FORM 10-QSB MARCH 31, 2002
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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, 2002
Commission file number: 0-24092
[GRAPHIC OMITTED] POSITRON
A Texas Corporation
I.D. No. 76-0083622
1304 Langham Creek Drive, Suite 300, Houston, Texas 77084
(281) 492-7100
Indicate by check mark whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
past 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days.
Yes X No
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As of March 31, 2002, there were 62,173,303 shares of the Registrant's Common
Stock, $.01 par value outstanding.
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FORM 10-QSB MARCH 31, 2002
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POSITRON CORPORATION
TABLE OF CONTENTS
FORM 10-QSB FOR THE QUARTER ENDED MARCH 31, 2002
PART I - FINANCIAL INFORMATION PAGE
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Item 1. Condensed Financial Statements
Condensed Balance Sheets as of March 31, 2002 and December 31, 2001 3
Condensed Statements of Operations for the three months ended
March 31, 2002 and 2001 4
Condensed Statements of Cash Flows for the three months ended
March 31, 2002 and 2001 5
Selected Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation 8
PART II - OTHER INFORMATION 9
Signature Page 9
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FORM 10-QSB MARCH 31, 2002
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POSITRON CORPORATION
CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
March 31, December 31,
2002 2001
ASSETS (Unaudited) (Note)
------ ------------ --------------
Current assets:
Cash and cash equivalents $ 345 $ 635
Accounts receivable, net 547 184
Inventories 4,406 4,887
Prepaid expenses 101 54
Loan costs 50 100
Other current assets 155 118
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Total current assets 5,604 5,978
Property and equipment, net 352 375
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Total assets $ 5,956 $ 6,353
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Current liabilities:
Note payable to stockholder $ 2,000 $ 2,000
Accounts payable, trade and accrued liabilities 2,708 2,496
Unearned revenue 230 318
Current portion of capital lease obligation 41 40
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Total current liabilities 4,979 4,854
Capital lease obligation 22 33
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Total liabilities 5,001 4,887
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
at March 31, 2002 and December 31, 2001. 510 510
Common Stock: $0.01 par value; 100,000,000 shares
authorized; 62,233,459 shares issued and 62,173,303 shares
outstanding at March 31, 2002 and December 31, 2001. 622 622
Additional paid-in capital 55,079 55,079
Subscription receivable (30) (30)
Accumulated deficit (55,211) (54,700)
Treasury Stock: 60,156 shares at cost (15) (15)
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Total stockholders' equity 955 1,466
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Total liabilities and stockholders' equity $ 5,956 $ 6,353
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Note: The consolidated balance sheet at December 31, 2001 has been derived from
the audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. See accompanying notes.
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FORM 10-QSB MARCH 31, 2002
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POSITRON CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Three Months Ended
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March 31, March 31,
2002 2001
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Revenues:
System sales $ 1,150 $ --
Upgrades -- 127
Service and component 346 366
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Total revenues 1,496 493
Costs of sales and services:
System sales 1,098 --
Upgrades -- 83
Service, warranty and component 140 153
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Total costs of revenues 1,238 236
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Gross profit 258 257
Operating expenses:
Research and development 265 270
Selling and marketing 96 253
General and administrative 353 425
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Total operating expenses 714 948
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Loss from operations (456) (691)
Other income (expense):
Interest income 1 32
Interest expense (56) (3)
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Total other income (expense) (55) 29
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Net loss $ (511) $ (662)
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Basic and diluted loss per common share $ (0.01) $ (0.01)
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Weighted average number of basic and diluted common
shares outstanding 62,173 62,047
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See accompanying notes
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FORM 10-QSB MARCH 31, 2002
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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,
2002 2001
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Cash flows from operating activities:
Net loss $ (511) $ (662)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 23 29
Amortization 50 --
Changes in operating assets and liabilities:
Accounts receivable (363) 428
Inventory 481 (1,414)
Prepaid expenses (47) 29
Other current assets (37) (45)
Accounts payable and accrued liabilities 212 555
Unearned revenue (88) (45)
Other liabilities -- (5)
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Net cash used in operating activities (280) (1,130)
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Cash flows from investing activities:
Decrease in short-term investments -- 1,234
Capital expenditures -- (24)
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Net cash provided by investing activities -- 1,210
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Cash flows from financing activities:
Repayment of capital lease obligation (10) (9)
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Net cash used in financing activities (10) (9)
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Net (decrease) increase in cash and cash equivalents (290) 71
Cash and cash equivalents, beginning of period 635 114
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Cash and cash equivalents, end of period $ 345 $ 185
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See accompanying notes
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FORM 10-QSB MARCH 31, 2002
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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 Form 10-KSB for Positron Corporation (the
"Company") for the year ended December 31, 2001. 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, 2001, as reported in the Form 10-KSB, have been
omitted.
2. COMPREHENSIVE INCOME
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Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standard ("SFAS") No. 130, "Reporting Comprehensive Income."
Comprehensive income includes such items as unrealized gains or losses on
certain investment securities and certain foreign currency translation
adjustments. The Company's financial statements include none of the
additional elements that affect comprehensive income. Accordingly,
comprehensive income and net income are identical.
3. EARNINGS PER SHARE
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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 periods ended March 31, 2002 and 2001 since it would have
resulted in an antidilutive effect.
4. INCOME TAX
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The difference between the Federal statutory income tax rate and the
Company's effective income tax rate is primarily attributable to increases
in valuation allowances for deferred tax assets relating to net operating
losses.
5. LITIGATION
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PROFUTURES CAPITAL BRIDGE FUND, L.P.
On September 26, 2000, ProFutures Capital Bridge Fund, L.P. ("ProFutures")
filed a complaint against the Company in Colorado state court for
declaratory relief and breach of contract. ProFutures alleges in its
complaint that the Company breached four stock purchase warrants when, on
February 14, 2000, the Company registered only 1,500,000 shares of stock
underlying ProFutures warrants instead of the 4,867,571 that ProFutures
claims it is entitled to purchase. ProFutures claims that it is entitled to
purchase these additional shares of stock under the anti-dilution
provisions in its warrants and as the result of the Company sale of
additional shares of stock and issuance of additional warrants. Prior to
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FORM 10-QSB MARCH 31, 2002
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being sued by ProFutures, the Company notified ProFutures that its Board of
Directors had determined that as a result of the Imatron Transaction
ProFutures was entitled to purchase an additional 965,894 shares of common
stock under its warrants. ProFutures seeks in its complaint for a
declaration that it is entitled to purchase the additional shares of stock
under its warrants and for damages for breach of the warrants in an
unspecified amount. On February 28, 2002, ProFutures asserted in amended
court filings that it was seeking $4.6 million in damages plus interest
from the Company.
The Company believes that ProFutures' claim that it is entitled to purchase
additional shares and for damages is without merit. The Company has
retained counsel and intends to vigorously defend the ProFutures' lawsuit.
The Company cannot, however, provide assurance as to the outcome. If it is
decided that ProFutures is entitled under its warrants to purchase some or
all of the claimed additional shares of stock, upon the exercise of the
warrants, the Company's shareholders would suffer additional dilution and
the price of the Company's common stock could drop. The case is set for a
court trial in Denver, Colorado on June 17, 2002.
On January 5, 2002, ProFutures filed a second complaint against the
Company, also naming its directors S. Lewis Meyer and Gary H. Brooks and
its investor Imatron Inc. ("Imatron") as co-defendants, in Colorado Sate
Court for fraudulent transfer and injunctive relief based upon alleged
violations of various sections of the Texas Business and Commerce code. The
defendants removed the case to the United States District Court for the
District of Colorado and filed a motion to dismiss, which is pending as of
this date. ProFutures alleges in its complaint that the Company committed
fraud when they entered into a loan agreement with Imatron on June 29,
2001, wherein Imatron agreed to loan the Company $2,000,000. As security
for the loan, the Company granted Imatron a first priority security
interest in all of the Company assets. ProFutures alleges that the loan
transaction was an illegal transfer pursuant to Texas law on the basis that
the defendants knew the amount of monetary damages claimed by ProFutures in
the related September 26, 2000, Colorado state litigation at the time of
the June 29, 2001, loan transaction and that the loan transaction was an
effort to hinder, delay and defraud ProFutures with respect to that
pre-existing monetary damage claim. ProFutures seeks the following relief:
declarations from the court that the loan transfer is fraudulent and
therefore void; injunctions prohibiting the Company from making any further
payments to Imatron and prohibiting Imatron from enforcing its rights under
the agreement. The Company believes that ProFutures' claims are without
merit and has retained counsel to vigorously defend against the claims. The
Company cannot, however, provide assurance as to the outcome. If the court
holds in favor of ProFutures on this matter there could be a material
adverse effect on the business of the Company.
CHINA XINXING
In July 2001 and February 2002, the Company received demands from China
Xinxing, a company located in Shanghai, China, for payment of an
arbitration award in favor of China Xinxing and against the Company, in the
total amount of approximately $297,000. The award was rendered on or about
August 25, 2000 by arbitrators affiliated with the Shanghai Sub-commission
of the China International Economic and Trade Arbitration Commission
(CIETAC Case No. SM9872, Award No. (2000) HMZZ 1154). The award represents
the amount of a refund (together with arbitration costs) of an advance
payment made by China Xinxing under a contract with the Company dated
September 12, 1996. In its February 2002 demand, China Xinxing threatened
to file suit in the United States to obtain confirmation and enforcement of
the award. The amount of the arbitration award is included in accrued
liabilities at March 31, 2002.
10P10, L.P.
In December 2001, 10P10, L.P. the Company's landlord for its premises
located at 16350 Park Ten Place, Suite 150, Houston, Texas, filed a
complaint 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.
The claim amount of approximately $130,000 is included in accrued
liabilities as of March 31, 2002.
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FORM 10-QSB MARCH 31, 2002
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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,
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2002 AND 2001.
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We experienced a loss of $511,000 for the three months ended March 31, 2002
compared to a loss of $662,000 for the same period in 2001. The reduced loss in
the first quarter of 2002 resulted primarily from the $234,000 reduction in
operating expenses and the sale of one system.
We generated revenues of $1,150,000 from the sale of one system during the
quarter ended March 31, 2002 compared to having no system sales in the same
quarter in 2001. We produced no revenues from upgrades of equipment in the
first three months of 2002 compared to $127,000 in revenues from equipment
upgrades for the same period in 2001. Service and component sales revenue
decreased $20,000 to $346,000 during the three months ended March 31, 2002 from
$366,000 for the same quarter in the prior year.
We generated gross profits of $258,000 during the three months ended March 31,
2002 compared to $257,000 for the same three months in 2001.
Our operating expenses decreased $234,000 to $714,000 for the three months ended
March 31, 2002 from $948,000 for the same period in 2001. This decrease was
primarily the result of lower selling and marketing expenses during the first
quarter of 2002.
We earned interest income of $1,000 during the three month period ended March
31, 2002 compared to $32,000 for the same period in 2001. The $31,000 decrease
in interest income was the result of having a significantly lower level of
invested funds in 2002. Interest expense of $56,000 in the first quarter of
2002 was primarily attributable to the note payable to a shareholder.
FINANCIAL CONDITION
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We had cash and cash equivalents of $345,000 on March 31, 2002. On the same
date, we had accounts payable and accrued liabilities of $2,708,000, and were in
default on a $2,000,000 note payable to a stockholder. In the first quarter of
2002, we sold one imaging system and received purchase contracts and the related
down payments from customers for two additional systems. In order to resolve
the liquidity problems, we must continue to sale imaging systems or seek
alternative sources of equity funding. However, there is no assurance that we
will be successful in selling new systems or securing additional 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, our
revenues have fluctuated significantly from year-to-year. We have an accumulated
deficit of $55,211,000 at March 31, 2002.
These events raise doubt as to our ability to continue as a going concern. The
report of our independent public accountants, which accompanied our consolidated
financial statements for the year ended December 31, 2001, was qualified with
respect to that risk.
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FORM 10-QSB MARCH 31, 2002
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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 5 to the Condensed Financial Statements, is hereby
incorporated by reference into Part II, Item 1 - Legal Proceedings.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
The Company entered into a loan arrangement on June 29, 2001 with Imatron Inc.,
a stockholder of the Company, for the purpose of borrowing up to $2,000,000 to
fund operating activities. The loan is collateralized by substantially all of
the assets of the Company. As of March 31, 2002, principal of $2,000,000 has
been advanced on the loan. The loan bears interest on the outstanding principal
balance at an annual rate of 10% and is payable monthly. Principal on the loan
amounting to $1,000,000 and $500,000 shall be repaid within (5) business days of
December 31, 2001 and March 31, 2002, respectively. The remaining $500,000 of
loan principal and all unpaid interest is due and payable no later than June 30,
2002. The Company has not made the interest payments that are due monthly on the
loan, resulting in outstanding accrued interest of approximately $127,000 at
March 31, 2002. The portions of the loan principal due on December 31, 2001 and
March 31, 2002 are currently in default.
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 14, 2002 /s/ Gary H. Brooks
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Gary H. Brooks
President & CEO
(Duly Authorized Officer and
Principal Accounting Officer)
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