FY 1999 POSITRON CORPORATION FORM 10-KSB
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT
UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
Commissions file number: 0-24092
POSITRON
[GRAPHIC OMITTED]
A Texas Corporation
1304 Langham Creek Drive, Suite 300, Houston, Texas 77084
(281) 492-7100
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act: COMMON STOCK,
$.01 PAR VALUE
Check 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
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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.[X]
Issuer's revenues for fiscal year ended December 31, 1999: $1,529,000
As of March 15, 2000, there were 58,136,039 shares of the Registrant's Common
Stock, $.01 par value outstanding.
Documents incorporated by reference: None
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FY 1999 POSITRON CORPORATION FORM 10-KSB
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PART I
The Company is including the following cautionary statement in this Annual
Report on Form 10-KSB to make applicable and take advantage of the safe harbor
provision of the Private Securities Litigation Reform Act of 1995 for 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 expectations, beliefs or
projections will result or be achieved or accomplished. In addition to other
factors and matters discussed elsewhere herein, the following are important
factors that, in the view of the Company, could cause actual results to differ
materially from those discussed in the forward looking statements: the ability
of the Company to attain widespread market acceptance of its POSICAM(TM)
systems; the ability of the Company to obtain acceptable forms and amounts of
financing to fund future operations; demand for the Company's services; and
competitive factors. The Company disclaims any obligation to update any
forward-looking statements to reflect events or circumstances after the date
hereof.
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Positron Corporation (the "Company") was incorporated in the State of Texas on
December 20, 1983, and commenced commercial operations in 1986. The Company
designs, manufactures, markets and services advanced medical imaging devices
utilizing positron emission tomography ("PET") technology under the trade-name
POSICAM(TM) systems. 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(TM)
systems, which incorporate patented and proprietary technology, enable
physicians to diagnose and treat patients in the areas of cardiology, neurology
and oncology. The Food and Drug Administration ("FDA") approved the initial
POSICAM(TM) system for marketing in 1985, and as of December 31, 1999, the
Company has sold sixteen (16) POSICAM(TM) systems, of which thirteen (13) are in
leading medical facilities in the United States, two (2) are installed in
international medical institutions, and one (1) is awaiting installation at a
major medical institution in Japan. The Company presently markets its
POSICAM(TM) systems at list prices of up to $2.0 million depending upon the
configuration and equipment options of the particular system.
The following table provides summary information regarding the Company's
installed base of POSICAM(TM) systems, which were operational as of December 31,
1999:
<TABLE>
<CAPTION>
Site Location Clinical Application Date
- ------------------------------------- ---------------- ----------------------------- ----
<S> <C> <C> <C>
Saint Joseph's Hospital Atlanta, GA Cardiology 1988
Cleveland Clinic Foundation Cleveland, OH Cardiology/Neurology/Oncology 1988
Memorial Hospital Jacksonville, FL Cardiology/Oncology/Neurology 1988
Kennestone Hospital Marietta, GA Cardiology/Oncology/Neurology 1989
Medical City Dallas Dallas, TX Cardiology/Oncology/Neurology 1990
Yale/Veterans Administration New Haven, CT Neurology/Oncology/Cardiology 1991
Beth Israel New York, NY Cardiology/Oncology/Neurology 1991
Crawford Long Hospital Atlanta, GA Cardiology/Oncology 1992
Hermann Hospital Houston, TX Cardiology/Oncology/Neurology 1993
Bio-Metabolic, Inc. Detroit, MI Cardiology/Oncology/Neurology 1995
Bergan Mercy Hospital Omaha, NE Cardiology/Oncology/Neurology 1995
Buffalo Cardiology & Pulmonary Assoc. Buffalo, NY Cardiology/Oncology 1995
University of Madrid Spain Cardiology/Oncology/Neurology 1995
Hadassah Hospital Israel Cardiology/Oncology/Neurology 1995
Baptist Hospital Nashville, TN Cardiology/Oncology/Neurology 1996
Imatron Japan Japan Cardiology/Oncology 1997
</TABLE>
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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. The Company believes that 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, the Company
believes that its POSICAM(TM) systems have proprietary operational and
performance characteristics, which may provide certain performance advantages
over other commercially available PET systems. Such performance advantages
include: (i) high count-rate capability and high sensitivity, which result in
faster, more accurate imaging; (ii) enhanced ability to use certain types of
radiopharmaceuticals, 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 diagnoses of disease. The
medical imaging industry in which the Company is engaged is, however, 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 the Company's products obsolete or
non-competitive. (See "Item 1. Description of Business - Risks Associated with
Business Activities-Substantial Competition and Effects of Technological
Change.")
The Company's primary focus to date has been on the clinical cardiology market,
where its POSICAM(TM) systems have been used to assess the presence and extent
of coronary artery disease, such as the effect of arterial blockages and heart
damage due to heart attacks. In 1994 and 1995, the Company made technological
advances which allowed it to market its products to the neurological and
oncological markets. Neurological applications of POSICAM(TM) 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(TM) systems are used in the diagnosis and evaluation of
melanoma and tumors of the bone and various organs and tissues such as the
brain, lungs, liver, colon, breasts and lymphatic system.
MEDICAL IMAGING INDUSTRY OVERVIEW
Diagnostic imaging allows a physician to assess disease, trauma or dysfunction
without the necessity of surgery. The diagnostic imaging industry includes
Ultrasound, X-ray, MRI, CAT, and Nuclear Medicine (which includes PET and
Single-Photon Emission Computed Tomography ("SPECT"). MRI technology uses
powerful magnetic fields to provide anatomical and structural images of the
brain, the spine and other soft tissues, as well as determining the location and
size of tumors. CAT scans use X-ray beams to obtain anatomical and structural
images of bones and organs. Nuclear medicine focuses on providing information
about the function and biological processes of organs and tissues through the
use of radiopharmaceuticals.
The first prototype PET scanner was developed in the mid 1970s and the first
commercial PET scanner was constructed in 1978. Approximately 105 dedicated PET
systems are currently operational in the United States and approximately 150
dedicated PET systems are in commercial use internationally. Of the PET
systems currently operational in the United States, 13 systems were sold by the
Company.
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PET TECHNOLOGY
The PET imaging process begins with the injection of a radiopharmaceutical (a
drug containing a radioactive agent) by a trained medical person into a
patient's bloodstream. After being distributed within the patient's body, the
injected radiopharmaceutical undergoes a process of radioactive decay, whereby
positrons (positively charged electrons) are emitted and subsequently converted
along with free electrons into two gamma rays or photons. These paired gamma
events are detected by the POSICAM(TM) systems as coincidence events. The
source of the photons is determined and is reconstructed into a color image of
the scanned organ utilizing proprietary computer software. Since certain
functional processes, such as blood flow, metabolism or other biochemical
processes, determine the concentration of the radiopharmaceutical throughout the
body, the brightness or color at each point in the PET image directly maps the
vitality of the respective function at that point within an organ.
In cardiology, PET imaging is an accurate, non-invasive method of diagnosing or
assessing 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 such
as bypass surgery or angioplasty.
In neurology, PET imaging is now being used as a surgical planning tool to
locate the source of epileptic disturbances in patients with uncontrollable
seizures. In other neurological applications, PET is used in the diagnosis of
dementia, Alzheimer's disease, Pick's disease and Parkinson's disease, and in
the evaluation of stroke severity.
In oncology, PET imaging has historically been used to measure the metabolism of
tumor masses after surgery or chemotherapy. Clinical experience has shown that
PET is more accurate than CAT scans or MRI in determining the effectiveness of
chemotherapy and radiotherapy in the treatment of cancer. Scans used to assess
suspected breast cancer and whether or not the lymph system has become involved
are now becoming common practice. Whole body scans are now routinely performed
with PET to survey the body for cancer. This application enables oncologists
to see the total picture of all metastases in a patient, thereby allowing them
to properly tailor the course of treatment.
The radiopharmaceuticals employed in PET imaging are used by the organ in its
natural processes, such as blood flow and metabolism, without affecting its
normal function, and quickly dissipate from the body. Radiopharmaceuticals used
in PET procedures expose patients to a certain amount of radiation, which is
measured in units of milliRads. Exposure to radiation can cause damage to
living tissue, and the greater the radiation exposure, the greater the potential
for damage. Certain PET procedures expose a patient to less radiation than
would be associated with other imaging technologies. A PET cardiac scan, using
the radiopharmaceutical Rubidium-82, results in exposure of approximately 96
milliRads, and a neurological PET scan results in exposure of approximately 390
milliRads. In contrast, a typical chest X-ray results in exposure of
approximately 150 milliRads and a CAT scan results in exposure of approximately
500 to 4,000 milliRads, depending on the procedure.
Radiopharmaceuticals used in PET technology can be created using many natural
substances including carbon, oxygen, nitrogen and fluorine. The PET procedure
to be performed determines the type of radiopharmaceutical used. Radio-
pharmaceuticals are made ready for use at a clinic or hospital by either a
cyclotron or generator. Cyclotrons require an initial capital investment of up
to $2 million, an additional capital investment for site preparation, and
significant annual operating expenses. Generators require an initial capital
investment of approximately $50,000, no additional capital investment for site
preparation, and monthly operating expenses of approximately $25,000. While
POSICAM(TM) systems have been designed flexibly to be used with both cyclotron
and generator processed radiopharmaceuticals, they have proprietary design
features that enhance their ability to use generator processed radio-
pharmaceuticals. As a result, clinics or hospitals intending to focus on
certain cardiac PET applications can avoid the significant capital and operating
expenses associated with a cyclotron.
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MARKETING STRATEGY
The Company's initial marketing strategy targeted clinical cardiology based on
research conducted at the University of Texas, which showed the commercial
potential of clinical cardiology applications of PET imaging. With the
development of the POSICAM(TM) HZ and POSICAM(TM) HZL series of systems,
Positron is pursuing the full oncology, cardiology and neurology related PET
application markets. The Company believes that it can capture additional market
share by leveraging its strong reputation in the cardiology marketplace to
strengthen its leadership position in this sector, while building its expertise
and reputation in the oncology and neurology application markets.
To market its systems, Positron relies on referrals from users of its existing
base of installed scanners, trade show exhibits, trade journal advertisements,
clinical presentations at professional and industry conferences, and published
articles in trade journals. In 1999, the Company expanded its sales and
marketing staff to increase and sustain the stimulation of demand for its
systems. There is no assurance that the Company's marketing strategy is
sufficiently aggressive to compete against larger, better funded competitors.
THE POSICAM(TM) SYSTEM
At the heart of the POSICAM(TM) system is its detector assembly, which detects
positron emissions, and electronic circuits that pinpoint the location of these
positron emissions. POSICAM(TM) systems are easy to use and are not physically
confining, thereby not intimidating to patients. POSICAM(TM) scans are commonly
performed on an outpatient basis.
The Company's POSICAM(TM) system compares favorably with PET systems produced by
other manufacturers based upon count rate and sensitivity. Count rate and
sensitivity of an imaging system determine its ability to detect, register and
assimilate the greatest number of meaningful positron emission events in the
shortest period of time. The high count rate capability and sensitivity of the
POSICAM(TM) systems result in good diagnostic accuracy as measured by fewer
false positives and false negatives. Further benefits of high count rate and
sensitivity include faster imaging and the ability to use short half-life
radiopharmaceuticals, thereby reducing patient exposure to radiation and
potentially reducing the capital cost to some purchasers by eliminating the need
for a cyclotron for certain cardiac applications.
The detector assembly consists of crystals, which scintillate (emit light) when
exposed to gamma photons from positron-electron annihilations, and
photomultiplier tubes, which are coupled to the crystals and convert the
scintillations into electrical impulses. The Company employs its own patented
staggered crystal array design for the POSICAM(TM) detectors. Unlike competing
PET systems, this feature permits the configuration of the detector crystals to
collect overlapping slices and more accurately measure the volume of interest by
eliminating image sampling gaps. This is important since under-sampling or gaps
in sampling can contribute to an inaccurate diagnosis. The crystal design also
reduces "dead time" - the time interval following the detection and registering
of a positron emission during which a subsequent event cannot be detected. The
basic unit of identification within each crystal module is small, thereby
reducing the probability of multiple hits during a dead period for higher levels
of radioactive flux (activity in the patient).
The POSICAM(TM) system creates a high number of finely spaced image slices. An
image slice is a cross-sectional view that is taken at an arbitrary angle to the
angle of the organ being scanned, and not necessarily the angle a physician
wishes to view. The POSICAM(TM) computer can then adjust the cross-sectional
view to create an image from any designated angle. The high number of finely
spaced image slices created by the POSICAM(TM) system enhances the accuracy of
the created image set.
An integral part of a POSICAM(TM) system is its proprietary data acquisition
microprocessor and its application system software. The Company's software can
reconstruct an image in five seconds or less. The Company has expended
substantial effort and resources to develop computer software that is
user-friendly and clinically oriented. The only personnel needed to perform
clinical studies with the POSICAM(TM) systems are a trained nurse, a trained
technician and an overseeing physician for patient management and safety.
POSICAM(TM) HZ AND HZL. In addition to the basic POSICAM(TM) system, the
Company offers two advanced versions, the POSICAM(TM) HZ and the POSICAM(TM)
HZL. Oncologists and neurologists require enhanced resolution and a large field
of view to detect small tumors and scan large organs, such as the liver. The
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FY 1999 POSITRON CORPORATION FORM 10-KSB
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POSICAM(TM) HZ and HZL employ new detector concepts to satisfy these needs while
maintaining the high count rate capability and sensitivity of the basic
POSICAM(TM). In May 1991, the Company received approval from the FDA to market
the POSICAM(TM) HZ, and in May 1993, the Company received a patent for the
innovative light guide and detector staggering concepts used in the POSICAM(TM)
HZ and HZL. In July 1993, the Company received FDA approval to market in the
United States the POSICAM(TM) HZL, which has a larger axial field of view than
the POSICAM(TM) HZ, facilitating whole body scanning and the scanning of large
organs.
The Company believes that the special features of the POSICAM(TM) HZL enhance
its usefulness in oncology and neurology applications. As the market for PET
systems matures and price sensitivity among purchasers increases, the Company
believes that interest in the POSICAM(TM) HZ, which costs less than the
POSICAM(TM) HZL, may increase. Furthermore, many price sensitive hospitals and
health care providers may seek to leverage external resources for the delivery
of PET diagnostic services for their patients. To respond to this market need,
the Company intends to expand into the mobile PET market, for which the Company
has previously received 510(k) approval from the FDA.
CUSTOMER SERVICE AND WARRANTY
The Company has five field service engineers in the United States who have
primary responsibility for supporting and maintaining the Company's installed
equipment base. In addition, the Company has field engineers involved in site
planning, customer training, sales of hardware upgrades, sales and
administration of service contracts, telephone technical support and customer
service.
The company typically provides a one-year warranty to purchasers of POSICAM(TM)
systems. However, in the past, the Company offered multi-year warranties to
facilitate sales of its systems. Following the warranty period, the Company
offers purchasers a comprehensive service contract under which the Company
provides all parts and labor, system software upgrades and unlimited service
calls. The Company currently provides service to all of its POSICAM(TM)
systems, ten of which are under formal service contracts: two service contracts
are automatically renewed on a month-to-month basis; one automatically renews on
a year-to-year basis; two expire in 2000; three expire in 2001; and, two expire
in 2002. The Company is currently negotiating to extend all of the service
contracts expiring in 2000; however, there can be no assurance that such
extensions will be obtained.
The Company's service goal is to maintain maximum system uptime. Success of a
clinical site is largely dependent on patient volume during normal working hours
and, therefore, equipment uptime and reliability are key factors in this
success. Records compiled by the Company show an average uptime of more than
95% for all installed POSICAM(TM) systems during 1999 and 1998.
COMPETITION
The Company faces competition from three other commercial manufacturers of PET
systems and from other imaging technologies, primarily SPECT. The Company does
not believe that MRI and CT scan imaging represent significant competing
technologies, but rather complementary technologies to PET, since PET, MRI and
CT scans each provide information not available from the others.
The Company's 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 the Company. (See "Item
1. Description of Business-Risk Associated with Business Activities-Substantial
Competition and Effects of Technological Change".) In addition, two Japanese
manufacturers, Hitachi and Shimadzu, have manufactured and sold PET scanners in
Japan but not in the United States. These manufacturers represent additional
sources of competition which have greater financial, technological and personnel
resources than the Company.
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The primary competing technology in the nuclear medicine industry is SPECT. The
Company believes 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 configuration and equipment
options) for a POSICAM(TM) system. However, the Company believes its
POSICAM(TM) system is a better diagnostic tool since the Company's systems are
able to create more accurate images than SPECT imaging. Unlike SPECT, the
radioactive substances used by the Company's system is based on naturally
occurring substances within the body and allow the POSICAM(TM) systems to
directly measure the metabolic processes and changes occurring within the
scanned organ, thus providing a more accurate image. In addition, unlike SPECT,
PET imaging enables one to accurately measure the attenuation of a subject and
correct for the emission events lost, thereby permitting quantitative
measurement of the physiologic process under test.
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). However, high field MRI does
not have the capability to assess metabolism. The Company 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 capability are only a small
fraction of that achieved by true PET scanners, making the images "noisy" and
more difficult to interpret. The Company believes 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.
THIRD-PARTY REIMBURSEMENT
POSICAM(TM) 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. The
Company believes that the market success of PET imaging depends largely upon
obtaining favorable coverage and reimbursement policies from such programs and
carriers.
MEDICARE/MEDICAID REIMBURSEMENT. Prior to March 1995, Medicare and Medicaid did
not provide reimbursement for PET imaging. Decisions as to such policies for
major new medical procedures are typically made by the U.S. Health Care
Financing Administration ("HCFA"), based in part on recommendations made to it
by the Office of Health Technology Assessment ("OHTA"). Historically, OHTA has
not completed an evaluation of a procedure unless all of the devices and/or
drugs used in the procedure have received approval or clearance for marketing by
the FDA. Decisions as to the extent of Medicaid coverage for particular
technologies are made separately by the various state Medicaid programs, but
such programs tend to follow Medicare national coverage policies. Medicare and
Medicaid reimbursement for PET imaging have been, and the Company believes will
continue to be, very restrictive. The Company believes that restrictive
reimbursement policies have had a very significant adverse affect on widespread
use of PET imaging and have, therefore, adversely affected the Company's
business, financial condition, results of operations and cash flows.
In 1996, HCFA approved reimbursement for one PET procedure in Cardiology. In
1998, four additional procedures in Cardiology, Oncology and Neurology were
approved. In February 1999, three additional procedure reimbursements were
approved in Oncology. Whether HCFA will continue to approve additional
reimbursable procedures, whether private insurers will follow HCFA's lead and/or
whether the procedure reimbursement level will be sufficient to stimulate the
PET market are unknown at this time.
In March 2000, the FDA issued a "Draft Guidance" finding FDG and NH3
(radiopharmaceuticals used in the Company's PET scanner) to be safe and
effective for broad oncology and cardiology indications. There is no
assurance, however, that the FDA's findings in the future will not change or
that additional radiopharmaceuticals will be approved.
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PRIVATE INSURER REIMBURSEMENT. Most insurance carriers currently consider PET
imaging to be an investigational procedure and do not reimburse for procedures
involving PET imaging. However, this perspective has begun to change as a
result of Medicare's recent acceptance of reimbursements for certain PET
procedures. The Company believes that certain private insurance carriers, while
they do not have broad PET reimbursement policies, reimburse for PET scans on a
case-by-case basis.
If third-party coverage for PET procedures using the POSICAM(TM) system remains
unavailable, it will likely have a material adverse effect on the Company's
business, financial condition, results of operations and cash flows.
MANUFACTURING
The Company believes that it currently has the ability to assemble its
POSICAM(TM) scanners in a 5,400 square foot area of its 8,000 square foot
corporate facility located in Houston, Texas. Scanners are generally produced by
assembling parts furnished to the Company by outside suppliers. The Company
believes that it can assemble a typical POSICAM(TM) system in two to three
months, with an additional month required for testing before delivery. The
Company cannot assure that its facilities will remain adequate.
There are several essential components of the Company's POSICAM(TM) systems
which are obtained from limited or sole sources, including bismuth germinate
oxide ("BGO") crystals, which detect gamma photons from positron emissions, and
photomultiplier tubes, which convert light energy emitted by such crystals into
electrical impulses for use in the image reconstruction process. While the
Company attempts to make alternate supply arrangements in the event that the
supply of either component is interrupted, there is no assurance that those
arrangements can be made and will provide sufficient quantities of those
components on a timely or uninterrupted basis. Further, there is no assurance
that the cost of supplies will not rise significantly or that components from
alternate suppliers will continue to meet the Company's needs and quality
control requirements.
RESEARCH AND DEVELOPMENT
The Company's POSICAM(TM) systems are based upon proprietary technology
initially developed at the University of Texas Health Science Center ("UTHSC")
in Houston, Texas, under a $24 million research program begun in 1979 and funded
by UTHSC and The Clayton Foundation for Research ("Clayton Foundation"), a
Houston-based, non-profit organization. Since that time, the Company has funded
further product development and commercialization of the system. These research
and development activities are costly and critical to the Company's ability to
develop and maintain improved systems. During fiscal years 1997, 1998, and the
first half of fiscal year 1999, the Company did not have sufficient funds to
conduct substantial research and development activities. In 1999, the Company's
research and development expenses were approximately $602,000 compared to $0 in
1998. There can be no assurance that the Company's inability to conduct such
activities during that period will not have an adverse effect on its ability to
do so in the future, or that any continuing inability to conduct such activities
will not have a material adverse affect on the Company's business as a whole in
the future.
PATENT AND ROYALTY ARRANGEMENTS
The Company 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, the Company was 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 the Company defaulted in its obligations under those agreements, Dr.
Gould and Mr. Mullani would be entitled to reinstatement of their earlier
royalties. In April 1998, the Company received a demand letter from Mr. Mullani
alleging defaults under his consulting agreement. The Company believed that
such defaults, if any, may also have occurred regarding Dr. Gould's agreement,
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although he made no formal demand. Since that time, the Company has reached
agreement with Dr. Gould regarding payment of royalties in the past and in the
future, as well as several other issues. The Company has had similar
discussions with the Clayton Foundation and Mr. Mullani, although no agreements
have been reached with these parties.
Two of the Company's patents, issued in January 1986 and February 1987 and
expiring in January 2003 and February 2004, respectively, relate to the
staggered crystal array design of its POSICAM systems. One additional patent
issued in June 1987 and expiring in June 2004 relates to technology which the
company, by obtaining the patent, has reserved the right to use. The Company
maintains certain of its patents in Germany and has applied for certain patents
in Japan.
The Company seeks to protect its trade secrets and proprietary know-how through
confidentiality agreements with its employees and consultants. The Company
requires each employee and consultant to enter into a confidentiality agreement
containing provisions prohibiting the disclosure of confidential information to
anyone outside the Company, and requiring disclosure to the Company of any
ideas, developments, discoveries or investigations conceived during employment
or service as a consultant and the assignment to the Company of patents and
proprietary rights to such matters related to the business and technology of the
Company.
GOVERNMENT REGULATIONS
The Company's POSICAM(TM) systems and radiopharmaceuticals used in connection
with them are subject to regulation by the FDA. The FDA regulates and approves
the clinical testing, manufacturing, labeling, distribution and promotion of
medical devices in the United States prior to their commercialization. In
addition, various foreign countries in which the Company's products are or may
be marketed, impose certain regulatory requirements.
The Company's POSICAM(TM) systems are regulated as medical devices by the FDA
and require pre-market clearance by the FDA. Pursuant to the Medical Device
Amendments of May 1976, the FDA classifies medical devices in commercial
distribution as a class I, class II, or class III device. This classification
scheme is based on the controls necessary to reasonably ensure the safety and
effectiveness of the medical devices. Class I devices are those devices whose
safety and effectiveness can reasonably be ensured through general controls,
such as adequate labeling, pre-market notification and adherence to the Good
Manufacturing Practices (GMP) regulations. Class II devices are those devices
whose safety and effectiveness can reasonably be assured through the use of
special controls, such as performance standards, post market surveillance,
patient registries and FDA guidelines. Class III devices require pre-market
approval from the FDA and are generally devices which support or sustain human
life or present a potential risk of illness or injury. The POSICAM(TM) systems
are considered to be class II devices. However, as of December 31, 1999, the
FDA has not promulgated a performance standard for PET systems.
Before it can be commercially marketed, a class II device must be approved by
the FDA. If a medical device is "substantially equivalent" to a legally
marketed class II device, the manufacturer or distributor may seek FDA clearance
by filing what is known as a 510(k) pre-market notification which must be
supported by data and test results. If the FDA determines that the device is
substantially equivalent to a device that has been approved, then it may be
marketed in the United States. The FDA may, however, require additional data or
test results, or determine that a device is "not substantially equivalent."
Requests for additional data or test results or a "not substantially equivalent"
determination could delay the Company's market introduction of new products and
could have a material adverse effect on the Company's financial results and
operations. The FDA is not required to respond to 510(k) pre-market
notifications within a specific time period. The FDA recently began requiring a
more rigorous demonstration of substantial equivalence, and in many cases the
time periods required for product approvals have increased. If the FDA
determines that a new product is "not substantially equivalent," then the
manufacturer must undergo a lengthy Pre-Marketing Approval process which
generally involves clinical trials and submission of data to prove safety and
effectiveness before approval is granted. In addition, the FDA prohibits an
approved device from being marketed for unapproved applications.
The Company's original POSICAM(TM) system received 510(k) clearance in September
1985. In November 1989, the Company was granted 510(k) clearance for a modified
POSICAM(TM) system, and also received approval for a mobile van configuration.
In 1991, the Company applied for and received 510(k) clearance of its
POSICAM(TM) HZ system, and in July 1993 the Company received 510(k) approval for
the POSICAM(TM) HZL.
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FY 1999 POSITRON CORPORATION FORM 10-KSB
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The Company is also required to register as a medical device manufacturer with
the FDA. As such, the Company may be inspected from time to time by the FDA for
compliance with the FDA's Good Manufacturing Practices (GMP) regulations. These
regulations require that the Company manufacture its products and maintain its
documents in a prescribed manner with respect to manufacturing, testing and
control activities. Further, the Company is required to comply with various FDA
labeling requirements. The Medical Device Reporting regulation requires that
the Company provide information to the FDA on deaths or serious injuries alleged
to have been associated with the use of its devices, as well as product
malfunctions that would likely cause or contribute to death or serious injury if
the malfunction were to recur. To date, no such deaths, injuries or product
malfunctions have occurred.
During February 1995, the FDA conducted a GMP compliance inspection at
Positron's manufacturing facility that resulted in the issuance of an FDA
warning letter to the Company, as well as a Form 483 notice of inspectional
observations. The significance of receiving such a letter is that the FDA will
not approve applications for pre-market approval or requests for Certificates
for Export, and no pre-market notifications (510(k)s) will be found to be
substantially equivalent for products manufactured by a company until it
responds adequately to the compliance issues stated in the warning letter.
Therefore, the Company responded promptly to address the FDA's concerns and
recommendations and replied to the FDA in April and May of 1995.
Correspondence from the FDA in May 1995 stated that the Company's responses
appeared adequate pending follow-up inspections which occurred in February 1996,
February 1997 and July 1998. As a result of each inspection, the FDA issued a
Form 483 notice of inspectional observations to the Company. The Company
promptly addressed each item and listed expected dates of completion for
compliance.
In July 1999, the FDA conducted a routine inspection of the Company's
manufacturing operation to determine compliance with Quality System Regulations.
As a result of the inspection, the FDA issued a Form 483 to the Company listing
four inspectional observations. The Company has addressed and responded to the
FDA regarding three of the four inspectional observations. The remaining
inspectional observation is due for response in July 2000. The Company is
cooperating fully and intends to continue to work with the FDA on all compliance
matters.
The Company is required under Texas law to register with the Texas Department of
Health with respect to the Company's maintaining radiopharmaceuticals on
premises for testing and for research and development purposes. The Texas
Department of Health has authority to inspect the Company's records and
facilities to ensure compliance with these regulations. The Company has
received notice of minor violations in the past, which have been satisfactorily
resolved with no punitive action. The Company believes that it has taken
adequate measures to prevent their recurrence. In addition, the Company intends
to register its PET scanners with the Texas Bureau of Radiation Control as it
plans to expand into the mobile PET market.
Sales of medical devices outside of the United States may be subject to foreign
regulatory requirements that vary widely from country to country. The time
required to obtain approval by a foreign country may be longer than that
required for FDA approval and the requirements may differ. In July 1999, the
Japanese Ministry of Health & Welfare (MHW) approved the use of Positron's
Posicam-HZ Series PET scanner in Japan. The Company's Posicam PET scanners are
marketed and distributed exclusively in Japan by Imatron-Japan. There is no
assurance that the time and effort required to meet the varying requirements of
foreign countries may not adversely affect Positron's ability to distribute its
systems in some countries.
Each PET imaging center must comply with regulations established by the
appropriate agency of the state in which the center is located, under authority
delegated by the Nuclear Regulatory Commission governing the possession and use
of radiopharmaceuticals for medical diagnostic procedure. In order to secure
approval, a PET imaging center must submit an acceptable site for its scanner,
employ adequate radiation safety and quality procedures, and provide a physician
who meets certain training and experience standards in nuclear medicine.
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10
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FY 1999 POSITRON CORPORATION FORM 10-KSB
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Cyclotrons are considered industrial devices and are therefore not covered by
any FDA regulations. Currently, there are no state or federal regulations
concerning the sale, marketing, or ownership of cyclotrons. However, operational
licenses are required by state radiation regulatory divisions. The licensing
and/or registration of cyclotrons by a state is typically handled by the state's
Department of Health or Bureau of Radiation Control.
Many states have "certificate of need" regulations that require a purchaser or
user of expensive diagnostic equipment such as PET systems to obtain regulatory
approval before it may purchase and install such equipment. A primary purpose
of these regulations is to contain health costs by restricting the number of
similar units in a particular locality. The Company has yet to experience a
situation where a customer was unable to obtain such approval. However,
restrictions of this nature may increase in the future through the passage of
legislation and the adoption of regulatory changes as a part of overall health
care reform.
BACKLOG
The Company had no backlog for its POSICAM(TM) systems at December 31, 1999.
PRODUCT LIABILITY AND INSURANCE
Medical device companies are subject to a risk of product liability and other
liability claims in the event that the use of their products results in personal
injury claims. The Company has not experienced any product liability claims to
date. The Company maintains liability insurance with coverage of $1 million
per occurrence and an annual aggregate maximum of $2 million.
EMPLOYEES
As of December 31, 1999, the Company employed twenty-one (21) full-time
employees and two (2) full-time consultants: four (4) in engineering, five (5)
in field service, seven (7) in manufacturing, three (3) in sales and marketing,
and four (4) in the executive and administration department. None of the
Company's employees are represented by a union. The Company believes its
relations with its employees are good.
Effective January 22, 1999, S. Lewis Meyer, CEO of Imatron, was appointed
Chairman of the Company's Board of Directors and Gary H. Brooks, CFO of Imatron,
assumed the responsibilities of President, acting CFO and Secretary of the
Company on a part time basis. Those assignments became full time effective
September 1, 1999 when Mr. Brooks resigned as CFO of Imatron.
RISKS ASSOCIATED WITH BUSINESS ACTIVITIES
HISTORY OF LOSSES. To date the Company has been unable to sell POSICAM(TM)
systems in quantities sufficient to be profitable. Consequently, the Company
has sustained substantial losses. Net losses for the years ended December 31,
1999 and 1998 were $1,391,000 and $724,000, respectively. At December 31, 1999,
the Company had an accumulated deficit of approximately $51,075,000. There can
be no assurances that the Company will ever achieve the level of revenues needed
to be profitable in the future and if profitability is achieved, that it will be
sustained. Due to the sizable sales price of each POSICAM(TM) system and the
limited number of systems that have been sold or placed in service in each
fiscal period, the Company's revenues have fluctuated, and may likely continue
to fluctuate significantly from quarter to quarter and from year to year.
RECRUITING AND RETENTION OF QUALIFIED PERSONNEL. The Company's success is
dependent to a significant degree upon the efforts of its executive officers and
key employees. The loss or unavailability of the services of any of its key
personnel could have a material adverse effect on the Company. The Company's
success is also dependent upon its ability to attract and retain qualified
personnel in all areas of its business, particularly management, research and
development, sales and marketing and engineering. There can be no assurance
that the Company will be able to continue to hire and retain a sufficient number
of qualified personnel. If the Company is unable to retain and attract such
qualified personnel, its business, operating results and cash flows could be
adversely affected.
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11
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FY 1999 POSITRON CORPORATION FORM 10-KSB
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WORKING CAPITAL DEFICIENCY. At December 31, 1999, the Company had cash and cash
equivalents in the amount of $7,180,000 compared to $8,000 at December 31, 1998.
The significant increase in cash was due to private placements obtained through
Imatron's efforts, which concluded in August 1999 resulting in an equity
infusion of approximately $11.4 million net to Positron. Prior to this equity
infusion, the Company had minimal amounts of working capital and was unable to
timely meet some of its obligations as they came due during fiscal years 1997,
1998 and the first half of 1999. As a result, the Company was in arrears to
many of its vendors and suppliers. As of December 31, 1999, such amount owed to
vendors and suppliers totaled approximately $388,000 compared to $1,253,000 at
December 31, 1998. The Company also deferred paying salaries and certain other
benefits to certain management level employees. As of December 31, 1999, such
amount owed to management level employees totaled $446,000 compared to
approximately $700,000 at December 31, 1998. While the Company has remedied
many of those arrearages and adopted a program to meet all of its 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 the Company's ability to implement the program in an orderly fashion.
Moreover, in spite of the private placements that concluded in August 1999, the
Company believes that it is possible that it may continue to experience
operating losses and accumulate deficits for the foreseeable future.
Nonetheless, Positron's independent accountants have removed their qualification
regarding the uncertainty of the Company's ability to continue as a going
concern, contained in the Company's 1998 year-end financial statements.
NASDAQ SMALLCAP MARKET ELIGIBILITY FAILURE TO MEET MAINTENANCE REQUIREMENTS:
DELISTING OF SECURITIES FROM THE NASDAQ SYSTEM. The Company's Common Stock was
previously listed on the NASDAQ SmallCap Market. The Board of Governors of the
National Association of Securities Dealers, Inc. ("NASD") has established
certain standards for the continued listing of a security on the NASDAQ SmallCap
Market. The standards required for the Company to maintain such listing
include, among other things, that the Company have total capital and surplus of
at least $2,000,000. In 1997, the Company failed to maintain its NASDAQ stock
market listing and may not meet the substantially more stringent requirements to
be re-listed for some time in the future. There can be no assurances that the
Company will ever meet the capital and surplus requirements needed to be
re-listed under the NASDAQ SmallCap Market System.
Trading of the Company's 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-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
December 31, 1999, the closing price of the Company's Common Stock was $0.56.
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. The Company's 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 the Company's Common Stock is severely affected due to the
limitations placed on broker/dealers that sell the Common Stock in the public
market.
SUBSTANTIAL COMPETITION AND EFFECTS OF TECHNOLOGICAL CHANGE. The industry in
which the Company is engaged is subject to rapid and significant technological
change. There can be no assurance that 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 the
Company's products obsolete or non-competitive. The Company faces competition
in the United States PET market primarily from General Electric Company, Siemens
Medical Systems, Inc. in a joint venture with CTI, Inc., and ADAC Medical
Systems, each of which has significantly greater financial and technical
resources and production and marketing capabilities than the Company. In
addition, there can be no assurance that other established medical imaging
companies, any of which would likely have greater resources than the Company,
will not enter the market. The Company also faces 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 the Company will be able to compete successfully
against any of its competitors.
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FY 1999 POSITRON CORPORATION FORM 10-KSB
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NO ASSURANCE OF MARKET ACCEPTANCE. The POSICAM(TM) 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 the Company's POSICAM(TM) systems will be
accepted by the target markets, or that the Company's sales of POSICAM(TM)
systems will increase or that the Company will ever be profitable.
PATENTS AND PROPRIETARY TECHNOLOGY. The Company holds certain patent and trade
secret rights relating to various aspects of its PET technology, which are of
material importance to the Company and its future prospects. There can be no
assurance, however, that the Company's patents will provide meaningful
protection from competitors. Even if a competitor's products were to infringe
on patents held by the Company, it would be costly for the Company to enforce
its rights, and the efforts at enforcement would divert funds and resources from
the Company's operations. Furthermore, there can be no assurance that the
Company's products will not infringe on any patents of others.
In addition, the Company requires each employee and/or consultant to enter into
a confidentiality agreement designed to assist in protecting the Company's
proprietary rights. There can be no assurance that these agreements will provide
meaningful protection or adequate remedies for the Company's 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
the Company's trade secrets and proprietary know-how.
GOVERNMENT REGULATION. 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 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. Positron's
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 the Company's 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 the Company's product, the FDA requires medical device manufacturers to
submit pre-market clearance information about their 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, safety 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. Once 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 that has already been cleared, the Company may not begin
to market the device. A non-substantial equivalence determination or request
for additional information of a new or significantly modified product could
materially affect the Company's financial results and operations. There can be
no assurance that any additional product or enhancement that the Company may
develop will be approved by the FDA. Delays in receiving regulatory approval
could have a material adverse effect on the Company's business.
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FY 1999 POSITRON CORPORATION FORM 10-KSB
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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 operation in July 1999. The inspection resulted in
issuance of four inspectional observations. The Company has addressed three of
the four inspectional observations and provided responses to the FDA. The
remaining inspectional observation is due for response in July 2000. The
Company is cooperating fully and intends to continue to work with the FDA on all
compliance matters. However, there can be no assurance that any of the Company's
corrective actions or responses to the FDA will be determined adequate by the
FDA, or that any such corrective actions and responses will meet expected dates
of completion for compliance.
In addition to complying with federal requirements, the Company is required
under Texas state law to register with the State Department of Health with
respect to maintaining radiopharmaceuticals on premises for testing, research
and development purposes. While in the past the Company has received notice of
only minor violations which were promptly and easily corrected, and while the
Company believes that it has taken adequate measures to prevent the recurrence
of any violations, there is no assurance that violations may not occur in the
future, which could have a material adverse effect on the Company's operations.
The Company's operations and the operations of PET systems are subject to
regulation under federal and state health safety laws, and purchasers and users
of PET systems are subject to federal and state laws and regulations regarding
the purchase of medical equipment such as PET systems. All laws and
regulations, including those specifically applicable to the Company, are subject
to change. The Company cannot predict what effect changes in laws and
regulations might have on its business. Failure to comply with applicable laws
and regulatory requirements could have material adverse effect on the Company's
business, financial conditions, results of operations and cash flows.
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 Positron's ability to distribute
its systems in some countries.
CERTAIN FINANCING ARRANGEMENTS. In order to sell its POSICAM(TM) systems, the
Company has from time to time found it necessary to participate in ventures with
certain customers or otherwise assist customers in their financing arrangements.
The venture arrangements have involved lower cash prices for the Company's
systems in exchange for interests in the venture. These arrangements expose the
Company to the attendant business risks of the ventures. The Company has, in
certain instances, sold its systems to financial intermediaries, which have, in
turn, leased the system. Such transactions may not give rise to the same
economic benefit to the Company as would have occurred had the Company made a
direct cash sale at its regular market price on normal sale terms. There can be
no assurance that the Company will not find it necessary to enter similar
transactions to effect future sales. Moreover, the nature and extent of the
Company's interest in such ventures or the existence of remarketing or similar
obligations could require the Company 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 the Company's financial
results.
PRODUCT LIABILITY AND INSURANCE. The use of the Company's products entails
risks of product liability. There can be no assurance that product liability
claims will not be successfully asserted against the Company.
The Company maintains liability insurance coverage in the amount of $1 million
per occurrence and an annual aggregate maximum of $2 million. However, there
can be no assurance that the Company 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 on the Company.
NO DIVIDENDS. The Company has never paid cash dividends on its Common Stock and
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 A preferred stock. As of December 31, 1999, approximately $274,000
of preferred stock dividends were undeclared and unpaid by the Company.
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FY 1999 POSITRON CORPORATION FORM 10-KSB
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ITEM 2. DESCRIPTION OF PROPERTY
The Company occupies an 8,000 square foot facility in Houston, Texas. That
facility includes area for system assembly and testing, a computer room for
hardware and software product design, and office space. The facility is leased
through March 2001 at a rate of approximately $4,250 per month. The Company
estimates the space to be sufficient for 2000.
ITEM 3. LEGAL PROCEEDINGS
The City of Houston, Katy Independent School District (KISD) and Harris County
together brought a consolidated action against the Company for delinquent taxes
and other assessments relating to tax years 1995 through 1997. In February
1998, judgment was entered against the Company in the amount of approximately
$240,000. In November 1998 the Company negotiated a payment schedule with the
City of Houston, KISD and Harris County in order to retire the judgment as to
each entity and also for payments of assessments relating to the 1998 tax year,
which were also delinquent but which no action has been brought. The Company has
been maintaining the payment schedule relating both to the judgment relating to
prior tax years and to the 1998 tax year. As of December 31, 1999, the
delinquent taxes for the 1998 tax year had been paid in full, and the unpaid
delinquent taxes and other assessments relating to prior tax years totaled
$71,088.
In January 1996, the Company entered into an employment agreement with Werner J.
Haas, Ph.D, for Dr. Haas to serve as Positron's 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 the Company's management employees
and specifically to him. Dr. Haas resigned as an employee and member of the
Board and demanded that the Company pay him all past due salary as well as nine
months severance pay. The Company replied that it 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. The Company intends to vigorously defend its
position and has not recorded any additional liability for this claim. There
can be no assurance, however, that the claim will not result in the Company's
incurring a liability.
The Company 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, the Company was 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 the Company defaulted in its obligations under those agreements, Dr.
Gould and Mr. Mullani would be entitled to reinstatement of their earlier
royalties. In April 1998, the Company received a demand letter from Mr. Mullani
alleging defaults under his consulting agreement. The Company believed that
such defaults, if any, may also have occurred regarding Dr. Gould's agreement,
although he made no formal demand. Since that time, the Company has reached
agreement with Dr. Gould regarding payment of royalties in the past and in the
future, as well as several other issues. The Company has had similar
discussions with Clayton Foundation and Mr. Mullani, although no agreements have
been reached with these parties.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting of shareholders on December 17, 1999 at its
headquarters offices in Houston, Texas. A quorum was present, consisting of
more than a majority of the outstanding voting power of the Common Stock and
Series A Preferred Stock voting together as one class. At the meeting, the
shareholders elected all four nominees for director, consisting of S. Lewis
Meyer, Gary H. Brooks, Gary B. Wood, PhD, and Antonio P. Falcao. In addition, a
majority of the shareholders then voting approved the following: adoption of the
Company's 1999 Stock Option Plan and authorization of 4,000,000 common shares
issuable pursuant to that Plan; adoption of the Company's 1999 Non-Employee
Directors' Stock Option Plan and authorization of 500,000 common shares issuable
pursuant to that Plan; adoption of the Company's 1999 Stock Bonus Plan and
authorization of 1,000,000 common shares issuable pursuant to that Plan;
adoption of the Company's 1999 Stock Purchase Plan and authorization of 500,000
common shares issuable pursuant to that Plan; ratification of the appointment of
Ham, Langston & Brezina to audit the Company's financial statements for the
fiscal year ended 1998.
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FY 1999 POSITRON CORPORATION FORM 10-KSB
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PART II
ITEM 5. 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 the 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. 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 1999, 1998 and1997, all as reported
on the NASDAQ OTC Bulletin Board or the NASDAQ SmallCap Market.
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
High Low High Low High Low
----- ----- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
First Quarter $0.44 $0.12 $0.63 $0.27 $3.38 $1.25
Second Quarter $0.70 $0.12 $0.61 $0.19 $1.94 $0.38
Third Quarter $1.09 $0.47 $0.45 $0.21 $1.44 $0.42
Fourth Quarter $0.91 $0.38 $0.50 $0.04 $0.95 $0.17
</TABLE>
There were approximately 258 shareholders of record of Common Stock as of March
15, 2000, 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 December 31, 1999, approximately $274,000 of
preferred stock dividends are undeclared and unpaid by the Company.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
GENERAL
The Company was incorporated in December 1983 and commenced commercial
operations in 1986. Since that time, the Company has generated revenues
primarily from the sale and service contract revenues derived from the Company's
POSICAM(TM) 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(TM) systems in sufficient quantities to achieve profitability.
In May 1998, the Company entered into a series of agreements (the "Imatron
Transaction") 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 system, pursuant to which on
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16
<PAGE>
FY 1999 POSITRON CORPORATION FORM 10-KSB
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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 the Company of up to $500,000
in order to enable the Company to meet a portion of its current obligations.
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. As of December 31, 1998, the Company had borrowed $600,000 pursuant
to those agreements. 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 the Company's
Common Stock on January 22, 1999, representing at that time a majority ownership
of the outstanding common stock of Positron on a fully-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 and
has been working to support Positron's 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(TM) systems over the next three years. Imatron also agreed to help
facilitate the recapitalization of 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 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 1999 resulting in an equity infusion of approximately $11.4
million net to Positron.
As part of the consummation of the transaction in January 1999, all the
Company's directors and officers of Positron, except for Dr. Wood, resigned and
S. Lewis Meyer and Gary H. Brooks were nominated by Imatron to fill those
vacancies. Positron shareholders approved an amendment to Positron's Articles of
Incorporation to increase its authorized common stock to 100,000,000 shares.
In connection with the above transactions, Positron, Imatron and two of the
lenders to Positron, Uro-Tech, Ltd. and ProFutures Bridge Capital Fund, L.P.
("ProFutures"), entered into certain agreements whereby (a) ProFutures waived
all past defaults and extended the maturity of its loan 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 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 and 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.
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17
<PAGE>
FY 1999 POSITRON CORPORATION FORM 10-KSB
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RESULTS OF OPERATIONS
During the year ended December 31, 1999, the Company experienced a net loss of
$1,391,000 in 1999 from $724,000 in 1998. The increase in net loss is primarily
the result of the re-launch of Positron, which began with the equity infusion in
August 1999. In the fourth quarter, this resulted in significantly higher
overhead with no sales. In addition, a complete review of all balance sheet
accounts resulted in additional reserves in some accounts, with emphasis on
potential exposure in obsolete inventory and rent.
REVENUES: The Company generated no revenue from system sales during fiscal
years 1999 and 1998. Fee per scan revenues decreased to $0 in 1999 from
$455,000 in 1998 due to Buffalo Cardiology & Pulmonary Associates' purchase of
its leased scanner from the Company in the fourth quarter of 1998. Component
revenue for fiscal year 1999 was $112,000 versus $0 for 1998. Overall service,
warranty and component revenue decreased by $24,000 to $1,529,000 in 1999 as
compared to $1,553,000 in 1998 due to normal fluctuations in service.
COST OF SALES AND SERVICES: Cost of system sales were $0 in 1999 and 1998 due to
the fact that no systems were sold during these two years. Costs of fee per
scan decreased to $0 in 1999 from $118,000 in 1998 due to Buffalo Cardiology &
Pulmonary Associates' purchase of its leased scanner from the Company. Service,
warranty and component cost increased by $941,000 to $1,343,000 in 1999 from
$402,000 in 1998 due primarily to the Company's staff expansion in 1999 as it
began to rebuild infrastructure to expand operations. The Company took a charge
of $358,000 to reduce obsolete net inventory through the disposal of inventory
previously carried at $1,158,000 gross with a reserve of $800,000.
OPERATING EXPENSES: Prior to Positron's equity infusion in August 1999, the
Company operated in a limited customer service mode due to liquidity problems.
As a result of Positron's equity financing, however, the Company began
rebuilding infrastructure to expand operations. Consequently, research and
development expenses increased to $602,000 in 1999 from $0 in 1998. In 1998,
the Company's R&D staff was utilized in the customer service support function.
Selling, general and administrative expenses decreased to $1,261,000 in 1999
from $1,700,000 in 1998 due to streamlining administrative overhead, and
Positron's shift from a limited customer service mode to a fully functioning
design, manufacturing, marketing and customer service operation in 1999. As a
result of the Company's build-up of staff and infrastructure to expand
operations and stimulate product demand, sales and marketing expenses increased
to approximately $260,000 in 1999 from $0 in 1998, which is included in total
SG&A expenses.
OTHER EXPENSES: Net interest income was $108,000 in 1999 versus interest expense
of $525,000 in 1998 due primarily to the interest income on the equity capital
in the second half of 1999, the reduction of interest expense resulting from the
payoff of the Imatron and Uro-Tech loans in August 1999, and the payoff of the
ProFutures loan in December 1998.
The Company recognized extraordinary income in 1999 of $205,000 on the partial
forgiveness of accrued interest on the Uro-Tech note. This note, plus the
remaining accrued interest, was paid in full in August 1999.
NET OPERATING LOSS CARRY FORWARDS
The Company has incurred losses since its inception and, therefore, has not been
subject to federal income taxes. As of December 31, 1997, the Company had net
operating loss ("NOL") carryforwards for income tax purposes of approximately
$43,600,000 which expire in 2000 through 2019. 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 and in connection with the
private placement of the Company's common stock severely limits the Company's
ability to utilize its 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.
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18
<PAGE>
FY 1999 POSITRON CORPORATION FORM 10-KSB
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LIQUIDITY AND CAPITAL RESERVES
Since its inception the Company has been unable to sell POSICAM(TM) systems in
quantities sufficient to be profitable. Consequently, the Company has sustained
substantial losses. Net losses for the years ended December 31, 1999 and 1998
were $1,391,000 and $724,000, respectively. At December 31, 1999, the Company
had an accumulated deficit of $51,075,000. 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, 1999, the Company had cash and cash equivalents in the amount of
$7,180,000 compared to $8,000 at December 31, 1998. Particularly during fiscal
years 1997, 1998 and the first half of 1999, the Company had minimal amounts of
working capital and was unable to timely meet some of its obligations as they
came due. Consequently, the Company was in arrears to many of its vendors and
suppliers. However, as a result of the equity infusion in August 1999, the
Company was able to implement a program to meet its obligations and thereby
remedy many of the arrearages. As of December 31, 1999, such amount owed to
vendors and suppliers totaled approximately $388,000 compared to $1,253,000 at
December 31, 1998. The Company also deferred paying salaries and certain other
benefits to certain management level employees. As of December 31, 1999, such
amount owed to management level employees totaled $446,000 compared to
approximately $700,000 at December 31, 1998. While the Company has remedied
many of those arrearages and adopted a program to meet all of its obligations,
there is no assurance that everyone to whom payments are still owed will
cooperate with this program.
Due to Imatron's efforts, the private placements, which concluded in August
1999, resulted in an equity infusion of approximately $11.4 million net to
Positron. It is possible, however, that the Company will continue to experience
operating losses and accumulate deficits in the future. Nonetheless, the
qualification from Positron's independent accountants regarding the uncertainty
of its ability to continue as a going concern, contained in the Company's 1998
year-end financial statements, has been removed.
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<PAGE>
FY 1999 POSITRON CORPORATION FORM 10-KSB
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INFORMATION REGARDING AND FACTORS AFFECTING FORWARD LOOKING STATEMENTS
The Company is including the following cautionary statement in this Annual
Report on Form 10-KSB to make applicable and take advantage of the safe harbor
provision of the Private Securities Litigation Reform Act of 1995 for 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 expectations, beliefs or
projections will result or be achieved or accomplished. In addition to other
factors and matters discussed elsewhere herein, the following are important
factors that, in the view of the Company, could cause actual results to differ
materially from those discussed in the forward looking statements: the ability
of the Company to attain widespread market acceptance of its POSICAM(TM)
systems; the ability of the Company to obtain acceptable forms and amounts of
financing to fund future operations; demand for the Company's services; and
competitive factors. The Company disclaims any obligation to update any forward
looking statements to reflect events or circumstances after the date hereof.
ITEM 7. FINANCIAL STATEMENTS
The required Financial Statements and the notes thereto are contained in a
separate section of this report beginning with the page following the signature
page.
ITEM 8. 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.
The report of Coopers & Lybrand for either of the of the two years prior to the
resignation 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 year 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 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.
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<PAGE>
FY 1999 POSITRON CORPORATION FORM 10-KSB
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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.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
DIRECTORS AND EXECUTIVE OFFICERS
The directors, executive officers and key employees of the Company consist of
the following individuals:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------- --- ---------------------------------------------------------------------
<S> <C> <C>
S. Lewis Meyer 55 Director, Chairman of the Board (appointed/effective January 22,1999)
Gary H. Brooks 51 Director, President, acting Chief Financial Officer and Secretary
(appointed/effective January 22, 1999)
Gary B. Wood, Ph.D. 50 Director, Chief Executive Officer (resigned as CEO effective January
22, 1999)
Antonio P. Falcao 28 Director
John J. Ariatti 53 Vice President, Sales & Marketing
</TABLE>
S. Lewis Meyer was appointed to the Board on January 22, 1999 in connection with
a series of agreements entered into by the 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.
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FY 1999 POSITRON CORPORATION FORM 10-KSB
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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. degree in Physics from Purdue University
in 1968, and a Ph.D. in Physics from Purdue University in 1971.
Gary H. 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. Gary B. 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, he
also acted as President and Chief Executive Officer of the Company. He assumed
those offices again from February 1997 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.
Antonio P. Falcao has served as a director since December 17, 1999. Since 1994,
he has been the Chief Financial Officer for several companies of the A. Amorim
Group, a business group based in Portugal that owns Banco Nacional de Credito
Imobiliario, a Portuguese real estate bank. An affiliate of Amorim is a
principal shareholder of the Company. The A. Amorim Group, which is affiliated
with Americo Ferreira Amorim, also has interest in the cork, textile, hotel,
oil, finance and telecommunications industries. In addition, since February
1999, Mr. Falcao has served as a director of FiNet.com, Inc., an on-line
mortgage banking company. Mr. Falcao received his degree in Finance and
Economics from the University of Oporto.
John J. Ariatti was appointed as Positron's 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.
ITEM 10. EXECUTIVE COMPENSATION
The following tables set forth certain information with respect to compensation
paid by the Company during the years ended 1999, 1998 and 1997 and certain
information regarding stock options issued to certain of the individuals who
have acted as executive officers of the Company during 1999 and 1998.
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<PAGE>
FY 1999 POSITRON CORPORATION FORM 10-KSB
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<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
- ----------------------------
Name and Principal Fiscal Other Annual Restricted Options/ LTIP All Other
Position Year Salary($)(a) Bonus Compensation Stock Awards SARs Payouts Compensation(b)
- -------------------- ------ ------------ ----- ------------ ------------ ---------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gary H. Brooks, 1999 $80,484(c) -- -- -- -- -- --
President
Gary B. Wood, 1999 $6,667 -- -- -- -- -- --
President and Chief 1998 $93,333 -- -- -- -- -- --
Executive Officer 1997 $33,333 -- -- -- -- -- --
(2/1/97 to 1/22/99)
John J. Ariatti 1999 $42,076(d) -- -- -- 650,000(d) -- --
Howard Baker 1998 $163,027(e) -- -- -- -- -- $1,986
1997 $91,000 -- -- -- -- -- --
- ------------------------
<FN>
(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 12/31/99. 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 12/31/99. In connection with his
employment he was granted options to purchase 650,000 shares of Positron common stock exercisable
at $0.47, the market price of the stock on the grant date. The options vest quarterly over the first
four years from the date of grant. 81,250 of these options are exercisable within 60 days of
March 15, 2000.
(e) Mr. Baker served as EVP, Sales and Marketing during 1997 and until December 1998 when he resigned.
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth the options granted during the last fiscal year
to each of the named executive officers of the Company:
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23
<PAGE>
FY 1999 POSITRON CORPORATION FORM 10-KSB
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN FISCAL YEAR 1999
Potential Realizable Value at Assumed
Annual Rates of Stock Price Appreciation
Individual Grants For Option Term
======================================================================================================
Number of % Of Total
Securities Options
Under Granted to Exercise or
Options Employees in Base Price Market Expiration
Name Granted (#) Fiscal Year(a) ($/Sh) Price Date 0%($) 5%($)(b)
- --------------- ----------- -------------- ------------- ------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
John J. Ariatti 650,000 44.4% $ 0.47 $ 0.47 09/26/09 $ 305,500 $ 497,627
<FN>
(a) 1,462,500 options were granted to employees, including executive officers, during the last fiscal
year.
(b) Based on 10 year option term and annual compounding; results in total appreciation of 62.9% (at
5% per year) and 159.4% (at 10% per year).
</TABLE>
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:
<TABLE>
<CAPTION>
AGGREGATED OPTIONS/SAR EXERCISES IN FISCAL YEAR 1999 AND FISCAL YEAR-END OPTION/SAR VALUES
=============================================================================================
Shares Unexercised Unexercised In-The-Money
Acquired On Value Options/SARs At Fiscal Year-End Options/SARs at Fiscal Year-End
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- --------------- -------- -------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Gary B. Wood -- -- -- -- -- --
Gary H. Brooks -- -- -- -- -- --
John J. Ariatti -- -- 40,625 609,375 $3,758 $56,672
- ---------------
</TABLE>
COMPENSATION OF DIRECTORS
The Company reimburses 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. From January 22,
1999 until the end of 1999, non-employee directors were not separately
compensated for their services on the Board although they continued 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.
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<PAGE>
FY 1999 POSITRON CORPORATION FORM 10-KSB
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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.
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 who 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 December 31,
1999, 1,462,500 options had been granted under the 1999 Stock Option Plan.
- --------------------------------------------------------------------------------
25
<PAGE>
FY 1999 POSITRON CORPORATION FORM 10-KSB
- --------------------------------------------------------------------------------
NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
The 1999 Non-employee Directors' Stock Option Plan 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. In the fiscal year ended December 31,
1999, one director received an automatic grant to purchase 25,000 shares of
common stock on his initial election to the Board in December 1999.
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 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, up
to a maximum of the participant's salary. The shares become exercisable
according to a schedule to be established by the Board at the time of grant.
1994 INCENTIVE AND NON-STATUTORY OPTION PLAN
On June 3, 1994, the shareholders of the Company approved the 1994 Incentive and
Non-statutory Option Plan (the "1994 Plan"). The 1994 Plan was an arrangement
under which certain individuals could be granted options for incentive stock
options and Non-statutory stock options as described below. Subject to
adjustment as set forth in the 1994 Plan, the aggregate number of shares of the
Company's Common Stock that could be the subject of awards was 610,833. Of the
610,833 shares of Common Stock available under the 1994 Plan 160,000 were
reserved for issuance to non-employee directors. As of December 31, 1998,
345,481 options had been granted to employees and 113,724 options had been
granted to non-employee directors. No awards were under the Plan in 1999.
The Compensation Committee of the Board of Directors administered the 1994 Plan.
The Compensation Committee consisted of two or more directors who, except for
automatic grants for non-employee directors under Section 7 of the 1994 Plan,
were not eligible and did not, within one year prior to the appointment of the
Compensation Committee, receive equity securities of the Company under the 1994
Plan or any other incentive plan of the Company. The 1994 Plan was terminated
effective October 6, 1999.
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.
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26
<PAGE>
FY 1999 POSITRON CORPORATION FORM 10-KSB
- --------------------------------------------------------------------------------
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/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/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/her
accounts attributable to Deferral Contributions. A participant's interest in
that portion of his/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 Internal Revenue
Code of 1986, 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.
The Company's contributions to the 401(k) Plan on behalf of all employees in the
years ended December 31, 1999 and 1998 was $9,184 and $11,490 respectively.
Dr. Wood is not eligible to participate in the Company's 401(k) Plan.
POLICY WITH RESPECT TO $1 MILLION DEDUCTION LIMIT
It is the Company's policy, where practical, to avail itself of all proper
deductions under the Internal Revenue Code. Amendments to the Internal Revenue
in 1993, limit, in certain circumstances, the deductibility of compensation in
excess of $1 million paid to each of the five highest paid executives in one
year. The total compensation of the executive officers did not exceed this
deduction limitation in fiscal year 1999 or 1998.
ITEM 11. 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 December 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.
<TABLE>
<CAPTION>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS(a)
% of
Number of Number of Outstanding
Shares of Shares of Series A
Name and Address of Common % of Outstanding Series A Preferred
Beneficial Owner Stock Common Stock(b) Preferred Stock Stock
- ------------------------- --------- ----------------- --------------- ------------
<S> <C> <C> <C> <C>
Uro-Tech Ltd.(c) 1,690,188 2.8% 433,329 44.2%
- ------------------------- --------- ----------------- --------------- ------------
Imatron Inc.(d) 9,000,000 15.5%
- ------------------------- --------- ----------------- --------------- ------------
Banco Privado Portuges(e) 5,000,000 8.6%
- ------------------------- --------- ----------------- --------------- ------------
Amorim
Dessenvolvimento,
S.G.P.S., S.A.(f) 2,900,000 5.0%
- ------------------------- --------- ----------------- --------------- ------------
Dapicod Investments Co.,
Ltd.(g) 5,000,000 8.6%
- ------------------------- --------- ----------------- --------------- ------------
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27
<PAGE>
FY 1999 POSITRON CORPORATION FORM 10-KSB
- --------------------------------------------------------------------------------
- -----------------
<FN>
(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) Based on 58,136,039 common shares outstanding on March 15, 2000.
(c) 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.
(d) 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.
(e) R. Muezinho da Silveira, 12, 1250 Lisbon, Portugal.
(f) Edificio Amorim, Rua de Melandas No. 380 (Apartado 20), 4536 Mozelos VFR
Codex, Portugal.
(g) Edificio Peninsula, Praca do Bom Sucesso 127/131 - 7th, ESC. 702, Ap. 551236EC
Galiza, 4051-401 Porto, Portugal.
</TABLE>
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table presents the security ownership of the Company's Directors
and Named Executive Officers:
<TABLE>
<CAPTION>
Beneficial Percent
Title of Class Name of Beneficial Owner Ownership(aa) of Class(bb)
- -------------- --------------------------- ------------- ------------
<S> <C> <C> <C>
Common Gary H. Brooks 3,050,000(cc) 5.2%
- -------------- --------------------------- ------------- ------------
Common S. Lewis Meyer 1,579,000(dd) 2.7%
- -------------- --------------------------- ------------- ------------
Common Gary B. Wood, Ph.D 65,513(ee) *
- -------------- --------------------------- ------------- ------------
Common John J. Ariatti 81,250(ff) *
- -------------- --------------------------- ------------- ------------
Common All Directors and Executive
Officers as a Group 4,775,763 8.2%
- -------------- --------------------------- ------------- ------------
- ------------------
<FN>
* Does not exceed 1% of the referenced class of securities.
- --------------------------------------------------------------------------------
28
<PAGE>
FY 1999 POSITRON CORPORATION FORM 10-KSB
- --------------------------------------------------------------------------------
(aa) Ownership is direct unless indicated otherwise.
(bb) Calculation based on 58,136,039 common shares outstanding as of March
15, 2000.
(cc) Includes 50,000 shares owned directly and 3,000,000 shares issuable
upon the exercise of warrants that are exercisable as of March 15, 2000
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 March 15, 2000
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, 81,250 of which will vest
within 60 days of March 15, 2000.
</TABLE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PROMISSORY NOTES
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.
CONSULTANTS
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. The Company 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 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.
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29
<PAGE>
FY 1999 POSITRON CORPORATION FORM 10-KSB
- --------------------------------------------------------------------------------
IMATRON TRANSACTION
In May 1998, the Company entered into a series of agreements (the "Imatron
Transaction") 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 system, 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 the Company of up to $500,000
in order to enable the Company to meet a portion of its current obligations.
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. As of December 31, 1998, the Company had borrowed $600,000 pursuant
to those agreements. 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 the Company's
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 and
has been working to support Positron's 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(TM) systems over the next three years. Imatron also agreed to help
facilitate the recapitalization of 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 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 Bridge Capital Fund, L.P.
("ProFutures"), entered into certain agreements whereby (a) ProFutures waived
all past defaults and extended the maturity of its loan 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 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 and 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.
- --------------------------------------------------------------------------------
30
<PAGE>
FY 1999 POSITRON CORPORATION FORM 10-KSB
- --------------------------------------------------------------------------------
EMPLOYMENT AGREEMENT
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, acting CFO and Secretary to the
Corporation. 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.
ITEM 13. EXHIBITS, LISTS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
Exhibits:
<S> <C>
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).
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 (incorporated herein by reference to Exhibit 4.9 to the Company's Registration
Statement on Form SB-2 (File No. 333-30316)).
4.10 Stock Purchase Warrant dated as of June 15, 1999 issued by Positron Corporation to Gary H.
Brooks (incorporated herein by reference to Exhibit 4.10 to the Company's Registration
Statement on Form SB-2 (File No. 333-30316)).
4.11 Warrant Agreement dated as of June 15, 1999 between Positron Corporation and S. Lewis
Meyer (incorporated herein by reference to Exhibit 4.11 to the Company's Registration
Statement on Form SB-2 (File No. 333-30316)).
- --------------------------------------------------------------------------------
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<PAGE>
FY 1999 POSITRON CORPORATION FORM 10-KSB
- --------------------------------------------------------------------------------
4.12 Stock Purchase Warrant dated as of June 15, 1999 issued by Positron Corporation to S.
Lewis Meyer (incorporated herein by reference to Exhibit 4.12 to the Company's Registration
Statement on Form SB-2 (File No. 333-30316)).
4.13 Stock Purchase Warrant dated as of September 20, 1999 issued by Positron Corporation to
Uro-Tech, Ltd. as replacement for 1995 Warrant (incorporated herein by reference to
Exhibit 4.13 to the Company's Registration Statement on Form SB-2 (File No. 333-30316)).
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.)
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 (incorporated herein by reference to Exhibit A to
Company's Proxy Statement dated May 2, 1994).
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)).
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.
- --------------------------------------------------------------------------------
32
<PAGE>
FY 1999 POSITRON CORPORATION FORM 10-KSB
- --------------------------------------------------------------------------------
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)).
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)).
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)).
- --------------------------------------------------------------------------------
33
<PAGE>
FY 1999 POSITRON CORPORATION FORM 10-KSB
- --------------------------------------------------------------------------------
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).
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 (incorporated by reference to Exhibit 10.51 to the Company's Report
on Form 10-KSB for the year ended December 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. (incorporated by reference to Exhibit 10.52 to the
Company's Report on Form 10-KSB for the year ended December 1996).
- --------------------------------------------------------------------------------
34
<PAGE>
FY 1999 POSITRON CORPORATION FORM 10-KSB
- --------------------------------------------------------------------------------
10.53 InterCreditor Agreement dated November 14, 1996 among Uro-Tech, Ltd., Boston Financial &
Equity Corporation and ProFutures Bridge Capital Fund, L.P. (incorporated by reference to
Exhibit 10.53 to the Company's Report on Form 10-KSB for the year ended December 1996).
10.54 Amendment to BF&E loan (incorporated by reference to Exhibit 10.54 to the Company's
Report on Form 10-KSB for the year ended December 1996).
10.55 Amendment to Uro-Tech loan (incorporated by reference to Exhibit 10.55 to the Company's
Report on Form 10-KSB for the year ended December 1996).
10.56 Acquisition Agreement between General Electric Company and Positron Corporation dated
July 15, 1996 (incorporated by reference to Exhibit 10.56 to the Company's Report on Form
10-KSB for the year ended December 31, 1996).
10.57 Loan Agreement between Positron Corporation and Imatron, Inc.
10.58 Sales and Marketing Agreement With Beijing Chang Feng Medical (incorporated by reference
to Exhibit 10.58 to the Company's Report on Form 10KSB/A-Z for the year ended December
31, 1996).
10.59 Stock Purchase Agreement between Positron Corporation and Imatron, Inc. (incorporated
hereby by reference to Annex A to the Company's Proxy Statement dated December 18,
1998).
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 (incorporated by reference to Exhibit 10.61 to the Company's Registration
Statement on Form SB-2 (file No. 333-30316)).
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 (incorporated herein by reference to
Exhibit 10.62 to the Company's Registration Statement on Form SB-2 (File No. 333-30316)).
10.63** 1999 Stock Option Plan (incorporated herein by reference to Exhibit 10.63 to the Company's
Registration Statement on Form SB-2 (File No. 333-30316)).
10.64** 1999 Non-Employee Directors' Stock Option Plan (incorporated herein by reference to
Exhibit 10.64 to the Company's Registration Statement on Form SB-2 (File No. 333-30316)).
10.65** 1999 Stock Bonus Incentive Plan (incorporated herein by reference to Exhibit 10.65 to the
Company's Registration Statement on Form SB-2 (File No. 333-30316)).
10.66** 1999 Employee Stock Purchase Plan (incorporated herein by reference to Exhibit 10.66 to the
Company's Registration Statement on Form SB-2 (File No. 333-30316)).
10.67 Stock Purchase Warrant dated September 1, 1999 issued by Positron to S. Okamura and
Associates, Inc. (incorporated herein by reference to Exhibit 10.67 to the Company's
Registration Statement on Form SB-2 (File No. 333-30316)).
10.68 Stock Purchase Warrant dated August 18, 1999 issued by Positron to Morris Holdings Ltd.
(incorporated herein by reference to Exhibit 10.68 to the Company's Registration Statement
on Form SB-2 (File No. 333-30316)).
10.69 Stock Purchase Warrant dated January 20, 2000 issued by Positron to Vistula Finance
Limited (incorporated herein by reference to Exhibit 10.69 to the Company's Registration
Statement on Form SB-2 (File No. 333-30316)).
24.1 Powers of Attorney (included on signature page hereto)
27.1 Financial Data Schedule
** Management contract or compensatory plan or arrangement identified pursuant to Item 13(a).
</TABLE>
Form 8-K Reports:
No current report on form 8-K was filed by the Company during the fourth quarter
of 1999.
- --------------------------------------------------------------------------------
35
<PAGE>
FY 1999 POSITRON CORPORATION FORM 10-KSB
- --------------------------------------------------------------------------------
SIGNATURES
----------
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
POSITRON CORPORATION
Date: March 29, 2000 By: /s/ Gary H. Brooks
--------------------------
Gary H. Brooks
President
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
/s/ S. Lewis Meyer
- --------------------------------
S. Lewis Meyer March 29, 2000
Director and Chairman of the Board
/s/ Gary H. Brooks
- --------------------------------
Gary H. Brooks March 29, 2000
Director , President, acting Chief Financial
Officer and Secretary
/s/ Gary B. Wood, Ph.D.
- --------------------------------
Gary B. Wood, Ph.D. March 29, 2000
Director
/s/ Antonio P. Falcao
- --------------------------------
Antonio P. Falcao March 29, 2000
Director
- --------------------------------------------------------------------------------
36
<PAGE>
POSITRON CORPORATION
__________
FINANCIAL STATEMENTS
WITH REPORT OF INDEPENDENT ACCOUNTANTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<PAGE>
POSITRON CORPORATION
TABLE OF CONTENTS
__________
PAGE
----
Report of Independent Accountants F-2
Balance Sheet as of December 31, 1999 F-3
Statements of Operations for the
years ended December 31, 1999 and 1998 F-4
Statements of Stockholders' Equity (Deficit)
for the years ended December 31, 1999
and 1998 F-5
Statements of Cash Flows for the years
ended December 31, 1999 and 1998 F-6
Notes to Financial Statements F-7
F-1
<PAGE>
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, 1999 and the related statements of operations, stockholders'
deficit and cash flows for 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, 1999, and the results of its operations and its cash flows for the
two years in the period then ended in conformity with generally accepted
accounting principles.
/s/ Ham, Langston & Brezina, L.L.P.
Houston, Texas
March 20, 2000
F-2
<PAGE>
<TABLE>
<CAPTION>
POSITRON CORPORATION
BALANCE SHEET
DECEMBER 31, 1999
__________
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
- -----------
<S> <C>
Current assets:
Cash and cash equivalents $ 7,180
Accounts receivable, net 101
Inventories 683
Prepaid expenses 108
Other current assets 150
---------
Total current assets 8,222
Plant and equipment, net 110
---------
Total assets $ 8,332
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable and accrued liabilities $3,766
Unearned revenue 168
---------
Total current liabilities 3,934
Other liabilities 45
Commitments and contingencies
Stockholders' equity:
Series A Preferred Stock: $1.00 par value; 8%
cumulative, convertible, redeemable; 5,450,000
shares authorized; 980,942 and 1,557,403 shares
issued and outstanding at December 31, 1999 and
1998, respectively 981
Common stock: $0.01 par value; 100,000,000 shares
authorized, 57,534,710 and 5,166,542 shares issued
and 57,474,554 and 5,106,386 shares outstanding at
December 31, 1999 and 1998, respectively 575
Additional paid-in capital 53,917
Subscriptions receivable (30)
Accumulated deficit (51,075)
Treasury stock: 60,156 shares at cost (15)
-------
Total stockholders' equity 4,353
---------
Total liabilities and stockholders'
equity $ 8,332
=========
</TABLE>
See notes to financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
POSITRON CORPORATION
STATEMENTS OF OPERATIONS
__________
(IN THOUSANDS, EXCEPT SHARE DATA)
YEAR ENDED DECEMBER 31,
--------------------------
1999 1998
------------ -----------
<S> <C> <C>
Revenues:
Fee per scan $ - $ 455
Service and component 1,529 1,553
------------ -----------
Total revenues 1,529 2,008
------------ -----------
Costs of sales and services:
Fee per scan - 118
Service, warranty and component 1,343 402
------------ -----------
Total costs of sales and service 1,343 520
------------ -----------
Gross profit 186 1,488
Selling, general and administrative 1,261 1,700
Research and development 602 -
------------ -----------
Loss from operations (1,677) (212)
------------ -----------
Other income (expenses):
Interest expense (81) (525)
Interest income 189 -
Gain on disposal of property and equipment - 29
Other expense (27) (16)
------------ -----------
Total other income (expense), net 81 (512)
------------ -----------
Net loss before extraordinary gain (1,596) (724)
Extraordinary gain on extinguishment of debt 205 -
------------ -----------
Net loss $ (1,391) $ (724)
============ ===========
Basic and dilutive net loss per common share
Before extraordinary item $ (0.05) $ (0.14)
Extraordinary item 0.01 -
------------ -----------
Net loss per common share $ (0.04) $ (0.14)
============ ===========
Weighted average common shares outstanding
(basic and dilutive) 31,103,642 5,150,131
============ ===========
</TABLE>
See notes to financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
POSITRON CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
__________
(IN THOUSANDS, EXCEPT SHARE DATA)
SERIES A SERIES B ADDITIONAL SUBSCRIP-
PREFERRED STOCK PREFERRED STOCK COMMON STOCK PAID-IN TION
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL RECEIVABLE
---------- -------- ---------- -------- ---------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 1,594,999 $1,595 25,000 $25 5,128,990 $51 $42,191 $ -
Net loss - - - - - - - -
Conversion of Series A Pre-
ferred Stock to common stock (37,552) (38) - - 37,552 1 37 -
Warrants issued for note ex-
tension (1,150,000 shares) - - - - - - 198 -
---------- -------- ---------- -------- ---------- ------- ---------- ------------
Balance at December 31, 1998 1,557,447 1,557 25,000 25 5,166,542 52 42,426 -
Net loss - - - - - - - -
Sale of common stock to
Imatron at $0.00001 per
share - - - - 9,000,000 90 (90) -
Sale of common stock at $0.30
per share, net of offering
costs of $1,257,000 - - - - 42,166,663 421 10,972 (30)
Conversion of Series B pre-
ferred stock to common stock - - (25,000) (25) 625,000 6 19 -
Warrants issued to settle note
payable - - - - - - 20 -
Conversion of Series A pre-
ferred stock to common stock (576,505) (576) - - 576,505 6 570 -
---------- -------- ---------- -------- ---------- ------- ---------- ------------
Balance at December 31, 1999 980,942 $981 - $ - 57,534,710 $ 575 $53,917 $(30)
========== ======== ========== ======== ========== ======= ========== ============
ACCUMULATED TREASURY
DEFICIT STOCK TOTAL
------------- ---------- --------
<S> <C> <C> <C>
Balance at December 31, 1997 $(48,960) $(15) $(5,113)
Net loss (724) - (724)
Conversion of Series A Pre-
ferred Stock to common stock - - -
Warrants issued for note ex-
tension (1,150,000 shares) - - 198
------------- ---------- --------
Balance at December 31, 1998 (49,684) (15) (5,639)
Net loss (1,391) - (1,391)
Sale of common stock to
Imatron at $0.00001 per
share - - -
Sale of common stock at $0.30
per share, net of offering
costs of $1,257,000 - - 11,363
Conversion of Series B pre-
ferred stock to common stock - - -
Warrants issued to settle note
payable - - 20
Conversion of Series A pre-
ferred stock to common stock - - -
------------- ---------- --------
Balance at December 31, 1999 $(51,075) $(15) $4,353
============= ========== ========
</TABLE>
See notes to financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
POSITRON CORPORATION
STATEMENTS OF CASH FLOWS
__________
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
--------------------------
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,391) $(724)
Adjustment to reconcile net loss to net cash
used in operating activities:
Extraordinary gain on forgiveness of debt (205) -
Depreciation expense 54 250
Common stock and warrants issued for interest
expense 20 198
Net gain from sale and disposal of property
and equipment - (29)
Change in operating assets and liabilities:
Decrease (increase) in accounts receivable (2) 154
Decrease (increase) in inventories (292) 17
Decrease (increase) in prepaid expenses (50) 73
Increase in other current assets (150) -
Decrease in accounts payable and accrued
liabilities (752) (30)
Decrease in other liabilities (23) (177)
Increase in unearned revenue 26 82
-------- --------
Net cash used in operating activities (2,765) (186)
-------- --------
Cash flows from investing activities:
Proceeds from sale of equipment - 364
Capital expenditures (34) -
-------- --------
Net cash provided by (used in) investing
activities (34) 364
-------- --------
Cash flows from financing activities:
Proceeds from notes payable to affiliates - 600
Repayment of notes payable to affiliates (1,392) -
Repayment of other notes payable - (930)
Proceeds from sale of common stock 11,363 -
-------- --------
Net cash provided by (used in) financing
activities 9,971 (330)
-------- --------
Net increase (decrease) in cash and cash equivalents 7,172 (152)
Cash and cash equivalents, beginning of year 8 160
-------- --------
Cash and cash equivalents, end of year $ 7,180 $ 8
========= ========
</TABLE>
See notes to financial statements.
F-6
<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, manufactures, markets and services its POSICAMTM 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. POSICAMTM 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 three other companies which specialize in advanced medical imaging
equipment.
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.
CONCENTRATION OF CREDIT RISK
----------------------------
Cash and accounts receivables are the primary financial instruments that subject
the Company to concentrations of credit risk. The Company maintains its cash in
banks or other financial institutions selected based upon management's
assessment of the bank's financial stability. Cash balances periodically exceed
the $100,000 federal depository insurance limit.
Amounts receivable arise primarily from transactions with customers in medical
industry located in many parts of the world, but concentrated in the United
States. The Company provides a reserve for accounts where collectibility is
Uncertain. Collateral is generally not required for credit granted.
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.
PROPERTY AND EQUIPMENT
------------------------
Property 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 repairs are
charged to expense as incurred.
Continued
<PAGE>
F-7
POSITRON CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
__________
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
----------------------------------------------
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.
REVENUE RECOGNITION
--------------------
Revenues from POSICAMTM 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 POSICAMTM 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.
NET LOSS PER COMMON SHARE
-----------------------------
Basic and dilutive net loss per common share for the years ended December 31,
1999 and 1998 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 in both periods.
Continued
F-8
<PAGE>
POSITRON CORPORATION
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
__________
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
----------------------------------------------------------
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, 1998 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
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.
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 13).
Continued
F-9
<PAGE>
POSITRON CORPORATION
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
__________
3. ACCOUNTS RECEIVABLE
--------------------
Accounts receivable at December 31, 1999 consisted of the following (in
thousands):
Accounts receivable - equipment sales $ 942
Accounts receivable - maintenance 101
---------
1,043
Less allowance for doubtful accounts (942)
---------
$ 101
=========
4. INVENTORIES
----------
Inventories at December 31, 1999 consisted of the following (in thousands):
Raw materials $ 842
Work in progress 145
Finished goods 69
---------
1,056
Less reserve for obsolescence (373)
---------
$ 683
=========
5. PROPERTY AND EQUIPMENT
------------------------
Property and equipment at December 31, 1999 consisted of the following (in
thousands):
Furniture and fixtures $ 86
Computers and peripherals 134
Machinery and equipment 203
---------
Total property and equipment 423
Less accumulated depreciation (313)
---------
$ 110
=========
Continued
F-10
<PAGE>
POSITRON CORPORATION
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
__________
6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
--------------------------------------------
Accounts payable and accrued liabilities at December 31, 1999 consisted of the
following (in thousands):
Trade accounts payable $ 312
Accrued rent 812
Accrued professional fees 240
Accrued royalties 610
Accrued property tax 71
Accrued warranty costs 1,192
Accrued compensation 446
Other accrued liabilities 83
---------
$ 3,766
=========
Accrued compensation and accrued royalties are currently subject to disputes
(See Note 14).
7. COMMON STOCK
-------------
In January 1999, the Company completed the Imatron Transaction under which
Imatron acquired a majority interest in the Company (See Note 13).
In August 1999 the Company concluded a private placement of 42,166,664 shares of
common stock for a total price of $12,700,000. In connection with the private
placement, Positron also issued 21,460,000 warrants to acquire the Company's
common stock at exercise prices of $0.05 and $0.30 per share.
In December 1998, the Company's stockholders approved an amendment to its
articles of incorporation to increase the authorized shares of common stock from
15,000,000 shares to 100,000,000 shares.
Continued
F-11
<PAGE>
POSITRON CORPORATION
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
__________
8. OPTIONS AND WARRANTS
----------------------
Following is an analysis of options and warrants and related activity:
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, 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 of 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, 1999, options to purchase an aggregate of 144,389 shares of common stock at
prices ranging from $2.625 to $4.125 per share, had been granted to certain key
employees.
Continued
F-12
<PAGE>
POSITRON CORPORATION
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
__________
8. OPTIONS AND WARRANTS, CONTINUED
----------------------------------
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. The terms of the 1994 Plan regarding issuances to
non-employee directors were suspended during the years ended December 31, 1999
and 1998. As of December 31, 1999, options to purchase an aggregate of 163,724
shares of common stock at prices ranging from $2.625 to $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.
Effective June 15, 1999, the shareholders of the Company adopted the 1999 Stock
Option Plan (the "1999 Plan") and terminated the 1994 Stock Option Plan,
effective October 6, 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 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). During 1999, 1,462,500 stock options were awarded under the
1999 Plan.
Continued
F-13
<PAGE>
POSITRON CORPORATION
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
__________
8. OPTIONS AND WARRANTS, CONTINUED
----------------------------------
NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
---------------------------------------------
Effective October 6, 1999, the shareholders of the Company approved the 1999
Non-Employee Directors' Stock Option Plan (the "Directors' Plan") which 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. Options covering 25,000
shares of common stock have been issued under Directors' Plan at December 31,
1999.
1999 STOCK BONUS INCENTIVE PLAN
-----------------------------------
In October 1999 the Board adopted an Employee Stock Bonus Incentive Plan (the
"Stock Bonus Plan"), effective November 1, 1999. The Stock Bonus Plan provides
for the grant of bonus shares to any 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, up
to a maximum of the participant's salary. The shares become exercisable
according to a schedule to be established by the Board at the time of grant.
Bonuses covering 7,000 shares have been awarded but not issued under the Stock
Bonus Plan at December 31, 1999.
Continued
F-14
<PAGE>
POSITRON CORPORATION
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
__________
8. OPTIONS AND WARRANTS, CONTINUED
----------------------------------
1999 EMPLOYEE STOCK PURCHASE PLAN
-------------------------------------
The shareholders of the Company approved the 1999 Employee Stock Purchase Plan
(the "Purchase Plan") in October 1999. A total of 500,000 shares of common
stock has been reserved for issuance under the Purchase Plan, none of which has
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. No shares have been issued under the
Purchase Plan at December 31, 1999.
A summary of stock option activity is as follows:
<TABLE>
<CAPTION>
SHARES ISSUABLE
UNDER OUTSTANDING WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE
----------------- -----------------
<S> <C> <C>
Balance at January 1, 1998 572,678 $2.80
Granted -
Exercised -
Forfeited -
----------------
Balance at December 31, 1998 572,678 $2.80
Granted 1,487,500 $0.28 - $1.03
Exercised -
Forfeited -
----------------
Balance at December 31, 1999 2,060,178 $1.33
================
</TABLE>
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.
Continued
F-15
<PAGE>
POSITRON CORPORATION
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
__________
8. OPTIONS AND WARRANTS, CONTINUED
----------------------------------
The shares exercisable for vested options and the corresponding weighted average
exercise price was 564,186 shares and $2.24 per share at December 31, 1999.
Following is a summary of stock options outstanding at December 31, 1999.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------- ----------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF TERM EXERCISE EXERCISE
EXERCISE PRICE SHARES (IN YEARS) PRICE SHARES PRICE
- --------------- --------- ---------- --------- ------- ---------
<S> <C> <C> <C> <C> <C>
2.625 - $3.375 492,980 5.20 $2.63 376,194 $2.63
3.376 - $4.125 79,698 5.66 $3.91 59,242 $3.92
0.280 - $1.031 1,487,500 9.60 $0.40 128,750 $0.36
--------- -------
0.280 - $4.125 2,060,178 $1.07 564,186 $2.24
========= ========
</TABLE>
In addition to options granted to employees, during the year ended December 31,
1999 the Company issued warrants for 4,500,000 shares of the Company's common
stock to certain officers of the Company. Options and warrants resulted in
proforma compensation as shown below.
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 1999 and
1998 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 1999 and 1998: (i)average dividend yield of 0.00%; (ii) expected
volatility of 80.00%; (iii) expected life of three (3) years; and (iv) estimated
risk-free interest rate of 6.00%.
The pro forma disclosures as if the Company adopted the cost recognition
requirements of SFAS 123 are as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------------- --------------
As Reported Pro Forma As Reported Pro Forma
----------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Net loss $1,391 $2,169 $(749) $(749)
=========== ============= =========== ===========
Basic and dilutive net
loss per common share
Before extraordinary
item $(0.05) $(0.08) $(0.14) $(0.14)
Extraordinary item 0.01 0.01 - -
----------- ------------- ----------- -----------
Net loss per common
share $(0.04) $(0.07) $(0.14) $(0.14)
=========== ============= =========== ===========
</TABLE>
Continued
F-16
<PAGE>
POSITRON CORPORATION
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
__________
8. OPTIONS AND WARRANTS, CONTINUED
----------------------------------
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 were exercisable for an aggregate of 3,893,550 shares of
Common Stock at an exercise price of $8.25 per share. Because of their
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 31, 1997. The Redeemable Warrants expired December 31, 1998.
In April 1998, in connection with the Imatron transaction, the Company granted
Profutures Bridge 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. During 1998 the Company recognized interest
expense of $198,000 related to the value of these 1,150,000 warrants. The
Profutures loan was repaid in 1999.
During 1999, the Company issued a total of 4,500,000 warrants to an officer and
a director (See Note 12). The Company also issued 21,460,000 warrants in
connection with a private placement of its common stock (See Note 8).
Continued
F-17
<PAGE>
POSITRON CORPORATION
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
__________
8. OPTIONS AND WARRANTS, CONTINUED
----------------------------------
A summary of warrant activity is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
SHARES EXERCISE PRICE PRICE
-------------- ---------------- --------------
<S> <C> <C> <C>
Balance at January 1, 1998 7,892,537 $1.84-$3,572.27 $5.25
Warrants issued in connection
with extension of the
Profutures Loan 1,150,000 $0.25 $0.25
Expired (6,166,192) $5.60 $-
--------------
Balance at December 31, 1998 2,876,345 $0.25-$3,572.27 $2.50
Warrants issued to directors
and employees 4,500,000 $0.30 $0.30
Warrants issued in connection
with private placement of
common stock 21,460,000 $0.05-$0.30 $0.18
Warrants issued to extend and
retire Uro-Tech Loan 100,000 $1.00 $1.00
Cancelled (67,500) $2.00 $-
--------------
Balance at December 31, 1999 28,868,845 $0.01-$3,572.27 $0.43
==============
</TABLE>
All outstanding warrants are currently exercisable. A summary of outstanding
stock warrants at December 31, 1999 follows:
<TABLE>
<CAPTION>
NUMBER OF REMAINING
COMMON STOCK CONTRACTUAL EXERCISE
EQUIVALENTS EXPIRATION DATE LIFE (YEARS) PRICE
- ------------ --------------- ------------ ---------
<C> <S> <C> <C>
100,000 September 2001 1.8 $ 1.00
10,650,000 August 2004 4.7 0.05
10,810,000 August 2004 4.7 0.30
250,000 January 2007 7.1 1.84
1,250,000 March 2008 8.3 0.25
4,500,000 June 2009 9.5 0.30
1,308,845 Various Various Various
- ------------
28,868,845
============
</TABLE>
Continued
F-18
<PAGE>
POSITRON CORPORATION
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
8. OPTIONS AND WARRANTS, CONTINUED
----------------------------------
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, 1999 or 1998.
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.
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.
Continued
F-19
<PAGE>
POSITRON CORPORATION
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
__________
9. PREFERRED STOCK, CONTINUED
----------------------------
As of December 31, 1999 and 1998, stated dividends that are undeclared and
unpaid on the Series A Preferred Stocks total $274,000. The Company anticipates
that such dividends, if and when declared, will be paid in the shares of Series
A 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 was initially convertible into 25 shares of
Common Stock and during the year ended December 31, 1999, all 25,000 shares of
Series B Preferred Stock were converted into a total of 625,000 shares of common
stock.
10. INCOME TAXES
-------------
The Company has incurred losses since its inception and, therefore, has not been
subject to federal income taxes. As of December 31, 1997, the Company had net
operating loss ("NOL") carryforwards for income tax purposes of approximately
$43,600,000 which expire in 2000 through 2019. Under the provisions of Section
382 of the Internal Revenue Code the greater than 50% ownership changes that
occurred in the Company in connection with the Imatron Transaction and in
connection with the private placement of the Company's common stock severely
limits the Company's ability to utilize its 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, 1999 are as follows (in thousands):
Continued
F-20
<PAGE>
POSITRON CORPORATION
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
__________
10. INCOME TAXES, CONTINUED
-------------------------
Deferred tax assets:
Net operating losses $ 14,824
Allowance for doubtful accounts and
notes receivable 320
Inventory basis difference 127
Accrued liabilities and reserves 1,006
Valuation allowance (16,257)
----------
Total deferred tax assets 20
Deferred tax liabilities:
Basis of property and equipment (20)
----------
Net deferred tax asset (liability) $ -
==========
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):
1999 1998
------------------ -------------------
AMOUNT % AMOUNT %
-------- ------ -------- ------
Benefit for income tax at
federal statutory rate $472 34.0 $254 34.0
Non-deductible expenses - - (67) (9.0)
Increase in valuation
allowance (472) (34.0) (187) (25.0)
-------- ------ -------- ------
$ - - $ - -
======== ====== ======== ======
Continued
F-21
<PAGE>
POSITRON CORPORATION
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
__________
11. 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 $12,000 in
both 1999 and 1998. The board of directors of the Company may authorize
additional discretionary contributions; however, no additional Company
contributions have been made as of December 31, 1999.
12. RELATED PARTY TRANSACTIONS
----------------------------
The Company has an incentive compensation plan for certain key employees and its
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.
During 1995 and 1996, in order to fund its activities, the Company borrowed a
total of $1,313,000 from Uro-Tech, Ltd., a Texas limited partnership controlled
by a former officer and director of the Company. At 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
interests were thereafter subordinated to a loan from Imatron as part of the
Imatron Transaction.
Continued
F-22
<PAGE>
POSITRON CORPORATION
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
__________
12. RELATED PARTY TRANSACTIONS, CONTINUED
----------------------------------------
The Company fully retired the Uro-Tech Loan, including all principal and
interest due, in September 1999 for a cash payment of $935,000 and in connection
therewith and Uro-Tech's forgiveness of amounts due it by the Company of
$205,000, replaced and cancelled the warrant to purchase 67,500 common 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 and was valued at $20,000.
Effective January 22, 1999, the Company granted an officer and a director of the
Company warrants to purchase 3,000,000 shares and 1,500,000 shares,
respectively, of the Company's common stock at an exercise price of $0.30 per
share. The warrants the officer and the director 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 the
officer's employment is terminated by the Company without cause or on a change
of control, the Company's repurchase right regarding such warrants lapses
entirely and any other equity participation the officer has in the Company's
securities lapses immediately.
13. IMATRON AGREEMENT
------------------
In May 1998, the Company entered into an agreement (the "Imatron Transaction")
with Imatron Inc. ("Imatron"), whereby Imatron ultimately acquired a majority
ownership of the Company in January 1999. In conjunction with the Imatron
Transaction, Imatron has made working capital advances to the Company of
$600,000 to enable the Company to meet a portion of its current obligations.
Upon consummation of the Imatron Transaction in January 1999, Imatron acquired a
majority ownership of the outstanding common stock of the Company on a
fully-diluted and as-if-converted basis (excluding out-of-the-money warrants and
options determined at the time of issuance of shares to Imatron) and was issued
nine million shares of the Company's common stock in return for a nominal cash
payment in the amount of $100.
Continued
F-23
<PAGE>
POSITRON CORPORATION
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
__________
14. 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 $250,000
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 $250,000. As of December 31, 1999,
the Company is unable to predict the outcome of the disagreement between Dr.
Haas and the Company.
Continued
F-24
<PAGE>
POSITRON CORPORATION
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
__________
14. COMMITMENTS AND CONTINGENCIES, CONTINUED
-------------------------------------------
ROYALTY AGREEMENTS
-------------------
The Company 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, the Company was 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 reduce 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 the Company defaulted in its obligations under those agreements, Dr.
Gould and Mr. Mullani would be entitled to reinstatement of their earlier
royalties. In April 1998 the Company received a demand letter from Mr. Mullani
alleging defaults under his consulting agreement. The Company also believed
that such defaults, if any, may also have occurred regarding Dr. Gould's
agreement, although he made no formal demand. During 1999 the Company reached
agreement with Dr. Gould regarding payment of royalties in the past and in the
future. The Company has had similar discussions with the Clayton Foundation and
Mr. Mullani, but has not yet reached agreements with these parties. Based on
the demands of Mr. Mullani, the accrual of royalties payable has been adjusted
to reflect his increased royalty percentage and at December 31, 1999 total
royalties payable under the Company's royalty agreements total $610,000.
LEASE AGREEMENTS
-----------------
The Company operates in leased facilities under an operating lease that expires
in March 2001 and contains no renewal options. The lease requires monthly
payments of $4,244.
Continued
F-25
<PAGE>
POSITRON CORPORATION
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
__________
14. COMMITMENTS AND CONTINGENCIES, CONTINUED
-------------------------------------------
LEASE AGREEMENTS, CONTINUED
-----------------------------
Prior to 1998, 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. However, the
Company was unable to obtain a release from its original lease and has been
notified by its former landlord that all amounts due under its original lease
will be due according to the lease terms. 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 approximately $1,355,000, 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 tenants. Accordingly, the Company's potential loss related to
its former lease should fall in the range from $200,000 to $1,355,000 and the
Company has accrued approximately $812,000 related to this matter.
Rental expense for operating leases amounted to approximately $78,000 and
$110,000 for the years ended December 31, 1999 and 1998, respectively.
Additionally, during the year ended December 31, 1999, the Company revised its
estimated liability of exposure under an abandoned lease with an unexpired lease
term by $562,000. 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, 1999, are summarized as follows:
YEAR ENDED AMOUNT
DECEMBER 31, (IN THOUSANDS)
- ------------- ---------------
2000 $ 593
2001 555
2002 271
--------
Total minimum lease payments $ 1,419
========
The above lease payment schedule consists primarily of payments due under the
Company's lease with its former landlord.
Continued
F-26
<PAGE>
POSITRON CORPORATION
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
__________
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, 1999 and 1998 the Company had a limited
number of customers as follows:
1999 1998
----- -----
Number of customers 14 12
Customers accounting for more than
10% of revenues 5 2
Percent of revenues derived from
largest customer 14% 23%
16. SUPPLEMENTAL CASH FLOW DATA
------------------------------
Supplemental disclosure of cash flow information (in thousands):
1999 1998
----- -----
Cash paid for interest $246 $163
F-27
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-2000
<PERIOD-END> DEC-31-2001
<CASH> 7180
<SECURITIES> 0
<RECEIVABLES> 1043
<ALLOWANCES> 942
<INVENTORY> 683
<CURRENT-ASSETS> 8222
<PP&E> 423
<DEPRECIATION> 313
<TOTAL-ASSETS> 8332
<CURRENT-LIABILITIES> 3934
<BONDS> 0
0
981
<COMMON> 575
<OTHER-SE> 2797
<TOTAL-LIABILITY-AND-EQUITY> 8332
<SALES> 0
<TOTAL-REVENUES> 1529
<CGS> 0
<TOTAL-COSTS> 3206
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 81
<INCOME-PRETAX> (1596)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1596)
<DISCONTINUED> 0
<EXTRAORDINARY> 205
<CHANGES> 0
<NET-INCOME> (1391)
<EPS-BASIC> (.04)
<EPS-DILUTED> (.04)
</TABLE>
