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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934
For the transition period from _________________ to __________________
Commission File Number 0-24092
POSITRON CORPORATION
(Exact Name of Small Business Issuer as Specified in Its Charter)
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<S> <C>
TEXAS 76-0083622
- --------------------------------------------------------------- -------------------------------------------
(State of Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
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16350 Park Ten Place, Houston, Texas 77084
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(Address of Principal Executive Office, Including Zip Code)
713-492-7100
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(Issuer's Telephone Number, Including Area Code)
N/A
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(Former Name, Former Address and Former Fiscal Year, If Changed Since
Last Report)
Check whether the issuer, (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes [X] No
------ ------
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court.
Yes No
------ ------
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of May 14, 1995: 3,637,320
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POSITRON CORPORATION
Form 10-QSB for the quarter ended March 31, 1996
INDEX
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<CAPTION>
Page
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BALANCE SHEETS AS OF DECEMBER 31, 1995 1
AND MARCH 31, 1996
STATEMENTS OF OPERATIONS FOR THE THREE 2
MONTHS ENDED MARCH 31, 1995 AND 1996
STATEMENTS OF CASH FLOWS FOR THE THREE 3
MONTHS ENDED MARCH 31, 1995 AND 1996
NOTES TO FINANCIAL STATEMENTS 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR 6
PLAN OF OPERATION
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 8
ITEM 2. CHANGES IN SECURITIES 8
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 8
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF 8
SECURITY HOLDERS
ITEM 5. OTHER INFORMATION 8
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 9
SIGNATURE 10
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
POSITRON CORPORATION
Balance Sheets
(in thousands, except share data)
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<CAPTION>
December 31, 1995 March 31, 1996
----------------- --------------
(unaudited)
<S> <C> <C>
ASSETS:
- ------
Current Assets:
Cash and cash equivalents $ 102 $ 541
Accounts receivable 1,417 1,604
Inventory 2,666 2,396
Prepaid expenses 172 156
Other current assets 58 65
----------- -----------
Total current assets 4,415 4,762
Plant and Equipment, net 1,028 947
Notes Receivable 324 324
Intangible Assets, net 131 125
----------- -----------
Total assets $ 5,898 $ 6,158
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
- -----------
Current Liabilities:
Accounts payable, trade $ 1,755 $ 856
Accrued liabilities 1,319 2,294
Notes payable to affiliate 1,073 663
Unearned revenue 457 186
----------- -----------
Total current liabilities 4,604 3,999
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Other Liabilities 79 77
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SHAREHOLDERS' EQUITY
Common stock, $0.01 par, 15,000,000 shares
authorized 3,637,320 issued and outstanding 36 36
Preferred stock, Series A 8% Cumulative Convertible
Redeemable, $1.00 par, 2,691,977 shares authorized,
issued and outstanding -- 2,300
Additional paid-in capital 39,309 39,953
Accumulated deficit (38,130) (40,207)
----------- -----------
Total shareholders' equity 1,215 2,082
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Total liabilities and shareholders' equity $ 5,898 $ 6,158
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
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POSITRON CORPORATION
Statement of Operations
(in thousands, except per share amounts)
(Unaudited)
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<CAPTION>
Three months ended March 31,
-----------------------------------
1995 1996
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<S> <C> <C>
REVENUE:
- -------
System sales $ -- $ 650
Fee per scan -- 139
Service and components 432 416
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432 1,205
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Cost of system sales -- 316
Cost of fee per scan -- 48
Cost of service and components 170 109
Provision for loss on system exchange -- 1,000
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170 473
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Gross profit 262 268
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OPERATING EXPENSE:
- -----------------
Research and development 623 535
Selling and marketing 399 241
General and administrative 643 996
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1,665 1,772
---------- ------------
Operating loss (1,403) (2,040)
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OTHER INCOME (EXPENSE):
- ----------------------
Interest and other income 51 77
Interest and other expense (3) (114)
---------- ------------
48 (37)
---------- ------------
Net loss $ (1,355) $ (2,077)
========== =============
Net loss per share $ (.37) $ (.57)
========== ============
Weighted average shares used in computing
net loss per share 3,637,320 3,637,320
========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
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POSITRON CORPORATION
Statements of Cash Flows
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
------------------------------------
1995 1996
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
- ------------------------------------
Net loss $ (1,355) $ (2,077)
Adjustments to reconcile net loss to net cash
used by operating activities -
Depreciation 42 92
Amortization of intangible assets 6 6
Change in assets and liabilities -
(Increase) decrease in accounts receivable 1,256 (187)
(Increase) decrease in inventories (639) 270
(Increase) decrease in prepaid expenses (99) 16
Increase in other current assets -- (7)
Decrease in other assets 1 --
Decrease in accounts payable, trade (165) (899)
Increase (decrease) in accrued liabilities (272) 975
(Decrease) in notes payable to affiliate -- (410)
Decrease in accrued research grants (375) --
Decrease in unearned revenue (77) (271)
Decrease in other liabilities (2) (2)
------------------- ------------------
Net cash used by operating activities (1,679) (2,494)
---------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
- ------------------------------------
Capital expenditures (28) (11)
------------------ ----------------
Net cash provided by investing activities (28) (11)
----------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
- ------------------------------------
Proceeds from issuance of preferred stock -- 2,800
Conversion of notes payable to affiliates to preferred stock -- 650
Offering costs -- (506)
----------------- ---------------
Net cash used by financing activities -- 2,944
Net (decrease) increase in cash and cash equivalents (1,707) 439
Cash and cash equivalents at the beginning of the period 3,550 102
--------------- ----------------
Cash and cash equivalents at the end of the period $ 1,843 $ 541
=============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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POSITRON CORPORATION
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. Basis of Presentation:
The accompanying unaudited interim financial statements have been
prepared in accordance with generally accepted accounting principles and the
rules of the U.S. Securities and Exchange Commission, and should be read in
conjunction with the audited financial statements and notes thereto contained
in the Company's Annual Report on Form 10-KSB for the year ended December 31,
1995. In the opinion of management, all adjustments, consisting of normal
recurring adjustments, necessary for a fair presentation of financial position
and the results of operations for the interim periods presented have been
reflected herein. The results of operations for interim periods are not
necessarily indicative of the results to be expected for the full year. Notes
to the financial statements which would substantially duplicate the disclosure
contained in the audited financial statements for the most recent fiscal year
ended December 31, 1995, as reported in the Form 10-KSB, have been omitted.
2. Private Placement of Preferred Stock:
In February and March 1996, the Company issued 2,691,977 shares of
Series A 8% Cumulative Convertible Redeemable Preferred Stock, $1.00 par value
and Redeemable Common Stock Purchase Warrants to purchase 1,346,023 shares of
the Company's common stock. The net proceeds of the private placement were
approximately $2,466,000. Each share of the Series A Preferred Stock is
immediately convertible into one share of Common Stock. Each Redeemable Common
Stock Purchase Warrant is exercisable at a price of $2.00 per share of Common
Stock and has a liquidation preference of $1.33 per share.
As part of the issuance of the aforementioned Series A Preferred
Stock, Uro-Tech, Ltd. converted $650,000 of the amount payable to it into
433,329 shares of Redeemable Preferred Stock and 216,671 Redeemable Stock
Purchase Warrants.
3. Boston Financial & Equity Corporation Loan:
On February 7, 1996, the Company entered into a lending facility with
a financial institution pursuant to which the Company may borrow up to 80% of
its outstanding qualified accounts receivable (the "Loan"). The maximum amount
available under the Loan is $1,000,000 and the Loan is collateralized by liens
and security interest encumbering most of the Company's assets including the
Company's know-how, patents and proprietary rights pertaining to its PET
technology. As of February 7, 1996, the available borrowing capacity under the
Loan was approximately $150,000 and $150,000 was outstanding. The Loan bears
interests at 13.8% per year and matures on February 7, 1997. It is anticipated
that the proceeds of the Loan will be used for general corporate purposes. In
connection with the Loan, the Company granted warrants to the financial
institution to purchase 45,000 shares of Common Stock, at an exercise price of
$2.00 per share. The warrants are exercisable through February 7, 2001. The
warrants contain standard anti-dilution provisions and registration rights with
respect to the shares of Common Stock issuable upon the exercise thereof.
4. Provision For Loss on System Exchange:
The Company has been notified by the customer who purchased the
initial production model HZL series scanner that the scanner is not performing
up to certain contracted specifications. These specifications are higher than
those customarily provided to purchasers of the HZL scanner. Additionally, the
scanner has experienced certain reliability problems related to detector module
failures which are currently being corrected by the Company.
4
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The Company has agreed with the customer to replace the scanner with a
new scanner if it is unable to bring the existing scanner up to the contracted
specifications. If necessary, the Company anticipates that the defective
scanner will be replaced by October 1996. If the replacement scanner does not
meet the contracted specifications, the customer could, among other things
return the system and demand a full refund of the approximate net purchase
price of $1,500,000; or, request a discount (partial refund) from the
contracted purchase price.
In anticipation of the losses to be realized in correcting these
problems the Company has increased its reserve for replacement of the scanner
by $1 million in the first quarter of 1996.
5. Reclassifications:
In order to more properly reflect its service operations, the Company
now records certain service administrative overhead as "general and
administrative expense" rather than "cost of service and components".
Accordingly, $100,000 has been reclassed in the financial statements for the
quarter ended March 31, 1995, from cost of service and components to general
and administrative expense.
5
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POSITRON CORPORATION
(Form 10-QSB for the quarter ended March 31, 1996)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following information should be read in conjunction with the financial
statements and the notes thereto and in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1995.
This analysis is provided pursuant to applicable Securities and Exchange
Commission regulations and is not intended to serve as a basis for projections
of future events.
Comparison of the Results of Operations for the three months ended March 31,
1994 and 1995.
Total revenue increased $773,000 or 179% from $432,000 for the quarter
ended March 31, 1995, to $1,205,000 for the quarter ended March 31, 1996.
Revenue from system sales was $650,000 for the first quarter of 1996
compared to $0 in the first quarter of 1995.
In the third quarter of 1995, Positron shipped its first system under
a fee per scan contract. Under the terms of that contract, Positron retains
ownership to the Posicam(TM) system and recognizes revenue based on the number
of patients scanned on a monthly basis. Included in the 1996 quarter is
$139,000 of fee per scan revenue. There was no fee per scan revenue in the
first quarter of 1995.
Service revenue decreased $16,000 or 4% from $432,00 for the quarter
ended March 31, 1995, to $416,000 for the first quarter of 1996. The decrease
is attributable to one service contract which expired in the first quarter of
1995 and was not renewed for an extended period of time.
In order to more properly reflect its service operations, the Company
now records certain service administrative overhead as "general and
administrative expense" rather than "cost of service and components".
Accordingly, $100,000 has been reclassed in the financial statements for the
quarter ended March 31, 1995, from cost of service and components to general
and administrative expense.
Gross profit (loss) for the first quarter of 1996 was $(268,000)
compared to $262,000 for the first quarter of 1995, a decrease of $530,000.
The increase is due principally to the sale of the previously mentioned system
and fee per scan contract in the 1996 quarter being offset by the provision for
loss on the anticipated exchange of a scanner explained below.
The Company has been notified by the customer who purchased the
initial production model HZL series scanner that the scanner is not performing
to certain of the contracted for specifications. These specifications are
higher than those customarily provided to purchasers of the HZL scanner.
Additionally, the scanner has experienced certain reliability problems related
to detector module failures which are currently being corrected by the Company.
The Company has agreed with the customer to replace the scanner with a
new scanner if it is unable to bring the existing scanner up to the contracted
specification. If necessary, the Company anticipates that the defective
scanner will be replaced by October 1996. If the replacement scanner does not
meet the contracted specifications, the customer could, among other things
return the system and demand a full refund of the approximate net purchase
price of $1,500,000; or, request a discount (partial refund) from the
contracted purchase price.
In anticipation of the losses to be realized in correcting these
problems the Company has increased its reserve for replacement of the scanner
by $1 million in the first quarter of 1996.
6
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In addition to the reliability problems experienced by the initial
production model's detector modules other HZL systems are also experiencing
similar module problems. The Company has traced the primary source of the
problem to certain defective components of a purchased electronics board. The
manufacturer of the boards and the Company are engaged in negotiations to
determine the extend of liability, if any, the manufacturer has for the
failures. The Company believes that its warranty reserve of $260,000 is
adequate to cover the anticipated cost of correcting these HZL base problems.
Total operating expense increased $107,000 or 6% from $1,665,000 for
the quarter ended March 31, 1995, to $1,772,000 for the same quarter in 1996.
Research and development expense decreased $88,000 or 14% from
$623,000 in the first quarter of 1995 to $535,000 for the first quarter of
1996. The decrease is principally due to a reduction in payroll related costs,
as bonuses were paid in the 1995 quarter and not in the 1996 quarter.
Selling and marketing expense decreased $158,000 or 40% from $399,000
for the quarter ended March 31, 1995, to $241,000 for the quarter ended March
31, 1996. The decrease is principally due to commissions and bonuses paid in
the 1995 quarter which were not paid in the same quarter of 1996, and a
reduction in participation in the 1996 first quarter trade shows.
General and administrative expense increased $353,000 or 55% from
$643,000 in the first quarter of 1995 to $996,000 in the same quarter of 1996.
The increase is attributable to the reversal in the first quarter of 1995 of an
over accrual of bonuses in the general and administrative area being offset by
under accruals in engineering, selling, marketing and manufacturing, and an
increase in personnel costs and inventory reserves in the quarter ended March
31, 1996.
Financial Condition
At March 31, 1996, the Company had cash and cash equivalents in the
amount of $541,000 compared to $102,000 at December 31, 1995. The Company
believes that its cash on hand plus cash generated from anticipated sales, plus
additional cash which the Company anticipates will be available from the net
proceeds attributable to the subscriptions for additional shares of Series A
Preferred Stock currently held in escrow will be adequate to provide
sufficient funds for its anticipated operations at least through the end of
1996.(1)
(1) This statement is a forward looking statement that involves risks and
uncertainties. Accordingly, no assurances can be given that the
actual events and results will not be materially different than the
anticipated results described in the forward looking statement. See
the discussion of the Company's business and a description of the
various factors that could materially affect the ability of the
Company to achieve the anticipated results described in the forward
looking statement which is included in Item 1 of the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1995.
7
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PART II - OTHER INFORMATION
POSITRON CORPORATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGE IN SECURITIES
In February and March 1996, the Company issued 2,691,977 shares
of Series A 8% Cumulative Convertible Redeemable Preferred Stock, $1.00
par value ("Series A Preferred Stock") and Redeemable Common Stock
Purchase Warrants to purchase 1,346,023 shares of the Company's Common
Stock. The net proceeds of the private placement were approximately
$2,466,000. Each share of the Series A Preferred Stock is immediately
convertible into one share of Common Stock. Each Redeemable Common
Stock Purchase Warrant is exercisable at a price of $2.00 per share of
Common Stock. The Series A Preferred Stock has a liquidation preference
of $1.33 per share. As a result of the private placement of Series A
Preferred Stock, the Company currently does not have any more
authorized and unreserved shares of Common Stock available for
issuance.
In conjunction with the issuance of the aforementioned Series A
Preferred Stock, Uro-Tech, converted $650,000 of the amount payable to
it into 433,329 shares of Series A Preferred Stock and 216,671
Redeemable Stock Purchase Warrants.
In general, the rules governing the listing of the Company's
Common Stock on the Nasdaq National Market require approval by the
Company's Common Stockholders of any transaction, other than a public
offering, involving the sale or issuance by the Company of its Common
Stock, or securities convertible into or exercisable for Common Stock,
at a price less than the greater of book or market value, which equals
more than 20% of the issued and outstanding Common Stock. Under
ordinary circumstances the Company would have been required to obtain
such shareholder approval before proceeding with the Company's private
placement of Series A Preferred Stock. However, on February 9, 1996,
the NASD granted the Company an exception to the shareholder
requirement. In order to be entitled to receive the exception, the
Company's Board of Directors, and the members thereof comprising the
Company's Audit Committee, determined that the delay in proceeding with
the Company's February and March 1996, private placement of Series A
Preferred Stock that would be necessary in order to obtain the required
shareholder approval would seriously jeopardize the financial viability
of the Company. The exception granted by the NASD required the Company
to mail to all of its shareholders a letter alerting the shareholders
of the Company's omission in seeking the required shareholder approval
and that its Audit Committee had expressly approved the Company's
reliance on such exception.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
8
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS: THE FOLLOWING DOCUMENT IS FILED AS AN EXHIBIT TO
THIS REPORT
11.0 COMPUTATION OF LOSS PER COMMON SHARE
(b) REPORTS ON FORM 8-K:
Report on Form 8-K filed February 15, 1996
Report on Form 8-K filed February 29, 1996
Report on Form 8-K filed March 5, 1996
9
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SIGNATURES
Pursuant to the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
POSITRON CORPORATION
(Registrant)
Date: May 15, 1996 /s/ DAVID O. RODRIGUE
-------------------------------------------
David O. Rodrigue
Vice President, Chief Financial Officer
(Duly Authorized Officer and
Principal Accounting Officer)
10
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INDEX TO EXHIBITS
11.0 COMPUTATION OF LOSS PER COMMON SHARE
27 Financial Data Schedule
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Exhibit 11.0
POSITRON CORPORATION
STATEMENT RE: COMPUTATION OF PER SHARE LOSS
for the three months ended March 31,
(in thousands, except share data)
<TABLE>
<CAPTION>
1995 1996
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<S> <C> <C>
Net loss $ (1,355) $ (2,077)
========== ===========
Weighted average common shares used in computing
net loss per share 3,637,320 3,637,320
========== ===========
Net loss per share ($0.37) ($0.57)
========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 541
<SECURITIES> 0
<RECEIVABLES> 1,604
<ALLOWANCES> 0
<INVENTORY> 2,396
<CURRENT-ASSETS> 4,762
<PP&E> 947
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,158
<CURRENT-LIABILITIES> 3,999
<BONDS> 0
<COMMON> 36
0
2,300
<OTHER-SE> (254)
<TOTAL-LIABILITY-AND-EQUITY> 6,158
<SALES> 650
<TOTAL-REVENUES> 1,205
<CGS> 1,473
<TOTAL-COSTS> 3,245
<OTHER-EXPENSES> (37)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 77
<INCOME-PRETAX> (2,077)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,077)
<EPS-PRIMARY> (.57)
<EPS-DILUTED> 0
</TABLE>
