U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from ___________ to ___________
Commission file 0-24092
Positron Corporation
(Name of small business issuer in its charter)
Texas
(State or other jurisdiction of incorporation or organization)
I.D. No. 76-0083622
1304 Langham Creek Drive, Suite 310, Houston, Texas 77084
(address of principal executive offices)
Issuer's telephone number: (281) 492-7100
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 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 March 31, 1998: 5,128,990
<PAGE>
POSITRON CORPORATION
TABLE OF CONTENTS
Form 10-QSB for the quarter ended March 31, 1998
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of December 31, 1997 and
March 31, 1998 F-1
Statements of Operations for the three months
ended March 31, 1998 and 1997 F-2
Condensed Statements of Cash Flows for the
three months ended March 31, 1998 and 1997 F-3
Selected Notes to Financial Statements F-4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operation F-8
Item 6. Exhibits and Reports on Form 8K
Signature Page F-11
Exhibit 27 - Financial Data Schedule F-12
<PAGE>
<TABLE>
POSITRON CORPORATION
BALANCE SHEETS
--------------------
(In thousands, except share data)
<CAPTION>
March 31, December 31,
1998 1997
-------- --------
(Unaudited) (Note)
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 31 $ 160
Accounts receivable, net 432 253
Inventories 388 408
Prepaid expenses 141 131
-------- --------
Total current assets 992 952
Plant and equipment, net 652 715
-------- --------
Total assets $ 1,644 $ 1,667
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable, trade $ 1,755 $ 1,573
Accrued liabilities 2,954 3,205
Note payable to an affiliate 767 767
Other note payable 856 930
Unearned revenue 60 60
-------- --------
Total current liabilities 6,392 6,535
-------- --------
Other liabilities 600 245
-------- --------
Commitments and contingencies
Stockholders' deficit:
Series A Preferred Stock: $1.00 par value;
8% cumulative, convertible, redeemable;
$1.00 par value; 5,450,000 shares authorized;
1,594,999 shares issued and outstanding at
March 31, 1998 and December 31, 1997 1,595 1,595
Series B Preferred Stock: $1.00 par value;
8% cumulative, convertible, redeemable; 25,000
shares authorized, issued and outstanding at
March 31, 1998 and December 31, 1997 25 25
Common stock: $0.01 par value; 15,000,000
shares authorized, 5,128,990 shares issued and
outstanding at March 31, 1998 and December 31, 1997 51 51
Additional paid-in capital 42,191 42,191
Accumulated deficit (49,195) (48,960)
Treasury stock: 60,156 shares at cost (15) (15)
-------- --------
Total stockholders' deficit (5,348) (5,113)
-------- --------
Total liabilities and stockholders'
deficit $ 1,644 $ 1,667
======== ========
<FN>
Note: The balance sheet at December 31, 1997 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. See accompanying notes.
</FN>
F-1
</TABLE>
<PAGE>
<TABLE>
POSITRON CORPORATION
STATEMENTS OF OPERATIONS
------------------------
(In thousands, except share data)
(Unaudited)
<CAPTION>
Three Months Ended
March 31, March 31,
1998 1997
--------- ---------
<S> <C> <C>
Revenues:
Fee per scan $ 108 $ 123
Service and component 366 499
--------- ---------
Total revenues 474 622
--------- ---------
Costs of sales and services:
Fee per scan 20 39
Service, warranty and component 87 108
--------- ---------
Total costs of sales and services 107 147
--------- ---------
Gross profit 367 475
--------- ---------
Operating expenses:
Research and development 10 474
Selling and marketing 14 201
General and administrative 495 995
--------- ---------
Total operating expenses 519 1,670
--------- ---------
Loss from operations (152) (1,195)
--------- ---------
Other income (expenses):
Interest and other income - 2
Interest expense (83) (141)
---------- ---------
Total other expense (83) (139)
--------- ---------
Net loss (Note) $ (235) $ (1,334)
========= =========
Basic and dilutive net loss per common
share $ (0.05) $ (0.30)
========= =========
Weighted average common shares outstanding 4,884,870 4,473,566
========= =========
<FN>
Note: The Company's financial statements include no additional elements of
comprehensive income. Accordingly, comprehensive income and net income are
identical.
See accompanying notes
</FN>
F-2
</TABLE>
<PAGE>
<TABLE>
POSITRON CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
----------------------------------
(In thousands)
(Unaudited)
<CAPTION>
Three Months Ended
March 31, March 31,
1998 1997
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (235) $(1,334)
Adjustment to reconcile net loss to net cash
used in operating activities 180 979
------- -------
Net cash used in operating activities (55) (355)
------- -------
Cash flows from financing activities:
Repayment of other note payable (74) (41)
Proceeds from conversion of warrants to common stock - 14
------- -------
Net cash used in financing activities (74) (27)
------- -------
Net decrease in cash and cash equivalents (129) (382)
Cash and cash equivalents, beginning of year 160 382
------- -------
Cash and cash equivalents, end of period $ 31 $ -
======= =======
Supplemental disclosure of cash flow information:
Cash paid for interest $ 33 $ 60
======= =======
<FN>
See accompanying notes
</FN>
F-3
</TABLE>
<PAGE>
POSITRON CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS
--------------------------------------
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 of Form 10-KSB for the
year ended December 31, 1997. 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, 1997, as reported in the Form 10-KSB, have been omitted.
2. Company Operations
Since its inception Positron Corporation (the "Company") has been unable
to sell its POSICAM systems in sufficient quantities to be profitable.
Consequently, the Company has sustained substantial losses. Net losses
for the year ended December 31, 1997 and the three months ended March 31,
1998 were $4,455,000 and $235,000, respectively. The Company has an
accumulated deficit of $49,195,000 at March 31, 1998. Due to the sizable
selling prices of the Company's systems and the limited number of systems
sold or placed in service each year, the Company's revenues have
fluctuated significantly year to year.
At March 31, 1998, the Company had cash and cash equivalents in the
amount of $31,000 compared to $160,000 at December 31, 1997. During 1997
and the first quarter of 1998, the Company was unable to meet certain
obligations as they came due. As a result of the Company's liquidity
problem, 1997 salary payments to certain management level employees
totaling approximately $700,000 were unpaid at March 31, 1998.
Additionally, the Company currently has no shares of its Common Stock
available for issuance and all other authorized shares have either been
issued or reserved for issuance in respect of outstanding options and
warrants or convertible securities. The lack of such available shares
significantly restricts the Company's ability to raise capital through
the issuance of additional equity securities. While the Company believes
that its shareholders will approve an increase in the number of
authorized shares of Common Stock at its Annual Meeting of Shareholders,
no assurance can be given that such increase in authorized shares will be
approved by the Company's shareholders.
F-4
<PAGE>
3. Net Loss Per Share
Net loss per common share for the three months ended March 31, 1998 and
1997 have been computed by dividing net loss by the weighted average
number of shares of Common Stock outstanding during these periods.
4. Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosures of contingent assets or liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
5. Income Tax
The difference between the Federal statutory income tax rate and the
Company's effective income tax rate is primarily attributable to
increases in valuation allowances for deferred tax assets relating to net
operating losses.
6. Imatron Transaction
In May 1998, the Company entered into an agreement (the "Imatron
Transaction") with Imatron, Inc. ("Imatron"), whereby Imatron will
acquire a majority ownership of the Company. In conjunction with the
execution of definitive agreements, Imatron began making working capital
advances available to the Company up to $500,000 (subsequently increased
to $750,000) in order to enable it to meet a portion of its current
obligations. As of June 30, 1998, the Company had received advances
totaling approximately $468,000. The loan bears interest at 1/2% over the
prime rate, is due March 1, 2000 (with interest payable monthly), and is
secured by all of the Company's assets. The loan agreement has been
amended by oral agreement to increase the working capital advances
available to the Company under the agreement up to an additional
$250,000.
Under the terms of the agreement, Imatron will acquire a majority
ownership of the outstanding common stock of the Company on a
fully-diluted and as-if-converted basis, excluding out-of-the-money
warrants and options determined at the time of issuance of shares to
Imatron. If such shares were issued to Imatron on June 30, 1998 Positron
would have been obligated to issue approximately nine million shares of
common stock. The Company will receive a nominal cash amount of $100 from
Imatron in payment for the shares. Under the planned arrangement, the
Company will remain an independent public company.
F-5
<PAGE>
Imatron, in addition to providing limited working capital financing, has
agreed to support the Company's marketing program particularly with
regard to Imatron's affiliate, Imatron Japan, Inc. by agreeing to make,
after the share issuance closing date, all reasonable efforts to cause
the placement of 10 POSICAM(TM) systems over the next three years. The
Company recently shipped a POSICAM(TM) system to Imatron Japan as the
first delivery under a three-year distribution agreement entered into
last year. Imatron Japan, an affiliate of Imatron, is a major distributor
for Imatron's Ultrafast CT and for the equipment of certain other high
technology companies. Imatron has a 24 percent minority interest in
Imatron Japan.
Imatron will also help facilitate the recapitalization of Positron to
support its re-entry into the medical imaging market by using its best
efforts after the share issuance closing date to arrange for additional
third-party equity financing for the Company over an eighteen-month
period in an aggregate amount of not less than $8,000,000. There can be
no assurances, however, that any such sales will actually be consummated
or that Imatron will be able to successfully assist the Company in
raising additional capital.
Consummation of the issuance of shares to Imatron is conditioned upon,
among other things (a) the resignation of each officer of the Company,
(b) the resignation of at least three of the four current directors of
the Company and the appointment of Imatron's nominees to fill such
vacancies, and (c) shareholder approval of an amendment to the Company's
Articles of Incorporation to increase its authorized common stock to at
least 100,000,000 shares. The Company anticipates that the share issuance
to Imatron will close in the third quarter of this year if such
shareholder approval is obtained.
In connection with the above transactions, the Company, Imatron and two
of the Company's current lenders, Uro-Tech, Ltd. ("Uro-Tech") and
ProFutures Bridge Capital Fund, L.P. ("ProFutures"), entered into certain
agreements whereby (a) ProFutures waived all past defaults and extended
the maturity of its loan ( with a current balance of approximately
$845,000) to December 5, 1998, in return for a $50,000 payment, the
issuance of warrants to purchase 1,150,000 shares of the Company's common
stock at $0.25 per share ( in addition to the issuance of previously
bargained for warrants to purchase an additional 100,000 shares of the
Company's stock at $0.25 per share), and minimum loan repayments of
$50,000 for each of the months of April, May, June and July, 1998,
$100,000 for the month of August and $50,000 each for the months of
September, October and November 1998 (b) Imatron agreed to subordinate
its loan to ProFuture's loan, (c) Uro-Tech agreed to subordinate its loan
(with a current balance of approximately $767,000 plus accrued interest
payable of approximately $233,000 at March 31, 1998) to Imatron's loan,
and (d) ProFutures's and Imatron agreed that all amounts above the first
$1,000,000 of any third-party equity financing obtained by Imatron would
be applied equally to reduce the Company's debt to both ProFutures and
Imatron.
F-6
<PAGE>
Consistent with the amendment to the Imatron Agreement, the Company and
ProFutures have amended their agreements to provide further waivers of
any past defaults and have further extended the maturity of the
ProFutures Loan to December 5, 1998 and minimum loan repayments of
$50,000 for each of the months of September, October and November 1998.
Imatron agreed to continue to subordinate its loan to the ProFutures
Loan, and Uro-Tech, Ltd. agreed to subordinate its loan to Imatron's
loan. Except as modified by the amendments, the remaining agreements
remain the same.
If the Imatron Transaction is not completed, or if the Imatron
Transaction is completed and Imatron is unsuccessful in its efforts to
raise capital for the Company, management believes the Company may be
unable to continue as a going concern and that the Company's assets may
be seized by its secured creditors.
7. Contingencies
The Company previously entered into agreements with Nizar A. Mullani and
K. Lance Gould under which such individuals agreed to reduce the royalty
payments due to them by the Company in consideration of payments to be
made to them under consulting agreements and promissory notes. The
consulting agreements provide that if the Company defaults in its payment
obligations thereunder, Mr. Mullani and Dr. Gould would be entitled to
receive a regrant of the royalties that they previously released. On
April 12, 1998, the Company received a demand letter from Mr. Mullani
alleging default under his consulting agreement and demanding the regrant
of an additional 1% royalty interest. Although the Company has not
received any such demand from Dr. Gould, the Company believes that a
payment default may be entitled to the regrant of an additional .05%
royalty interest. The Company anticipates initiating settlement
discussions with Mr. Mullani and Dr. Gould concerning the alleged payment
defaults. The Company is unable to predict the outcome of such
discussions at this time. If the parties fail to reach a settlement, Mr.
Mullani will be entitled to receive an aggregate 2% royal and Dr. Gould
will be entitled to receive an aggregate 1.5% royalty, resulting in an
increase of the Company's royalty obligations from 3% to 4.5%. Such
increase in royalty obligations could have a material adverse effect on
the Company's future financial performance.
F-7
<PAGE>
8. Comprehensive Income
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, Reporting Comprehensive Income,
which requires a company to display an amount representing comprehensive
income as part of the company's basic financial statements. Comprehensive
income includes such items as unrealized gains or losses on certain
investments, securities and certain foreign currency translation
adjustments. The Company's financial statements include none of the
additional elements that affect comprehensive income. Accordingly,
comprehensive income and net income are identical.
F-8
<PAGE>
POSITRON CORPORATION
(Form 10-QSB for the three months ended March 31, 1998)
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
unaudited financial statements and related notes thereto included in this
quarterly report and in the audited Financial Statements and Managements
Discussion and Analysis of Financial Condition and Results of Operations
("MD&A") contained in the Company's 10-KSB for the year ended December 31, 1997.
Certain statements in the following MD&A are forward looking statements. Words
such as "expects", "anticipates", "estimates" and similar expressions are
intended to identify forward looking statements. Such statements are subject to
risks and uncertainties that could cause actual results to differ materially
from those projected. Such risks and uncertainties are set forth below and under
"Information Regarding and Factors Affecting Forward Looking Statements".
Comparison of the Results of Operations for the three months ended March
31, 1998 and 1997.
During the quarter ended March 31, 1998, the Company continued to
experience deterioration in its financial condition; however, the Company's net
loss decreased $1,099,000 or 82% from ($1,334,000) for the three months ended
March 31, 1997 to ($235,000) for the three months ended March 31, 1998. This
decrease in net loss is primarily the result of significant staff reductions and
efforts to curtail costs.
The Company generated no revenue from system sales during the first three
months of 1998 or 1997. Fee per scan revenue decreased $15,000 or 12% from
$123,000 during the first three months of 1997 to $108,000 for the first three
months of 1998 due primarily to fewer scans being performed at Buffalo
Cardiology using the Company's only fee per scan machine. In addition, there was
a decrease in service and component sales revenue of $133,000 or 27% during the
same period due to less service work performed during the three months ended
March 31, 1998.
Gross profit during the first three months of 1998 was $367,000 compared
to $475,000 for the three months ended March 31, 1997. This decrease in gross
profit was the result of lower fee per scan and service and component revenue
during the three months ended March 31, 1998.
Total operating expense decreased approximately $1,151,000 or 70% from
$1,670,000 for the three months ended March 31, 1997 to $519,000 for the three
months ended March 31, 1998. The decrease resulted from significant staff
reductions and related lower administrative overhead costs during the three
months ended March 31, 1998.
F-9
<PAGE>
Interest expense decreased from $141,000 for the three months ended March
31, 1997 to $83,000 for the three months ended March 31, 1998 due primarily to
the reduction in the Company's debt level in the first quarter of 1998 as
compared to the first quarter of 1997.
Financial Condition
Since its inception the Company has been unable to sell POSICAM(TM)
systems at quantities sufficient to be profitable. Consequently, the Company has
sustained substantial losses. Net losses for the year ended December 31, 1997
and the three months ended March 31, 1998 were ($4,455,000) and ($235,000),
respectively. At March 31, 1998, the Company had an accumulated deficit of
approximately $49,195,000. Due to the sizable prices of the Company's systems
and the limited number of systems sold or placed in service each year, the
Company's revenues have fluctuated significantly year to year.
At March 31, 1998, the Company had cash and cash equivalents in the
amount of $31,000 compared to $160,000 at December 31, 1997. Throughout much of
1997 and the first half of 1998, the Company has been unable to meet certain of
its obligations as they came due. As a result of the Company's liquidity
problem, 1997 salary payments and certain other benefits due to management level
employees totaling approximately $700,000 were unpaid at March 31, 1998.
The Company's only current plan with regard to its liquidity problems is
to attempt to complete the Imatron transaction discussed in Selected Notes to
the Financial Statements. If the Imatron Transaction is not completed, or if the
Imatron Transaction is completed and Imatron is unsuccessful in its efforts to
raise capital for the Company, management believes the Company may be unable to
continue as a going concern and that the Company's assets may be seized by its
secured creditors.
The Company currently has no shares of Common Stock available for
issuance and all authorized shares have either been issued or reserved for
issuance in respect of outstanding options and warrants or convertible
securities. The lack of such available shares significantly restricts the
Company's ability to raise additional capital through the sale of equity
securities. The Company believes that its shareholders will approve an increase
in the number of authorized common shares at its Annual Meeting; however, no
assurance can be given that such additional shares will be authorized in
adequate time to allow the Company to issue such equity securities.
F-10
<PAGE>
Impact of the Year 2000
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's computer programs that have time sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
a system failure or miscalculation causing a disruption of business activities.
Based on a preliminary assessment, the Company believes that no
significant modifications to its existing computer software will be required and
that its existing computer systems will function properly with respect to dates
in the year 2000 and thereafter. The Company also believes that costs related to
the Year 2000 issue will not be significant. However, due to the Company's
current severe liquidity problems, the Company has been unable to perform a
complete assessment of Year 2000 issues and has developed no contingency plan
with regard to unsolved Year 2000 problems that may arise.
The Company is also currently performing a preliminary assessment of its
relationships with significant suppliers and major customers to understand the
extent to which the Company is vulnerable to any failure by third parties to
remedy their own Year 200 issues. Based on such preliminary assessment,
management believes that the Company does not have significant exposure with
respect to third parties.
The Company's preliminary assessments indicate that the worst case
scenario with regard to the Year 2000 issue would be extreme delays in receiving
parts and materials needed for manufacturing and delays by customers in making
payments for fee-per-scan and maintenance services. In the Company's current
financial position, such circumstances could threaten the Company's continued
existence.
Information Regarding and Factors Affecting Forward Looking Statements
The Company is including the following cautionary statement in this
Quarterly Report on Form 10-QSB to make applicable and take advantage of the
safe harbor provision of the Private Securities Litigation Reform Act of 1995
for any forward-looking statements made by, or on behalf of the Company.
Forward-looking statements include statements concerning plans, objectives,
goals, strategies, future events or performance and underlying assumptions and
other statements which are other than statements of historical facts. Certain
statements contained herein are forward-looking statements and, accordingly,
involve risks and uncertainties which could cause actual results or outcomes to
differ materially from those expressed in the forward-looking statements. The
Company's expectations, beliefs and projections are expressed in good faith and
are believed by the Company to have a reasonable basis, including without
limitations, management's examination of historical operating trends, data
contained in the Company's records and other data available from third parties,
but there can be no assurance that management's expectation, beliefs or
projections will result, or be achieved, or be accomplished.
F-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
POSITRON CORPORATION
(Registrant)
Date: _____________ /s/ Gary B. Wood, Ph.D.
-------------------------------------
Chief Executive Officer
(Duly Authorized Officer and
Principal Accounting Officer)
F-12
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from Positron
Corporation's consolidated condensed statements of income and consolidated
condensed balance sheets and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000844985
<NAME> Positron Corporation
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1998
<PERIOD-END> Mar-31-1998
<EXCHANGE-RATE> 1
<CASH> 31
<SECURITIES> 0
<RECEIVABLES> 1659
<ALLOWANCES> 1227
<INVENTORY> 388
<CURRENT-ASSETS> 992
<PP&E> 2419
<DEPRECIATION> 1767
<TOTAL-ASSETS> 1644
<CURRENT-LIABILITIES> 6392
<BONDS> 0
0
1620
<COMMON> 51
<OTHER-SE> (7019)
<TOTAL-LIABILITY-AND-EQUITY> 1644
<SALES> 0
<TOTAL-REVENUES> 474
<CGS> 107
<TOTAL-COSTS> 626
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 83
<INCOME-PRETAX> (235)
<INCOME-TAX> 0
<INCOME-CONTINUING> (235)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (235)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
