AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 14, 2000
REGISTRATION NO. 333-30316
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment #1 to
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
POSITRON CORPORATION
TEXAS 3845 76-0083622
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Identification Number)
other organization) Classification Code)
1304 LANGHAM CREEK DRIVE, SUITE 300, HOUSTON, TEXAS 77084
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
GARY H. BROOKS, PRESIDENT
1304 LANGHAM CREEK DRIVE, SUITE 300, HOUSTON, TEXAS 77084
(NAME OF AGENT FOR SERVICE)
------------------------------------
COPIES TO:
ROGER S. MERTZ
ALLEN, MATKINS, LECK, GAMBLE & MALLORY LLP
333 BUSH STREET
SAN FRANCISCO, CALIFORNIA 94104
TELEPHONE: (415) 837-1515
FACSIMILE: (415) 837-1516
------------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED
SALE TO THE PUBLIC: AS SOON AS PRACTICABLE AFTER THE
EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
------------------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act registration number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [_]
------------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
====================================================================================================================
TITLE OF SECURITIES PROPOSED MAXIMUM PROPOSED MAXIMUM
TO BE REGISTERED AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
REGISTERED PER SHARE(1) OFFERING PRICE REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Common Stock, $0.01 par value 51,172,990 $0.53 $27,121,684 $7,160
- --------------------------------------------------------------------------------------------------------------------
Common Stock Underlying Warrants 27,560,000(2) $0.53 $14,606,800 $3,856
====================================================================================================================
Total 78,732,990 $0.53 $41,728,484 $11,016
====================================================================================================================
</TABLE>
<PAGE>
(1) Estimated solely for the purpose of computing the amount of registration fee
pursuant to Rule 457(c) under the Securities Act of 1933 based on the average
high and low sale prices of registrant's common stock on February 9, 2000.
(2) The warrants may be exercised to purchase shares of common stock. Pursuant
to Rule 416 under the Securities Act of 1933, as amended, we are also
registering such indeterminable number of additional shares of common stock as
may be saleable upon conversion of some of these warrants pursuant to the
warrant provisions governing conversion price.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED February , 2000
PROSPECTUS
POSITRON CORPORATION
[LOGO] POSITRON
78,732,990 SHARES
COMMON STOCK
The selling stockholders identified in this prospectus are offering 78,732,990
shares of common stock, 27,560,000 of which underlie warrants to purchase common
stock which have not yet been exercised. All these securities are being
registered for resale only. Positron will not receive any of the proceeds from
the sale of shares by the selling stockholders.
Positron's common stock is traded on the over-the-counter securities market
("pink sheets"), and quoted on the NASD's Electronic Bulletin Board under the
symbol "POSC.OB" On February 9, 2000, the last reported sales price for the
common stock on the Electronic Bulletin Board was $0.56 per share.
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 5.
----------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------------------
The date of this Prospectus is February , 2000.
You may rely on the information contained in this prospectus. We have not
authorized anyone to provide information different from that contained in this
prospectus. Neither the delivery of this prospectus nor sale of common stock
means that information contained in this prospectus is correct after the date of
this prospectus. This prospectus is not an offer to sell or solicitation of an
offer to buy these shares of common stock in any circumstances under which the
solicitation is unlawful.
<PAGE>
TABLE OF CONTENTS
Page No.
Summary Information .................................................. 3
Risk Factors ......................................................... 6
Use of Proceeds ...................................................... 17
Selling Stockholders ................................................. 17
Plan of Distribution ................................................. 19
Legal Proceedings .................................................... 20
Directors, Executive Officers, Promoters and Control Persons ......... 21
Security Ownership of Certain Beneficial Owners and Management ....... 22
Description of Securities ............................................ 24
Interest of Named Experts and Counsel ................................ 25
Disclosure of Commission Position on
Indemnification for Securities Act Liabilities ..................... 26
Description of Business .............................................. 26
Management's Discussion and Analysis of Plan of Operation ........... 29
Description of Property .............................................. 35
Certain Relationships and Related Transactions ....................... 35
Market for Common Equity and Related Stockholder Matters ............. 36
Executive Compensation ............................................... 38
Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure ................................ 42
Legal Matters ........................................................ 44
Where You Can Find More Information .................................. 44
Consolidated Financial Statements .................................... F-1
2
<PAGE>
SUMMARY INFORMATION
TO UNDERSTAND THIS OFFERING FULLY, WE ENCOURAGE YOU TO READ THIS ENTIRE
PROSPECTUS CAREFULLY, INCLUDING THE FINANCIAL STATEMENTS AND THE NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY APPEARING ELSEWHERE IN THIS
PROSPECTUS.
REFERENCES IN THIS DOCUMENT TO "WE," "US," AND "OUR" REFER TO POSITRON
CORPORATION.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS. THE OUTCOME OF THE EVENTS
DESCRIBED IN THESE FORWARD-LOOKING STATEMENTS IS SUBJECT TO RISKS AND ACTUAL
RESULTS COULD DIFFER MATERIALLY. THE SECTIONS ENTITLED "RISK FACTORS,"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" AND "BUSINESS," AS WELL AS OTHER SECTIONS IN THIS PROSPECTUS,
CONTAIN A DISCUSSION OF SOME OF THE FACTORS THAT COULD CONTRIBUTE TO THOSE
DIFFERENCES.
THE COMPANY
Positron Corporation (the "Company") was incorporated in the State of Texas on
December 20, 1983, and commenced commercial operations in 1986. We design,
manufacture, market and service advanced medical imaging devices utilizing
positron emission tomography ("PET") technology under the trade-name POSICAM(TM)
systems1. Unlike other currently available imaging technologies, PET technology
permits the measurement of the biological processes of organs and tissues as
well as producing anatomical and structural images. POSICAM systems, which
incorporate patented and proprietary technology, enable physicians to diagnose
and treat patients in the area of cardiology, neurology and oncology.
The Food and Drug Administration ("FDA") approved the initial POSICAM system for
marketing in 1985. As of October 31, 1999, we have sold sixteen POSICAM systems,
of which thirteen are in leading medical facilities in the United States, two
are installed in international medical institutions, and one is awaiting
installation at a major medical institution in Japan. The Company presently
markets its POSICAM systems at list prices of up to $2.0 million depending upon
the configuration and equipment options of the particular system.
PET technology is an advanced imaging technique, which permits the measurement
of the biological processes of organs and tissues as well as producing
anatomical and structural images. Other advanced imaging techniques, such as
magnetic resonance imaging ("MRI") and computed tomography ("CT"), produce
anatomical and structural images, but do not image or measure biological
processes. The ability to measure biological abnormalities in tissues and organs
allows physicians to detect disease at an early stage, and provides information
which would otherwise be unavailable to diagnose and treat disease. We believe
that our PET technology can lower the total cost of diagnosing and tracing
certain diseases by providing a means for early diagnosis and reducing expensive
invasive or unnecessary procedures, such as angiograms or biopsies which, in
addition to being costly and painful, may not be necessary or appropriate.
Commercialization of PET technology commenced in the mid-1980s and the Company
is one of several commercial manufacturers of PET imaging systems in the United
States. Although the other manufacturers are substantially larger, we believe
that our POSICAM systems have proprietary operational and performance
characteristics, which may give certain performance advantages over other
commercially available PET systems. Such advantages include: (i) high
- ----------
1 POSICAM(TM) is a registered trademark of Positron. All other brand names or
trademarks appearing in this prospectus are the property of their respective
holders.
3
<PAGE>
count-rate sensitivity which results in faster imaging; (ii) enhanced ability to
use certain types of radio pharmaceuticals which reduces reliance on a cyclotron
and enhances patient throughput; (iii) ability to minimize patient exposure to
radiation; and (iv) ability to minimize false positive and false negative
diagnosis of disease. The medical imaging industry, in which we are engaged, is
subject to rapid and significant technological change. There can be no assurance
that the POSICAM systems can be upgraded to meet future innovations in the PET
industry or that new technologies will not emerge, or existing technologies will
not be improved, which would render our products obsolete or non-competitive.
Our primary focus to date has been on the clinical cardiology market, where our
POSICAM systems have been used to assess the presence and extent of coronary
heart disease, such as the effect of arterial blockages and heart damage due to
heart attacks. In 1994 and 1995, we made technological advances which allowed us
to market our products to the neurological and oncological markets. Neurological
applications of POSICAM systems include diagnoses of certain brain disorders,
such as epileptic seizures, dementia, stroke, Alzheimer's disease, Pick's
disease and Parkinson's disease. In oncology, POSICAM systems are used in the
diagnosis and evaluation of melanoma and tumors of the bone and various organs
and tissues such as the brain, liver, colon, breasts and lymphatic system.
We have set forth below, in tabular form for convenience, some summary financial
information regarding the Company for the years ended December 31, 1997 and
1998, and for the three months and nine months ended September 30, 1999. This
information is only a summary. You should read it together with our consolidated
financial statements and notes beginning on page F-1.
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE NINE
----------------------- MONTHS ENDED MONTHS ENDED
SELECTED RESULTS OF OPERATIONS: 1997 1998 9/30/99 9/30/99
------- ------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES
System sales $ 1,129 $ -- $ -- $ --
Fee per scan 602 455 -- 137
Service and component 1,795 1,553 385 1,088
-------- -------- -------- --------
Total Revenues 3,526 2,008 385 1,225
-------- -------- -------- --------
COST OF REVENUES
System sales 698 -- -- 49
Fee per scan 156 118 -- --
Service, warranty and component 465 402 171 418
Provision for inventory obsolescence 1,224 -- -- --
-------- -------- -------- --------
Total cost of revenues 2,543 520 171 467
-------- -------- -------- --------
GROSS PROFIT 983 1,488 214 759
--------
TOTAL OPERATING EXPENSES 3,609 1,700 384 749
--------
INCOME/LOSS FROM OPERATIONS (3,931) (212) (170) 10
--------
Income Interest (Expense) (524) (512) 55 (45)
Income (Loss) before extraordinary item (4,455) (724) (115) (35)
Extraordinary Item, Gain on Foregiveness of Debt -- -- 143 143
-------- -------- -------- --------
Net Loss (4,455) (724) (28) (108)
======== ======== ======== ========
PER SHARE DATA
--------
Basic and diluted net loss per common share (0.91) (0.14) 0.00 0.00
Weighted average number of
basic shares outstanding (1) 4,885 5,150 40,278 23,792
</TABLE>
(1) See Note 1 to the financial statements for an explanation of the
determination of the number of shares used in computing per share data.
4
<PAGE>
SELECTED BALANCE SHEET DATA
December 31, September 30,
1998 1999
------ ------
Assets
Cash and cash equivalents $ 8 $8,606
Accounts receivable 99 210
Inventories 391 636
Prepaid expenses 58 103
------ ------
Total current assets 556 9,555
Note receivable 30
Plant and equipment - net 130 108
------ ------
Total assets 686 9,693
====== ======
Liabilities
Notes payable to affiliate 792 0
Accounts payable and accrued liabilities 4,723 3,696
Unearned revenue 142 74
Long term debt to affiliate 600 0
Other liabilities 68 51
------ ------
Total liabilities 6,325 3,821
------ ------
Stockholders deficit
Series A and B Preferred stock 1,582 1,035
Common stock 52 521
Additional paid in capital 42,426 53,907
Accumulated deficit (49,684) (49,576)
Treasury stock, 60,156 shares at cost 15 (15)
------ ------
Total shareholders equity (5,639) (5,872)
------ ------
Total liabilities and shareholders equity 686 9,693
====== ======
5
<PAGE>
THE OFFERING
Securities offered for resale by certain stockholders of our Company
- up to 51,172,990 shares of Common stock
- up to 27,560,000 shares of Common Stock underlying warrants
We will not receive any of the proceeds from the resale of these securities,
although if all the warrants are exercised, we could receive up to $6,138,000
from the exercise of the warrants.
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE MAKING A DECISION
TO BUY OUR COMMON STOCK. THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE NOT THE
ONLY ONES WE FACE. ADDITIONAL RISKS AND UNCERTAINTIES NOT PRESENTLY KNOWN TO US
OR THAT WE CURRENTLY DEEM IMMATERIAL MAY ALSO MATERIALLY IMPAIR OUR BUSINESS
OPERATIONS.
IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL CONDITION
OR RESULTS OF OPERATIONS COULD BE MATERIALLY ADVERSELY AFFECTED. IN SUCH CASE,
THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU MAY LOSE ALL OR
PART OF YOUR INVESTMENT. YOU SHOULD ALSO REFER TO THE OTHER INFORMATION SET
FORTH IN THIS PROSPECTUS, INCLUDING OUR FINANCIAL STATEMENTS AND THE RELATED
NOTES.
IF WE CONTINUE TO EXPERIENCE LOSSES IN THE FUTURE, OUR BUSINESS, FINANCIAL
CONDITION AND GROWTH PROSPECTS COULD BE MATERIALLY ADVERSELY AFFECTED.
We have had net losses in each fiscal year since we started operations in 1986.
We expect to continue to incur losses on an operating basis for the foreseeable
future on both an annual and
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<PAGE>
quarterly basis Losses to date have occurred primarily because we have been
unable to sell POSICAM systems in sufficient quantities to be profitable. In
addition, and because the price of each POSICAM system is so significant, our
revenues fluctuate significantly from quarter to quarter and year to year. We
are not able to assure that we will ever achieve the level of operating revenues
needed to be profitable in the future or, if we are able to become profitable,
that we will be able to remain profitable. Because of these expected losses we
may not be able to implement our business plans, and our business, financial
condition and growth prospects could be materially adversely affected.
As of December 31, 1998, we had an accumulated deficit of approximately
$49,684,000 as the result of our history of net losses. We received new equity
capital in July and August 1999 through a private placement involving the sale
of stock and warrants for cash. Nonetheless, we believe that it is likely that
we will continue to experience operating losses and accumulate deficits for the
foreseeable future. For the two most recent fiscal years, our year-end financial
statements have contained a qualification from our independent accountants
regarding the uncertainty of our ability to continue as a going concern.
IF OUR NEW MANAGEMENT IS NOT ABLE TO IMPROVE AND EXPAND OUR OPERATIONS, OUR
BUSINESS AND RESULTS OF OPERATIONS COULD SUFFER.
Effective January 22, 1999 we employed Gary H. Brooks as president of the
Company on a part-time basis and thereafter, on September 1, 1999 on a full-time
basis. While Mr. Brooks is a very experienced senior executive in the medical
imaging field, he has assumed operating responsibility with a very limited
management team. If he is not able simultaneously to stabilize our operations,
expand our staff, and improve and expand our operations quickly and
dramatically, our financial condition, profitability and growth prospects could
be materially adversely affected.
IF WE ARE UNABLE TO RETAIN AND ATTRACT QUALIFIED PERSONNEL, OUR BUSINESS COULD
SUFFER.
Our ability to grow and our future success depend on our ability to identify,
attract, hire, train, retain and motivate other highly skilled technical,
managerial, sales and marketing, customer service and professional personnel.
Competition for such employees is intense, particularly with the technical skill
set we require, and there can be no assurance that we will be able to
successfully attract, assimilate or retain sufficiently qualified personnel. Our
failure to retain and attract the necessary technical, managerial, sales and
marketing, customer service personnel and experienced professionals could have a
material adverse effect on our business, financial condition and results of
operations.
IF THE MEDICAL COMMUNITY DOES NOT EMBRACE OUR TECHNOLOGY, OUR BUSINESS AND
GROWTH PROSPECTS WILL BE MATERIALLY ADVERSELY AFFECTED.
PET Imaging is an accurate non-invasive method to diagnose or assess the
severity of coronary artery disease. Unlike other imaging technologies, PET
technology allows a physician to determine whether blood flow to the heart
muscle is normal, thereby identifying narrowed coronary arteries, and whether
damaged heart muscle is viable and may benefit from treatment
7
<PAGE>
such as bypass surgery or angioplasty. Nonetheless, there are other non-invasive
methods available to make such diagnoses. We believe that acceptance of our
products and services will depend on several factors, including:
o cost
o reliability
o availability of proprietary upgrades
o reimbursement of PET diagnostic procedures by healthcare insurers
and/or the federal Medicare system
o cost and reliability of maintenance
o ability to incorporate non-proprietary enhancements
We cannot assure you that our technology will gain wide acceptance among
physicians, medical groups and hospitals or that medical groups will
significantly increase their use of the technology for diagnosis and other
medical applications. If the market fails to continue to develop, or develops
more slowly than expected, our business, results of operations and financial
condition will be adversely affected. In addition we may be unable, for
technical or other reasons, to develop and introduce new services or
enhancements of existing technology and services in a timely manner, and such
services and enhancements may not gain widespread market acceptance. Any of
these things could have a material adverse affect on our business, results of
operations and financial condition.
IF THERE IS A DECREASE IN THE DEMAND FOR MEDICAL DIAGNOSTIC IMAGING EQUIPMENT
AND SERVICES OF ALL TYPES, OUR BUSINESS COULD SUFFER.
Demand for high-end medical diagnostic imaging procedures and devices can be
adversely affected by periods of economic slowdown or recession when the public
tends to seek less expensive medical services perceived to be almost as
effective as those which are superior but more expensive.
IF WE ARE UNABLE TO DIFFERENTIATE OURSELVES FROM COMPETITION IN OUR INDUSTRY,
OUR BUSINESS AND GROWTH PROSPECTS COULD BE HARMED.
We face competition from three other commercial manufacturers of PET systems and
from other imaging technologies, primarily Single Photon Emission CT ("SPECT").
While we do not believe that MRI and CT scan imaging represent significant
competing technologies (PET, MRI and CT scans each provide information not
available from the others), we cannot assure that the medical community and our
other clients will continue to agree.
In addition, our current primary competition from commercial manufacturers of
PET systems comes from General Electric Company ("GE"), Siemens Medical Systems,
Inc. in a joint venture with CTI, Inc. of Knoxville, Tennessee ("CTI/Siemens")
and ADAC Medical Systems ("ADAC"). GE, CTI/Siemens and ADAC have substantially
greater financial, technological and personnel resources than we do.
Moreover, two Japanese manufacturers, Hitachi and Shimadzu, have manufactured
and sold PET scanners in Japan but not yet in the United States. These
manufacturers represent additional
8
<PAGE>
sources of competition which have substantially greater financial, technological
and personnel resources than do we.
The primary competing technology in the nuclear medicine industry is SPECT,
which costs substantially less than our systems. While we believe our system is
a better diagnostic tool than SPECT imaging, we cannot assure that the medical
community will make its decisions on that basis.
High field MRI technology, an advanced version of MRI, is in the development
stage, but is a potential competitor to PET in certain neurology and oncology
applications. We cannot presently predict the future competitiveness of high
field MRI.
Several manufacturers of SPECT systems are now offering multi-head systems,
which have been modified to operate in coincidence mode, similar to a PET
scanner. These systems achieve spatial resolutions similar to that of PET
scanners, but their sensitivity and count rate are only a small fraction of that
achieved by true PET scanners. While we believe these systems are useful for
only a very limited class of clinical PET studies, we cannot assure that the
medical community will adopt that position.
IF THIRD PARTY REIMBURSEMENT IS NOT EXPANDED OR IS OTHERWISE NEGATIVELY
AFFECTED, IT WILL SEVERELY AFFECT OUR FINANCIAL POSITION.
Our systems are purchased or leased primarily by medical institutions, which
provide health care services to their patients. Such institutions or patients
typically bill or seek reimbursement from various third-party payors such as
Medicare, Medicaid, other governmental programs and private insurance carriers
for the charges associated with the provided healthcare services. We believe
that the market success of PET imaging depends largely upon obtaining favorable
coverage and reimbursement policies from such programs and carriers.
Prior to March 1995, Medicare and Medicaid did not provide reimbursement for PET
imaging. Since then Medicare and Medicaid reimbursement for PET imaging have
been, and we believe may continue to be, very restrictive. We further believe
that restrictive reimbursement policies have had a very significant adverse
affect on widespread use of PET imaging and have, therefore, adversely affected
our business, financial condition, results of operations and cash flows.
In recent years, certain procedures have been approved for reimbursement.
Whether additional reimbursable procedures will be approved for reimbursement by
appropriate regulators, whether insurers will follow, and/or whether the
procedure reimbursement level will be sufficient to stimulate the PET market are
unknown at this time.
Many insurance carriers currently consider PET imaging to be an investigational
procedure and do not reimburse for procedures involving PET imaging.
If third-party coverage for PET procedures using the POSICAM system remains
unavailable, it will likely have a material adverse effect on the Company's
business, financial condition, results
9
<PAGE>
of operations and cash flows. We cannot assure that reimbursement policies for
these procedures will change.
IF WE ARE NOT ABLE TO KEEP UP WITH TECHNOLOGICAL CHANGE, IT WILL HAVE A MATERIAL
NEGATIVE EFFECT ON OUR BUSINESS.
The industry in which we are engaged is subject to rapid and significant
technological change. There can be no assurance that POSICAM systems can be
upgraded to meet future innovations in the PET industry or that new technologies
will not emerge, or existing technologies will not be improved, which would
render our products obsolete or non-competitive. Our competitors in the United
States, as described above, have significantly greater financial and technical
resources and production and marketing capabilities than we do. In addition,
there can be no assurance that other established medical imaging companies, any
of which would likely have greater resources than we do, will not enter the
market. We also face competition from other imaging technologies which are more
firmly established and have a greater market acceptance, including single-photon
emission computed tomography (SPECT). There can be no assurance that we will be
able to compete successfully against any of our competitors.
IF WE ARE NOT ABLE TO FIRMLY ESTABLISH MARKET ACCEPTANCE, IT WILL HAVE A
MATERIAL NEGATIVE EFFECT ON OUR BUSINESS.
The POSICAM systems involve new technology that competes with more established
diagnostic techniques. The purchase and installation of a PET system involves a
significant capital expenditure on the part of the purchaser. A potential
purchaser of a PET system must have an available patient base that is large
enough to provide the utilization rate needed to justify such capital
expenditure. There can be no assurance that PET technology or our POSICAM
systems will be accepted by the target markets or that the Company's sales of
POSICAM systems will increase or that we will ever be profitable.
IF OUR PHYSICAL FACILITIES ARE INADEQUATE TO OUR MANUFACTURING NEEDS, IT WILL
HAVE A MATERIAL NEGATIVE EFFECT ON OUR ABILITY TO MANUFACTURE AND CONSEQUENTLY
SELL OUR PRIMARY PRODUCT.
We believe we currently have the ability to assemble our scanners in a discrete
area of our corporate facility located in Houston, Texas. Scanners are generally
produced by assembling parts furnished to us by outside suppliers. We believe we
can assemble a typical system in two to three months, with an additional month
required for testing before delivery. We cannot assure however that our
facilities will remain adequate.
IF OUR SUPPLY OF ESSENTIAL PARTS AND MATERIALS IS SEVERELY INTERRUPTED, OR IF
THESE PRODUCTS FAIL TO CONTINUE TO MEET OUR NEEDS, IT WILL HAVE A MATERIAL
ADVERSE EFFECT ON OUR BUSINESS.
There are several essential components of our systems which we obtain from
limited or sole sources, including bismuth germinate oxide (BGO) crystals which
detect positron emissions, and photo-multiplier tubes, which convert the light
energy emitted by the crystals into electrical impulses for use in the image
reconstruction process. While we attempt to make alternate supply arrangements
in the event that the supply of either component is interrupted, we cannot
assure
10
<PAGE>
that those arrangements can be made and will provide sufficient quantities of
those components on a timely or uninterrupted basis. Further, we cannot assure
that the cost of supplies will not rise significantly or that components from
alternate suppliers will continue to meet our needs and quality control
requirements.
IF OUR PATENTS AND OTHER PROPRIETARY TECHNOLOGY FAIL TO PROVIDE MEANINGFUL
PROTECTION FROM COMPETITORS, IT COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR
BUSINESS.
We hold certain patent and trade secret rights relating to various aspects of
our PET technology, which are of material importance to us and our future
prospects. There can be no assurance, however, that our patents will provide
meaningful protection from competitors. Even if a competitor's products were to
infringe on the patents we hold, it would be costly for us to enforce our
rights, and efforts at enforcement would divert funds and resources from our
operations. Furthermore, there can be no assurance that our products will not
infringe on any patents of others.
In addition, we require each employee and/or consultant to enter into a
confidentiality agreement designed to assist in protecting our proprietary
rights. There can be no assurance that these agreements will provide meaningful
protection or adequate remedies for our trade secrets or proprietary know-how in
the event of unauthorized use or disclosure of such information, or that others
will not independently develop substantially equivalent proprietary information
and techniques or otherwise gain access to our trade secrets and proprietary
know-how.
IF WE ARE UNABLE TO CONTINUE TO CONDUCT AND SUPPORT RESEARCH AND DEVELOPMENT, IT
WILL HAVE A MATERIAL ADVERSE AFFECT ON OUR ABILITY TO DEVELOP AND IMPROVE OUR
SYSTEMS.
Our systems are based on proprietary technology initially developed at the
University of Texas Health Science Center under a multi-million dollar research
program begun in 1979. Since that time, we have funded the necessary further
product development and commercialization of the system. These are expensive
activities which are critical to our ability to develop and maintain improved
systems. During fiscal years 1997, 1998 and the first half of fiscal year 1999,
we did not have sufficient funds to conduct substantial research and development
activities. There can be no assurance that our inability to conduct such
activities during that period will not have an adverse effect on our ability to
do so in the future, or that any continuing inability to conduct such activities
will not have a material adverse affect on our business as a whole in the
future.
IF OUR MARKETING STRATEGY IS UNSUCCESSFUL, IT WILL HAVE A MATERIAL ADVERSE
AFFECT ON OUR BUSINESS.
Our initial marketing strategy targeted clinical cardiology based on the initial
research conducted at the University of Texas. With the development of the
POSICAM HZ and POSICAM HZL series of machines, we are pursuing the full
oncology, cardiology and neurology related PET application markets. To market
our systems in all these markets, we rely primarily on referrals from users of
our existing installed scanners, clinical presentations at professional
conferences, and articles in trade journals. There is no assurance that such a
strategy is sufficiently aggressive to compete against larger, better funded
competitors.
11
<PAGE>
IF WE ARE UNABLE TO SUCCESSFULLY RECRUIT AND RETAINING QUALIFIED PERSONNEL, IT
WILL HAVE A MATERIAL ADVERSE AFFECT ON OUR BUSINESS.
Our success depends to a significant degree upon the efforts of our executive
officers and key employees. The loss or unavailability of the services of any of
our key personnel could have a material adverse effect on our operations. Our
success also depends upon our ability to attract and retain qualified personnel
in all areas of our business, particularly management, research, marketing, and
engineering. There can be no assurance that we will be able to continue to hire
and retain a sufficient number of qualified personnel. If we are unable to
retain and attract such qualified personnel, our business, operating results and
cash flows could be adversely affected.
IF WE ARE UNABLE TO MEET GOVERNMENT REGULATORY REQUIREMENTS, AND/OR IF THOSE
REQUIREMENTS BECOME SUBSTANTIALLY MORE DIFFICULT TO MEET, IT MAY HAVE A MATERIAL
ADVERSE EFFECT ON OUR ABILITY TO MARKET AND SELL OUR PRODUCTS.
Various aspects of testing, manufacturing, labeling, selling, distributing and
promoting our systems and the radiopharmaceuticals used with them are subject to
regulation on the federal level by the United States Food and Drug
Administration ("FDA") and in Texas by the Texas Department of Health and other
similar state agencies. In addition, sales of medical devices outside the United
States may be subject to foreign regulatory requirements that vary widely from
country to country. The FDA regulates medical devices based on their device
classification. Our device is listed as a Class II medical device, whose safety
and effectiveness are regulated by the use of special controls such as published
performance standards. To date, the FDA has not published performance standards
for PET systems. If the FDA does publish performance standards for PET systems,
there can be no assurance that the standards will not have a potentially adverse
effect on our product, including substantial delays in manufacturing or
disrupting our marketing activities. Other FDA controls, reporting requirements
and regulations also apply to manufacturers of medical devices, including:
reporting of adverse events and injuries, and the mandatory compliance with the
Quality System Regulations commonly known as Good Manufacturing Practices.
In addition to the regulatory requirements affecting the day to day operations
of our product, the FDA requires medical device manufacturers to submit
pre-market clearance information about proposed new devices and/or proposed
significant changes to their existing device prior to their introduction into
the stream of commerce. This process, commonly referred to as a 510(k)
Clearance, is an extensive written summary of performance information,
comparative information with existing medical devices, product labeling
information, safetyt and effectiveness information, intended use information,
and the like. Until the FDA has had the opportunity to thoroughly review and
"clear" the submission, commercial distribution of the product is specifically
disallowed. Although the FDA is required to respond to all pre-market
notifications within ninety days of receiving them, the FDA often takes longer
to respond. One the FDA has cleared the device, it notifies the manufacturer in
terms of a "substantial equivalence" letter. The manufacturer may begin
marketing the new or modified device when it receives the substantial
equivalence letter. If the FDA requires additional information or has specific
questions, or if the company is notified that the device is not "substantially
equivalent" to a device which has already been cleared, it may not begin the
market the device. A non-
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<PAGE>
substantial equivalence determination or requests for additional information of
a new or significantly modified product could materially affect our financial
results and operations.
Moreover, the FDA routinely inspects medical device manufacturers to determine
compliance with Quality System Regulations, and conducted such a routine
inspection of the Company's operations in July 1999. The inspection resulted in
issuance of four inspectional observations, identifying light minor
discrepancies to the Company's internal operation procedures for collection and
analysis of service records, data input of information for software testing and
the review of a quality report. We have instituted adequate corrective measures
for these inspectional observations and have provided that information to the
FDA.
In addition to complying with federal requirements, we are required under Texas
state law to register with the state Department Health with respect to
maintaining radiopharmaceuticals on premises for testing, research and
development purposes. While in the past we have received notice of only minor
violations which were promptly and easily corrected, and while we believe that
we have taken adequate measures to prevent the recurrence of any violations,
there is no assurance that violations may not occur in future, which could have
a material adverse effect on our operations.
Further, sales of medical devices outside the country may be subject to foreign
regulatory requirements. These requirements vary widely from country to country.
There is no assurance that the time and effort required to meet those varying
requirements may not adversely affect our ability to distribute our systems in
some countries.
If we are unsuccessful in minimizing the negative effect of prolonged working
capital deficiencies, it will have a material adverse effect on our business
going forward.
Particularly during fiscal years 1997, 1998 and the first half of 1999, we had
minimal amounts of working capital, and were unable to timely meet some of our
obligations as they came due. As a result, we were in arrears to many of our
vendors and supplier. We also deferred paying salaries and certain other
benefits to certain management level employees. While we have remedied many of
those arrearages, and adopted a program to meet all of our obligations, there is
no assurance that everyone to whom payments are still owed will cooperate with
this program. Such failure to cooperate could have an adverse affect on our
ability to implement the program in an orderly fashion.
IF WE ARE UNABLE TO RETURN TO ELIGIBILITY FOR LISTING ON THE NASDAQ SMALLCAP
MARKET, THE MARKET PRICE OF OUR STOCK COULD BE ADVERSELY AFFECTED.
Our common stock was listed previously on the NASDAQ SmallCap Market. There are
certain standards regarding capital and surplus for the continued listing of a
security on the NASDAQ SmallCap Market. In 1997 we failed to maintain our NASDAQ
stock market listing, and may not meet the relisting requirements for some time
in the future. There can be no assurances that we will ever meet the capital and
surplus requirements needed to be re-listed under the NASDAQ SmallCap Market
System.
Trading of our Common Stock is currently conducted on the NASD's Electronic
Bulletin Board. Trading in the Common Stock is covered by rules promulgated
under the Exchange Act for non-
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<PAGE>
NASDAQ and non-exchange listed securities. Under such rules, broker/dealers who
recommend such securities to persons other than established customers and
accredited investors must make a special written suitability determination for
the purchaser and receive the purchaser's written agreement to a transaction
prior to sale. Securities are exempt from these rules if the market price is at
least $5.00 per share. As of September 30, 1999, the closing price of our Common
Stock was less than $1.00. In addition, the SEC has adopted regulations that
generally define a penny stock to be any equity security that has a market price
of less than $5.00 per share, subject to certain exceptions. Our common stock is
currently subject to such penny stock rules. The regulations require the
delivery, prior to any transaction involving a penny stock, of a disclosure
schedule explaining the penny stock market and the risks associated therewith.
As a penny stock, the market liquidity for our Common Stock is severely affected
due to the limitations placed on broker/dealers that sell the Common Stock in
the public market.
IF WE ARE UNABLE TO DEVELOP BENEFICIAL FINANCING ARRANGEMENTS, IT MAY HAVE A
NEGATIVE EFFECT ON OUR FINANCIAL POSITION GOING FORWARD.
In order to sell our POSICAM systems, we have found it necessary from time to
time to participate in ventures with certain customers or otherwise assist
customers in their financing arrangements. These venture arrangements have
involved lower cash prices for our systems in exchange for interests in the
venture. These arrangements expose us to the attendant business risks of the
ventures. In certain instances, we have sold our systems to financial
intermediaries, which have, in turn, leased the SYSTEM. Such transactions may
not give rise to the same economic benefit as would have occurred had we made a
direct cash sale at our regular market price on normal sales terms. There can be
no assurance that we will not find it necessary to enter similar transactions to
effect future sales. Moreover, the nature and extent of our interest in such
ventures or the existence of remarketing or similar obligations could require us
to account for such transactions as financing arrangements rather than "sales"
for financial reporting purposes. Such treatment could have the effect of
delaying the recognition of revenue on such TRANSACTIONS and may increase the
volatility of our financial results.
IF WE ARE SUBJECT TO SUBSTANTIAL THIRD PARTY LIABILITY CLAIMS, PARTICULARLY IF
THE CLAIMS EXCEED OUR INSURANCE COVERAGE, IT WILL HAVE A MATERIAL ADVERSE EFFECT
ON OUR BUSINESS.
The use of our products entails certain risks of product liability. There can be
no assurance that product liability claims will not be successfully asserted
against us. While we maintain liability insurance coverage in the amount of $1
million per occurrence and an annual aggregate maximum of $2 million, there can
be no assurance that we will be able to maintain such insurance in the future
or, if maintained, that such insurance will be sufficient in amount to cover any
successful product liability claims. Any uninsured liability could have a
material adverse effect is our financial position and operation.
BECAUSE WE HAVE NEVER PAID CASH DIVIDENDS ON OUR COMMON STOCK AND DO NOT INTEND
TO DO SO IN THE FORESEEABLE FUTURE, THE PRICE OF OUR COMMON STOCK MAY REMAIN
VOLATILE.
We have never paid cash dividends on our common stock and do not intend to pay
cash dividends on our common stock in the foreseeable future. The Series A
Preferred Stock
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<PAGE>
Statement of Designation prohibits the payment of common stock dividends until
all required dividends have been paid on the Series A preferred stock. As of
December 31, 1998, approximately $561,000 of preferred stock dividends were
undeclared and unpaid.
IF OUR QUARTERLY REVENUES AND OPERATING RESULTS FLUCTUATE SIGNIFICANTLY, THE
PRICE OF OUR COMMON STOCK IS LIKELY TO BE MORE VOLATILE.
Due to the substantial price of each system, our quarterly revenues and
operating results are likely to vary substantially from quarter to quarter. This
in turn may cause the price of our common stock to be volatile. A substantial
decline in our stock price is possible at any time. We believe that the
following factors, among others, could affect our quarterly results:
o fluctuations in sale of systems
o the introduction of new products and services by our competitors;
o the level of consumer interest and confidence in our products and
services;
o the introduction of new products and services by us; o the timing of
our release of enhancements to our products and services;
o our ability to upgrade and develop our information systems and
operational infrastructure to accommodate growth;
o the timing and rate at which we increase our expenses to support
projected growth;
o the cost of compliance with federal and state government laws and
regulations, including any changes in our historic business
practices that could result from legal interpretations;
o any dispute involving our proprietary software;
o our announcement of new marketing initiatives;
o technical difficulties or service interruptions;
o changes in our operating expenses and investment in our
infrastructure;
o general economic conditions in the United States and economic
conditions;
o changes in estimates of our future financial performance by
securities analysts;
o additions or departures of key executives and operating personnel;
and
o sales of our common stock or other securities in the open market.
Accordingly, we believe period-to-period comparisons of our operating results
are not meaningful and the results for any period should not be relied upon as
an indication of future performance. Our operating results may fail to meet our
expectations or those of analysts who follow us. Any such failure could cause
the price of our stock to decline substantially.
15
<PAGE>
IF WE ARE UNABLE TO SUCCESSFULLY ADDRESS ANY LINGERING YEAR 2000 ISSUES, OUR
BUSINESS COULD BE MATERIALLY ADVERSELY AFFECTED.
We have completed the process of identifying and modifying or replacing any
computer systems and software products to ensure that they will function in the
year 2000 and thereafter. We have identified two systems with modest continuing
problems. We can not be sure however that our efforts to address internal year
2000 compliance have been entirely successful. In addition, while it appears
that the computer systems and software of other companies on whom we depend are
2000 compliant, if we or any of these other companies fail to remain year 2000
compliant, or otherwise develop additional problems related to that issue, our
systems and operations could be disrupted and our operating results could be
materially adversely affected.
For this reason, although the financial impact of implementing the systems
changes necessary to become year 2000 compliant has not been material to our
financial position or results of operations, our expectations about future costs
associated with year 2000 compliance are subject to uncertainties that could
cause actual results to differ materially from our expectations. Factors that
could influence the amount and timing of future costs include: our success in
having accurately identified systems and programs that are not year 2000
compliant, the nature and amount of programming required to upgrade or replace
each of the affected programs; the availability, rate and magnitude of related
labor and consulting costs; and the success of our business partners, vendors
and clients in addressing the Y2K issue.
IF PREVIOUSLY UNREGISTERED SHARES OF OUR COMMON STOCK ARE SOLD INTO THE MARKET,
IT COULD CAUSE THE MARKET PRICE OF OUR COMMON STOCK TO DROP.
The market price of our common stock could drop as a result of sales of the
shares covered by this prospectus in the market after the offering, or the price
could remain lower because of the belief that such sales might occur. These
factors could make it more difficult for us to raise funds through future
offerings of common stock.
As of June 30, 1999, Positron had 15,211,758 shares of common stock issued and
outstanding. Following this offering and assuming all outstanding warrants are
exercised prior to their expiration, 85,338,540 shares will be freely tradable,
and additional unregistered shares will be tradable under SEC Rule 144 by
persons other than affiliates of Positron.
We have reserved an aggregate of 6,572,678 shares for issuance to employees,
officers, directors and consultants under the 1994 and 1999 Stock Option Plans,
the 1999 Non-Employee Directors' Stock Option Plan, the 1999 Stock Bonus
Incentive Plan, and the 1999 Employee Stock Purchase Plan. To date, options to
purchase 1,367,678 shares have been granted under such plans and are currently
outstanding. Positron intends to file a Form S-8 registration statement covering
the shares issued and issuable pursuant to the 1999 Stock Option Plan and to
each of the other employee and non-employee director benefit plans. Further, we
have reserved an additional 22,936,245 shares for issuance upon exercise of
outstanding Warrants to purchase Common Stock, most of which are included in
this registration statement.
This registration statement covers all of the shares subject to registration
rights which could not otherwise currently be sold pursuant to Rule 144. We are
not aware of any pending or threatened
16
<PAGE>
actions by the holders of any registration rights seeking damages due to
Positron's failure to register the shares that they hold. We face potential
liability, however, from damage claims from such stockholders. The costs of
defending against such claims and potential adverse outcomes of the claims could
have a material adverse effect on our business, financial condition and results
of operations.
As part of the private placement which closed in August, 1999 Positron agreed to
use its best efforts to register the resale of the shares sold within 90 days of
closing.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. YOU SHOULD NOT RELY ON THESE FORWARD-LOOKING STATEMENTS. WORDS
SUCH AS "ANTICIPATE," "BELIEVE," "PLAN," "EXPECT," "FUTURE," "INTEND," "COULD"
AND SIMILAR EXPRESSIONS INDICATE FORWARD-LOOKING STATEMENTS. YOU SHOULD NOT
PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS. THESE STATEMENTS
INVOLVE A NUMBER OF RISKS AND UNCERTAINTIES AND OUR ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS FOR MANY
REASONS, INCLUDING THE FACTORS DESCRIBED IN "PROSPECTUS SUMMARY," "RISK
FACTORS," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" AND "BUSINESS" AND ELSEWHERE IN THIS PROSPECTUS. WE
CAUTION YOU NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS.
SUCH FORWARD-LOOKING STATEMENTS SPEAK ONLY AS OF TODAY'S DATE AND WE DISCLAIM
ANY OBLIGATION TO UPDATE FORWARD-LOOKING STATEMENTS.
USE OF PROCEEDS
We will not receive any proceeds from the sale of common stock by the selling
stockholders except for the exercise price of the warrants. If the warrants are
exercised in full, we will receive approximately $5,981,500, although we can
neither assure nor predict that any or all or the warrants will be exercised. We
intend to use any proceeds from the exercise of the warrants for general
corporate purposes.
SELLING STOCKHOLDERS
The following table sets forth (i) the number of outstanding shares, including
shares issuable within 60 days of October 31, 1999 pursuant to options or
warrants, beneficially owned and the percentage ownership of the selling
stockholders prior to the offering, (ii) the aggregate number of shares offered
by each such stockholder pursuant to this prospectus and (iii) the number of
shares beneficially owned by each selling stockholder and the percentage
ownership assuming the sale of all of the shares offered by each such
stockholder pursuant to this prospectus.
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<PAGE>
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY
PRIOR TO OFFERING OWNED AFTER OFFERING
------------------------------------- ---------------
NUMBER OF SHARES
NUMBER OF ISSUABLE WITHIN SHARES
OUTSTANDING 60 DAYS OF OFFERED IN
NAME SHARES OCTOBER 31, 1999 % OFFERING NUMBER %
---- ----------- ---------------- --- ---------- ------ ---
<S> <C> <C> <C> <C> <C> <C>
Adams, Thomas G. 100,000 100,000
Akane International, Inc. ............................. 333,333 -- * 333,333 -- *
Almeida, Manuel Serzedelo de .......................... 500,000 -- * 500,000 -- *
Almeida, Miguel A. S. Ferreira ........................ 1,000,000 -- 1.7 1,000,000 -- *
Amorim Dessenvolvimento, S.G.P.S., S.A ................ 2,900,000 -- 3.0 2,900,000 -- *
Andrasko, Gary ........................................ 100,000 -- * 100,000 -- *
Asano, Isao ........................................... 333,333 -- * 333,333 -- *
Balbi, Armando Rinaldi ................................ 300,000 -- * 300,000 -- *
Banco Privado Portuges ................................ 5,000,000 -- 8.7 5,000,000 -- *
Bloch, Raymond E ...................................... 30,000 -- * 30,000 -- *
Borges, Joal Vierira .................................. 500,000 -- * 500,000 -- *
Bridlespur Partners, L.P. ............................. 105,000 -- * 105,000 -- *
Brooks, Gary H (1) .................................... 50,000 3,000,000 5.0 3,000,000 50,000 *
Brunton, Craig S ...................................... 20,000 -- * 20,000 -- *
Buzga, Joseph ......................................... 10,000 -- * 10,000 -- *
Condado, Filipe Alfonso ............................... -- 2,500,000 4.2 2,500,000 -- *
Daffodil Overseas Corp. ............................... 500,000 -- * 500,000 -- *
Dapicod Investments Co. Lt ............................ 5,000,000 -- 8.7 5,000,000 -- *
D'Orey, Monica Albuquerque ............................ -- 2,650,000 4.4 2,650,000 -- *
Dorion ................................................ 2,100,000 -- 3.6 2,100,000 -- *
D. Rich, Inc. ......................................... 666,666 -- 1.2 666,666 -- *
ESAF/Espirito Santo Fundos de Pensoes ................. 4,000,000 -- 6.9 4,000,000(2) -- *
ESAF International Management ......................... 1,728,666 -- 3.0 1,666,666 62,000 *
Garcao, Jose Caefano Salema ........................... -- 2,500,000 4.2 2,500,000 -- *
Garcao, Jose Maria Salema ............................. 2,500,000 -- 4.3 2,500,000 -- *
Garcao, Sofia Salema .................................. -- 2,500,000 4.2 2,500,000(3) -- *
Gomes, Jose Osvaldo ................................... 1,333,333 -- 2.3 1,333,333 -- *
Goreton Holding Ltd. .................................. 333,333 -- * 333,333 -- *
Gould, K. Lance (4) ................................... 168,000 -- 168,000 -- *
Guedes, Jose Filipe ................................... 1,000,000 -- 1.7 1,000,000 -- *
Herring, Jack L ....................................... 30,000 -- 30,000 -- *
Imatron ............................................... 9,000,000 -- 15.6 9,000,000 -- *
Katz, Dean ............................................ 20,000 -- * 20,000 -- *
Kambayashi, Kazuo ..................................... 333,333 -- * 333,333 -- *
Kawaguchi, Noriko ..................................... 333,333 -- * 333,333 -- *
Kelley, Cynthia A ..................................... 40,000 -- * 40,000 -- *
Kelley, Nancy E ....................................... 70,000 -- * 70,000 -- *
Kiehl, Samuel J.III ................................... 250,000 -- * 200,000 50,000 *
Kinoshita, Sachiko .................................... 1,333,333 -- 2.3 1,333,333 -- *
Martins, Francisco Carvalho ........................... 1,000,000 -- 1.7 1,000,000 -- *
Martins, Jose Diego Ferreira .......................... 1,000,000 1,500,000 4.2 2,500,000 -- *
Marques, Richard ...................................... 333,333 -- * 333,333 -- *
Mendia, Eduardo Guedes ................................ 1,000,000 -- 1.7 1,000,000 -- *
Mertz, Roger .......................................... 333,333 -- * 333,333 -- *
Meyer, S. Lewis (1) ................................... 79,000 1,500,000 2.7 1,500,000 79,000 *
Molnar, Anthony R ..................................... 30,000 30,000 -- *
Morris Holdings Ltd. .................................. 3,000,000 5.0 3,000,000 -- *
Ohbayashi, Atsuo ...................................... 333,333 -- * 333,333 -- *
Okamura, S ............................................ 160,000 160,000 -- *
Paulo, Cazrlos Sao .................................... -- 2,650,000 4.4 2,650,000 -- *
Pimentel, Maria Madalena .............................. -- 1,000,000 1.7 1,000,000 -- *
Pipo, James E ......................................... 10,000 -- * 10,000 -- *
Politzer, Dave ........................................ 50,000 -- * 50,000 -- *
Profutures Bridge Capital Fund Ltd. ................... -- 1,500,000 1,500,000 -- *
Redman, Kenneth C ..................................... 10,000 -- * 10,000 -- *
Sako Corporation ...................................... 2,333,333 -- 4.0 2,333,333 -- *
Seitz, Tadd C ......................................... 105,000 100,000 -- *
Serras, Luis .......................................... 1,000,000 -- 1.7 1,000,000 -- *
Silva, Manuel Telles da ............................... 1,000,000 -- 1.7 1,000,000 -- *
Steitz, Timothy C ..................................... 100,000 -- * 100,000 -- *
TAG Limited Inc. ...................................... 100,000 -- * 100,000 -- *
TTPK Company Limited Partnership ...................... 70,000 -- * 70,000 -- *
Uro-Tech, Inc.(1) ..................................... 388,787 316,671 * 100,000 605,458 *
Violante, Manuel Luidda Silva ......................... 500,000 -- * 500,000 -- *
Vistula Finance Limited ............................... 3,000,000 5.0 3,000,000 -- *
Wintersteller, C. Jeffrey ............................. 10,000 -- * 10,000 -- *
TOTAL ................................................. 51,297,782 27,776,671 78,732,990
</TABLE>
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(1) See SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
(2) Includes the security holdings of 12 separate funds, divided as follows:
Fundo de Pensoes Ford Lusitana (150,000); Fundo de Pensoes Pfizer
(50,000); Fundo de Pensoes SIBS (300,000); Fundo de Pensoes Cahora Bassa
(100,000); Fundo de Pensoes Rank Xerox (150,000); Fundo de Pensoes
Tranquilidade (500,000); Fundo de Pensoes Administratdores Da
Tranquilidade (100,000); Fundo de Pensoes TDP (100,000); Fundo de Pensoes
Eurospuma (50,000); Fundo de Pensoes Petrogal (500,000); Fundo de Pensoes
EDP (1,700,000); and Fundo de Pensoes GES (300,000)
(3) Sofia Salema Garcao holds two warrants for the following two values: (1)
1,000,000, (2) 1,500,000.
(4) Served as director until 1998.
PLAN OF DISTRIBUTION
The selling stockholders may offer their shares at various times in one or more
of the following transactions:
o in the over-the-counter market;
o on any exchange on which the shares may hereafter be listed;
o in negotiated transactions other than on such exchanges;
o by pledge to secure debts and other obligations;
o in connection with the writing of non-traded and exchange-traded
call options, in hedge transactions, in covering previously
established short positions and in settlement of other transactions
in standardized or over-the-counter options; or
o in a combination of any of the above transactions.
The selling stockholders may sell their shares at market prices prevailing at
the time of sale, at prices related to such prevailing market prices, at
negotiated prices or at fixed prices. The selling stockholders may use
broker-dealers to sell their shares. The broker-dealers will either receive
discounts or commissions from the selling stockholders, or they will receive
commissions from purchasers of shares. In addition, some of the Selling
Shareholders may be eligible and may elect to sell some or all of their shares
pursuant to additional exemptions to the registration requirements of the
Securities Act, including but not limited to Rule 144 promulgated under the
Securities Act, rather than pursuant to this Registration Statement.
Under certain circumstances the selling stockholders and any broker-dealers that
participate in the distribution may be deemed to be "underwriters" within the
meaning of the Securities Act. Any commissions received by such broker-dealers
and any profits realized on the resale of shares by them may be considered
underwriting discounts and commissions under the Securities Act. The selling
stockholders may agree to indemnify such broker-dealers against certain
liabilities, including liabilities under the Securities Act. In addition,
Positron has agreed to indemnify the selling stockholders with respect to the
shares offered hereby against certain liabilities, including certain liabilities
under the Securities Act.
Under the rules and regulations of the Exchange Act, any person engaged in the
distribution of the resale of shares may not simultaneously engage in market
making activities with respect to Positron's common stock for a period of two
business days prior to the commencement of such distribution. The selling
stockholders will also be subject to applicable provisions of the
19
<PAGE>
Exchange Act and regulations under the Exchange Act which may limit the timing
of purchases and sales of shares of Positron's common stock by the selling
stockholders.
The selling stockholders will pay all commissions, transfer taxes, and other
expenses associated with the sale of securities by them. The shares offered
hereby are being registered pursuant to contractual obligations of Positron, and
Positron has paid the expenses of the preparation of this prospectus. We have
not made any underwriting arrangements with respect to the sale of shares
offered hereby.
LEGAL PROCEEDINGS
The City of Houston, Katy Independent School District (KISD) and Harris County
together brought a consolidated action against us for delinquent taxes and other
assessments relating to tax years 1995 through 1997. In February 1998 judgment
was entered against us in the amount of approximately $240,000. In November 1998
we negotiated a payment schedule with the city, county and school district to
retire the judgment as to each entity and to cover assessments for the 1998 tax
year. We have maintained the payment schedule for current and prior tax years
and are reducing the judgment in monthly increments. Based on payment, the
County recently dismissed its action.
In January 1996 we entered into an employment agreement with Werner J. Haas,
Ph.D, for Dr. Haas to serve as our President and Chief Executive Officer for two
years. In February 1997 Dr. Haas informed the Board that he considered his
contract to have been constructively terminated for failure to pay the February
15, 1997 payroll to any of our management employees and specifically to him. Dr.
Haas resigned as an employee and member of the Board and demanded that we pay
him all past due salary as well as nine months severance pay. We replied that we
believed no amounts were due under his employment agreement. Dr. Haas recently
filed an action in state court claiming other and additional demands for payment
for an aggregate demand of approximately $250,000. We intend to vigorously
defend our position and have not recorded any additional liability for this
claim. There can be no assurance however, that the claim will not result in our
incurring a liability.
We acquired the know-how and patent rights for positron imaging from three
entities --the Clayton Foundation, K. Lance Gould (formerly a director) and
Nizar A. Mullani (also formerly a director.) Pursuant to agreements with each of
them, we were obligated to pay royalties of 4.5% in the aggregate of gross
revenues from sales, uses, leases, licensing or rentals of the relevant
technology. In 1993 each royalty holder agreed to reduced royalty payments to 3%
in the aggregate in exchange for receiving certain loans and entering into
certain consulting agreements. The consulting agreements provided that if we
defaulted in our obligations under those agreements, Dr. Gould and Mr. Mullani
would be entitled to reinstatement of their earlier royalties. In April 1998 we
received a demand letter from Mr. Mullani alleging defaults under his consulting
agreement. We believe that such defaults, if any, may also have occurred
regarding Dr. Gould's agreement, although he has made no formal demand. Since
that time, we have reached agreement with Dr. Gould regarding payment of
royalties in the past and in the future, as well as several other issues. We
have had similar discussions with Clayton Foundation and Mr. Mullani, although
no agreements have been reached with these parties.
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DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS.
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information regarding Positron's
executive officers and directors as of October 31, 1999.
NAME AGE EXECUTIVE POSITION
- ---- --- ------------------
Gary H. Brooks 51 Director, President, Chief Financial Officer
(Acting) & Secretary
S. Lewis Meyer 55 Director
Gary B. Wood, Ph.D. 50 Director
John J. Ariatti 53 Vice President, Sales and Marketing
Mr. Meyer was appointed to the Board on January 22, 1999 in connection
with a series of agreements entered into by Company and Imatron Inc. ("Imatron")
in May 1998, pursuant to which in January 1999 Imatron purchased 9,000,000
shares of Company common stock, representing a majority of the Company's common
stock at the time ("Imatron Transaction."). Positron received a nominal cash
amount from Imatron in payment for the shares. Imatron began making working
capital advances available to Positron in order to enable it to meet a portion
of its current obligations. As of December 31, 1998 Positron had borrowed
$600,000 from Imatron pursuant to a promissory note bearing interest at one-half
percent over prime and secured by all of the Company's assets. The loan was
retired in September, 1999. In addition to providing limited working capital
financing, Imatron agreed to support Positron's marketing program by seeking to
cause the placement of ten POSICAM systems with third parties over the next
three years, and also by using its best efforts to arrange for additional
third-party equity financing in an aggregate amount of not less than $8,000,000.
As part of the consummation of the transaction in January 1999, all the
Company's directors and officers except for Dr. Wood resigned and Mr. Meyer and
Gary H. Brooks were nominated by Imatron to fill those vacancies.
Also on January 22, 1999 Mr. Meyer was appointed as Chairman of the Board.
While the Chairman of its Board of Directors, Mr. Meyer is neither an employee
nor an executive of the Company. Mr. Meyer also continues to serve as Chief
Executive Officer of Imatron, which position he has held since June 23, 1993.
From April 1991 until joining Imatron, he was Vice President, Operations of
Otsuka Electronics (U.S.A.), Inc., Fort Collins, Colorado, a manufacturer of
clinical MR systems and analytical NMR spectrometers. From August 1990 to April
1991 he was a founding partner of Medical Capital Management, a company engaged
in providing consulting services to medical equipment manufacturers, imaging
services providers and related medical professionals. Prior thereto he was
Founder, President and Chief Executive Officer of American Health Services
Corp., (now Insight Health Services) a developer and operator of diagnostic
imaging and treatment centers. Mr. Meyer is a director of Imatron, and of
FiNet.com, Inc. and the Chairman of its Compensation Committee. Mr. Meyer
received his B.S. degree in Physics from the University of the Pacific,
Stockton, California in 1966, an M.S.
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degree in Physics from Purdue University in 1968, and a Ph.D. in Physics from
Purdue University in 1971.
Mr. Brooks has served as a director since January 22, 1999, appointed also
in connection with the Imatron Transaction. (SEE ABOVE.) Also on that date he
was appointed as President, Secretary and Treasurer of the Company and served in
those capacities on a part-time basis until September 1, 1999, when he assumed
those responsibilities on a full-time basis. Prior to joining the Company on a
full-time basis, Mr. Brooks served as Vice President of Finance and
Administration, Chief Financial Officer and Secretary for Imatron since December
1993. Prior to joining Imatron he was Chief Financial Officer and Director for
five years at Avocet, a privately-held sports electronics manufacturer located
in Palo Alto, CA. Mr. Brooks received his B.A. in Zoology in 1971 from the
University of California, Berkeley, and an M.B.A. in Finance and Accounting in
1973 from the University of California, Los Angeles.
Dr. Wood has served as a director from April 1990 to the present, and as
its Chairman until January 1999. From October 1, 1994 to December 31, 1995 when
Dr. Werner Haas was appointed to those positions, he also acted as President and
Chief Executive Officer of the Company. He assumed those offices again from
February 1997 when Dr. Haas resigned until January 1999 when Mr. Brooks was
appointed President. Dr. Wood is also President of Concorde Financial
Corporation, a private investment, management and consulting firm which he
founded in 1981 and is the founder, chairman and a principal shareholder of
OmniMed Corporation, a venture capital investment firm founded in 1986. OmniMed
specializes in investing in the biotechnology and health care industries. Dr.
Wood holds a BS and MS in Electrical Engineering (with special emphasis in
biomedical instrumentation) and an interdisciplinary Doctorate of Philosophy
from Texas Tech University. Certain of the entities controlled by Dr. Wood are
principal shareholders of Positron.
John J. Ariatti was appointed as our Vice President, Sales and Marketing,
effective September 27, 1999, with over 20 years of sales and marketing
experience in the medical imaging industry. During the last five years, Mr.
Ariatti has served as Vice President of Marketing and then as Vice President of
Sales for Toshiba America Medical Systems from 1995 through 1998, Director of
Sales and Marketing for Elscint from January to August 1995, and Director of
Sales, Marketing and Customer Support for Otsuka Electronics from June 1991
until he joined Elscint.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following tables, based in part upon information supplied by officers,
directors and principal shareholders, set forth certain information regarding
the ownership of the Company's voting securities as of October 31, 1999 by (i)
all those known by the Company to be beneficial owners of more than five percent
of any class of the Company's voting securities; (ii) each director; (iii) each
named executive officer; and (iv) all executive officers and directors of the
Company as a group. Unless otherwise indicated, each of the shareholders has
sole voting and investment power with respect to the shares beneficially owned,
subject to community property laws where applicable.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS(a)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
| | | | |
Name and Address of Beneficial | Number of | % of Outstanding | Number of Shares | % of Outstanding |
Owner | Shares of | Common Stock | of Series A | Series A |
| Common Stock | | Preferred Stock | Preferred Stock |
- ----------------------------------|-----------------|-----------------------|--------------------|------------------|
<S> <C> <C> <C> <C>
| | | | |
Uro-Tech Ltd.(b) | 1,690,188 | 2.8% | 433,329 | 44.2% |
- ----------------------------------|-----------------|-----------------------|--------------------|------------------|
| | | | |
Imatron Inc.(c) | 9,000,000 | 15.6% | | |
- ----------------------------------|-----------------|-----------------------|--------------------|------------------|
| | | | |
Banco Privado Portuges(d) | 5,000,000 | 8.7% | | |
- ----------------------------------|-----------------|-----------------------|--------------------|------------------|
| | | | |
Amorim Dessenvolvimento, | 2,900,000 | 5.0% | | |
S.G.P.S., S.A.(e) | | | | |
- ----------------------------------|-----------------|-----------------------|--------------------|------------------|
| | | | |
Dapicod Investments Co., Ltd.(f) | 5,000,000 | 8.7% | | |
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
(a) Security ownership information for beneficial owners is taken from
statements filed with the Securities and Exchange Commission pursuant to
Sections 13(d), 13(g) and 16(a) and information made known to the company.
(b) Includes 388,787 shares of common stock owned by Uro-Tech, Ltd., a Texas
limited partnership, the general partner of which is OmniMed Corporation
("OmniMed"). Includes 984,730 shares of common stock issuable upon
conversion of 433,329 shares of Series A 8% cumulative convertible
redeemable preferred stock, and 216,671 warrants to purchase common stock
acquired upon conversion of $650,000 in principal amount of the Uro-Tech
loan. Also includes 100,000 shares issuable upon conversion of warrants
acquired in connection with extending and retiring the Uro-Tech loan. Dr.
Wood is a director and beneficially owns 63.7% of the outstanding voting
securities of OmniMed.
(c) Represents all securities purchased in connection with Imatron
Transaction. See DIRECTORS, OFFICERS, PROMOTERS AND CONTROL PERSONS above.
The headquarters offices of Imatron are located at 389 Oyster Point blvd.,
So. San Francisco, CA 94080.
(d) R. Muezinho da Silveira, 12, 1250 Lisbon, Portugal.
(e) Edificio Amorim, Rua de Melandas No. 380 (Apartado 20), 4536 Mozelos VFR
Codex, Portugal.
(f) Edificio Peninsula, Praca do Bom Sucesso 127/131 - 7th, ESC. 702, Ap.
551236EC Galiza, 4051-401 Porto, Portugal.
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<PAGE>
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The table below presents the security ownership of the Company's Directors and
Named Executive Officers.
AMOUNT AND NATURE
OF BENEFICIAL PERCENT
TITLE OF CLASS NAME OF BENEFICIAL OWNER OWNERSHIP(aa) OF CLASS(bb)
- -------------- ------------------------ ----------------- ------------
Common Gary H. Brooks 3,050,000(cc) 5.0%
Common S. Lewis Meyer 1,579,000(dd) 2.7%
Common Gary B. Wood, Ph.D 65,513(ee) *
Common John J. Ariatti 40,625(ff) *
Common All Directors and Executive 4,735,138 7.7%
Officers as a Group
- ----------
* Does not exceed 1% of the referenced class of securities.
(aa) Ownership is direct unless indicated otherwise.
(bb) Calculation based on 57,534,660 common shares outstanding as of October
31, 1999.
(cc) Includes 50,000 shares owned directly and 3,000,000 shares issuable upon
the exercise of warrants that are exercisable as of October 31, 1999 or
that will become exercisable within 60 days thereafter.
(dd) Includes 79,000 shares owned directly and 1,500,000 shares issuable upon
the exercise of warrants that are exercisable as of October 31, 1999 or
that will become exercisable within 60 days thereafter.
(ee) Includes 7,304 shares of common stock issuable upon exercise of a warrant
held by Dr. Wood and 50,000 shares of common stock issuable upon exercise
of options granted to Dr. Wood in March 1995, 7,000 shares of common stock
issuable upon exercise of options granted to Dr. Wood in June 1994 and
1,209 shares of common stock issuable upon exercise of options granted to
Dr. Wood in June 1995.
(ff) Mr. Ariatti was granted an option to purchase 650,000 shares of common
stock in connection with his employment, 40,625 of which will vest within
60 days of October 31, 1999.
DESCRIPTION OF SECURITIES
The authorized capital stock of Positron consists of 100,000,000 shares of
common stock, $0.01 par value per share, and 10,000,000 shares of Preferred
Stock, $0.01 par value per share. As of October 31, 1999, 57,534,660 shares of
common stock, and 980,948 shares of preferred stock were issued and outstanding.
COMMON STOCK
Subject to preferences that may apply to shares of preferred stock outstanding
at the time, the holders of outstanding shares of common stock are entitled to
receive dividends out of assets legally available therefore at such times and in
such amounts as the Board may from time to time determine. Each stockholder is
entitled to one vote for each share of common stock held on all matters
submitted to a vote of stockholders. Cumulative voting for the election of
directors is not provided for in Positron's Amended and Restated Certificate of
Incorporation, which means that the holders of a majority of the shares voted
can elect all of the directors then standing for election. The common stock is
not entitled to preemptive rights and is not subject to conversion or
redemption. Upon a liquidation, dissolution or winding-up of the Company, the
assets legally available for distribution to stockholders are distributable
ratably among the holders of the common stock and any participating preferred
stock outstanding at that time after payment of
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<PAGE>
liquidation preferences, if any, on any outstanding preferred stock and payment
of other claims of creditors.
PREFERRED STOCK
Positron is authorized, subject to limitations prescribed by Texas law, to
provide for the issuance of preferred stock in one or more series, to establish
from time to time the number of shares to be included in each such series, to
fix the rights, preferences and privileges of the shares of each wholly unissued
series and any qualifications, limitations or restrictions thereon, and to
increase or decrease the number of shares of any such series (but not below the
number of shares of such series then outstanding) without any further vote or
action by the stockholders. The Board may authorize the issuance of preferred
stock with voting or conversion rights that could adversely affect the voting
power or other rights of the holders of the common stock. The issuance of
preferred stock, while providing flexibility in connection with possible
acquisitions and other corporate purposes, could, among other things, have the
effect of delaying, deferring or preventing a change in control of Positron and
may adversely affect the market price of the common stock and the voting and
other rights of the holders of common stock. Positron currently has one class of
preferred stock outstanding.
Currently there is one series of preferred stock outstanding, the Series A 8%
Cumulative Convertible Redeemable Preferred Stock. Each share of Series A
Preferred Stock is convertible into one share of Common Stock. The conversion
price at which the Series A Preferred Stock is convertible into Common Stock is
subject to adjustment on certain factors. The Company may declare eight percent
dividends on the Series A Preferred Stock in its discretion. The Series A
Preferred Stock is senior to the Company's Common Stock on liquidation; holders
may vote on an as if converted basis on any matter requiring shareholder vote;
and while the Series A Preferred Stock is outstanding or any dividends remain
unpaid, the Company may not pay or declare dividends on its Common Stock.
REGISTRATION RIGHTS
We are registering the shares being sold by the selling stockholders pursuant to
contractual obligations to the selling stockholders. Other than the shares being
offered hereby, Positron is under no obligation to register any of its shares.
WARRANTS
As of October 31, 1999, we had outstanding warrants to purchase 28,868,845
shares of common stock at exercise prices ranging from $0.05 to $ 4.125 and
expiring between February 7, 2000 and June 15, 2009.
INTEREST OF NAMED EXPERTS AND COUNSEL
The Consolidated Financial Statements of Positron for the fiscal year ended
December 31, 1998 appearing in the Registration Statement have been audited by
Ham, Langston and Brezina, independent certified public accountants, as set
forth in their report appearing elsewhere herein, and are included in reliance
upon such report given upon the authority of said firm as experts in accounting
and auditing.
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<PAGE>
The validity of the common stock being offered hereby will be passed upon by
Allen Matkins Leck Gamble & Mallory LLP, San Francisco, California. A partner of
Allen Matkins holds shares of Positron's common stock, representing less than
0.1% of Positron's outstanding common stock.
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Pursuant to the Texas Business Corporation Law (the "BCL"), Positron's Articles
of Incorporation exclude personal liability on the part of its directors to the
Company for monetary damages based upon any violation of their fiduciary duties
as directors, provided the director acted in good faith, reasonably believed the
conduct was in the best interests of the corporation and had no reason to
believe the conduct was unlawful. Positron's Articles of Incorporation and its
Bylaws require indemnification of directors and officers of the registrant to
the fullest extent permitted by the TBCL for claims against them in their
official capacities, including stockholders' derivative actions.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the SEC, such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
DESCRIPTION OF BUSINESS
BUSINESS AND BUSINESS DEVELOPMENT.
Positron Corporation (the "Company") was incorporated in the State of Texas on
December 20, 1983, and commenced commercial operations in 1986. We design,
manufacture, market and service advanced medical imaging devices utilizing
positron emission tomography ("PET") technology under the trade-name
POSICAM((TM)) systems2. Unlike other currently available imaging technologies,
PET technology permits the measurement of the biological processes of organs and
tissues as well as producing anatomical and structural images. POSICAM systems,
which incorporate patented and proprietary technology, enable physicians to
diagnose and treat patients in the area of cardiology, neurology and oncology.
The Food and Drug Administration ("FDA") approved the initial POSICAM system for
marketing in 1985. As of October 31, 1999, we have sold sixteen POSICAM systems,
of which thirteen are in leading medical facilities in the United States, two
are installed in international medical institutions, and one is awaiting
installation at a major medical institution in Japan. The company presently
markets its POSICAM systems at list prices of up to $2.0 million depending upon
the configuration and equipment options of the particular system.
PET technology is an advanced imaging technique, which permits the measurement
of the biological processes of organs and tissues as well as producing
anatomical and structural images. Other advanced imaging techniques, such as
magnetic resonance imaging ("MRI") and computed
- ----------
2 POSICAM is the registered trademark of Positron. All other brand names or
trademarks appearing in this prospectus are the property of their respective
holders.
26
<PAGE>
tomography ("CT"), produce anatomical and structural images, but do not image or
measure biological processes. The ability to measure biological abnormalities in
tissues and organs allows physicians to detect disease at an early stage, and
provides information which would otherwise be unavailable to diagnose and treat
disease. We believe that our PET technology can lower the total cost of
diagnosing and treating certain diseases by providing a means for early
diagnosis and reducing expensive invasive or unnecessary procedures, such as
angiograms or biopsies which, in addition to being costly and painful, may not
be necessary or appropriate.
Commercialization of PET technology commenced in the mid-1980s and the Company
is one of several commercial manufacturers of PET imaging systems in the United
States. Although the other manufacturers are substantially larger, we believe
that our POSICAM systems have proprietary operational and performance
characteristics, which may give certain performance advantages over other
commercially available PET systems. Such advantages include: (i) high count-rate
sensitivity which results in faster imaging; (ii) enhanced ability to use
certain types of radio pharmaceuticals which reduces reliance on a cyclotron and
enhances patient throughput; (iii) ability to minimize patient exposure to
radiation; and (iv) ability to minimize false positive and false negative
diagnosis of disease. The medical imaging industry, in which we are engaged, is
subject to rapid and significant technological change. There can be no assurance
that the POSICAM((TM)) systems can be upgraded to meet future innovations in the
PET industry or that new technologies will not emerge, or existing technologies
will not be improved, which would render our products obsolete or
non-competitive.
Our primary focus to date has been on the clinical cardiology market, where our
POSICAM systems have been used to assess the presence and extent of coronary
heart disease, such as the effect of arterial blockages and heart damage due to
heart attacks. In 1994 and 1995, we made technological advances which allowed us
to market our products to the neurological and oncological markets. Neurological
applications of POSICAM systems include diagnoses of certain brain disorders,
such as epileptic seizures, dementia, stroke, Alzheimer's disease, Pick's
disease and Parkinson's disease. In oncology, POSICAM systems are used in the
diagnosis and evaluation of melanoma and tumors of the bone and various organs
and tissues such as the brain, liver, colon, breasts and lymphatic system.
COMPETITION
We face competition from three (3) other commercial manufacturers of PET systems
and from other imaging technologies, primarily Single Photon Emission CT
(SPECT). We do not believe that MRI and CAT scan imaging represent significant
competing technologies, but rather complementary technologies to PET. PET, MRI
and CAT scans each provides information not available from the others.
Our primary competition from commercial manufacturers of PET systems comes from
General Electric Company ("GE") and Siemens Medical Systems, Inc. and ADAC in a
joint venture with CTI, Inc. of Knoxville, Tennessee ("CTI/Siemens"). GE and
CTI/Siemens and ADAC all have substantially greater financial, technological and
personnel resources than we do. See "Summary - The Company -Risk Factors").
27
<PAGE>
In addition, two Japanese manufacturers, Hitachi and Shimadzeu, have
manufactured and sold PET scanners in Japan but not yet in the United States.
These manufacturers represent additional sources of competition which have
substantially greater financial, technological and personnel resources than we
do.
The primary competing technology in the nuclear medicine industry is SPECT. We
believe that the primary reason SPECT competes successfully with PET is the
lower cost of the SPECT systems, which cost between $175,000 and $750,000 as
compared with up to $2.0 million (depending on configuation and equipment
options) for our systems. We believe however that our POSICAM(TM) system is a
better diagnostic tool in that our systems are able to create more accurate
images than SPECT imaging. Unlike SPECT, the radioactive substances used by our
system are based on naturally occurring substances within the body and allow our
systems to directly measure the metabolic processes and changes occurring within
the scanned organ, thus providing a more accurate image and functional
assessment.
High field MRI technology, an advanced version of MRI, is in the development
stage, but is a potential competitor to PET in certain neurology and oncology
applications. Presently, high field MRI may be useful in performing certain
research (non-clinical) applications such as blood flow studies to perform
"brain mapping" to localize the portions of the brain associated with individual
functions (such as motor activities and vision.) We cannot presently predict the
future competitiveness of high field MRI.
Several manufacturers of SPECT systems are now offering multi-head systems,
which have been modified to operate in coincidence mode, similar to a PET
scanner. These systems achieve spatial resolutions similar to that of PET
scanners, but their sensitivity and count rate are only a small fraction of that
achieved by true PET scanners, making the images "noisy" and more difficult to
interpret. We believe these systems are useful for only a very limited class of
clinical PET studies using only the FDG radiotracer. In addition, SPECT
coincidence systems offer limited, if any, corrections for patient attenuation
and scatter, which affects the accuracy of diagnosis.
INTELLECTUAL PROPERTY
Trademarks and other proprietary rights are extremely important to our success
and our competitive position. We currently hold a number of trademarks, service
marks, patents and copyrights. Although we seek to protect our trademarks and
other proprietary rights through a variety of means, we may not have taken
adequate steps to protect these rights. We will continue to license content from
third parties in the future and it is possible that we could be subjected to
infringement actions based upon the content licensed from these third parties.
Any claims brought against us, regardless of their merit, could result in costly
litigation and the diversion of its financial resources and technical and
management personnel. Further, if such claims are proved valid, through
litigation or otherwise, we may be required to change our trademarks or other
proprietary marks and pay financial damages, which could adversely affect our
business.
We typically enter into confidentiality or license agreements with our
employees, consultants and corporate partners, and generally control access to
and distribution of our technologies, documentation and other proprietary
information. Despite our efforts to protect our proprietary
28
<PAGE>
rights from unauthorized use or disclosure, parties may attempt to disclose,
obtain or use our proprietary rights. The steps we have taken may not prevent
misappropriation of our proprietary rights, particularly in foreign countries
where laws or law enforcement practices may not protect our proprietary rights
as fully as in the United States.
EMPLOYEES
As of November 30, 1999, we employed 21 people, of whom all are full-time. None
of our employees is represented by a union. We believe our relations with our
employees are good.
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF PLAN OF OPERATION
The following discussion and analysis of the financial condition and results of
operations of Positron should be read in conjunction with our Consolidated
Financial Statements (including notes) that appear elsewhere in this prospectus.
GENERAL
We were incorporated in December 1983 and commenced commercial operations in
1986. Since that time, we have generated revenues primarily from the sale and
service contract revenues derived from our POSICAM system, 13 of which are
currently in operation in certain medical facilities in the United States. The
Company has never been able to sell its POSICAM systems in sufficient quantities
to achieve profitability
In May 1998, we entered into a series of agreements with Imatron Inc., a New
Jersey corporation and technology-based company engaged principally in the
business of designing, manufacturing and marketing a high performance computed
tomography pursuant to which on January 22, 1999, Imatron acquired majority
ownership of the Company. In conjunction with the execution of definitive
agreements in May, 1998, Imatron began making working capital advances available
to us of up to $500,000 in order to enable us to meet a portion of our current
obligations. As of December 31, 1998, we had borrowed $600,000 pursuant to those
agreements. The loan agreement was thereafter amended by oral agreement to
increase the working capital advances available under the Agreement up to an
additional $100,000. The loan bore interest at 1/2% over the prime rate, was due
March 1, 2000 (with interest being payable monthly), and was secured by all of
Positron's assets.
Pursuant to the agreement, Imatron acquired 9,000,000 shares of our Common Stock
on January 22, 1999, representing at that time a majority ownership of the
outstanding common stock of Positron on a full-diluted and as-if-converted
basis, excluding out-of-the-money warrants and options determined at that time.
Positron received a nominal cash acquisition price from Imatron in payment for
the shares plus a series of affirmative commitments.
Imatron, in addition to providing limited working capital financing, agreed to
support our marketing program particularly with regard to Imatron's affiliate,
Imatron Japan, Inc. by agreeing to take, after the share purchase, all
reasonable efforts to cause the placement of 10 POSICAM systems over the next
three years. Imatron also agreed to help facilitate the recapitalization of
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<PAGE>
Positron to support its re-entry into the medical imaging market by using its
best efforts to arrange for additional third-party equity financing for Positron
over an eighteen-month period in an aggregate amount of not less than
$8,000,000. Consummation of the issuance of shares to Imatron was conditioned
upon, among other things (a) the resignation of each officer of Positron, (b)
the resignation of at least three of the four Positron directors and the
appointment of Imatron's nominees to fill such vacancies, and (c) Positron
shareholder approval of an amendment to Positron's Articles of Incorporation to
increase its authorized common stock to 100,000,000 shares of common stock. All
of those conditions were met, and the shares were issued on January 22, 1999.
Through Imatron's efforts, private placements were concluded in August resulting
in an equity infusion of approximately $11.4 million net to Positron.
In connection with the above transactions, Positron, Imatron and two of the
lenders to Positron, Uro-Tech, Ltd. and ProFutures, entered into certain
agreements whereby (a) ProFutures waived all past defaults and extended the
maturity of its loan (with a balance of approximately $570,000 at September 30,
1998) to December 5, 1998, in return for a $50,000 payment, the issuance of
warrants to purchase 1,150,000 shares of Positron 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 Positron common 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 1998 and $50,000 for
each of the months of September, October, and November 1998, (b) Imatron agreed
to subordinate its loan to ProFutures' loan, (c) Uro-Tech, Ltd. agreed to
subordinate its loan (with a balance of approximately $767,000 plus accrued
interest payable of approximately $286,000 at September 30, 1998) to Imatron's
loan, and (d) ProFutures 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 Positron's debt to both ProFutures and Imatron.
Consistent with the amendment to the Imatron Agreement, the Company and
ProFutures amended their agreements to provide further waivers of any past
defaults and 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, 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.
The ProFutures loan was fully paid and retired in December 1998, in part from
proceeds received from the sale of the system being leased by Buffalo Cardiology
and Pulmonary Associates. Since then the Imatron loan and the Uro-Tech loan have
also been repaid and retired, in part from proceeds received from the private
placement that concluded in August 1999.
COMPARISON OF YEAR ENDED 1998 TO 1997
RESULTS OF OPERATIONS
During the year ended December 31, 1998, the Company continued to experience
deterioration in its financial condition; however, the Company's net loss
decreased to $724,000 in 1998 from $4,455,000 in 1997. The decrease in net loss
is primarily the result of significant staff reductions and efforts to curtail
costs. Further analysis follows:
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<PAGE>
REVENUES: System sales decreased to $0 in 1998 from $1,129,000 in 1997. The
Company sold no systems in 1998 and only one POSICAM(TM) system in 1997. Fee per
scan revenues decreased to $455,000 in 1998 from $602,000 in 1997 as a result of
the sale of the previously leased system to Buffalo Cardiology & Pulmonary
Associates. Service and component revenue decreased by $242,000 to $1,553,000 in
1998 as compared to $1,795,000 in 1997, due primarily to a conversion of one
system from full service contract to "time and material contract".
COST OF SALES AND SERVICES: Cost of system sales decreased to $0 in 1998 from
$698,000 in 1997 due to the fact that no POSICAM systems were sold in 1998.
Costs of fee per scan decreased to $118,000 in 1998 from $156,000 in 1997 due to
lower maintenance costs on the Company's only fee per scan system. The primary
cost associated with fee per scan is depreciation expense, which remained
constant. Service, warranty and component cost decreased $63,000 to $402,000 in
1998 from $465,000 in 1997 due primarily to the corresponding drop in service
revenues. The Company recognized a $1,224,000 provision for inventory
obsolescence during the fourth quarter of 1997 based upon management's
assessment that improvements would need to be made to the Company's POSICAM(TM)
systems in order to meet current technological requirements by potential
customers.
OPERATING EXPENSES: Research and development expenses decreased to $0 in 1998
from $1,305,000 in 1997 due to diversion of R&D staff time to customer service
support. The company continued to reduce personnel levels significantly in 1998
as liquidity problems squeezed Company resources. Selling, general and
administrative expenses declined to $1,700,000 in 1998 from $3,609,000 in 1997
also due to staff reductions.
OTHER EXPENSES: Interest expense increased to $525,000 in 1998 from $334,000 in
1997 due primarily to interest expense associated with the Company's loan from
ProFutures (the "ProFutures Loan"). The ProFutures Loan was initially funded in
November 1996 and had a balance in excess of $1,000,000 throughout much of 1997.
The interest rate on the ProFutures Loan increased from 12% to 18% during 1997
and that increase in interest rate combined with a higher average debt level
resulted in a significant increase in interest expense. The Company retired in
full the ProFutures loan in December 1998 in part with proceeds received from
the sale of the machine being leased to Buffalo Cardiology and Pulmonary
Associates (see "Imatron Transaction" section above).
NET OPERATING LOSS CARRY FORWARDS: The Company has accumulated a significant net
operating loss carry forward which may be used to reduce taxable income and
related income taxes in future years. On the other hand, since the closing of
the Company's 1993 initial public offering, the sale in February, March and May
of 1996 of 3,075,318 shares of Series A Convertible Preferred Stock and the sale
of 9,000,000 shares to Imatron, each resulted in more than a 50% change in the
ownership percentages of shareholders. The provisions of Section 382 of the
Internal Revenue Code severely limit the annual utilization of the net operating
loss carry forwards. In addition, the utilization of the losses to reduce future
income taxes is dependent upon the generation of sufficient taxable income prior
to the expiration of the net operating loss carry forwards. The carry forwards
will begin to expire in the year 1999.
LIQUIDITY AND CAPITAL RESERVES: Since its inception the Company has been unable
to sell POSICAM(TM) systems at quantities sufficient to be profitable.
Consequently, the Company has
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sustained substantial losses. Net losses for the years ended December 31, 1998
and 1997 were $724,000 and $4,455,000, respectively. At December 31, 1998, the
Company had an accumulated deficit of approximately $49,684,000. 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 December 31, 1998, the Company had cash and cash equivalents in the amount of
$8,000 compared to $160,000 at December 31, 1997. Throughout much of 1997 and
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, the payment of
salaries and other benefits to certain management level employees (totaling
approximately $700,000) were deferred at December 31, 1997 and remained unpaid
at December 31,1998. Additionally, the Company is in arrears to many of its
vendors and suppliers. As of December 31, 1998, such amount owed to vendors and
suppliers totaled approximately $1,327,000. This amount does not include fully
the demand made by Dr. Haas. See comments in section EMPLOYEES above.
Even though the Company successfully retired Profutures Loan in December 1998,
on an on-going basis the Company will require additional debt or equity
financing to sustain its operations. The Company is relying on Imatron's
undertaking to use its best efforts to arrange additional third party equity
financing for the Company to fulfill its current financing needs. There are no
assurances that Imatron will be successful in arranging additional third party
equity financing for the Company or, if such equity financing is obtained, that
the terms of such equity financing will be favorable to the Company or its
shareholders.
As a result of the Company's liquidity problems, its auditors, Ham, Langston &
Brezina, L.L.P., added an explanatory paragraph to their opinion on the
Company's financial statements for the year ended December 31, 1998 indicating
that substantial doubt exists about the Company's ability to continue as a going
concern.
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
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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.
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
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<PAGE>
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 POSICAM(TM) 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 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 with the exception of two of
its systems, it did 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
POSICAM(TM) 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.
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
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<PAGE>
parties to remedy their own Y2K issues, management believes that the Company
does not have significant exposure with respect to third parties.
DESCRIPTION OF PROPERTY
We are headquartered in Houston, Texas where we currently lease approximately
5,400 square feet of space. The facility includes area for system assembly and
testing, a computer room for hardware and software design, and office space. The
facility is leased month to month at a rate of approximately $2,700 per month.
We estimate the space to be sufficient for the current fiscal year.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
S. Lewis Meyer, pursuant to authorization of the Board of Directors, borrowed
$10,000 from the Company in June 1999 pursuant to a promissory note bearing 7.0%
simple interest, with interest payable quarterly beginning October 1, 1999. The
purpose of the loan was to enable Mr. Meyer to purchase 1,500,000 warrants
granted to him at that time.
Gary H. Brooks, pursuant to authorization of the Board of Directors, borrowed
$20,000 from the Company in June 1999 pursuant to a promissory note bearing 7.0%
simple interest, with interest payable quarterly beginning October 1, 1999. The
purpose of the loan was to enable Mr. Brooks to purchase 3,000,000 warrants
granted to him at that time.
In January 1995 the Company and Dr. Wood extended an existing Consulting
Agreement whereby Dr. Wood continued to provide certain managerial, financial,
marketing and organization services to the Company. The Company incurred fees of
approximately $80,000 in each of 1996 and 1997 pursuant to the Agreement, and
fees of approximately $80,000 in 1998 as payment for Dr. Wood's services as
Chief Executive Officer during that year. By its terms, the Agreement expired as
of December 31, 1998 and was not renewed. We paid Dr. Wood fees of $6,667 in
1999 for his services as President and Chief Executive Officer until the
appointment of Gary Brooks as President on January 22, 1999.
During 1995 and 1996, in order to fund its activities, the Company borrowed a
total of $1,313,000 from Uro-Tech, Ltd., an affiliate of the Company and a Texas
limited partnership. The general partner of Uro-Tech is OmniMed Corporation, of
which Dr. Wood beneficially owns 63.7% of the outstanding stock. As of March 31,
1996, $650,000 of the note was converted to 433,329 shares of Series A Preferred
Stock and 216,671 Redeemable Stock Purchase Warrants. In addition, in connection
with the loan, Uro-Tech was granted warrants to purchase 67,500 shares of common
stock exercisable at $2.00 until February 7, 2001. The loan bore interest at
13.8% per year, matured on April 30, 1997 and was thereafter extended in
connection with the Imatron Transaction. The Uro-Tech loan was collateralized by
liens and security interests encumbering most of the Company's assets, which
security interest was thereafter subordinated to a loan from Imatron as part of
the Imatron Transaction.
The Company fully retired the Uro-Tech Loan, including all principal and
interest due, in September 1999 and in connection therewith and Uro-Tech's
forgiveness of certain sums of interest due it by the Company, replaced and
cancelled the warrant to purchase 67,500 common
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<PAGE>
shares at an exercise price of $2.00 with a warrant to purchase 100,000 common
shares at an exercise price of $1.00. The replacement warrant is exercisable
through September 20, 2001.
The Company and Mr. Brooks entered into an Employment Agreement, effective with
his appointment as President on January 22, 1999 pursuant to which Mr. Brooks
agreed to be employed by the Company on a part-time basis from the effective
date through August 31, 1999 and thereafter on a full time basis. Mr. Brooks'
initial appointment is as President. Pursuant to the Agreement, which runs
initially through June 15, 2000 and then on a rolling six-month basis
thereafter, the gross amount of Mr. Brooks' base salary was $1,000 monthly from
January 22, 1999 to June 15, 1999, $3,416.67 monthly from June 15, 1999 through
August 31, 1999, and $185,000 on an annualized basis on and after September 1,
1999. Mr. Brooks is also entitled to reimbursement for up to $20,000 of
relocation expenses to relocate his residence to Houston, Texas, an auto
allowance of $500 per month, the right to purchase for $20,000 a warrant to
purchase up to three million shares of the Company's common stock exercisable at
$0.30 per share, participation in the Company's benefit plans consistent with
other executives, and severance on termination without cause in the amount of
the greater of the base salary he would have earned to the end of the term or
six months. The warrants Mr. Brooks can purchase vest immediately but are
subject to the Company's right of repurchase, which right lapses 25% on grant
and the remainder quarterly over the next three years. In the event his
employment is terminated by the Company without cause or on a change of control,
the Company's repurchase right regarding his warrants lapses entirely and any
other equity participation he may have in company securities vests immediately.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
In December 1993, the Company completed an initial public offering of 1,750,000
shares of Common Stock and 1,946,775 redeemable warrants (the "Redeemable
Warrants") to purchase Common Stock (the "Initial Public Offering"). Prior to
the Initial Public Offering there was no public market for Company's Common
Stock. The Redeemable Warrants expired in December 1998. The Company's Common
Stock is currently traded in the over-the-counter securities market, and quoted
on the NASD's Electronic Bulletin Board under the symbol POSC.OB. The Company's
Common Stock and, prior to their expiration, the Redeemable Warrants were
previously traded on the NASDAQ SmallCap Market but were delisted in 1997
because the Company was unable to comply with various financial and compliance
requirements for continued inclusion on the NASDAQ SmallCap Market. See "Item 1.
Description of Business - Risks Associated with Business Activities."
The following range of the high and low reported closing sales prices for the
Company's Common Stock for each quarter in 1998 and 1997, and the first three
quarters of 1999, all as reported on the NASDAQ OTC Bulletin Board or the NASDAQ
SmallCap Market. On January 10, 2000, the last reported sale price of our common
stock on the NASD Electronic Bulletin Board was $ 0.5625.
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<PAGE>
1997 1998 1999
-------------- -------------- -------------
HIGH LOW HIGH LOW HIGH LOW
---- --- ---- --- ---- ---
First Quarter $3.375 $1.250 $0.625 $0.266 $0.438 $0.120
Second Quarter $1.938 $0.375 $0.609 $0.188 $0.700 $0.120
Third Quarter $1.438 $0.422 $0.453 $0.213 $1.094 $0.469
Fourth Quarter $0.953 $0.172 $0.500 $0.040 $0.906 $0.375
There were approximately 295 shareholders of record of Common Stock as of
October 31, 1999, including broker-dealers holding shares beneficially owned by
their customers.
The Company has never paid cash dividends on its Common Stock. The Company does
not intend to pay cash dividends on its Common Stock in the foreseeable future.
The Series A Preferred Stock Statement of Designation prohibits the payment of
Common Stock dividends until all required dividends have been paid on the series
of preferred stock. As of September 30, 1999, approximately $373,000 of
preferred stock dividends are undeclared and unpaid by the Company.
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<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION OF NAMED EXECUTIVES
The Summary Compensation Table shows certain compensation information
for each person who served as Chief Executive Officer during the year and the
other most highly compensated executive officers whose aggregate compensation
exceeded $100,000 for services rendered in all capacities during fiscal year
1998 and for the first 10 months of fiscal year 1999 (collectively referred to
as the "Named Executive Officers"). Compensation data is shown for the fiscal
years ended December 31, 1998 and 1997 and for the first ten months of fiscal
year 1999. This information includes the dollar value of base salaries, bonus
awards, the number of stock options granted, and certain other compensation, if
any, whether paid or deferred.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION ALL OTHER
COMPENSATION AWARDS COMPENSATION(b)
------------------------- ------------ --------------
NAME AND
PRINCIPAL POSITION YEAR SALARY($)(a) BONUS OPTIONS/ SARS
------------------ ---- --------- ----- -------------
<S> <C> <C> <C> <C> <C>
Gary H. Brooks, President 1999 $48,375(c) -0- -0- -0-
Gary B. Wood, Ph.D., President 1999 6,667 -0- -0- -0-
and Chief Executive Officer 1998 93,333 -0- -0-
(2/1/97 to 1/22/99) 1997 33,333 -0- -0-
John J. Ariatti 1999 $15,801(d) -0- 650,000(d)
Howard Baker 1998 $163,027(e) -0- -0- $1,986
1997 $91,000 -0- -0-
</TABLE>
- ----------
(a) Amounts shown include cash and non-cash compensation earned with respect
to the year shown above.
(b) Represents the Company's matching contributions to its 401(k) plan.
(c) Mr. Brooks served as President on a part-time basis from January 22, 1999
until September 1, 1999, and thereafter on a full-time basis. This number
reflects compensation paid through 10/31/99. Mr. Brooks also received
$20,000 in reimbursement of relocation expenses in 1999.
(d) Mr. Ariatti was appointed Vice President, Sales and Marketing effective
September 27, 1999. This number reflects compensation paid him from that
date through 10/31/99. In connection with his employment he was granted
options to purchase 650,000 shares of Positron common stock exercisable at
$0.47, the market price of the stock on the grant date. The options vest
quarterly over the first four years from the date of grant. 40,625 of
these options are exercisable within 60 days of October 31, 1999.
(e) Mr. Baker served as EVP, Sales and Marketing during 1997 and until
December 1998 when he resigned.
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<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth the options granted during the last fiscal
year to each of the named executive officers of the Company:
OPTION/SAR GRANTS IN FISCAL YEAR 1998
<TABLE>
<CAPTION>
====================================================================================================================
Individual Grants Potential Realizable Value at
Assumed Annual Rates of Stock Price
Appreciation For Option Term
====================================================================================================================
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDER GRANTED TO EXERCISE OR
OPTIONS EMPLOYEES IN BASE PRICE MARKET EXPIRATION 0%($) 5%($)(b)
NAME GRANTED (#) FISCAL YEAR(a) ($/SH) PRICE DATE
- ---- ----------- -------------- ----------- ------ ---------- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Gary B. Wood -0- -0- -0- -0- -0- -0- -0-
</TABLE>
(a) No options were granted to any employee, including executive officers,
during the last fiscal year.
(b) Based on 5-year option term and annual compounding; results in total
appreciation of 27.6% (at 5% per year) and 61.1% (at 10% per year).
OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES
The following table sets forth the options exercised during the last
fiscal year by Named Executive Officers of the Company:
AGGREGATED OPTIONS EXERCISED AND OPTION VALUES IN FISCAL YEAR 1998
<TABLE>
<CAPTION>
Number of securities Value of unexercised
underlying unexercised In-the-Money options at
Shares acquired Value options at year-end (#) year-end ($)exercisable/
NAME ON EXERCISE (#) REALIZED ($) EXERCISABLE/UNEXERCISABLE UNEXERCISABLE
- ---- --------------- ------------ ------------------------- ------------------------
<S> <C> <C> <C> <C>
Gary B. Wood -0- -0- -0- -0-
</TABLE>
BOARD COMPENSATION
We reimburse directors for their reasonable expenses associated with attending
meetings of the Board of Directors. Directors who are full-time employees of
Positron Corporation are not separately compensated for their service on the
Board. Until January 22, 1999 non-employee directors were eligible to receive
$12,500 annually for their services and attendance at regular Board meetings,
and $500 for each additional Board or committee meeting attended, not to exceed
an additional $2,500 per year. The Chairman of the Board also received an
additional annual retainer of $2,000 per year. Due to the financial constraints
facing the Company during 1997 and 1998, non-employee directors were not paid
fees for their services as director. Since January 22, 1999 and until further
notice, non-employee directors are not separately
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<PAGE>
compensated for their services on the Board although they continue to be
reimbursed for their reasonable expenses associated with attending board and
committee meetings.
On and after October 6, 1999, each non-employee director is eligible to receive
an option to purchase 25,000 shares of common stock under Positron's 1999
Non-employee Directors' Stock Option Plan. The exercise price is equal to 85% of
the fair market value of the common stock on the date of grant. In addition, so
long as the Plan is in effect and there are shares available for grant, each
director in service on January 1 of each year (provided the director has served
continuously for at least the preceding 30 days) is eligible to receive an
option to purchase 25,000 shares of common stock at an exercise price equal to
85% of the fair market value of the common stock on the date of grant. Initial
options as well as annual options granted under the Plan are subject to one or
two schedules, either vesting over four years or vesting fully on the date of
grant. In the latter event, the common stock acquired upon exercise of such
options are subject to a right of repurchase in favor of Positron which lapses
in four equal annual installments, beginning on the first anniversary of the
date of grant.
The 1999 Non-Employee Directors' Plan replaces portions of the 1994 Stock Option
Plan, pursuant to which both employee and non-employee directors were eligible
to receive stock option grants. Pursuant to the 1994 Plan, each non-employee
director was automatically granted a one time stock option to purchase 10,500
shares of common stock at the time of election, and on reelection an option to
purchase that number of shares equal to the quotient derived by dividing $15,000
by the fair market value of the common stock on the date of grant. 160,000
shares had been reserved for issuance to non-employee directors under the 1994
Plan, of which 113,724 non-statutory options had been granted as of December 31,
1998. No additional option grants were made to non-employee directors in 1999,
and the Plan was terminated by the Board of Directors effective October 6, 1999
simultaneous with the adoption by the Board of the 1999 Non-Employee Directors'
Plan.
COMPENSATION ARRANGEMENTS
Effective January 22, 1999 the Company entered into an employment agreement with
Gary H. Brooks. Pursuant to the Agreement, he was appointed initially as
President of the Company with an initial employment term ending June 15, 2000,
with a rolling six month basis thereafter. From January 22, 1999 until June 15,
1999 and then from June 15, 1999 through August 31, 1999 his base salary was
$1,000 and $3,416.67 per month respectively, reflecting his less than full-time
commitments to the office during these periods. Effective September 1, 1999 and
his full-time assignment with the Company, his salary increased to $185,000 on
an annualized basis. In addition to participation in the Company's group benefit
plans and a monthly automobile allowance, Mr. Brooks was given the opportunity
to purchase for $20,000 a warrant to purchase 3,000,000 shares of the Company's
common stock exercisable at $0.30 per share. The warrant, and the underlying
common stock, are subject to the Company's repurchase right, which lapses 25%
immediately and the remainder quarterly over the next three years. The Board can
terminate Mr. Brooks' employment without cause on thirty days' written notice
and the payment of base salary for the remainder of the employment term or six
months, whichever is greater.
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<PAGE>
COMPENSATION PLANS
EMPLOYEE STOCK OPTION PLAN
Positron has had several employee stock option plans, most recently the 1994
Stock Option Plan, which was terminated by the Board effective October 6, 1999,
and the 1999 Employee Stock Option Plan, which was adopted by the Board
effective June 15, 1999. The 1994 Plan provided for the grant of options to
officers, directors, key employees and consultants of the Company. The 1999 Plan
provides for the grant of options to officers, employees (including employee
directors) and consultants. Both the 1994 Plan and the 1999 Plan are
administered by the Board of Directors. The administrator is authorized to
determine the terms of each option granted under the plans, including the number
of shares, exercise price, term and exercisability. Options granted under the
plans may be incentive stock options or nonqualified stock options. The exercise
price of incentive stock options may not be less than 100% of the fair market
value of the common stock as of the date of grant (110% of the fair market value
in the case of an optionee owns more than 10% of the total combined voting power
of all classes of Positron capital stock). Options may not be exercised more
than ten years after the date of grant (five years in the case of 10%
stockholders).
Upon termination of employment for any reason other than death or disability,
each option may be exercised for a period of 90 days, to the extent it is
exercisable on the date of termination. In the case of a termination due to
death or disability, an option will remain exercisable for a period of one year,
to the extent it is exercisable on the date of termination. As of October 31,
1999, there were 3,205,000 shares available for grant under the plans.
NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
The 1999 Non-employee Directors' Stock Option Plan, described elsewhere in this
Prospectus, provides for the automatic grant of an option to purchase 25,000
shares of common stock to non-employee directors upon their election or
appointment to the Board, and subsequent annual grants also in the amount of
25,000 shares of common stock. The exercise price of the options is 85% of the
fair market value of the common stock on the date of grant. The Directors' Plan
is administered by the Board. Options granted under the Directors' Plan become
exercisable in one of two ways: either in four equal annual installments,
commencing on the first anniversary of the date of grant, or immediately but
subject to the Company's right to repurchase, which repurchase right lapses in
four equal annual installments, commencing on the first anniversary of the date
of grant.. To the extent that an option is not exercisable on the date that a
director ceases to be a director of the company, the unexercisable portion
terminates.
1999 STOCK BONUS INCENTIVE PLAN
In October 1999 the Board adopted an Employee Stock Bonus Incentive Plan, which
provides for the grant of bonus shares to any of Positron employee. or
consultant to recognize exceptional service and performance beyond.the service
recognized by the employee's salary or consultant's fee. The Board has
authorized up to an aggregate of 1,000,000 shares of common stock for issuance
as bonus awards under the Stock Bonus Plan. The Stock Bonus Plan is currently
administered by the Board. Each grant of bonus shares is in an amount determined
by the Board,
41
<PAGE>
up to a maximum of the participant's salary. The shares becomes exercisable
according to a schedule to be established by the Board at the time of grant.
1999 EMPLOYEE STOCK PURCHASE PLAN
A total of 500,000 shares of common stock has been reserved for issuance under
Positron's Employee Stock Purchase Plan (the "Purchase Plan"), none of which has
as yet been issued. The Purchase Plan permits eligible employees to purchase
Common Stock at a discount through payroll deductions during offering periods of
up to 27 months. Offering periods generally will begin on the first trading day
of a calendar quarter. The initial offering period began on January 1, 2000. The
price at which stock is purchased under the Purchase Plan will be equal to 85%
of the fair market value of common stock on the first or last day of the
offering period, whichever is lower.
401(K) PLAN
The Company has a 401(k) Retirement Plan and Trust (the "401(k) Plan") which
became effective as of January 1, 1989. Employees of the Company who have
completed one-quarter year of service and have attained age 21 are eligible to
participate in the 401(k) Plan. Subject to certain statutory limitations, a
participant may elect to have his or her compensation reduced by up to 20% and
have the Company contribute such amounts to the 401(k) Plan on his or her behalf
("Deferral Contributions"). The Company makes contributions in an amount equal
to 25% of the participant's Deferral Contributions up to 6% of his or her
compensation ("Employer Contributions"). Additionally, the Company may make such
additional contributions as it shall determine each year in its discretion. All
Deferral and Employer Contributions made on behalf of a participant are
allocated to his or her individual accounts and such participant is permitted to
direct the investment of such accounts.
A participant is fully vested in the current value of that portion of his or her
accounts attributable to Deferral Contributions. A participant's interest in
that portion of his or her accounts attributable to Employer Contributions is
generally fully vested after five years of employment. Distributions under the
401(k) Plan are made upon termination of employment, retirement, disability and
death. In addition, participants may make withdrawals in the event of severe
hardship or after the participant attains age fifty-nine and one-half. The
401(k) Plan is intended to qualify under Section 401 of the Code, so that
contributions made under the 401(k) Plan, and income earned on contributions,
are not taxable to participants until withdrawal from the 401(k) Plan.
CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
On April 7, 1998, Coopers & Lybrand L.L.P. ("Coopers & Lybrand"), by means of a
letter addressed to the Chairman of the Board and Chief Executive Officer of
Positron Corporation informed the Company that it had resigned as the Company's
independent auditors. The resignation arose from Coopers & Lybrand's desire to
terminate its relationship with the Company because of the Company's then
current financial condition.
42
<PAGE>
The report of Coopers & Lybrand for either of the of the past two years did not
contain an opinion or disclaimer of opinion, or qualification or modification as
to uncertainty, audit scope, or accounting principles, except: (i) Coopers &
Lybrand's report on the financial statements of the Company as of and for the
years ended December 31, 1996, contained a separate paragraph stating that "the
Company has suffered recurring losses from operations and has a net capital
deficiency that raises substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty"; and (ii) The financial statements
as of and for the fiscal year ended December 31, 1997 have not been audited.
This decision to resign was made by Coopers & Lybrand and was neither approved
nor disapproved by the Company's Board of Directors.
During the two most recent fiscal periods ended December 31, 1998 and December
31, 1997 and from December 31, 1997 to the date of Coopers & Lybrand's
resignation, there were: (i) no disagreements between the Company and Coopers &
Lybrand on any matter of accounting principles or practice, financial statement
disclosure, or auditing scope or procedure, which disagreements if not resolved
to the satisfaction of Coopers & Lybrand would have caused it to make reference
thereto in its report; and (ii) no reportable events as defined in paragraph
304(a)(1)(iv) of Regulation S-B.
Coopers & Lybrand has provided the Securities and Exchange Commission with a
letter agreeing to the disclosure contained herein.
Coopers and Lybrand was replaced by Ham, Langston & Brezina, L.L.P. on June 26,
1998. Prior to the engagement of Ham, Langston & Brezina, L.L.P. as independent
auditors, the Company had not consulted them regarding the application of
accounting principles to a specified transaction, either completed or proposed;
or the type of audit opinion that might be rendered on the Company's financial
statements or any other financial presentation whatsoever. No disagreements
exist between the Company and Ham, Langston & Brezina, L.L.P. on any matters of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure.
ANTI-TAKEOVER PROVISIONS
Positron is governed by Part 13 of the Texas Business Corporation Law. In
general, this article restricts a corporation from entering into certain
business combinations with an affiliated stockholder (defined as any person or
entity that is the beneficial owner of at least 20% of a corporation's voting
stock) or its affiliates for a period of three years after the date of the
transaction in which the person became an interested stockholder unless (i) the
transaction is approved by the board of directors of the corporation prior to
the shareholder's acquisition date, (ii) the business combination is approved by
the affirmative vote of the holders of at least two-thirds of the outstanding
voting shares not beneficially owned by the affiliated shareholder at a meeting
of shareholders and not by written consent, called for that purpose not less
than six months after the affiliated shareholder's share acquisition date.
"Business combinations" include mergers, asset sales, share exchanges, and other
transactions resulting in a financial benefit to the
43
<PAGE>
interested stockholder. A Texas corporation may "opt out" of these provisions
with an express provision in its original articles of incorporation or an
express provision in its articles of incorporation or bylaws resulting from a
stockholders' amendment approved by at least two-thirds of the outstanding
voting shares, and after a waiting period of 18 months after the vote has been
taken. Positron has not "opted out" of the provisions of Part Thirteen. The
statute could prohibit or delay mergers or other takeover or change-in-control
attempts with respect to the Company and, accordingly, may discourage attempts
to acquire the Company.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed on for Positron
by Allen Matkins Leck Gamble & Mallory LLP, San Francisco, California.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly, and special reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy
any reports, statements or other information on file at the Commission's public
reference room in Washington, D.C. You can request copies of those documents,
upon payment of a duplicating fee, by writing to the Commission.
We have filed a registration statement on Form SB-2 with the Commission. This
prospectus, which forms a part of that registration statement, does not contain
all the information set forth in the registration statement. Certain information
is omitted and you should refer to the registration statement and its exhibits.
Statements contained in this prospectus as to the contents of any contract,
agreement or other document referred to are not necessarily complete and you
should refer in each instance to the copy of such contract, agreement or other
document filed as an exhibit to the registration Statement, each statement being
qualified in all respects by such reference. You may read and copy all or any
portion of the registration statement or any reports, statements or other
information we file with the Commission at the Commission's public reference
room at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
following regional offices: Northeast Regional Office, 7 World Trade Center,
Suite 1300, New York, New York 10048; and Midwest Regional Office, Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Our SEC filings and the registration statement can also be reviewed by accessing
the Commission's Internet site at http://www.sec.gov.
Positron will provide without charge to each person to whom a prospectus is
delivered upon written or oral request of such person, a copy of any document
incorporated herein by reference (not including exhibits to the document that
have been incorporated by reference unless such exhibits are specifically
incorporated by reference in the document which this prospectus incorporates).
Requests should be directed to: Chief Financial Officer, Positron Corporation,
1304 Langham Creek Drive, Suite 300, Houston, Texas 77084.
44
<PAGE>
APPENDIX
Report of Independent Accountants
Board of Directors and Stockholders
Positron Corporation
We have audited the accompanying balance sheet of Positron Corporation as of
December 31, 1998 and the related statements of operations, stockholders'
deficit and cash flows for each of the two years in the period then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Positron Corporation as of
December 31, 1998, and the results of its operations and its cash flows for each
of the two years in the period then ended in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency that raises substantial doubt about its ability
to continue has a going concern. Management's plan with regard to this matter is
also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ Ham, Langston & Brezina, L.L.P.
-----------------------------------
Ham, Langston & Brezina, L.L.P.
Houston, Texas
March 26, 1999
F-1
<PAGE>
BALANCE SHEET
POSITRON CORPORATION
AS OF DECEMBER 31, 1998
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
------
Current Assets:
Cash and cash equivalents $ 8
Accounts receivable, net 99
Inventories 391
Prepaid expenses 58
--------
Total current assets 556
Plant and equipment net 130
--------
Total assets $ 686
========
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
Current liabilities:
Notes payable $ 792
Accounts payable and accrued liabilities 4,723
Unearned revenue 142
--------
Total current liabilities 5,657
Long-term Debt 600
Other liabilities 68
--------
Total Liabilities 6,325
--------
Stockholders' deficit:
Series A Preferred Stock: $1.00 par value; 8%
cumulative, convertible, redeemable; 5,450,000
shares authorized; 1,557,403 shares issued
outstanding at December 31, 1998 1,557
Series B Preferred Stock: $1.00 par value, 8%
cumulative, convertible, redeemable; 25,000
shares authorized, issued and outstanding at
December 31, 1998 25
Common stock: $0.04 par value; 100,000,000 shares
authorized 5,166,542 shares Issued and 5,106,386
and 5,068,834 shares outstanding at December 31, 1998 52
Additional paid-in capital 42,426
Accumulated deficit (49,684)
Treasury stock: 60,156 shares at cost (15)
--------
Total stockholders' deficit (5,639)
--------
Total liabilities and stockholders' deficit $ 686
========
See Notes to Financial Statements
F-2
<PAGE>
POSITRON CORPORATION
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
1998 1997
Revenues:
System sales $ -- $ 1,129
Fee per scan 455 602
Service and component 1,553 1,795
--------- ---------
Total revenues 2,008 3,526
--------- ---------
Costs of sales and services:
System sales -- 698
Fee per scan 118 156
Service, warranty and component 402 465
Provision for inventory obsolescence -- 1,224
--------- ---------
Total costs of sales and service 520 2,543
--------- ---------
Gross profit 1,488 983
--------- ---------
Operating expenses:
Research and development -- 1,305
Selling, general and administrative 1,700 3,609
--------- ---------
Total operating costs 1,700 4,914
--------- ---------
Loss from operations (212) (3,931)
--------- ---------
Other expenses:
Interest expense (525) (334)
Gain on disposal of property and equipment 29 --
Other expense (16) (190)
--------- ---------
Total other expense, net (512) (524)
--------- ---------
Net loss $ (724) $ (4,455)
--------- ---------
Basic and dilutive net loss per common share $ (0.14) $ (0.91)
--------- ---------
Weighted average common shares outstanding 5,150,131 4,884,870
--------- ---------
See notes to financial statements.
F-3
<PAGE>
POSITRON CORPORATION
STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SERIES A SERIES B ADDITIONAL
PREFERRED STOCK PREFERRED STOCK COMMON STOCK ACCUMUL- TREAS-
--------------- --------------- ------------ PAID-IN ATED URY
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT STOCK TOTAL
------ ------ ------ ------ ------ ------ ------- ------- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at 2,404,624 $2,405 25,000 $25 4,312,182 $43 $41,374 $(44,505) $-- $(658)
January 1, 1997
Net Loss -- -- -- -- -- -- -- (4,455) -- (4,455)
Conversion of
Series A Preferred
Stock to Common Stock (809,625) (810) -- -- 809,625 8 802 -- -- --
Conversion of
Warrants to Common
Stock -- -- -- -- 7,183 -- 15 -- -- 15
Treasury Stock
received upon
settlement of note
receivable (15) (15)
--------- ------ ------ --- --------- --- ------- -------- ---- -------
Balance at 1,594,999 1,595 25,000 25 5,128,990 51 42,191 (48,960) (15) 5113)
--------- ------ ------ --- --------- --- ------- -------- ---- -------
December 31, 1997
Net Loss -- -- -- -- -- -- -- (724) -- (724)
Conversion of (37,552) (38) -- -- 37,552 1 37 -- -- --
Series A Preferred
Stock to Common Stock
Warrants issued for
note extension
(1,150,000 shares) 198 198
--------- ------ ------ --- --------- --- ------- -------- ---- -------
Balance at
December 31, 1998 1,557,447 $1,557 25,000 $25 5,166,542 $52 $42,426 $(49,684) $(15) $(5,639)
========= ====== ====== === ========= === ======= ======== ==== =======
</TABLE>
See notes to financial statements.
F-4
<PAGE>
POSITRON CORPORATION
STATEMENTS OF CASH FLOW
FOR THE YEAR ENDED DECEMBER 31, 1998 AND 1997
(AMOUNTS IN THOUSANDS)
1998 1997
-------- --------
Cash flows from operating activities:
Net loss $ (724) $(4,455)
Adjustment to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation 250 255
Warrants issued for interest expense 198 --
Provision for doubtful accounts
and notes receivable -- 456
Provision for obsolescence of inventory -- 1,224
Net gain from sale and disposal of
property and equipment (29) --
Provision to reduce intangible assets
to net realizable value -- 81
Amortization of intangible assets -- 25
Change in assets and liabilities, operating:
Decrease in accounts receivable 154 120
Decrease in inventories 17 1,001
Decrease in prepaid expenses 73 28
Decrease in other current assets -- 426
Increase (decrease) in accounts payable
and accrued liabilities (30) 1,011
Decrease in revolving line of credit -- (75)
Increase (decrease) in other liabilities (177) 177
Increase (decrease) in unearned revenue 82 (207)
------- -------
Net cash provided by (used in)
operating activities (186) 67
------- -------
Cash flows from investing activities:
Proceeds from sale of equipment 364 --
Capital expenditures -- (3)
------- -------
Net cash provided by (used in) investing activities 364 (3)
------- -------
Cash flows from financing activities:
Proceeds from note payable to an affiliate 600 104
Repayment of other notes payable (930) (405)
Proceeds from conversion of warrants
to common stock -- 15
------- -------
Net cash used in financing activities (330) (286)
------- -------
Net decrease in cash and cash equivalents $ (152) $ (222)
Cash and cash equivalents, beginning of year 160 382
------- -------
Cash and cash equivalents, end of year $ 8 $ 160
======= =======
See notes to financial statements.
F-5
<PAGE>
Positron Corporation
Notes to Financial Statements
1. DESCRIPTION OF BUSINESS
Positron Corporation (the "Company") was incorporated on December 20, 1983
in the state of Texas and commenced commercial operations during 1986. The
Company designs, manufacturers, markets and services its POSICAM(TM)
system advanced medical imaging devices, utilizing positron emission
tomography ("PET") technology. These systems utilize the Company's
patented and proprietary technology, an imaging technique which assesses
the biochemistry, cellular metabolism and physiology of organs and
tissues, as well as producing anatomical and structural images. Targeted
markets include medical facilities and diagnostic centers located
throughout the world. POSICAM(TM) systems are used by physicians as
diagnostic and treatment evaluation tools in the areas of cardiology,
neurology and oncology. The Company faces competition principally from two
other companies which specialize in advanced medical imaging equipment.
Since its inception the Company has been unable to sell its POSICAM(TM)
systems in sufficient quantities to be profitable. Consequently, the
Company has sustained substantial losses. Net losses for the years ended
December 31, 1998 and 1997 were $749,000 and $4,455,000, respectively, and
at December 31, 1998 the Company has an accumulated deficit of
$49,709,000. The magnitude of the selling prices of the Company's systems
and the limited number of systems sold or placed in service each year has
caused the Company's revenues to fluctuate significantly from year to
year.
At December 31, 1998, the Company had cash and cash equivalents of only
$8,000 compared to $160,000 at December 31, 1997. During both 1998 and
1997, the Company was unable to meet certain obligations as they came due
and the Company's liquidity problems have become critical. As a result of
the Company's severe liquidity problem, salary payments owed to certain
management level employees totaling approximately $700,000 and dating back
more than a year were unpaid at December 31, 1998. Additionally, the
Company is subject to certain unasserted claims which have not been
resolved.
To deal with its critical liquidity problem, during January 1999 the
Company completed an agreement (the "Imatron Transaction") with Imatron,
Inc. ("Imatron"), whereby in Imatron acquired a majority ownership in the
Company and plans to raise capital for continued operation of the Company
(See Note 14). 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..
F-6
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all cash balances and highly liquid
investments with an original maturity of three months or less.
INVENTORY
Inventories are stated at the lower of cost or market and include
material, labor and overhead. Cost is determined using the first-in,
first-out (FIFO) method of inventory valuation.
PLANT AND EQUIPMENT
Plant and equipment are recorded at cost and depreciated for financial
statement purposes using the straight-line method over estimated useful
lives of three to seven years. Gains or losses on dispositions are
included in the statement of operations in the period incurred.
Maintenance and repair costs are charged to expense as incurred.
IMPAIRMENT OF LONG-LIVED ASSETS
Periodically, the Company evaluates the carrying value of its plant and
equipment, and long-lived assets, which includes patents and other
intangible assets, by comparing the anticipated future net cash flows
associated with those assets to the related net book value. If an
impairment is indicated as a result of such reviews, the Company would
remove the impairment based on the fair market value of the assets, using
techniques such as projected future discounted cash flows or third party
valuations. As of December 31, 1998 an adjustment to intangible assets was
indicated and recorded.
REVENUE RECOGNITION
Revenues from POSICAM(TM) system contracts are recognized when all
significant costs have been incurred and the system has been shipped to
the customer. Revenues from fee per scan contracts are recognized upon
performance of patient scans. Revenues from maintenance contracts are
recognized over the term of the contract. Service revenues are recognized
upon performance of the services.
RESEARCH AND DEVELOPMENT EXPENSES
All costs related to research and development are charged to expense as
incurred.
WARRANTY COSTS
The Company accrues for the cost of product warranty on POSICAM(TM)
systems at the time of shipment. Warranty periods generally range up to a
maximum of one year but may extend for longer periods. Actual results
could differ from the amounts estimated.
F-7
<PAGE>
NET LOSS PER COMMON SHARE
Basic and dilutive net loss per common share for the years ended December
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.
All common stock equivalents were antidilutive.
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
disclosure of contingent assets and 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.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company includes fair value information in the notes to the financial
statements when the fair value of its financial instruments is different
from the book value. When the book value approximates fair value, no
additional disclosure is made.
RECLASSIFICATIONS
Certain amounts presented in the Company's December 31, 1997 financial
statements have been reclassified in order to conform to current year
presentation.
COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards ( "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.
SEGMENT INFORMATION
Effective January 1, 1998 the Company adopted SFAS 131, "Disclosures About
Segments of an Enterprise and Related Information". SFAS 131 requires a
company to disclose financial and other information, as defined by the
statement, about its business segments, their products and services,
geographic areas, major customers, revenues, profits, assets and other
information. The Company believes that it operates in only one business
segment and does not have geographically diversified business operations.
Accordingly, the adoption of SFAS 131 did not have a significant impact on
the Company (See Note 15).
F-8
<PAGE>
3. ACCOUNTS RECEIVABLE
Accounts receivable at December 31, 1998 consisted of the following:
(dollars in thousands)
Accounts receivable - equipment sales $ 1,011
Accounts receivable - maintenance 99
-------
1,110
Less allowance for doubtful accounts (1,011)
$ 99
-------
4. INVENTORIES
Inventories at December 31, 1998 consisted of the following: (dollars in
thousands)
Raw materials $ 1,126
Finished goods 438
-------
1,564
Less reserve for obsolescence (1,173)
-------
Net Inventory $ 391
-------
Due to improvements in technology that will slow movement of the Company's
inventory, the Company recorded a reserve for obsolescence of $1,224,000
at December 31, 1997 to reduce inventories to their estimated net
realizable value.
5. PLANT AND EQUIPMENT
Plant and equipment at December 31, 1998 consisted of the following:
(dollars in thousands)
Furniture and fixtures $ 86
Computers and peripherals 93
Leasehold improvements 17
Machinery and equipment 203
-------
399
Less accumulated depreciation (269)
-------
$ 130
=======
During the year ended December 31, 1998, the Company sold certain leased
assets and disposed of various assets not in use. The net effect of these
sales and dispositions resulted in the Company reporting $29,000 gain in
the accompanying statement of operations.
F-9
<PAGE>
6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accrued liabilities at December 31, 1998 consisted of the following:
(dollars in thousands)
Trade $ 677
Rent 282
Interest 370
Professional fees 229
Property tax 347
Warranty 1,337
Compensation 980
Royalties 384
Other 117
$ 4,723
7. NOTES PAYABLE AND LONG-TERM DEBT TO AFFILIATES
Notes payable and long-term debt at December 31, 1998 consisted of the
following (dollars in thousands):
Notes payable to Uro-Tech, Ltd (the "Uro-Tech Loan")
bearing interest at 13.8% per year and due July 31,
1998, (based upon extensions granted in connection
with the Imatron Transaction). This note is
collateralized by liens and security interests
encumbering substantially all of the Company's assets,
including the Company's know-how, patents and
proprietary rights pertaining to its PET technology.
This note is subordinated to the Imatron Note
described below and was not paid upon maturity. $ 792
Note payable to Imatron, Inc. (the "Imatron Loan")
bearing interest at prime (7.75% at December 31,
1998) plus 1/2 percent per year and due March 1, 2000.
Interest is due monthly on this note and is
collateralized by liens and security interest
encumbering substantially all the Company's assets,
including the Company's know-how, patents and
proprietary rights pertaining to its PET technology 600
------
1,392
Less current portion 792
------
$ 600
======
In connection with the Uro-Tech Loan, the Company granted Uro-Tech, Ltd.
Warrants to purchase 67,500 shares of common stock at an exercise price of
$2.00 per share, exercisable through February 7, 2001.
All notes payable and long-term debt outstanding at December 31, 1998 are
due during the years ending December 31, 1999 and 2000.
8. COMMON STOCK-OPTIONS AND WARRANTS
OPTIONS
In 1987, the Company established a common stock option plan (the "1987
Plan") covering directors, officers and other key employees. In November
1993, the Company canceled all options outstanding under the 1987 Plan. In
connection with such cancellations, the board of directors authorized the
reissuance of 38,522 options to purchase shares of common stock at 75
percent of the IPO price following the closing of an initial public
offering. Such options vested and became exercisable on January 3,
F-10
<PAGE>
1995. In addition, in February 1994, the board of directors authorized the
issuance of an additional 150,000 options at the same exercise price.
Options granted under the 1987 Plan expired on the earlier of three months
after termination of employment or ten years from the grant date.
Effective June 3, 1994, the shareholders of the Company approved the 1994
Incentive and Nonstatutory Option Plan (the "1994 Plan"). The 1994 Plan as
amended, provides for the issuance of an aggregate of 601,833 Common Stock
options to key employees, directors, and certain consultants and advisors
of the Company. The 1994 Plan also provides that the exercise price of
Incentive Options shall not be less than the fair market value of the
shares on the date of the grant. The exercise price per share of
Nonstatutory options shall not be less than the par value of the Common
Stock or 50% of the fair market value of the common stock on the date of
grant. The 1994 Plan is administered by the Compensation Committee o f the
Board of Directors. The committee has the authority to determine the
individuals to whom awards will be made, the amount of the awards, and all
other terms and conditions of the awards. As of December 31, 1998, options
to purchase an aggregate of 144,389 shares of common stock at a range of
$2.626 - $4.125 per share, have been granted to certain key employees.
The 1994 Plan also provides that each non-employee director automatically
receives options to purchase 10,500 shares of common stock at the date
such individual becomes a non-employee director. Each non-employee
director who is a director on the first business day following each Annual
Shareholder Meeting also receives an option to purchase a number of shares
of common stock having a value of $15,000 as determined by the fair market
value of the common stock at the date of grant. As of December 31, 1998,
options to purchase an aggregate of 163,724 shares of common stock at a
range of $2.625-$4.125 per share had been granted to non-employee
directors. All 1994 Plan options expire within ten years of the date of
the grant.
There were no stock option grants, exercises or forfeitures during the
years ended December 31, 1998 or 1997. At December 31, 1998, 1997 and 1996
the Company had $572,678 stock options outstanding at a weighted average
exercise price of $2.80 per share.
The Company has elected to apply the disclosure only provisions of
STATEMENT OF FINANCIAL ACCOUNTING NO. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION ("SFAS 123") which, if fully adopted by the Company, would
change the method the Company applies in recognizing the cost of the Plan.
Adoption of the cost recognition provisions of SFAS 123 is optional and
the Company has decided not to elect those provisions. As a result, the
Company continues to apply ACCOUNTING PRINCIPLES BOARD OPINION NO. 25
("APB 25") and related interpretations in accounting for the measurement
and recognition of the Plan's cost.
The shares exercisable for vested options and the corresponding weighted
average exercise price was 435,436 shares and $2.80 per share at December
31, 1998 and 1997.
F-11
<PAGE>
Following is a summary of stock options outstanding at December 31, 1998.
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------- --------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF TERM EXERCISE EXERCISE
EXERCISE PRICE SHARES (IN YEARS) PRICE SHARES PRICE
-------------- ------- ---------- -------- ------- --------
$2.625 - $3.375 492,980 6.20 2.63 376,194 2.63
$3.376 - $4.125 79,698 6.66 3.91 59,242 3.92
$2.625 - $4.125 572,678 6.27 2.80 435,436 $2.80
======= =======
The Company did not grant or reprice any options during the year ended
December 31, 1998 or 1997.
Under SFAS 123, compensation cost is measured at the grant date based on
the fair value of the awards and is recognized over the service period,
which is usually the vesting period. The fair value of options granted
during 1998 and 1997 was estimated on the date of grant using the Black
Scholes option-pricing model with the following assumptions used to
calculate fair value of options awarded in 1998 and 1997: (i)average
dividend yield of 0.00%; (ii) expected volatility of 83.36%; (iii)
expected life of five (5) years; and (iv) estimated risk-free interest
rate, which is different for grants awarded on different grant dates,
ranging from 5.66% to 7.15%. The pro forma disclosures as if the Company
adopted the cost recognition requirements of SFAS 123 are as follows (in
thousands):
1998 1997
---------------------- -----------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA
----------- --------- ----------- ---------
Net loss $ (749) $ (749) $(4,455) $(4,485)
Earnings per common share $(0.15) $(0.15) $ (0.91) $ (0.93)
The effects of applying SFAS 123 in this proforma disclosure are not
indicative of future results. SFAS 123 does not apply to awards prior to
1995. Additional awards in future years are not anticipated by the
Company.
WARRANTS
Prior to the Company's initial public offering, the Company issued
warrants to the purchasers of the then outstanding Series E Preferred
Stock (the "1993 Warrants"). Subject to adjustment for certain
transactions, the 1993 Warrants as originally issued, were exercisable for
an aggregate of 353,531 shares of Common Stock at an exercise price of
$9.90. Because of certain specified anti-dilution provisions, the 1993
Warrants were exercisable for an aggregate of 519,394 shares of Common
Stock at a purchase price of $5.60 per share as of December 31, 1997. The
1993 Warrants expired November 30,1998.
In connection with its initial public offering, the Company issued
3,898,550 Redeemable Warrants (the "Redeemable Warrants"). The Redeemable
Warrants as originally issued
F-12
<PAGE>
were exercisable for an aggregate of 3,893,550 shares of Common Stock at
an exercise price of $8.25 per share. Because of the anti-dilution
provisions the Redeemable Warrants were exercisable for an aggregate of
5,646,798 shares of Common Stock at a purchase price of $5.60 per share at
December 21, 1997. The Redeemable Warrants expired December 31, 1998.
In April 1998, in connection with the Imatron transaction, the Company
granted ProFuturesBridge Capital, L.P. ("ProFutures") warrants to purchase
1,150,000 shares of the Company's common stock at $0.25 per share in
return for the extension of a loan agreement (See Note 14). During 1998
the Company recognized interest expense of $198,000 related to the value
of these 1,150,000 warrants.
A summary of warrant activity is as follows:
# of Shares Exercise Price
----------- ---------------
Balance at December 31, 1996 7,799,720 $2.00-$3,572.27
Warrants issued in connection
with the ProFutures Loan 100,000 $ 1.84
Warrants converted to Common Stock (7,183)
---------- ---------------
Balance at December 31, 1997 7,892,537 $1.84-$3,572.27
Warrants issued in connection with
the ProFutures Loan 1993 warrants
anti-dilution provisions 1,150,000 $ 0.25
Expired (6,166,192) $ 5.60
---------- ---------------
Balance at December 31, 1998 2,876,345 $0.25-$3,572.27
========== ===============
No compensation expense related to options and warrants was recognized by
the Company in the accompanying statement of operations during the years
ended December 31, 1998 or 1997.
9. PREFERRED STOCK
The Company's Articles of Incorporation authorize the board of directors
to issue 10,000,000 shares of preferred stock from time to time in one or
more series. The board of directors is authorized to determine, prior to
issuing any such series of preferred stock and without any vote or action
by the shareholders, the rights, preferences, privileges and restrictions
of the shares of such series, including dividend rights, voting rights,
terms of redemption, the provisions of any purchase, retirement or sinking
fund to be provided for the shares of any series, conversion and exchange
rights, the preferences upon any distribution of the assets of the
Company, including in the event of voluntary or involuntary liquidation,
dissolution or winding up of the Company, and the preferences and relative
rights among each series of preferred stock.
F-13
<PAGE>
SERIES A PREFERRED STOCK
In February, March and May of 1996, the Company issued 3,075,318 shares of
Series A 8% Cumulative Convertible Redeemable Preferred Stock $1.00 par
value ("Series A Preferred Stock") and Redeemable Common Stock Purchase
Warrants to purchase 1,537,696 shares of the Company's Common Stock. The
net proceeds of the private placement were approximately $2,972,000. Each
share of the Series A Preferred Stock is immediately convertible into one
share of Common Stock. Each Redeemable Common Stock Purchase Warrant is
exercisable at a price of $2.00 per share of Common Stock. Eight percent
(8%) dividends on the Series A Preferred Stock may be paid in cash or in
Series A Preferred Stock at the discretion of the Company. The Series A
Preferred Stock is senior to the Company's Series B Preferred Stock and
Common Stock in liquidation. Holders of the Series A Preferred stock may
vote on an as if converted basis on any matter requiring shareholder vote.
While the Series A Preferred Stock is outstanding or any dividends thereon
remain unpaid, no Common Stock dividends may be paid or declared by the
Company. The Series A Preferred Stock may be redeemed in whole or in part,
at the option of the Company, at any time subsequent to March 1998 at a
price of $1.46 per share plus any undeclared and/or unpaid dividends to
the date of redemption. Redemption requires at least 30 days advanced
notice and notice may only be given if the Company's common stock has
closed above $2.00 per share for the twenty consecutive trading days prior
to the notice.
In conjunction with the issuance of the aforementioned Series A Preferred
Stock, Uro-Tech converted amounts receivable from the Company totaling
$650,000 into 433,329 shares of Series A Preferred Stock and 216,671
Redeemable Stock Purchase Warrants.
SERIES B PREFERRED STOCK
In July 1996, the Company issued 25,000 shares of Series B 8% Cumulative
Convertible Redeemable Preferred stock $1.00 par value ("Series B
Preferred Stock") and Common Stock Purchase Warrants to purchase up to
100,000 shares of its Common stock, par value $.01 per share. The Series B
Preferred Stock plus Common Stock Purchase Warrants sold for approximately
$50.00 per share of Series B Preferred stock. Subject to adjustment for
certain antidilution events, each share of Series B Preferred Stock is
initially convertible into 25 shares of Common Stock and each Common Stock
Purchase Warrant is exercisable for one share of Common Stock at an
exercise price of $2.00 per share. Eight percent (8%) dividends on the
Company's Series B Preferred Stock may be paid in cash or in Series B
Preferred Stock, at the discretion of the Company. The Series B Preferred
Stock is junior to the Series A Preferred Stock, but senior to the
Company's Common Stock in liquidation. The Series B Preferred Stock has no
voting rights other than those afforded by law. As a class, however, the
holders of the Series B Preferred Stock may vote on matters directly
affecting the Series B Preferred Stock or mergers and/or consolidations of
the Company with another company. The Series B Preferred Stock may be
redeemed in whole or in part, at the option of the Company, at any time
subsequent to July 1998 at a price of $50 per share plus any undeclared
and/or unpaid dividends to the date of redemption. Redemption requires at
least 30 days
F-14
<PAGE>
advanced notice and notice may only be given if the Company's common stock
has closed above $2.00 per share for the twenty consecutive trading days
prior to the notice.
Dividends may not be paid or declared on the Company's Common stock while
any unpaid dividends are outstanding on the Series B Preferred Stock. The
Series B Preferred Stock and the Common Stock Purchase Warrants are not
convertible or exercisable until such time as the Company's shareholders
approve an amendment to its Articles of Incorporation increasing the
number of the authorized shares of Common Stock by at least 2,500,000
shares.
As of December 31, 1998, stated dividends that are undeclared and unpaid
on the Series A and Series B Preferred Stocks are as follows: (in
thousands)
Series A $ 311
Series B 250
-------
Total $ 561
=======
The Company anticipates that such dividends, when declared, will be paid
in the shares of Series A and Series B Preferred Stock.
12. INCOME TAXES
The Company has incurred losses since its inception and, therefore, has
not been subject to federal income taxes. As of December 31, 1998, the
Company had net operating loss ("NOL") carryforwards for income tax
purposes of approximately $43,500,000 which expire in 1999 through 2018.
Under the provisions of Section 382 of the Internal Revenue Code the
greater than 50% ownership change in the Company in connection with the
Imatron Transaction severely limits the Company's ability to utilize the
NOL carryforward to reduce future taxable income and related tax
liabilities. Additionally, because United States tax laws limit the time
during which NOL carryforwards may be applied against future taxable
income, the Company will not be able to take full advantage of its NOL for
federal income tax purposes should the Company generate taxable income.
The composition of deferred tax assets and the related tax effects at
December 31, 1998 as follows: (amounts in thousands)
Deferred tax assets:
Net operating losses $14,807
Allowance for doubtful accounts
and notes receivable 343
Inventory basis difference 767
Accrued liabilities and reserves 584
Valuation allowance (16,517)
-------
Total deferred tax assets 16
-------
Deferred tax liabilities:
Property and equipment 16
Other --
-------
Total deferred tax liability 16
-------
Net deferred tax asset (liability) $--
=======
F-15
<PAGE>
The difference between the income tax benefit in the accompanying
statement of operations and the amount that would result if the U.S.
Federal statutory rate of 34% were applied to pre-tax loss is as follows:
(amounts in thousands)
1998 1997
--------------- ----------------
Amount % Amount %
------ ----- ------- -----
Benefit for income tax at
federal statutory rate $ 246 34.0 $ 1,514 34.0
Non-deductible expenses (64) (9.0) -- --
Increase in valuation allowance (182) (25.0) (1,514) (34.0)
----- ----- ------- -----
Total tax benefit $ -- -- $ -- --
===== ===== ======= =====
13. 401(K) PLAN
The Positron Corporation 401(k) Plan and Trust (the "Plan") covers all of
the Company's employees who are United States citizens, at least 21 years
of age and have completed at least one quarter of service with the
Company. Pursuant to the Plan, employees may elect to reduce their current
compensation by up to the statutorily prescribed annual limit and have the
amount of such reduction contributed to the Plan. The Plan provides for
the Company to make contributions in an amount equal to 25 percent of the
participant's deferral contributions, up to 6 percent of the employee's
compensation, as defined in the Plan agreement. The Company's contribution
expense was approximately $6,000 and $12,000 in 1998 and 1997,
respectively. The board of directors of the Company may authorize
additional discretionary contribution, although, no additional Company
contributions have been made as of December 31, 1998.
14. RELATED PARTY TRANSACTIONS
The Company has an incentive compensation plan for certain key employees
and its former Chairman. The incentive compensation plan provides for
annual bonus payments based upon achievement of certain corporate
objectives as determined by the Company's compensation committee, subject
to the approval of the board of directors. To date, the Company has not
paid any bonuses pursuant to the incentive compensation plan.
Pursuant to agreements entered into in November 1993, the Company extended
loans to a current board member and a former board members in order to
provide each of them with funds to satisfy their respective personal
income tax liability arising out of the conversion of certain Positron
Corporation Promissory Notes into Common Stock. Such agreements were
entered into by the Company in connection with the IPO and in
consideration of certain concessions made by the board member and former
board member concerning the conversion terms under their respective Notes.
Pursuant to the agreements, each of the
F-16
<PAGE>
loans were made on substantially the following terms: (i) limited to a
principal amount not to exceed $175,000, (ii) interest payable at a rate
of six percent per year, (iii) an initial term of three years with the
principal balance being due and payable upon the expiration of the term,
(iv) limited recourse against the borrower, and (v) collateralized by
Positron Corporation Common Stock owned by the borrower. In accordance
with such agreements, on April 15, 1994, the Company extended a $165,817
loan to a current board member and a $158,552 loan to the former board
member.
Both of the notes receivable matured in April 1997 but were not repaid by
the debtors and, accordingly, 60,156 shares of the Company's common stock
reverted back to the Company and are included in treasury stock at
December 31, 1998. In connection with this transaction, the Company
recognized bad debt expense of $309,000 during 1997.
The Company formerly had certain consulting agreements with its Chairman
and a member of its board. Each agreement provided for monthly consulting
payments of $6,667 and expired in 1998.
13. COMMITMENTS AND CONTINGENCIES
EMPLOYMENT AGREEMENT WITH FORMER EMPLOYEE
On January 1, 1996, the Company entered into an employment agreement with
Werner J. Haas, Ph.D. pursuant to which Dr. Haas agreed to serve as
President and Chief Executive Officer of the Company for a term of two
years. The employment agreement provided for the payment of an annual base
salary of $200,000, bonuses in an amount to be determined at the
discretion of the Board of Directors of the Company, and participation in
any employee benefit plan adopted by the Company for its employees.
On February 18, 1997, Dr. Haas informed the Board of Directors of the
Company that he considered his contract to have been terminated by the
Company without cause as a result of the Company's failure to pay the
February 15, 1997 payroll to any of its management level employees and
specifically to him. Additionally, Dr. Haas resigned as a member of the
Company's Board of Directors. Dr. Haas has demanded that the Company pay
him all past due salary as well as the nine months severance pay specified
in his employment agreement if his contract is determined to have been
terminated without cause. The Company's maximum exposure with regard to
Dr. Haas' employment agreement is approximately $175,000 should Dr. Haas
establish that he was terminated without cause. The Company believes, and
has indicated to Dr. Haas, that no amounts are due him under his
employment agreement. Accordingly, the Company's potential loss with
regard to this matter should fall within a range up to $175,000. As of
December 31, 1998, the Company is unable to predict the outcome of the
disagreement between Dr. Haas and the Company.
ROYALTY AGREEMENTS
The Company is obligated to pay royalties of 3% of the gross revenue from
sales, uses, leases, licensing or rentals of POSICAM systems, 1% each to
two former directors of the
F-17
<PAGE>
Company and two other unrelated entities. During the years ended December
31, 1998 and 1997 the Company incurred royalties of $16,000 and $42,000,
respectively.
The Company's royalties were reduced to the 3% level based upon
consideration, provided to two of the payees, under consulting agreements
and promissory notes. However, the consulting agreements provide that if
the Company defaults in its payment obligations thereunder, then the
payees would be entitled to receive regrant of the royalties that they
previously released. In April 1998, the Company received a demand letter
from one of the payees alleging default under his consulting agreement in
1997 and demanding regrant of an additional 1% royalty interest. Although
the Company has not received a demand from the second payee, the Company
believes that a payment default may have occurred under his consulting
agreement and that as a result thereof, he may be entitled to the regrant
of an additional 0.5% royalty interest. The Company has accrued
approximately $100,000 in recognition of the additional roylaties due. In
December 1998, the Company reached an agreement in principle regarding
payment of back royalties, waiver of demand rights regarding defaults
under a consulting contract and retaining the reduced royalty payment
level going forward. If the parties fail to reach a settlement, with the
other payee such payee will be entitled to receive an aggregate 2% royalty
resulting in an increase of the Company's royalty obligations from 3% to
4%. Such increase in royalty obligations could have a material adverse
effect on the Company's future financial performance.
LEASE AGREEMENTS
During 1997, the Company leased its office and manufacturing facility and
certain office equipment under noncancelable operating leases with
unexpired terms ranging from one to four years. In March 1998, the
Company, under severe cash flow constraints, was forced to leave its
long-term office and manufacturing facility lease and move its operations
to a facility with significantly reduced space and a more affordable lease
payment. The Company entered into a series of six-month leases at a
monthly rate of $2,671 and the Company's current lease expires in August
1998. However, the Company was unable to obtain a release from its
original lease and has been notified by its former landlord that all
delinquent amounts due under its original lease are currently payable.
Company management believes that the landlord has leased its space to new
tenants at favorable lease rates and that its exposure is limited to any
shortfall in lease payments experienced by the former landlord. The
Company believes that its maximum exposure related to the lease with its
former landlord is $950,000, based on the remaining future payments due at
the date the lease was abandoned. However, the Company believes that the
amounts due the landlord will be offset by payments from the current
tenant and should not exceed $75,000. Accordingly, the company's potential
loss falls in a range from $75,000 to $950,000 and the Company has accrued
approximately $250,000 related to this matter. As of December 31, 1998,
the Company is unable to predict the outcome of this disagreement with its
former landlord.
F-18
<PAGE>
Rental expense for operating leases amounted to approximately $110,000 and
$256,000 for the years ended December 31, 1998 and 1997, respectively.
Future minimum lease payments due under noncancelable operating leases
with original lease terms of greater than one year and expiration dates
subsequent to December 31, 1998, are summarized as follows: (amounts in
thousands)
1998 $ 361
1999 421
2000 210
-----
Total minimum lease payments $ 992
=====
The above lease payment schedule consists primarily of payments due under
the Company's lease with its former landlord.
IMPACT OF 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.
The Company has performed only a preliminary assessment of the Year 2000
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 details tasks necessary to properly
assess the Year 2000 issue (such as direct coordination with vendors,
customers and manufacturers) have been performed.
Based on a preliminary assessment, the Company believes that no
significant modifications to its computer software or hardware will be
required and that its existing computer systems (including information
systems, non-information systems using date sensitive embedded chips and
its POSICAM(TM) 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 Year 2000
issue will not be significant and should not exceed $10,000. However, the
Year 2000 issue is extremely complex and the costs to properly assess its
impact on the Company and to correct associated problems may be
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 Year 2000 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 Year 2000 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.
F-19
<PAGE>
Due to the Company's current severe liquidity problems, the Company has
not had the financial resources to perform a complete assessment of Year
2000 issues, assess the potential cost or develop any contingency plan
with regard to Year 2000 issues that may arise. The Company is unable to
predict at the current time, when and to what extent it may further pursue
its assessment of potential Year 2000 issues and the development of any
contingency plans in respect thereof. If the Company is able to obtain
necessary financial resources, a complete assessment of the Year 2000
issues facing the Company will likely be completed in the third quarter of
1999.
PAST DUE PROPERTY TAXES
In February 1998, certain taxing authorities filed legal actions against
the Company to collect certain past due property taxes, penalty and
interest totaling $241,307. In connection with such legal actions, the
taxing authorities filed liens covering substantially all inventory,
furniture, fixtures and equipment of the Company. The Company has accrued
all past due property taxes and is currently operating under a payment
agreement with the taxing authorities.
DISPUTE REGARDING POSICAM(TM) SYSTEM
Arbitration procedures have been initiated against the Company by a
Chinese Company ("Complainant") regarding purchase of POSICAM(TM) system
("System"). In September 1996 the Company contracted with Complainant to
supply a System, with Complainant providing a down payment of
approximately $300,000 and a commitment to provide a letter of credit for
the remaining purchase price, fundable upon shipment of the System. The
Company used the down payment to purchase the beginning inventory for and
begin construction of the System. Complainant failed to provide the Letter
of Credit, and the Company was not able to complete and deliver the
System. Complainant demanded return of its deposit and initiated
arbitration in September 1998 with the China International Economic and
Trade Arbitration Commission in Shanghai. The Company believes that the
claims raised are without merit, and intends to vigorously defend its
interests. It is not possible at present to predict the outcome of this
proceeding, although an unfavorable ruling could have a material adverse
effect on the Company's business and financial performance.
14. IMATRON AGREEMENT
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
F-20
<PAGE>
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.
15. SEGMENT INFORMATION AND MAJOR CUSTOMERS
As discussed in Note 1, the Company believes that all of its material
operations are conducted in the servicing and sales of medical imaging
devices and it currently reports as a single segment.
During the years ended December 31, 1998 and 1997 the Company had a
limited number of customers as follows:
---------- ----------
Total number of customers 1998 1997
---------- ----------
Customers accounting for more than 10% revenues 12 12
2 2
Percent of revenues derived from largest customer 23% 32%
F-21
<PAGE>
17. SUPPLEMENTAL CASH FLOW DATA
Supplemental disclosure of cash flow information.
---------- ----------
1998 1997
---------- ----------
Cash paid for interest $ 163 $ 277
========== ==========
F-22
<PAGE>
POSITRON CORPORATION
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
September 30, December 31,
1999 1998
ASSETS (UNAUDITED) (NOTE)
------ ----------- -----------
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, 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
========= =========
F-23
<PAGE>
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.
F-24
<PAGE>
POSITRON CORPORATION
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
September 30, September 30,
---------------- ----------------
1999 1998 1999 1998
------ ------ ------ ------
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)
------ ------ ------ ------
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
====== ====== ====== ======
See accompanying notes
F-25
<PAGE>
POSITRON CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
September 30, September 30,
---------------- ---------------
1999 1998 1999 1998
------ ------ ------ -----
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
Depreciation (2) 126 13 --
Changes in operating assets and
liabilities:
Accounts receivable 9 216 (111) --
Inventory (251) -- (245) --
Prepaid expenses (45) 173 (45) --
Notes Receivable (30) -- (30) --
Accrued liabilities (1,000) 260 (1,017) --
Unearned revenue (98) 60 (68) --
Other liabilities
(17) (16) (17) --
------ ------ ------ -----
Net cash used in
operating activities (1,412) (1,406) 75 (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
See accompanying notes
F-26
<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, 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 (Shares in thousands):
F-27
<PAGE>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
September 30, September 30,
--------------- ---------------
1999 1998 1999 1998
------ ----- ------ -----
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
====== ===== ====== =====
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(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
F-28
<PAGE>
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 16%. 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.
F-29
<PAGE>
78,732,990 Shares
Common Stock
------------
PROSPECTUS
------------
February , 2000
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Pursuant to the Texas Business Corporation Act (Art.2.02-1), Positron's
Certificate of Incorporation excludes personal liability on the part of its
directors to the Company for monetary damages based upon any violation of their
fiduciary duties as directors, except as to liability for any breach of the duty
of loyalty, acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, acts set forth in Art. 2.02-1(B) of
the Business Corporation Act, or any transaction from which a director receives
an improper personal benefit. This exclusion of liability does not limit any
right which a director may have to be indemnified.
Positron's Certificate of Incorporation and its Bylaws require indemnification
of directors and officers of the Company to the fullest extent permitted by the
Business Corporation Law for claims against them in their official capacities,
including stockholders' derivative actions.
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than underwriting
discounts and commissions, payable by the registrant in connection with the sale
of the common stock being registered. All amounts are estimated except the SEC
Registration Fee..
SEC Registration Fee $ 11,016
Blue Sky Qualification Fees and Expenses 20,000
Accounting Fees and Expenses 2,500
Legal Fees and Expenses 50,000
Printing and Engraving 20,000
Miscellaneous 1,000
--------
Total $104,516
RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, the registrant has issued the securities set
forth below which were not registered under the Securities Act of 1933.
Warrants were issued to ProFutures Bridge Capital Fund, Ltd. in connection
with the execution of a loan to the Company in 1996 and subsequent extensions of
credit in 1997 and 1998. A total of 1,500,000 warrants have been issued to
ProFutures during this period, 250,000 of which were initially exerciseable at
$2.40 per share (which price was later adjusted) and 1,250,000 of which are
exercisable at $0.25 per share. To date, none of the warrants has been
exercised, and the shares underlying the warrants are being registered in this
registration statement. Pursuant to anti-dilution provisions contained in the
warrants, the number of shares underlying the warrants may be greater than
1,500,000.
Warrants were issued to Uro-Tech Ltd., a Texas limited partnership, in
connection with extensions or conversions of a loan originally made to the
Company in November 1995. The general partner of Uro-Tech Ltd. is OmniMed
Corporation, the founder, chairman and principal
II-1
<PAGE>
shareholder of which is Dr. Gary B. Wood, a member of the Company's board of
directors. Initially, a warrant to purchase 67,500 shares of common stock was
issued to Uro-Tech, Ltd. in connection with the original extension of credit. In
September 1999 that warrant was exchanged for a warrant to purchase 100,000
common shares in connection with the extension and retirement of the loan. The
shares underlying the replacement warrant are being registered in this
registration statement. In addition, 216,671 warrants to purchase common stock
were issued to Uro-Tech in 1997 upon conversion of $650,000 in the principal
amount of the loan.
Effective January 22, 1999, the Company sold to Gary H. Brooks and S.
Lewis Meyer respectively warrants to purchase 3,000,000 shares and 1,500,000
shares respectively of Positron common stock. Mr. Brooks is the Company's
President and Mr. Meyer is Chairman of the Board. See SECURITY OWNERSHIP OF
DIRECTORS AND EXECUTIVE OFFICERS of this statement. The shares underlying these
warrants are being registered pursuant to this registration statement.
In August 1999 the Company concluded a private placement of 42,166,664
shares of Positron common stock for a total price of $12,700,000. In connection
with the private placement, Positron also issued 21,460,000 five-year warrants.
The common shares and the shares underlying these warrants are being registered
pursuant to this registration statement.
In November 1999, the Company negotiated a resolution regarding all open
issues with K. Lance Gould, a former director and royalty holder. See LEGAL
PROCEEDINGS of this Statement. In connection with the settlement and release
negotiated with Dr. Gould, the Company issued to Dr. Gould 168,000 shares of
Positron common stock. These common shares are being registered pursuant to this
registration statement.
ITEM 27: EXHIBITS
3.1 Articles of Incorporation of the Registrant (incorporated herein by
reference to Exhibit 3.1 to the Company's Registration Statement on Form
SB-2 (File No. 33-68722)).
3.2 By-laws of the Registrant, as amended (incorporated herein by reference
to Exhibit 3.2 to the Company's Registration Statement on Form SB-2
(File No. 33-68722)).
4.1 Specimen Stock Certificate (incorporated herein by reference to Exhibit
4.1 of the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1994).
4.2 Form of Redeemable Warrant (included as part of Exhibit 4.5)
4.3 Statement of Designation Establishing Series A 8% Cumulative Convertible
Redeemable Preferred Stock of Positron Corporation, dated February 28,
1996 (incorporated herein by reference to Exhibit 4.3 of the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1995).
4.4 Warrant Agreement dated as of February 29, 1996, between Positron
Corporation and Continental Stock Transfer & Trust Company (incorporated
herein by reference to Exhibit 4.4 of the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1995).
4.5 Specimen Redeemable Warrant Certificate to Purchase Shares of Common
Stock (incorporated herein by reference to Exhibit 4.5 of the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1995).
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<PAGE>
4.6 Stock Purchase Warrant dated as of February 7, 1996 issued by Positron
Corporation to Boston Financial & Equity Corporation (incorporated
herein by reference to Exhibit 4.6 of the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1995).
4.7 Statement of Designation Establishing Series B 8% Cumulative Convertible
Redeemable Preferred Stock of Positron Corporation, dated July 9, 1996.
4.8 Form of Warrant Agreement dated as of July 10, 1996, between Positron
Corporation and Brooks Industries Profit Sharing Plan.
4.9** Warrant Agreement dated as of June 15, 1999 between Positron Corporation
and Gary Brooks.
4.10** Stock Purchase Warrant dated as of June 15, 1999 issued by Positron
Corporation to Gary H. Brooks.
4.11** Warrant Agreement dated as of June 15, 1999 between Positron Corporation
and S. Lewis Meyer
4.12** Stock Purchase Warrant dated as of June 15, 1999 issued by Positron
Corporation to S. Lewis Meyer
4.13** Stock Purchase Warrant dated as of September 20, 1999 issued by Positron
Corporation to Uro-Tech, Ltd. as replacement for 1995 Warrant.
4.14 Form of Stock Purchase Agreement executed in connection with July 1999
Private Placement (incorporated by reference to Exhibit 5.1 to the
Company's Report on 8-K dated August 18, 1999.)
4.15 Form of Common Stock Purchase Warrant in connection with July 1999
Private Placement (incorporated by reference to Exhibit 5.2 to the
Company's Report on 8-K dated August 18, 1999.)
5.1** Opinion of Allen Matkins Leck Gamble & Mallory LLP
10.1 Lease Agreement dated as of July 1, 1991, by and between Lincoln
National Pension Insurance Company and Positron Corporation
(incorporated herein by reference to Exhibit 10.1 to the Company's
Registration Statement on Form SB-2 (File No. 33-68722)).
10.2 Agreement dated as of March 1, 1993, by and between Positron Corporation
and Oxford Instruments (UK) Limited (incorporated herein by reference to
Exhibit 10.2 to the Company's Registration Statement on Form SB-2 (File
No. 33-68722)).
10.3 International Distribution Agreement dated as of November 1, 1992, by
and between Positron Corporation and Batec International , Inc.
(incorporated herein by reference to Exhibit 10.3 to the Company's
Registration Statement on Form SB-2 (File No. 33-68722)).
10.4+ 1994 Incentive and Nonstatutory Option Plan.
10.5+ Amended and Restated 1987 Stock Option Plan (incorporated herein by
reference to Exhibit 10.5 to the Company's Registration Statement on
Form SB-2 (File No. 33-68722)).
10.6+ Retirement Plan and Trust (incorporated herein by reference to Exhibit
10.6 to the Company's Registration Statement on Form SB-2 (File No.
33-68722)).
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<PAGE>
10.7 Amended and Restated License Agreement dated as of June 30, 1987, by and
among The Clayton Foundation for Research, Positron Corporation, K.
Lance Gould, M.D., and Nizar A. Mullani (incorporated herein by
reference to Exhibit 10.7 to the Company's Registration Statement on
Form SB-2 (File No. 33-68722)).
10.8 Clarification Agreement to Exhibit 10.7 (incorporated herein by
reference to Exhibit 10.8 to the Company's Registration Statement on
Form SB-2 (File No. 33-68722)).
10.9 Royalty Assignment dated as of December 22, 1988, by and between K.
Lance Gould and Positron Corporation (incorporated herein by reference
to Exhibit 10.10 to the Company's Registration Statement on Form SB-2
(File No. 33-68722)).
10.10 Royalty Assignment dated as of December 22, 1988, by and between Nizar
A. Mullani and Positron Corporation (incorporated herein by reference to
Exhibit 10.11 to the Company's Registration Statement on Form SB-2 (File
No. 33-68722)).
10.11 Royalty Assignment dated as of December 22, 1988, by and between The
Clayton Foundation and Positron Corporation (incorporated herein by
reference to Exhibit 10.12 to the Company's Registration Statement on
Form SB-2 (File No. 33-68722)).
10.12+ Stock Purchase Warrant dated October 31, 1993, issued to Gary B. Wood
(incorporated herein by reference to Exhibit 10.15 to the Company's
Registration Statement on Form SB-2 (File No. 33-68722)).
10.13 Amendment No. 1 to Exhibit 10.22 (incorporated herein by reference to
Exhibit 10.23 to the Company's Registration Statement on Form SB-2 (File
No. 33-68722)).
10.14+ Consulting Agreement dated as of January 15, 1993, by and between
Positron Corporation and K. Lance Gould, M.D. (incorporated herein by
reference to Exhibit 10.24 to the Company's Registration Statement on
Form SB-2 (File No. 33-68722)).
10.15 Stock Purchase Warrant dated February 25, 1993, issued to K. Lance Gould
(incorporated herein by reference to Exhibit 10.26 to the Company's
Registration Statement on Form SB-2 (File No. 33-68722)).
10.16+ Consulting Agreement dated February 23, 1995, effective December 15,
1994, by and between Positron Corporation and F. David Rollo, M.D.
Ph.D., FACNP.
10.17+ Consulting Agreement dated as of January 15, 1993, by and between
Positron Corporation and Nizar A. Mullani (incorporated herein by
reference to Exhibit 10.31 to the Company's Registration Statement on
Form SB-2 (File No. 33-68722)).
10.18+ Consulting Agreement dated as of November 12, 1993, by and between
Positron Corporation and OmniMed Corporation (incorporated herein by
reference to Exhibit 10.35 to the Company's Registration Statement on
Form SB-2 (File No. 33-68722)).
10.19 Contract No. 1318 dated as of December 30, 1991, by and between Positron
Corporation and The University of Texas Health Science Center at Houston
(incorporated herein by reference to Exhibit 10.39 to the Company's
Registration Statement on Form SB-2 (File No. 33-68722)).
II-4
<PAGE>
10.20+ Letter Agreement dated July 30, 1993 between Positron Corporation and
Howard Baker (incorporated herein by reference to Exhibit 10.52 to the
Company's Registration Statement on Form SB-2 (File No. 33-68722)).
10.21 Technology Transfer Agreement dated as of September 17, 1990, by and
between Positron Corporation and Clayton Foundation for Research
(incorporated herein by reference to Exhibit 10.54 to the Company's
Registration Statement on Form SB-2 (File No. 33-68722)).
10.22 Stock Purchase Warrant dated as of October 31, 1993 issued to Gerald
Hillman (incorporated herein by reference to Exhibit 10.56 to the
Company's Registration Statement on Form SB-2 (File No. 33-68722)).
10.23 Stock Purchase Warrant dated as of October 31, 1993 issued to The Dover
Group (incorporated herein by reference to Exhibit 10.57 to the
Company's Registration Statement on Form SB-2 (File No. 33-68722)).
10.24 Stock Purchase Warrant dated as of October 31, 1993 issued to John
Wilson (incorporated herein by reference to Exhibit 10.63 to the
Company's Registration Statement on Form SB-2 (File No. 33-68722)).
10.25+ Stock Purchase Warrant dated as of October 31, 1993 issued to Robert
Guezuraga (incorporated herein by reference to Exhibit 10.64 to the
Company's Registration Statement on Form SB-2 (File No. 33-68722)).
10.26 Stock Purchase Warrant dated as of October 31, 1993 issued to Richard
Ronchetti (incorporated herein by reference to Exhibit 10.65 to the
Company's Registration Statement on Form SB-2 (File No. 33-68722)).
10.27 Form of Amended and Restated Registration Rights Agreement dated as of
November 3, 1993, by and among Positron and the other signatories
thereto (1993 Private Placement) (incorporated herein by reference to
Exhibit 10.73 to the Company's Registration Statement on Form SB-2 (File
No. 33-68722).
10.28 Registration Rights Agreement dated as of July 31, 1993, by and among
Positron and the other signatories thereto (other than the 1993 Private
Placement) (incorporated herein by reference to Exhibit 10.74 to the
Company's Registration Statement on Form SB-2 (File No. 33-68722)).
10.29 Software Licenses dated as of March 1, 1993, by and between Positron
Corporation and Oxford Instruments (UK) Limited (incorporated herein by
reference to Exhibit 10.81 to the Company's Registration Statement on
Form SB-2 (File No. 33-68722)).
10.30 Distribution Agreement dated as of June 1, 1993, by and between Positron
Corporation and Elscint, Ltd. (incorporated herein by reference to
Exhibit 10.82 to the Company's Registration Statement on Form SB-2 (File
No. 33-68722)).
10.31+ Employment Agreement dated as of August 19, 1993, by and between
Positron Corporation and Richard E. Hitchens (incorporated herein by
reference to Exhibit 10.83 to the Company's Registration Statement on
Form SB-2 (File No. 33-68722)).
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<PAGE>
10.32+ Employment Agreement dated as of August 19, 1993, by and between
Positron Corporation and Howard R. Baker (incorporated herein by
reference to Exhibit 10.84 to the Company's Registration Statement on
Form SB-2 (File No. 33-68722)).
10.33 Amended and Restated Warrant Agreement dated as of April 14, 1994, by
and between Positron Corporation and Continental Stock Transfer and
Trust Company (including form of Warrant Certificate).
10.34 First Amendment to Amended and Restated Registration Rights Agreement,
dated as of November 19, 1993, by and among Positron Corporation and the
other signatories thereto (incorporated herein by reference to Exhibit
10.91 to the Company's Registration Statement on Form SB-2 (File No.
33-68722)).
10.35 Agreement made and entered into as of October 31, 1993, by and between
Positron Corporation and Nizar A. Mullani (incorporated herein by
reference to Exhibit 10.97 to the Company's Registration Statement on
Form SB-2 (File No. 33-68722)).
10.36 Agreement made and entered into as of October 31, 1993, by and between
Positron Corporation and K. Lance Gould (incorporated herein by
reference to Exhibit 10.98 to the Company's Registration Statement on
Form SB-2 (File No. 33-68722)).
10.37 Agreement made and entered into as of November 15, 1993, by and between
Positron Corporation and Nizar A. Mullani (incorporated herein by
reference to Exhibit 10.100 to the Company's Registration Statement on
Form SB-2 (File No. 33-68722)).
10.38 Agreement made and entered into as of November 15, 1993, by and between
Positron Corporation and K. Lance Gould (incorporated herein by
reference to Exhibit 10.101 to the Company's Registration Statement on
Form SB-2 (File No. 33-68722)).
10.39 First Amendment made and entered as of January 25, 1994, by and between
Emory University d/b/a Crawford Long Hospital and Positron Corporation
(incorporated herein by reference to Exhibit 10.102 of the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1993).
10.40+ Employment Agreement dated January 1, 1996 by and between Werner J.
Haas, Ph.D. and Positron Corporation (incorporated herein by reference
to Exhibit 10.40 of the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1995).
10.41 Loan and Security Agreement made as of November 14, 1995, between
Positron Corporation and Uro-Tech, Ltd. (incorporated herein by
reference to Exhibit 10.41 of the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1995).
10.42 First Modification and Extension Agreement made as of January 3, 1996,
by Positron Corporation and Uro-Tech, Ltd. (incorporated herein by
reference to Exhibit 10.42 of the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1995).
10.43 Second Modification and Extension Agreement made as of February 26, 1996
by Positron Corporation and Uro-Tech, Ltd. (incorporated herein by
reference to Exhibit 10.43 of the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1995).
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<PAGE>
10.44 Uro-Tech Loan Conversion Agreement dated as of November 14, 1995,
between Positron Corporation and Uro-Tech, Ltd. (incorporated herein by
reference to Exhibit 10.44 of the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1995).
10.45 Promissory Note dated September 14, 1995, in the principal amount of
$1,500,000 payable to Uro-Tech, Ltd. (incorporated herein by reference
to Exhibit 10.45 of the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1995).
10.46 Promissory Note dated September 14, 1995, in the principal amount of
$1,000,000 payable to Uro-Tech, Ltd. (incorporated herein by reference
to Exhibit 10.46 of the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1995).
10.47 Revolving Finance agreement with Boston Financial & Equity Corporation
(incorporated herein by reference to Exhibit 10.47 of the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1995).
10.48 Security Agreement Boston Financial & Equity Corporation (incorporated
herein by reference to Exhibit 10.48 of the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1995).
10.49 Supplement to Security Agreement Security Interest in Inventory
(incorporated herein by reference to Exhibit 10.49 of the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1995).
10.50 Inter-Creditor Agreement (incorporated herein by reference to Exhibit
10.50 of the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1995).
10.51 Loan Agreement between Positron Corporation and ProFutures Bridge
Capital Fund, L.P. dated November 1, 1996.
10.52 Promissory Note dated November 14, 1996, in the principal amount of
$1,400,000 payable to ProFutures Bridge Capital Fund, L.P.
10.53 InterCreditor Agreement dated November 14, 1996 among Uro-Tech, Ltd.,
Boston Financial & Equity Corporation and ProFutures Bridge Capital
Fund, L.P.
10.54 Amendment to BF&E loan
10.55 Amendment to Uro-Tech loan
10.56 Acquisition Agreement between General Electric Company and Positron
Corporation dated July 15, 1996.
10.57 Loan Agreement between Positron Corporation and Imatron, Inc..
10.58 Sales and Marketing Agreement With Beijing Chang Feng Medical.
10.59 Stock Purchase Agreement between Positron Corporation and Imatron, Inc.
10.60 Promissory Note from Positron Corporation to Imatron, Inc.
10.61** Employment Agreement dated as of January 22, 1999 by and between
Positron Corporation and Gary H. Brooks
10.62** Agreement and Release dated as of November 30, 1999 by and among
Positron Corporation, K. Lance Gould and University of Texas Medical
Center
10.63**+1999 Stock Option Plan
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<PAGE>
10.64**+ 1999 Non-Employee Directors' Stock Option Plan
10.65**+ 1999 Stock Bonus Incentive Plan
10.66**+ 1999 Employee Stock Purchase Plan
10.67** Stock Purchase Warrant dated September 1, 1999 issued by Positron to S.
Okamura and Associates, Inc.
10.68** Stock Purchase Warrant dated August 18, 1999 issued by Positron to
Morris Holdings Ltd.
10.69** Stock Purchase Warrant dated January 20, 2000 issued by Positron to
Vistula Finance Limited
23.1** Consent of Ham, Langston & Brezina
24.1 Powers of Attorney (included on signature page hereto)
** Previously filed.
* Filed herewith
+ Management contract or compensatory plan or arrangement identified
pursuant to Item 13(a).
ITEM 28: UNDERTAKINGS
A. The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933, as amended;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the Registration
Statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes in
the volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of the Registration Fee"
table in the effective Registration Statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, as amended, each such post-effective amendment shall be
deemed to be a new registration
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<PAGE>
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
B. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions described in Item 14 above,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
C. The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act of 1933 shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
SIGNATURE
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form SB-2 and has duly caused this Registration
Statement on Form SB-2 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Houston, Texas on February 14, 2000.
POSITRON CORPORATION
By: /s/GARY H. BROOKS
-----------------
Gary H. Brooks
President
II-9
<PAGE>
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints S. Lewis
Meyer and Gary H. Brooks his true and lawful attorneys-in-fact and agents, each
acting alone, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign any or all
amendments (including post-effective amendments) to the Registration Statement,
and to sign any registration statement for the same offering covered by this
Registration Statement that is to be effective upon filing pursuant to Rule
462(b) under the Securities Act of 1933, as amended, and all post-effective
amendments thereto, and to file the same, with all exhibits thereto, and all
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, each acting alone, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement on Form SB-2 has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE OFFICE DATE
S. Lewis Meyer Director January 24, 2000
Gary H. Brooks Director, President Chief February 7, 2000
Financial Officer
(Acting) and Secretary
Gary B. Wood, Ph.D. Director February 1, 2000
Antonio P. Falcao Director February 2, 2000
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