FORM 10-QSB SEPTEMBER 30, 2000
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
Commission file number: 0-24092
[POSITRON LOGO]
POSITRON
A Texas Corporation
I.D. No. 76-0083622
1304 Langham Creek Drive, Suite 300, Houston, Texas 77084
(281) 492-7100
Indicate by check mark whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
past 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days.
Yes X No
----- -----
As of September 30, 2000, there were 58,458,344 shares of the Registrant's
Common Stock, $ .01 par value outstanding.
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1
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FORM 10-QSB SEPTEMBER 30, 2000
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<TABLE>
<CAPTION>
POSITRON CORPORATION
TABLE OF CONTENTS
FORM 10-QSB FOR THE QUARTER ENDED SEPTEMBER 30, 2000
<S> <C>
PART I - FINANCIAL INFORMATION PAGE
----
Item 1. Condensed Financial Statements
Condensed Balance Sheets as of September 30, 2000 and December 31, 1999 3
Condensed Statements of Operations for the three months and nine months ended
September 30, 2000 and 1999 4
Condensed Statement of Stockholders' Equity for the nine months ended
September 30, 2000 5
Condensed Statements of Cash Flows for the nine months ended
September 30, 2000 and 1999 6
Selected Notes to Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation 9
Signature Page 10
</TABLE>
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2
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FORM 10-QSB SEPTEMBER 30, 2000
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<TABLE>
<CAPTION>
POSITRON CORPORATION
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
September 30, 2000 December 31, 1999
(Unaudited) (Note)
--------------------- --------------------
ASSETS
------
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 3,908 $ 7,180
Accounts receivable, net 964 101
Inventories 2,528 683
Prepaid expenses 11 108
Other current assets 365 150
--------------------- -------------------
Total current assets 7,776 8,222
Plant and equipment, net 353 110
--------------------- ------------------
Total assets $ 8,129 $ 8,332
===================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable, trade and accrued liabilities $ 1,989 $ 3,766
Unearned revenue 89 168
Current portion of capital lease obligation 35 --
--------------------- -------------------
Total current liabilities 2,113 3,934
Capital lease obligation 82 --
Other liabilities 28 45
--------------------- -------------------
Total liabilities 2,223 3,979
--------------------- -------------------
Stockholders' equity:
Series A Preferred Stock: $1.00 par value; 8% cumulative,
convertible, redeemable; 5,450,000 shares authorized;
547,619 and 980,942 shares issued and outstanding at
September 30, 2000 and December 30, 1999, respectively. 548 981
Common Stock: $0.01 par value; 100,000,000 shares authorized;
58,518,500 and 57,534,710 shares issued and 58,458,344 and
57,474,554 shares outstanding at September 30, 2000 and
December 31, 1999, respectively. 585 575
Additional paid-in capital 54,674 53,917
Unissued Common Stock 150 --
Subscription receivable (30) (30)
Accumulated deficit (50,006) (51,075)
Treasury Stock: 60,156 shares at cost (15) (15)
--------------------- -------------------
Total stockholders' equity 5,906 4,353
--------------------- -------------------
Total liabilities and stockholders' equity $ 8,129 $ 8,332
===================== ===================
<FN>
Note: The balance sheet at December 31, 1999 has been derived from the audited financial statements at that date
but does not include all of the information and footnotes required by generally accepted accounting principles
for complete financial statements. See accompanying notes.
</TABLE>
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FORM 10-QSB SEPTEMBER 30, 2000
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<TABLE>
<CAPTION>
POSITRON CORPORATION
UNAUDITED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended Nine Months Ended
-------------------------------- --------------------------------
Sept 30, 2000 Sept 30, 1999 Sept 30, 2000 Sept 30, 1999
--------------- --------------- --------------- ---------------
Revenue:
<S> <C> <C> <C> <C>
System sales $ 3,000 $ -- $ 5,000 $ --
Upgrades 13 -- 13 137
Service and component 372 385 1,082 1,088
--------------- --------------- -- ------------ ---------------
Total revenue 3,385 385 6,095 1,225
--------------- --------------- - ------------- ---------------
Costs of sales and services:
System sales 2,792 -- 4,119 --
Upgrades 6 -- 6 48
Service and component 154 171 425 418
--------------- --------------- --------------- ---------------
Total costs of sales and services 2,952 171 4,550 466
--------------- --------------- --------------- ---------------
Gross profit 433 214 1,545 759
--------------- --------------- --------------- ---------------
Operating expenses:
Research and development 145 140 762 269
Selling and marketing 219 60 737 60
General and administrative 561 184 1,156 420
--------------- --------------- --------------- ---------------
Total operating expenses 925 384 2,655 749
--------------- --------------- --------------- ---------------
Income (loss) from operations (492) (170) (1,110) 10
Other income (expense)
Interest expense -- -- -- (100)
Interest income 66 55 215 55
Gain on reversal of warranty reserve 1,192 -- 1,192 --
Bad debt recovery 580 -- 580 --
--------------- --------------- --------------- ---------------
Total other income (expense) 1,838 55 1,987 (45)
--------------- --------------- --------------- ---------------
Income (loss) before extraordinary gain 1,346 (115) 877 (35)
Extraordinary gain on extinguishment of debt 192 143 192 143
--------------- --------------- --------------- ---------------
Net income $ 1,538 $ 28 $ 1,069 $ 108
=============== =============== =============== ===============
Basic income per common share
Before extraordinary item $ 0.02 $ 0.00 $ 0.02 $ 0.00
Extraordinary item 0.00 0.00 0.00 0.00
--------------- --------------- --------------- ---------------
Net income per common share $ 0.02 $ 0.00 $ 0.02 $ 0.00
=============== =============== =============== ===============
Diluted income per common share
Before extraordinary item $ 0.02 $ 0.00 $ 0.01 $ 0.00
Extraordinary item 0.00 0.00 0.00 0.00
--------------- --------------- --------------- ---------------
Net income per common share $ 0.02 $ 0.00 $ 0.01 $ 0.00
=============== =============== =============== ===============
Weighted average shares outstanding
Basic 58,415 40,278 58,043 23,792
Diluted 73,777 50,880 76,273 27,691
</TABLE>
See accompanying notes
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FORM 10-QSB SEPTEMBER 30, 2000
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<TABLE>
<CAPTION>
POSITRON CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(IN THOUSANDS)
(UNAUDITED)
Series A
Preferred Stock Additional Unissued Sub- Accum-
-------------------- Common Stock Paid-In Common scription ulated Treasury
Shares Amount Shares Amount Capital Stock Receivable Deficit Stock Total
---------- -------- ---------- --------- ---------- ------- ------------ --------- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1999 981 $ 981 57,535 $ 575 $ 53,917 $ -- $ (30) $(51,075) $ (15) $4,353
Net Income 1,069 1,069
Conversion of
debt to equity 434 5 294 299
Sale of common
stock 150 150
Conversion of
preferred stock
into common
stock (433) (433) 433 4 429 --
Issuance of
common stock
for services 116 1 34 35
---------- -------- ---------- --------- ---------- ------- ------------ --------- ---------- ------
Balance at Sept
30, 2000 548 $ 548 58,518 $ 585 $ 54,674 $ 150 $ (30) $(50,006) $ (15) $5,906
========== ======== ========== ========= ========== ======= ============ ========= ========== ======
</TABLE>
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FORM 10-QSB SEPTEMBER 30, 2000
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<TABLE>
<CAPTION>
POSITRON CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Nine Months Ended
-------------------------------
Sept 30, 2000 Sept 30, 1999
--------------- ---------------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 1,069 $ 108
Adjustment to reconcile net income to net cash used in operating activities
Extraordinary gain on forgiveness of debt (192) (143)
Depreciation expense 60 13
Common stock issued as compensation for services 35 --
Change in operating assets and liabilities
Increase in accounts receivable (863) (111)
Decrease (increase) in inventories (1,845) (245)
Decrease (increase) in prepaid expenses 97 (45)
Increase in other current assets (215) (30)
Decrease in accounts payable and accrued liabilities (1,286) (1,017)
Decrease in other liabilities (17) (68)
Decrease in unearned revenue (79) (17)
--------------- ---------------
Net cash used in operating activities (3,236) (1,555)
Cash flows from investing activities:
Capital expenditures (186) --
--------------- ---------------
Net cash used in investing activities (186) --
--------------- ---------------
Cash flows from financing activities:
Repayment of notes payable -- (1,249)
Proceeds from sale of common stock 150 11,402
--------------- ---------------
Net cash provided by financing activities 150 10,153
--------------- ---------------
Net increase (decrease) in cash and cash equivalents (3,272) 8,598
Cash and cash equivalents, beginning of period 7,180 8
--------------- ---------------
Cash and cash equivalents, end of period $ 3,908 $ 8,606
=============== ===============
</TABLE>
See accompanying notes
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FORM 10-QSB SEPTEMBER 30, 2000
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POSITRON CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
-----------------------
The accompanying unaudited interim financial statements have been prepared
in accordance with generally accepted accounting principles and the rules
of the U.S. Securities and Exchange Commission, and should be read in
conjunction with the audited financial statements and notes thereto
contained in the Company's Annual Report of Form 10-KSB for the year ended
December 31, 1999. 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,
1999, 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 following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------------------- -------------------------------
Sept 30, 2000 Sept 30, 1999 Sept 30, 2000 Sept 30, 1999
--------------- --------------- -------------- ---------------
(In Thousands) (In Thousands)
Numerator:
<S> <C> <C> <C> <C>
Basic and diluted income
Before extraordinary item $ 1,346 $ (115) $ 877 $ (35)
Extraordinary item 192 143 192 143
--------------- --------------- -------------- ---------------
Net income $ 1,538 $ 28 $ 1,069 $ 108
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FORM 10-QSB SEPTEMBER 30, 2000
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Denominator:
Denominator for basic earnings per 58,415 40,278 58,043 23,792
share-weighted average shares
Effect of dilutive securities:
Convertible Series A preferred stock 548 670 657 670
Dilutive potential common shares 14,814 9,932 17,573 3,229
--------------- --------------- -------------- ---------------
Denominator for diluted earnings per
share-adjusted weighted average
shares and assumed conversions 73,777 50,880 76,273 27,691
=============== =============== ============== ===============
Basic income per common share
Before extraordinary item $ 0.02 $ 0.00 $ 0.02 $ 0.00
Extraordinary item 0.00 0.00 0.00 0.00
--------------- --------------- -------------- ---------------
Net income per common share $ 0.02 $ 0.00 $ 0.02 $ 0.00
=============== =============== ============== ===============
Diluted income per common share
Before extraordinary item $ 0.02 $ 0.00 $ 0.01 $ 0.00
Extraordinary item 0.00 0.00 0.00 0.00
--------------- --------------- -------------- ---------------
Net income per common share $ 0.02 $ 0.00 $ 0.01 $ 0.00
=============== =============== ============== ===============
</TABLE>
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. OPERATING RESULTS
------------------
The operating results for the three and nine month periods ended September
30, 2000 include income of $1,192,000 related to the reversal of warranty
reserves that arose in previous years. These warranty reserves were
eliminated due to settlement of remaining warranty obligations with two
customers.
The 2000 operating results also include a $580,000 bad debt recovery from a
customer.
Extraordinary income includes gains of $192,000 and $143,000 related to the
extinguishment of debt in the periods ended September 30, 2000 and 1999,
respectively.
6. LEGAL PROCEEDINGS
------------------
On September 26, 2000 a complaint was filed against the Company in Colorado
state court by ProFutures Capital Bridge Fund, L.P. for declaratory relief
and breach of contract regarding the number of shares of common stock which
may be purchased upon exercise of the plaintiff's 1,500,000 common stock
purchase warrants. The warrants contain certain price adjustments and
anti-dilution provisions. The plaintiff claims that the warrants entitle it
to purchase at least 4,867,571 shares of common stock. The plaintiff also
claims that the Company failed to register the proper number of shares
underlying its warrants. The Company believes the complaint is without
merit and intends to vigorously defend.
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FORM 10-QSB SEPTEMBER 30, 2000
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company is including the following cautionary statement in this Quarterly
Report on Form 10-QSB to make applicable and utilize the safe harbor provision
of the Private Securities Litigation Reform Act of 1995 regarding any
forward-looking statements made by, or on behalf of, the Company.
Forward-looking statements include statements concerning plans, objectives,
goals, strategies, future events or performance and underlying assumptions and
other statements which are other than statements of historical facts. Certain
statements contained herein are forward-looking statements and, accordingly,
involve risks and uncertainties which could cause actual results or outcomes to
differ materially from those expressed in the forward-looking statements.
The Company's expectations, beliefs and projections are expressed in good faith
and are believed by the Company to have a reasonable basis, including without
limitations, management's examination of historical operating trends, data
contained in the Company's records and other data available from third parties,
but there can be no assurance that management's expectation, beliefs or
projections will result, or be achieved, or be accomplished.
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------------------------------------------
2000 & 1999.
--------------
We generated income of $1,538,000 for the three months ended September 30, 2000
compared to income of $28,000 for the three months ended September 30, 1999.
Income in the current quarter was primarily the result of a $1,192,000 gain
attributed to the reversal of warranty reserve.
We generated revenue of $3,000,000 during the three months ended September 30,
2000 on three system sales versus no system sales revenue for the same period in
1999. In addition, service and component sales revenue decreased $13,000 to
$372,000 in 2000 from $385,000 during the same period in 1999. Service revenue
decreases are attributable to normal fluctuations in service.
Our gross profit for the three months ended September 30, 2000 increased
$219,000 to $433,000 compared to $214,000 for the same quarter in 1999. This
increase was primarily due to the sale of three systems during the quarter ended
September 30, 2000.
Total operating expense increased $541,000 to $925,000 for the three months
ended September 30, 2000 from $384,000 for the same three months in 1999. The
increase results primarily from significant staff additions and related
operating expenditures in all areas as we went back into full operation and
production.
Interest income was $66,000 for the three months ended September 30, 2000 as
compared to interest income of $55,000 for the same three months in 1999.
Investment interest has been earned on proceeds of the equity funding in August
of 1999.
A $580,000 bad debt recovery occurred during the three month period ended
September 30, 1999 compared to none in the same period in 1999. Income included
an extraordinary gain resulting from the extinguishment of debt of $192,000 in
the quarter ended September 30, 2000 versus $143,000 in the same quarter in
1999.
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------------------------------------------
2000 & 1999.
--------------
We generated income of $1,069,000 for the nine months ended September 30, 2000
compared to income of $108,000 for the nine months ended September 30, 1999.
Our current year income was primarily the result of a $1,192,000 gain attributed
to the reversal of warranty reserve.
We generated revenue of $5,000,000 during the nine months ended September 30,
2000 on the sale of five systems versus no system sales revenue for the same
period in 1999. We received $13,000 in upgrade revenue during 2000 versus
$137,000 for the nine months ended September 30, 1999. In addition, service and
component sales revenue decreased $6,000 to $1,082,000 in 2000 from $1,088,000
during the same period in 1999. The decrease in service revenue is attributable
to normal fluctuations in service.
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FORM 10-QSB SEPTEMBER 30, 2000
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Our gross profit for the nine months ended September 30, 2000 increased $786,000
to $1,545,000 compared to $759,000 for the same nine months in 1999. This
increase was primarily due to the sale of five systems during the nine months
ended September 30, 2000.
Total operating expense increased $1,906,000 to $2,655,000 for the nine months
ended September 30, 2000 from $749,000 for the same period in 1999. The increase
results primarily from significant staff additions and related operating
expenditures in all areas as we went back into full operation and production.
Interest income was $215,000 for the nine months ended September 30, 2000 as
compared to interest income of $55,000 for the same nine months in 1999, due
primarily to the investment interest earned on proceeds of equity funding from
August of 1999. During the first eight months of 1999, interest expense of
$100,000 was paid on the Imatron and Uro-Tech loans.
A $580,000 bad debt recovery occurred during the nine month period ended
September 30, 2000 compared to none in the same period in 1999. Income included
an extraordinary gain resulting from the extinguishment of debt of $192,000 in
the nine month period ended September 30, 2000 versus $143,000 in the same nine
month period in 1999.
FINANCIAL CONDITION
--------------------
As a result of the equity funding in August 1999, we began hiring personnel and
incurring increasing operating expenses as we resumed full operation and
production. Our return to full operation resulted in the sale of five systems
in 2000, but also resulted in increased overhead and operating expenses.
Despite the sale of the five systems, we have previously been unable to sell our
POSICAM (TM) systems in sufficient quantities to be profitable and there is no
guarantee that we will reach a system sales level that will generate profits on
a consistent basis. Consequently, we have sustained substantial accumulated
losses. Due to the sizeable selling prices of our systems and the limited
number of systems sold or placed in service each year, our revenues have
fluctuated significantly year-to-year. We have an accumulated deficit of
$50,006,000 at September 30, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
POSITRON CORPORATION
(Registrant)
Date: November 13, 2000 /s/ Gary H. Brooks
----------------------
Gary H. Brooks
President
(Duly Authorized Officer and
Principal Accounting Officer)
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