FORM 10-QSB SEPTEMBER 30, 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 SEPTEMBER 30, 1999
Commission file number: 0-24092
[POSITRON LOGO]
A Texas Corporation
I.D. No. 76-0083622
1304 Langham Creek Drive, Suite 300, 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 September 30, 1999: 52,146,877
----------
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1
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FORM 10-QSB SEPTEMBER 30, 1999
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<TABLE>
<CAPTION>
POSITRON CORPORATION
TABLE OF CONTENTS
FORM 10-QSB FOR THE QUARTER ENDED SEPTEMBER 30, 1999
PART I - FINANCIAL INFORMATION PAGE
<S> <C>
Item 1. Condensed Financial Statements
Condensed Balance Sheets as of September 30, 1999 and December 31, 1998 . . . 3
Condensed Statements of Operations for the three months and nine months ended
September 30, 1999 and 1998 . . . . . . . . . . . . . . . . . . . . . . 4
Condensed Statements of Cash Flows for the three months and nine months ended
September 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 . . . . . . . . . . . . . . . . . . . . . . 8
Signature Page . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
</TABLE>
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2
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FORM 10-QSB SEPTEMBER 30, 1999
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<TABLE>
<CAPTION>
POSITRON CORPORATION
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
September December
30, 1999 31, 1998
ASSETS (Unaudited) (Note)
- ------ ----------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 8,606 $ 8
Accounts receivable, net 210 99
Inventories 636 391
Prepaid expenses 103 58
----------- ---------
Total current assets 9,555 556
Note Receivable 30 --
Plant and equipment, net 108 130
----------- ---------
Total assets $ 9,693 $ 686
=========== =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
- -------------------------------------
Current liabilities:
Accounts payable, trade and accrued liabilities 3,696 4,723
Note payable to an affiliate -- 792
Unearned revenue 74 142
----------- ---------
Total current liabilities 3,770 5,657
Long term debt to an affiliate -- 600
Other liabilities 51 68
----------- ---------
Total liabilities 3,821 6,325
----------- ---------
Stockholders' equity:
Series A Preferred Stock: $1.00 par value; 8% cumulative,
Convertible, redeemable; $1.00 par value; 5,450,000 shares
Authorized; 1,035,448 and 1,557,403 shares issued and
outstanding at September 30, 1999 and December 31, 1998,
respectively. 1,035 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 September 30, 1999 and December
31, 1998, respectively. -- 25
Common Stock: $0.01 par value; 100,000,000 shares
Authorized; 52,146,877 and 5,166,542 shares issued on
September 30,1999 and December 31, 1998, respectively. 521 52
Additional paid-in capital 53,907 42,426
Accumulated deficit (49,576) (49,684)
Treasury Stock: 60,156 shares at cost (15) (15)
----------- ---------
Total stockholders' equity 5,872 (5,639)
----------- ---------
Total liabilities and stockholders' equity $ 9,693 $ 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.
</TABLE>
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3
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FORM 10-QSB SEPTEMBER 30, 1999
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<TABLE>
<CAPTION>
POSITRON CORPORATION
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
Three Months Ended Nine Months Ended
======================== ==========================
September September September September
30, 1999 30, 1998 30, 1999 30, 1998
----------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Revenues:
Fee per scan. . . . . . . . . . . . . . $ -- $ 147 $ -- $ 454
Upgrades. . . . . . . . . . . . . . . . -- -- 137 --
Service and component . . . . . . . . . 385 153 1,088 933
Total Revenue: . . . . . . . . . . . 385 300 1,225 1,387
----------- ----------- ------------- -----------
Costs of sales and services:
Fee per scan. . . . . . . . . . . . . . -- 29 -- 89
Upgrades. . . . . . . . . . . . . . . . -- -- 49 --
Service, warranty and component . . . . 171 108 418 286
----------- ----------- ------------- -----------
Total costs of revenues. . . . . . . 171 137 467 375
----------- ----------- ------------- -----------
Gross profit. . . . . . . . . . . . 214 163 759 1,012
Operating expenses:
Research and development. . . . . . . . 140 -- 269 18
Selling and marketing . . . . . . . . . 60 -- 60 16
General and administrative. . . . . . . 184 840 420 1,734
----------- ----------- ------------- -----------
Total operating expenses. . . . . . 384 840 749 1,768
----------- ----------- ------------- -----------
Income (loss) from operations. (170) (677) 10 (756)
Interest income/(expense) . . . . . . . . . 55 (67) (45) (228)
----------- ----------- ------------- -----------
Total other expense . . . . . . . . 55 (67) (45) (228)
----------- ----------- ------------- -----------
Income (loss) before extraordinary item . . (115) (744) (35) (984)
Extraordinary item, gain on forgiveness
of debt. . . . . . . . . . . . . . . 143 -- 143 --
----------- ----------- ------------- -----------
Net income (loss) . . . . . . . . . . . . . $ 28 $ (744) $ 108 $ (984)
=========== =========== ============= ===========
Basic and diluted earnings (loss) per
common share including
extraordinary item. . . . . . . . . . $ 0.00 $ (0.14) $ 0.00 $ (0.19)
Weighted average number of basic
Common shares outstanding . . . . . . 40,278 5,144 23,792 5,139
Weighted average number of diluted
Common shares outstanding. . . . . . . 50,880 5,144 27,691 5,139
</TABLE>
See accompanying notes
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4
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FORM 10-QSB SEPTEMBER 30, 1999
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<TABLE>
<CAPTION>
POSITRON CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Three Months Ended Nine Months Ended
======================== ========================
September September September September
30, 1999 30, 1998 30, 1999 30, 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss). . . . . . . . . . . . . . . . $ 28 $ (744) $ 108 $ (984)
Adjustment to reconcile net income (loss)
to net cash provided (used) in operating
activities. . . . . . . . . . . . . . . . -- -- -- 763
Changes in operating assets and liabilities:
Accounts receivable . . . . . . . . . . . . . 9 216 (111) --
Inventory . . . . . . . . . . . . . . . . . . (251) -- (245) --
Prepaid expenses. . . . . . . . . . . . . . . (45) 173 (45) --
Notes Receivable. . . . . . . . . . . . . . . (30) -- (30) --
Depreciation. . . . . . . . . . . . . . . . . (2) 126 13 --
Accrued liabilities . . . . . . . . . . . . . (1,000) 260 (1,017) --
Unearned revenue. . . . . . . . . . . . . . . (98) 60 (68) --
Other liabilities . . . . . . . . . . . . . . (17) (16) (17) --
----------- ----------- ----------- -----------
Net cash used in operating activities. . . (1,406) 75 (1,412) (221)
----------- ----------- ----------- -----------
Cash flows from financing activities:
Proceeds from sale of common stock . . . . . . 11,402 -- 11,402 --
Repayment of other notes payable . . . . . . . (1,392) -- (1,392) (206)
----------- ----------- ----------- -----------
Net cash used in financing activities . . 10,010 -- 10,010 (206)
----------- ----------- ----------- -----------
Net decrease in cash and cash equivalents. . . . . . $ 8,604 $ 75 $ 8,598 $ (15)
Cash and cash equivalents, beginning of period . . . 2 70 8 160
----------- ----------- ----------- -----------
Cash and cash equivalents, end of period . . . . . . $ 8,606 $ 145 $ 8,606 $ 145
=========== =========== =========== ===========
</TABLE>
See accompanying notes
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5
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FORM 10-QSB SEPTEMBER 30, 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 diluted weighted average
shares outstanding:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
====================== ======================
September September September September
30, 1999 30, 1998 30, 1999 30, 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
(In Thousands) (In Thousands)
Denominator:
Denominator for basic earnings per
Share-weighted average shares. . . . . . . $ 40,278 $ 5,144 $ 23,792 $ 5,139
Effect of dilutive securities:
Convertible Series A preferred stock. 670 -- 670 --
---------- ---------- ---------- ----------
Dilutive potential common shares. . . . . 9,932 -- 3,229 --
Denominator for diluted earnings per
Share-adjusted weighted
Average shares and assumed
Conversions . . . . . . . . . . . 50,880 4,885 27,691 4,885
========== ========== ========== ==========
</TABLE>
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FORM 10-QSB SEPTEMBER 30, 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 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, 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.
In August of 1999, Imatron successfully completed raising a net $11.4 million of
equity capital for the Company. This reduced Imatron's current ownership in the
company to approximately 18%. Consistent with the completion of the financing,
the Company has repaid the Imatron bridge loan plus interest and paid the
Uro-tech loan plus interest. The Company's President has resigned as Imatron's
CFO and Imatron no longer has operating or voting control of the company.
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FORM 10-QSB SEPTEMBER 30, 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 SEPTEMBER 30,
- --------------------------------------------------------------------------------
1999 & 1998.
- --------------
The company generated a profit of $28,000 for the three months ended September
30, 1999 compared to a loss of $744,000 for the three months ended September 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
September 30, 1999 or 1998. Fee per scan revenue decreased to zero during the
three months of 1999 from $147,000 for the three months of 1998 due to Buffalo
Cardiology's purchase of their leased scanner from the Company in the fourth
quarter of 1998. Upgrade revenue for the quarter was $0 in 1999 versus $0 for
1998. In addition, service and component sales revenue increased $232,000 to
$385,000 in 1999 from $153,000 during the same period 1998 due to increased
service work. This increase is attributable to normal fluctuations in service.
Gross profit for the three months ended September 30, 1999 was $214,000 compared
to $163,000 for the three months in 1998. This increase in gross profit of
$51,000 was due primarily the loss of revenue and gross margin on the Buffalo
fee per scan, offset by the increased margin on service.
Total operating expense decreased $456,000 to $384,000 for the three months
ended September 30, 1999 from $840,000 for 1998. The decrease primarily results
from significant staff reductions and related reductions in administrative
overhead costs, offset by back pay and bonuses of $132,000 paid in the quarter.
Interest income was $55,000 for the three months ended September 30, 1999 versus
interest expense of $67,000 for the same three months 1998 due primarily to the
reduction in the Company's debt level compared to 1998 resulting from the payoff
of the Profutures loan in the fourth quarter of 1998, the payoff of the Imatron
and Uro-Tech loans in August of 1999 and the interest in the quarter on the
equity capital.
The Company recognized extraordinary income in the quarter of $142,000 on the
partial forgiveness of accrued interest on the Uro-Tech note. This note, plus
the remaining accrued interest, were paid in full during the third quarter.
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30,
- --------------------------------------------------------------------------------
1999 & 1998.
- --------------
The company generated a profit of $108,000 for the nine months ended September
30, 1999 compared to a loss of $984,000 for the nine months 1998. This
turnaround was primarily the result of improvements in operating expenses and
cost cutting and the reversal of certain reserves due to collection of accounts
receivable previously deemed uncollectable.
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FORM 10-QSB SEPTEMBER 30, 1999
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The Company generated no revenue from system sales during the nine months ended
September 30, 1999 or 1998. Fee per scan revenue decreased to zero during the
first nine months of 1999 from $454,000 for the nine months of 1998 due to
Buffalo Cardiology having purchased their leased scanner from the company in the
fourth quarter of 1998. Upgrade revenue for the first nine months of 1999 was
$137,000 versus zero for 1998. In addition, there was a increase in service and
component sales revenue of $155,000 during 1999 versus 1998 due to more service
work performed during the nine months ended September 30, 1999. This change in
service work is attributable to normal fluctuations in service.
Gross profit during the nine months of 1999 was $759,000 compared to $1,012,000
for the nine months ended September 30, 1998. This decrease in gross profit of
$253,000 is due primarily to the loss of revenue and gross margin on the Buffalo
fee per scan.
Total operating expense decreased $1,019,000 to $749,000 for the nine months
ended September 30, 1999 from $1,768,000 for the nine months 1998. 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, offset by
back pay and bonuses of $132,000 paid in the quarter.
Interest expense decreased to of $45,000 for the nine months ended September 30,
1999 from $228,000 for the nine months 1998 due primarily to the reduction in
the Company's debt level in the first nine months of 1999 as compared to the
nine months of 1998 resulting from the payoff of the Profutures, the payoff of
the Imatron and Uro-Tech loans in August of 1999, and the interest income in
third quarter for the quarter on the equity capital.
The Company recognized extraordinary income in the quarter of $142,000 on the
partial forgiveness of accrued interest on the Uro-Tech note. This note plus
the remaining accrued interest were paid in full during third quarter.
FINANCIAL CONDITION
- --------------------
During 1998 and the three quarters 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
three quarterly profits since going public.
Net income for the nine months ended September 30, 1999 was $117,000. 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 accumulated 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 $49,576,000 at September 30,
1999.
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 an 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.
Based on the 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
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.
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FORM 10-QSB SEPTEMBER 30, 1999
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Based on the Company's 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 maintenance
services.
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: November 8, 1999 /s/ Gary H. Brooks
------------------
Gary H. Brooks
President
(Duly Authorized Officer and
Principal Accounting Officer)
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10
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 8606
<SECURITIES> 0
<RECEIVABLES> 1158
<ALLOWANCES> 948
<INVENTORY> 636
<CURRENT-ASSETS> 9555
<PP&E> 399
<DEPRECIATION> 291
<TOTAL-ASSETS> 9693
<CURRENT-LIABILITIES> 3770
<BONDS> 0
0
1035
<COMMON> 521
<OTHER-SE> 4316
<TOTAL-LIABILITY-AND-EQUITY> 9693
<SALES> 0
<TOTAL-REVENUES> 1225
<CGS> 467
<TOTAL-COSTS> 1216
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 100
<INCOME-PRETAX> (35)
<INCOME-TAX> 0
<INCOME-CONTINUING> (35)
<DISCONTINUED> 0
<EXTRAORDINARY> 143
<CHANGES> 0
<NET-INCOME> 108
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
