FORM 10-QSB MARCH 31, 2004
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2004
Commission file number: 0-24092
[GRAPHIC OMITED]
POSITRON
Positron Corporation
A Texas Corporation
I.D. No. 76-0083622
1304 Langham Creek Drive, Suite 300, Houston, Texas 77084
(281) 492-7100
Indicate by check mark whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
past 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days.
Yes X No
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As of March 31, 2004, there were 53,185,803 shares of the Registrant's Common
Stock, $.01 par value outstanding.
Transitional Small Business Disclosure Format. Yes No X
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FORM 10-QSB MARCH 31, 2004
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POSITRON CORPORATION
TABLE OF CONTENTS
FORM 10-QSB FOR THE QUARTER ENDED MARCH 31, 2004
PART I - FINANCIAL INFORMATION PAGE
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Item 1. Condensed Financial Statements
Condensed Balance Sheet as of March 31, 2004 3
Condensed Statements of Operations for the three months ended
March 31, 2004 and 2003 4
Condensed Statements of Cash Flows for the three months ended
March 31, 2004 and 2003 5
Selected Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation 9
Item 3. Controls and Procedures 10
PART II - OTHER INFORMATION 11
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signature Page 12
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FORM 10-QSB MARCH 31, 2004
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POSITRON CORPORATION
CONDENSED BALANCE SHEET
MARCH 31, 2004
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
ASSETS
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Current assets:
Cash and cash equivalents $ 111
Accounts receivable, net 3
Inventories 1,253
Prepaid expenses 127
Other current assets 58
---------
Total current assets 1,552
Property and equipment, net 200
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Total assets $ 1,752
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LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable, trade and accrued liabilities $ 1,854
Customer deposits 660
Unearned revenue 71
Current portion of capital lease obligation 7
---------
Total current liabilities 2,592
Stockholders' equity:
Series A Preferred Stock: $1.00 par value; 8% cumulative,
convertible, redeemable; 5,450,000 shares authorized;
510,219 shares issued and outstanding. 510
Common Stock: $0.01 par value; 100,000,000 shares
authorized; 53,245,959 shares issued and 53,185,803 shares
outstanding. 532
Additional paid-in capital 55,184
Subscription receivable (30)
Accumulated deficit (57,021)
Treasury Stock: 60,156 shares at cost (15)
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Total stockholders' equity (840)
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Total liabilities and stockholders' equity $ 1,752
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See accompanying notes.
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FORM 10-QSB MARCH 31, 2004
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POSITRON CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Three Months Ended
------------------------
March 31, March 31,
2004 2003
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Revenues:
System sales $ -- $ 3,425
Service and component 243 342
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Total revenues 243 3,767
Costs of sales and services:
System sales 48 2,861
Service, warranty and component 70 166
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Total costs of sales and services 118 3,027
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Gross profit 125 740
Operating expenses:
Research and development 43 244
Selling and marketing 39 71
General and administrative 289 361
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Total operating expenses 371 676
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Income (loss) from operations (246) 64
Other income (expense):
Interest expense -- (51)
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Total other income (expense) -- (51)
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Net income (loss) $ (246) $ 13
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Basic and diluted income (loss) per common share $ 0.00 $ 0.00
Weighted average number of basic common
shares outstanding 53,186 62,173
Weighted average number of diluted common
shares outstanding 53,186 62,683
See accompanying notes
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FORM 10-QSB MARCH 31, 2004
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POSITRON CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Three Months Ended
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March 31, March 31,
2004 2003
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Cash flows from operating activities:
Net income (loss) $ (246) $ 13
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 22 22
Changes in operating assets and liabilities:
Accounts receivable -- (208)
Inventory (92) 1,877
Prepaid expenses 48 17
Other current assets (46) 43
Accounts payable and accrued liabilities (44) 280
Customer deposits 490 (2,103)
Unearned revenue (24) (15)
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Net cash provided by (used in) operating activities 108 (74)
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Cash flows from investing activities:
Capital expenditures -- (5)
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Net cash used in investing activities -- (5)
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Cash flows from financing activities:
Repayment of capital lease obligation (2) (11)
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Net cash used in financing activities (2) (11)
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Net increase (decrease) in cash and cash equivalents 106 (90)
Cash and cash equivalents, beginning of period 5 107
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Cash and cash equivalents, end of period $ 111 $ 17
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See accompanying notes
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FORM 10-QSB MARCH 31, 2004
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POSITRON CORPORATION
SELECTED NOTES TO CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
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The accompanying unaudited interim financial statements have been prepared
in accordance with generally accepted accounting principles and the rules
of the U.S. Securities and Exchange Commission, and should be read in
conjunction with the audited financial statements and notes thereto
contained in the Annual Report on Form 10-KSB for Positron Corporation (the
"Company") for the year ended December 31, 2003. In the opinion of
management, all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of financial position and the results of
operations for the interim periods presented have been reflected herein.
The results of operations for interim periods are not necessarily
indicative of the results to be expected for the full year. Notes to the
financial statements which would substantially duplicate the disclosures
contained in the audited financial statements for the most recent fiscal
year ended December 31, 2003, as reported in the Form 10-KSB, have been
omitted.
2. ACCOUNTING POLICIES
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REVENUE RECOGNITION
Revenues from POSICAM(TM) system contracts are recognized when all
significant costs have been incurred and the system has been shipped to the
customer. The Company also recognizes revenue on bill and hold transactions
when the product is completed and is ready to be shipped and the risk of
loss is transferred to the customer. In certain cases, at the customers'
request, the Company is storing the product for a brief period of time.
Revenues from maintenance contracts are recognized over the term of the
contract. Service revenues are recognized upon performance of the services.
3. INVENTORIES
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Inventories at March 31, 2004 consisted of the following (in thousands):
Raw materials $ 952
Work in progress 401
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Subtotal 1,353
Less reserve for obsolescence (100)
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Total $1,253
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4. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
----------------------------------------
Accounts payable and accrued liabilities at March 31, 2004 consisted of the
following (in thousands):
Trade accounts payable $ 531
Accrued property taxes 322
Accrued royalties 312
Accrued professional fees 180
Sales taxes payable 137
Accrued compensation 132
Accrued rent 97
Other accrued liabilities 83
Accrued warranty costs 60
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Total $1,854
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5. EARNINGS PER SHARE
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FORM 10-QSB MARCH 31, 2004
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Basic earnings per common share are based on the weighted average number of
common shares outstanding in each period and earnings adjusted for
preferred stock dividend requirements. Diluted earnings per common share
assume that any dilutive convertible preferred shares outstanding at the
beginning of each period were converted at those dates, with related
interest, preferred stock dividend requirements and outstanding common
shares adjusted accordingly. It also assumes that outstanding common shares
were increased by shares issuable upon exercise of those stock options and
warrants for which market price exceeds exercise price, less shares which
could have been purchased by the Company with related proceeds. The
convertible preferred stock and outstanding stock options and warrants were
not included in the computation of diluted earnings per common share for
the three month period ended March 31, 2004 since it would have resulted in
an antidilutive effect.
The following table sets forth the computation of basic and diluted
earnings per share.
Three Months Ended
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March 31, March 31,
2004 2003
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(In Thousands)
Numerator
Basic and diluted income (loss) $ (246) $ 13
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Denominator
Denominator for basic earnings per share-weighted average share 53,186 62,173
Effect of dilutive securities:
Convertible Series A preferred stock -- 510
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Denominator for diluted earnings per share adjusted weighted
average shares and assumed conversions 53,186 62,683
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Basic and diluted income (loss) per common share $ 0.00 $ 0.00
6. LITIGATION
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PROFUTURES CAPITAL BRIDGE FUND, L.P.
On September 26, 2000, ProFutures Bridge Capital Fund, L.P. ("ProFutures")
filed a complaint against the Company in Colorado state court for
declaratory relief and breach of contract (the "Complaint"). The Complaint
alleged that the Company breached four stock purchase warrants issued to
ProFutures on the basis that the Company failed to notify ProFutures of
dilutive events and failed to register the full number of shares ProFutures
was allegedly entitled to purchase under the warrants when, on February 14,
2000, the Company registered 1,500,000 shares of stock underlying
ProFutures' warrants instead of 4,867,571. The Complaint further alleged
that the Company's issuance of shares of common stock to Imatron, Inc. on
or about January 22, 1999, (the "Imatron Transaction") was a dilutive event
pursuant to the anti-dilution provisions contained in the four stock
purchase warrants. The Complaint sought declarations that the consideration
received by the Company in the Imatron Transaction increased the number of
shares issuable under the warrants, the Company breached the warrants by
failing to notify ProFutures of the Imatron Transaction and its effect on
ProFutures' warrants at the time of the Imatron Transaction and that the
Company further breached the warrants by failing to register the number of
shares ProFutures alleged were purchasable under its warrants. The
Complaint sought an unspecified amount of monetary damages.
The Colorado State level case of ProFutures v. Positron, District Court,
City and County of Denver, Colorado, Case No. 00CV7146, was tried before
the Court in June 2002. The Court issued its Findings of Fact, Conclusions
of Law and Judgment on November 13, 2002. The Court agreed with Positron's
determination of the value of the consideration paid for the shares issued
to Imatron and that there was no evidence of fraud by Positron. The Court
agreed with ProFutures that Positron
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FORM 10-QSB MARCH 31, 2004
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breached the 1996 stock purchase warrant with ProFutures by failing to give
ProFutures written notice stating the adjusted exercise price and the new
number of shares deliverable as a result of the Imatron Transaction and by
failing to register the shares to which ProFutures was entitled under the
warrant as a result of the Imatron Transaction. Nevertheless, the Court
also found that ProFutures' alleged damages were uncertain and speculative
and that ProFutures was not entitled to recover actual damages. Therefore
ProFutures was awarded $1 in nominal damages. ProFutures has appealed the
trial Court's findings and Positron has cross-appealed. Those appeals are
presently pending before the Court of Appeals, State of Colorado.
In the federal case of ProFutures v. Positron, et al., United States
District Court for the District of Colorado, Case No. 02-N-0154, the
Complaint alleged two causes of action against the Company: fraudulent
transfer and injunctive relief. The allegations arose out of a June 2001
loan agreement between Positron and Imatron. The action was dismissed in
2002 without prejudice.
10P10, L.P.
In December 2001, 10P10, L.P., the Company's previous landlord for its
premises located at 16350 Park Ten Place, Suite 150, Houston, Texas, filed
a complaint (Cause No. 2001-65534 in the 165th Judicial District Court of
Harris County, Texas) against the Company alleging breach of lease
agreement. The Company disputes the amount of lease commissions and
construction costs charged by 10P10, L.P. in conjunction with the
subleasing of the premises. Although 10P10, L.P. asserted a claim in excess
of $150,000, a subsequent analysis of the transactions under the lease has
resulted in the reduction of the lease obligation alleged by 10P10, L.P. to
approximately $97,000. Although the Company disputes the amount of the
claim, due to the pending lawsuit, approximately $97,000 is recorded as an
accrued liability as of March 31, 2004. The case is set for trial on a two
week docket beginning in September 2004.
RADIOLOGY CORPORATION OF AMERICA, INC.
A judgment in the amount of $75,000 has been entered against the Company in
Texas state court in favor of Radiology Corporation of America, Inc., a
vendor to the Company. In satisfaction of the judgment the Company and the
creditor have agreed that the judgment may be satisfied by five monthly
payments of $15,000 each commencing March 10, 2004. After the initial
payment, the remaining $60,000 obligation was included in customer deposits
at March 31, 2004.
7. SUPPLEMENTAL CASH FLOW DATA
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Three Months Ended
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March 31, March 31,
2004 2003
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Supplemental disclosure of cash flow information (In thousands):
Cash paid for interest $ -- $ 1
Cash paid for income taxes $ -- $ --
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FORM 10-QSB MARCH 31, 2004
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
We are including the following cautionary statement in this Quarterly Report on
Form 10-QSB to make applicable and utilize the safe harbor provision of the
Private Securities Litigation Reform Act of 1995 regarding any forward-looking
statements made by, or on behalf of, the Company. Forward-looking
statements include statements concerning plans, objectives, goals, strategies,
future events or performance and underlying assumptions and other statements,
which are other than statements of historical facts. Certain statements
contained herein are forward-looking statements and, accordingly, involve risks
and uncertainties, which could cause actual results or outcomes to differ
materially from those expressed in the forward-looking statements.
Our expectations, beliefs and projections are expressed in good faith and are
believed by us to have a reasonable basis, including without limitations, our
examination of historical operating trends, data contained in our records and
other data available from third parties, but there can be no assurance that our
expectations, beliefs or projections will result, or be achieved, or be
accomplished.
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31,
--------------------------------------------------------------------------------
2004 AND 2003
---------------
We experienced a loss of $246,000 for the three months ended March 31, 2004
compared to income of $13,000 for the same period in 2003. The income achieved
in the first quarter of 2003 resulted primarily from $564,000 in profits
attributable to the sale of three systems.
We generated no revenues from the system sales in the quarter ended March 31,
2004 compared to $3,425,000 in revenues from the sale of three systems during
the quarter ended March 31, 2003. Our service revenues decreased $99,000 to
$243,000 in the three months ended March 31, 2004 from $342,000 in the same
period in 2003. This decrease in service revenues resulted from the termination
of service on several systems. Service revenues in the quarter ended March 31,
2004 included the recognition of $50,000 in fees relating to support provided to
GE Medical Systems in conjunction with the purchase of our Cardiac PET Software.
We generated gross profits of $125,000 during the three months ended March 31,
2004 compared to $740,000 for the same quarter in 2003. Gross profits in the
quarter ended March 31, 2003 included $564,000 in profits from the sale of three
systems.
Our operating expenses decreased $305,000 to $371,000 for the three months ended
March 31, 2004 from $676,000 for the same period in 2003. Research and
development expenses declined $201,000 to $43,000 from $244,000 primarily due to
lower payroll costs and a reduction in the use of outside consultants. Sales
and marketing expenses decreased $32,000 to $39,000 from $71,000 as a result of
lower payroll, travel and advertising costs. General and administrative
expenses decreased $72,000 to $289,000 from $361,000 primarily due to lower
payroll costs.
Interest expense decreased to a nominal amount in the quarter ended March 31,
2004 compared to $51,000 in the first quarter of 2003. This decrease in
interest expense primarily resulted from the cancellation of the indebtedness to
Imatron effective June 29, 2003.
FINANCIAL CONDITION
--------------------
We had cash and cash equivalents of $111,000 and accounts receivable of $3,000
on March 31, 2004. On the same date, we had accounts payable and accrued
liabilities outstanding of $1,854,000. We did not sell any imaging systems in
the three-month period ended March 31, 2004. However, we did receive an order
for a new system from a customer, accompanied by a $460,000 deposit in the first
quarter of 2004. In order to resolve our liquidity problems, we must sell
imaging systems or seek alternative sources of debt or equity funding. However,
there is no assurance that we will be successful in selling new systems or
securing additional debt or equity funds.
Since inception, we have been unable to sell our POSICAM(TM) systems in
quantities sufficient to be operationally profitable. Consequently, we have
sustained substantial losses. Due to the sizable selling prices of our systems
and the limited number of systems sold or placed into service each year,
revenues have fluctuated significantly from year to year. We have an accumulated
deficit of $57,021,000 at March 31, 2004. The Company will need to increase
system sales to achieve profitability in the future.
These events raise doubt as to our ability to continue as a going concern. The
report of our independent public accountants, which accompanied our financial
statements for the year ended December 31, 2003,
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FORM 10-QSB MARCH 31, 2004
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was qualified with respect to that risk. If we are unable to obtain debt or
equity financing to meet our cash needs we may have to severely limit or cease
our business activities or may seek protection from our creditors under the
bankruptcy laws.
NEW ACCOUNTING PRONOUNCEMENTS
-------------------------------
Please refer to the Annual Report Form 10-KSB for the year ended December 31,
2003 for disclosures regarding the Company's treatment of new accounting
pronouncements.
CRITICAL ACCOUNTING POLICIES
------------------------------
REVENUE RECOGNITION
Revenues from POSICAM(TM) system contracts are recognized when all significant
costs have been incurred and the system has been shipped to the customer. The
Company also recognizes revenue on bill and hold transactions when the product
is completed and is ready to be shipped and the risk of loss is transferred to
the customer. In certain cases, at the customers' request, the Company is
storing the product for a brief period of time. Revenues from maintenance
contracts are recognized over the term of the contract. Service revenues are
recognized upon performance of the services.
ITEM 3 - CONTROLS AND PROCEDURES
As of March 31, 2004, the Company carried out an evaluation, under the
supervision and with the participation of the Company's management, including
the Company's Chairman of the Board of Directors and Chief Financial Officer, of
the effectiveness of the design and operation of the Company's disclosure
controls and procedures (as defined in Exchange Act Rule 13a-15(e) and Rule
15d-15(e)). Based upon that evaluation, the Company's Chairman of the Board of
Directors and Chief Financial Officer concluded that the Company's disclosure
controls and procedures are effective at a reasonable level in timely alerting
them to material information relating to the Company that is required to be
included in the Company's periodic filings with the Securities and Exchange
Commission. There has been no change in the Company's internal control over
financial reporting that occurred during the Company's most recent fiscal
quarter that has materially affected or is reasonably likely to materially
affect, the Company's internal control over financial reporting.
The Company's management, including the Chairman of the Board of Directors and
Chief Financial Officer, do not expect that the Company's disclosure controls or
internal controls will prevent all error and all fraud. A control system, no
matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met due to
numerous factors, ranging from errors to conscious acts of an individual, or
individuals acting together. In addition, the design of a control system must
reflect the fact that there are resource constraints, and the benefits of
controls must be considered relative to their costs. Because of the inherent
limitations in a cost-effective control system, misstatements due to error
and/or fraud may occur and not be detected.
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PART II OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
The information regarding legal proceedings set forth above under Part I -
Financial Information, Note 6 to the Condensed Financial Statements, is hereby
incorporated by reference into Part II, Item 1 - Legal Proceedings.
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5 - OTHER INFORMATION
None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit Description of the Exhibit
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)).
31.1 Chief Executive Officer and Chief Financial Officer Certification of Periodic
Financial Report Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1 Chief Executive Officer and Chief Financial Officer Certification Pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.#
* Filed herewith
# Furnished herewith
(b) Reports on Form 8-K
None
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FORM 10-QSB MARCH 31, 2004
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
POSITRON CORPORATION
(Registrant)
Date: May 12, 2004 /s/ Gary H. Brooks
----------------------
Gary H. Brooks
Chairman, CEO, & CFO
EXHIBIT INDEX
Exhibit Description of the Exhibit
31.1 Chief Executive Officer and Chief Financial Officer Certification
of Periodic Financial Report Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.*
32.1 Chief Executive Officer and Chief Financial Officer
Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.#
* Filed herewith
# Furnished herewith
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