| FORM 10-QSB |
MARCH
31, 2005 |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-QSB
|
[X] |
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31,
2005. |
|
TRANSITION
REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____________ TO
______________. |
Commission
file number: 0-24092
Positron
Corporation
(Exact
name of small business issuer as specified in its charter)
|
Texas |
76-0083622 |
|||
|
(State
of incorporation) |
(IRS
Employer Identification No.) |
1304
Langham Creek Drive, Suite 300, Houston, Texas 77084
(Address
of principal executive offices)
(281)
492-7100
(Issuer's
telephone number)
(Former
name, former address and former fiscal year, if changed since last
report)
Indicate
by check mark whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
|
Yes |
X |
No |
As of
March 31, 2005, there were 53,185,803 shares of the Registrant’s Common Stock,
$.01 par value outstanding.
Transitional
Small Business Disclosure Format (check one). Yes
No X
1
| FORM 10-QSB |
MARCH
31, 2005 |
POSITRON
CORPORATION
TABLE
OF CONTENTS
Form
10-QSB for the quarter ended March 31,
2005
|
PART
I - FINANCIAL INFORMATION |
Page |
|
Item
1. Financial Statements |
|
|
3 | |
|
|
|
|
4 | |
|
5 | |
|
6 | |
|
9 | |
|
Item
3. Controls and Procedures |
11 |
|
PART
II - OTHER INFORMATION |
11 |
|
Item
1. Legal Proceedings |
|
|
Item
3. Defaults Upon Senior Securities |
|
|
Item
5. Other Information |
|
|
Item
6. Exhibits |
|
|
13 | |
2
| FORM 10-QSB |
MARCH
31, 2005 |
BALANCE
SHEET
March
31, 2005
(In
thousands, except share data)
(Unaudited)
ASSETS |
|
|||
Current
assets: |
||||
|
Cash
and cash equivalents |
$ |
650 |
||
|
Inventories |
874 |
|||
|
Prepaid
expenses |
121 |
|||
|
Other
current assets |
13 |
|||
|
Total
current assets |
1,658 |
|||
|
Property
and equipment, net |
134 |
|||
|
Deferred
loan costs |
95 |
|||
|
Total
assets |
$ |
1,887 |
||
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY |
||||
|
Current
liabilities: |
||||
|
Accounts
payable, trade and accrued liabilities |
$ |
1,447 |
||
|
Customer
deposits |
24 |
|||
|
Unearned
revenue |
129 |
|||
|
Total
current liabilities |
1,600 |
|||
|
Convertible
notes payable to affiliated entities, less discount of
$1,053 |
1,855 |
|||
|
Stockholders’
equity (deficit): |
||||
|
Series
A Preferred Stock: $1.00 par value; 8% cumulative, convertible,
redeemable; 5,450,000 shares authorized; 510,219
shares issued and outstanding. |
510 |
|||
|
Common
Stock: $0.01 par value; 100,000,000 shares authorized; 53,245,959 shares
issued and 53,185,803 sharesoutstanding. |
532 |
|||
|
Additional
paid-in capital |
56,506 |
|||
|
Subscription
receivable |
(30 |
) | ||
|
Accumulated
deficit |
(59,071 |
) | ||
|
Treasury
Stock: 60,156 shares at cost |
(15 |
) | ||
|
Total
stockholders’ equity (deficit) |
(1,568 |
) | ||
|
Total
liabilities and stockholders’ equity |
$ |
1,887 |
||
See
accompanying notes
3
| FORM 10-QSB |
MARCH
31, 2005 |
STATEMENTS
OF OPERATIONS
(In
thousands, except per share data)
(Unaudited)
|
Three
Months Ended |
|||||||
|
March
31,
2005 |
March
31,
2004 |
||||||
Revenues: |
|||||||
|
System
sales |
$ |
-- |
$ |
-- |
|||
|
Service
and component |
179 |
243 |
|||||
|
Total
revenues |
179 |
243 |
|||||
|
Costs
of sales and services: |
|||||||
|
System
sales |
89 |
48 |
|||||
|
Service,
warranty and component |
51 |
70 |
|||||
|
Total
costs of sales and services |
140 |
118 |
|||||
|
Gross
profit |
39 |
125 |
|||||
|
Operating
expenses: |
|||||||
|
Research
and development |
156 |
43 |
|||||
|
Selling
and marketing |
230 |
39 |
|||||
|
General
and administrative |
316 |
289 |
|||||
|
Stock
based compensation |
(105 |
) |
--
|
||||
|
Total
operating expenses |
597 |
371 |
|||||
|
Loss
from operations |
(558 |
) |
(246 |
) | |||
|
Other
income (expense): |
|||||||
|
Interest
expense |
(80 |
) |
-- |
||||
|
Total
other income (expense) |
(80 |
) |
-- |
||||
|
Net
loss |
$ |
(638 |
) |
$ |
(246 |
) | |
|
Basic
and diluted loss per common share |
$ |
(0.01 |
) |
$ |
(0.00 |
) | |
|
Weighted
average number of basic and diluted common shares
outstanding |
53,186 |
53,186 |
|||||
See
accompanying notes
4
| FORM 10-QSB |
MARCH
31, 2005 |
STATEMENTS
OF CASH FLOWS
(In
thousands)
(Unaudited)
|
Three
Months Ended |
|||||||
|
March
31,
2005 |
March
31,
2004 |
||||||
Cash
flows from operating activities: |
|||||||
|
Net
loss |
$ |
(638 |
) |
$ |
(246 |
) | |
|
Adjustments
to reconcile net loss to net cash provided by (used in) operating
activities: |
|||||||
|
Compensation
related to repricing of warrants and options |
(105 |
) |
--
|
||||
|
Depreciation |
22 |
22 |
|||||
|
Amortization
of loan costs and debt discount |
32
|
--
|
|||||
|
Changes
in operating assets and liabilities: |
|||||||
|
Inventory |
(38 |
) |
(92 |
) | |||
|
Prepaid
expenses |
(59 |
) |
48 |
||||
|
Other
current assets |
15 |
(46 |
) | ||||
|
Accounts
payable and accrued liabilities |
54 |
(44 |
) | ||||
|
Customer
deposits |
8 |
490 |
|||||
|
Unearned
revenue |
(24 |
) |
(24 |
) | |||
|
Net
cash provided by (used in) operating activities |
(733 |
) |
108 |
||||
|
Cash
flows from financing activities: |
|||||||
|
Proceeds
of notes payable to affiliated entities |
1,250 |
-- |
|||||
|
Repayment
of capital lease obligation |
-- |
(2 |
) | ||||
|
Net
cash provided by (used in) financing activities |
1,250 |
(2 |
) | ||||
|
Net
increase in cash and cash equivalents |
517
|
106
|
|||||
|
Cash
and cash equivalents, beginning of period |
133 |
5 |
|||||
|
Cash
and cash equivalents, end of period |
$ |
650 |
$ |
111 |
|||
See
accompanying notes
5
| FORM 10-QSB |
MARCH
31, 2005 |
SELECTED
NOTES TO FINANCIAL STATEMENTS
|
1. |
Basis
of Presentation |
The
accompanying unaudited interim financial statements have been prepared in
accordance with generally accepted accounting principles and the rules of the
U.S. Securities and Exchange Commission, and should be read in conjunction with
the audited financial statements and notes thereto contained in the Annual
Report on Form 10-KSB for Positron Corporation (the “Company”) for the year
ended December 31, 2004. In the opinion of management, all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation of
financial position and the results of operations for the interim periods
presented have been reflected herein. The results of operations for interim
periods are not necessarily indicative of the results to be expected for the
full year. Notes to the financial statements which would substantially duplicate
the disclosures contained in the audited financial statements for the most
recent fiscal year ended December 31, 2004, as reported in the Form 10-KSB, have
been omitted.
|
2. |
Accounting
Policies |
Revenue
Recognition
Revenues
from POSICAMTM
system
contracts are recognized when all significant costs have been incurred and the
system has been shipped to the customer. The Company also recognizes revenue on
bill and hold transactions when the product is completed and is ready to be
shipped and the risk of loss is transferred to the customer. In certain cases,
at the customers’ request, the Company is storing the product for a brief period
of time. Revenues from maintenance contracts are recognized over the term of the
contract. Service revenues are recognized upon performance of the
services.
|
3. |
Inventories |
Inventories
at March 31, 2005 consisted of the following (in thousands):
|
Raw
materials |
$ |
727 |
||
|
Work
in progress |
347 |
|||
|
Subtotal |
1,074 |
|||
|
Less
reserve for obsolescence |
(200 |
) | ||
|
Total |
$ |
874 |
|
4. |
Accounts
Payable and Accrued
Liabilities |
Accounts
payable and accrued liabilities at March 31, 2005 consisted of the following (in
thousands):
|
Accrued
royalties |
$ |
316 |
||
|
Trade
accounts payable |
278 |
|||
|
Sales
taxes payable |
236 |
|||
|
Accrued
property taxes |
172 |
|||
|
Accrued
compensation |
123 |
|||
|
Accrued
interest |
113 |
|||
|
Accrued
professional fees |
80 |
|||
|
Insurance
premiums payable |
79 |
|||
|
Accrued
warranty costs |
50 |
|||
|
Total |
$ |
1,447 |
6
| FORM 10-QSB |
MARCH
31, 2005 |
|
5. |
Convertible
Notes Payable to Affiliated
Entities |
Notes
payable to affiliated entities at March 31, 2005 consisted to the following (in
thousands):
|
IMAGIN
Diagnostic Centres, Inc., less discount of $53 |
$ |
1,855 |
||
|
Solaris
Opportunity Fund, L.P., less discount of $1,000 |
- |
|||
|
Total |
$ |
1,855 |
IMAGIN
Diagnostic Centres, Inc.
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 on the anniversary
dates of these notes. The principal and any unpaid interest must 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 are initially convertible into new
shars 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 are
collateralized by all of the assets of the Company. As of March 31, 2005,
principal of $700,000 has been advanced and remains outstanding related to these
notes. Full convertibility of the shares of Series C Preferred Stock into common
stock will require an amendment to the Company’s Articles of Incorporation which
must be approved by the shareholders. The Company has agreed to seek such
approval.
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 are due and payable on May 21, 2006. These notes are
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 March 31, 2005, principal of $1,208,500 has been advanced and
remains outstanding related to these notes. Full convertibility of the shares of
Series D Preferred Stock into common stock will require an amendment to the
Company’s Articles of Incorporation which must be approved by the shareholders.
The Company has agreed to seek such approval.
The
agreements with IMAGIN provided for a $200,000 transaction fee payable to IMAGIN
upon completion of the financing. Under terms of these agreements, this fee
obligation was to be reduced by an amount equal to $0.02 multiplied by the
number of warrants issued to IMAGIN. The agreements with IMAGIN also provided
for the issuance of new warrants for the purchase of 4,575,000 shares of common
stock, which resulted in a $91,500 decrease in this fee obligation to $108,500.
This fee obligation is included in the principal of the notes payable to IMAGIN
at March 31, 2005. The Company allocated the proceeds received from this
convertible debt with detachable warrants using the relative fair value of the
individual elements at the time of issuance. The notes payable to IMAGIN contain
an unamortized discount balance of approximately $53,000 at March 31, 2005. The
discount of the debt is to be amortized over the term of the notes
payable.
Patrick
G. Rooney, Chairman of the Board of the Company is the son of Patrick Rooney,
Director of Corporate Development of IMAGIN Diagnostic Centres, Inc. Patrick G.
Rooney and John E. McConnaughy, Jr. were appointed to the Board of Directors of
the Company in connection with the financing with IMAGIN.
Solaris
Opportunity Fund, L.P.
On
February 28, 2005, the Company entered into a series of agreements with Solaris
Opportunity Fund, L.P. (“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 March 31, 2005, Solaris has purchased $1,000,000 of
these notes. These notes are due and payable on March 6, 2007. The notes are
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 on the date of the agreement, the difference is considered to be a
beneficial conversion feature and is amortized as additional interest expense
over the period from the date of issuance to the stated maturity date. The
Company has calculated the beneficial conversion feature of these notes payable
as $1,000,000.
7
| FORM 10-QSB |
MARCH
31, 2005 |
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 granted in
the same collateral to IMAGIN. Full convertibility of the shares of Series E
Preferred Stock into common stock will require an amendment to the Company’s
Articles of Incorporation which must be approved by the shareholders. The
Company has agreed to seek such approval.
Patrick
G. Rooney, Chairman of the Board of the Company, is the general partner of
Solaris.
|
6. |
Earnings
Per Share |
Basic
earnings per common share are based on the weighted average number of common
shares outstanding in each period and earnings adjusted for preferred stock
dividend requirements. Diluted earnings per common share assume that any
dilutive convertible preferred shares outstanding at the beginning of each
period were converted at those dates, with related interest, preferred stock
dividend requirements and outstanding common shares adjusted accordingly. It
also assumes that outstanding common shares were increased by shares issuable
upon exercise of those stock options and warrants for which market price exceeds
exercise price, less shares which could have been purchased by the Company with
related proceeds. The convertible preferred stock and outstanding stock options
and warrants were not included in the computation of diluted earnings per common
share for the three month periods ended March 31, 2004 and 2005 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 |
|||||||
|
March
31, 2005 |
March
31, 2004 |
||||||
|
(In
Thousands) |
|||||||
Numerator |
|||||||
|
Basic
and diluted loss |
$ |
(638 |
) |
$ |
(246 |
) | |
|
Denominator |
|||||||
|
Basic
and diluted earnings per share-weighted average shares |
53,186 |
53,186 |
|||||
|
Basic
and diluted loss per common share |
$ |
(0.01 |
) |
$ |
(0.00 |
) | |
|
7. |
Litigation |
ProFutures
Capital Bridge Fund, L.P.
On
September 26, 2000, ProFutures Bridge Capital Fund, L.P. ("ProFutures")
filed a complaint against the Company in Colorado state court for declaratory
relief and breach of contract (the "Complaint"). The Complaint alleged that the
Company breached four stock purchase warrants issued to ProFutures on the basis
that the Company failed to notify ProFutures of dilutive events and failed to
register the full number of shares ProFutures was allegedly entitled to purchase
under the warrants when, on February 14, 2000, the Company registered
1,500,000 shares of stock underlying ProFutures' warrants instead of 4,867,571.
The Complaint further alleged that the Company's issuance of shares of common
stock to Imatron, Inc. on or about January 22, 1999, (the "Imatron
Transaction") was a dilutive event pursuant to the anti-dilution provisions
contained in the four stock purchase warrants. The Complaint sought declarations
that the consideration received by the Company in the Imatron Transaction
increased the number of shares issuable under the warrants, the Company breached
the warrants by failing to notify ProFutures of the Imatron Transaction and its
effect on ProFutures' warrants at the time of the Imatron Transaction and that
the Company further breached the warrants by failing to register the number of
shares ProFutures alleged were purchasable under its warrants. The Complaint
sought an unspecified amount of monetary damages.
8
| FORM 10-QSB |
MARCH
31, 2005 |
The
Colorado State level case of ProFutures v. Positron, District Court, City and
County of Denver, Colorado, Case No. 00CV7146, was tried before the Court in
June 2002. The Court issued its Findings of Fact, Conclusions of Law and
Judgment on November 13, 2002. The Court agreed with Positron’s
determination of the value of the consideration paid for the shares issued to
Imatron and that there was no evidence of fraud by Positron. The Court agreed
with ProFutures that Positron breached the 1996 stock purchase warrant with
ProFutures by failing to give ProFutures written notice stating the adjusted
exercise price and the new number of shares deliverable as a result of the
Imatron Transaction and by failing to register the shares to which ProFutures
was entitled under the warrant as a result of the Imatron Transaction.
Nevertheless, the Court also found that ProFutures’ alleged damages were
uncertain and speculative and that ProFutures was not entitled to recover actual
damages. Therefore ProFutures was awarded $1 in nominal damages. ProFutures
appealed the trial Court’s findings and Positron cross-appealed. On July 1,
2004, the Court of Appeals, State of Colorado affirmed the District Court
decision. ProFutures has appealed this decision to the Supreme Court of the
State of Colorado. On February 22, 2005, the appeal by ProFutures was
denied.
In the
federal case of ProFutures v. Positron, et al., United States District Court for
the District of Colorado, Case No. 02-N-0154, the Complaint alleged two causes
of action against the Company: fraudulent transfer and injunctive relief. The
allegations arose out of a June 2001 loan agreement between Positron and
Imatron. The action was dismissed in 2002 without prejudice.
|
8. |
Stock
Based Compensation |
In
connection with the May 2004 transaction with IMAGIN, the Company re-priced
various options and warrants to employees that are subject to the variable
accounting rules. The market price of the Company’s common stock decreased $0.03
from $0.12 at December 31, 2004 to $0.09 at March 31, 2005. Due to the decline
in price, application of the variable accounting rules resulted in the reversal
of stock based compensation by $105,000 in the three months ended March 31,
2005.
We are
including the following cautionary statement in this Quarterly Report on Form
10-QSB to make applicable and utilize the safe harbor provision of the Private
Securities Litigation Reform Act of 1995 regarding any forward-looking
statements made by, or on behalf of, the Company. Forward-looking statements
include statements concerning plans, objectives, goals, strategies, future
events or performance and underlying assumptions and other statements, which are
other than statements of historical facts. Certain statements contained herein
are forward-looking statements and, accordingly, involve risks and
uncertainties, which could cause actual results or outcomes to differ materially
from those expressed in the forward-looking statements.
Our
expectations, beliefs and projections are expressed in good faith and are
believed by us to have a reasonable basis, including without limitations, our
examination of historical operating trends, data contained in our records and
other data available from third parties, but there can be no assurance that our
expectations, beliefs or projections will result, or be achieved, or be
accomplished.
Comparison
of the Results of Operations for the three months ended March 31, 2005 and
2004
We
experienced a loss of $638,000 in the three month period ended March 31, 2005
compared to a loss of $246,000 for the same period in 2004. The larger loss in
the first quarter of 2005 resulted primarily from lower revenues and higher
operating expenses.
9
| FORM 10-QSB |
MARCH
31, 2005 |
We
generated no revenues from sales of systems in the three months ended March 31,
2005 and 2004. Our service revenues decreased $64,000 to $179,000 in the quarter
ended March 31, 2005 from $243,000 in the same period in 2004. Service revenues
in the three months ended March 31, 2004 included the recognition of $50,000 in
fees relating to support provided to GE Medical Systems in conjunction with the
purchase of our Cardiac PET Software.
We
generated gross profits of $39,000 during the three months ended March 31, 2005
compared to $125,000 for the same period in 2004. Revenues of $50,000 relating
to services provided to GE Medical Systems were included in gross profits in the
quarter ended March 31, 2004.
Our
operating expenses increased $226,000 to $597,000 in the three month period
ended March 31, 2005 from $371,000 for the same period in 2004. Research and
development expenses increased $113,000 to $156,000 in the first quarter of 2005
from $43,000 in the same period in 2004, primarily due to higher personnel costs
and consulting fees. Sales and marketing expenses increased $191,000 to $230,000
in the three months ended March 31, 2005 from $39,000 in the same quarter in
2004, primarily as a result of higher personnel, travel and advertising costs.
General and administrative expenses increased $27,000 to $316,000 in the first
quarter of 2005 from $289,000 in the same period in 2004. We reversed stock
based compensation by $105,000 in the quarter ended March 31, 2005 relating to
application of the variable accounting rules to the 2004 re-pricing of warrants
and options.
We
recognized interest expense of $80,000 in the three months ended March 31, 2005
compared to no interest expense in the first quarter of 2004. Interest expense
in the first quarter of 2005 relates to the notes payable to IMAGIN Diagnostic
Centres, Inc. and Solaris Opportunity Fund, L.P. and includes $32,000 in
amortization of loan costs and debt discount.
Financial
Condition
We had
cash and cash equivalents of $650,000 on March 31, 2005. On the same date, we
had accounts payable and accrued liabilities outstanding of $1,447,000. We did
not sell any imaging systems in the three-month period ended March 31, 2005. In
order to resolve our liquidity problems, we must sell imaging systems or seek
alternative sources of debt or equity funding. However, there is no assurance
that we will be successful in selling new systems or securing additional debt or
equity funds.
Since
inception, we have been unable to sell our POSICAMTM systems
in quantities sufficient to be operationally profitable. Consequently, we have
sustained substantial losses. Due to the sizable selling prices of our systems
and the limited number of systems sold or placed into service each year,
revenues have fluctuated significantly from year to year. We have an accumulated
deficit of $59,071,000 at March 31, 2005. The Company will need to increase
system sales to achieve profitability in the future.
These
events raise doubt as to our ability to continue as a going concern. The report
of our independent public accountants, which accompanied our financial
statements for the year ended December 31, 2004, was qualified with respect to
that risk. If we are unable to obtain debt or equity financing to meet our cash
needs we may have to severely limit or cease our business activities or may seek
protection from our creditors under the bankruptcy laws.
New
Accounting Pronouncements
Please
refer to the Annual Report Form 10-KSB for the year ended December 31, 2004 for
disclosures regarding the Company’s treatment of new accounting
pronouncements.
Critical
Accounting Policies
Revenue
Recognition
Revenues
from POSICAMTM
system
contracts are recognized when all significant costs have been incurred and the
system has been shipped to the customer. The Company also recognizes revenue on
bill and hold transactions when the product is completed and is ready to be
shipped and the risk of loss is transferred to the customer. In certain cases,
at the customers’ request, the Company is storing the product for a brief period
of time. Revenues from maintenance contracts are recognized over the term of the
contract. Service revenues are recognized upon performance of the
services.
10
| FORM 10-QSB |
MARCH
31, 2005 |
As of
March 31, 2005, the Company carried out an evaluation, under the supervision and
with the participation of the Company’s management, including the Company’s
Chief Financial Officer, of the effectiveness of the design and operation of the
Company’s disclosure controls and procedures (as defined in Exchange Act Rule
13a-15(e) and Rule 15d-15(e)). Based upon that evaluation, the Company’s
Chairman of the Board of Directors and Chief Financial Officer concluded that
the Company’s disclosure controls and procedures are effective at a reasonable
level in timely alerting them to material information relating to the Company
that is required to be included in the Company’s periodic filings with the
Securities and Exchange Commission. There has been no change in the Company’s
internal control over financial reporting that occurred during the Company’s
most recent fiscal quarter that has materially affected or is reasonably likely
to materially affect, the Company’s internal control over financial
reporting.
The
Company’s management, including the Chief Financial Officer, do not expect that
the Company’s disclosure controls or internal control over financial reporting
will prevent all error and all fraud. A control system, no matter how well
conceived and operated, can provide only reasonable, not absolute, assurance
that the objectives of the control system are met due to numerous factors,
ranging from errors to conscious acts of an individual, or individuals acting
together. In addition, the design of a control system must reflect the fact that
there are resource constraints, and the benefits of controls must be considered
relative to their costs. Because of the inherent limitations in a cost-effective
control system, misstatements due to error and/or fraud may occur and not be
detected.
The
information regarding legal proceedings set forth above under Part I - Financial
Information, Note 7 to the Condensed Financial Statements, is hereby
incorporated by reference into Part II, Item 1 - Legal Proceedings.
Series
E Preferred Stock
The Board
of Directors created, out of the 10,000,000 shares of preferred stock authorized
in Article Four of the Articles of Incorporation, a series of 1,200,000 shares
of preferred stock, par value $1.00 per share, designated as Series E Preferred
Stock. Each share of Series E Preferred Stock is convertible into shares of
common stock.
Recent
Sales of Unregistered Securities
On March
4, 2005 and March 17, 2005, the Company sold to Solaris Opportunity Fund, L.P.
two separate secured convertible promissory notes under a Note Purchase
Agreement dated February 28, 2005, in the principal amounts of $200,000 and
$800,000, respectively. These notes are convertible into shares of Series E
Preferred Stock that, in turn, are convertible at the option of the holder into
an aggregate 22,000,000 shares of the Company’s common stock.
The sales
of securities described above were exempt from the registration requirements of
the Securities Act of 1933, as amended, pursuant to Section 4(2) of the
Securities Act of 1933.
11
| FORM 10-QSB |
MARCH
31, 2005 |
These
notes and the underlying securities have not been registered under the
Securities Act of 1933 and may not be offered or sold in the United States
absent registration or an applicable exemption from the registration
requirements.
None
None
None
|
Exhibit |
Description
of the Exhibit |
|
3.1 |
Articles
of Incorporation of the Registrant (incorporated herein by reference to
Exhibit 3.1 to the Company’s Registration Statement on Form SB-2 (File No.
33-68722)). |
|
3.2 |
By-laws
of the Registrant, as amended (incorporated herein by reference to Exhibit
3.2 to the Company’s Registration Statement on Form SB-2 (File No.
33-68722)). |
|
4.1 |
Statement
of Designation Establishing Series E Preferred Stock of Positron
Corporation (incorporated herein by reference to Exhibit 4.18 to the
Company’s Amendment to Annual Report on Form 10KSB/A (File No.
000-24092)). |
|
10.1 |
Note
Purchase Agreement dated February 28, 2005 between Positron and Solaris
Opportunity Fund, L.P. (incorporated herein by reference to exhibit 10.83
to the Company’s Amendment to Annual Report on Form 10-KSB/A (File No.
000-24092)). |
|
10.2 |
Form
Secured Convertible Promissory Note (incorporated herein by reference to
Exhibit 10.84 to the company’s Amendment to Annual Report on Form 10-KSB/A
(File No. 000-24092)). |
|
10.3 |
Security
Agreement dated February 28, 2005 between Positron and Solaris Opportunity
Fund, L.P. (incorporated herein by reference to Exhibit 10.85 to the
Company’s Amendment to Annual Report on Form 10-KSB/A (File No.
000-24092)). |
|
10.4 |
Registration
Rights Agreement dated February 28, 2005 between Positron and Solaris
Opportunity Fund, L.P. (incorporated herein by reference to Exhibit 10.86
to the Company’s Amendment to Annual Report on Form 10-KSB/A (File No.
000-24092)). |
|
31.1 |
Chief
Executive Officer and Chief Financial Officer Certification of Periodic
Financial Report Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.* |
|
32.1 |
Chief
Executive Officer and Chief Financial Officer Certification Pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.# |
12
| FORM 10-QSB |
MARCH
31, 2005 |
|
*
Filed herewith | |
|
#
Furnished herewith |
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
POSITRON
CORPORATION | |
|
(Registrant) | |
|
Date:
May 13, 2005 |
/s/
Gary H. Brooks |
|
Gary
H. Brooks | |
|
CEO
& CFO |
EXHIBIT
INDEX
|
Exhibit |
Description
of the Exhibit |
|
Chief
Executive Officer and Chief Financial Officer Certification of Periodic
Financial Report Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.* | |
|
Chief
Executive Officer and Chief Financial Officer Certification Pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.# | |
|
*Filed
herewith | |
|
#
Furnished herewith | |
13