SecProbe.io

CORRESP
1
filename1.htm

     Daxor Corporation

1

September 15, 2005

Mr. Gary Todd

Reviewing Accountant

United States Securities & Exchange Commission

100 F. Street N.E., Mail Stop 0610

Washington, D.C. 20549

Dear Mr. Todd:

We wish to express our appreciation
to your office for permitting us additional time to answer your letter. With respect to
the Investment Company Act, we have reviewed the relevant portions of the government
document, 17 CFR Pat 270 Final Rule: Certain Research and Development Companies.

General

1. Section 3(a)(1)(c)
of the Investment Company Act of 1940 defines “investment company” as any issuer that: is
engaged or proposes to engage in the business of investing, reinvesting, owning, holding,
or trading in securities, and owns or proposes to acquire investment securities having a
value exceeding 40 per centum of the value of such issuer’s total assets (exclusive of
Government securities and cash items) on an unconsolidated basis.” Please provide us with
a written response analyzing whether Daxor is an investment company under the 1940 Act,
including data indicating the value of Daxor’s investment securities and total assets
(exclusive of cash items and Government securities) on an unconsolidated basis as of the
fiscal quarters ended June 30, 2004, September 30, 2004, December 31, 2004, and March 31,
2005. Please also provide appropriate documentation to support your analysis. If you
determine that Daxor is an investment company: (1) explain why Daxor is not required to
register as an investment company under the 1940 Act (e.g., provide a complete and
detailed explanation of the basis for Daxor’s reliance upon any exemption or exclusion
from the definition of investment company under the 1040 Act); or (2) if no exemption or
exclusion from the definition of investment company is available to Daxor, explain what
specific remedial action you have taken or plan to take, either to cause Daxor to fall
outside of that definition, or to register Daxor as an investment company,

2

1. As per our discussion, I am
enclosing a specific response to the investment company question. Although I believe it
is readily apparent that we are an operating company, I realize that we generate an
unusual amount of income from investment sources. The following information is
specifically related to the sections of 17-CFR Part 270. In addition to the specific
response to each section, I am also including a separate table which identifies income
going back to 1993, and includes the most recent quarter. This table is useful in
understanding the role that investment income has played in preserving the capital
resources of the company. Over the past 12 1/4 year period the company had operating
revenues or $12,231,387 and total expenses of $38,792,026, for a loss from operations of
$26,560,639. During that same period the company had investment income of $29,363,390,
with a reported loss for the company as whole of $2,510,801.

It is clear from these figures that
if the company had invested its profits from its earlier years, as well as its capital in
items such as Treasury Bills, it would currently be on the verge of bankruptcy, if not
already bankrupt. The cash management policy which we have followed has, however,
permitted us to avoid financial catastrophe and has put us in a position where we are
currently able to expand our most important technological development which is the blood
volume analyzer.

The following are key items which
provide for a safe harbor under 3a-8.

The first point in the Investment
Company Act, as well as this additional document, is whether the company holds itself out
to be an investment company or an operating company, an important consideration is what
the history of its function is, as well as how the Board of Directors functions. It is
very clear, since the founding of this company, that we have not only have been a
research and development company, but we have pioneered 3 major scientific areas; the
first is sperm banking in which the company played an historical role. Idant Laboratory
is one of the original founding fathers in the sperm banking industry. We were part of
the group of sperm banks that started the Reproductive Council for the American
Association of Tissue Banks. It is not too far of a stretch to state that if Idant had
gone bankrupt, the entire field would have been discredited, because all the other
initial sperm banks went bankrupt. The second is blood banking, where we were the first
frozen autologous blood bank in the United States. Our development triggered over 65
imitators, almost all of whom subsequently went bankrupt. We have provided this service
continuously, although at a lower level, over the past 20 years. The last item is our
major research development, the blood volume analyzer, which I believe has as much
potential impact in improving health care outcomes as the CAT scanner. All our filings
over the past 20 years address this issue repeatedly.

Although our main assets, according
to GAAP, would appear to be financial instruments, the SEC has recognized that
intellectual property, for example, such as the patents on the blood volume analyzer and
on the Volumex blood volume kit are not reflected fully on the book of corporations such
as ourselves. Obviously if our patents were sold to another party they would be worth
much more than the nominal amounts that they are carried on our books. I believe that if
the patents were properly evaluated on the basis of potential for sale value to a third
party such as Johnson & Johnson, the financial assets of our company would become less
than 40%. I think the stock price of our company, which is approximately 1.5 times cash,
is a reflection of this reality.

3

Another key item is an analysis of
investment income relative to research and development expenses. The SEC document
provides the following formula:

The FRFA discusses the need for, and objectives of, the
new rule. The FRFA explains that the rule provides a nonexclusive safe harbor to allow R&D companies
more investment flexibility and the ability to hold and invest more capital without
becoming subject to the Act. The FRFA also explains that in order to be eligible for the
safe harbor provided by the rule, an R&D company must have research and development
expenses that are a substantial percentage of its total expenses and that equal at least
half of its net income derived from investments for its last four fiscal quarters
combined, have relatively small investment-related expenses, make its investments to
conserve capital and liquidity until it uses the funds in its primary business, subject
to certain exceptions, and be primarily engaged, directly or through a company or
companies that it controls primarily, in a non investment business. (Page 13, Item VI)

In our case, research and
development expenses are well over 50% of investment income, in all quarters for the past
10 years on an annualized basis. These expenses, while not individually highlighted, were
part of S G & A. If it were not for the unusual good results from our investment income,
we probably would be facing either imminent bankruptcy or a marked contraction of our
ability to market the blood volume analyzer, where we are now expanding our marketing.

Another criterion is the amount of
expenses relative to investment income. This criteria is that not more than 5% of the
company’s expenses should go toward investment.

Insignificant
Investment-Related Expenses

Rule 3a-8 as proposed required that
an R&D company relying on the nonexclusive safe harbor devote no more than five percent
of its total expenses for its last four fiscal quarters combined to investment advisory
and management activities, investment research and selection, and supervisory and
custodial fees. The commenters supported this provision, and the Commission is adopting
it as proposed (Page 5, Item C).

In the case of Daxor, the total
expenses related to investment management is under 1%. Approximately 15% or less of my
time is devoted to portfolio management. My expense, therefore, would be approximately
$30,000 - $40,000 per year. One additional part time employee, Clare Sheridan, provides
approximately 6 - 8 hours per week of assistance in investment management. Her total cost
to the company is approximately $6,000 to $8,000 per year for these services. The company
spends approximately $1,000 a year for investment related information such as the Wall
Street Journal and Investors Business Daily. There are also an additional $20,000
expenses allocated for accounting. None of the other approximately 40 full time and/or
part time employees provide any investment services. In addition, for the 2Q 2005 we have
added the line item “Administrative expenses relating to portfolio investments” on our
Condensed Consolidated Statement of Operations. Based upon that filing, our annualized
expense will be $62,354.

4

The company’s total expenses for
2004 for portfolio management were $43,000. These expenses, therefore, represent 1% of
the company’s total expenses. It should be noted that as a percentage of assets under
management, the company’s expenses are less than 1/10th of 1%. I believe this may be one
of the lowest management fees in the securities industry, if not the lowest The company’s
portfolio valuation is approximately $61,000,000. The company’s income from investments
last year was $2,980,268. Therefore, 2.0% of the company’s investment income was used for
management of the portfolio, well under the 5% criteria.

Capital Preservation
Instruments

To qualify for the nonexclusive safe
harbor under rule 3a-8 as proposed, an R&Dcompany’s investments in securities were
required to be capital preservation investments, subject to two exceptions for “other
investments,” discussed below. The proposed rule defined “capital preservation
investments” as investments made to conserve an R&D company’s capital and liquidity until
the funds are used in its primary business or businesses. The Proposing Release stated
that, in general, capital preservation investments are liquid so that they can be readily
sold to support the R&D company’s research and development activities as necessary and
present limited credit risk (Page 5(1)(i)).

The cost of our investment capital
was $22,907,780 at the end of 2004. The value of our securities portfolio was
$54,806,400. At no time during the past 10 years has the value of our investments been
below our cost. It should be noted that all our investments are in liquid securities,
which could be liquidated readily if needed.

One additional comment should be
made. The company’s investment strategy is reviewed at least once a year, and more
frequently as needed, at board meetings. The company’s investing policy permits
investment in non-electric utilities for up to 10% of the corporate portfolio value. The
company’s unrealized gains vs. unrealized losses are usually more than 10 to 1. Please
see the following, which is from the 10Q for June 30, 2005

Item 3.   Quantitative and
Qualitative Disclosures About Market Risk

The Securities and Exchange
Commission’s rule related to market risk disclosure requires that we describe and
quantify our potential losses from market risk sensitive instruments attributable to
reasonably possible market changes. Market risk sensitive instruments include all
financial or commodity instruments and other financial instruments that are sensitive to
future changes in interest rates, currency exchange rates, commodity prices or other
market factors.

5

We are not exposed to market risks
from changes in foreign currency rates. The company maintains an investment portfolio
primarily consisting of electric utility companies which are publicly traded common and
preferred stock. These are categorized as available for sale securities.

In addition to receiving income from
dividends, the company also has an investment policy of selling puts on stocks that it is
willing to own. Such options usually have a maturity of less than 1 year. The company
will also sell covered calls on securities within its investment portfolio. Covered calls
involve stocks, which usually do not exceed 10% of the value of the company’s portfolio
and have never exceeded 15% of the company’s portfolio value.

The company will, at times, sell
naked or uncovered calls as well as engage in short sales as part of a strategy to
mitigate risk. Such short sales are usually less than 10% of the company’s portfolio
value, and have never exceeded 15% of the company’s portfolio value. Unrealized gains or
losses on short sales or naked calls are marked to the market. They may, therefore, cause
a fluctuation in the reporting of total other income. This has occurred in the second
quarter.

The company’s investment strategy is
reviewed at least once a year, and more frequently as needed, at board meetings. The
company’s investing policy permits investment in non-electric utilities for up to 10% of
the corporate portfolio value. The company’s unrealized gains vs. unrealized losses are
usually more than 10 to 1.

At the most recent second quarter
computation, unrealized gains were $37,055,083 and unrealized losses were $333,805 for a
ratio of 111 to 1 over the past 5 years. The results from option strategies are variable
and within the past 5 years have represented from 2.1% to 33.2% of total investment
income. Annual income from dividends has been relatively stable and has varied from
$1,842,583 to $2,062,364.

Certain utility preferred stocks
have call provisions which may enable them to be called away from the company. The call
price, in all instances, is higher than the company’s cost for the stock. The yields on
such preferred stocks may be significantly higher than current available yields. Such
stocks, therefore, could not be replaced with similar yields. Currently, approximately
2.3% of the company’s portfolio falls into this category.

The company’s portfolio value is
exposed to fluctuations in the general value of electric utilities. The largest holding
value in the portfolio is Entergy stock, with a cost basis of $2,079,000, with a current
market value of $10,426.530.73. This represents 16.92% of the company’s portfolio. An
increase of interest rates could affect the company in two ways; one would be to put
downward pressure on the valuation of utility stocks as well as increase the company’s
cost of borrowing.

Because of the size of the
unrealized gains in the company’s portfolio, the company does not anticipate any changes
which could reduce the value of the company’s utility portfolio below historical cost.
Electric utilities operate in an environment of federal, state and local regulations, and
they may disproportionately affect an individual utility. The company exposure to
regulator risk is mitigated due to it’s diversity of holdings consisting of 70 separate
stocks.

6

Selected Financial Data

2. In future filings
please re-format this table to present the data in a manner consistent with that used in
your statement of operations. For instance, we see that you report dividends, investment
gains and other as non-operating income (as opposed to revenues) in your income statement.

We will conform to your request when
preparing this information for the year end Form 10-K. (We have removed this disclosure
from the June 2005 Form 10-Q and will continue to omit it from future 10-Q filings, as it
is not a required component for the quarterly filings.) We wish to point out, however,
that the format that we presented this information in was actually suggested to us by a
senior staff member of the SEC more than ten years ago because of the unusual dependence
the company has in investment income to supplement revenues towards operations. This
format makes it clear that the company does have a dependence on income from its
investments. However, we will provide the information in whatever for