As
filed with the Securities and Exchange Commission on _______________,
2007
Registration
No. 333-____________
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
S-1
REGISTRATION
STATEMENT UNDER
THE
SECURITIES ACT OF 1933
Positron
Corporation
(Exact
Name of Registrant as Specified in Its Charter)
Texas
(State
or
Other Jurisdiction of Incorporation or Organization)
3845
(Primary
Standard Industrial Classification Code Number)
76-0083622
(I.R.S.
Employer Identification No.)
1304
Langham Creek Drive, #300
Houston,
Texas 77084
Telephone:
(281) 492-7100
(Address,
Including Zip Code, and Telephone Number,
Including
Area Code, of Registrant’s Principal Executive Offices)
Patrick
Rooney
Chairman
Positron
Corporation
Houston,
Texas 77084
Telephone:
(281) 492-7100
Facsimile:
(Name,
Address, Including Zip Code, and Telephone Number, Including Area Code, of
Agent
for Service)
Copy
to:
Peter
Campitiello, Esq.
Levy
& Boonshoft, P.C.
477
Madison Avenue, 14th Floor
New
York, New York 10022
Telephone:
(212) 751-1414
Facsimile:
(212) 751-6943
Approximate
date of commencement of proposed sale to the public:
From
time to time after the effective date of this Registration
Statement.
If
any of
the securities being registered on this form are to be offered on a delayed
or
continuous basis pursuant to Rule 415 under the Securities Act of 1933,
check the following box. ý
1
If
this
form is filed to register additional securities for an offering pursuant to
Rule 462(b) under the Securities Act, check the following box and list
the Securities Act registration number of earlier effective registration
statement for the same offering. o
If
this
form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, please check the following box and list the Securities
Act
registration statement number of the earlier effective registration statement
for the same offering. o
If
this
form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. o
If
delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. o
|
Title
of each class of Securities to be registered
|
Amount
to be registered
|
Proposed
maximum offering price per share (1)
|
Proposed
maximum aggregate offering price (1)
|
Amount
of registration fee
|
|
Series
B Preferred Stock, $1.00 par value
|
1,336,250
shares
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$10.00
|
$13,362,500
|
$410.23
|
|
Total
|
$10.00
|
$13,362,500
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$410.23
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(1) Estimated
solely for purposes of calculating the registration fee in accordance with
Rule
457(c) and Rule 457(g) under the Securities Act of 1933.
The
Registrant hereby amends this Registration Statement on such date or dates
as
may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until this Registration
Statement shall become effective on such date as the Commission, acting pursuant
to said Section 8(a), may determine.
2
The
information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and it is not soliciting offers to buy these
securities in any state where the offer or sale is not
permitted.
SUBJECT
TO COMPLETION, DATED _____________ __, 2007
PRELIMINARY
PROSPECTUS
1,336,250
Shares
Positron
Corporation
Series
B Preferred Stock
This
prospectus is for the resale of shares of Series B Preferred Stock (the “Series
B”) of Positron Corporation (the “Company”) originally sold in August 2007 upon
exchange to holders of the Class A Preferred Stock of the Company’s wholly-owned
subsidiary, Imaging PET Technologies, Inc., an Ontario corporation (“IPT”).
We have agreed to register for resale by the selling stockholders the
shares of Series B that we issued in that Offering. In addition, we
are registering the resale of a portion of the Series B held by one of our
largest finance partners Imagin Diagnostic Centres, Inc. This
prospectus will be used by the selling stockholders to sell up to 1,336,250
shares of our common stock. This means:
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The
selling stockholders may sell their shares of Series B Preferred
Stock
from time to time on the open market should a public market for the
Series
B develop.
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•
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For
information on the methods of sale of the common stock, you should
refer
to the section of this prospectus entitled “Plan of Distribution”
beginning on page. __
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•
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Positron
will not receive any of the proceeds from the sale of the shares
by the
selling stockholders.
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•
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You
should read this prospectus and any prospectus supplement carefully
in its
entirety before you invest in shares of our common
stock.
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Prior
to this Offering there has been
no market for our Series B Preferred Stock. No assurance can be given
that a public market will develop following the completion of this Offering
or
that if developed that it will be sustained. The Offering Price for
the Series B has been arbitrarily set by the Company and does not necessarily
bear any direct relationship to the assets, operations, book value or other
established criteria of value of the Company.
Investing
in our common stock is highly speculative and involves a high degree of risk.
See “Risk Factors” beginning on page__.
Neither
the Securities and Exchange Commission nor any state securities commission
has
approved or disapproved of these securities or passed upon the adequacy or
accuracy of this prospectus. Any representation to the contrary is a criminal
offense.
The
date of this prospectus is ___________, 2007.
1
TABLE
OF
CONTENTS
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49
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You
should rely only on information contained in this prospectus. We have not
authorized anyone to provide you with information different from that contained
in this prospectus. The selling stockholders have agreed to offer to sell shares
of common stock only in jurisdictions where offers and sales are permitted.
The
information contained in this prospectus is accurate only as of the date of
this
prospectus, regardless of the time of delivery of this prospectus or any sale
of
the common stock.
For
investors outside the United States: We have done nothing that would
permit this offering or the possession or distribution of this prospectus in
any
jurisdiction where action for that purpose is required, other than in the United
States. You are required to inform yourselves about and to observe any
restrictions relating to this offering and the distribution of this
prospectus.
PROSPECTUS
SUMMARY
This
summary does not contain all of the information you should consider before
buying shares of our common stock. You should read the entire prospectus
carefully, especially the “Risk Factors” section and our financial statements
and the related notes appearing at the end of this prospectus before deciding
to
invest in shares of our common stock.
THE
OFFERING
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Series
B Shares offered by the selling stockholders
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1,336,250
shares
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Series
B Shares outstanding after the offering(1)
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5,929,112
shares
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Use
of proceeds
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We
will not receive any of the proceeds from the sale of our shares
by the
selling stockholders. See “Use of Proceeds.”
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Risk
factors
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You
should read the “Risk Factors” section of this prospectus for a discussion
of factors to carefully consider before deciding to invest in shares
of
our common stock.
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BUSINESS
General
Positron
Corporation (the “Company”, “we” or “us”) 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™ systems. POSICAM(TM) systems incorporate patented and proprietary
software and technology for the diagnosis and treatment of patients in the
areas
of cardiology, oncology and neurology. Positron Corporation offers a unique
combination of low cost technology and disease specific software solutions
differentiating themselves from all other medical device manufacturers. Unlike
other currently available imaging technologies, PET technology permits the
measurement of the biological processes of organs and tissues as well as
producing anatomical and structural images. POSICAM™ systems, which incorporate
patented and proprietary technology, enable physicians to diagnose and treat
patients in the areas of cardiology, neurology and oncology. The Food and Drug
Administration (“FDA”) approved the initial POSICAM™ system for marketing in
1985, and as of September 30, 2006, the Company has sold twenty eight (28)
POSICAM™ systems, of which eleven (11) are in leading medical facilities in the
United States and six (6) are installed in international medical institutions.
The Company has reacquired one system, which is being held in inventory for
resale. The Company presently markets its POSICAM™ systems at list prices of up
to $1.7 million depending upon the configuration and equipment options of the
particular system.
PET
technology is an advanced imaging technique, which permits the measurement
of
the biological processes of organs and tissues, as well as producing anatomical
and structural images. Other advanced imaging techniques, such as magnetic
resonance imaging (“MRI”) and computed tomography (“CT”), produce anatomical and
structural images, but do not image or measure biological processes. The ability
to measure biological abnormalities in tissues and organs allows physicians
to
detect disease at an early stage, and provides information, which would
otherwise be unavailable, to diagnose and treat disease. 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™ 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™ 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 “Risk Factors -
Risks Associated with Business Activities—Substantial Competition and Effects of
Technological Change”.
The
Company’s initial focus was the clinical cardiology market, where its POSICAM™
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™ systems include diagnoses of certain brain
disorders, such as epileptic seizures, dementia, stroke, Alzheimer’s disease,
Pick’s disease and Parkinson’s disease. In oncology, POSICAM™ systems are used
in the diagnosis and evaluation of melanoma and tumors of the bone and various
organs and tissues such as the brain, 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, CT, 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.
CT
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 1,600 dedicated PET systems
are currently operational in the United States and approximately 500 additional
dedicated PET systems are in commercial use internationally.
PET
Technology
The
PET
imaging process begins with the injection of a radiopharmaceutical (a drug
containing a radioactive agent) by a trained medical technician 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™ 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
intensity 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 addition, dynamic and gated imaging can
display and measure the ejection fraction and wall motion of the
heart.
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 CT scans or MRI in determining the effectiveness
of
chemotherapy and radiotherapy in the treatment of cancer. PET scans are becoming
commonly used to assess suspected breast cancer and whether the lymph system
has
become involved. Whole body PET scans are now routinely performed 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 organs in their natural
processes, such as blood flow and metabolism, without affecting their 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, while a neurological PET scan using 18-FDG, results in exposure
of
approximately 390 milliRads. In contrast, a typical chest X-ray results in
exposure of approximately 150 milliRads and a CT 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. Radiopharmaceuticals are made
ready for use at a clinic, hospital, or commercial nuclear pharmacy 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 $60,000, no additional capital investment for site
preparation, and monthly operating expenses of approximately $30,000. While
POSICAM™ systems have been designed flexibly to be used with both cyclotron and
generator-produced radiopharmaceuticals, they have proprietary design features
that enhance their ability to use generator-produced radiopharmaceuticals.
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.
Marketing
Strategy
The
Company’s initial marketing strategy targeted clinical cardiology based on
research conducted at the University of Texas. This research showed the
commercial potential of clinical cardiology applications of PET imaging. With
the development of the POSICAM™ HZ, POSICAM™ HZL series and now the mPowerTM 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
continue 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. The Company uses both sales personnel and key distributors
who have geographic or market expertise. Positron incurs minimal expense for
sales until there is a completed sale. Positron continued to broaden its
communications with the market in support of sales through its developing
distribution network and using the internet and directed mailings. We believe
that this approach will be cost effective and allow Positron to compete cost
effectively with larger competitors. There is no assurance that the Company’s
marketing strategy is sufficiently aggressive to compete against larger, better
funded competitors.
The
POSICAM™ System
At
the
heart of the POSICAM™ system is its detector assembly, which detects the gammas
from positron emissions, and electronic circuits that pinpoint the location
of
each emission. POSICAM™ systems are easy to use and are neither physically
confining nor intimidating to patients. POSICAM™ scans are commonly performed on
an outpatient basis.
The
Company’s POSICAM™ system compares favorably with PET systems produced by other
manufacturers based upon count rate and sensitivity. The 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™ 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, in combination
with 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™ 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 registration
of an event 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™ 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™ computer can then adjust the cross-sectional view to create
an image from any desired angle. The high number of finely spaced image slices
created by the POSICAM™ system enhances the accuracy of the interpreted image
set.
An
integral part of a POSICAM™ 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™ systems are a trained nurse, a trained
technician and an overseeing physician for patient management and
safety.
POSICAM™
HZ, HZL and mPowerTM
In
addition to the basic POSICAM™ system, the Company offers two advanced versions,
the POSICAM™ HZ and the POSICAM™ HZL, which are now being further enhanced to
become the mPowerTM product
line.
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
mPower™ systems employ new detector concepts to satisfy these needs while
maintaining the high count rate capability and sensitivity of the basic
POSICAM™. In May 1991, the Company received approval from the FDA to market the
POSICAM™ HZ, and in May 1993, the Company received a patent for the innovative
light guide and detector staggering concepts used in the POSICAM™ HZ and HZL. In
July 1993, the Company received FDA approval to market in the United States
the
POSICAM™ HZL, which has a larger axial field of view than the POSICAM™ HZ,
facilitating whole body scanning and the scanning of large organs. In July
2002,
the Company received FDA approval to market in the United States the POSICAM™
mPower™ system.
The
Company believes that the special features of the POSICAM™ HZL and mPowerTM systems
enhance
their usefulness in oncology and neurology applications. 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. In addition, the POSICAMTM system has
been
registered with the State of Texas Department of Health, Bureau of Radiation
Control, as a Device suitable for both stationary and mobile use.
Customer
Service and Warranty
The
Company has three (3) 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™
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 offers to provide service to all of its POSICAM™ systems,
however at year end 2006, the company had eight (8) service contracts in force
and one (1) system under manufacturers warranty. The Company intends to
negotiate the extension of all of the service contracts expiring in 2007;
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™ systems during 2005 and 2004.
Competition
The
Company faces competition primarily from three very large commercial
manufacturers of PET systems and from other imaging technologies. 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 other. However,
magnetic resonance angiography (“MRA”) is seen by some cardiologists to be
competitive with PET myocardial perfusion imaging (“MPI”).
The
Company’s primary competition from commercial manufacturers of PET systems comes
from General Electric Medical Systems (“GEMS”) a division of General Electric
Company (“GE”), Siemens Medical Systems, Inc. (“Siemens”) and ADAC Medical
Systems, which was acquired by Philips Medical (“Philips”). GE, Siemens and
Philips have substantially greater financial, technological and personnel
resources than the Company. See “Risk Factors—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 and are beginning to sell in the United States.
These manufacturers represent additional sources of competition that have
greater financial, technological and personnel resources than the
Company.
GE,
Siemens and Philips have introduced a scanner that combines CT scanning and
PET
in one unit. This scanner type has put Positron at a competitive disadvantage.
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.
Third-Party
Reimbursement
POSICAM™
systems are primarily purchased by medical institutions and clinics, which
provide health care services to their patients. Such institutions or patients
typically bill or seek reimbursement from various third-party payers 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 Center for Medicare and
Medicaid Services (“CMS”) formerly the U.S. Health Care Financing
Administration, 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. In 1999, CMS approved
reimbursement on a trial basis for limited cardiac, oncological, and
neurological diagnostic procedures. In December 2000, CMS expanded its coverage
in cardiology, oncology and neurology for centers utilizing true PET scanners.
In July 2001, CMS further expended its coverage of these procedures and
virtually eliminated reimbursement for SPECT imagers performing PET scans.
This
helped to strengthen the market for “true” PET scanners. In 2001, CMS also
implemented its procedures to differentiate hospital based outpatient services
from free-standing outpatient services. Under this new program, hospital based
PET centers are to be paid less for providing PET services than free-standing
centers. This program was to be finalized in 2002. Through 2004, CMS has
continued to approve additional procedures for reimbursement. Effective January
30, 2005, CMS announced PET coverage for cervical cancer. Although expanding,
Medicare and Medicaid reimbursement for PET imaging continues to be 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,
CMS 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. In December 2000, six additional procedure reimbursements were
approved in oncology, one in cardiology and one in neurology. In 2001, further
refinements of the reimbursement policies were introduced with expansion in
oncology. Whether CMS will continue to approve additional reimbursable
procedures, and whether private insurers will follow CMS’s lead are unknown at
this time. PET scanner demand in the US increased markedly after the
announcement of increasing reimbursement. It is unknown at this time if the
increase in demand will be sustained as reimbursement expands.
In
March
2000, the FDA issued a “Draft Guidance” finding 18-FDG and 13-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.
Private
insurer reimbursement. Until the expansion of coverage of CMS,
most insurance carriers considered PET imaging to be an investigational
procedure and did not reimburse for procedures involving PET imaging. However,
this perspective has begun to change as a result of Medicare’s expanding
acceptance of reimbursements for certain PET procedures. The Company believes
that certain private insurance carriers are expanding coverage as experience
is
gained with PET imaging procedures. While they may not have broad PET
reimbursement policies in place today, those providing some reimbursement for
PET scans do so on a case-by-case basis.
Any
limitation of Medicare, Medicaid or private payer coverage for PET procedures
using the POSICAM™ system will likely have a material adverse effect on the
Company’s business, financial condition, results of operations and cash
flows.
Manufacturing
The
Company has formed a Joint Venture with Neusoft Medical Systems Co.,
Ltd.
On
June
30, 2005, the Company entered into a Joint Venture Contract with Neusoft Medical
Systems Co., Inc. of Shenyang, Lianoning Province, People's Republic of China
("Neusoft"). Pursuant to the Joint Venture Contract the parties formed a
jointly-owned company, Neusoft Positron Medical Systems Co., Ltd. (the
"Manufacturing JV"), to engage in the manufacturing of PET and CT/PET medical
imaging equipment. The Manufacturing JV received its business license and was
organized in September 2005.
The
Company and Neusoft are active in researching, developing, manufacturing,
marketing and/or selling Positron Emission Tomography ("PET")
technology and both parties seek to mutually benefit from each other's
strengths, and intend to cooperate in the research, development and
manufacturing of PET technology. The purpose and scope of the Manufacturing
JV's
business is to research, develop and manufacture Positron Emission Tomography
systems (PET), and an integrated X-ray Computed Tomography system (CT) and
PET
system (PET/CT), and to otherwise provide relevant technical consultation and
services.
The
parties to the joint venture contributed an aggregate of US $2,000,000 in
capital contributions. Neusoft's aggregate contribution to the capital of the
Manufacturing JV is 67.5% of the total registered capital of the Company, or
US$
1,350,000, and was made in cash. The Company's aggregate contribution to the
capital of the Manufacturing JV is 32.5% of the total registered capital of
the
Company, or US$ 650,000, of which US$ 250,000 was made in cash, and US$ 400,000
was made in the form of a technology license. Positron has moved
available to the Manufacturing JV certain of its PET technology, while
Neusoft made available to the Manufacturing JV certain CT technology for the
development and production of an integrated PET/CT system. The parties will
share the profits, losses and risks of the Manufacturing JV in proportion to
and, in the event of losses, to the extent of their respective contributions
to
the registered capital of the Manufacturing JV.
Sales
of Neusoft Positron Medical Systems Co., Ltd.
Products
The
joint
venture will sell products manufactured by the Manufacturing JV to both joint
venture parties for further resale in the marketplace. After the ramp-up period
of the Manufacturing JV, each party has rights to and risk obligations for
its
capacity of products required from the Manufacturing JV. The parties intend
that
the manufacturing capacity of the Manufacturing JV will be shared on an
equivalent basis to each party's contribution to the registered capital of
the
Manufacturing JV, as measured by the manufacturing work and resources needed
by
the Manufacturing JV for the resulting products.
Under
its
Joint Venture Contract with Neusoft, the Company has the exclusive right to
sell
PET system products developed by the Manufacturing JV in the United States
and
Mexico under its registered trademarks, and PET/CT products developed by the
Manufacturing JV in Canada and under the trademark of "Neusoft Positron." The
Company and Neusoft have equal rights to sell PET/CT products developed by
the
Manufacturing JV in the U.S. and Mexico under the trademark of "Neusoft
Positron." Neusoft has the exclusive right to sell products developed by the
Manufacturing JV in China under its registered trademarks. Each of Neusoft
and
the Company has the right to sell products developed by the Manufacturing JV
in
the countries and regions worldwide with the exception of China, Canada, the
U.S. and Mexico where select exclusive rights apply.
While
the
parties believe that the joint venture will meet their objectives, there can
be
no assurance that the joint venture will meet such objectives, including the
development, production and timely delivery of PET and PET/CT
systems.
The
Company believes that although manufacturing and select research and development
has been outsourced, if necessary, it has the ability to assemble its POSICAM™
scanners in its 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 and test a typical POSICAM™ system in two
to three months.
There
are
several essential components of the Company’s POSICAM™ and mPowerTM 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. During 2000,
the Company qualified a second vendor for BGO crystal assemblies. This has
reduced the Company’s exposure in this critical component. While the Company
attempts to make alternate supply arrangements for photomultiplier tubes and
other critical components, in the event that the supply of any of these
components is interrupted, there is no assurance that those arrangements can
be
made and will provide sufficient quantities of 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™ 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. The Company’s research and development expenses were
approximately $1,165,000 and $446,000 for the years 2006 and 2005, respectively
and $804,000 for the six months ended June 30, 2007. The Company’s
inability to conduct such activities in the future may have a material adverse
affect on the Company’s business as a whole.
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 up to 4.0% in the aggregate of
gross revenues from sales, uses, leases, licensing or rentals of the relevant
technology. As of March 31, 2007, the Company owed royalty obligations amounting
to approximately $375,000.
The
Company has several historic domestic and international patents pertaining
to
positron emission tomography technology and currently maintains an active
U.S. patents relating to the unique construction and arrangement of the photo
detector module array used in its devices which expires in December of
2011.
The
Company seeks to protect its trade secrets and proprietary know-how through
confidentiality agreements with its consultants. The Company requires each
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 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.
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 comprehensive liability insurance coverage for its
products and premises exposures with an A++ industry leading insurance
carrier.
Employees
As
of June 30, 2007, the Company employed ten (10) full-time employees
and three (3) consultants: four (4) in engineering, one (1) in customer support,
four (4) in manufacturing, four (4) in the executive and administration
department. None of the Company’s employees are represented by a
union.
SUMMARY
FINANCIAL INFORMATION
The
following summary financial data should be read in conjunction with
“Management’s Discussion and Analysis,” “Plan of Operation” and the Financial
Statements and Notes thereto, included elsewhere in this prospectus. The
statement of operations and balance sheet data are derived from our December
31,
2006 and 2005 audited financial statements.
Summary
Operating Information
|
For
the six months ended
|
For
the years ended
|
|||||||||||||||
|
June
30, 2007
(Unaudited)
|
June
30, 2006
(Unaudited)
|
December
31,
2006
|
December
31,
2005
|
|||||||||||||
|
Revenues
|
2,070,000
|
464,000
|
2,213,000
|
762,000
|
||||||||||||
|
Gross
Profit
|
625,000
|
136,000
|
790,000
|
(526,000)
|
||||||||||||
|
Total
operating expenses
|
2,772,000
|
1,832,000
|
4,603,000
|
2,526,000
|
||||||||||||
|
Net
loss
|
(2,226,000)
|
(4,271,000
|
) |
(6,586,000
|
)
|
(3,806,000
|
)
|
|||||||||
|
Net
loss per common share, basic and diluted
|
$
|
(0.02
|
)
|
$
|
(0.05
|
)
|
(0.08
|
)
|
(0.06
|
)
|
||||||
|
Weighted
average number of shares outstanding basic and diluted
|
91,513,000
|
78,995,000
|
81,508,000
|
65,044,000
|
||||||||||||
Summary
Balance Sheet Data
|
|
June
30, 2007
(Unaudited)
|
December
31,
2006
|
||||||
|
Total
current assets
|
2,251,000
|
4,392,000
|
||||||
|
Total
assets
|
5,172,000
|
5,271,000
|
||||||
|
Total
current liabilities
|
2,943,000
|
3,521,000
|
||||||
|
Total
stockholders’ (deficit)
|
(3,234,000 | ) | (1,132,000 | ) | ||||
RISK
FACTORS
An
investment in the shares of Series B Preferred Stock to be sold in this offering
is highly speculative and involves a high degree of risk. You should carefully
review the following risk factors and the other information contained in this
prospectus, including the financial statements and the related notes at the
end
of this prospectus, before deciding to invest in our shares of common stock.
If
any of the risks actually occurs, our business prospects, financial condition
and operating results would likely be adversely affected and could be materially
adversely affected. The market price of our common stock could then decline,
and
you could lose all or part of your investment in our shares.
Risks
Relating to Our Business
Risks
Associated with Business Activities
History
of Losses. To date the Company has been unable to sell POSICAM™
systems in quantities sufficient to be operationally profitable.
Consequently,
the Company has sustained substantial losses. During the six months ended
June 30, 2007, the Company had a net loss of approximately
$2,226,000 compared to a net loss of $3,115,000 during 2006. At June 30,
2007, the Company had an accumulated deficit of approximately
$71,051,000. There can be no assurances that the Company will ever achieve
the level of revenues needed to be operationally profitable in the future and
if
profitability is achieved, that it will be sustained. Due to the sizable sales
price of each POSICAM™ 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. The opinion of the Company’s independent auditors
for the year ended December 31, 2006 expressed substantial doubt as to the
Company’s ability to continue as a going concern. The Company will need to
increase system sales to become profitable or obtain additional
capital.
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.
Working
Capital. The Company had cash and cash equivalents of $173,000
at June 30, 2007. The Company received an additional $200,000 and
$2,375,000 in loan proceeds from affiliated entities in 2006 and 2005,
respectively and $1,300,000 from third-party financing in the second quarter
2006. In spite of the loan proceeds, the Company believes that it is possible
that it may continue to experience operating losses and accumulate deficits
in
the foreseeable future. If we are unable to obtain 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.
Going
Concern. In their report dated March 26, 2007, our
independent registered public accounting firm stated that our financial
statements for the year ended December 31, 2006 were prepared assuming that
we
would continue as a going concern. Our ability to continue as a going concern
is
an issue raised as a result of substantial losses for the year ended December
31, 2006. We continue to experience net operating losses. Our ability to
continue as a going concern is subject to our ability to generate a profit
and/or obtain necessary funding from outside sources, including obtaining
additional funding from the sale of our securities, increasing sales or
obtaining loans and grants from various financial institutions where possible.
Our continued net operating losses increases the difficulty in meeting such
goals and there can be no assurances that such methods will prove
successful.
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™ 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 GE, CTI/Siemens and ADAC/Philips, each
of which has significantly greater financial and technical resources and
production and marketing capabilities than the Company. These organizations
are
better known than the Company and likely have greater access to medical
facilities and potential purchasers of our systems. 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 SPECT. There
can be no assurance that the Company will be able to compete successfully
against any of its competitors.
No
Assurance of Market Acceptance. The POSICAM™ systems involve
new technology that competes with more established diagnostic techniques. The
purchase and installation of a PET system involves a significant capital
expenditure on the part of the purchaser. A potential purchaser of a PET system
must have an available patient base that is large enough to provide the
utilization rate needed to justify such capital expenditure. There can be no
assurance that PET technology or the Company’s POSICAM™ systems will be accepted
by the target markets, or that the Company’s sales of POSICAM™ systems will
increase or that the Company will 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 of its consultants 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, remanufacturing,
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, the safety and effectiveness for which 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. The Company submitted an application for
such a 510(k) clearance on June 18, 2002 and was granted a new 510(k) on July
12, 2002, number K022001.
After
being issued an FDA warning letter in April 2004, the Company was able to
quickly respond and correct observations noted. Therefore, in June of 2005,
the
FDA removed the restrictions placed upon the Company by the April 2004 Warning
Letter as a result of the corrections and improvements in the March 2005
inspection. The Company has satisfied the compliance requirements set
forth by the FDA.
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. Positron submitted a new application to the Texas
Department of Health for a Radioactive Material License on July 10, 2000 and
was
granted a Radioactive Material License with an expiration date of July 31,
2007.
During a July 2005 Radiation audit, the company was noted for minor
violations, which were addressed and corrected. At this time the company
is in full compliance with Texas Radiation Codes, however, there is no
assurance that violations may not occur in the future which could have a
material adverse effect on the Company’s operations. In addition, Texas
state law requires a safety evaluation of devices that contain radioactive
materials. The Company submitted an application for such an evaluation to
the Texas Department of Health, Bureau of Radiation Control. As a result,
Positron’s medical diagnostic scanner has been placed on the Registry of
Radioactive Sealed Sources and Devices as of September 20, 2001.
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™ 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 $1 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.
Need
for Future Funding. We may need to raise additional funds
through public or private debt or sale of equity to achieve our current business
strategy. The financing we need may not be available when needed. Even if this
financing is available, it may be on terms that we deem unacceptable or are
materially adverse to your interests with respect to dilution of book value,
dividend preferences, liquidation preferences, or other terms and may involve
a
substantial dilution to our shareholders. Our inability to obtain financing
will
inhibit our ability to implement our development strategy, and as a result,
could require us to diminish or suspend our development strategy and possibly
cease our operations.
If
we are
unable to obtain additional financing on reasonable terms, we could be forced
to
delay, scale back or eliminate certain product and service development programs.
In addition, such inability to obtain additional financing on reasonable terms
could have a negative effect on our business, operating results, or financial
condition to such extent that we are forced to restructure, file for bankruptcy,
sell assets or cease operations, any of which could put your investment dollars
at significant risk.
Potential
Decrease in Market Price. Sales of substantial amounts of our
common stock in the public market could decrease the prevailing market price
of
our common stock. If this is the case, investors in our shares of common stock
may be forced to sell such shares at prices below the price they paid for their
shares, or in the case of the investors in the May 2006 financing, prices below
the price they converted their notes and warrants into shares. In addition,
a
decreased market price may result in potential future investors losing
confidence in us and failing to provide needed funding. This will have a
negative effect on our ability to raise equity capital in the
future.
General
condition of the healthcare market. The Company’s business is
subject to global economic conditions, and in particular, market conditions
in
the healthcare industry. The Company’s operations may be adversely affected by
the continued declines in employee benefit spending by large corporations and
small to medium sized businesses. If global economic conditions worsen, or
a
prolonged slowdown in providing such benefits exists, then the Company may
experience adverse operating results.
Product
Acceptance. The Company’s business plan depends upon the
acceptance of our Posicam™ systems and PET scanning generally for oncological
caridological and neurological applications Lack of acceptance in the healthcare
industry for our imaging systems and services could have a material adverse
effect on the Company’s business, results of operations and financial
condition.
Dividends
Policy.
The
holders of our Series B Preferred Stock are not entitled to receive any
dividends.
Risks
Related to This Offering
Shares
Eligible for Future Sale.
While
there is currently no public market for the shares of our Series B all of the
shares of Series B outstanding are “restricted securities,” as that term is
defined under Rule 144 promulgated under the Securities Act of 1933, as amended
(the “Securities Act”). In general, under Rule 144, a person (or
persons whose shares are aggregated) who has satisfied a one-year holding period
may under certain circumstances sell without registration under the Securities
Act within any three-month period that number of shares which does not exceed
the greater of one percent of the then outstanding Series B or the average
weekly trading volume of such stock during the four calendar weeks prior to
such
sale. Rule 144 also permits, under certain circumstances, the sales
of shares without any volume limitation by a person who has satisfied a two-year
holding period and who is not, and has not been for the preceding three months,
an affiliate of the Company.
Voting
Control.
Our
principal stockholders and affiliates control approximately 82% of our
outstanding voting stock and are expected to continue to control a majority
of
our outstanding voting stock following any financing transactions projected
for
the foreseeable future. These affiliates effectively control all matters
requiring approval by the stockholders, including any determination with respect
to the acquisition or disposition of assets, future issuances of securities,
declarations of dividends and the election of directors. This concentration
of
ownership may also delay, defer, or prevent a change in control and otherwise
prevent stockholders other than our affiliates from influencing our direction
and future.
Absence
of a Public Market.
There
is
no public market for our Series B, and we can provide no assurance that a public
market for our Series B will develop in the future. Even if a public market
does
develop, the volume of trading in our Series B will presumably be limited and
likely dominated by a few individuals. The limited volume, if any, will make
the
price of our common stock subject to manipulation by one or more stockholders
and will significantly limit the number of shares that one can purchase or
sell
in a short period of time. An investor may find it difficult to dispose of
shares of our common stock or obtain a fair price for our common stock in the
market.
Volatility
of Market Price.
If
a
market for our Series B and of our common stock develops, the market price
of
our Series B, like that of the securities of other early-stage companies, may
be
highly volatile. Our stock price may change dramatically as the result of
announcements of our quarterly results, the rate of our expansion, significant
litigation or other factors or events that would be expected to affect our
business or financial condition, results of operations and other factors
specific to our business and future prospects. In addition, the market price
for
our common stock may be affected by various factors not directly related to
our
business, including the following:
|
|
●
|
short
selling of our common stock or related derivative
securities;
|
|
|
●
|
a
single acquisition or disposition, or several related acquisitions
or
dispositions, of a large number of our
shares;
|
|
|
●
|
the
interest, or lack of interest, of the market in our business sector,
without regard to our financial condition or results of
operations;
|
|
|
●
|
the
adoption of governmental regulations and similar developments in
the
United States or abroad that may affect our ability to offer our
products
and services or affect our cost
structure;
|
|
|
●
|
developments
in the businesses of companies that purchase our products;
and
|
|
|
●
|
economic
and other external market factors, such as a general decline in market
prices due to poor economic indicators or investor
distrust.
|
Anti
Takeover Provisions.
Under
our
Articles of Incorporation, we are authorized to issue up to 10,000,000 shares
of
preferred stock and 800,000,000 shares of common stock without seeking
stockholder approval. Our board of directors has the authority to create various
series of preferred stock with such voting and other rights superior to those
of
our common stock and to issue such stock without stockholder approval. Any
issuance of such preferred stock or common stock would dilute the ownership
and
voting power of existing holders of our common stock and may have a negative
effect on the price of our common stock. The issuance of preferred stock without
stockholder approval may also be used by management to stop or delay a change
of
control, or might discourage third parties from seeking a change of control
of
our company, even though some stockholders or potential investors may view
possible takeover attempts as potentially beneficial to our
stockholders.
Arbitrary
Determination of Offering Price.
The
offering price for the shares of Common Stock was determined arbitrarily, and
such price should not be considered an indication of the actual value of the
Company as it bears no relationship to the book value, assets, or earnings
to
the Company or to other recognized criteria of value.
Substantial
sales.
If
our
selling stockholders sell a large number of shares of our Series B or the public
market perceives that existing stockholders may sell shares of Series B, the
market price of our Series B could decline significantly. All of the shares
being sold in this offering, once registered, will be freely tradable without
restriction or further registration under the federal securities laws unless
purchased by our “affiliates,” as that term is defined in Rule 144 under
the Securities Act of 1933.
Texas
anti-takeover provisions.
As
a
Texas corporation, we are subject to provisions of the TBCA regarding “business
combinations,” as that term is defined in the TBCA. We may, in the future,
consider adopting additional anti-takeover measures. The anti-takeover
provisions of the TBCA, as well as any future anti-takeover measures adopted
by
us, may, in certain circumstances, delay, deter or prevent takeover attempts
and
other changes in control of the company not approved by our board of directors.
As a result, our stockholders may lose opportunities to dispose of their shares
at favorable prices generally available in takeover attempts or that may be
available under a merger proposal, and the market price, voting and other rights
of the holders of common stock may also be affected.
Risks
Related to Our Stock Being Publicly Traded
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.
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. We anticipate that the
Series B Preferred Stock will trade, if at all at a price less than $5.00 per
share. As a penny stock, the market liquidity for the Company’s
Series B will be severely affected due to the limitations placed on
broker/dealers that sell the Series B in the public market.
The
additional burdens imposed upon broker- dealers by such requirements may
discourage broker-dealers from effecting transactions in our securities, which
could severely limit the market price and liquidity of our securities.
Broker-dealers who sell penny stocks to certain types of investors are required
to comply with the Commission’s regulations concerning the transfer of penny
stocks. These regulations require broker- dealers to:
|
|
·
|
Make
a suitability determination to selling a penny stock to the
purchaser;
|
|
|
·
|
Receive
the purchaser’s written consent to the transaction; and
|
|
|
·
|
Provide
certain written disclosures to the
purchase.
|
These requirements may restrict the ability of broker-dealers
to sell our Series B Shares and may affect your ability to resell our Series
B
Shares.
Reporting
Requirement. Since we intend to trade the Series
B on the OTC Bulletin Board, where our common stock is currently traded, we
must
be reporting issuers under Section 12 of the Securities Exchange Act of 1934,
as
amended, and must be current in their reports under Section 13, in order to
maintain price quotation privileges on the OTC Bulletin Board. If we fail to
remain current on our reporting requirements, we could be removed from the
OTC
Bulletin Board. As a result, the market liquidity for our securities could
be
severely adversely affected by limiting the ability of broker-dealers to sell
our securities and the ability of stockholders to sell their securities in
the
secondary market.
CAUTIONARY
INFORMATION REGARDING FORWARD-LOOKING
STATEMENTS
This
prospectus and any other written or oral statements made by or on our behalf
may
include forward-looking statements that reflect our current views with respect
to future events and future financial performance. You can identify these
forward-looking statements by our use of the words “believes,” “anticipates,”
“forecasts,” “projects,” “could,” “plans,” “expects,” “may,” “will,” “would,”
“intends,” “estimates” and similar expressions, whether in the negative or
affirmative. We wish to caution you that any forward-looking statements made
by
us or on our behalf are subject to uncertainties and other factors that could
cause such statements to be wrong. We cannot guarantee that we actually will
achieve these plans, intentions or expectations. Actual results or events could
differ materially from the plans, intentions and expectations disclosed in
the
forward-looking statements that we make. These statements are only predictions
and speak only of our views as of the date the statements were made. Although
we
believe that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity and/or
performance of achievements. We do not assume any obligation to update or revise
any forward-looking statements that we make, whether as a result of new
information, future events or otherwise.
Factors
that may impact forward-looking statements include, among others, our abilities
to maintain the technological competitiveness of our current products, develop
new features for our products, successfully market our products, respond to
competitive developments, develop and maintain strategic relationships with
providers of complementary technologies, manage our costs and the challenges
that may come with growth of our business and attract and retain qualified
sales, technical and management employees. We are also affected by the growth
and regulation of the semiconductor industry. Although we have attempted to
list
comprehensively these important factors, we also wish to caution investors
that
other factors may prove to be important in the future in affecting our operating
results. New factors emerge from time to time, and it is not possible for us
to
predict all of these factors, nor can we assess the impact each factor or
combination of factors may have on our business.
USE
OF PROCEEDS
The
net
proceeds from the disposition of the shares of our Series B covered by this
prospectus will be received by the Selling Stockholders. We will not
receive any of the proceeds from such sales.
SELLING
STOCKHOLDERS
This
prospectus covers offers and sales of shares of our Series B Preferred Stock
by
the selling stockholders identified below.
Imagin
Diagnostic Centres, Inc. (“IDC”) is the Company’s largest finance partner and
largest shareholder of the Company’s voting stock. On September 30,
2006, the Company issued IDC 690,930.5 shares of Series B upon conversion of
$1,164,192 of principal and accrued interest on Series E Convertible Notes
and
$877,669 on Convertible Secured Notes made by the Company in favor of
IDC.
On
May 8,
2006, the Company issued 650,000 shares of Series B to Quantum Molecular
Pharmaceuticals, Inc., a subsidiary of IDC (“QMD”) in consideration for a
promissory note in the amount of $1,300,000. Also on May 8, 2006, the
Company issued 1,250,000 shares of Series B for the restructured obligations
of
the Quantum Molecular Technologies, Inc. (“QMT”) and IPT transactions and an
additional 2,400,000 shares of Series B in consideration of a promissory note
in
the amount of $2,400,000. The Company and Positron Corporation
converted $818,066 of principal and interest outstanding upon the Series D
Secured Convertible Promissory Notes and 720,000 shares of Series C Preferred
Stock into 762,358 shares of Series B Preferred Stock. PAC
subsequently converted 40,000 shares of Series B into 4,000,000 shares of the
Company’s Common Stock. The Company and QMP converted the $453,144 of
principal and interest outstanding upon the Series F Convertible Promissory
Notes into 226,572 shares of Series B Preferred Stock.
Commencing
March 2006, IDT commenced an Offering under the Canadian Securities law of
its
Class A Preferred Shares (the “Class A Shares”). IPT offered units at
a purchase price of CDN $50,000 comprised of 100,000 shares of IPT Class A
Shares. The Class A Shares were convertible into shares of IPT’s
common stock or at the holder’s option, to redeem the Class A Shares for shares
of the Company’s Series B held by IPT. Having received subscriptions
for US $2,625,000, IPT assigned all 650,000 shares of Series B to the
subscribers and on August 15, 2007, the Company issued an additional 136,250
shares to subscribers.
The
table below identifies the selling
stockholders and shows the number of shares of Series B Preferred Stock
beneficially owned by each of the selling stockholders as of August 28, 2007
and the number of shares offered for
resale by each of the selling stockholders. Our registration of these
shares does not necessarily mean that any selling stockholder will sell all
or
any of their shares of common stock. However, the “Shares Beneficially
Owned After Offering” columns in the table assume that all shares covered by
this prospectus will be sold by such selling stockholders and that no additional
shares of common stock will be bought or sold by any selling stockholder.
Except as indicated in the table, no selling stockholder has had, within the
past three years, any position, office or other material relationship with
us
other than as a result of ownership of shares or serving as selling agent in
connection with our previous private placements. No estimate can be given
as to the number of shares that will be held by the selling stockholders after
completion of this offering because the selling stockholders may offer some
or
all of the shares and, to our knowledge, that are currently no agreements,
arrangements or understandings with respect to the sale of any of the shares
except our agreements with the selling stockholders to register the resale
of
the shares.
|
Name
of Stockholders
|
Shares
beneficially
owned
as of
the
date of
this
prospectus
|
Percent
owner
as
of the date of
this
prospectus
|
Maximum
number
of
shares
to be
sold
pursuant
to
this
prospectus
|
Percent
owned
after
the
primary
offering
is
complete
|
Position,
office
or
other
material
relationship to the company since inception
|
||||||||||||
|
Ansell,
George
119
Springbank Villas S.W.
Calgary AB T3H
4S9
|
5,000
|
.08 | % |
5,000
|
0 | % | |||||||||||
|
Arnason,
Ronald
P.O.
Box 398
Rainbow Lake AB
T0H 2Y0
|
10,000
|
.17 | % |
10,000
|
0 | % | |||||||||||
|
Bernhard,
Regan
PO
Box 221
Muenster SK S0K
2Y0
|
5,000
|
.08 | % |
5,000
|
0 | % | |||||||||||
|
Berning,
Jesper
Vestre
Pennehavevej 3A
DK-2960
Rungsted Kyst
Denmark
|
12,500
|
.21 | % |
12,500
|
0 | % | |||||||||||
|
Bibby,
Michael
143
Somercrest Gdns. SW
Calgary
AB T2Y 3k5
|
10,000
|
.17 | % |
10,000
|
0 | % | |||||||||||
|
Bullock,
Robert
16623
- 28th Avenue
Surrey BC V3S
0A9
|
10,000
|
.17 | % |
10,000
|
0 | % | |||||||||||
|
Caplan,
Harold
9611
Moonlight Dr.
Houston,
Texas 77096
|
7,500
|
.13 | % |
7,500
|
0 | % | |||||||||||
|
Carter,
Richard
3
Grassy Lane
Westford,
MA O1886
|
5,000
|
.08 | % |
5,000
|
0 | % | |||||||||||
|
Chemiwchan,
Dennis
4825
- 118th Ave.
Edmonton AB T5W
1B5
|
5,000
|
.08 | % |
5,000
|
0 | % | |||||||||||
|
Crippen,
Lou
13408
Comber Way
Surrey BC V3W
5V9
|
5,000
|
.08 | % |
5,000
|
0 | % | |||||||||||
|
D'Agostino,
Thomas
118
Seaview Ave.
Palm
Beach, FL 33480-4233
|
1,250
|
.02 | % |
1,250
|
0 | % | |||||||||||
|
D'Agostino,
Jonathan
38
Hack Green Rd.
Pound
Ridge, New York 10576
|
8,750
|
.15 | % |
8,750
|
0 | % | |||||||||||
|
Dahl,
Betty
8097
- 149th Street
Surrey BC V3S
7H4
Canada
|
10,000
|
.17 | % |
10,000
|
0 | % | |||||||||||
|
Dahl,
Shawn
14736
Thrift Avenue
Whiterock,
BC
|
10,000
|
.17 | % |
10,000
|
0 | % | |||||||||||
|
Davies,
Steven
24
Edgehill Rd.
Toronto ON M9A
4N3
|
2,500
|
.04 | % |
2,500
|
0 | % | |||||||||||
|
Dixon,
Peter
22
South Ave.
Paisley
Scotland PA2 7SP
United
Kingdom
|
5,000
|
.08 | % |
5,000
|
0 | % | |||||||||||
|
Dryden,
Gordon
1706
Rutherford Pt. SW
Edmonton AB T6W
1J6
|
5,000
|
.08 | % |
5,000
|
0 | % | |||||||||||
|
Fantin,
Daniel
2902
Rainwater Dr
Mississauga ON L5N
6K8
|
2,500
|
.04 | % |
2,500
|
0 | % | |||||||||||
|
Fehr,
Victor
345
Mountain Street South
Morden MB R6M
1J5
|
10,000
|
.17 | % |
10,000
|
0 | % | |||||||||||
|
Ferster,
Larry
P.O.
Box 4039
Edmonton AB T6E
4S8
|
10,000
|
.17 | % |
10,000
|
0 | % | |||||||||||
|
Fiore,
Joseph
1
Green Meadow Lane
Cincinnati,
Ohio 45242
|
10,000
|
.17 | % |
10,000
|
0 | % | |||||||||||
|
Fitzgerald,
Gerald
2
Temple Vilas
Dubline
Rathmines
Ireland
|
5,000
|
.08 | % |
5,000
|
0 | % | |||||||||||
|
Fournier,
Dominique and Fournier, Nicole
170
Bickenhall Mansions, Bickenhall St
London England
W1U 68U
United
Kingdom
|
10,000
|
.17 | % |
10,000
|
0 | % | |||||||||||
|
Freling,
Louis
Clos
De Ca Bassire
1267
VICH
Switzerland
|
10,000
|
.17 | % |
10,000
|
0 | % | |||||||||||
|
Gamola,
Ed
P.O.
Box 1535
Humboldt,
SK S0K 2A0
|
5,000
|
.08 | % |
5,000
|
0 | % | |||||||||||
|
Ghali,
Kamil
365
Kananaskis Way
Devon AB T9G
2C4
|
10,000
|
.17 | % |
10,000
|
0 | % | |||||||||||
|
Gouin,
Denis
Box
14
Lafond AB T0A
2G0
|
10,000
|
.17 | % |
10,000
|
0 | % | |||||||||||
|
Gubser,
Andreas
2525
Niederuruufern
Zurich
Switzerland
|
10,000
|
.17 | % |
10,000
|
0 | % | |||||||||||
|
Guy,
Phillipe
4,
Rue D'Aguesseau
Paris
75008
France
|
20,000
|
.33 | % |
20,000
|
0 | % | |||||||||||
|
Gwin,
James
858
Thermal Drive
Coquitlam BC V3J
6R6
|
5,000
|
.08 | % |
5,000
|
0 | % |
|
Halliday,
Norman
Currs
Farm Crowborough Hill
Crowborough
East
Sussex
TN5 2SD
United
Kingdom
|
25,000
|
.42 | % |
25,000
|
0 | % | |||||||||||
|
Hill,
Steven
17
Shannon Green SW
Calgary AB T2Y
2K4
|
10,000
|
.17 | % |
10,000
|
0 | % | |||||||||||
|
Himbeault,
Gene
1017
McLean
Vancouver BC V3L
3N2
|
5,000
|
.08 | % |
5,000
|
0 | % | |||||||||||
|
Hipkin,
Raymond
Scotlands
Farm
Warfield
Berkshire RG42 6AJ
United
Kingdom
|
25,000
|
.42 | % |
25,000
|
0 | % | |||||||||||
|
Huber,
Dennis
9
Revine Dr RR1
Dewinton AB T0L
0X0
|
5,000
|
.08 | % |
5,000
|
0 | % | |||||||||||
|
Imagin
Diagnostic Centres, Inc.
610
Granville Street
Suite
3014
Vancouver,
BC V6C 3T3
|
4,367,503.5
|
73.7 | % |
500,000
|
65.3 | % |
Principal
Shareholder
|
||||||||||
|
Juohki,
Timo
Obere
Reaharde 46, Ch 6340
Baar
Switzerland
|
10,000
|
.17 | % |
10,000
|
0 | % | |||||||||||
|
Knutson,
Brian
Box
72060, 90th Avenue
Edmonton AB T6B
3A7
|
10,000
|
.17 | % |
10,000
|
0 | % | |||||||||||
|
Leder,
John
10457
184 Street NW
Edmonton AB T5S
1G1
|
50,000
|
.84 | % |
50,000
|
0 | % | |||||||||||
|
Leder,
John
10457
184 Street NW
Edmonton AB T5S
1G1
|
50,000
|
.84 | % |
50,000
|
0 | % | |||||||||||
|
Lee,
Colin
2749
McColl Pl.
Victoria
BC V8N 5Y8
|
7,500
|
.13 | % |
7,500
|
0 | % | |||||||||||
|
Mammitzsch,
Hans-Juergen
Im
Steingarten 29 Siegen 57074
Germany
|
20,000
|
.33 | % |
20,000
|
0 | % | |||||||||||
|
McLennan,
Neil
11450
149 Street NW
Edmonton AB T5M
1W7
|
5,000
|
.08 | % |
5,000
|
0 | % | |||||||||||
|
Mones,
James
1077
Falconer Road NW
Edmonton AB T6R
2C9
|
10,000
|
.17 | % |
10,000
|
0 | % | |||||||||||
|
Montgomery,
Celestine
9678
- 95th Ave.
Edmonton AB T6C
2A4
|
12,500
|
.21 | % |
12,500
|
0 | % | |||||||||||
|
Napier,
John Alan
The
Mill Church Road
Fingringhoe
Essex CO5 7BN
United
Kingdom
|
75,000
|
1.26 | % |
75,000
|
0 | % |
|
O'Neil,
Cindy
8990
Samson Road
Prince
George BC V2N 5B1
|
5,000
|
.08 | % |
5,000
|
0 | % | |||||||||||
|
O'Neill,
Kenneth
PO
Box 906
Hamilton
HM DX
Bermuda
|
6,250
|
.11 | % |
6,250
|
0 | % | |||||||||||
|
Oy,
Thominvest
Italahdenkatu
15 - 17
Helsinki
00210
Finland
|
50,000
|
.84 | % |
50,000
|
0 | % | |||||||||||
|
Paludet,
Paul
10025
106 Street NW
Edmonton AB T5J
1G4
|
5,000
|
.08 | % |
5,000
|
0 | % | |||||||||||
|
Pearson,
Gerald
4800
Leslie Street, Suite 306
North
York ON M2J 2K9
|
5,000
|
.08 | % |
5,000
|
0 | % | |||||||||||
|
Peck,
Jeffrey
5900
Cromwell Drive
Bethesda,
MD 20816
|
10,000
|
.17 | % |
10,000
|
0 | % | |||||||||||
|
Perlmutter,
David
20103
Saratoga Pierce Rd
Saratoga,
California
|
10,000
|
.17 | % |
10,000
|
0 | % | |||||||||||
|
Peters,
David
13945
- 56th Avenue
Surrey BC V3X
2Z9
|
10,000
|
.17 | % |
10,000
|
0 | % | |||||||||||
|
Poeter,
Gord
PO
Box 59013 RPO River Bend
Edmonton AB T6H
5Y3
|
5,000
|
.08 | % |
5,000
|
0 | % | |||||||||||
|
Positron
Acquisition Corp.
104
W. Chestnut Street, Suite 315
Hinsdale,
IL 60521
|
722,358
|
12.2 | % |
722,358
|
12.2 | % |
Principal
Shareholder
|
||||||||||
|
Russo,
Paul
13050
La Paloma Rd.
Los
Altos, CA 94022
|
25,000
|
.42 | % |
25,000
|
0 | % | |||||||||||
|
Silver,
Anthony
Le
Manoir de la Maison
Couffouleux
81800
France
|
5,000
|
.08 | % |
5,000
|
0 | % | |||||||||||
|
Slette,
Michael
39
River Oaks Point
Moorhead,
MN 56560
|
10,000
|
.17 | % |
10,000
|
0 | % | |||||||||||
|
Somers,
John
301
Maple Avenue
Georgetown ON L7G
1W9
|
10,000
|
.17 | % |
10,000
|
0 | % | |||||||||||
|
Suvan,
Norman
10585
108 St. NW
Edmonton AB T5H
2Z8
|
10,000
|
.17 | % |
10,000
|
0 | % | |||||||||||
|
Van
Aard, Joop
Zanarbergiaan
17 4818GH
Brega
Netherlands
|
10,000
|
.17 | % |
10,000
|
0 | % |
|
Vergouwen,
Gwen
287
Wolverine Drive
Fort
McMurray AB T9H 4M3
|
10,000
|
.17 | % |
10,000
|
0 | % | |||||||||||
|
Vergouwen,
Gwen
287
Wolverine Drive
Fort
McMurray AB T9H 4M3
|
10,000
|
.17 | % |
10,000
|
0 | % | |||||||||||
|
Wesselius,
Ken
1037
- 5th Street
Brandon
MB R7A 3M1
|
5,000
|
.08 | % |
5,000
|
0 | % | |||||||||||
|
West,
Barry
209
South Saint Asaph St.
Alexandria,
VA 22314
|
10,000
|
.17 | % |
10,000
|
0 | % | |||||||||||
|
Weyer,
Christian
36,
Blvd. Helvetique
Geneva Switzerland
|
5,000
|
.08 | % |
5,000
|
0 | % | |||||||||||
|
White,
David
6
Little Dragons
Loughton
Essex IG10 4DG
United
Kingdom
|
75,000
|
.42 | % |
75,000
|
0 | % | |||||||||||
|
Wilson,
William
Box
221
Houston BC V0S
1Z0
|
10,000
|
.17 | % |
10,000
|
0 | % | |||||||||||
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Winton,
Bruce
14315
118th Ave. NW Ste. 138
Edmonton AB T5L
4S6
|
5,000
|
.08 | % |
5,000
|
0 | % | |||||||||||
|
Wollin,
Harry
1611
- 9th Street NW
Calgary AB T2M
3L5
|
10,000
|
.17 | % |
10,000
|
0 | % | |||||||||||
|
Youssou,
Cyril
33
Rue Fondary
Paris
75015
France
|
5,000
|
.08 | % |
5,000
|
0 | % |
Shareholders: 71
Total: 5,926,111.5
PLAN
OF DISTRIBUTION
We
are
registering the Series B Shares covered by this prospectus for the selling
stockholders pursuant to registration rights we granted to them. The
selling stockholders are acting independently from us in determining the manner
and extent of sales of the shares of our common stock after the date of this
prospectus. As used in this prospectus, the term “selling stockholders”
includes the selling stockholders named in the table set forth in the section
of
this prospectus entitled “Selling Stockholders” and any of their donees,
pledgees and transferees and other successors-in-interest selling shares
received from a named selling stockholder as a gift, partnership distribution
or
other non-sale related transfer after the date of this
prospectus. While there is currently no market for our shares of
Series B Shares, once this prospectus id declared effective, such sales may
be
made in one or more types of transactions (which may include block transactions)
on Over the Counter Bulletin Board, in negotiated transactions, through put
or
call option transactions relating to the shares, through short sales of shares,
hedging transactions, or a combination of such methods of sale, at market prices
prevailing at the time of sale, or at negotiated prices. Such
transactions may or may not involve brokers or dealers or by means of one or
more of the following transactions:
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in
a block trade in which a broker or dealer will attempt to sell the
shares
as agent but may position and resell a portion of the block as principal
to facilitate the transaction;
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•
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in
transactions in which brokers, dealers or underwriters purchase the
shares
as principal and resell the shares for their own accounts under this
prospectus;
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•
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in
ordinary brokers’ transactions and transactions in which the broker
solicits purchasers;
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•
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in
connection with the loan or pledge of the shares of common stock
registered to a broker or dealer, and the sale of the Series B so
loaned
or the sale of the shares so pledged upon a
default;
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in
connection with the writing of non-traded and exchange-traded call
options, in hedge transactions and in settlement of other transactions
and
standardized or over-the-counter options;
or
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in
a combination of any of the above
methods.
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To
our
knowledge, the selling stockholders have made no arrangements or agreements
with
any underwriters, brokers or dealers regarding the resale of the Series B prior
to the effective date of this prospectus. The selling stockholders
may pay compensation to brokers, dealers or agents in the form of commissions,
discounts or concessions, which compensation may be less than or in excess
of
the customary rates of such brokers or dealers for similar
transactions.
We
estimate the total fees and expenses will be $31,039.09. These
expenses include legal and accounting fees incurred in preparing the
registration statement of which this prospectus is a part, legal and other
fees
in connection with the qualification of the sale of the shares under the laws
of
states, registration and filing fees and other expenses. The selling
stockholders will pay all other expenses incident to the offering and sale
of
the shares to the public, including any commissions, discounts or concessions
of
underwriters, brokers, dealers or agents.
The
selling stockholders also may sell these shares in accordance with Rule 144
under the Securities Act of 1933, if Rule 144 is then
available.
The
participating selling stockholders and any underwriters, brokers or dealers
engaged by them may be deemed to be statutory underwriters under the Securities
Act of 1933. In addition, to the extent that selling stockholders who are
affiliates of broker-dealers did not acquire their shares of Positron in the
ordinary course of business or had an agreement or understanding to dispose
of
the shares, such affiliates would be designated as “underwriters” under the
Securities Act of 1933. Any profits on sales of the Series B by them and
any discounts, commissions or concessions received by any selling stockholder
or
underwriter, broker or dealer may be deemed to be underwriting discounts or
commissions under the Securities Act of 1933.
If
a
selling stockholder notifies us that a material arrangement has been entered
into with an underwriter, broker or dealer for the sale of the Series B Shares
through a secondary distribution or a purchase by an underwriter, broker or
dealer, we will file a supplement to this prospectus, if required, disclosing
such of the following information as we believe is appropriate:
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the
name of each such
selling stockholder and of the participating underwriter, broker
or
dealer;
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•
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the
number of shares of Series B
involved;
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•
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the
price at which such Series B was
sold;
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the
commissions paid or discounts or concessions allowed to such underwriter,
broker or dealer; and
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•
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other
facts material to the transaction.
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Although
all of the Series B Shares are being registered for public sale, the sale of
any
or all of such shares by the selling stockholders may depend on the sale price
of such shares and market conditions generally prevailing at the
time. We are unable to predict the effect that sales of the common
stock offered and sold under this prospectus may have upon our ability to raise
further capital.
Because
selling stockholders may be deemed to be “underwriters” within the meaning of
the Securities Act of 1933, the selling stockholders will be subject to the
prospectus delivery requirements of the Securities Act of 1933 and the rules
promulgated thereunder.
In
order
to comply with some states’ securities laws, the Series B Shares will be sold in
these states only through registered or licensed brokers or
dealers. In addition, in some states, the Series B Shares may not be
sold unless they have been registered or qualified for sale in such states
or an
exemption from registration or qualification is available and complied
with.
DESCRIPTION
OF OUR SECURITIES
The
following is a description of our capital stock and other securities and the
material provisions of our certificate of incorporation, bylaws and other
agreements. The following is only a summary and is qualified by applicable
law
and by the provisions of our certificate of incorporation, bylaws and other
agreements, copies of which are available as set forth under “Where You Can Find
More Information.”
General
Our
authorized capital stock consists of 800,000,000 shares of common stock at
a par
value of $ 0.01 per share and 10,000,000 shares of preferred stock at a par
value of $1.00 per share.
Common
Stock
As
of August 28, 2007,
97,033,302 shares of common stock are
issued and outstanding and held by 268 shareholders. Holders of our common
stock
are entitled to one vote for each share on all matters submitted to a
stockholder vote.
Holders
of common stock do not have cumulative voting rights. Therefore,
holders of a majority of the shares of common stock voting for the election
of
directors can elect all of the directors. Holders of our common stock
representing a majority of the voting power of our capital stock issued and
outstanding and entitled to vote, represented in person or by proxy, are
necessary to constitute a quorum at any meeting of our stockholders. A vote
by
the holders of a majority of our outstanding shares is required to effectuate
certain fundamental corporate changes such as liquidation, merger or an
amendment to our Articles of Incorporation.
Holders
of common stock are entitled to share in all dividends that the board of
directors, in its discretion, declares from legally available funds. In the
event of a liquidation, dissolution or winding up, each outstanding share
entitles its holder to participate pro rata in all assets that remain after
payment of liabilities and after providing for each class of stock, if any,
having preference over the common stock. Holders of our common stock have no
pre-emptive rights, no conversion rights and there are no redemption provisions
applicable to our common stock.
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. At August
28, 2007, the Company had three classes of preferred stock outstanding, which
are the Series A 8% Cumulative Convertible Redeemable Preferred Stock, the
Series B Convertible Redeemable Preferred Stock and the Series G 8% Convertible
Redeemable 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. Subject to adjustment based on issuance
of shares at less than fair market value, each share of the Series A Preferred
Stock was initially 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 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.
As
of
March 31, 2007 stated dividends that are undeclared and unpaid on the Series
A
Preferred Stock total $464,000 and the Company anticipates that such dividends,
if and when declared, will be paid in shares of Series A Preferred
Stock.
Series
B Preferred Stock
On
September 30, 2006, the Company reorganized the structure of debt and
convertible equity of its three largest finance partners: Positron Acquisition
Corporation (“PAC”); Quantum Molecular Pharmaceuticals, Inc. (“QMP”); and Imagin
Diagnostic Centres, Inc. (“IDC”). Through this reorganization, the Company
converted all of its outstanding convertible debt held by PAC, QMP and IDC,
together with all accrued interest and dividends on the convertible notes and
the Series C, Series D and Series E Preferred Stock into a new class of the
Company’s Series B Convertible Preferred Stock.
The
Company has designated 9,000,000 shares out of its 10,000,000 shares of
authorized preferred stock as Series B Convertible Preferred Stock, $1.00 par
value (“Series B Preferred Stock”). Each share of the Series B Preferred
Stock is convertible into 100 shares of Common Stock. The Series B Preferred
Stock is senior to the Company's Common Stock and junior in priority to the
Company's Series A Preferred Stock in liquidation. Holders of the Series B
Preferred Stock are entitled to 100 votes per share on any matter requiring
shareholder vote.
The
Company and IDC converted the $1,164,192 of principal and interest outstanding
upon the Series E Convertible Notes and the $877,669 of principal and interest
outstanding upon the Convertible Secured Notes held by IDC into 690,930.5 shares
of Series B Preferred Stock. The Company and PAC converted the $818,066 of
principal and interest outstanding upon the Series D Secured Convertible
Promissory Notes and the 770,000 shares of Series C Preferred Stock into 762,358
shares of Series B Preferred Stock. PAC subsequently converted 40,000 shares
of
Series B Preferred Stock into 4,000,000 shares of the Company’s Common Stock.
The Company and QMP converted the $453,144 of principal and interest outstanding
upon the Series F Secured Convertible Promissory Notes into 226,572 shares
of
Series B Preferred Stock.
On
May 8,
2006, the Company issued 650,000 shares of Series B. Preferred Stock to QMP
in
consideration for a promissory note in the amount of $1,300,000. Also
on May 8, 2006, the Company issued an additional 1,250,000 shares of Series
B to
IDC for the restructured obligations of the Quantum Molecular Pharmaceuticals,
Inc. and Imaging PET Technologies, Inc. transactions. On January
26,2007, the Company issued 1,200,000 shares of Series B. preferred Stock to
IDC
in consideration for the cancellation of a previously made promissory note
to
QMP.
As
of August 28, 2007,
there were a total of 5,926,111.5
shares of Series B Preferred Stock outstanding, convertible into 592,611,150
shares of Common Stock.
Series
G Preferred Stock
The
Company has designated 500,000 shares out of its 10,000,000 shares of authorized
preferred stock as 8% Cumulative Convertible Redeemable Series G
Preferred Stock $1.00 par value. Each share of the Series G Preferred Stock
is
convertible into 100 shares of Common Stock. Eight percent dividends accrue
on
the Series G Preferred Stock and may be paid in cash or in Common Stock
depending on the Company's operating cash flow. The Series G Preferred Stock
is
senior to the Company's Common Stock and junior in priority to the Company's
Series A and B Preferred Stock in liquidation. Except as required by law and
in
the case of various actions affecting the rights of the Series G Preferred
Stock, holders of the Series G Preferred Stock are not entitled to vote on
matters requiring shareholder vote. While the Series G Preferred Stock is
outstanding or any dividends thereon remain unpaid, no Common Stock dividends
may be paid or declared by the Company. The Series G Preferred Stock may be
redeemed in whole or in part, at the option of the Company, at any time at
a
price of $5.00 per share plus any undeclared and/or unpaid dividends to the
date
of redemption. As of August 28, 2007 there are 110,581 shares of
Series G Preferred Stock outstanding.
Convertible
Notes
On
May
23, 2006, we entered into a Securities Purchase Agreement for a total
subscription amount of $2,000,000 that included Stock Purchase Warrants and
Callable Secured Convertible Notes with AJW Capital Partners, LLC, AJW Offshore,
Ltd., AJW Qualified Partners, LLC and New Millennium Capital Partners II, LLC.
The initial funding of $700,000 (we received net proceeds of $570,000) was
completed on May 26, 2006 with the following parties and evidenced by callable
secured convertible notes: AJW Partners, LLC invested $71,400; AJW Offshore,
Ltd. invested $424,00; AJW Qualified Partners, LLC invested $195,300; and New
Millennium Capital Partners II, LLC invested $9,100. The callable secured
convertible notes are convertible into shares of our common stock at a variable
conversion price based upon the applicable percentage of the average of the
lowest three (3) Trading Prices for the Common Stock during the twenty (20)
Trading Day period prior to conversion. The “Applicable Percentage” means 50%;
provided, however, that the Applicable Percentage shall be increased to (i)
55%
in the event that a Registration Statement is filed within thirty days of the
closing and (ii) 60% in the event that the Registration Statement becomes
effective within one hundred and twenty days from the Closing. Under the terms
of the callable secured convertible note and the related warrants, the callable
secured convertible note and the warrants are exercisable by any holder only
to
the extent that the number of shares of common stock issuable pursuant to such
securities, together with the number of shares of common stock owned by such
holder and its affiliates (but not including shares of common stock underlying
unconverted shares of callable secured convertible notes or unexercised portions
of the warrants) would not exceed 4.99% of the then outstanding common stock
as
determined in accordance with Section 13(d) of the Exchange Act. After the
initial investment aggregating $700,000 by the above parties, the parties funded
an additional $600,000 upon the filing of our Form S-3 Registration Statement
on
June 20, 2006, (the S-3 was withdrawn on August 29, 2006). Within 2 days after
the effectiveness of this registration statement we will be funded an additional
$700,000 principal amount.
Warrants
Based
on
our recent financing, we issued 30,000,000 warrants with an exercise price
of
$0.15. Specifically, the parties received the following amount warrants: AJW
Capital Partners, LLC - 8,370,000 warrants; AJW Offshore, Ltd. - 18,180,000
warrants; AJW Partners, LLC - 3,060,000 warrants; and New Millennium Capital
Partners II, LLC - 390,000 warrants.
Each
Warrant entitles the holder to one share of our common stock and is exercisable
for seven years from May 26, 2006.
Options
See
“Summary of Equity Compensation Plans”, page 45.
Provisions
of Our Certificate of Incorporation and Texas Law that May Have an
Anti-Takeover Effect
Certain
provisions set forth in our certificate of incorporation and Texas law, which
are summarized below, may have an anti-takeover effect and may delay, deter
or
prevent a tender offer or takeover attempt that a stockholder might consider
to
be in the stockholder’s best interests, including attempts that might result in
a premium being paid over the market price for the shares held by
stockholders.
Undesignated
Preferred Stock
Our
certificate of incorporation contains provisions that permit our board of
directors to issue, without any further vote or action by our stockholders,
up
to 10,000,000 shares of preferred stock in one or more series and, with respect
to each such series, to fix the number of shares constituting the series and
the
designation of the series, any voting powers of the shares of the series, and
any preferences and relative, participating, optional and other special rights
and any qualifications, limitations or restrictions, of the shares of such
series. Our board could authorize the issuance of shares of preferred stock
that
could have the effect of delaying, deferring or preventing a transaction or
change in control that might involve a premium price for shares of our common
stock or otherwise be in their interests.
Texas
Takeover Statute
We
are
subject to Part 13 of the Texas Business Corporation Act, also known as the
“Business Combination Law”, which places restrictions on a Texas corporation
that is a public company from engaging in “business combination” with any
“affiliated shareholder” (defined generally as an entity or person beneficially
owning 20% or more of the outstanding voting stock of the corporation and any
entity or person affiliated with such entity or person) for a period of three
years following the date that such stockholder became an interested stockholder,
unless:
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before
such date, the board of directors of the corporation approved either
the
business combination or the transaction that resulted in the stockholder
becoming an interested stockholder;
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the
transaction is approved by the affirmative vote of at least two-thirds
of
the voting stock of the corporation, excluding for purposes of determining
the number of shares outstanding those shares owned by the affiliated
shareholder;
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by
persons who are directors and also officers,
and
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by
employee stock plans in which employee participants do not have the
right
to determine confidentially whether shares held subject to the plan
will
be tendered in a tender or exchange offer;
or
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Transfer
Agent and Registrar
The
transfer agent and registrar for our Series B Preferred Stock is Corporate
Stock
Transfer, Inc., whose address is 3200 Cherry Creek South Drive, Suite 430,
Denver, Colorado 80209.
SHARES
ELIGIBLE FOR FUTURE SALE
Prior
to
this offering there has been no public market for our Series B Shares. Although
we intend to apply for listing on the OTC Bulletin Board, a significant public
market for our common stock may never develop or be sustained. We cannot predict
the effect, if any, that market sales of shares or the availability of shares
for sale will have on the market price prevailing from time-to-time. As
described below, a limited number of our shares will be subject to contractual
and legal restrictions on resale after the offering. Sales of our common stock
in the public market after the restrictions lapse, or the perception that these
sales may occur, could cause the market price of our common stock to
decline.
We
currently have 5,926,111.5 shares of Series B Preferred Stock outstanding.
Of
these shares, 1,336,250 shares may be sold pursuant to the registration
statement of which this prospectus is a part. Purchasers of shares sold pursuant
to the registration statement of which this prospectus is a part — other
than one of our “affiliates” (as defined in Rule 144 under the Securities Act) —
will receive shares which are freely tradable and without restriction under
the
Securities Act. All shares outstanding other than the shares sold in this
offering, a total of 4,653,111.5 shares, will be “restricted securities” within
the meaning of Rule 144 under the Securities Act.
Eligibility
of Restricted Shares for Sale in the Public Market
Rule
144. In general, under Rule 144 as currently in effect, if we
have been a public reporting company under the Exchange Act for at least 90
days, a person (or persons whose shares are aggregated), including an affiliate,
who has beneficially owned shares of our common stock for at least one year,
including the holding period of any prior owner other than an affiliate, and
who
files a Form 144 with respect to this sale, will be entitled to sell within
any three-month period a number of shares of Series B Shares that does not
exceed the greater of:
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1.0%
of the then outstanding shares of our common stock, or approximately
59,262 shares immediately after this
offering; or
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the
average weekly trading volume during the four calendar weeks preceding
the
date of which notice of the sale is filed on
Form 144.
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Sales
under Rule 144 are also subject to restrictions relating to manner of sale,
notice requirements and the availability of current public information about
us.
Rule 144(k). A
person (or persons whose shares are aggregated) who is not deemed to have been
our affiliate at any time during the 90 days immediately preceding a sale
and who has beneficially owned his or her shares for at least two years,
including the holding period of any prior owner other than an affiliate, is
entitled to sell these shares of our common stock pursuant to Rule 144(k)
without regard to the volume limitations, manner of sale provisions, public
information or notice requirements of Rule 144. Affiliates must always sell
pursuant to Rule 144, even after the applicable holding periods have been
satisfied.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF
FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
You
should read the following discussion and analysis of our financial condition
and
results of operations together with our financial statements and the related
notes appearing at the end of this prospectus. Some of the information contained
in this discussion and analysis or set forth elsewhere in this prospectus,
including information with respect to our plans and strategy for our business
and related financing, includes forward-looking statements that involve risks
and uncertainties. You should review the “Risk Factors” section of the
prospectus for a discussion of important factors that could cause actual results
to differ materially from the results described in or implied by the
forward-looking statements contained in the following discussion and
analysis.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
The
Company is including the following cautionary statement to make applicable
and
utilize the safe harbor provision of the Private Securities Litigation Reform
Act of 1995 regarding any forward-looking statements made by, or on behalf
of,
the Company. Forward-looking statements include statements concerning
plans, objectives, goals, strategies, future events or performance and
underlying assumptions and other statements, which are other than statements
of
historical facts. Certain statements contained herein are
forward-looking statements and, accordingly, involve risks and uncertainties,
which could cause actual results or outcomes to differ materially from those
expressed in the forward-looking statements.
The
Company’s expectations, beliefs and projections are expressed in good faith and
are believed by the Company to have a reasonable basis, including without
limitations, examination of historical operating trends, data contained
in records and other data available from third parties, but there can
be no assurance that the Company’s expectations, beliefs or projections will
result, or be achieved, or be accomplished.
Positron
Corporation (the “Company”) was incorporated in 1983 and commenced commercial
operations during 1986. The Company designs, markets and services its
POSICAMTM
system advanced medical imaging devices, utilizing positron emission tomography
(“PET”) technology, and through its wholly-owned subsidiary IPT markets the IS2
PulseCDCTM
compact digital cardiac camera. Since the commencement of
commercial operations and prior to the acquisition of IPT in 2006, revenues
have
been generated primarily from the sale and service contract revenues derived
from the Company’s POSICAM™ system, 11 of which are currently in operation in
certain medical facilities in the United States and 6 are operating in
international medical institutions. The Company has never been able to sell
its
POSICAM™ systems in sufficient quantities to achieve operating
profitability. For this reason, in 2005 the Company entered into a
joint venture with Neusoft Medical Systems Co., Inc. of Shenyang, Lianoning
Province, People's Republic of China. Through the joint venture the
Company believes it can modernize and upgrade its technology and lower
production costs of its systems.
Neusoft
Positron Medical Systems Co. Ltd.
The
Company’s joint venture with Neusoft Medical Systems Co., Inc. of Shenyang,
Lianoning Province, People's Republic of China ("Neusoft"), named Neusoft
Positron Medical Systems Co., Ltd. ("NPMS"), is active in the development and
manufacture of Positron Emission Tomography systems (PET), and an integrated
X-ray Computed Tomography system (CT) and PET system (PET/CT). 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. To date NPMS has not produced a PET or CT system for
sale. NPMS will be required to make a submission to the United States
Food and Drug Administration for approval of its system modernization to the
POSICAMTM
systems. The Company anticipates that the submission will be made
late in 2007 or early in 2008. FDA review time for similar
submissions is typically four months.
In
June
2006, the Company and Quantum Molecular Pharmaceuticals Inc., a Canadian
radiopharmaceutical corporation (“QMP”) acquired all of the operating assets of
IS2 Medical Systems Inc., a developer and manufacturer of nuclear imaging
devices based in Ottawa, Ontario, Canada (“IS2”) through a minority-owned
subsidiary of the Company, Imaging PET Technologies, Inc. (“IPT”). The Company
and Quantum held 49.9% and 50.1%, respectively, of the total registered capital
of IPT. However, in January 2007, the Company acquired Quantum’s interest in IPT
in exchange for preferred stock and the extinguishment of a note payable
due the
Company from QMP.
IS2
develops, builds and services gamma cameras that offer clinical users high
quality performance specifications in the industry. IS2’s signature product is
its PulseCDC™ compact digital cardiac camera. Over 150 cameras have been sold,
primarily in Canada.
On
December 28, 2005, the Company entered into a Memorandum of Understanding
with
Imagin Diagnostic Centres, Inc. (“IMAGIN”) and QMP. The Memorandum provided for
the parties to form a joint venture to be called Quantum Molecular Technologies
JV (the “QMT JV”). Initially, the joint venture was owned
20%, 29% and 51% by the Company, IMAGIN and QMP, respectively. On May
8, 2006, the Company amended certain aspects of the QMT JV. Whereas the Company
originally held 20% of the interests of the QMT JV, Quantum and IMAGIN assigned
100% of their interest to the Company in exchange for the preferred stock
of the
Company. On April 13, 2006, the QMT JV incorporated under the name
Quantum Molecular Technologies, Inc. (“QMT”) and acquired certain intangible
assets in the form of capitalized research and development costs from IMAGIN
for
a note payable.
Using
concepts and research and development activities conceived and to be implemented
by Dr. Irving Weinberg, an exclusive consultant to QMP, QMT is developing
certain next generation technologies including PET-enabled surgical tools
and
solid-state photo detector technology, which have implications in both molecular
imaging and PET and which could have further application in the military
and
aerospace segments. The first solid-state detector technology patent has
been
filed by QMT. The Company will have the right to manufacture and sell
any PET products developed by QMT in exchange for royalty payments still
to be
negotiated.
Imaging
Pet Technologies – Business Acquisition
On
January 26, 2007, the Company executed and consummated a Securities Purchase
Agreement (the “Agreement”) with Imagin Diagnostic Centres, Inc. (“IMAGIN”), to
acquire 11,523,000 shares of common stock of Imaging Pet Technologies, Inc.
(“IPT”). The Shares represented approximately a 50.1% of IPT’s issued and
outstanding common stock. As a result of the acquisition of the Shares, the
Company owns 100% of the common stock of IPT. As consideration for the shares,
the Company and IMAGIN agreed to cancel a promissory note in the principal
amount of $2,400,000 made by IMAGIN subsidiary, QMP and later assigned to
IMAGIN. As of the date of the Agreement, the Company had been advised by IMAGIN
that it had acquired all of QMP’s interest in IPT as well as QMP's other
holdings of the Company's related securities.
Comparison
of the Results of Operations for the Three Months ended June 30, 2007 and
2006
The
Company experienced a net loss of $1,107,000 for the three months ended June
30,
2007 compared to a loss of $3,115,000 for the same quarter in
2006. Contributing to the significantly greater loss for the three
month period in 2006 was a loss from derivative liabilities of
$1,887,000.
Revenues
- Revenues from the sales of IPT’s gamma cameras were $454,000 for the three
months ended June 30, 2007. The Company did not have any system sales
for the same period in 2006. Service revenue for the quarter was
$415,000 as compared to $266,000 for the same period in 2006. The
increase of 56% is due in large part to service revenue from IPT. Service
revenue for Positron Corporation alone decreased to $173,000 as two customers
did not renew their service contracts.
Gross
profit for the three months ended June 30, 2007 and 2006, was $246,000 and
86,000, respectively. Cost of sales related to the IPT systems was
$413,000. Costs of service and component sales for the three months
ended June 30, 2007 increased by $30,000 to $210,000 as compared to $180,000
for
the same period in 2006. The increase is attributed to additional
service contracts from the IPT business.
Operating
Expenses - Operating expenses increased $402,000
to $1,338,000 for the three months ended June 30, 2007 from $936,000 for the
same period in 2006. Operating expenses for IPT alone during the
current quarter were $807,000.
Research
and development costs for the three months ended June 30, 2007 were $451,000
compared to $116,000 for the three months ended June 30, 2006. For
the three months ended June 30, 2007, IPT incurred $106,000 in research costs
related to improvements and developments of gamma cameras while QMT had research
expense of $210,000. QMT is developing certain next generation
technologies including PET-enabled surgical tools and solid-state photo detector
technology, which may have implications in both molecular imaging and PET and
which could have further application in the military and aerospace
segments. Positron’s research and development costs of $135,000 were
mostly costs associated with the NPMS joint venture and related costs of
manufacturing modernization at the Company’s Houston facility.
Sales
and
marketing expense for the three months ended June 30, 2007 decreased to $317,000
from $375,000 for the same period in 2006. The decrease occurred despite the
addition of IPT’s costs. The Company has significantly reduced sales and
marketing costs since no further manufacturing of PET systems is being done
at the Houston facility. Manufacturing and plant modernization
efforts are currently taking place in conjunction with the NPMS joint
venture.
On
a
consolidated basis, general and administrative expenses remained virtually
unchanged during the three months ended June 30, 2007 as compared to the same
period in 2006, $467,000 and $470,000, respectively. However, expenses at
Positron Corporation in Houston decreased by $291,000 to $179,000 for the
quarter ended June 30, 2007 compared to $470,000 for the quarter ended June
30,
2006. In large part, the decrease is due to management’s overall cost reduction
efforts. Also, during the second quarter of 2006, the Company
incurred higher consulting and professional fees related to a private placement
and the acquisition of IPT. General and administrative expenses at IPT were
$288,000.
Stock
based compensation for the three months ended June 30, 2007 was $103,000. For
the three months ended June 30, 2006, the application of variable accounting
rules resulted in a $25,000 reversal of previously recorded stock based
compensation.
Other
Income (Expenses) -.Interest expense of $41,000
for the three months ended June 30, 2007 was a decrease from $301,000 in
interest expense during the same period in 2006, which was primarily interest
on
convertible debentures to affiliated entities. The debentures were
all converted to shares of the Company’s Series B Preferred Stock in September
2006. The Company also recorded derivative gains of $22,000 during
the second quarter of 2007 as compared to a derivative loss of $1,887,000 for
the same period in 2006, when the related debentures were issued. For the three
months ended June 30, 2006, the Company recorded equity in the losses of NPMS
$77,000. No loss was recorded during the three months ended June 30, 2007 as
the
investment had been written down to zero under the equity method of accounting
during the first quarter of 2007.
Comparison
of the Results of Operations for the Six Months ended June 30, 2007 and
2006
For
the
six months ended June 30, 2007, the Company had a net loss of $2,226,000
compared to a net loss of $4,271,000 for the same quarter in
2006. Contributing to the significantly greater loss for the six
month period in 2006 was a loss from derivative liabilities of $1,887,000,
higher interest expense and equity in losses of joint ventures.
Revenues
- Revenues from the sales of IPT’s gamma cameras were $1,429,000 for the six
months ended June 30, 2007. The Company did not consolidate IPT’s
accounts for the same period in 2006. Service revenues for the
current six month period were $641,000 as compared to $464,000 for the same
period in 2006. The increase of 38% is due in large part to service
revenue from IPT. Service revenue for Positron Corporation alone decreased
to
$367,000 as two customers did not renew their service contracts.
Gross
profit for the six months ended June 30, 2007 and 2006, was $625,000 and
136,000, respectively. The increase in gross profits results from the
sales and service from IPT gamma cameras. Gross margins were
consistent at 30% and 29% for the six months ended June 30, 2007 and 2006,
respectively.
Operating
Expenses - Operating expenses increased $940,000
to $2,772,000 for the six months ended June 30, 2007 from $1,832,000 for the
same period in 2006. Operating expenses for IPT alone during the six
month period in 2007 were $1,644,000.
Research
and development costs for the six months ended June 30, 2007 were $804,000
compared to $260,000 for the six months ended June 30, 2006. IPT
incurred $211,000 in research costs related to improvements and developments
of
gamma cameras while QMT had research expense of
$333,000. Positron’s research and development costs of
$260,000 were mostly costs associated with the NPMS joint venture and related
costs of manufacturing modernization at the Company’s Houston
facility.
Sales
and
marketing expense for the six months ended June 30, 2007 increased to $586,000
from $445,000 for the same period in 2006. The increase in sales and marketing
expenses results from the addition of IPT’s expenses of $397,000 during the
period. Positron Corporation in Houston, significantly reduced sales and
marketing costs since manufacturing of PET systems is being done at that
facility. For the six months ended June 30, 2007 Positron Corporation
incurred $123,000 in sales and marketing expenses.
General
and administrative expenses increased $270,000 to $1,176,000 for the six months
ended June 30, 2007 from $906,000 for the six months ended June 30, 2006.
However, expenses at Positron Corporation in Houston decreased by $368,000
to
$538,000 for the six months ended June 30, 2007. The reduction in the Houston
facility comes as a result of an overall plan by management to reduce
costs. During the six months ended June 30, 2006 significant
professional and consulting fees were incurred in conjunction with the
issuance of convertible debentures, a private placement and the acquisition
of
IPT.
Stock
based compensation for the six months ended June 30, 2007 and 2006 was $206,000
and $221,000, respectively.
Other
Income (Expenses) - Interest expense of $73,000
for the six months ended June 30, 2007 was a decrease from $570,000 in interest
expense during the same period in 2006, which was primarily interest on
convertible debentures to affiliated entities. The debentures were
all converted to shares of the Company’s Series B Preferred Stock in September
2006. The Company also recorded derivative losses of $12,000 during
the second quarter of 2007 as compared to derivative losses of $1,887,000 for
the same period in 2006, when the related convertible debentures issued. For
the
six months ended June 30, 2007 and 2006 the Company recorded equity in the
losses of NPMS of $23,000 and $118,000, respectively. The current period charge
of $23,000 reduces the book value of the Company’s investment in NPMS to
zero.
Comparison
of the Results of Operations for years ended December 31, 2006 and
2005.
Consolidated
results of operations for the year ending December 31, 2006 include; full year
operations of Positron; the operations of Positron’s wholly-owned subsidiary,
IPT, for the period October 1 – December 31, 2006; and the operations of
Positron’s wholly-owned subsidiary, QMT, from April 13 – December 31,
2006.
Revenues
- The Company generated sales of systems in 2006 of $1,268,000 including
approximately $850,000 of sales of IS2 gamma cameras. Positron system
sales include two refurbished PET systems. The Company did not generate any
revenue from system sales in 2005. Service and upgrade revenue in
2006 was $945,000, an increase of 24% or $183,000 over revenues of $762,000
in
2005. Sales of parts and materials to NPMS accounted for $180,000 of the
increase.
Costs
of
Revenues - Costs of revenues increased by $135,000 to $1,423,000 during the
year
ended December 31, 2006 from $1,288,000 in the prior year. Costs of
system sales were $689,000 in 2006. The Company incurred
service revenue costs of $721,000 and $621,000 in 2006 and 2005, respectively.
The16% increase over the prior year is due in part to the warranty expiration
of
one system which was then moved to a service
contract In addition, the Company experienced
several problems with one particular machine which resulted in significant
services costs. In 2005 the Company expensed $656,000 of excess
inventory and field service parts as it ceased manufacturing activities at
its
Houston facility.
Operating
Expenses - The Company’s operating expenses increased $2,077,000 to $4,603,000
for the year ended December 31, 2006 from $2,526,000 in 2005.
Selling,
general and administrative expenses increased $500,000 to $2,639,000 from
$2,139,000 in the prior year. The acquisition of IPT is the primary
reason for the increase. IPT’s selling, general and administrative
expenses in 2006 were $401,000. Positron’s selling, general and administrative
costs were $2,104,000, a decrease of 1.6% from the prior
year. Positron recorded expenses of $471,000 related to shares of its
common stock that were issued for services performed, the majority of which
was
issued to firms promoting Positron common stock to the market
place. Positron’s selling, general and administrative salary expense
decreased to $383,000 in 2006 from $778,000 in 2005. The decrease is a result
of
overall cost reduction efforts on the part of Positron’s
management.
Research
and development expenses increased $719,000 to $1,165,000 from $446,000 in
the
prior year. IPT’s research and developments costs were $166,000 and QMT’s were
$418,000. IPT continues improvement and development of the IS2 gamma
cameras. QMT is developing certain next generation technologies
including PET-enabled surgical tools and solid-state photo detector technology,
which have implications in both molecular imaging and PET and which could have
further application in the military and aerospace
segments. Positron’s research and development costs increased 30% to
$581,000 in 2006 from $446,000 in 2005. The increase is due primarily
to costs associated with the NPMS joint venture and related costs of
manufacturing modernization at the Company’s Houston facility.
Operating
expenses in 2006 include a charge for impairment of the intangible asset
recorded upon the acquisition of QMT. The impaired asset acquired consisted
of
capitalized patent and research and development costs. The Company
wrote off the entire asset totaling $369,000.
Stock
based compensation expense for the year ended December 31, 2006 was $430,000
and
resulted primarily from the immediate vesting of 6,000,000 of the 11,500,000
options granted on November 16, 2006 to officers and directors of the Company,
and stock based compensation expense related to 7,500,000 options issued in
December of 2005 by the Company to Joseph Oliverio, Positron’s President and
Chief Executive Officer. Of Mr. Oliverio’s options, 2,000,000 vested
immediately, 2,000,000 vested in December 2006 and 3,500,000 vest in December
2007. The 2006 compensation also includes expense for the vesting of outstanding
options granted to employees prior to 2005. For the year ended
December 31, 2005 the Company reversed expense related to stock based
compensation by $59,000. The reversal resulted from the application of the
variable accounting rules to the re-pricing of certain warrants and options,
which preceded the application of FASB 123(R).
Other
Income (Expenses) -.Interest expense of $860,000 for the year ended December
31,
2006 is a decrease from $985,000 in interest expense during 2005, but only
includes nine months of interest on all convertible debentures to affiliated
entities including IMAGIN, PAC, Solaris and Quantum. The debentures
were all converted to shares of the Company’s Series B Preferred Stock in
September 2006. The Company also issued $1,500,000 of new convertible
secured debentures in 2006. Interest expense in 2006 includes amortization
of
loan costs, debt discounts and beneficial conversion features of the new
convertible debenture. The Company also recorded derivative losses of $1,784,000
resulting from embedded derivatives with the issuance of convertible debentures.
For the year ended December 31, 2006 the Company recorded equity in the losses
of joint ventures, IPT and NPMS, of $373,000. NPMS did not have any operating
activity during 2005.
Income
Taxes – There is no provision for income taxes due to ongoing operating losses.
As of December 31, 2006, we had net operating loss carryforwards of
approximately $18,000,000 for Federal reporting purposes. These amounts expire
at various times through 2026. See Note 14 to the Notes to the Consolidated
Financial Statements. The Company has provided a full valuation allowance
against the net deferred tax assets at December 31, 2006 and
2005.
Extraordinary
Gain – The Company recorded an extraordinary gain on the acquisition of IS2 by
IPT. The extraordinary gain is the excess of the net assets acquired
over the purchase price paid for IS2. The extraordinary gain
recognized for the year ended December 31, 2006 was $241,000.
Net
Operating Loss - For the year ended December 31, 2006, the Company had a net
loss of $6,586,000, or $0.08 per share, of which $5,657,000 was from domestic
operations and $929,000 was generated in Canada, compared to a net loss of
$3,806,000, or $0.06 per share, for the year ended December 31, 2005. The
increase is due to increases in research and development and selling and general
and administrative costs primarily from the acquisition of IS2, and derivative
losses from the issuance of convertible debentures. Increase in net
loss per share in 2006 was offset in part by a significant increase in the
weighted average number of shares outstanding of 81,508,000 in 2006 as compared
to 65,044,000 in 2005.
Liquidity
and Capital Reserves
The
Company had cash and cash equivalents of $173,000 on June 30,
2007. On the same date, accounts payable and accrued liabilities
outstanding totaled $2,568,000. The Company sold $1,429,000 of gamma
cameras through IPT but did not sell any PET imaging systems during the six
month period ended June 30, 2007. Increased camera sales, sales of imaging
systems and/or additional debt or equity financings will eventually be necessary
to resolve the Company’s liquidity issues and allow it to continue to operate as
a going concern. However, there is no assurance that the Company will
be successful in selling new systems or securing additional debt or equity
financing.
Since
inception, the Company has expended substantial resources on research and
development. Consequently, we have sustained substantial losses. Due
to the limited number of systems sold or placed into service each year, revenues
have fluctuated significantly from year to year. The Company had an
accumulated deficit of $71,051,000 at June 30, 2007. The Company will
need to increase system sales and apply the research and development
advancements to achieve profitability in the future. Through the Company’s joint
venture with Neusoft Medical Systems PET system cost of goods and labor will
be
significantly lower. In addition, the Company expects increased revenue from
its
IPT SPECT camera subsidiary to come from new sales campaigns and service
division. The Company expects that these developments will have a positive
impact on the PET, PET/CT and SPECT device products, sales & service volumes
and increased net margins.
The
Company’s current financial condition raises doubt as to its ability to continue
as a going concern. The report of the Company’s independent public
accountants, which accompanied the financial statements for the year ended
December 31, 2006, was qualified with respect to that risk. If the
Company is unable to obtain debt or equity financing to meet its cash needs
it
may have to severely limit or cease business activities or may seek protection
from creditors under the bankruptcy laws.
Related
Party Transactions
IMAGIN
Transaction
Financing
Agreements dated May 21, 2004
On
May
26, 2004 and June 17, 2004, the Company sold two separate secured convertible
promissory notes under a Note Purchase Agreement dated May 21, 2004, to IMAGIN
in the principal amounts of $400,000 and $300,000,
respectively. Interest accrued on the outstanding principal at the
rate of ten percent (10%) per annum and was payable annually to the extent
of
positive cash flow on the anniversary dates of these notes. The
principal and any unpaid interest were due on the earlier to occur of May 21,
2006 or when declared due and payable by IMAGIN upon occurrence of an event
of
default. The notes were initially convertible into new shares of
Series C Preferred Stock that, in turn was convertible into an aggregate of
35,000,000 shares of the Company’s common stock. These notes were
collateralized by all of the assets of the Company. On October 21,
2005, $770,000 in principal and accrued and unpaid interest were converted
into
770,000 shares of Series C Preferred Stock. These shares of Series C
Preferred Stock were subsequently assigned by IMAGIN to Positron Acquisition
Corp. In a second stage of the May 2004 financing IMAGIN agreed to
purchase additional secured convertible promissory notes in the aggregate
principal amount of $1,300,000. These notes were to be purchased over
a six and a half month period, commencing July 15, 2004 and were due and payable
on May 21, 2006. These notes were initially convertible into new
shares of Series D Preferred Stock that, in turn is convertible into an
aggregate of 52,000,000 shares of the Company’s common stock. As of
June 30, 2005, principal of $1,208,500 had been advanced related to these
notes. On June 30, 2005, IMAGIN converted $575,000 of these
promissory notes into shares of Series D Preferred Stock that, in turn were
converted into 23,000,000 shares of the Company’s common stock. This
conversion reduced the principal owed under these promissory notes from
$1,208,500 to $633,500. The remaining $633,500 of principal convertible notes
plus notes for $63,350 in accrued interest was assigned by IMAGIN to Positron
Acquisition Corp, a wholly-owned subsidiary of Imagin Molecular Corporation,
an
affiliate of the Company.
In
September 2006 the convertible instruments discussed above were converted to
shares of Positron Corporation Series B Preferred Stock. See discussion
below.
Financing
Agreements dated August 8, 2005
On
August
8, 2005, the Company sold to IMAGIN 10% secured convertible promissory notes
under a Note Purchase Agreement, dated the same date, in the aggregate principal
amount of $400,000. As of September 30, 2005, IMAGIN has purchased
$400,000 of these notes. These notes are due and payable on August 7,
2008. These notes are convertible into an aggregate of 20,000,000
shares of the Company’s common stock. Pursuant to the terms of the agreements,
the Company granted to IMAGIN a security interest in all of its assets to secure
payment of the convertible promissory notes. The security interest is
subordinate to the security interest previously granted in the same collateral
to IMAGIN and Solaris.
In
September 2006 the convertible instruments discussed above were converted to
shares of Positron Corporation Series B Preferred Stock. See discussion
below.
Financing
Agreements dated October 31, 2005
On
October 31, 2005, the Company sold to IMAGIN 10% secured convertible promissory
notes under a Note Purchase Agreement, dated the same date, in the aggregate
principal amount of $400,000. As of January 2006, IMAGIN has
purchased $400,000 of these notes. These notes are due and payable on
October 31, 2008. These notes are convertible into an aggregate of
20,000,000 shares of the Company’s common stock.
Pursuant
to the terms of the agreements, the Company granted to IMAGIN a security
interest in all of its assets to secure payment of the convertible promissory
notes. The security interest is subordinate to the security interest
previously granted in the same collateral to IMAGIN and Solaris.
In
September 2006 the convertible instruments discussed above were converted to
shares of Positron Corporation Series B Preferred Stock. See discussion
below.
Transactions
with Solaris Opportunity Fund, L.P.
Financing
Agreements dated February 28, 2005
On
February 28, 2005, the Company entered into a series of agreements with Solaris
pursuant to which Solaris agreed to purchase an aggregate of $1,000,000 face
amount of the Company’s 10% secured convertible promissory notes. As
of September 30, 2005, Solaris had purchased all $1,000,000 of these
notes. These notes are due and payable on March 6,
2007. The notes were initially convertible into new shares of Series
E Preferred Stock that, in turn are convertible into an aggregate of 22,000,000
shares of the Company’s common stock. Pursuant to the terms of the
agreements, the Company granted to Solaris a security interest in all of its
assets to secure payment of the convertible promissory notes. The
security interest is subordinate to the security interest previously granted
in
the same collateral to IMAGIN.
During
2006 Solaris sold the $1,000,000 principal amount of these notes to
IMAGIN.
In
September 2006 the convertible instruments discussed above were converted to
shares of Positron Corporation Series B Preferred Stock. See discussion
below
Financing
Agreements dated June 27, 2005
On
June
27, 2005, the Company entered into a series of agreements with Solaris pursuant
to which Solaris agreed to purchase an aggregate of $400,000 face amount of
the
Company’s 10% secured convertible promissory notes. As of September
30, 2005, Solaris had purchased all $400,000 of these notes. These
notes were due and payable on March 6, 2007. The notes are initially
convertible into new shares of Series F Preferred Stock that, in turn are
convertible into an aggregate of 20,000,000 shares of the Company’s common
stock. Pursuant to the terms of the agreements, the Company granted
to Solaris a security interest in all of its assets to secure payment of the
convertible promissory notes. The security interest is subordinate to
the security interest previously granted in the same collateral to IMAGIN and
Solaris.
During
2006 Solaris sold the principal amount of these notes to Quantum Molecular
Pharmaceuticals, Inc. (“QMP”).
In
September 2006 the convertible instruments discussed above were converted to
shares of Positron Corporation Series B Preferred Stock. See discussion
below
Conversion
To Series B Preferred Stock
On
September 30, 2006 the Board of Directors authorized a new series of preferred
stock designated Series B Preferred Stock. The number of shares
authorized was 9,000,000. Each share of Series B Preferred Stock
$1.00 par value is convertible into 100 shares of the Company’s Common Stock.
The Series B Preferred Stock is senior to the Company’s Common Stock and junior
in priority to the Company’s A and G Preferred Stock in liquidation. Holders of
the Series B Preferred Stock are entitled to 100 votes per share on all matters
requiring shareholder vote. While Series B Preferred Stock is
outstanding no Common Stock dividends may be paid or declared by the
Company. The Series B Preferred Stock may be redeemed in whole or in
part, at the option of the Company, at any time at a price of $1.00 per
share. As of December 31, 2006, 5,739,860.5 shares of Series B
Preferred Stock were outstanding.
The
Company and IMAGIN, Inc converted principal and interest of $1,164,192
outstanding upon the Series E Convertible Promissory Notes and principal and
interest of $877,669 of Convertible Secured Notes into 690,930.5 shares of
Series B Preferred Stock.
The
Company and Positron Acquisition Corp. converted principal and interest of
$818,066 outstanding upon the Series D Secured Convertible Promissory Notes
and
770,000 shares of Series C Preferred Stock into 762,358 shares of Series B
Preferred Stock. Positron Acquisition Corp. subsequently converted 40,000 shares
of Series B Preferred Stock into 4,000,000 shares of the Company’s Common
Stock.
The
Company and QMP converted principal and interest of $453,144 outstanding upon
the Series F Secured Convertible Promissory Notes into 226,572 shares of Series
B Preferred Stock.
Acquisition
of IMAGIN Interest in IPT
On
January 26, 2007, the Company executed and consummated a Securities Purchase
Agreement (the “Agreement”) with IMAGIN, to acquire 11,523,000 shares of common
stock of IPT. The Shares represented approximately a 50.1% of IPT’s issued and
outstanding common stock. As a result of the acquisition of the Shares, the
Company owns 100% of the common stock of IPT. As consideration for the shares,
the Company and IMAGIN agreed to cancel a promissory note in the principal
amount of $2,400,000 made by IMAGIN subsidiary, Quantum and later assigned
to
IMAGIN. As of the date of the Agreement, the Company had been advised
by IMAGIN that it had acquired all of QMP’s interest in IPT as well
as QMP's other holdings of the Company's related securities.
Immediately
following the acquisition of the Shares, IPT acquired all of the outstanding
capital stock of the Company’s wholly-owned subsidiary, QMT. The purchase price
of the acquisition was $2,800,000, in the form of a promissory note made in
favor of the Company, payable on or before July 1, 2008, and secured by a pledge
of all of the issued and outstanding shares of QMT
New
Accounting Pronouncements
In
June
2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections,"
which will require entities that voluntarily make a change in accounting
principle to apply that change retroactively to prior periods' financial
statements unless this would be impracticable. SFAS No. 154supersedes Accounting
Principles Board Opinion No. 20, "Accounting Changes"("APB No. 20"), which
previously required that most voluntary changes in accounting principle be
recognized by including in the current period's net income the cumulative effect
of changing to the new accounting principle. SFAS No. 154 also makes
a distinction between "retrospective application" of an accounting principle
and
the "restatement" of financial statements to reflect the correction of an
error. Another significant change in practice under SFA No. 154 will
be that if an entity changes its method of depreciation, amortization, or
depletion for long-lived, non-financial assets, the change must be accounted
for
as a change in accounting principle. SFAS No. 154 applies to
accounting changes and error corrections that are made in fiscal years beginning
after December 15, 2005. The provisions of SFAS No. 154 did not
impact the Company's consolidated financial statements.
In
June
2006, the FASB released FASB Interpretation No. 48, "Accounting for Uncertainty
in Income Taxes," an interpretation of FASB Statement No. 109 ("FIN 48"). FIN
48
prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to
be
taken in a tax return. A company must determine whether it is
"more-likely-than-not" that a tax position will be sustained upon examination,
including resolution of any related appeals or litigation procedures, based
on
the technical merits of the position. Once it is determined that a
position meets the more-likely-than-not recognition threshold, the position
is
measured to determine the amount of benefit to recognize in the financial
statements. This interpretation is effective for fiscal years beginning after
December 15, 2006. Earlier application of the provisions of this
interpretation is encouraged if the enterprise has not yet issued financial
statements, including interim financial statements, in the period this
interpretation is adopted. The provisions of FIN 48 are not expected to have
a
material effect the Company's consolidated financial statements.
Critical
Accounting Policies
In
response to the Securities and Exchange Commission’s Release No. 33-8040,
“Cautionary Advice Regarding Disclosure About Critical Accounting Policies,” we
have identified critical accounting policies based upon the significance of
the
accounting policy to our overall financial statement presentation, as well
as
the complexity of the accounting policy and our use of estimates and subjective
assessments. We have concluded our critical accounting policies are
as follows:
Inventory
Inventories
are stated at the lower of cost or market. Cost is determined using
the first-in, first-out (FIFO) method of inventory valuation.
Revenue
Recognition
Revenues
from POSICAMTM
system contracts, IPT’s PulseCDC™ compact digital cardiac camera (sold under the
IS2 brand name) and other nuclear imaging devices are recognized when all
significant costs have been incurred and the system has been shipped to the
customer. Revenues from maintenance contracts are recognized over the
term of the contract. Service revenues are recognized upon
performance of the services.
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™ 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.
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™ 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.
Off-Balance
Sheet Arrangements
We
do not
currently have, nor have we ever had, any relationships with unconsolidated
entities or financial partnerships, such as entities often referred to as
structured finance or special purpose entities, which would have been
established for the purpose of facilitating off-balance sheet arrangements
or
other contractually narrow or limited purposes. In addition, we do not engage
in
trading activities involving non-exchange traded contracts. As such, we are
not
materially exposed to any financing, liquidity, market or credit risk that
could
arise if we had engaged in these relationships.
Quantitative
and Qualitative Disclosures about Market Risk
Our
exposure to market risk is confined to our cash equivalents. We have invested
in
high-quality financial instruments, primarily money market funds, federal agency
notes and asset-backed securities, which we believe are subject to limited
credit risks. The effective duration of the portfolio is less than three months,
and no individual investment has an effective duration in excess of one year.
We
currently do not hedge interest rate exposure. Due to the short-term nature
of
our investments, we do not believe we have any material exposure to interest
rate risk arising from our investments.
We
have
granted restricted stock awards to some of our employees that will vest in
October 2006. We will record compensation expense for these restricted
stock awards grants upon vesting equal to the fair value of the underlying
shares.
Employees
As
of
June 30, 2007, we had ten (10) full-time employees and three (3)
consultants: four (4) in engineering, one (1) in customer support, four (4)
in
manufacturing, four (4) in the executive and administration
department. None of our employees are subject to a collective
bargaining agreement. We have not experienced any work stoppages and believe
our
relationships with our employees to be good.
Facilities
Our
principal office is located at 1304 Langham Creek Drive, Suite 310, Houston,
Texas. The lease expired on March 31, 2004 and has continued on a
month-to-month basis since, at a monthly rent of $4,671.00
Legal
Proceedings
We
are
currently not a party to any legal proceedings.
MANAGEMENT
Executive
Officers and Directors
Our
executive officers and directors
and their respective ages as of August 28, 2007
are as follows:
Directors
and Executive Officers
The
following table sets forth for each director of the Company the current
executive officers of the Company and the director nominee, their ages and
present positions with the Company:
|
Name
|
|
Age
|
|
Position
with the Company
|
|
|
|
|
|
|
|
Patrick
G. Rooney
|
|
43
|
|
Chairman
of the Board
|
|
Joseph
G. Oliverio
|
|
36
|
|
President
and Director
|
|
Corey
N. Conn
|
|
43
|
|
CFO
and EVP Operations
|
|
Sachio
Okamura
|
|
54
|
|
Director
|
|
Dr.
Anthony (Tony) C. Nicholls
|
|
57
|
|
Director
|
Each
of
the nominees, directors and named current executive officers of the Company
has
been engaged in the principal occupations set forth below during the past five
(5) years.
Patrick
G. Rooney. Mr. Rooney has served as Chairman of the Company since July 26,
2004. Since March 2003, Mr. Rooney has been the Managing Director of Solaris
Opportunity Fund L.P., an investing/trading hedge fund. Through years 1985-2000,
Patrick G. Rooney and/or Rooney Trading was a member of The Chicago Board of
Options Exchange, The Chicago Board of Trade and The Chicago Mercantile
Exchange. In September 1998 through March 2003, Mr. Rooney managed Digital
Age
Ventures, Ltd., a venture capital investment company. Mr. Rooney attended Wagner
College of New York from 1980 through 1984.
Joseph
G. Oliverio. Mr. Oliverio has served as President of the Company since
December 27, 2005. Prior to becoming President of the Company, Mr. Oliverio
was the Chief Operating Officer of Michael E. Merhige, M.D., LLC, a well known
coronary disease reversal and prevention center. Mr. Oliverio earned an MBA
from
the University of Phoenix and a BS in Nuclear Medicine Technology from State
University of New York at Buffalo, and is a certified nuclear medicine
technologist. Mr. Oliverio has performed more than 13,000 combined heart and
cancer PET scans using Positron devices and brings to the Company a valuable
combination of business, clinical and technical skill sets. Mr. Oliverio has
been involved with the Company in various capacities since 1995. Mr. Oliverio
has also joined the Board of Directors of Neusoft-Positron Medical Systems
Co.,
Ltd., a joint venture with Neusoft Medical Systems of China that will
manufacture the Company's PET and PET/CT products.
Corey
N. Conn. Mr. Conn was appointed by the Board of Directors to serve as Chief
Financial Officer and Executive Vice President of Operations in Operations.
Mr.
Conn brings over 15 years of experience in developing and managing information
services companies. Mr. Conn currently is President of Imagin Molecular
Corporation, a holding company whose focus is developing and acquiring equity
positions in companies associated with Medical Imaging. Mr. Conn was Vice
President of Business Development at iXL, an e-business and e-transformations
services provider from 1995 - 1999 and also served as Managing Director of
Virtual Partnerships, LLC, a business development and business strategy
consulting firm from 1999 - 2004.
Sachio
Okamura. Mr. Okamura has served as a director since his appointment to the
Board of the Company on April 1, 2001. Mr. Okamura has performed bio-medical
consulting services for Okamura Associates, Inc. from 1993 through the present
date. These consulting services have included regulatory, distribution,
licensing, joint venture, investment, merger and acquisition activities
involving businesses in the United States and Japan. Mr. Okamura was in charge
of bio-medical business development for various offices of Mitsubishi
Corporation from 1978 through 1993. Mr. Okamura received a BS in Biochemistry
in
1975 from the University of California, Davis and a Master of International
Business from the American Graduate School of International Management in
1978.
Dr.
Anthony (Tony) C. Nicholls. Dr. Nicholls was nominated for election to the
Board of Directors by the vote of the Board of Directors. Dr. Nicholls is
currently CEO of L3Technology Ltd in England, a company formed to commercialize
patented medical technology developed in UK government research laboratories.
Additionally, he is Chairman of the Alpha Omega Hospital Management Trust Ltd
(London, UK) which undertakes the construction and management of cancer
treatment "Centres of Excellence" and a Director of European Diagnostics plc
(London UK) a company developing products for patient point-of-care testing.
Until 2002, Dr Nicholls was Chairman and CEO of FAS Medical Ltd, a company
primarily involved in the management of central venous catheterization
complications. Prior to working with FAS Medical Ltd., Dr. Nicholls was the
Head
of Microbiology and Immunology at the Midhurst Medical Research Institute in
the
UK. Dr. Nicholls is a graduate of the University of Birmingham School of Medical
Sciences and has a Ph.D. in Immunology.
Term
of Office
Our
directors are appointed for a one-year term to hold office until the next annual
general meeting of our shareholders or until removed from office in accordance
with our bylaws. Our officers are appointed by our board of directors and hold
office until removed by the board.
The
following table sets forth the compensation paid or accrued during the year
ended December 31, 2004 to our president and chief executive officer and to
our three executive officers whose salary exceeded $100,000 for
2004.
EXECUTIVE
COMPENSATION
Summary
Compensation Table
The
following Summary Compensation Table shows certain compensation information
for
each of the Named Executive Officers. Compensation data is shown for
the years ended December 31, 2006, 2005 and 2004. This
information includes the dollar value of base salaries, bonus awards, the number
of stock options granted, and certain other compensation, if any, whether paid
or deferred.
|
|
|
|
Annual
Compensation
|
|
|
Long-Term
Compensation
Awards
|
|
|
|
|
|||||||||||||||||||
|
Name
and Principal Position
|
Year
|
|
Salary
(a)
|
|
|
Bonus
|
|
|
Other
Annual
Compensation
|
|
|
Restricted
Stock
Awards
|
|
|
Options/
SARs
|
|
|
LTIP
Payouts
|
|
|
All
Other
Compensation
|
|
|||||||
|
Patrick
G. Rooney
|
2006
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
5,000,000
|
|
|
|
--
|
|
|
$
|
110,000
|
|
|
Chairman
of the Board
|
2005
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
$
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph
G. Oliverio
|
2006
|
|
$
|
135,000
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
President
|
2005
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
7,500,000
|
|
|
|
--
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J.
David Wilson
|
2006
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
Chief
Executive Officer
|
2005
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corey
N. Conn
|
2006
|
|
$
|
96,000
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
4,000,000
|
|
|
|
--
|
|
|
|
--
|
|
|
Chief
Financial Officer
|
2005
|
|
$
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timothy
M. Gabel
|
2006
|
|
$
|
74,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,500,000
|
|
|
|
|
|
|
|
|
|
|
Vice
President of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gary
H. Brooks (b)
|
2006
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
President,
CEO, CFO
|
2005
|
|
$
|
190,000
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
$
|
111,500
|
|
|
and
Secretary
|
2004
|
|
$
|
223,000
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
500,000
|
|
|
|
--
|
|
|
$
|
1,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Griffith
L. Miller II (c)
|
2006
|
|
$
|
55,000
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
President,
COO and CFO
|
2005
|
|
$
|
105,000
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
2004
|
|
$
|
94,000
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David
S. Yeh (d)
|
2006
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
Executive
V.P. Sales &
|
2005
|
|
$
|
130,000
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
Marketing
|
2004
|
|
$
|
119,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Amounts
shown include cash compensation earned with respect to the year shown
above.
|
|
(b)
|
Compensation
for Mr. Brooks in 2005 includes regular compensation of $167,000 and
$23,000 of vacation pay through September 29, 2005. All
other compensation for Mr. Brooks includes an $111,500 severance
obligation.
|
|
(c)
|
Mr.
Miller resigned in August 2006. Compensation for Mr. Miller in 2005
includes regular compensation of $97,500 and $7,500 of vacation
pay.
|
|
(d)
|
Mr. Yeh
served as an officer of the Company from July 2004 through July
2005.
|
Employment
Agreements
Effective
December 27, 2005, the Company entered into an employment agreement with Joseph
G. Oliverio, President of the Company. Under the Agreement, Mr. Oliverio
receives an initial base salary of $150,000. Mr. Oliverio also received an
option grant exercisable for 7,500,000 shares of Common Stock at an exercise
price of $0.05 per share. On the date of grant of the option 2,000,000 shares
vested, with an additional 2,000,000 shares vesting on December 27, 2006
and the remainder vesting on December 27, 2007. Mr. Oliverio is
entitled to 6 months severance if terminated "without cause".
Option
Grants in Last Fiscal Year
During
2006, the Company issued 11,575,000 stock options to officers and directors,
75,000 of which were issued in accordance with the Company’s Non-Employee
Director Stock Option Plan and 11,500,000 in accordance with the Amended and
Restated 2005 Stock Incentive Plan.
Equity
Compensation Plan Information
The
following table summarizes share
and exercise information about the Company's equity compensation plans as of
August 28,
2007.
|
Plan
Category
|
Number
of Securities to be Issued Upon Exercise of Outstanding Options,
Warrants
and Rights
|
Weighted-Average
Exercise Price of Outstanding Options, Warrants and
Rights
|
Number
of Securities Remaining Available for Future Issuance Under Equity
Compensation Plans (excluding securities included in 1st
column)
|
|||||||||
|
All
Equity Compensation Plans Approved by Security Holders
|
19,500,000
|
$ |
0.06
|
26,814,000 | (1) | |||||||
|
|
||||||||||||
|
(1)
|
Includes
3,275,000 shares available for issuance under the 1999 Stock Option
Plan,
225,000 shares available for issuance under the 1999 Non-Employee
Directors' Plan, 684,000 shares available for issuance under the
1999
Stock Bonus Incentive Plan, 500,000 shares available under the
1999 Employee Stock Purchase Plan, 21,000,000 shares available under
the
2005 Amended and Restated Stock Incentive Plan and 1,130,000 available
under the 2006 Stock Incentive Plan
|
SUMMARY
OF EQUITY COMPENSATION PLANS
Equity-Based
Compensation
Key
Employee Incentive Compensation.
The
Company has an incentive compensation plan for certain key employees and it’s
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. During 2006, the Company did not pay any bonus pursuant to
the incentive compensation plan.
1999
Employee Stock Option Plan
Positron's
Board administers the 1999 Employee Stock Option Plan ("1999 Plan"), which
was
adopted by the Board effective June 15, 1999. The 1999 Plan provides
for the grant of options to officers, employees (including employee directors)
and consultants. The administrator is authorized to determine the
terms of each option granted under the plan, including the number
of shares, exercise price, term and
exercisability. Options granted under the plan 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 the Company's capital stock). Options may not be
exercised more than ten years after the date of grant (five years in the case
of
10% shareholders). 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. The Board has authorized up to an aggregate of
4,000,000 shares of Common Stock for issuance under the 1999 Plan. As
of August 28, 2007, 225,000 options are outstanding, of which 152,396 are
vested.
Non-Employee
Directors' Stock Option Plan
The
1999
Non-Employee Directors' Stock Option Plan ("Directors' 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. The Board has authorized up
to an
aggregate of 500,000 shares of Common Stock for issuance under the Directors'
Plan. As of August 28, 2007, 250,000 fully vested options remain
outstanding under the Directors' Plan.
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 Company 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. As of August 28, 2007,
316,000 shares of Common Stock have been granted under the 1999 Stock Bonus
Incentive Plan.
1999
Employee Stock Purchase Plan
The
Company's 1999 Employee Stock Purchase Plan ("Purchase Plan") was adopted by
the
Board of Directors and approved by the shareholders
in 1999. A total of 500,000 shares of Common Stock have
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 August
28, 2007.
Amended
and Restated 2005 Stock Incentive Plan
Positron's
Board administers the Amended and Restated 2005 Stock Incentive Plan ("2005
Plan"), which was adopted by the Board effective November 18,
2005. The 2005 Plan provides for the grant of options and stock to
directors, officers, employees and consultants. The administrator is
authorized to determine the terms of each award granted under the plan,
including the number of shares, exercise price, term and
exercisability. Options granted under the plan 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 the Company's capital stock). Options may not be
exercised more than ten years after the date of grant (five years in the case
of
10% shareholders). 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. A total of 40,000,000 shares of Common Stock have been authorized
for issuance under the 2005 Plan. As of August 28 2007, a
total of 19,000,000 options have been granted under the 2005 Plan, none of
which
have been exercised, and of which 10,000,000 are fully vested.
2006
Stock Incentive Plan
Positron's
Board administers the 2006 Stock Incentive Plan ("2006 Plan"), which was adopted
by the Board effective April 10, 2006. The 2006 Plan provides for the
direct issuance of stock and grants of nonqualified stock options to directors,
officers, employees and consultants. The administrator is authorized
to determine the terms of each award granted under the plan, including the
number of shares, exercise price, term and exercisability. Stock and
options may be granted for services rendered or to be
rendered. Options may not be exercised more than ten years after the
date of grant. 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. A total of 5,000,000 shares of Common Stock have
been authorized for issuance under the 2006 Plan. As of August 28,
2007, all 5,000,000 shares had been issued to consultants under the 2006
Plan.
2007
Omnibus Securities and Incentive Plan
Positron's
Board administers the 2007 Omnibus Securities and Incentive Plan ("2007 Plan"),
which was adopted by the Board effective July 1, 2007. The 2007 Plan
provides for the direct issuance of incentive stock options, non-qualified
stock
options, performance share awards, restricted stock awards, unrestricted stock
awards or any combination thereof. to directors, officers, employees and
consultants. The administrator is authorized to determine the terms
of each award granted under the plan, including the number of shares, exercise
price, term and exercisability. Stock and options may be granted for
services rendered or to be rendered. 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. A total of 5,000,000 shares
of Common Stock have been authorized for issuance under the 2007
Plan. As of August 28, 2007 no shares had been issued to consultants
under the 2007 Plan.
401(k)
Savings 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 did not make any contributions to the 401(k) Plan on behalf of employees
in the year ended December 31, 2006.
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 2006 or 2005.
LEGAL
MATTERS
The
validity of the shares being offered hereby is being passed upon for us by
Levy
& Boonshoft, P.C. We received certain advice from our legal
counsel in connection with the matters described herein. Such legal advice
is
solely for our benefit and not for any stockholder or prospective investor.
Purchasers of the shares offered hereby are not entitled to rely on any such
advice and should not consider any such counsel to represent them or their
interests.
EXPERTS
The
certified financial statements for the three years ending December 31, 2005
and
December 31, 2006 included in this prospectus have been so included in
reliance on the reports, which contains an explanatory paragraph relating to
the
Company’s ability to continue as a going concern of Ham, Langston & Brezina,
LLP. and Frank L. Sassetti & Co. respectively, an independent registered
public accounting firms, given on the authority of said firms as experts in
auditing and accounting.
WHERE
YOU CAN FIND MORE INFORMATION
We
have
filed with the Securities and Exchange Commission a Registration Statement
on
Form S-1 under the Securities Act with respect to the shares of common
stock offered by the selling stockholders pursuant to this prospectus. This
prospectus is part of the registration statement but does not include all of
the
information contained in the registration statement. You should refer to the
registration statement and its exhibits for additional information. Whenever
we
make reference in this prospectus to any of our contracts, agreements or other
documents, the references are not necessarily complete, and you should refer
to
the exhibits attached to the registration statement for copies of the actual
contract, agreement or other document.
We
are
subject to the informational requirements of the Securities Exchange Act of
1934
pursuant to which we are required to file annual, quarterly and special reports,
proxy statements and other information with the Securities and Exchange
Commission. These documents are publicly available, free of charge, on our
website at www.Positron.com as soon as reasonably practicable after we file
such
documents with the Securities and Exchange Commission.
You
can
read the registration statement and our reports and other information filed
with
the Securities and Exchange Commission over the Internet at the Securities
and
Exchange Commission’s website at http://www.sec.gov. You may also read and copy
any document that we file with the Securities and Exchange Commission at its
public reference room at Station Place, 100 F Street NE, Washington, DC
20549.
You
may
also obtain copies of the documents at prescribed rates by writing to the Public
Reference Section of the Securities and Exchange Commission at Station
Place, 100 F Street NE, Washington, DC 20549. Please call the Securities
and Exchange Commission at 1-800-SEC-0330 for further information on the
operation of the public reference room.
All
information concerning us contained in this prospectus has been furnished by
us.
No person is authorized to make any representation with respect to the matters
described in this prospectus other than those contained in this prospectus
and,
if given or made, such information must not be relied upon as having been
authorized by us or any other person on our behalf.
We
have
not authorized anyone to give any information or make any representation about
our company that is different from, or in addition to, that contained in this
prospectus. Therefore, if anyone gives you such information, you should not
rely
on it. This prospectus is dated _________, 2007. You should not
assume that the information contained in this document is accurate as of any
other date unless the information specifically indicates that another date
applies.
INCORPORATION
OF CERTAIN INFORMATION BY
REFERENCE
We
have
filed with the SEC a registration statement on Form S-1 under the
Securities Act of 1933 covering the shares offered by this prospectus. This
prospectus is part of that registration statement, but as allowed by the
SEC’s
rules, does not contain all of the information contained in the registration
statement and the exhibits to the registration statement. For further
information about us and the common stock offered by this prospectus, we
refer
you to the registration statement and its exhibits and schedules, which may
be
obtained as described above.
The
SEC
allows us to “incorporate by reference” certain of our publicly-filed documents
into this prospectus. This means that information included in those documents
is
considered part of this prospectus. The following documents filed with the
SEC
are incorporated by reference in this prospectus (File
No. 000-22250):
|
|
•
|
Our
Annual Report on Form 10-KSB for the year ended December 31,
2006 as filed on April 13,
2007;
|
|
|
•
|
Our
Quarterly Reports on Form 10-QSB for the quarters ended
(a) March 31, 2007 as filed on May 15, 2007 and
(b) June 30, 2007 as filed on August 14,
2007;
|
|
|
•
|
Our
Current Reports on Form 8-K as filed on the following 2007 dates:
January 31 and August 16 (other than the portions of those documents
deemed not to have been filed).
|
You
may
obtain copies of these filings, at no cost, through the SEC Filings section
of
our website (www.3dsystems.com), and you may request copies of these filings,
at
no cost, by writing or telephoning us at:
Positron
Corporation
1304
Langham Creek Drive
Houston,
Texas 77084
Telephone:
(281) 492-7100
Information
contained on our website that is not specifically incorporated by reference
is
not a part of this prospectus.
You
should rely only on the information incorporated by reference or provided
in
this prospectus. We have authorized no one to provide you with different
information. You should not assume that the information in this prospectus
is
accurate as of any date other than the date on the front of this document.
Any
statement contained in a document incorporated or deemed to be incorporated
by
reference in this prospectus will be deemed to be modified or superseded
for
purposes of this prospectus to the extent that a statement contained in this
prospectus or in any other subsequently filed document which also is or is
deemed to be incorporated by reference in this prospectus modifies or supersedes
that statement. Any statement that is modified or superseded will not constitute
a part of this prospectus, except as modified or superseded.
Index
to
Financial Statement
|
Consolidated
Balance Sheet as of June 30, 2007 (unaudited)
|
F-1
|
|
|
|
|
Consolidated
Statements of Operations for the three months ended June 30,
2007 (unaudited) and June 30, 2006
|
F-2
|
|
|
|
|
Consolidated
Statements of Cash Flows for the three months ended June 30,
2007 (unaudited) and June 30, 2006
|
F-3
|
|
|
|
|
Notes
to Interim Consolidated Financial Statements
|
F-4
|
|
Reports
of Independent Registered Public Accounting Firms
|
F-17
|
|
Consolidated
Balance Sheets, December 31, 2006 and 2005
|
F-20
|
|
Consolidated
Statements of Operations, for the years ended December 31, 2006
and
2005
|
F-21
|
|
Consolidated
Statement of Stockholders' Equity (Deficit) for the year ended
December
31, 2005
|
F-22
|
|
Consolidated
Statement of Stockholders' Equity (Deficit) for the year ended
December
31, 2006
|
F-24
|
|
Consolidated
Statements of Cash Flows, for the years ended December 31, 2006
and
2005
|
F-26
|
|
Notes
to the Consolidated Financial Statements
|
F-27
|
POSITRON
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEET
(In
thousands, except share data)
|
June
30, 2007
(Unaudited)
|
||||
|
ASSETS
|
||||
|
Current
assets:
|
||||
|
Cash
and cash equivalents
|
$ |
173
|
||
|
Accounts
receivable
|
124
|
|||
|
Inventories
|
1,500
|
|||
|
Due
from affiliates
|
320
|
|||
|
Prepaid
expenses
|
111
|
|||
|
Other
current assets
|
23
|
|||
|
Total
current assets
|
2,251
|
|||
|
Investment
In Joint Ventures
|
--
|
|||
|
Property
and equipment, net
|
147
|
|||
|
Goodwill
|
2,425
|
|||
|
Other
assets
|
349
|
|||
|
Total
assets
|
$ |
5,172
|
||
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||
|
Current
liabilities:
|
||||
|
Accounts
payable, trade and accrued liabilities
|
$ |
2,568
|
||
|
Customer
deposits
|
293
|
|||
|
Unearned
revenue
|
82
|
|||
|
Due
to affiliates
|
--
|
|||
|
Total
current liabilities
|
2,943
|
|||
|
Convertible
notes payable, less discount of $1,238
|
62
|
|||
|
Deposits
of unissued preferred stock
|
3,224
|
|||
|
Derivative
liabilities for convertible debentures
|
2,177
|
|||
|
Majority
interest in loss of consolidated subsidiary
|
--
|
|||
|
Total
liabilities
|
8,406
|
|||
|
Stockholders’
deficit:
|
||||
|
Series
A Preferred Stock: $1.00 par value; 8% cumulative, convertible,
redeemable; 5,450,000 shares authorized; 464,319 shares issued
and
outstanding
|
464
|
|||
|
Series
B Preferred Stock: $1.00 par value; convertible, redeemable 9,000,000
shares authorized; 5,739,860.5 shares issued and
outstanding
|
5,740
|
|||
|
Series
G Preferred Stock: $1.00 par value; 8%
cumulative, convertible, redeemable; 3,000,000 shares authorized;
111,391 shares outstanding
|
111
|
|||
|
Common
Stock: $0.01 par value; 800,000,000 shares authorized;
97,033,302 shares outstanding
|
970
|
|||
|
Additional
paid-in capital
|
60,726
|
|||
|
Other
comprehensive (loss) income
|
(179 | ) | ||
|
Accumulated
deficit
|
(71,051 | ) | ||
|
Treasury
Stock: 60,156 common shares at cost
|
(15 | ) | ||
|
Total
stockholders’ deficit
|
(3,234 | ) | ||
|
Total
liabilities and stockholders’ deficit
|
$ |
5,172
|
||
See
accompanying notes
POSITRON
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
(In
thousands, except per share data)
(Unaudited)
|
Three
Months Ended
|
Six
Months Ended
|
|||||||||||||||
|
June
30,
2007
|
June
30,
2006
|
June
30,
2007
|
June
30,
2006
|
|||||||||||||
|
Revenues:
|
||||||||||||||||
|
System
sales and upgrades
|
$ |
454
|
$ |
--
|
$ |
1,429
|
$ |
--
|
||||||||
|
Service
and component
|
415
|
266
|
641
|
464
|
||||||||||||
|
Total
revenues
|
869
|
266
|
2,070
|
464
|
||||||||||||
|
Costs
of revenues:
|
||||||||||||||||
|
System
sales and upgrades
|
413
|
--
|
1,098
|
--
|
||||||||||||
|
Service,
warranty and component
|
210
|
180
|
347
|
328
|
||||||||||||
|
Total
costs of revenues
|
623
|
180
|
1,445
|
328
|
||||||||||||
|
Gross
profit
|
246
|
86
|
625
|
136
|
||||||||||||
|
Operating
expenses:
|
||||||||||||||||
|
Research
and development
|
451
|
116
|
804
|
260
|
||||||||||||
|
Selling
and marketing
|
317
|
375
|
586
|
445
|
||||||||||||
|
General
and administrative
|
467
|
470
|
1,176
|
906
|
||||||||||||
|
Stock
based compensation
|
103
|
(25 | ) |
206
|
221
|
|||||||||||
|
Total
operating expenses
|
1,338
|
936
|
2,772
|
1,832
|
||||||||||||
|
Loss
from operations
|
(1,092 | ) | (850 | ) | (2,147 | ) | (1,696 | ) | ||||||||
|
Other
income (expense)
|
||||||||||||||||
|
Interest
Income
|
4
|
--
|
4
|
--
|
||||||||||||
|
Interest
expense
|
(41 | ) | (301 | ) | (73 | ) | (570 | ) | ||||||||
|
Derivative
gains (losses)
|
22
|
(1,887 | ) | (12 | ) | (1,887 | ) | |||||||||
|
Equity
in loss of joint venture
|
--
|
(77 | ) | (23 | ) | (118 | ) | |||||||||
|
Total
other income (expense)
|
(15 | ) | (2,265 | ) | (104 | ) | (2,575 | ) | ||||||||
|
Loss
before income taxes and majority interest
|
(1,107 | ) | (3,115 | ) | (2,251 | ) | (4,271 | ) | ||||||||
|
Majority
interest in loss ofsubsidiary
|
--
|
--
|
25
|
--
|
||||||||||||
|
Loss
before income taxes
|
(1,107 | ) | (3,115 | ) | (2,226 | ) | (4,271 | ) | ||||||||
|
Income
taxes
|
--
|
--
|
--
|
--
|
||||||||||||
|
Net
loss
|
$ | (1,107 | ) | $ | (3,115 | ) | $ | (2,226 | ) | $ | (4,271 | ) | ||||
|
Other
comprehensive income
|
||||||||||||||||
|
Foreign
currency translation loss
|
(197 | ) |
--
|
(218 | ) |
--
|
||||||||||
|
Comprehensive
loss
|
$ | (1,304 | ) | $ | (3,115 | ) | $ | (2,444 | ) | $ | (4,271 | ) | ||||
|
Basic
and diluted loss per common share
|
$ | (0.01 | ) | $ | (0.04 | ) | $ | (0.02 | ) | $ | (0.05 | ) | ||||
|
Weighted
average number of basic and diluted common shares
outstanding
|
95,896
|
79,896
|
91,513
|
78,995
|
||||||||||||
See
accompanying notes
POSITRON
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In
thousands)
(Unaudited)
|
Six
Months Ended
|
||||||||
|
June
30,
2007
|
June
30,
2006
|
|||||||
|
Cash
flows from operating activities:
|
||||||||
|
Net
loss
|
$ | (2,226 | ) | $ | (4,271 | ) | ||
|
Adjustment
to reconcile net loss to net cash used
in operating activities
|
||||||||
|
Depreciation
and amortization
|
115
|
24
|
||||||
|
Amortization
of loan costs, debt discount and beneficial conversion
features
|
71
|
423
|
||||||
|
Stock
based compensation
|
206
|
220
|
||||||
|
Loss
on derivative liabilities
|
12
|
1,887
|
||||||
|
Common
stock issued for services
|
134
|
292
|
||||||
|
Equity
in losses of joint ventures
|
23
|
118
|
||||||
|
Majority
interest in losses of consolidated subsidiary
|
(25 | ) |
--
|
|||||
|
Changes
in operating assets and liabilities:
|
||||||||
|
Accounts
receivable
|
70
|
(65 | ) | |||||
|
Inventory
|
93
|
3
|
||||||
|
Prepaid
expenses
|
14
|
66
|
||||||
|
Other
current assets
|
65
|
(104 | ) | |||||
|
Field
service parts and supplies
|
(51 | ) | (9 | ) | ||||
|
Accounts
payable and accrued liabilities
|
(166 | ) |
3
|
|||||
|
Customer
deposits
|
27
|
--
|
||||||
|
Unearned
revenue
|
(64 | ) |
92
|
|||||
|
Net
cash used in operating activities
|
(1,702 | ) | (1,321 | ) | ||||
|
Cash
flows from investing activities:
|
||||||||
|
Purchase
of property and equipment
|
(43 | ) |
--
|
|||||
|
Investment
in joint venture
|
--
|
(639 | ) | |||||
|
Purchase
of intangible assets
|
(52 | ) | (50 | ) | ||||
|
Net
cash used in investing activities
|
(95 | ) | (689 | ) | ||||
|
Cash
flows from financing activities:
|
||||||||
|
Proceeds
from notes payable to an affiliated entities
|
--
|
200
|
||||||
|
Net
proceeds from issuance of convertible debentures
|
--
|
1,080
|
||||||
|
Proceeds
from private placements
|
2,153
|
901
|
||||||
|
Capital
lease payments
|
(4 | ) |
--
|
|||||
|
Repayments
of advances to affiliated entities
|
117
|
--
|
||||||
|
Advance
to affiliated entities
|
(391 | ) | (132 | ) | ||||
|
Net
cash provided by financing activities
|
1,875
|
2,049
|
||||||
|
Effect
of exchange rate changes on cash and cash equivalents
|
(20 | ) |
--
|
|||||
|
Net
(decrease) increase in cash and cash equivalents
|
58
|
39
|
||||||
|
Cash
and cash equivalents, beginning of period
|
115
|
209
|
||||||
|
Cash
and cash equivalents, end of period
|
$ |
173
|
$ |
248
|
||||
|
Supplemental
cash flow information:
|
||||||||
|
Interest
paid
|
$ |
--
|
$ |
--
|
||||
|
Income
taxes paid
|
--
|
--
|
||||||
|
Non-cash
disclosures
|
||||||||
|
Issuance
of common stock to satisfy severance obligation
|
$ |
--
|
$ |
25
|
||||
|
Convertible
debenture discount with corresponding increase to paid in capital
for
value of warranty
|
$ |
--
|
$ |
919
|
||||
|
Convertible
debenture discount with corresponding increase to derivative liabilities
for beneficial conversion feature
|
$ |
--
|
$ |
2,268
|
||||
See
accompanying notes
POSITRON
CORPORATION AND SUBSIDIARIES
NOTES
TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
|
1.
|
Basis
of Presentation
|
The
accompanying unaudited interim financial statements have been prepared in
accordance with generally accepted accounting principles and the rules of
the
U.S. Securities and Exchange Commission, and should be read in conjunction
with
the audited financial statements and notes thereto contained in the Annual
Report on Form 10-KSB for Positron Corporation (the “Company”) for the year
ended December 31, 2006. In the opinion of management, all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation
of
financial position, results of operations and cash flows 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, 2006, as reported
in the Form 10-KSB, have been omitted.
For
the
three and six months ended June 30, 2007, the financial statements include
the
transactions of Positron Corporation (“Positron” or “the Company”), and Imaging
Pet Technologies, Inc. (“IPT”). All Intercompany transactions and balances have
been eliminated.
For
the
three and six months ended June 30, 2006, the financial statements include
only
the transactions of Positron Corporation.
|
2.
|
Accounting
Policies
|
Foreign
Currency
Translation
For
the
six months ended June 30, 2007 the accounts of the Company’s subsidiary, IPT,
were maintained, and its consolidated financial statements were expressed
in
Canadian dollars. Such consolidated financial statements were translated
into
U.S. Dollars (USD) in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 52, "Foreign Currency Translation.” According to the
Statement, all assets and liabilities were translated at the exchange rate
on
the balance sheet date, stockholder's equity are translated at the historical
rates and statement of operations items are translated at the weighted average
exchange rates. The resulting translation adjustments are reported under
other
comprehensive income in accordance with SFAS No. 130, "Reporting Comprehensive
Income”.
Cash
Equivalents and Short-term Investments
For
the
purposes of reporting cash flows, the Company considers highly liquid, temporary
cash investments with an original maturity period of three months or less
to be
cash equivalents. Short-term investments include certificates of
deposits, commercial paper and other highly liquid investments that do not
meet
the criteria of cash equivalents. Cash equivalents and short-term
investments are stated at cost plus accrued interest which approximates fair
value.
Concentrations
of Credit Risk
Cash
and
accounts receivable 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.
Accounts
receivable arise primarily from transactions with customers in the medical
industry located throughout the world, but concentrated in the United States,
Canada and Japan. 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. 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, and declining balance methods for IPT’s computer software. 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.
Revenue
Recognition
Revenues
from POSICAMTM
system contracts, IPT’s PulseCDC™ compact digital cardiac camera (sold under the
IS2 brand name) and other nuclear imaging devices are recognized when all
significant costs have been incurred and the system has been shipped to the
customer. Revenues from maintenance contracts are recognized over the
term of the contract. Service revenues are recognized upon
performance of the services.
Stock-Based
Compensation
Effective
January 1, 2006 the Company adopted the revision to SFAS 123 (“SFAS 123R”),
“Share-Based Payment”, that focuses primarily on accounting for transactions in
which an entity obtains employee services in share-based payment transactions
utilizing the modified prospective method. This statement replaces SFAS 123,
“Accounting for Stock-Based Compensation”, and supersedes APB Opinion No. 25,
“Accounting for Stock Issued to Employees”. SFAS 123R requires
companies to expense the fair value of employee stock options and similar
awards.
Warranty
Costs
The
Company accrues for the cost of product warranty on
POSICAMTM
systems and other nuclear imaging devices 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.
Loss
Per Common Share
Basic
loss per common share is calculated by dividing net income by the weighted
average common shares outstanding during the period. Stock options
and warrants are not included in the computation of the weighted average
number
of shares outstanding for dilutive net loss per common share during each
of the
period presented in the Statement of Operations and Comprehensive Income,
as the
effect would be antidilutive.
Income
Taxes
The
Company accounts for income taxes under Statement of Financial Accounting
Standards No. 109, “Accounting for Income Taxes”. Under Statement No.
109, the asset and liability method is used in accounting for income
taxes. Deferred taxes are recognized for temporary differences
between the bases of assets and liabilities for financial statement and income
tax purposes. The temporary differences relate primarily to net
operating loss carryforwards. A valuation allowance is recorded for
deferred tax assets when it is more likely than not that some or all of the
deferred tax assets will not be realized through future operations.
In
June
2006, the FASB released FASB Interpretation No. 48, "Accounting for Uncertainty
in Income Taxes," an interpretation of FASB Statement No. 109 ("FIN 48").
FIN 48
prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected
to be
taken in a tax return. A company must determine whether it is
"more-likely-than-not" that a tax position will be sustained upon examination,
including resolution of any related appeals or litigation procedures, based
on
the technical merits of the position. Once it is determined that a
position meets the more-likely-than-not recognition threshold, the position
is
measured to determine the amount of benefit to recognize in the financial
statements. This interpretation is effective for fiscal years beginning after
December 15, 2006. The provisions of FIN 48 were adopted in the first
quarter of 2007 and did not have a material effect on the Company's financial
statements.
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.
New
Accounting Pronouncements
In
September 2006, the FASB issued Statement of Financial Accounting Standards
No
157, "Fair Value Measurements". This statement defines fair value, establishes
a
framework for measuring fair value under generally accepted accounting
principles, and expands disclosures about fair value measurements. The statement
is effective in the fiscal first quarter of 2008 and the Company will adopt
the
statement at that time. The Company believes that the adoption of SFAS No
157
will not have a material effect on its results of operations, cash flows
or
financial position.
|
3.
|
Going
Concern
|
Since
inception, the Company has expended substantial resources on research and
development. Consequently, the Company has sustained substantial
losses. Due to the limited number of systems sold or placed into
service each year, revenues have fluctuated significantly from year to
year. At June 30, 2007, the Company had an accumulated deficit of
$71,051,000 and a stockholder’s deficit of $3,234,000. The Company
will need to increase system sales and apply the research and development
advancements to achieve profitability in the future. Through the Company’s joint
venture with Neusoft Medical Systems, the Company intends to significantly
reduce overall costs to manufacture and deliver PET systems. In
addition, the Company expects increased revenue from its IPT SPECT camera
subsidiary to come from new sales campaigns and service division. The Company
expects that these developments will have a positive impact on the PET, PET/CT
and SPECT device products, sales and service volumes.
The
Company had cash and cash equivalents of $173,000 at June 30,
2007. At the same date, the Company had accounts payable and accrued
liabilities of $2,568,000. In addition, debt service and working
capital requirements for the upcoming year may reach beyond current cash
balances. The Company plans to continue to raise funds as required
through equity and debt financings to sustain business
operations. These factors raise substantial doubt about the Company’s
ability to continue as a going concern.
There
can
be no assurance that the Company will be successful in implementing its business
plan and ultimately achieving operational profitability. The
Company’s long-term viability as a going concern is dependent on its ability to
1) achieve adequate profitability and cash flows from operations to sustain
its
operations, 2) control costs and expand revenues from existing or new business
and 3) meet current commitments and fund the continuation of its business
operation in the near future.
|
4.
|
Imaging
Pet Technologies – Business
Acquisition
|
The
Company and Quantum Molecular Pharmaceuticals Inc., a Canadian
radiopharmaceutical corporation (“QMP”) acquired all of the operating assets of
IS2 Medical Systems Inc., a developer and manufacturer of nuclear imaging
devices based in Ottawa, Ontario, Canada (“IS2”) through a minority-owned
subsidiary of the Company, Imaging PET Technologies, Inc. (“IPT”). The Company
and QMP hold 49.9% and 50.1%, respectively, of the total registered capital
of
IPT. On May 8, 2006, to finalize certain obligations of QMP related to the
Quantum Molecular Technologies Joint Venture, the Company agreed to issue
650,000 shares of its Series B Convertible Preferred Stock (the “Series B”) to
IPT in exchange for a promissory note in the amount of $1,300,000. See,
Quantum Molecular Technologies, below.
On
June
5, 2006, IPT completed the acquisition of IS2 through a series of events
which
resulted in the net assets of IS2 being transferred to IPT. On April
28, 2006, debenture holders and promissory note holders of IS2 were put on
notice that IS2 was in default of its covenants relating to revenue
targets. In turn, the debenture/note holders demanded
payment. On May 29, 2006, the debentures and notes totaling
$1,435,727 were assigned to IPT by the holders in exchange for
$1,000,000. The original holders assigned their security agreements
to IPT who exercised those agreements immediately and assumed the net assets
of
IS2. In addition to the net assets, 1PT assumed leases and
contracts. Employments contracts were established with the Company
upon acquisition.
On
January 26, 2007, the Company executed and consummated a Securities Purchase
Agreement (the “Agreement”) with Imagin Diagnostic Centres, Inc. (“IMAGIN”), to
acquire 11,523,000 shares of common stock of IPT. The Shares represented
the
remaining 50.1% of IPT’s issued and outstanding common stock. As a result of the
acquisition of the Shares, the Company owns 100% of the common stock of IPT.
As
consideration for the shares, the Company and IMAGIN agreed to cancel a
promissory note in the principal amount of $2,400,000 made by IMAGIN subsidiary,
QMP and later assigned to IMAGIN. As of the date of the Agreement, the Company
had been advised by IMAGIN that it had acquired all of QMP’s interest in IPT as
well as QMP's other holdings of the Company's related securities.
The
acquisition of the remaining 50.1% of IPT on January 26, 2007 was accounted
for
using the purchase method of accounting. Initially, the excess of the
purchase price over the amounts allocated to the assets acquired and liabilities
assumed has been recorded as goodwill. Total goodwill recorded for
this acquisition was $2,425,000. Under Statement of Financial
Accounting Standards No. 142, “Goodwill and Other Intangible
Assets” (“SFAS No. 142”), goodwill and certain intangible assets are
deemed to have indefinite lives and are no longer amortized, but are reviewed
at
least annually for impairment. Management will review its intangible assets
for
impairment during the fourth quarter. Additional fair value adjustments from
the
acquisition are being reviewed by Management.
|
5.
|
Quantum
Molecular Technologies
|
On
December 28, 2005, the Company entered into a Memorandum of Understanding
with
Imagin Diagnostic Centres, Inc. (“IMAGIN”) and Quantum Molecular Pharmaceutical,
Inc. ("QMP"), a Canadian company and majority-owned subsidiary of
IMAGIN. The Memorandum provided that the parties would form a joint
venture to be called Quantum Molecular Technologies JV (the “QMT
JV”). Initially, the joint venture would be owned 20%, 29% and 51% by
the Company, IMAGIN and QMP, respectively. The Company had the right
to increase its interest in the joint venture to a maximum of 51% by the
issuance to QMP of up to 150 million shares of the Company's common
stock. In consideration for the Company's 20% interest in the joint
venture, the Company was obligated to loan to the joint venture sufficient
funds, in the form of senior debt, to meet the joint venture's capital
requirements as determined by the Company. In turn, IMAGIN and QMP
had committed to purchase up to $4 million in preferred equity in the
Company.
On
May 8,
2006, the Company amended certain aspects of the QMT JV transaction. Whereas
the
Company originally held 20% of the interests of the QMT JV, QMP and IMAGIN
assigned 100% of their interests to the Company. Additionally, the
investment amount QMP and IMAGIN originally committed to in the amount of
$4,000,000 was restated to $2,400,000 to reflect the assignment of the QMT
JV
interests and participation by the Company in the IPT joint venture acquisition
and subsequent financing. The $2,400,000 investment was in the form of a
promissory note to the Company. In exchange for the assignment of
QMT JV interests and the investment, the Company issued 3,450,000
shares of Series B Convertible Preferred Stock.
On
April
13, 2006, the QMT JV was incorporated under the name Quantum Molecular
Technologies, Inc. (“QMT”) and acquired certain intangible assets in the form of
capitalized research and development costs from IMAGIN for a note payable
in the
amount of $368,755. As discussed above, on May 8, 2006 the Company
acquired 100% of the IMAGIN and QMP interests in QMT. QMT had
limited operating activity during the period between April 13, 2006 and May
8,
2006, as such the Company has consolidated 100% of the operations of QMT
from
the date of acquisition.
Using
concepts and research and development activities conceived and to be implemented
by Dr. Irving Weinberg, QMT is developing certain next generation technologies
including PET-enabled surgical tools and solid-state photo detector technology,
which have implications in both molecular imaging and PET and which could
have
further application in the military and aerospace segments. The first
solid-state detector technology patent has been filed by QMT.
On
January 26, 2007 IPT acquired all of the outstanding capital stock of the
Company’s wholly-owned subsidiary, QMT.
|
6.
|
Inventories
|
Inventories
at June 30, 2007 consisted of the following (in thousands):
|
June
30,
2007
|
||||
|
Raw
materials
|
$ |
1,279
|
||
|
Work
in process
|
271
|
|||
|
Subtotal
|
1,550
|
|||
|
Less
reserve for obsolescence
|
(50
|
) | ||
|
Total
|
$ |
1,500
|
||
|
7.
|
Due
from affiliates
|
Due
from
affiliates at June 30, 2007 consisted of the following (in
thousands):
|
|
June
30, 2007
|
|
||
|
Imagin
Diagnostic Centres, Inc.
|
|
$
|
4
|
|
|
Imagin
Nuclear Partners, Inc.
|
|
|
254
|
|
|
Neusoft
Positron Medical Systems Co., Ltd.
|
|
|
62
|
|
|
|
|
$
|
320
|
|
|
8.
|
Investment
in Joint Ventures
|
Neusoft
Positron Medical Systems Co.
Ltd.
On
June
30, 2005 the Company entered into a Joint Venture Contract with Neusoft Medical
Systems Co., Inc. of Shenyang, Lianoning Province, People's Republic of China
("Neusoft"). Pursuant to the Joint Venture Contract the parties
formed a jointly-owned company, Neusoft Positron Medical Systems Co., Ltd.
(the
"JV Company"), to engage in the manufacturing of PET and CT/PET medical imaging
equipment. The JV Company received its business license and was
organized in September 2005.
The
Company and Neusoft are active in researching, developing, manufacturing,
marketing and/or selling Positron Emission Tomography ("PET") technology
and
both parties seek to mutually benefit from each other's strengths, and
intend to cooperate in the research, development and manufacturing of PET
technology. The purpose and scope of the JV Company's technology
business is to research, develop and manufacture Positron Emission Tomography
systems (PET), and an integrated X-ray Computed Tomography system (CT) and
PET
system (PET/CT), and to otherwise provide relevant technical consultation
and
services.
The
parties to the joint venture contributed an aggregate of US $2,000,000 in
capital contributions. Neusoft's aggregate contribution to the capital of
the JV
Company is 67.5% of the total registered capital of the Company, or US$
1,350,000, and was made in cash. The Company's aggregate contribution to
the
capital of the JV Company is 32.5% of the total registered capital of the
Company, or US$ 650,000, of which US$ 250,000 was made in cash, and US$ 400,000
was made in the form of a technology license. The Company has
transferred to the JV Company certain of its PET technology, while Neusoft
made
available to the JV Company certain CT technology for the development and
production of an integrated PET/CT system. The parties will share the
profits, losses and risks of the JV Company in proportion to and, in the
event
of losses, to the extent of their respective contributions to the registered
capital of the JV Company.
CONDENSED
FINANCIAL STATEMENTS FOR THE JV COMPANY
NEUSOFT
POSITRON MEDICAL SYSTEMS CO., LTD.
CONDENSED
BALANCE SHEET
JUNE
30, 2007
(In
thousands)
|
2007
|
||||
|
ASSETS
|
|
|||
|
|
|
|||
|
Current
assets:
|
|
|||
|
Cash
and cash equivalents
|
$ |
62
|
||
|
Other
current assets
|
376
|
|||
|
Total
current assets
|
438
|
|||
|
|
||||
|
Intangibles
and other assets
|
642
|
|||
|
|
||||
|
Total
assets
|
$ |
1,080
|
||
|
|
||||
|
Current
liabilities:
|
||||
|
Accounts
payable and other current liabilities
|
16
|
|||
|
Total
current liabilities
|
16
|
|||
|
|
||||
|
|
||||
|
Capital
|
1,064
|
|||
|
|
||||
|
Total
liabilities and capital
|
$ |
1,080
|
||
NEUSOFT
POSITRON MEDICAL SYSTEMS CO., LTD.
CONDENSED
STATEMENT OF OPERATIONS
SIX
MONTHS ENDED JUNE 30, 2007 AND 2006
(in
thousands)
|
2007
|
2006
|
|||||||
|
Revenue
|
$ |
--
|
$ |
--
|
||||
|
Expense
|
||||||||
|
General
and administrative expense
|
597
|
270
|
||||||
|
Total
expense
|
597
|
270
|
||||||
|
Net
loss
|
$ | (597 | ) | $ | (270 | ) | ||
|
9.
|
Property
and Equipment
|
Property
and equipment at June 30, 2007 consisted of the following (in
thousands):
|
June
30,
2007
|
||||
|
Furniture
and fixtures
|
$ |
315
|
||
|
Computers
and peripherals
|
287
|
|||
|
Machinery
and equipment
|
178
|
|||
|
Subtotal
|
780
|
|||
|
Less:
accumulated depreciation
|
(633
|
) | ||
|
Total
|
$ |
147
|
||
|
10.
|
Other
Assets
|
Other
assets at June 30, 2007 consisted of the following (in
thousands):
|
2007
|
||||
|
Field
service parts and supplies
|
$ |
68
|
||
|
Intangible
assets
|
140
|
|||
|
Deferred
loan costs
|
141
|
|||
|
|
||||
|
Total
|
$ |
349
|
||
|
11.
|
Accounts
Payable and Accrued
Liabilities
|
Accounts
payable and accrued liabilities at June 30, 2007 consisted of the
following (in thousands):
|
2007
|
||||
|
Trade
accounts payable
|
$ |
1,443
|
||
|
Accrued
royalties
|
377
|
|||
|
Accrued
interest
|
83
|
|||
|
Sales
taxes payable
|
258
|
|||
|
Accrued
compensation
|
146
|
|||
|
Accrued
property taxes
|
81
|
|||
|
Accrued
professional fees
|
34
|
|||
|
Accrued
warranty costs
|
141
|
|||
|
Other
|
5
|
|||
|
|
||||
|
Total
|
$ |
2,568
|
||
|
12.
|
Series
B Preferred Stock
|
On
September 30, 2006 the Board of Directors authorized a new series of preferred
stock designated Series B Preferred Stock. The number of shares
authorized was 9,000,000. Each share of Series B Preferred Stock
$1.00 par value is convertible into 100 shares of the Company’s Common Stock.
The Series B Preferred Stock is senior to the Company’s Common Stock and junior
in priority to the Company’s A, C, and G Preferred Stock in liquidation. Holders
of the Series B Preferred Stock are entitled to 100 votes per share on all
matters requiring shareholder vote. While Series B Preferred Stock is
outstanding, no Common Stock dividends may be paid or declared by the
Company. The Series B Preferred Stock may be redeemed in whole or in
part, at the option of the Company, at any time at a price of $1.00 per
share. As of June 30, 2007, 5,739,860.5 shares of Series B Preferred
Stock were outstanding.
Conversion
of Notes Payable to Series B Preferred Stock
In
2006,
the Company converted all outstanding convertible notes payable and accrued
interest due to affiliated entities to Series B Preferred Stock. Following
is a
description of each conversion:
The
Company and IMAGIN converted principal and interest of $1,164,192 outstanding
upon the Series E Convertible Promissory Notes and principal and interest
of
$877,669 of Convertible Secured Notes into 690,930.5 shares of Series B
Preferred Stock.
The
Company and Positron Acquisition Corp. converted principal and interest of
$818,066 outstanding upon the Series D Secured Convertible Promissory Notes
and
770,000 shares of Series C Preferred Stock into 762,358 shares of Series
B
Preferred Stock. Positron Acquisition Corp. subsequently converted 40,000
shares
of Series B Preferred Stock into 4,000,000 shares of the Company’s Common
Stock.
The
Company and QMP converted principal and interest of $453,144 outstanding
upon
the Series F Secured Convertible Promissory Notes into 226,572 shares of
Series
B Preferred Stock. The Company has been advised by IMAGIN that it had
acquired all of QMP’s interest in the securities of the Company.
|
13.
|
Secured
Convertible Notes
Payable
|
Pursuant
to the terms of a Security Agreement and a Registration Rights Agreement
(the
“Agreements”) dated May 23, 2006, the Company agreed to issue to private
investors (the “Investors”) callable secured convertible notes (the
“Debentures”) in the amount of $2,000,000, with interest at the rate of 6%
annually. The Debentures are convertible into shares of the Company’s
Common Stock at the product of the “Applicable Percentage” and the average of
the lowest three (3) trading prices for the common stock during the twenty
(20)
day period prior to conversion. Applicable Percentage is 50%; provided, however
that the percentage shall be increased to (i) 55% in the event that a
Registration Statement is filed within thirty days of the closing of the
transaction and (ii) 65% in the event the Registration Statement becomes
effective within one hundred and twenty days of the closing of the
transaction. The Company filed a Registration Statement on June 20,
2006. The Company may repay principal and interest in cash in the
event that the price of the Company’s Common Stock is below $0.20 on the last
business day of a month. Pursuant to the terms of the Agreements, the
Company issued to the Investors warrants to purchase 30,000,000 shares of
Common
Stock at an exercise price of $0.15 per share. These warrants are exercisable
seven (7) years from the closing of the transaction.
On
May
23, 2006 the Company issued Debentures in the amount of $700,000 with a maturity
date of May 23, 2009. On June 21, 2006 the Company issued Debentures in the
amount of $600,000 with a maturity date of June 21, 2009. Pursuant to
the terms of the Agreements, the Company shall issue Debentures and receive
the
third traunch in the amount of $700,000 when the Registration Statement is
declared effective by the Securities and Exchange Commission. On August 8,
2007,
the Company filed a Registration Statement on Form SB-2 to register the shares
of common stock issuable upon conversion of the Debentures. Legal and other
fees
incurred in conjunction with the Debentures issued on May 23, 2006 and June
21,
2006 were $130,000 and $90,000, respectively and are being amortized over
the
maturity periods of the Debentures.
As
a
result of the beneficial conversion features contained in the Convertible
Debentures, the derivatives embedded in the Debentures have been classified
as
derivative liabilities. Fair value of the embedded derivatives is determined
using the Black Sholes Valuation Method. The combined liabilities recorded
during the six months ended June 30, 2007 totaled $2,177,000. The Company
recorded a loss on derivative obligations of $12,000 for the six months ended
June 30, 2007, and a gain on derivative obligations of $22,000 during three
months ended June 30, 2007.
|
14.
|
Loss
Per Share
|
Basic
loss per common share is 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 and six month periods ended June 30, 2007 and 2006 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
|
Six
Months Ended
|
|||||||||||||||
|
June 30,
2007
|
June 30,
2006
|
June 30,
2007
|
June 30,
2006
|
|||||||||||||
|
(In
Thousands, except per share data)
|
||||||||||||||||
|
Numerator
|
||||||||||||||||
|
Basic
and diluted loss
|
$ | (1,107 | ) | $ | (3,115 | ) | $ | (2,226 | ) | $ | (4,271 | ) | ||||
|
Denominator
|
||||||||||||||||
|
Basic
and diluted earnings per share-weighted average shares
outstanding
|
95,896
|
79,896
|
91,513
|
78,995
|
||||||||||||
|
Basic
and diluted loss per common share
|
$ | (0.01 | ) | $ | (0.04 | ) | $ | (0.02 | ) | $ | (0.05 | ) | ||||
|
15.
|
Stock
Based Compensation
|
Total
stock-based compensation expense related to currently outstanding options
was
approximately $206,000 and $221,000 for the six months ended June 30, 2007
and
2006, respectively. For the three month period ending June 30, 2007,
stock-based compensation expense was $103,000. During the three month period
ending June 30, 2006, the application variable accounting rules resulted
in the
reversal of stock based compensation of $25,000.
For
all
of the Company’s stock-based compensation plans, the fair value of each grant
was estimated at the date of grant using the Black-Scholes option-pricing
model.
Black-Scholes utilizes assumptions related to volatility, the risk-free interest
rate, the dividend yield (which is assumed to be zero, as the Company has
not
paid cash dividends to date and does not currently expect to pay cash dividends)
and the expected term of the option. Expected volatilities utilized in the
model
are based mainly on the historical volatility of the Company’s stock price over
a period commensurate with the expected life of the share option as well
as
other factors. The risk-free interest rate is derived from the zero-coupon
U.S.
government issues with a remaining term equal to the expected life at the
time
of grant.
The
Company issued 438,000 and 1,438,000 shares of common stock to consultants
under
the 2006 Stock Incentive Plan during the three and six months ended June
30,
2007, respectively. Accordingly the Company recorded consulting expense equal
to
the fair market value of the shares issued of $43,800 and $133,800 during
the
three and six months ended June 30, 2007, respectively.
|
16.
|
Stockholders’
Equity
|
On
January 12, 2007, the Company issued a total of 1,000,000 shares of its common
stock, par value $0.01 to a consultants for services performed. The shares
were
valued at $0.09 per share.
On
April
11, 2007 holders of the Company’s Series G Preferred Stock converted 93,091
shares into 9,390,100 shares of common stock, par value $0.01. As of June
30,
2007 111,391 shares of Series G Preferred Shares were outstanding.
On
April
23, 2007, the Company issued a total of 438,000 shares of common stock, par
value $0.01, to two consultants for services performed. The shares were valued
at $0.10 per share.
|
17.
|
Related
Party Transactions
|
In
September 2006, the Company sold Imagin Nuclear Partners (“INP”), a wholly-owned
subsidiary of Imagin Molecular Corporation, a publicly owned Delaware
corporation and affiliate of the Company, a refurbished HZL Pet Imaging machine.
The sales price of the machine was $200,000. For the three and six months
ended
June 30, 2007 the Company billed approximately $11,000 under a maintenance
contract for the machine. As of June 30, 2007 INP owes the Company
$254,253.
As
of
June 30, 2007 the Company has a receivable in the amount of $62,174 from
Neusoft
Positron Medical Systems Co. Ltd., for parts and materials purchased on behalf
of the joint venture.
Segment
Information and Major Customers
The
Company has operations in the United States and Canada. Selected financial
data
by geographic area was as follows:
|
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
||||||||||
|
|
|
June 30,
2007
|
|
|
June 30,
2006
|
|
|
June 30,
2007
|
|
|
June 30,
2006
|
|
||||
|
|
|
(In
Thousands, except per share data)
|
|
|||||||||||||
|
United
States
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Revenues
|
|
$
|
212
|
|
|
$
|
266
|
|
|
$
|
438
|
|
|
$
|
464
|
|
|
Operating
expenses
|
|
|
532
|
|
|
|
936
|
|
|
|
1,128
|
|
|
|
1,832
|
|
|
Net
loss
|
|
|
(475
|
)
|
|
|
(3,115
|
)
|
|
|
(1,046
|
)
|
|
|
(4,271
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
657
|
|
|
$
|
--
|
|
|
$
|
1,632
|
|
|
$
|
--
|
|
|
Operating
expenses
|
|
|
806
|
|
|
|
--
|
|
|
|
1,644
|
|
|
|
--
|
|
|
Net
loss
|
|
|
(632
|
)
|
|
|
--
|
|
|
|
(1,180
|
)
|
|
|
--
|
|
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 six months ended June 30, 2007, the Company had a limited number of
customers as follows:
|
Number
of customers
|
|
|
18
|
|
|
Customers
accounting for more than 10% of revenues
|
|
|
2
|
|
|
Percent
of revenues derived from largest customer
|
|
|
17
|
%
|
|
Percent
of revenues derived from second largest customer
|
|
|
12
|
%
|
F-
13
POSITRON
CORPORATION AND SUBSIDIARIES
____________
FINANCIAL
STATEMENTS
WITH
REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
for
the years ended December 31, 2006 and 2005
Frank
L.
Sassetti & Co.
Certified
Public Accountants
The
Board
of Directors
Positron
Corporation
REPORT
OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We
have audited the accompanying balance sheet of Positron Corporation as of
December 31, 2006, and the related statements of operations and comprehensive
income, stockholders' equity, and cash flows for the year ended December
31,
2006. 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 audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit 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 audit provides 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, 2006, and the results of its operations and its cash flows for the year
ended December 31, 2006, in conformity with accounting principles generally
accepted in the United States of America.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has a significant accumulated deficit which
raises substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to these matters are also
described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainly.
/s/
Frank
L. Sassetti & Co.
March
26,
2007
Oak
Park,
Illinois
6611
W.
North Avenue * Oak Park, Illinois 60302 * Phone (708) 386-1433 * Fax (708)
386-0139
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board
of
Directors and Stockholders
Positron
Corporation
We
have
audited the accompanying balance sheet of Positron Corporation as of December
31, 2005 and the related statement of operations and comprehensive
income changes in stockholders’ deficit and cash flows for the year ended
December 31, 2005. 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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit 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 audit provides 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, 2005, and the results of its operations and its cash flows for the year
ended December 31, 2005 in conformity with accounting principles generally
accepted in the United States of America.
The
accompanying financial statements have been prepared assuming the Company
will
continue as a going concern. As discussed in Note 2 to the financial
statements, the Company has suffered recurring losses from operations and
low
inventory turnover. These factors raise substantial doubt about the
Company’s ability to continue as a going concern. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
Ham,
Langston & Brezina, L.L.P.
Houston,
Texas
March
30,
2006
POSITRON
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEET
December
31, 2006 and 2005
(In
thousands, except share data)
|
ASSETS
|
2006
|
2005
|
||||||
|
Current
assets:
|
||||||||
|
Cash
and cash equivalents
|
$ |
115
|
$ |
209
|
||||
|
Accounts
receivable
|
208
|
--
|
||||||
|
Inventories
|
1,476
|
202
|
||||||
|
Due
from affiliates
|
2,955
|
--
|
||||||
|
Prepaid
expenses
|
115
|
66
|
||||||
|
Other
current assets
|
63
|
21
|
||||||
|
Total
current assets
|
4,932
|
498
|
||||||
|
Investment
in Joint Venture
|
23
|
230
|
||||||
|
Property
and equipment, net
|
64
|
120
|
||||||
|
Other
assets
|
252
|
57
|
||||||
|
Total
assets
|
$ |
5,271
|
$ |
905
|
||||
|
LIABILITIES
AND STOCKHOLDERS’ DEFICIT
|
||||||||
|
Current
liabilities:
|
||||||||
|
Accounts
payable, trade and accrued liabilities
|
$ |
2,627
|
$ |
1,694
|
||||
|
Customer
deposits
|
241
|
15
|
||||||
|
Unearned
revenue
|
146
|
66
|
||||||
|
Due
to affiliates
|
507
|
--
|
||||||
|
Convertible
notes payable to affiliated entity, less discount of $6
|
--
|
627
|
||||||
|
Total
current liabilities
|
3,521
|
2,402
|
||||||
|
Obligation
under capital lease
|
7
|
--
|
||||||
|
Convertible
notes payable to affiliated entities, less discount of
$884
|
--
|
1,216
|
||||||
|
Convertible
notes payable, less discount of $1,272
|
28
|
--
|
||||||
|
Deposits
for unissued preferred stock
|
850
|
195
|
||||||
|
Derivative
liabilities for convertible debentures
|
2,165
|
--
|
||||||
|
Majority
interest in income of consolidated subsidiary
|
(168 | ) |
--
|
|||||
|
Total
liabilities
|
6,403
|
3,813
|
||||||
|
Stockholders’
deficit:
|
||||||||
|
Series
A Preferred Stock: $1.00 par value; 8% cumulative, convertible,
redeemable; 5,450,000 shares authorized; 464,319 shares issued
and
outstanding.
|
464
|
464
|
||||||
|
Series
B Preferred Stock: $1.00 par value; convertible, redeemable; 9,000,000
shares authorized; 5,739,860.5 shares issued and outstanding in
2006
|
5,740
|
--
|
||||||
|
Series
C Preferred Stock: $1.00 par value; 6% cumulative, convertible,
redeemable; 840,000 shares authorized; 770,000 shares issued and
outstanding in 2005
|
--
|
770
|
||||||
|
Series
G Preferred Stock: $1.00 par value; 8% cumulative, convertible,
redeemable; 3,000,000 shares authorized; 204,482 shares issued
and
outstanding in 2006
|
204
|
--
|
||||||
|
Common
stock: $0.01 par value; 800,000,000 shares authorized;
86,205,202 and 77,775,046 shares outstanding.
|
862
|
778
|
||||||
|
Additional
paid-in capital
|
60,400
|
57,364
|
||||||
|
Other
comprehensive income
|
38
|
--
|
||||||
|
Subscription
receivable
|
--
|
(30 | ) | |||||
|
Accumulated
deficit
|
(68,825 | ) | (62,239 | ) | ||||
|
Treasury
Stock: 60,156 shares at cost
|
(15 | ) | (15 | ) | ||||
|
Total
stockholders’ deficit
|
(1,132 | ) | (2,908 | ) | ||||
|
Total
liabilities and stockholders’ deficit
|
$ |
5,271
|
$ |
905
|
||||
See
notes
to financial statements
POSITRON
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
For
the years ended December 31, 2006 and 2005
(In
thousands, except per share data)
|
2006
|
2005
|
|||||||
|
Revenue:
|
||||||||
|
System
sales
|
1,268
|
--
|
||||||
|
System
upgrades
|
180
|
37
|
||||||
|
Service
and components
|
765
|
725
|
||||||
|
Total
revenue
|
2,213
|
762
|
||||||
|
Costs
of revenues:
|
||||||||
|
System
sales
|
689
|
--
|
||||||
|
System
upgrades
|
13
|
11
|
||||||
|
Service,
warranty and components
|
721
|
621
|
||||||
|
Write-off
of inventory and field service parts
|
--
|
656
|
||||||
|
Total
costs of revenues
|
1,423
|
1,288
|
||||||
|
Gross
(loss) profit
|
790
|
(526 | ) | |||||
|
Selling,
general and administrative
|
2,639
|
2,139
|
||||||
|
Research
and development
|
1,165
|
446
|
||||||
|
Impairment
of intangible asset
|
369
|
--
|
||||||
|
Stock
based compensation
|
430
|
(59 | ) | |||||
|
Total
operating expenses
|
4,603
|
2,526
|
||||||
|
Loss
from operations
|
(3,813 | ) | (3052 | ) | ||||
|
Other
income (expenses):
|
||||||||
|
Interest
expense
|
(860 | ) | (985 | ) | ||||
|
Interest
income
|
--
|
1
|
||||||
|
Equity
in losses of unconsolidated subsidiaries
|
(373 | ) | (20 | ) | ||||
|
Derivative
losses
|
(1,784 | ) | ||||||
|
Other
income
|
--
|
250
|
||||||
| (3,017 | ) | (754 | ) | |||||
|
Loss
before income taxes, majority interest and extraordinary
gain
|
(6,830 | ) | (3,806 | ) | ||||
|
Majority
interest in loss of consolidated subsidiary
|
3
|
--
|
||||||
|
Loss
before income taxes and extraordinary gain
|
(6,827 | ) | (3,806 | ) | ||||
|
Income
taxes
|
--
|
--
|
||||||
|
Loss
before extraordinary gain
|
(6,827 | ) | (3,806 | ) | ||||
|
Extraordinary
gain on acquisition of business
|
241
|
--
|
||||||
|
Net
loss
|
$ | (6,586 | ) | $ | (3,806 | ) | ||
|
Other
comprehensive income
|
||||||||
|
Foreign
currency translation gain
|
38
|
--
|
||||||
|
Comprehensive
income
|
$ | (6,548 | ) | $ | (3,806 | ) | ||
|
Basic
and diluted loss per common share
|
$ | (0.08 | ) | $ | (0.06 | ) | ||
|
Basic
and diluted weighted average shares outstanding
|
81,508
|
65,044
|
||||||
See
notes
to financial statements
POSITRON
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ DEFICIT
For
the year ended December 31, 2005
(In
thousands, except share data)
|
Series
A
|
Series
B
|
Series
C
|
Series
G
|
|||||||||||||||||||||||||||||||||||||
|
Preferred
Stock
|
Preferred
Stock
|
Preferred
Stock
|
Preferred
Stock
|
Common
Stock
|
||||||||||||||||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
|||||||||||||||||||||||||||||||
|
Balance December 31, 2004
|
510,219
|
$ |
510
|
--
|
$ |
--
|
--
|
$ |
--
|
--
|
$ |
--
|
53,245,959
|
$ |
532
|
|||||||||||||||||||||||||
|
Net
loss
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
||||||||||||||||||||||||||||||
|
Compensation
related to repricing of warrants and options
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
||||||||||||||||||||||||||||||
|
Compensation
related to Issuance options
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
||||||||||||||||||||||||||||||
|
Conversion
of debt to equity
|
--
|
--
|
--
|
--
|
770,000
|
770
|
--
|
--
|
24,250,000
|
243
|
||||||||||||||||||||||||||||||
|
Conversion
of preferred stock Into common stock
|
(45,900 | ) | (46 | ) |
--
|
--
|
--
|
--
|
--
|
--
|
139,243
|
1
|
||||||||||||||||||||||||||||
|
Issuance
of common stock For services
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
200,000
|
2
|
||||||||||||||||||||||||||||||
|
Beneficial
conversion feature of Convertible debt
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
||||||||||||||||||||||||||||||
|
Loan
discount
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
||||||||||||||||||||||||||||||
|
Balance
December 31, 2005
|
464,319
|
$ |
464
|
--
|
--
|
770,000
|
$ |
770
|
--
|
--
|
77,835,202
|
$ |
778
|
|||||||||||||||||||||||||||
POSITRON
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ DEFICIT
For
the year ended December 31, 2005
(In
thousands, except share data)
(Continued)
|
Additional
|
Other
|
|||||||||||||||||||||||
|
Paid-in
|
Subscription
|
Comprehensive
|
Accumulated
|
Treasury
|
||||||||||||||||||||
|
Capital
|
Receivable
|
Income
|
Deficit
|
Stock
|
Total
|
|||||||||||||||||||
|
Balance
December 31, 2004
|
$ |
55,547
|
$ | (30 | ) | $ |
--
|
$ | (58,433 | ) | $ | (15 | ) | $ | (1,889 | ) | ||||||||
|
Net
loss
|
--
|
--
|
--
|
(3,806 | ) |
--
|
(3,806 | ) | ||||||||||||||||
|
Compensation
related to repricing of warrants and options
|
(95 | ) |
--
|
--
|
--
|
--
|
(95 | ) | ||||||||||||||||
|
Compensation
related to Issuance options
|
20
|
--
|
--
|
--
|
--
|
20
|
||||||||||||||||||
|
Conversion
of debt to equity
|
344
|
--
|
--
|
--
|
--
|
1,357
|
||||||||||||||||||
|
Conversion
of preferred stock Into common stock
|
45
|
--
|
--
|
--
|
--
|
--
|
||||||||||||||||||
|
Issuance
of common stock For services
|
14
|
--
|
--
|
--
|
--
|
16
|
||||||||||||||||||
|
Beneficial
conversion feature of Convertible debt
|
1,425
|
--
|
--
|
--
|
--
|
1,425
|
||||||||||||||||||
|
Loan
discount
|
64
|
--
|
--
|
--
|
--
|
64
|
||||||||||||||||||
|
Balance
December 31, 2005
|
$ |
57,364
|
$ | (30 | ) |
--
|
$ | (62,239 | ) | $ | (15 | ) | $ | (2,908 | ) | |||||||||
POSITRON
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ DEFICIT
For
the year ended December 31, 2006
(In
thousands, except share data)
|
Series
A
|
Series
B
|
Series
C
|
Series
G
|
|||||||||||||||||||||||||||||||||||||
|
Preferred
Stock
|
Preferred
Stock
|
Preferred
Stock
|
Preferred
Stock
|
Common
Stock
|
||||||||||||||||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
|||||||||||||||||||||||||||||||
|
Balance
December 31, 2005
|
464,319
|
$ |
464
|
--
|
$ |
--
|
770,000
|
$ |
770
|
--
|
$ |
--
|
77,835,202
|
$ |
778
|
|||||||||||||||||||||||||
|
Net
loss
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
||||||||||||||||||||||||||||||
|
Exercise
of options
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
500,000
|
5
|
||||||||||||||||||||||||||||||
|
Compensation
related to Issuance options
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
||||||||||||||||||||||||||||||
|
Conversion
of debt Series C Preferred to new series of Preferred
stock
|
--
|
--
|
1,679,861
|
1,680
|
(770,000 | ) | (770 | ) |
--
|
--
|
--
|
--
|
||||||||||||||||||||||||||||
|
Conversion
of preferred stock Into common stock
|
--
|
--
|
(40,000 | ) | (40 | ) |
--
|
--
|
--
|
--
|
4,000,000
|
40
|
||||||||||||||||||||||||||||
|
Issuance
of preferred stock through Private placement net of total Offering
costs
of 28,975
|
--
|
--
|
--
|
--
|
--
|
--
|
204,482
|
204
|
--
|
--
|
||||||||||||||||||||||||||||||
|
Issuance
of common stock For services
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
3,870,000
|
39
|
||||||||||||||||||||||||||||||
|
Issuance
of preferred stock for Acquisition of subsidiary
|
--
|
--
|
4,100,000
|
4,100
|
--
|
--
|
--
|
--
|
--
|
--
|
||||||||||||||||||||||||||||||
|
Loan
discount
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
||||||||||||||||||||||||||||||
|
Change
in foreign currency Translation gain
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
||||||||||||||||||||||||||||||
|
Cancelled
subscriptions
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
||||||||||||||||||||||||||||||
|
Balance
December 31, 2006
|
464,319
|
$ |
464
|
5,732,861
|
$ |
5,740
|
--
|
--
|
204,482
|
$ |
204
|
86,205,202
|
$ |
862
|
||||||||||||||||||||||||||
POSITRON
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ DEFICIT
For
the year ended December 31, 2006
(In
thousands, except share data)
(Continued)
|
Additional
Paid-in
Capital
|
Subscription
Receivable
|
Other
Comprehensive
Income
|
Accumulated
Deficit
|
Treasury
Stock
|
Total
|
|||||||||||||||||||
|
Balance
December 31, 2005
|
$ |
57,364
|
$ | (30 | ) | $ |
--
|
$ | (62,239 | ) | $ | (15 | ) | $ | (2,908 | ) | ||||||||
|
Net
loss
|
--
|
--
|
--
|
(6,586 | ) |
--
|
(6,586 | ) | ||||||||||||||||
|
Exercise
of options
|
20
|
--
|
--
|
--
|
--
|
25
|
||||||||||||||||||
|
Compensation
related to Issuance options
|
430
|
--
|
--
|
--
|
--
|
430
|
||||||||||||||||||
|
Conversion
of debt Series C Preferred to new series of Preferred
stock
|
2,074
|
--
|
--
|
--
|
--
|
2,984
|
||||||||||||||||||
|
Conversion
of preferred stock Into common stock
|
--
|
--
|
--
|
--
|
--
|
--
|
||||||||||||||||||
|
Issuance
of preferred stock Through private placement Net of total offering
Costs
of 28,975
|
891
|
--
|
--
|
--
|
--
|
1,095
|
||||||||||||||||||
|
Issuance
of common stock For services
|
432
|
--
|
--
|
--
|
--
|
471
|
||||||||||||||||||
|
Issuance
of preferred stock for Acquisition of subsidiary
|
(1,700 | ) |
--
|
--
|
--
|
--
|
2,400
|
|||||||||||||||||
|
Loan
discount
|
919
|
--
|
--
|
--
|
--
|
919
|
||||||||||||||||||
|
Change
in foreign currency Translation gain
|
--
|
--
|
38
|
--
|
--
|
38
|
||||||||||||||||||
|
Cancelled
subscriptions
|
(30 | ) |
30
|
--
|
--
|
--
|
--
|
|||||||||||||||||
|
Balance
December 31, 2006
|
$ |
60,400
|
--
|
$ |
38
|
$ | (68,825 | ) | $ | (15 | ) | $ | (1,132 | ) | ||||||||||
POSITRON
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
For
the years ended December 31, 2006 and 2005
(In
thousands)
|
2006
|
2005
|
|||||||
|
Cash
flows from operating activities:
|
||||||||
|
Net
loss
|
$ | (6,586 | ) | $ | (3,806 | ) | ||
|
Adjustments
to reconcile net loss to net cash used in operating
activities
|
||||||||
|
Derivative
losses
|
1,784
|
--
|
||||||
|
Compensation
related to re-pricing of warrants and options
|
--
|
(95 | ) | |||||
|
Compensation
related to issuance of options
|
430
|
20
|
||||||
|
Depreciation
expense
|
49
|
71
|
||||||
|
Amortization
of intangible assets
|
8
|
--
|
||||||
|
Gain
on disposal of assets
|
(53 | ) |
--
|
|||||
|
Write-off
of inventory and field service parts
|
--
|
656
|
||||||
|
Issuance
of common stock for services
|
471
|
16
|
||||||
|
Equity
in losses of joint venture
|
373
|
20
|
||||||
|
Amortization
of loan costs, debt discount and beneficial conversion
feature
|
644
|
691
|
||||||
|
Majority
interest in income of consolidated subsidiary
|
(3 | ) |
--
|
|||||
|
Extraordinary
gain on acquisition of business
|
(241 | ) |
--
|
|||||
|
Impairment
of intangible asset
|
369
|
--
|
||||||
|
Changes
in operating assets and liabilities:
|
||||||||
|
Accounts
receivable
|
(7 | ) |
--
|
|||||
|
Inventories
|
528
|
(103 | ) | |||||
|
Prepaid
expenses
|
49
|
(4 | ) | |||||
|
Other
current assets
|
235
|
7
|
||||||
|
Field
service parts
|
27
|
36
|
||||||
|
Accounts
payable and accrued liabilities
|
187
|
371
|
||||||
|
Customer
deposits
|
43
|
(1 | ) | |||||
|
Unearned
revenue
|
80
|
(87 | ) | |||||
|
Net
cash used in operating activities
|
(1,613 | ) | (2,208 | ) | ||||
|
Cash
flows from investing activities:
|
||||||||
|
Investment
in subsidiary, net of cash received
|
(534 | ) | (250 | ) | ||||
|
Purchase
of property and equipment
|
(18 | ) | (35 | ) | ||||
|
Proceeds
from disposal of assets
|
77
|
--
|
||||||
|
Purchase
of intangible assets
|
(434 | ) |
--
|
|||||
|
Net
cash used in investing activities
|
(909 | ) | (285 | ) | ||||
|
Cash
flows from financing activities:
|
||||||||
|
Proceeds
from issuance of Series G Preferred Stock
|
901
|
194
|
||||||
|
Proceeds
from issuance of convertible securities
|
1,080
|
--
|
||||||
|
Proceeds
from notes payable to affiliated entities
|
200
|
2,375
|
||||||
|
Advance
to affiliate
|
(39 | ) |
--
|
|||||
|
Repayment
of capital lease obligation
|
(3 | ) |
--
|
|||||
|
Proceeds
from private placement
|
297
|
--
|
||||||
|
Net
cash provided by financing activities
|
2,436
|
2,569
|
||||||
|
Effect
of exchange rate changes on cash and cash equivalents
|
(8 | ) |
--
|
|||||
|
Net
(decrease) increase in cash and cash equivalents
|
(94 | ) |
76
|
|||||
|
Cash
and cash equivalents, beginning of year
|
209
|
133
|
||||||
|
Cash
and cash equivalents, end of year
|
$ |
115
|
$ |
209
|
||||
|
Supplemental
cash flow information:
|
||||||||
|
Interest
paid
|
--
|
--
|
||||||
|
Income
taxes paid
|
--
|
--
|
||||||
|
Non-cash
disclosures
|
||||||||
|
Issuance
of common stock to satisfy severance obligation
|
$ |
25
|
--
|
|||||
|
Convertible
debenture discount with corresponding increase to paid in capital
for
value of warrants
|
$ |
919
|
--
|
|||||
|
Convertible
debenture discount with corresponding increase to
derivative liabilities for beneficial conversion
feature
|
$ |
2,268
|
--
|
|||||
|
Issuance
of Series B Preferred Stock to satisfy accrued interest
obligation
|
$ |
380
|
--
|
|||||
|
Conversion
of debentures to Series B Preferred Stock
|
$ |
2,934
|
--
|
|||||
|
Conversion
of Series C Preferred Stock to Series B Preferred Stock
|
$ |
770
|
--
|
|||||
See
notes
to financial statements
POSITRON
CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2006 AND 2005
1. Description
of Business and Summary of Significant Accounting
Policies
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, markets and services its POSICAMTM system
advanced
medical imaging devices, utilizing positron emission tomography (“PET”)
technology, and has the ability to participate in manufacturing through its’
joint venture with Neusoft Medical Systems Co., LTD. 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.
On
June
5, 2006, the Company, through a minority-owned subsidiary of the Company,
Imaging PET Technologies, Inc. (“IPT”), and Quantum Molecular Pharmaceuticals
Inc., a Canadian radiopharmaceutical corporation (“QMP”) acquired all of the
operating assets of IS2 Medical Systems Inc., a developer and manufacturer
of
nuclear imaging devices based in Ottawa, Ontario, Canada
(“IS2”). Initially, the Company and QMP held 49.9% and 50.1%,
respectively, of the total outstanding capital stock of IPT. On
January 26, 2007, the Company acquired the remaining 50.1% of the capital
stock
of IPT from Imagin Diagnostic Centers, Inc. (“IMAGIN”), which had acquired the
shares from QMP, in exchange for the cancellation of a promissory note in
the
amount of $2,400,000 IMAGIN had made in favor of the Company.
In
applying the requirements of Financial Accounting Standards Board No. 46,
as
revised, (“FIN 46(R)), upon IPT’s acquisition of IS2, the Company considered
several facts in determining whether the operations of IPT warrant consolidation
under the guidelines of FIN 46(R). These facts and the Companies accounting
treatment of the operations of the variable interest entity are discussed
below.
During
the initial months following the acquisition, IS2 continued to operate under
its
existing pre-acquisition management while QMP and the Company formulated
operational plans for their joint venture and more specifically
IS2. At this point, the Company did not deem itself to be the primary
beneficiary as defined by FIN 46(R) and therefore accounted for its investment
in IPT under the equity method by recording its proportionate share of IPT’s
losses as a reduction of its investment. The equity method was
applied consistently from the date of acquisition through September 30,
2006.
During
the fourth quarter of 2006 Positron’s management significantly increased their
involvement in the operations of IPT and IS2 after the termination of IS2’s
Chief Executive Officer. Additionally, the Company began funding its
operations and those of its wholly-owned subsidiary, Quantum Molecular
Technologies, Inc., with the assets of IPT through loans and cash
advances. Finally, in January 2007 Positron acquired QMP’s entire
interest in IPT, giving it 100% ownership. Due to the increase in
management control by Positron over IPT and the subsequent acquisition of
QMP’s
interest, reconsideration has been given to Positron’s relationship with IPT
under the guidance of FIN 46(R), and the Company believes itself to be the
primary beneficiary of the variable interest entity. As such, IPT’s results of
operations for the period October 1 to December 31, 2006 and its balance
sheet
at December 31, 2006 are consolidated in the Company’s financial statements
presented herein.
Principles
of Consolidation
For
the
year ended December 31, 2006, the financial statements include the transactions
of Positron Corporation, Imaging Pet Technologies, Inc. from October 1, 2006
and
Quantum Molecular Technologies, from its date of Incorporation of April 13,
2006. From the date of acquisition of June 5, 2006 through September 30,
2006,
the transactions of IPT were accounted for by the Company under the equity
method with the Company recording its proportionate share of IPT’s losses as
expense in the period incurred. All Intercompany transactions and balances
have
been eliminated.
For
the
year ended December 31, 2005, the financial statements include only the
transactions of Positron Corporation.
Basis
of Presentation and Use of Estimates
These
financial statements have been prepared in conformity with accounting principles
generally accepted in the United States of America (GAAP). Such principles
require 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.
Affiliated
Entities
Affiliated
entities of Positron include companies with common significant shareholders,
joint venture companies, joint venture partners and companies with common
management or control. Such companies include Imagin Diagnostic
Centres, Inc. (“IMAGIN”), Quantum Molecular Pharmaceuticals, Inc. (“QMP”),
Imagin Molecular Corporation (“IMGM”), Solaris Opportunity Fund (“Solaris”),
Neusoft Positron Medical Systems Co., Ltd. (“NPMS”), Positron Acquisition
Corporation (“PAC”) and Imagin Nuclear Partners (“INP”). PAC and INP are
wholly-owned subsidiaries of IMGM.
Foreign
Currency Translation
As
of
December 31, 2006 the accounts of the Company’s subsidiaries, IPT and QMT were
maintained, and their consolidated financial statements were expressed in
Canadian dollars. Such consolidated financial statements were translated
into
U.S. Dollars (USD) in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 52, "Foreign Currency Translation.” According to the
Statement, all assets and liabilities were translated at the exchange rate
on
the balance sheet date, stockholder's equity are translated at the historical
rates and statement of operations items are translated at the weighted average
exchange rates. The resulting translation adjustments are reported under
other
comprehensive income in accordance with SFAS No. 130, "Reporting Comprehensive
Income”.
Cash
Equivalents and Short-term Investments
For
the
purposes of reporting cash flows, the Company considers highly liquid, temporary
cash investments with an original maturity period of three months or less
to be
cash equivalents. Short-term investments include certificates of
deposits, commercial paper and other highly liquid investments that do not
meet
the criteria of cash equivalents. Cash equivalents and short-term
investments are stated at cost plus accrued interest which approximates fair
value.
Concentrations
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.
Accounts
receivable arise primarily from transactions with customers in the medical
industry located throughout the world, but concentrated in the United States,
Canada and Japan. 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. 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, and declining balance methods for IPT’s computer software. 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.
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 and other nuclear imaging devices are recognized when all
significant costs have been incurred and the system has been shipped to the
customer. Revenues from maintenance contracts are recognized over the
term of the contract. Service revenues are recognized upon
performance of the services.
Advertising
Indirect-response
advertising costs are charged to operations the first time the advertising
takes
place. The cost of direct-response advertising is not
significant. Advertising expenses for 2006 and 2005 were $92,000 and
$128,000, respectively.
Research
and Development Expenses
All
costs
related to research and development costs are charged to expense as
incurred.
Stock
Based Compensation
In
December 2004, the Financial Accounting Standards Board (“FASB”) issued
SFAS No. 123(R), “Share-Based Payment,” a revision of SFAS
Statement No. 123. The Company adopted SFAS 123(R) effective
January 1, 2006, using the modified prospective application method, and
beginning with the first quarter of 2006, the Company measures all employee
share-based compensation awards using a fair value based method and record
share-based compensation expense in its financial statements if the requisite
service to earn the award is provided..
The
adoption of SFAS No. 123(R) did not affect the Company’s net cash flow, but
it did have a negative impact on its results of operations. In accordance
with
SFAS 123(R), the Company recognizes the expense attributable to stock awards
that are granted or vest in periods ending subsequent to December 31, 2005
in the statements of operations.
For
the
year ended December 31, 2005, the Company elected to apply the intrinsic
value-based method to account for employee stock option awards under the
provisions of Accounting Principles Board Opinion (“APB”) No. 25, “Accounting
for Stock Issued to Employees,” and to provide disclosures based on the fair
value in the Notes to the Consolidated Financial statements as permitted
by SFAS
No. 123. Under the intrinsic value method , compensation expense, if
any, is recognized for the difference between the exercise price of the option
and the fair value of the underlying common stock as of a measurement
date.
As
described above, prior to January 1, 2006 the Company used the intrinsic
value
method to measure compensation expense associated with grants of stock options
to employees. 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 2005 was estimated on the date of grant using the Black Scholes
option-pricing model with the following assumptions used to calculate fair
value:
|
Expected
life (years)
|
5
|
|||
|
Risk
free rate of return
|
4.5 | % | ||
|
Dividend
yield
|
0
|
|||
|
Expected
volatility
|
133 | % |
Pro-forma
net loss and net loss per share is as follows:
|
2005
|
||||
|
Net
loss as reported
|
$ | (3,806 | ) | |
|
Add: Stock-based
employee compensation expense included in reported net
loss
|
(59 | ) | ||
|
Deduct: Stock-based
employee compensation expense determined under fair value based
method for
all awards
|
(110 | ) | ||
|
Pro-Forma
net loss
|
$ | (3,975 | ) | |
|
Loss
per share
|
||||
|
Basic
and diluted as reported
|
$ | (0.06 | ) | |
|
Basic
and diluted pro-forma
|
$ | (0.06 | ) | |
Warranty
Costs
The
Company accrues for the cost of product warranty on
POSICAMTM
systems and other nuclear imaging devices 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.
Loss
Per Common Share
Basic
loss per common share is calculated by dividing net income by the weighted
average common shares outstanding during the period. Stock options
and warrants are not included in the computation of the weighted average
number
of shares outstanding for dilutive net loss per common share during each
of the
period presented in the Statement of Operations and Comprehensive Income,
as the
effect would be antidilutive.
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.
New
Accounting Pronouncement
In
June
2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections,"
which will require entities that voluntarily make a change in accounting
principle to apply that change retroactively to prior periods' financial
statements unless this would be impracticable. SFAS No. 154supersedes Accounting
Principles Board Opinion No. 20, "Accounting Changes"("APB No. 20"), which
previously required that most voluntary changes in accounting principle be
recognized by including in the current period's net income the cumulative
effect
of changing to the new accounting principle. SFAS No. 154 also makes
a distinction between "retrospective application" of an accounting principle
and
the "restatement" of financial statements to reflect the correction of an
error. Another significant change in practice under SFA No. 154 will
be that if an entity changes its method of depreciation, amortization, or
depletion for long-lived, non-financial assets, the change must be accounted
for
as a change in accounting principle. SFAS No. 154 applies to
accounting changes and error corrections that are made in fiscal years beginning
after December 15, 2005. The provisions of SFAS No. 154 did not
impact the Company's consolidated financial statements
In
June
2006, the FASB released FASB Interpretation No. 48, "Accounting for Uncertainty
in Income Taxes," an interpretation of FASB Statement No. 109 ("FIN 48").
FIN 48
prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected
to be
taken in a tax return. A company must determine whether it is
"more-likely-than-not" that a tax position will be sustained upon examination,
including resolution of any related appeals or litigation procedures, based
on
the technical merits of the position. Once it is determined that a
position meets the more-likely-than-not recognition threshold, the position
is
measured to determine the amount of benefit to recognize in the financial
statements. This interpretation is effective for fiscal years beginning after
December 15, 2006. Earlier application of the provisions of this
interpretation is encouraged if the enterprise has not yet issued financial
statements, including interim financial statements, in the period this
interpretation is adopted. The provisions of FIN 48 are not expected to have
a
material effect the Company's consolidated financial statements.
2. Going
Concern Consideration
Since
its
inception the Company has been unable to sell POSICAMTM systems
in
quantities sufficient to be operationally profitable. Consequently,
the Company has sustained substantial losses. At December 31, 2006,
the Company had an accumulated deficit of $68,825,000 and a stockholders’
deficit of $1,132,000. 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.
The
Company utilized proceeds of $1,080,000 from notes payable and $1,095,000
from
issuance of Series G Preferred to acquire the assets of IPT and to fund
operating activities. The Company had cash and cash equivalents of
$115,000 at December 31, 2006. At the same date, the Company had
accounts payable and accrued liabilities of $2,627,000. In addition,
debt service and working capital requirements for the upcoming year may reach
beyond current cash balances.
The
Company plans to continue to raise funds as required through equity and debt
financing to sustain business operations. These factors raise
substantial doubt about the Company’s ability to continue as a going
concern.
There
can
be no assurance that the Company will be successful in implementing its business
plan and ultimately achieving operational profitability. The
Company’s long-term viability as a going concern is dependent on its ability to
1) achieve adequate profitability and cash flows from operations to sustain
its
operations, 2) control costs and expand revenues from existing or new business
and 3) meet current commitments and fund the continuation of its business
operation in the near future.
3. Imaging
Pet Technologies – Business Acquisition
The
Company and Quantum Molecular Pharmaceuticals Inc., a Canadian
radiopharmaceutical corporation (“QMP”) acquired all of the operating assets of
IS2 Medical Systems Inc., a developer and manufacturer of nuclear imaging
devices based in Ottawa, Ontario, Canada (“IS2”) through a minority-owned
subsidiary of the Company, Imaging PET Technologies, Inc. (“IPT”). The Company
and QMP hold 49.9% and 50.1%, respectively, of the total registered capital
of
IPT. On May 8, 2006, to finalize certain obligations of QMP related to the
Quantum Molecular Technologies Joint Venture, the Company agreed to issue
Series
B Convertible Preferred Stock (the “Series B”), convertible into 65,000,000
shares of the Company’s common stock, to IPT in exchange for a promissory note
in the amount of $1,300,000. See, Quantum Molecular Technologies,
below.
On
June
5, 2006, IPT completed the acquisition of IS2 through a series of events
which
resulted in the net assets of IS2 being transferred to IPT. On April
28, 2006, debenture holders and promissory note holders of IS2 were put on
notice that IS2 was in default of its covenants relating to revenue
targets. In turn, the debenture/note holders demanded
payment. On May 29, 2006, the debentures and notes totaling
$1,435,727 were assigned to IPT by the holders in exchange for
$1,000,000. The original holders assigned their security agreements
to IPT who exercised those agreements immediately and assumed the net assets
of
IS2. In addition to the net assets, the Company assumed leases and
contracts. Employments contracts were established with the Company
upon acquisition.
|
The
net assets acquired include the following (in thousands):
|
||||
|
Cash
and equivalents
|
$ |
605
|
||
|
Accounts
receivable
|
65
|
|||
|
Investment
tax credits
|
340
|
|||
|
Prepaid
expenses
|
51
|
|||
|
Inventories
|
1,319
|
|||
|
Property
and equipment
|
105
|
|||
|
Deferred
patent costs
|
74
|
|||
|
Accounts
payable and accrued liabilities
|
(754 | ) | ||
|
Customer
deposits
|
(364 | ) | ||
|
Capital
lease obligations
|
(14 | ) | ||
|
Net
value of assets acquired
|
1,427
|
|||
|
Purchase
Price
|
1,000
|
|||
|
Excess
of net assets acquired over purchase price
|
$ |
427
|
||
|
The
excess of the net assets acquired over the purchase price was allocated
as
follows:
|
||||
|
Write-down
of property and equipment
|
$ |
105
|
||
|
Write-down
of deferred patent costs
|
74
|
|||
|
Extraordinary
gain on before currency translation adjustment
|
241
|
|||
|
Effect
of currency translation
|
7
|
|||
| $ |
427
|
|||
Acquisition
of IMAGIN Interest in IPT
On
January 26, 2007, the Company executed and consummated a Securities Purchase
Agreement (the “Agreement”) with Imagin Diagnostic Centres, Inc. (“IMAGIN”), to
acquire 11,523,000 shares of common stock of IPT. The Shares represented
approximately a 50.1% of IPT’s issued and outstanding common stock. As a result
of the acquisition of the Shares, the Company owns 100% of the common stock
of
IPT. As consideration for the shares, the Company and IMAGIN agreed to cancel
a
promissory note in the principal amount of $2,400,000 made by IMAGIN subsidiary,
QMP and later assigned to IMAGIN. As of the date of the Agreement, the Company
had been advised by IMAGIN that it had acquired all of QMP’s interest in IPT as
well as QMP's other holdings of the Company's related securities.
4. Quantum
Molecular Technologies
On
December 28, 2005, the Company entered into a Memorandum of Understanding
with
Imagin Diagnostic Centres, Inc. (“IMAGIN”) and Quantum Molecular Pharmaceutical,
Inc. ("QMP"), a Canadian company and majority-owned subsidiary of
IMAGIN. The Memorandum provides that the parties will form a joint
venture to be called Quantum Molecular Technologies JV (the “QMT
JV”). Initially, the joint venture would be owned 20%, 29% and 51% by
the Company, IMAGIN and QMP, respectively. The Company had the right
to increase its interest in the joint venture to a maximum of 51% by the
issuance to QMP of up to 150 million shares of the Company's common
stock. In consideration for the Company's 20% interest in the joint
venture, the Company was obligated to loan to the joint venture sufficient
funds, in the form of senior debt, to meet the joint venture's capital
requirements as determined by the Company. In turn, IMAGIN and QMP
had committed to purchase up to $4 million in preferred equity in the
Company.
On
May 8,
2006, the Company amended certain aspects of the QMT JV transaction. Whereas
the
Company originally held 20% of the interests of the QMT JV, QMP and IMAGIN
assigned 100% of their interest to the Company. Additionally, the
investment amount QMP and IMAGIN originally committed to in the amount of
$4,000,000 was restated to $2,400,000 to reflect the assignment of the QMT
JV
interests and participation by the Company in the IPT joint venture acquisition
and subsequent financing. The $2,400,000 investment is in the form of a
promissory note to the Company. In exchange for the assignment of
QMT JV interests and the investment, the Company issued 3,450,000
shares of Series B Convertible Preferred Stock, convertible into 345,000,000
shares of the Company’s common stock to QMP and IMAGIN, pro rata.
On
April
13, 2006, the QMT JV was incorporated under the name Quantum Molecular
Technologies, Inc. (“QMT”) and acquired certain intangible assets in the form of
capitalized research and development costs from IMAGIN for a note payable
in the
amount of $368,755. As discussed above, on May 8, 2006 the
Company acquired 100% of the IMAGIN and QMP interests in
QMT. QMT had limited operating activity during the period
between April 13, 2006 and May 8, 2006, as such the Company has consolidated
100% of the operations of QMT from the date of acquisition.
Using
concepts and research and development activities conceived and to be implemented
by Dr. Irving Weinberg, QMT is developing certain next generation technologies
including PET-enabled surgical tools and solid-state photo detector technology,
which have implications in both molecular imaging and PET and which could
have
further application in the military and aerospace segments. The first
solid-state detector technology patent has been filed by QMT. The
Company will have the right to manufacture and sell any PET products developed
by QMT in exchange for royalty payments still to be negotiated.
5. Inventories
Inventories
at December 31, 2006 and 2005 consisted of the following (in
thousands):
|
2006
|
2005
|
|||||||
|
Raw
materials
|
$ |
949
|
$ |
235
|
||||
|
Work
in progress
|
577
|
17
|
||||||
|
Subtotal
|
1,526
|
252
|
||||||
|
Less
reserve for obsolescence
|
(50 | ) | (50 | ) | ||||
|
Total
|
$ |
1,476
|
$ |
202
|
||||
The
Company expensed $522,000 of excess inventory as it ceased manufacturing
activities at its Houston facility in 2005.
6. Investment
in Joint Venture
On
June
30, 2005 the Company entered into a Joint Venture Contract with Neusoft Medical
Systems Co., Inc. of Shenyang, Lianoning Province, People's Republic of China
("Neusoft"). Pursuant to the Joint Venture Contract the parties
formed a jointly-owned company, Neusoft Positron Medical Systems Co., Ltd.
(the
"NPMS"), to engage in the manufacturing of PET and CT/PET medical imaging
equipment. NPMS received its business license and was organized in
September 2005.
The
Company and Neusoft are active in researching, developing, manufacturing,
marketing and/or selling Positron Emission Tomography ("PET")
technology and both parties seek to mutually benefit from each other's
strengths, and intend to cooperate in the research, development and
manufacturing of PET technology. The purpose and scope of NPMS's
technology business is to research, develop and manufacture Positron Emission
Tomography systems (PET), and an integrated X-ray Computed Tomography
system (CT) and PET system (PET/CT), and to otherwise provide relevant technical
consultation and services.
The
parties to the joint venture contributed an aggregate of US $2,000,000 in
capital contributions. Neusoft's aggregate contribution to the capital of
NPMS
is 67.5% of the total registered capital of the Company, or US$ 1,350,000,
and
was made in cash. The Company's aggregate contribution to the capital of
NPMS is
32.5% of the total registered capital of the Company, or US$ 650,000, of
which
US$ 250,000 was made in cash, and US$ 400,000 was made in the form of a
technology license. Positron has transferred to NPMS certain of its
PET technology, while Neusoft made available to NPMS certain CT technology
for
the development and production of an integrated PET/CT system. The
parties share the profits, losses and risks of NPMS in proportion to
and, in the event of losses, to the extent of their respective contributions
to
the registered capital of NPMS.
Following
are the condensed financial statements of Neusoft Positron Medical Systems
Co.,
Ltd. for the years ended December 31, 2006 and 2005.
NEUSOFT
POSITRON MEDICAL SYSTEMS CO., LTD.
CONDENSED
BALANCE SHEETS
DECEMBER
31, 2006
(In
thousands)
|
2006
|
2005
|
|||||||
|
ASSETS
|
||||||||
|
Current
assets:
|
||||||||
|
Cash
and cash equivalents
|
$ |
220
|
$ |
1,295
|
||||
|
Other
current assets
|
504
|
4
|
||||||
|
Total
current assets
|
724
|
1,299
|
||||||
|
Intangibles
and other assets
|
653
|
646
|
||||||
|
Total
assets
|
$ |
1,377
|
$ |
1,945
|
||||
|
Current
liabilities:
|
||||||||
|
Other
current liabilities
|
(55 | ) |
3
|
|||||
|
Total
current liabilities
|
(55 | ) |
3
|
|||||
|
Capital
|
1,432
|
1,942
|
||||||
|
Total
liabilities and capital
|
$ |
1,377
|
$ |
1,945
|
||||
NEUSOFT
POSITRON MEDICAL SYSTEMS CO., LTD.
CONDENSED
STATEMENTS OF OPERATIONS
FOR
THE YEAR ENDED DECEMBER 31, 2006 AND 2005
(in
thousands)
|
2006
|
2005
|
|||||||
|
Revenue
|
$ |
--
|
$ |
--
|
||||
|
Expense
|
||||||||
|
General
and administrative expense
|
575
|
61
|
||||||
|
Total
expense
|
575
|
61
|
||||||
|
Net
loss
|
$ | (575 | ) | $ | (61 | ) | ||
7. Property
and Equipment
Property
and equipment at December 31, 2006 and 2005 consisted of the following (in
thousands):
|
2006
|
2005
|
|||||||
|
Furniture
and fixtures
|
$ |
130
|
$ |
161
|
||||
|
Computers
and peripherals
|
74
|
318
|
||||||
|
Machinery
and equipment
|
26
|
134
|
||||||
|
Subtotal
|
230
|
613
|
||||||
|
Less
accumulated depreciation
|
(166 | ) | (493 | ) | ||||
|
Total
|
$ |
64
|
$ |
120
|
||||
8. Other
Assets
Other
assets at December 31, 2006 and
2005 consisted of the following (in thousands):
|
2006
|
2005
|
|||||||
|
Field
service parts and supplies
|
$ |
17
|
$ |
45
|
||||
|
Intangible
assets
|
57
|
--
|
||||||
|
Deferred
loan costs
|
178
|
12
|
||||||
|
Total
|
$ |
252
|
$ |
57
|
||||
The
Company expensed $134,000 of excess
field service parts and supplies in 2005.
9. Accounts
Payable and Accrued Liabilities
Accounts
payable and accrued liabilities at December 31, 2006 and 2005 consisted of
the
following (in thousands):
|
2006
|
2005
|
|||||||
|
Trade
accounts payable
|
$ |
1,431
|
$ |
441
|
||||
|
Accrued
royalties
|
373
|
352
|
||||||
|
Accrued
interest
|
44
|
260
|
||||||
|
Sales
taxes payable
|
260
|
236
|
||||||
|
Accrued
compensation
|
249
|
159
|
||||||
|
Accrued
property taxes
|
65
|
113
|
||||||
|
Accrued
professional fees
|
92
|
80
|
||||||
|
Insurance
premiums payable
|
--
|
43
|
||||||
|
Accrued
warranty costs
|
113
|
10
|
||||||
|
Total
|
$ |
2,627
|
$ |
1,694
|
||||
Accrued
compensation includes severance payments payable to the Company's former
Chief
Executive Officer, Gary H. Brooks. Mr. Brooks resigned effective
September 29, 2005. In connection with his resignation, the Company
agreed to make severance payments to Mr. Brooks of $18,583.33 per month for
a
period of six months, and to extend the expiration date of options held by
Mr.
Brooks through September 30, 2006, and warrants held by Mr. Brooks until
the
later of (i) October 31, 2007 for 7,000,000 warrants and June 2009 for
500,000 warrants, and (ii) the date on which a registration statement filed
with the Securities Exchange Commission permitting a sale of the shares
underlying such warrants shall have become effective and shall have remained
effective for a period of six months. Unpaid severance obligations at
December 31, 2006 and 2005 total approximately $ 55,000 and $ 97,000,
respectively. In March 2007, the Company fully paid all severance amounts
owed
to Mr. Brooks
10. Convertible
Notes Payable to Affiliated Entities
Notes
payable to affiliated entities at December 31, 2006 and 2005 consisted of
the
following (in thousands):
|
2006
|
2005
|
|||||||
|
IMAGIN
Diagnostic Centres, Inc., less discount of $610
|
$ |
--
|
$ |
1,723
|
||||
|
Solaris
Opportunity Fund, L.P., less discount of $280
|
--
|
120
|
||||||
|
Total
|
$ |
--
|
$ |
1,843
|
||||
IMAGIN
Diagnostic Centres,
Inc.
Financing
Agreements dated May 21,
2004
On
May
26, 2004 and June 17, 2004, the Company sold two separate secured convertible
promissory notes under a Note Purchase Agreement dated May 21, 2004, to IMAGIN
Diagnostic Centres, Inc. (“IMAGIN”) in the principal amounts of $400,000 and
$300,000, respectively. Interest is charged on the outstanding
principal at the rate of ten percent (10%) per annum and is payable annually
to
the extent of positive cash flow on the anniversary dates of these
notes. The principal and any unpaid interest were to be paid on the
earlier to occur of May 21, 2006 or when declared due and payable by IMAGIN
upon
occurrence of an event of default. The notes were initially
convertible into new shares of Series C Preferred Stock that, in turn are
convertible into an aggregate of 35,000,000 shares of the Company’s common
stock. These notes were collateralized by all of the assets of the
Company. Principal of $700,000 has been advanced related to these
notes. An additional $70,000 in accrued interest on these
notes was converted to loan principal on May 21, 2005. On October 21,
2005, IMAGIN converted loan principal of $770,000 on promissory notes into
770,000 shares of Series C Preferred Stock. On March 17, 2006, IMAGIN
Diagnostic Centres, Inc. assigned to Positron Acquisition Corp. its interest
in
770,000 shares of the Company’s Series C Preferred Stock, 4,026,000 shares of
the Company’s common stock and the Company’s secured convertible notes in the
aggregate principal amount of $696,850, which are convertible into 696,850
shares of the Company’s Series D Preferred Stock and in turn are convertible
into 27,874,000 shares of the Company’s common stock. Positron
Acquisition Corporation is a wholly-owned subsidiary of Imagin Molecular
Corporation, Inc. (“IMGM”), an affiliate of the Company through common
ownership. IMAGIN is a significant shareholder of both the Company
and IMGM.
In
a
second stage of the financing IMAGIN agreed to purchase additional secured
convertible promissory notes in the aggregate principal amount of
$1,300,000. These notes were to be purchased over a six and a half
month period, commencing July 15, 2004. These notes were due and
payable on May 21, 2006. These notes were initially convertible into
new shares of Series D Preferred Stock that, in turn was convertible into
an
aggregate of 52,000,000 shares of the Company’s common stock. As of
June 30, 2005, principal of $1,208,500 had been advanced related to these
notes. On June 30, 2005, IMAGIN converted $575,000 of these
promissory notes into shares of Series D Preferred Stock that, in turn were
converted into 23,000,000 shares of the Company’s common stock. This
conversion reduced the principal owed under these promissory notes from
$1,208,500 to $633,500.
As
a
result of these financing agreements, several agreements were also reached
involving option and warrants contracts for the purchase of common stock
of the
Company.
|
|
·
|
The
Company agreed to exchange 917,068 outstanding options currently
held by
its employees for new options that are exercisable for the purchase
of
common stock at a price of $0.02 per share. The new options
issued to the employees are subject to four year vesting in equal
monthly
installments. This re-pricing will require the Company to apply
the
variable accounting rules established in Interpretation No. 44
of the
Financial Accounting Standards Board (“FIN 44”) to these options and
record changes in compensation based upon movements in the stock
price. The Company recognized $13,000 and $10,100 in
compensation related to the re-pricing of options in 2004 and 2005,
respectively, in accordance with the variable accounting rules
established
in FIN 44. The market value of the Company’s common stock
increased to $0.09 per share at December 31, 2005, resulting in
an
intrinsic value of $0.07 per
share.
|
|
|
·
|
The
Company agreed to re-price the outstanding warrants currently held
by its
President & CEO for the purchase of 3,500,000 shares of common stock
at $0.02 per share. The Company recognized $350,000 in
compensation expense in 2004 and reversed $105,000 in compensation
expense
in 2005, in accordance with the variable accounting rules established
in
FIN 44. The market value of the Company’s common stock
increased to $0.09 per share at December 31, 2005, resulting in
an
intrinsic value of $0.07 per share. The Company agreed to issue
a new warrant to its President & CEO for the purchase of 4,000,000
shares of common stock at $0.02 per share. The Company agreed
to re-price outstanding warrants for the purchase of 9,150,000
shares of
common stock. These warrants have been surrendered and new
warrants will be issued to the same third party holders for the
purchase
of 4,575,000 shares of common stock at $0.02 per share. New
warrants for the purchase of 4,575,000 shares of common stock at
$0.02 per
share (the remaining half of the surrendered warrants) will also
be issued
to IMAGIN.
|
Financing
Agreements dated August 8,
2005
On
August
8, 2005, the Company sold to IMAGIN 10% secured convertible promissory notes
under a Note Purchase Agreement, dated the same date, in the aggregate principal
amount of $400,000. As of December 31, 2005, IMAGIN has purchased
$400,000 of these notes. These notes are due and payable on August 7,
2008. These notes are convertible into an aggregate of 20,000,000
shares of the Company’s common stock.
In
accordance with generally accepted accounting principals in the event the
conversion price is less than the Company’s stock price at the date of the
agreement, the difference is considered to be a beneficial conversion feature
and is amortized over the period from the date of issuance to the stated
maturity date. The fair value of the common stock at the commitment
date of $1,200,000 less the $400,000 in loan proceeds, results in intrinsic
value of $800,000 for the beneficial conversion feature. However, the
beneficial conversion feature is limited to the $400,000 proceeds of the
debt. Due to the fact that there were not enough common shares
available to facilitate the conversion of the debt into common stock on August
8, 2005, no beneficial conversion feature was recorded for this
transaction.
Financing
Agreements dated October 31, 2005
On
October 31, 2005, the Company sold to IMAGIN 10% secured convertible promissory
notes under a Note Purchase Agreement, dated the same date, in the aggregate
principal amount of $400,000. As of December 31, 2005, IMAGIN has
purchased $300,000 of these notes. In January 2006, the Company
received the final $100,000 for the purchase of the notes. These notes are
due
and payable on October 31, 2008. These notes are convertible into an
aggregate of 20,000,000 shares of the Company’s common stock. Full
convertibility of the notes into shares of common stock will require an
amendment to the Company’s Articles of Incorporation which must be approved by
the shareholders.
In
accordance with generally accepted accounting principals in the event the
conversion price is less than the Company’s stock price at the date of the
agreement, the difference is considered to be a beneficial conversion feature
and is amortized over the period from the date of issuance to the stated
maturity date. The fair value of the common stock at the commitment
date of $1,800,000 less the $300,000 in loan proceeds, results in intrinsic
value of $1,500,000 for the beneficial conversion feature. However,
the beneficial conversion feature is limited to the $300,000 of the
debt. Due to the fact that there were not enough common shares
available to facilitate the conversion of the debt into common stock on October
31, 2005, no beneficial conversion feature was recorded for this
transaction.
Solaris
Opportunity Fund, L.P.
Financing
Agreements dated February 28, 2005
On
February 28, 2005, the Company entered into a series of agreements with a
related party, Solaris Opportunity Fund (“Solaris”) pursuant to which Solaris
agreed to purchase an aggregate of $1,000,000 face amount of the Company’s 10%
secured convertible promissory notes. As of December 31, 2005,
Solaris has purchased $1,000,000 of these notes. These notes are due
and payable on March 6, 2007. The notes were initially convertible
into new shares of Series E Preferred Stock that, in turn are convertible
into
an aggregate of 22,000,000 shares of the Company’s common stock
In
accordance with generally accepted accounting principles in the event the
conversion price is less than the Company’s stock price at the date of the
agreement, the difference is considered to be a beneficial conversion feature
and is amortized over the period from the date of issuance to the stated
maturity date. On February 28, 2005, enough common shares were
available to facilitate the conversion of substantially all of the debt into
common stock. The fair value of the related Series E Preferred Stock
at the commitment date of $2,200,000 less the $1,000,000 in loan proceeds,
results in an intrinsic value of $1,200,000 for the beneficial conversion
feature. However, the beneficial conversion feature is limited to the
$1,000,000 proceeds of the debt. The balance of the unamortized
discount was approximately $604,000 at December 31, 2005. During 2006 this
convertible note payable was sold to IMAGIN.
Financing
Agreements dated June 27, 2005
On
June
27, 2005, the Company entered into a series of agreements with Solaris pursuant
to which Solaris agreed to purchase an aggregate of $400,000 face amount
of the
Company’s 10% secured convertible promissory notes. As of December
31, 2005, Solaris has purchased $400,000 of these notes. These notes
are due and payable on March 6, 2007. The notes are initially
convertible into new shares of Series F Preferred Stock that, in turn are
convertible into an aggregate of 20,000,000 shares of the Company’s common
stock.
In
accordance with generally accepted accounting principles in the event the
conversion price is less than the Company’s stock price at the date of the
agreement, the difference is considered to be a beneficial conversion feature
and is amortized over the period from the date of issuance to the stated
maturity date. On June 27, 2005, enough common shares were available
to facilitate the conversion of all of the debt into common
stock. The fair value of the related Series F Preferred Stock at the
commitment date of $1,600,000 less the $400,000 in loan proceeds, results
in an
intrinsic value of $1,200,000 for the beneficial conversion
feature. However, the beneficial conversion feature is limited to the
$400,000 proceeds of the debt. The balance of the unamortized
discount was approximately $280,000 at December 31, 2005. During 2006
this convertible note payable was sold to QMP.
Conversion
of Notes Payable to Series B Preferred Stock
In
2006,
the Company converted all outstanding convertible notes payable and accrued
interest due to affiliated entities to Series B Preferred Stock (see note
13).
Following is a description of each conversion:
The
Company and IMAGIN converted principal and interest of $1,164,192 outstanding
upon the Series E Convertible Promissory Notes and principal and interest
of
$877,669 of Convertible Secured Notes into 690,930.5 shares of Series B
Preferred Stock.
The
Company and Positron Acquisition Corp. converted principal and interest of
$818,066 outstanding upon the Series D Secured Convertible Promissory Notes
and
770,000 shares of Series C Preferred Stock into 762,358 shares of Series
B
Preferred Stock. Positron Acquisition Corp. subsequently converted 40,000
shares
of Series B Preferred Stock into 4,000,000 shares of the Company’s Common
Stock.
The
Company and QMP converted principal and interest of $453,144 outstanding
upon
the Series F Secured Convertible Promissory Notes into 226,572 shares of
Series
B Preferred Stock. The Company has been advised by IMAGIN that it had
acquired all of QMP’s interest in the securities of the
Company.
11. Secured
Convertible Notes Payable
Pursuant
to the terms of a Security Agreement and a Registration Rights Agreement
(the
“Agreements”) dated May 23, 2006, the Company agreed to issue to private
investors (the “Investors”) callable secured convertible notes (the
“Debentures”) in the amount of $2,000,000, with interest at the rate of 6%
annually. The Debentures are convertible into shares of the Company’s
Common Stock as the product of the “Applicable Percentage” and the average of
the lowest three (3) trading prices for the common stock during the twenty
(20)
day period prior to conversion. Applicable Percentage is 50%; provided, however
that the percentage shall be increased to (i) 55% in the event that a
Registration Statement is filed within thirty days of the closing of the
transaction and (ii) 65% in the event the Registration Statement becomes
effective within one hundred and twenty days of the closing of the
transaction. The Company filed a Registration Statement on June 20,
2006. The Company may repay principal and interest in cash in the
event that the price of the Company’s Common Stock is below $0.20 on the last
business day of a month. Pursuant to the terms of the Agreements, the
Company issued to the Investors warrants to purchase 30,000,000 shares of
Common
Stock at an exercise price of $0.15 per share. These warrants are exercisable
seven (7) years from the closing of the transaction.
On
May
23, 2006 the Company issued Debentures in the amount of $700,000 with a maturity
date of May 23, 2009. On June 21, 2006 the Company issued Debentures in the
amount of $600,000 with a maturity date of June 21, 2009. Pursuant to
the terms of the Agreements, the Company shall issue Debentures and receive
the
third traunch in the amount of $700,000 when the Registration Statement is
declared effective by the Securities and Exchange Commission. Legal and other
fees incurred in conjunction with the Debentures issued on May 23, 2006 and
June
21, 2006 were $130,000 and $90,000, respectively and are being amortized
over
the maturity periods of the Debentures.
As
a
result of the beneficial conversion features contained in the Convertible
Debentures, the derivatives embedded in the Debentures have been classified
as
derivative liabilities. Fair value of the embedded derivatives is determined
using the Black Sholes Valuation Method. The combined liabilities recorded
for
the year ended December 31, 2006 totaled $2,164,400. Of such amount, $380,600
was recorded as debt discount and is being amortized over the term of the
Debentures and $1,783,400 was charged to loss on derivative obligations.
The
Company recorded a gain on derivative obligations of $73,000 for the three
months ended December 31, 2006. Additionally, the Company recorded a
discount of $919,400 against the Convertible Debentures for the fair market
value of the warrants issued. The discount, which was recorded as an increase
to
additional paid-in capital, is being amortized to interest expense over the
term
of the Debentures, utilizing the effective interest method
12. Options
and Warrants
Options
1999
Employee Stock Option Plan
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. The 1999 Plan is administered by
the Board of Directors. The administrator is authorized to determine
the terms of each option granted under the plan, including the number of
shares,
exercise price, term and exercisability. Options granted under the
plan 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). The Board
has authorized 4,000,000 shares of Common Stock for issuance under the 1999
Plan. As of December 31, 2006, 225,000 options are outstanding,
of which 152,396 are vested.
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. The Board has authorized 500,000
shares of Common Stock for issuance under the 1999 Plan. As of
December 31, 2006, 250,000 fully vested options remain outstanding under
the Directors' Plan.
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. A total of 316,000
shares have been issued under the Stock Bonus Plan at December 31,
2006.
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 have 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,
2006.
Amended
and Restated 2005 Stock Incentive Plan
Positron's
Board administers the Amended and Restated 2005 Stock Incentive Plan ("2005
Plan"), which was adopted by the Board effective November 18, 2005 and approved
by the shareholders at the 2006 Annual Meeting. The 2005 Plan
provides for the grant of options and stock to directors, officers, employees
and consultants. The administrator is authorized to determine the
terms of each award granted under the plan, including the number of shares,
exercise price, term and exercisability. Options granted under the
plan 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 the Company's capital stock). Options may not
be exercised more than ten years after the date of grant (five years in the
case
of 10% shareholders). 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. A total of 40,000,000 shares of
Common Stock have been authorized for issuance under the 2005
Plan. As of December 31, 2006, a total of 19,000,000 options have
been granted under the 2005 Plan, none of which have been exercised, and
of
which 10,000,000 are fully vested.
2006
Stock Incentive Plan
On
April
10, 2006, the Company’s Board of Directors adopted a 2006 Stock Incentive Plan
(“2006 Plan”). The 2006 Plan is administered by the Board and provides for the
direct issuance of stock and grants of nonqualified stock options to directors,
officers, employees and consultants. The administrator is authorized to
determine the terms of each award granted under the plan, including the number
of shares, exercise price, term and exercisability. Stock and options may
be
granted for services rendered or to be rendered. A total of 5,000,000 shares
of
common stock have been authorized for issuance under the 2006
Plan. The Company issued 3,870,000 shares of common stock to
consultants under the 2006 Plan. Accordingly the Company recorded consulting
expense equal to the fair market value of the shares issued of $470,900 for
the
year ended December 31, 2006.
A
summary
of stock option activity is as follows:
|
Shares
Issuable
Under
Outstanding
Options
|
Price
Range or
Weighted
Average
Exercise
Price
|
|||||||
|
Balance
at December 31, 2004
|
1,722,272
|
$ |
0.32
|
|||||
|
Granted
|
7,625,000
|
$ |
0.03
- $0.12
|
|||||
|
Forfeited
|
(597,272 | ) | $ |
0.02
- $4.13
|
||||
|
Balance
at December 31, 2005
|
8,750,000
|
$ |
0.05
|
|||||
|
Granted
|
11,575,000
|
$ |
0.05-
$0..06
|
|||||
|
Forfeited
|
(325,000 | ) | $ |
0.01
- $2.63
|
||||
|
Exercised
|
(500,000 | ) | $ |
0.05
|
||||
|
Balance
at December 31, 2006
|
19,500,000
|
$ |
0.06
|
|||||
Following
is a summary of stock options outstanding at December 31, 2006 and
2005.
|
Options
Outstanding
|
Options
Exercisable
|
|||||||||||||||||||
|
Range
of
Exercise
Price
|
Shares
|
Weighted
Average
Remaining
Term
(in
Years)
|
Weighted
Average
Exercise
Price
|
Shares
|
Weighted
Average
Exercise
Price
|
|||||||||||||||
|
$0.020
|
75,000
|
3.63
|
$ |
0.02
|
48,438
|
$ |
0.02
|
|||||||||||||
|
$0.050
|
7,500,000
|
4.00
|
$ |
0.05
|
4,000,000
|
$ |
0.05
|
|||||||||||||
|
$0.060
|
11,500,000
|
4.00
|
$ |
0.06
|
6,000,000
|
$ |
0.06
|
|||||||||||||
|
$0.111
|
25,000
|
4.25
|
$ |
0.11
|
25,000
|
$ |
0.11
|
|||||||||||||
|
$0.077
|
25,000
|
5.00
|
$ |
0.08
|
25,000
|
$ |
0.08
|
|||||||||||||
|
$0.010
- $0.050
|
175,000
|
7.06
|
$ |
0.04
|
128,958
|
$ |
0.02
|
|||||||||||||
|
$0.034
- $0.119
|
50,000
|
7.25
|
$ |
0.09
|
50,000
|
$ |
0.09
|
|||||||||||||
|
$0.102
|
50,000
|
8.00
|
$ |
0.10
|
50,000
|
$ |
0.10
|
|||||||||||||
|
$0.043
|
25,000
|
8.67
|
$ |
0.04
|
25,000
|
$ |
0.04
|
|||||||||||||
|
$0.09
|
75,000
|
9.00
|
$ |
0.09
|
75,000
|
$ |
0.09
|
|||||||||||||
|
Balance
at 12/31/2006
|
19,500,000
|
$ |
0.06
|
10,427,396
|
$ |
0.06
|
||||||||||||||
|
Balance
at 12/31/2005
|
8,750,000
|
|
$ |
0.05
|
$ |
3,050,625
|
$ | 0.05 | ||||||||||||
The
Company recognized $10,100 in compensation related to the re-pricing of options
in 2005
For
all
of the Company’s stock-based compensation plans, the fair value of each grant
was estimated at the date of grant using the Black-Scholes option-pricing
model.
Black-Scholes utilizes assumptions related to volatility, the risk-free interest
rate, the dividend yield (which is assumed to be zero, as the Company has
not
paid cash dividends to date and does not currently expect to pay cash dividends)
and the expected term of the option. Expected volatilities utilized in the
model
are based mainly on the historical volatility of the Company’s stock price over
a period commensurate with the expected life of the share option as well
as
other factors. The risk-free interest rate is derived from the zero-coupon
U.S.
government issues with a remaining term equal to the expected life at the
time
of grant. Fair market value using the Black-Scholes option-pricing model
for the
year ended December 31, 2006 was determined using the following
assumptions:
|
Expected
life (years)
|
3-10
|
|||
|
Risk
free rate of return
|
4.65%-4.75 | % | ||
|
Dividend
yield
|
0
|
|||
|
Expected
volatility
|
230 | % |
Warrants
A
summary
of warrant activity is as follows:
|
Number
of
Shares
|
Exercise
Price
|
Weighted
Average
Exercise
Price
|
||||||||||
|
Balance
at December 31, 2004
|
18,150,000
|
$ |
0.05
- $2.40
|
$ |
0.23
|
|||||||
|
Issues
and expirations in 2005
|
--
|
--
|
--
|
|||||||||
|
Balance
at December 31, 2005
|
18,150,000
|
$ |
0.23
|
|||||||||
|
New
warrants issued with Series G Preferred Stock
|
10,224,100
|
$ |
0.10
|
$ |
0.10
|
|||||||
|
New
warrants issued with secured convertible debentures
|
30,000,000
|
$ |
0.15
|
$ |
0.15
|
|||||||
|
Balance
at December 31, 2006
|
58,374,100
|
$ |
0.12
|
|||||||||
All
outstanding warrants are currently exercisable. A summary of
outstanding stock warrants at December 31, 2006 follows:
|
Number
of Common
Stock
Equivalents
|
Expiration
Date
|
Remaining
Contractual
Life
(Years)
|
Exercise
Price
|
||||||
|
3,825,000
|
(a)
|
--
|
$ |
0.02
|
|||||
|
250,000
|
January
2007
|
0.1
|
$ |
2.40
|
|||||
|
500,000
|
October
2007
|
0.8
|
$ |
0.02
|
|||||
|
1,250,000
|
March
2008
|
1.3
|
$ |
0.25
|
|||||
|
10,224,000
|
April
2008
|
1.3
|
$ |
0.10
|
|||||
|
3,750,000
|
June
2009
|
2.5
|
$ |
0.02
|
|||||
|
8,575,000
|
May
2010
|
3.4
|
$ |
0.02
|
|||||
|
30,000,000
|
May
2013
|
6.4
|
$ |
0.15
|
|||||
|
58,374,100
|
|||||||||
(a)
Warrants expire on the date on which a registration statement
filed with the Securities Exchange Commission permitting a sale of the
shares issuable upon exercise of the warrant shall have become
effective and shall have remained effective for a period of six
months.
13. 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 subsequently authorized an additional 9,000,000
shares designated as Series B Preferred Stock. 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. Subject to
adjustment based on issuance of shares at less than fair market value, each
share of the Series A Preferred Stock was initially 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 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.
As
of
December 31, 2006 and 2005, stated dividends that are undeclared and unpaid
on
the Series A Preferred Stock total approximately $485,000 and
$448,000. The Company anticipates that such dividends, if and when
declared, will be paid in shares of Series A Preferred Stock.
Series
B Preferred Stock
On
September 30, 2006 the Board of Directors authorized a new series of preferred
stock designated Series B Preferred Stock. The number of shares
authorized was 9,000,000. Each share of Series B Preferred Stock
$1.00 par value is convertible into 100 shares of the Company’s Common Stock.
The Series B Preferred Stock is senior to the Company’s Common Stock and junior
in priority to the Company’s A, C, D, E and G Preferred Stock in liquidation.
Holders of the Series B Preferred Stock are entitled to 100 votes per share
on
all matters requiring shareholder vote. While Series B Preferred
Stock is outstanding no Common Stock dividends may be paid or declared by
the
Company. The Series B Preferred Stock may be redeemed in whole or in
part, at the option of the Company, at any time at a price of $1.00 per
share. As of December 31, 2006, 5,739,860.5 shares of Series B
Preferred Stock were outstanding.
Series
C Preferred Stock
The
Company has designated 840,000 shares as Series C 6% Cumulative Convertible
Redeemable Preferred Stock $1.00 par value (“Series C Preferred
Stock”). Each share of the Series C Preferred Stock is convertible
into 50 shares of Common Stock. Six percent dividends accrue on the
Series C Preferred Stock and may be paid in cash or in Common Stock depending
on
the Company's operating cash flow. The Series C Preferred Stock is
senior to the Company's Common Stock and junior in priority to the Company's
Series A Preferred Stock in liquidation. Holders of the Series C
Preferred Stock are entitled to 130 votes per share on any matter requiring
shareholder vote. While the Series C Preferred Stock is outstanding
or any dividends thereon remain unpaid, no Common Stock dividends may be
paid or
declared by the Company. The Series C Preferred Stock may be redeemed
in whole or in part, at the option of the Company, at any time at a price
of
$1.00 per share plus any undeclared and/or unpaid dividends to the date of
redemption.
On
October 21, 2005, IMAGIN converted loan principal of $770,000 on promissory
notes into 770,000 shares of Series C Preferred Stock $1.00 par value (“Series C
Preferred Stock”).
On
September 30, 2006, the Company and Positron Acquisition Corp. converted
principal and interest of $818,066 outstanding upon the Series D Secured
Convertible Promissory Notes and 770,000 shares of Series C Preferred Stock
into
762,358 shares of Series B Preferred Stock. Positron Acquisition Corp.
subsequently converted 40,000 shares of Series B Preferred Stock into 4,000,000
shares of the Company’s Common Stock.
As
of
December 31, 2006 there were no outstanding shares of Series C Preferred
Stock.
Series
D Preferred Stock
The
Company has designated 1,560,000 shares of preferred stock as 6% Cumulative
Convertible Redeemable Series D Preferred Stock $1.00 par value. Each
share of the Series D Preferred Stock is convertible into 40 shares of Common
Stock. Six percent dividends accrue on the Series D Preferred Stock
and may be paid in cash or in Common Stock depending on the Company's operating
cash flow. The Series D Preferred Stock is senior to the Company's
Common Stock and junior in priority to the Company's Series A and C Preferred
Stock in liquidation. Except as required by law and in the case of
various actions affecting the rights of the Series D Preferred Stock, holders
of
the Series D Preferred Stock are not entitled to vote on matters requiring
shareholder vote. While the Series D Preferred Stock is outstanding
or any dividends thereon remain unpaid, no Common Stock dividends may be
paid or
declared by the Company. The Series D Preferred Stock may be redeemed
in whole or in part, at the option of the Company, at any time at a price
of
$1.00 per share plus any undeclared and/or unpaid dividends to the date of
redemption. The Company has issued 10% secured convertible promissory
notes in the principal amount of $696,850, which remain outstanding and are
convertible into 696,850 shares of Series D Preferred Stock.
On
September 30, 2006, the Company and Positron Acquisition Corp. converted
principal and interest of $818,066 outstanding upon the Series D Secured
Convertible Promissory Notes and 770,000 shares of Series C Preferred Stock
into
762,358 shares of Series B Preferred Stock. Positron Acquisition Corp.
subsequently converted 40,000 shares of Series B Preferred Stock into 4,000,000
shares of the Company’s Common Stock.
As
of
December 31, 2006 there were no outstanding shares of Series D Preferred
Stock.
Series
E Preferred Stock
The
Company has designated 1,200,000 shares of preferred stock as 6% Cumulative
Convertible Redeemable Series E Preferred Stock $1.00 par value. Each
share of the Series E Preferred Stock is convertible into 22 shares of
Common Stock. Six percent dividends accrue on the Series E Preferred
Stock and may be paid in cash or in Common Stock depending on the Company's
operating cash flow. The Series E Preferred Stock is senior to the
Company's Common Stock and junior in priority to the Company's Series A,
C and D
Preferred Stock in liquidation. Except as required by law and in the
case of various actions affecting the rights of the Series E Preferred Stock,
holders of the Series E Preferred Stock are not entitled to vote on matters
requiring shareholder vote. While the Series E Preferred Stock is
outstanding or any dividends thereon remain unpaid, no Common Stock dividends
may be paid or declared by the Company. The Series E Preferred Stock
may be redeemed in whole or in part, at the option of the Company, at any
time
at a price of $1.00 per share plus any undeclared and/or unpaid dividends
to the
date of redemption. The Company has issued 10% secured convertible
promissory notes in the principal amount of $1,000,000, which are convertible
into 1,000,000 shares of Series E Preferred Stock.
On
September 30, 2006, the Company and IMAGIN converted principal and interest
of
$1,164,192 outstanding upon the Series E Convertible Promissory Notes and
principal and interest of $877,669 of Convertible Secured Notes into 690,930.5
shares of Series B Preferred Stock.
As
of
December 31, 2006 there were no outstanding shares of Series E Preferred
Stock.
Series
F Preferred Stock
The
Company has designated 600,000 shares of preferred stock as Series F Preferred
Stock $1.00 par value. Each share of the Series F Preferred
Stock is convertible into 50 shares of Common Stock. Six percent
dividends accrue on the Series F Preferred Stock and may be paid in cash
or in
Common Stock depending on the Company's operating cash flow. The
Series F Preferred Stock is senior to the Company's Common Stock and junior
in
priority to the Company's Series A, C, D and E Preferred Stock in
liquidation. Except as required by law and in the case of various
actions affecting the rights of the Series F Preferred Stock, holders of
the
Series F Preferred Stock are not entitled to vote on matters requiring
shareholder vote. While the Series F Preferred Stock is outstanding
or any dividends thereon remain unpaid, no Common Stock dividends may be
paid or
declared by the Company. The Series F Preferred Stock may be redeemed
in whole or in part, at the option of the Company, at any time at a price
of
$1.00 per share plus any undeclared and/or unpaid dividends to the date of
redemption. The Company has issued 10% secured
convertible promissory notes in the principal amount of $400,000, which are
convertible into 400,000 shares of Series F Preferred Stock.
On
September 30, 2006, the Company and QMP converted principal and interest
of
$453,144 outstanding upon the Series F Secured Convertible Promissory Notes
into
226,572 shares of Series B Preferred Stock.
As
of
December 31, 2006 there were no outstanding shares of Series F Preferred
Stock.
Series
G Preferred Stock
In
2006,
the Company issued 204,482 Units in a private placement. Each Unit consists
of
one share of a new series of preferred stock designated Series G Preferred
Stock
and a warrant exercisable for 50 shares of common stock (the "Units"). The
purchase price was $5.50 per Unit, with $5.00 of the Unit purchase price
allocated to the purchase of the share of Series G Preferred Stock and $0.50
allocated to the purchase of the warrant, for a total offering amount of
$1,124,650. The net proceeds of the private placement were approximately
$1,096,000.
The
Company has designated 3,000,000 shares of preferred stock as Series G Preferred
Stock $1.00 par value. Each share of Series G Preferred Stock is convertible
into 100 shares of common stock. Eight percent dividends accrue on the Series
G
Preferred Stock and may be paid in cash or in Common Stock in the Company's
discretion. The Series G Preferred Stock is senior to the Company's common
stock
and junior in priority to the Registrant's Series A, C, D, E and F Preferred
Stock in liquidation. Except as required by law and in the case of various
actions affecting the rights of the Series G Preferred Stock, holders of
the
Series G Preferred Stock are not entitled to vote on matters requiring
shareholder vote. While the Series G Preferred Stock is outstanding or any
dividends thereon remain unpaid, no common stock dividends may be paid or
declared by the Company. The Series G Preferred Stock may be redeemed in
whole
or in part, at the option of the Company, at any time at a price of $5.00
per
share plus any undeclared and/or unpaid dividends to the date of
redemption.
As
of
December 31, 2006, stated dividends that are undeclared and unpaid on the
Series
G Preferred Stock total approximately $16,000.
14. Income
Taxes
The
Company has incurred losses since its inception and, therefore, has not been
subject to federal income taxes. As of December 31, 2006, the Company
had net operating loss (“NOL”) carryforwards for income tax purposes of
approximately $18,000,000, which expire in 2007 through 2026. 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 limited the Company’s ability to utilize its NOL carryforward to reduce
future taxable income and related tax liabilities.
The
composition of deferred tax assets and the related tax effects at December
31,
2006 are as follows (in thousands):
|
2006
|
2005
|
|||||||
|
Deferred
tax assets:
|
||||||||
|
Net
operating losses:
|
||||||||
|
Domestic
|
$ |
5,835
|
$ |
4,980
|
||||
|
Foreign
|
196
|
--
|
||||||
|
Stock
option compensation
|
172
|
--
|
||||||
|
Accrued
liabilities and reserves
|
198
|
251
|
||||||
|
Inventory
basis difference
|
68
|
95
|
||||||
|
6,469
|
5,326
|
|||||||
|
Valuation
allowance
|
(6,469 | ) | (5,326 | ) | ||||
|
Total
deferred tax assets
|
$ |
--
|
$ |
--
|
||||
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):
|
2006
|
2005
|
|||||||||||||||
|
Amount
|
%
|
Amount
|
%
|
|||||||||||||
|
Benefit
for income tax at federal statutory rate
|
$ |
2,321
|
34.0
|
$ |
1,294
|
34.0
|
||||||||||
|
Expenses
not deductible for tax purposes
|
(901 | ) | (13.2 | ) | (325 | ) | (8.5 | ) | ||||||||
|
Statutory
rate difference - foreign subsidiary
|
(203 | ) | (3.0 | ) |
--
|
--
|
||||||||||
|
Other
|
(74 | ) | (1.1 | ) |
--
|
--
|
||||||||||
|
Change
in valuation allowance
|
(1,143 | ) | (16.7 | ) |
__ (969)
|
(25.5 | ) | |||||||||
| $ |
--
|
--
|
$ |
--
|
--
|
|||||||||||
|
15.
|
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 made no contributions in 2006 and 2005. The Board of
Directors of the Company may authorize additional discretionary contributions;
however, no such contributions were by the Company in 2006 or 2005.
|
16.
|
Related
Party Transactions
|
Affiliated
Companies
In
September 2006, the Company sold a refurbished HZL PET Imaging machine to
Imagin
Nuclear Partners (“INP”), a wholly-owned subsidiary of Imagin Molecular
Corporation, an affiliate of the Company. The sales price of the machine
was
$200,000. The Company also billed $18,000 for time and expense related to
installation. As of December 31, 2006 INP owes the Company
$185,385.
In
2006
sales to NPMS approximated $180,000. As of December 31, 2006 the
Company
has
a
receivable in the amount of $179,053 due from NPMS, for parts and materials
purchased on behalf of the joint venture.
Key
Employee Incentive Compensation
The
Company has an incentive compensation plan for certain key employees and
it’s
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. During 2006 the Company did not pay any bonus pursuant to
the incentive compensation plan.
17. Commitments
and Contingencies
Employment
Agreement
Effective
December 27, 2005, the Company entered into an employment agreement with
Joseph
G. Oliverio, President of the Company. Under the Agreement, Mr.
Oliverio receives an initial base salary of $100,000 per annum which increases
to $150,000 per annum on March 1, 2006. Mr. Oliverio also
received an option grant exercisable for 7,500,000 shares of Common Stock
at an
exercise price of $0.05 per share. On the date of grant of the option
2,000,000 shares vested, with an additional 2,000,000 shares vesting on
December 27, 2006 and the remainder on December 27,
2007. Mr. Oliverio is entitled to six months severance upon a
termination "without cause".
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 up to 4.0% in
the
aggregate of gross revenues from sales, uses, leases, licensing or rentals
of
the relevant technology. Royalty obligations amounting to
approximately $373,000 and $352,000 were included in liabilities at December
31,
2006 and 2005, respectively.
Lease
Agreements
The
Company operates in leased facilities under three separate operating leases,
two
of which are on a month-to-month basis and a third, for the IS2 facility
in
Canada, expires July 31, 2008. The rental rate for the month-to-month leased
facilities was $5,600. Monthly rental charges for the IS2 facility were
$8,300. The cost of leasing the Company’s operating
facility amounted to approximately $125,000 and $56,000 in 2006 and 2005,
respectively.
At
December 31, 2006, approximate future minimum rental payments under operating
leases are as follows:
|
2007
|
$ |
97,480
|
||
|
2008
|
58,745
|
|||
| $ |
156,225
|
Litigation
From
time
to time the Company may be involved in various legal actions in the normal
course of business for which the Company maintains insurance. The
Company is currently not aware of any material litigation affecting the
Company.
18.
Loss Per Share
The
following information details the computation of basic and diluted loss per
share:
|
Year
Ended December 31,
(In
thousands, except for per share data)
|
||||||||
|
2006
|
2005
|
|||||||
|
Numerator:
|
||||||||
|
Basic
and diluted net loss:
|
$ | (6,586 | ) | $ | (3,806 | ) | ||
|
Denominator:
|
||||||||
|
Denominator
for basic earnings per share-weighted average shares
|
81,508
|
65,044
|
||||||
|
Effect
of dilutive securities
|
||||||||
|
Convertible
Series A Preferred Stock
|
--
|
--
|
||||||
|
Stock
Warrants
|
--
|
--
|
||||||
|
Stock
Options
|
--
|
--
|
||||||
|
Denominator
for diluted earnings per share-adjusted weighted Average shares
and
assumed conversions
|
81,508
|
65,044
|
||||||
|
Basic
and diluted loss per common share
|
$ | (0.08 | ) | $ | (0.06 | ) | ||
All
common stock equivalents in the years ended December 31, 2006 and 2005 were
excluded from the above calculation as their effect was
anti-dilutive.
19. Segment
Information and Major Customers
The
Company has operations in the United States and Canada. Selected financial
data
by geographic area was as follows (in thousands):
|
2006
|
2005
|
|||||||
|
United
States:
|
||||||||
|
Revenues
|
$ |
1,295
|
$ |
762
|
||||
|
Operating
expenses
|
3,114
|
2,526
|
||||||
|
Net
loss
|
(5,657 | ) | (3,806 | ) | ||||
|
Canada:
|
||||||||
|
Revenues
|
$ |
918
|
--
|
|||||
|
Operating
expenses
|
1,489
|
--
|
||||||
|
Net
loss
|
(929 | ) |
--
|
|||||
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, 2006 and 2005 the Company had a limited number
of
customers as follows:
|
2006
|
2005
|
|||||||
|
Number
of customers
|
18
|
8
|
||||||
|
Customers
accounting for more than 10% of revenues
|
--
|
5
|
||||||
|
Percent
of revenues derived from largest customer
|
9 | % | 28 | % | ||||
|
Percent
of revenues derived from second largest customer
|
8 | % | 15 | % | ||||
20.
Subsequent Events
Acquisition
of IMAGIN Interest in IPT
On
January 26, 2007, the Company executed and consummated a Securities Purchase
Agreement (the “Agreement”) with IMAGIN, to acquire 11,523,000 shares of common
stock IPT. The Shares represented approximately a 50.1% of IPT’s issued and
outstanding common stock. As a result of the acquisition of the Shares, the
Company owns 100% of the common stock of IPT. As consideration for the shares,
the Company and IMAGIN agreed to cancel a promissory note in the principal
amount of $2,400,000 made by IMAGIN subsidiary, QMP and later assigned to
IMAGIN. As of the date of the Agreement, the Company had been advised
by IMAGIN that it had acquired all of QMP’s interest in IPT as well as QMP's
other holdings of the Company's related securities.
Immediately
following the acquisition of the Shares, IPT acquired all of the outstanding
capital stock of the Company’s wholly-owned subsidiary, QMT. The purchase price
of the acquisition was $2,800,000, in the form of a promissory note made
in
favor of the Company, payable on or before July 1, 2008, and secured by a
pledge
of all of the issued and outstanding shares of QMT.
Newly
Formed Subsidiary
On
March
26, 2007, the Company formed Homeland Radiation Detection Systems, Inc.,
a Texas
corporation and wholly-owned subsidiary (“HRDS”) HRDS has filed
a provisional patent for production of a device that is capable of detecting
illicit radioactive sources at a distance which the Company intends to develop
and market for homeland security applications.
Severance
Obligation
In
March 2007, the Company paid Gary Brooks, the Company’s former Chief
Executive Officer, $58,325 as full settlement of the Company’s severance
obligation to Mr. Brooks pursuant to the severance agreement dated September
29,
2005. The Company has no further amounts due to Mr. Brooks under the
severance agreement.
PART II
INFORMATION
NOT REQUIRED IN PROSPECTUS
|
Item
13.
|
Other
Expenses of Issuance and
Distribution
|
The
following table sets forth the costs and expenses payable by us in connection
with the sale and distribution of the shares of Series B Preferred Stock being
registered. All of such expenses, except for the SEC registration fee are
estimated.
|
SEC
registration fee
|
$ |
410.23
|
||
|
Legal
fees
|
20,000.00
|
|||
|
Accountant’s
fees and expenses
|
3,000.00
|
|||
|
Registrar’s
and transfer agent’s fees
|
2,000.00
|
|||
|
Printing
expenses
|
5,000.00
|
|||
|
Miscellaneous
|
1,000.00
|
|||
|
Total
|
$ |
31,410.23
|
|
Item
14.
|
Indemnification
of Directors and Officers
|
Article
2.02-1 of the Texas Business Corporation Act provides for the indemnification
of
officers, directors, employees, and agents. A corporation shall have power
to
indemnify any person who was or is a party to any proceeding (other than an
action by, or in the right of, the corporation), by reason of the fact that
he
or she is or was a director, officer, employee, or agent of the corporation
or
is or was serving at the request of the corporation as a director, officer,
employee, or agent of another corporation, partnership, joint venture, trust,
or
other enterprise against liability incurred in connection with such proceeding,
including any appeal thereof, if he or she acted in good faith and in a manner
he or she reasonably believed to be in, or not opposed to, the best interests
of
the corporation and, with respect to any criminal action or proceeding, had
no
reasonable cause to believe his or her conduct was unlawful. The termination
of
any proceeding by judgment, order, settlement, or conviction or upon a plea
of
nolo contendere or its equivalent shall not, of itself, create a presumption
that the person did not act in good faith and in a manner which he or she
reasonably believed to be in, or not opposed to, the best interests of the
corporation or, with respect to any criminal action or proceeding, had
reasonable cause to believe that his or her conduct was unlawful.
We
have
agreed to indemnify each of our directors and certain officers against certain
liabilities, including liabilities under the Securities Act of 1933. Insofar
as
indemnification for liabilities arising under the Securities Act of 1933 may
be
permitted to our directors, officers and controlling persons pursuant to the
provisions described above, or otherwise, we have been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than our payment of expenses incurred or paid by our
director, officer or controlling person in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, we will, unless in the
opinion of our counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
|
Item
15.
|
Recent
Sales of
Unregistered Securities
|
The
selling stockholder described above represented to us in written subscription
agreements or other written agreements that, among other things, they acquired
the securities for their own account and not with a view to any distribution
thereof to the public. The certificates evidencing the securities described
above bear legends providing that the shares are not to be offered, sold or
transferred other than pursuant to an effective registration statement under
the
Securities Act or an exemption from such registration requirements.
|
Item
16.
|
Exhibits
and Financial Statement
Schedules
|
The
exhibits are described on the Exhibit Index to this Form S-1
Registration Statement.
|
Item
17.
|
Undertakings
|
The
undersigned registrant hereby undertakes:
(1)
To file, during any period in which
offers or sales are being made, a post-effective amendment to this registration
statement; (i) to include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933; (ii) to reflect in the prospectus any facts
or events arising after the effective date of the registration statement (or
the
most recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information in the registration
statement. Notwithstanding the foregoing, any increase or decrease in the amount
of securities offered (if the total dollar value of securities offered would
not
exceed that which was registered) and any deviation from the low or high end
of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the
changes in amount and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the “Calculation of Registration Fee”
table in the effective registration statement; and (iii) to include any
material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement;
(2) That,
for the purpose of
determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof; and
(3) To
remove from registration by
means of a post-effective amendment any of the securities being registered
which
remain unsold at the termination of the offering.
(4) That,
for the purpose of
determining liability under the Securities Act of 1933 to any
purchaser:
(i) If
the registrant is relying
on Rule 430B:
A.
Each prospectus filed by the
registrant pursuant to Rule 424(b)(3)shall be deemed to be part of the
registration statement as of the date the filed prospectus was deemed part
of
and included in the registration statement; and
B.
Each prospectus required to be filed
pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration
statement in reliance on Rule 430B relating to an offering made pursuant to
Rule
415(a)(1)(i), (vii), or (x) for the purpose of providing the information
required by section 10(a) of the Securities Act of 1933 shall be deemed to
be part of and included in the registration statement as of the earlier of
the
date such form of prospectus is first used after effectiveness or the date
of
the first contract of sale of securities in the offering described in the
prospectus. As provided in Rule 430B, for liability purposes of the issuer
and any person that is at that date an underwriter, such date shall be deemed
to
be a new effective date of the registration statement relating to the securities
in the registration statement to which that prospectus relates, and the offering
of such securities at that time shall be deemed to be the initial bona fide
offering thereof. Provided, however, that no statement made in a registration
statement or prospectus that is part of the registration statement or made
in a
document incorporated or deemed incorporated by reference into the registration
statement or prospectus that is part of the registration statement will, as
to a
purchaser with a time of contract of sale prior to such effective date,
supersede or modify any statement that was made in the registration statement
or
prospectus that was part of the registration statement or made in any such
document immediately prior to such effective date; or
(ii) If
the registrant is subject to Rule 430C, each prospectus filed pursuant to
Rule 424(b) as part of a registration statement relating to an offering,
other than registration statements relying on Rule 430B or other than
prospectuses filed in reliance on Rule 430A, shall be deemed to be part of
and
included in the registration statement as of the date it is first used after
effectiveness. Provided, however, that no statement made in a registration
statement or prospectus that is part of the registration statement or made
in a
document incorporated or deemed incorporated by reference into the registration
statement or prospectus that is part of the registration statement will, as
to a
purchaser with a time of contract of sale prior to such first use, supersede
or
modify any statement that was made in the registration statement or prospectus
that was part of the registration statement or made in any such document
immediately prior to such date of first use.
(5)
Insofar as indemnification for
liabilities arising under the Securities Act of 1933 may be permitted to
directors, officers and controlling persons of the registrant pursuant to the
provisions described in Item 14 above, or otherwise, the registrant has
been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred
or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
SIGNATURES
Pursuant
to the requirements of the
Securities Act of 1933, the registrant has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Houston, State of Texas, on August 28, 2007.
|
|
POSITRON
CORPORATION
|
|
|
|
|
|
|
|
|
/s/ Patrick
G. Rooney
|
|
|
Patrick
G. Rooney
|
|
|
Chairman
of the Board of Directors
(Principal
Executive Officer)
|
| /s/ Corey Conn | |
| Corey Conn | |
|
Chief
Financial Officer
(Principal
Financial Officer)
|
POWER
OF ATTORNEY
We,
the
undersigned officers and directors of Positron Corporation, and each of us,
do
hereby constitute and appoint Patrick Rooney our true and lawful attorney and
agent, with full power of substitution and re-substitution, to do any and all
acts and things in our name and behalf in any and all capacities and to execute
any and all instruments for us in our names, in connection with this
registration statement or any registration statement for the same offering
that
is to be effective upon filing under the Securities Act of 1933, as amended,
and
to file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, including specifically,
but without limitation, power and authority to sign for us or any of us in
our
names in the capacities indicated below, any and all amendments (including
post-effective amendments) hereto; and we hereby ratify and confirm all that
said attorney and agent, or his substitute, shall do or cause to be done by
virtue thereof.
Pursuant
to the requirements of the Securities Act of 1933, this registration statement
has been signed below by the following persons in the following capacities
on
the dates indicated.
|
NAME
|
|
TITLE
|
|
DATE
|
|
|
|
|
|
|
|
Patrick
Rooney
|
|
Chairman
of the Board
|
|
August
28,
2007
|
|
/s/
Patrick Rooney
|
|
(principal
executive officer)
|
|
|
|
|
|
|
|
|
|
Corey
Conn
|
|
Chief Financial
Officer
|
|
August
28,
2007
|
|
/s/
Corey Conn
|
|
(principal financial
officer)
|
|
|
|
|
|
|
|
|
|
Joseph
G. Oliverio
|
|
President,
Director
|
|
August
28,
2007
|
|
/s/
Joseph G. Oliverio
|
|
|
|
|
|
|
|
|
|
|
|
Sachio
Okamara
|
|
Director
|
|
August
28,
2007
|
|
/s/
Sachio Okamara
|
|
|
|
|
|
|
|
|
|
|
|
Dr.
Anthony C. Nicolls
|
|
Director
|
|
August
28,
2007
|
|
/s/
Anthony C. Nicolls
|
|
|
|
|
EXHIBIT INDEX
|
Exhibit No.
|
|
Description
of Exhibit
|
|
Page
|
|
|
|
|
|
|
|
3.1
|
|
Articles
of Incorporation of Positron Corporation*
|
|
|
|
|
|
|
|
|
|
3.2
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By-laws
of Positron Corporation *
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4.1
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Form of
Series B Convertible Preferred Stock certificate of Positron
Corporation.
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5.1
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Opinion
of Levy & Boonshoft, P.C.
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Imaging
PET Technologies, Inc. Confidential Offering Memorandum dated March
23,
2006.
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Form
of Subscription Form for Imaging PET Technologies, Inc. Class A Preferred
Stock Offering
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Letter
to Imaging PET Technologies, Inc. Class A Preferred
Shareholders
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Consent
of Sassetti & Company, L.P.
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Consent
of Levy & Boonshoft, P.C. (included in the opinion filed as
Exhibit 5.1).
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24.1
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Power
of attorney (included on signature page).
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Filed
with the Company’s Registration Statement on Form SB-2 (File No. 33-68722) and
declared effective on December 3, 1993.
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