 8,579,803 19,226,044 (3,271,682)
- ------------------------------------------------------------------------------------------------------------------------------
Net loss for the year ended
December 31,1997 (158,853)
Purchase of Treasury Stock (22,000) (204,100)
Dividends (2,353,755)
---------- ------- ------------ ------------- -------------
- ------------------------------------------------------------------------------------------------------------------------------
Balance December 31,1997 4,690,709 53,097 $ 8,579,803 $ 16,713,436 $ (3,475,782)
========== ======= ============ ============= =============
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE>
<TABLE>
<CAPTION>
DAXOR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Cash flows from operating activities:
Net income or (loss) $ (158,853) $ (112,165) $1,287,115
---------- ---------- ----------
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation & Amortization 58,985 65,339 59,304
(Gain) loss on sale of investments (144,681) (16,354) (674,421)
Change in assets and liabilities:
(Increase) decrease in accounts receivable 438,457 (202,359) (193,365)
(Increase) decrease in accounts receivable-
Related Parties 10,658 57,943 (172,951)
(Increase) decrease in other current assets 20,768 528,837 (292,388)
(Increase) decrease in tax refunds receivable 148,020 52,332 -
(Increase) decrease in other assets
net of goodwill amortization 169 (169) 9,344
Increase (decrease) in accounts payable,accrued
expenses and other liabilities net of "short sales" 55,396 (187,234) 312,777
Total adjustments 587,772 298,335 (951,700)
---------- ---------- ----------
Net cash provided by operating activities 428,919 186,170 335,415
---------- ---------- ----------
Cah flows from investing activities:
Payment for purchase of equipment and
improvements (632) (85,525) (63,760)
Net cash provided or (used) in purchase
and sale of investments 1,190,641 149,502 3,997,024
Net proceeds (repayments) of loans from
brokers used to purchase investments 67,770 990,259 (827,996)
Proceeds from "short sales" not closed 18,008 5,527 83,779
---------- ---------- ----------
Net cash provided by/(used in) investing activities 1,275,787 1,059,763 3,189,047
---------- ---------- ----------
Cash flows from financing activities
Receipt of/(repayment of)- bank loan 800,000 (900,000) (1,500,000)
Loans received/repaid (9,198) 9,198
Dividends paid (2,353,755)
Payment for purchase of treasury stock (204,100) (234,003) (2,082,437)
---------- ---------- ----------
Net cash used in financing activities (1,767,053) (1,124,805) (3,582,437)
---------- ---------- ----------
Net increase (decrease) in cash and
cash equivalents (62,347) 121,128 (57,975)
Cash and cash equivalents at beginning of year 123,115 1,987 59,962
---------- ---------- ----------
Cash and cash equivalents at end of year $ 60,768 $ 123,115 $ 1,987
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE>
DAXOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements as at
December 31, 1997 and 1996 and for the three years ended December 31,
1997 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, 1997 and December 31, 1996 being increased approximately 70.90 % and
44.26 % 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.
The following tables summarize the company's investments as of:
<TABLE>
<CAPTION>
December 31, 1997
-----------------
Type of Unrealized Unrealized
security Cost Fair Value holding gains holding losses
- -------- ---- ---------- ------------- --------------
<S> <C> <C> <C> <C>
Equity $23,583,948 $40,320,610 $18,450,502 $1,713,840
Debt 25,000 26,475 1,475 0
---------------------------------------------------------------------------------------------------
Total $23,608,948 $40,347,085 $18,451,977 $1,713,840
=========== =========== =========== ==========
<CAPTION>
December 31, 1996
-----------------
- ---------------------------------------------------------------------------------------------------------------------------
Type of Unrealized Unrealized
security Cost Fair Value holding gains holding losses
- -------- ---- ---------- ------------- --------------
<S> <C> <C> <C> <C>
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
=========== =========== =========== ==========
</TABLE>
At December 31, 1997, the securities held by the Company had a
market value of $40,347,085 and a cost basis of $23,608,948 resulting in
a net unrealized gain of $16,738,137 or 70.90% of cost.
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, 1997 and December 31, 1996, marketable
securities, primarily consisting of preferred and common stocks of
utility companies, are valued at fair value.
<PAGE>
(2) Loans Payable
As at December 31, 1997 and December 31, 1996, the Company had
loans outstanding aggregating $1,000,000 and $200,000 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
7.56%.
Short term margin debt due to brokers ,secured by the Companies
marketable securities, totaled $1,494,639 at December 31, 1997 and
$1,426,869 at December 31, 1996.
(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 1997, 1996 and 1995 the charges to income for
depreciation using this method were $58,985, $65,339 and $59,304
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,are eliminated from the
accounts, and any gain or loss is recognized.
(5) Other Liabilities
At December 31, 1997 and December 31, 1996, the Company also
maintained a short position in certain marketable securities. These
positions were sold for $18,008 at December 31, 1997, and $5,527 at
December 31, 1996, and had respective market values of $21,730 and $1,613
resulting in an unrealized loss of $3,722 at December 31, 1997 and an
unrealized gain of $3,914 at December 31, 1996
(6) Commitments and Contingencies
(A) Operating Leases
Future minimum rental payments under this non-cancelable operating
lease are as follows:
1998 $168,832
1999 $168,832
2000 $168,832
2001 $168,832
2002 $168,832
Rent expense for all non-cancelable operating leases was
$232,357,$257,477 and $233,187 for the years ended December 31, 1997,
1996 and 1995 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
consolidated financial statements.
The Company is also involved in several legal proceedings with
the State of New York Department of Health over licenses to operate it's
facilities.
Effective at the close of business on August 21, 1996 New York
State Department of Health ordered the Company to cease operations of
it's clinical laboratories, blood bank and tissue bank.
After litigation the NYS Appellate Court , in a 5 to 0 opinion,
ordered that Daxor Corporation be granted all rights to operate the above
facilities.
On June 5,1997 the NYS Court Of Appeals reversed the above
decision and effectively forced the Company to limit it's operation to
servicing current blood and semen storage clients.
During the period the Company has been denied the ability to
fully operate, it has sustained severe loss of revenues as reflected in
the current and prior year's 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.
<PAGE>
(7) Research and Development Expenses
Research and development expenses were $182,294, $213,266 and
$206,149 for 1997, 1996, and 1995 respectively.All research and
development costs are expensed in the year they occur.
(8) Interest Expense and Income
Interest expense was $168,073,$78,212, and $205,413 and interest
income was $621, $4,037, and $319,386 in 1997, 1996 and 1995
respectively.
(9) Income Taxes
The following is a reconciliation of the federal statutory tax
rate of 34% for 1997,1996 and 1994, with the provision for income taxes:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Statutory tax rate $0 $0 $493,671.
Dividend exclusion ( 344,454)
Miscellaneous non-deductible expenses
218.
State and city taxes 14,219 3,134 15,150.
Provision for income taxes $164,585.
------------------ --------------- ----------------
Effective tax rate 0.% 0.% 11.34%.
------------------ --------------- ----------------
</TABLE>
(10) Shareholders' Equity
During 1997, the Company purchased 22,000 shares of its own
stock at a cost of $204,100.
The Company paid a dividend of $.50/per share to stockholder's
of record as at April 30, 1997 on May 30, 1997.in the amount of
$2,353,755.
(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.
The CORF, thru which services were provided and billed,
developed financial difficulties.Because Daxor Health Services, Inc was
only able to obtain partial payment the company chose to suspend it's
services.All unpaid receivables have been deemed uncollectable and
charged against current years earnings.
(12) Related Party Transactions
Sale to related parties amounted to $10,395 for 1997.Purchases
by Daxor Corporation from related parties amounted to $19,890 for
1996.The results of these transactions are included in the respective
financial statements.
<PAGE>
SCHEDULE I
MARKETABLE SECURITIES -- OTHER INVESTMENTS
The following tables summarize the company's investments as of:
December 31, 1997
-----------------
Type of Unrealized Unrealized
security Cost Fair Value Holding gains holding losses
- -------- ---- ---------- ------------- --------------
Equity $23,583,948 $40,320,610 $18,450,502 $ 1,713,840
- ------
Debt 25,000 26,475 1,475 0
- ---- ----------- ----------- ----------- -----------
Total $23,608,948 $40,347,085 $18,451,977 $ 1,713,840
- ------ =========== =========== =========== ===========
<TABLE>
<CAPTION>
SCHEDULE IX
SHORT-TERM BORROWINGS
Years Ended December 31, 1997, 1996, 1995
- ---------------------- --------------------- --------------------- ---------------------- --------------------- ------------------
Column A Column B Column C Column D Column E Column F
- -------- -------- -------- -------- -------- --------
- ---------------------- --------------------- --------------------- ---------------------- --------------------- ------------------
Category of Balance at the end Weighted average Maximum amount Average amount Weighted average
aggregate short-term of period interest rate at outstanding during outstanding during interest rates
borrowings end of the period this period the period during the period
- ---------------------- --------------------- --------------------- ---------------------- --------------------- ------------------
<S> <C> <C> <C> <C> <C>
1997
- ---------------------- --------------------- --------------------- ---------------------- --------------------- ------------------
Banks 1,000,000 741 1,000,000 800,000 7.42%
- ---------------------- --------------------- --------------------- ---------------------- --------------------- ------------------
Brokers 1,494,639 7.14 2,515,594 1,427,050 7.17
- ---------------------- --------------------- --------------------- ---------------------- --------------------- ------------------
All Categories 2,494,639 7.19 3,515,594 2,227,050 7.22
- ---------------------- --------------------- --------------------- ---------------------- --------------------- ------------------
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 %
- ---------------------- --------------------- --------------------- ---------------------- --------------------- ------------------
</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.
<PAGE>
SCHEDULE X
SUPPLEMENTARY INCOME STATEMENT INFORMATION
- ------------------------------------------------------------------------------
COLUMN A COLUMN B
- ------------------------------------------------------------------------------
Item Charged to costs and expenses
Year ended December 31,
1997 1996 1995
---- ---- ----
Maintenance and repairs $ * $ * $ *
Depreciation and amortization
of intangible assets pre-operating
costs and similar deferrals 58,985 65,335 59,304
Taxes, other than payroll and
income taxes * * *
Royalties --- --- ---
Advertising costs * * *
- ------------------------------------------------------------------------------
* less than 1% of total revenues for the year.
- ------------------------------------------------------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 60,768
<SECURITIES> 40,347,085
<RECEIVABLES> 277,448
<ALLOWANCES> 0
<INVENTORY> 25,960
<CURRENT-ASSETS> 40,906,272
<PP&E> 1,115,007
<DEPRECIATION> 730,503
<TOTAL-ASSETS> 41,322,592
<CURRENT-LIABILITIES> 8,404,868
<BONDS> 0
0
0
<COMMON> 53,097
<OTHER-SE> 32,864,627
<TOTAL-LIABILITY-AND-EQUITY> 41,322,592
<SALES> 529,737
<TOTAL-REVENUES> 2,813,173
<CGS> 0
<TOTAL-COSTS> 628,729
<OTHER-EXPENSES> 2,161,626
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 167,452
<INCOME-PRETAX> (144,634)
<INCOME-TAX> 14,219
<INCOME-CONTINUING> (158,853)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (158,853)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
