U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
Commission file number: 0-24092
[POSITRON LOGO]
POSITRON
A Texas Corporation
I.D. No. 76-0083622
1304 Langham Creek Drive, Suite 310, Houston, Texas 77084
(281) 492-7100
Indicate by check mark 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 [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of June 30, 1999: 15,211,838
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POSITRON CORPORATION
TABLE OF CONTENTS
FORM 10-QSB FOR THE QUARTER ENDED JUNE 30, 1999
PART I - FINANCIAL INFORMATION PAGE
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Item 1. Condensed Financial Statements
Condensed Balance Sheets as of June 30, 1999 and December 31, 1998 3
Condensed Statements of Operations for the three months and six months ended
June 30, 1999 and 1998 4
Condensed Statements of Cash Flows for the three months and six months ended
June 30, 1999 and 1998 5
Selected Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation 9
Signature Page 10
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POSITRON CORPORATION
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
June. December
30, 1999 31, 1998
ASSETS (Unaudited) (Note)
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Current assets:
Cash and cash equivalents $ 2 $ 8
Accounts receivable, net 201 99
Inventories 385 391
Prepaid expenses 58 58
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Total current assets 646 556
Plant and equipment, net 106 130
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Total assets $ 752 $ 686
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LIABILITIES AND STOCKHOLDERS' DEFICIT
- -------------------------------------
Current liabilities:
Accounts payable, trade and accrued liabilities 4,679 4,723
Note payable to an affiliate 792 792
Unearned revenue 172 142
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Total current liabilities 5,643 5,657
Long term debt to an affiliate 600 600
Other liabilities 68 68
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Total liabilities 6,311 6,325
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Stockholders' deficit:
Series A Preferred Stock: $1.00 par value; 8% cumulative,
Convertible, redeemable; $1.00 par value; 5,450,000 shares
Authorized; 1,137,157 and 1,557,403 shares issued and out-
Standing at June 30, 1999 and December 31, 1998, respectively. 1,137 1,557
Series B Preferred Stock: $1.00 par value, 8% cumulative,
Convertible, redeemable; 25,000 shares authorized, 0 and 25,000
Issued, and outstanding at June 30, 1999 and December 31,
1998, respectively. -- 25
Common Stock: $0.01 par value; 100,000,000 shares
Authorized; 15,211,838 and 5,166,542 shares issued on June
30,1999 and December 31, 1998, respectively. 152 52
Additional paid-in capital 42,771 42,426
Accumulated deficit (49,604) (49,684)
Treasury Stock: 60,156 shares at cost (15) (15)
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Total stockholders' deficit (5,559) (5,639)
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Total liabilities and stockholders' deficit $ 752 $ 686
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Note: The consolidated balance sheet at December 31, 1998 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.
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POSITRON CORPORATION
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
Three Months Ended Six Months Ended
---------------------- ------------------------------
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
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Revenues:
Fee per scan $ -- $ 199 $ -- $ 307
Upgrades 61 -- 138 --
Service and component 392 414 703 780
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Total Revenue: 453 613 841 1,087
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Costs of sales and services:
Fee per scan -- 40 -- 60
Upgrades 21 -- 49 --
Service, warranty and component 133 91 247 178
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Total costs of revenues 154 131 296 238
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Gross profit 299 482 545 849
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Operating expenses:
Research and development 60 8 129 18
Selling and marketing -- 2 -- 16
General and administrative 145 399 236 894
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Total operating expenses 205 409 365 928
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Income (loss) from operations 94 (73) 180 (79)
Interest expense (48) (78) (100) (161)
Total other expense (48) (78) (100) (161)
Net income (loss) $ 46 $ (5) $ 80 (240)
========== ========== ================== ==========
Basic earnings (loss) per common share $ 0.00 $ (0.05) $ 0.00 $ (0.05)
Weighted average number of basic
Common shares outstanding 16,396 5,144 16,322 5,139
Diluted earnings (loss) per common share $ 0.00 $ (0.00) $ 0.00 $ (0.05)
Weighted average number of diluted
Common shares outstanding 16,396 5,144 16,322 5,139
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See accompanying notes
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POSITRON CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Three Months Ended Six Months Ended
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June 30, June 30, June 30, June 30,
1999 1998 1999 1998
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Cash flows from operating activities:
Net income (loss) $ 46 $ (235) $ 80 $ (240)
Adjustment to rconcile net income (loss)
to net cash used in operating
Activities
Changes in operating assets and
liabilities:
Accounts receivable 1 (179) (102) --
Inventory -- 20 6 --
Prepaid expenses -- (10) -- --
Depreciation 9 63 24 --
Accrued liabilities (25) (69) (44) --
Unearned revenue (37) -- 30 --
Other liabilities -- 355 -- --
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Net cash used in operating activities (6) (55) (6) (240)
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Cash flows from financing activities:
Repayment of other notes payable -- (74) -- (74)
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Net cash used in financing activities -- (74) -- (74)
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Net decrease in cash and cash equivalents $ (6) $ (129) $ (6) $ (314)
Cash and cash equivalents, beginning 8 160 8 160
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of period
Cash and cash equivalents, end of period $ 2 $ 31 $ 2 $ (154)
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See accompanying notes
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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, 1998. 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, 1998, as reported in the Form 10-KSB, have been omitted.
2. COMPREHENSIVE INCOME
---------------------
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standard ("SFAS") No. 130, "Reporting Comprehensive Income." Comprehensive
income includes such items as unrealized gains or losses on certain investment
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.
3. EARNINGS PER SHARE
--------------------
Basic earnings per common share are based on the weighted average number of
common shares outstanding in each year and after preferred stock dividend
requirements. Diluted earnings per common share assume that any dilutive
convertible preferred shares outstanding at the beginning of each year were
converted at those dates, with related interest, preferred stock dividend
requirements and outstanding common shares adjusted accordingly. It also
assumes that outstanding common shares were increased by shares issuable upon
exercise of those stock options for which market price exceeds exercise price,
less shares which could have been purchased by the Company with related
proceeds. The convertible preferred stock and outstanding stock options and
warrants were not included in the computation of diluted earnings per common
share for 1998 since it would have resulted in an antidilutive effect.
The following table sets forth the computation of basic and diluted earnings per
share:
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Three Months Ended Six Months Ended
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June 30, June 30, June 30, June 30,
1999 1998 1999 1998
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(In Thousands) (In Thousands)
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Numerator:
Net income (loss) $ 80 $ (240) $ 34 $ (235)
Denominator:
Denominator for basic earnings per 15,726 4,885 15,652 4,885
Share-weighted average shares
Effect of dilutive securities:
Convertible Series A preferred stock 670 -- 670 --
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Dilutive potential common shares 670 -- 670 --
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Denominator for diluted earnings per
Share-adjusted weighted
Average shares and assumed
Conversions 16,396 4,885 16,322 4,885
=============== ========== ========= ==========
Basic earnings (loss) per share $ 0.00 $ (0.05) $ 0.00 $ (0.05)
=============== ========== ========= ==========
Diluted earnings (loss) per share $ 0.00 $ (0.05) $ 0.00 $ (0.05)
=============== ========== ========= ==========
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4. 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.
5. IMATRON TRANSACTION
--------------------
In May 1998, the Company entered into an agreement (the "Imatron Transaction")
with Imatron Inc. ("Imatron"), pursuant to which in January 1999, Imatron
acquired a majority ownership of the Company. In conjunction with the Imatron
Transaction, Imatron made working capital advances to the Company of $600,000 to
enable the Company to meet a portion of its current obligations.
Upon consummation of the Imatron Transaction in January 1999, Imatron acquired 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 the shares of Imatron) and was
issued nine million of the Company's common stock in return for a nominal cash
payment in the amount of $100.
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 all reasonable efforts to
cause the placement of 10 POSICAM systems over the next three years. During
1998 the Company shipped a POSICAM system to Imatron Japan as the first
delivery under a three-year distribution agreement entered into during 1997.
Imatron Japan, an affiliate of Imatron, is a major distributor for Imatron's
Ultrafast CT and for the products of certain other high technology companies.
Imatron owns a 24 percent minority interest in Imatron Japan.
Imatron has also agreed to help facilitate the recapitalization of the Company
and 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 at least $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.
In connection with the Imatron Transaction, the Company, Imatron and two then
current lenders to the Company, Uro-Tech and ProFutures, entered into certain
agreements whereby (a) ProFutures waived all past defaults and extended the
maturity of the ProFutures Loan in return for a $50,000 payment and the issuance
of warrants to purchase 1,150,000 shares of the Company's common stock at $0.25
per share. The ProFutures Loan was subsequently repaid in November 1998; (b)
Imatron agreed to subordinate its loan to the ProFutures Loan, (c) Uro-Tech
agreed to subordinate its loan (with a current balance of approximately $792,000
plus accrued interest payable of approximately $272,000 at December 31, 1998) to
Imatron's loan.
If Imatron is unsuccessful in its efforts to raise capital for the Company,
management believes that the Company will be unable to continue as a going
concern and that the Company's assets will be seized by its secured creditors.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company is including the following cautionary statement in this Quarterly
Report on Form 10-QSB to make applicable and utilize the safe harbor provision
of the Private Securities Litigation Reform Act of 1995 regarding 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.
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1999
- --------------------------------------------------------------------------------
& 1998.
- --------
The company generated a profit of $46,000 for the three months ended June 30,
1999 compared to a loss of $5,000 for the three months ended June 30, 1998.
This turnaround was primarily the result of improvements in operating expenses
and cost cutting.
The Company generated no revenue from system sales during the three months ended
June 30, 1999 or 1998. Fee per scan revenue decreased to zero during the three
months of 1999 from $199,000 for the three months of 1998 due to Buffalo
Cardiology's purchase of their leased scanner from the Company in the fourth
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quarter of 1998. Upgrade revenue for the quarter was $61,000 versus zero for
1998. In addition, there was a decrease in service and component sales revenue
of $22,000 to $392,000 in 1999 from $414,000 during the same period due to less
service work performed during the three months ended June 30, 1999. This
reduction in service work is attributable to normal fluctuations in service.
Gross profit during the three months of 1999 was $299,000 compared to $482,000
for the three months ended June 30, 1999. This decrease in gross profit of
$183,000 was due primarily the loss of revenue and gross margin on the Buffalo
fee per scan.
Total operating expense decreased $204,000 from $409,000 for the three months
ended June 30, 1998 to $205,000 for the three months ended June 30, 1999. The
decrease primarily results from significant staff reductions and related
reductions in administrative overhead costs.
Interest expense decreased to $48,000 for the three months ended June 30, 1999
from $78,000 the three months ended June 30, 1998 due primarily to the reduction
in the Company's debt level compared to 1998 resulting from the payoff of the
Urotech loan in the fourth quarter of 1998 partially offset by interest on the
$600,000 Imatron bridge loan.
FINANCIAL CONDITION
- --------------------
During 1998 and the first half of 1999, management took certain actions to
improve operating expenses, reduce costs and collect certain accounts receivable
previously deemed uncollectable. As a result, the company experienced its first
two quarterly profits since going public.
Net income for the six months ended June 30, 1999 was $80,000. Despite this
profit, Positron previously has been unable to sell its POSICAMTM systems in
sufficient quantities to be profitable. Consequently, the Company has sustained
substantial losses. Due to the sizeable 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. The Company has
an accumulated deficit of $49,604,000 at June 30, 1999.
At June 30, 1999, the Company had cash and cash equivalents in the amount of
$2,000 compared to $8,000 at December 31, 1998. As a result of the Company's
liquidity problem, certain liabilities continue to be unpaid at June 30, 1999.
If Imatron is unsuccessful in its efforts to raise capital for the Company,
management believes that the Company will be unable to continue as a going
concern and that the Company's assets will be seized by its secured creditors.
IMPACT OF THE YEAR 2000
- ---------------------------
The Year 2000 ("Y2K") issue results from computer programs having been 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.
The Company has performed a preliminary assessment of the Y2K issue using a
broad overview and management's current understanding of its information and
non-information systems and its informal understanding of the information and
non-information systems of its significant suppliers and major customers. None
of the detailed tasks necessary to properly assess the Y2K issue (such as direct
coordination with vendors, customers and manufacturers) have been performed.
Based on a preliminary assessment, the Company believes that it will not need
significant modifications to its computer software or hardware and that its
existing computer systems (including information systems, non-information
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systems using date sensitive embedded chips and its POSICAMTM systems) will
function properly with respect to dates in the year 2000 and thereafter. Based
upon such preliminary assessment, the Company also currently believes that costs
to modify the Company's existing computer hardware and software systems in
regard to the Y2K issue will not be significant and should not exceed $10,000.
However, the Y2K issue is extremely complex and the costs to properly assess its
impact on the Company and to correct associated problems may be very
significant.
Based on the Company's 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 Y2K
issues, management believes that the Company does not have significant exposure
with respect to third parties. However, the Company's preliminary assessments
indicated that the worst case scenario with regard to the Y2K issue would be
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.
Due to the Company's current severe liquidity problems, the Company has not had
the financial resources to perform a complete assessment of Y2K issues, assess
the potential cost or develop any contingency plan with regard to Y2K issues
that may arise. The Company is unable to predict at the current time, when and
to what extent it may continue to pursue its assessment of potential Y2K issues
and the development of any related contingency plans. If the Company can obtain
necessary financial resources, it will complete its assessment of the Y2K issues
facing the Company during the third quarter of 1999.
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: August 12, 1999 /s/ Gary H. Brooks
----------------------
Gary H. Brooks
President
(Duly Authorized Officer and
Principal Accounting Officer)
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<ARTICLE> 5
<LEGEND>
ART. 5 FDS FOR QUARTERLY 10-QSB
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 2
<SECURITIES> 0
<RECEIVABLES> 1054
<ALLOWANCES> 948
<INVENTORY> 385
<CURRENT-ASSETS> 646
<PP&E> 399
<DEPRECIATION> 293
<TOTAL-ASSETS> 752
<CURRENT-LIABILITIES> 5643
<BONDS> 0
<COMMON> 0
1137
152
<OTHER-SE> (6848)
<TOTAL-LIABILITY-AND-EQUITY> 752
<SALES> 0
<TOTAL-REVENUES> 841
<CGS> 296
<TOTAL-COSTS> 661
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 100
<INCOME-PRETAX> 80
<INCOME-TAX> 0
<INCOME-CONTINUING> 80
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 80
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
