FORM 10-QSB MARCH 31, 1999
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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 March 31, 1999
Commission file number: 0-24092
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 March 31, 1999: 14,581,838
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FORM 10-QSB MARCH 31, 1999
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POSITRON CORPORATION
TABLE OF CONTENTS
Form 10-QSB for the quarter ended March 31, 1999
PART I - FINANCIAL INFORMATION Page
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Item 1. Financial Statements
Balance Sheets as of March 31, 1999
and December 31, 1998 3
Statements of Operations for the three months ended
March 31, 1999 and 1998 4
Condensed Statements of Cash Flows for the three months ended
March 31, 1999 and 1998 5
Selected Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation 8
Signature Page 10
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FORM 10-QSB MARCH 31, 1999
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POSITRON CORPORATION
BALANCE SHEETS
(In thousands, except share data)
<CAPTION>
March 31, December 31,
1999 1998
-------- ---------
ASSETS (Unaudited) (Note)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 8 $ 8
Accounts receivable, net 202 99
Inventories 385 391
Prepaid expenses 58 58
-------- --------
Total current assets 653 556
Plant and equipment, net 115 130
-------- --------
Total assets 768 686
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities:
Accounts payable, trade and accrued liabilities 4,704 4,723
Note payable to an affiliate 792 792
Unearned revenue 209 142
-------- --------
Total current liabilities 5,705 5,657
Long term debt to an affiliate 600 600
Other liabilities 68 68
-------- --------
Total liabilities 6,373 6,325
-------- --------
Stockholders' deficit:
Series A Preferred Stock: $1.00 par value; 8% cumulative, convertible,
redeemable; $1.00 par value; 5,450,000 shares authorized; 1,142,157 and
1,557,403 shares issued and outstanding at March 31, 1999 and
December 31, 1998, respectively 1,142 1,557
Series B Preferred Stock: $1.00 par value, 8% cumulative,
convertible, redeemable; 25,000 shares authorized, issued,
and outstanding at March 31, 1999 25 25
Common Stock: $0.04 par value; 100,000,000 shares
authorized; 14,581,838 and 5,166,542 shares issued and
14,521,682 and 5,106,386 outstanding at March 31,1999 and
December 31, 1998, respectively 145 52
Additional paid-in capital 42,748 42,426
Accumulated deficit (49,650) (49,684)
Treasury Stock: 60,156 shares at cost (15) (15)
-------- --------
Total Stockholders' deficit (5,605) (5,639)
-------- --------
Total Liabilities and stockholders' deficit $ 768 $ 686
======== ========
<FN>
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.
</FN>
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FORM 10-QSB MARCH 31, 1999
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POSITRON CORPORATION
STATEMENTS OF OPERATIONS
(In thousands, except share data)
(Unaudited)
<CAPTION>
Three Months Ended
-----------------------------------
March 31, March 31,
1999 1998
-------- --------
<S> <C> <C>
Revenues:
Fee per scan $ -- $ 108
Upgrades 77 --
Service and component 311 366
-------- --------
Total Revenue: 388 474
-------- --------
Costs of sales and services:
Fee per scan -- 20
Upgrades 28 --
Service, warranty and component 114 87
-------- --------
Total costs of revenues 142 107
-------- --------
Gross profit 246 367
-------- --------
Operating expenses:
Research and development 69 10
Selling and marketing -- 14
General and administrative 91 495
-------- --------
Total operating expenses 160 519
-------- --------
Income (loss) from operations 86 (152)
-------- --------
Other income (expenses):
Interest expense (52) (83)
-------- --------
Total other expense (52) (83)
-------- --------
Net income (loss) $ 34 $ (235)
======== ========
Basic earnings (loss) per common share $ 0.00 $ (0.05)
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Weighted average number of basic
common shares outstanding 14,440 4,885
======== ========
Diluted earnings (loss) per common share $ 0.00 $ (0.05)
======== ========
Weighted average number of diluted
common shares outstanding 16,207 4,885
======== ========
<FN>
See accompanying notes
</FN>
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FORM 10-QSB MARCH 31, 1999
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POSITRON CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<CAPTION>
Three Months Ended
-----------------------
March 31, March 31,
1999 1998
----- -----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 34 $(235)
Adjustment to reconcile net income (loss) to net cash used in operating
activities
Changes in operating assets and liabilities:
Accounts receivable (103) (179)
Inventory 6 20
Prepaid expenses -- (10)
Depreciation 15 63
Accrued liabilities (19) (69)
Unearned revenue 67 --
Other liabilities -- 355
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Net cash used in operating activities -- (55)
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Cash flows from financing activities:
Repayment of other notes payable -- (74)
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Net cash used in financing activities -- (74)
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Net decrease in cash and cash equivalents $-- $(129)
Cash and cash equivalents, beginning of year 8 160
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Cash and cash equivalents, end of period $ 8 $ 31
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<FN>
See accompanying notes
</FN>
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FORM 10-QSB MARCH 31, 1999
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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:
<TABLE>
<CAPTION>
March 31, March 31,
1999 1998
------- -------
<S> <C> <C>
(In Thousands)
Numerator:
Net income (loss) $ 34 $ (235)
Denominator:
Denominator for basic earnings per share-weighted average shares 14,440 4,885
Effect of dilutive securities:
Convertible Series A preferred stock 1,142 --
Convertible Series B preferred stock 625 --
------- -------
Dilutive potential common shares 1,767 --
------- -------
Denominator for diluted earnings per share-adjusted weighted
average shares and assumed conversions 16,207 4,885
======= =======
Basic earnings (loss) per share $ 0.00 $ (0.05)
======= =======
Diluted earnings (loss) per share $ 0.00 $ (0.05)
======= =======
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FORM 10-QSB MARCH 31, 1999
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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 has 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(TM) systems
over the next three years. During 1998 the Company shipped a POSICAM(TM)
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
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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FORM 10-QSB MARCH 31, 1999
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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 March 31,
1999 & 1998.
During the three months ended March 31, 1999, the Company experienced its first
profitable quarter since going public, generating a profit of $34,000 for the
three months ended March 31, 1999 compared to a loss of $235,000 for the three
months ended March 31, 1998. This turnaround was primarily the result of
improvements in operating expenses, cost cutting and collection of accounts
receivable previously deemed uncollectable.
The Company generated no revenue from system sales during the first three months
of 1999 or 1998. Fee per scan revenue decreased to $0 during the first three
months of 1999 from $108,000 for the first three months of 1998 due to Buffalo
Cardiology having purchased their leased scanner from the company in the fourth
quarter of 1998. In addition, there was a decrease in service and component
sales revenue of $55,000 during the same period due to less service work
performed during the three months ended March 31, 1999. This reduction in
service work is directly attributable to staff reductions and normal
fluctuations in service.
Gross profit during the first three months of 1999 was $246,000 compared to
$367,000 for the three months ended March 31, 1998. This decrease in gross
profit of $121,000 is due primarily the loss of revenue and gross margin on the
Buffalo fee per scan.
Total operating expense decreased approximately to $359,000 from $519,000 for
the three months ended March 31, 1998 to $160,000 for the three months ended
March 31, 1999. The decrease primarily results from significant staff reductions
and related reductions in administrative overhead costs and the reversal of
certain reserves due to collection of accounts receivable previously deemed
uncollectable.
Interest expense decreased to $52,000 for the three months ended March 31, 1999
from $83,000 the three months ended March 31, 1998 due primarily to the
reduction in the Company's debt level in the first three months of 1999 as
compared to the three months of 1998 resulting from the payoff of the Urotech
loan in the fourth quarter of 1998 and increased due to the $600,000 bridge loan
from Imatron.
Financial Condition
During 1998 and the first quarter 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
quarterly profit since going public.
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FORM 10-QSB MARCH 31, 1999
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Net income for the three months ended March 31, 1999 was $34,000. Despite this
quarterly 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 $49,650,000 at March 31, 1999.
At March 31, 1999, the Company had cash and cash equivalents in the amount of
$8,000 compared to $8,000 at December 31, 1998. As a result of the Company's
liquidity problem, certain liabilities continue to be unpaid at March 31, 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 only 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
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.
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FORM 10-QSB MARCH 31, 1999
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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: May 12, 1999 /s/ Gary H. Brooks
------------------------------
Gary H. Brooks
President
(Duly Authorized Officer and
Principal Accounting Officer)
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<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-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Mar-31-1999
<EXCHANGE-RATE> 1
<CASH> 8
<SECURITIES> 0
<RECEIVABLES> 1144
<ALLOWANCES> 942
<INVENTORY> 385
<CURRENT-ASSETS> 653
<PP&E> 390
<DEPRECIATION> 275
<TOTAL-ASSETS> 768
<CURRENT-LIABILITIES> 6373
<BONDS> 0
0
1142
<COMMON> 145
<OTHER-SE> (6823)
<TOTAL-LIABILITY-AND-EQUITY> 768
<SALES> 0
<TOTAL-REVENUES> 388
<CGS> 0
<TOTAL-COSTS> 142
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 52
<INCOME-PRETAX> 34
<INCOME-TAX> 0
<INCOME-CONTINUING> 34
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 34
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
