U.S.
SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-KSB
ANNUAL
REPORT
UNDER
SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR
THE FISCAL YEAR ENDED DECEMBER 31, 2007
Commissions
file number: 0-24092
Positron
Corporation
A Texas
Corporation
1304
Langham Creek Drive, Suite 300, Houston, Texas 77084
(281)
492-7100
IRS
Employer Identification Number: 76-0083622
Securities
registered under Section 12(b) of the Exchange Act: NONE
Securities
registered under Section 12(g) of the Exchange Act: COMMON STOCK, $.01 PAR
VALUE
Check
whether the issuer is not required to file reports pursuant to Section 13 or
15(d) of the Exchange
Act. £
Check
whether the issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90
days.
|
Yes
T
|
No
£
|
Check if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form
10-KSB. £
Indicate
by check mark whether the registrant is a shell Company (as defined in Rule
12b-2 of the Exchange
Act.) o
Issuer's
revenues for fiscal year ended December 31, 2007: $3,309,000.
Aggregate
market value of common stock held by non-affiliates of the Registrant as of
April 11, 2008: $3,777,765.
As of
April 14, 2007, there were 102,555,302 shares of the Registrant's common
stock, $.01 par value outstanding.
Transitional
Small Business Disclosure Format (check
one): Yes£ NoT
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FY 2007
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POSITRON CORPORATION
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FORM
10-KSB
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PART
I
Item
1. Description of Business
General
Positron
Corporation (the “Company”) was incorporated in the State of Texas on December
20, 1983, and commenced commercial operations in 1986. The Company
designs, manufactures, markets and services advanced medical imaging devices
utilizing positron emission tomography ("PET”) technology under the trade-name
POSICAM™ 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 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
December 31, 2005, 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.
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 could 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 “Item 1.
Description of Business – 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.
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POSITRON CORPORATION
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FORM
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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 include 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 person into a patient’s
bloodstream. After being distributed within the patient’s body, the
injected radiopharmaceutical undergoes a process of radioactive decay, whereby
positrons (positively charged electrons) are emitted and subsequently converted
along with free electrons into two gamma rays or photons. These paired gamma
events are detected by the POSICAM™ 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.
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POSITRON CORPORATION
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FORM
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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, mPowerTM, and
the Company’s upcoming technology from our joint venture partner in China,
Positron will present to the market affordable technology that specializes in
cardiac imaging. The Company believes that it can capture significant
market share by leveraging its strong reputation in the cardiology marketplace
with combining physician and patient concentric software
applications.
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.
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POSITRON CORPORATION
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FORM
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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 2007, the company had ten (10)
service contracts in force and one (1) system under manufacturer’s
warranty.
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 2007 and
2006.
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
others. However, computed tomography angiography (“CTA”) 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 Philips Medical
(“Philips”). GE, Siemens and Philips have substantially greater
financial, technological and personnel resources than the
Company. See “Item 1. Description of Business—Risk
Associated with Business Activities—Substantial Competition and Effects of
Technological Change.
GE,
Siemens and Philips have introduced a scanner that combines CT scanning and PET
in one unit. In collaboration with its joint venture partner, Neusoft
Medical Systems, Positron will introduce a PET/CT scanner. 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 or
CT.
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. 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.
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POSITRON CORPORATION
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FORM
10-KSB
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In 1995,
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.
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
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
"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") 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 joint
venture hopes to be able to obtain FDA 510k regulatory approval by the end of
2008.
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POSITRON CORPORATION
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FORM
10-KSB
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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. Positron 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 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.
Sales of Neusoft Positron
Medical Systems Co., Ltd. Products
The joint
venture will sell products manufactured by the JV Company to both joint venture
parties for further resale in the marketplace. After the ramp-up period of the
JV Company, each party has rights to and risk obligations for its capacity of
products required from the JV Company. The parties intend that the manufacturing
capacity of the JV Company will be shared on an equivalent basis to each party's
contribution to the registered capital of the JV Company, as measured by the
manufacturing work and resources needed by the JV Company 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 JV Company in Canada, the U.S. and Mexico
under its registered trademarks, and PET/CT products developed by the JV Company
in Canada and under the trademark of "Neusoft Positron." The Company
and Neusoft have equal rights to sell PET/CT products developed by the JV
Company in the U.S. and Mexico under the trademark of "Neusoft
Positron." Neusoft has the exclusive right to sell products developed
by the JV Company in China under its registered trademarks. Each of
Neusoft and the Company has the right to sell products developed by the JV
Company 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 $1,361,000 and $1,165,000 for the years 2007 and 2006,
respectively. 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.
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POSITRON CORPORATION
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FORM
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The
Company’s recent advances have been focused on introducing a solid-state
alternative to traditional photomultiplier technology. The transition
to solid-state will allow for the company to offer smaller, less expensive and
organ specific medical devices. The development of solid-state
technology will also allow for the licensing of their technology to non-medical
sectors,
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. Royalty obligations
amounting to approximately $373,000 were included in liabilities at December 31,
2007.
The
Company has several historic domestic and international patents pertaining to
positron emission tomography technology and currently maintains one active U.S.
patent relating to the unique construction and arrangement of the photo detector
module array used in its devices. This was issued in May 1993 and
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.
Backlog
As of
December 31, 2007, the Company had no outstanding orders for mPower™ systems and
one outstanding order for a Pulse CDC system.
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
December 31, 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.
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 year ended December 31, 2007, the Company had a
net loss of approximately $7,780,000, compared to a net loss of $6,586,000
during 2006. At December 31, 2007, the Company had an accumulated
deficit of approximately $76,605,000. 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, 2007 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 and/or obtain additional
capital.
- 8
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FY 2007
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POSITRON CORPORATION
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FORM
10-KSB
|
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 $192,000
at December 31, 2007. The Company received $3,937,000 and $2,478,000
in proceeds from private placements of securities and financings in 2007 and
2006, respectively. In spite of the 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.
Penny Stock
Rules
If the
shares of the Registrant's common stock are listed on The Nasdaq Stock Market or
certain other national securities exchanges and the price thereof is below
$5.00, then subsequent purchases of such securities will be subject to the
requirements of the penny stock rules absent the availability of another
exemption. The SEC has adopted rules that regulate broker-dealer practices in
connection with transactions in "penny stocks." Penny stocks generally are
equity securities with a price of less than $5.00 (other than securities
registered on certain national securities exchanges or quoted on The Nasdaq
Stock Market). The penny stock rules require a broker-dealer to deliver a
standardized risk disclosure document required by the SEC, to provide the
customer with current bid and offer quotations for the penny stock, the
compensation of the broker-dealer and its salesperson in the transaction,
monthly account statements showing the market value of each penny stock held in
the customer's account, to make a special written determination that the penny
stock is a suitable investment for the purchaser and receive the purchaser's
written agreement to the transaction. These disclosure requirements may have the
effect of reducing the level of trading activity in the secondary market for a
stock that becomes subject to the penny stock rules.
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. 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.
- 9
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FY 2007
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POSITRON CORPORATION
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FORM
10-KSB
|
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.
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, 2008. 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.
- 10
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FY 2007
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POSITRON CORPORATION
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FORM
10-KSB
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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.
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 product liability insurance coverage
for the POSICAM™ systems in the amount of $1 million per occurrence and an
annual aggregate maximum of $2 million. Separate coverage is
maintained for the nuclear imaging devices sold by IPT (through IS2) in the
amount of $2 million aggregate plus a $1 million excess policy. However, there
can be no assurance that the Company will be able to maintain such insurance in
the future or, if maintained, that such insurance will be sufficient in amount
to cover any successful product liability claims. Any uninsured
liability could have a material adverse effect on the Company.
No
Dividends. The Company has never paid cash dividends on its
common stock and does not intend to pay cash dividends on its common stock in
the foreseeable future.
Significant
Transactions.
Imaging Pet
Technologies
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 capital stock 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 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 the 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.
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.
Quantum Molecular
Technologies
On
December 28, 2005, the Company entered into a Memorandum of Understanding with
Imagin Diagnostic Centres, Inc. (“IIDC”) and QMP.
The joint
venture was formed to develop a new generation of PET technologies using
concepts and research and development activities conceived and to be implemented
by Dr. Irving Weinberg. QMT will continue these development efforts.
The Company will have the right to manufacture and sell any PET products
developed by the joint venture in exchange for royalty payments still to be
negotiated.
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POSITRON CORPORATION
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FORM
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Dr.
Weinberg has been at the forefront of the evolution of PET, tracing his roots
back to the UCLA group that created the PET industry. Later, as a
practicing radiologist and entrepreneur, Dr. Weinberg designed and built the
first breast-specific PET scanner, which was able to detect the earliest form of
breast cancer better than any other modality.
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 was owned 20%, 29% and 51% by the Company, IDC 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, IDC and QMP have 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. Whereas the Company
originally held 20% of the interests of the QMT JV, Quantum and IDC assigned
100% of their interest to the Company. Additionally, the investment
amount Quantum and IDC 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 Series B Convertible Preferred Stock, convertible
into 345,000,000 shares of the Company’s common stock to Quantum and IDC, 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 IDC for a note payable in the
amount of $368,755. As discussed above, on May 8, 2006 the Company
acquired 100% of the IDC 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.
On
January 26, 2007, IPT acquired all of the outstanding capital stock of QMT from
Positron for the purchase price of $2,800,000 in the form of a promissory
note. The non-interest bearing promissory note is payable on or
before July 1, 2008 and is secured by a pledge of all of the issued and
outstanding shares of QMT.
The joint
venture was formed to develop a new generation of PET technologies using
concepts and research and development activities conceived and to be implemented
by Dr. Irving Weinberg. QMT will continue these development efforts.
The Company will have the right to manufacture and sell any PET products
developed by the joint venture in exchange for royalty payments still to be
negotiated.
Dr.
Weinberg has been at the forefront of the evolution of PET, tracing his roots
back to the UCLA group that created the PET industry. Later, as a
practicing radiologist and entrepreneur, Dr. Weinberg designed and built the
first breast-specific PET scanner, which was able to detect the earliest form of
breast cancer better than any other modality.
Secured Convertible Notes
Payable
On May
26, 2006, the Company consummated a financing agreement for $2,000,000 (the
“Financing”) with private investors (the “Investors”) in the form of secured
convertible debentures in the aggregate amount of $2,000,000, with interest at
the rate of 6% and a maturity date of May 23, 2009 (the “Debentures”). 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) trading day period
prior to conversion. The “Applicable Percentage” is the equivalent of 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) 65% in the event that the Registration Statement becomes
effective within one hundred and twenty days from the Closing. The Company has
the right to repay principal and interest in cash, if the price of the Company’s
Common Stock is below $.20 on the last business day of a month. The
Company simultaneously issued to the Investors warrants to purchase 30,000,000
shares of Common Stock at an exercise price of $.15 per share (the
“Warrants”). The Warrants are exercisable for seven (7) years
following the Closing.
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POSITRON CORPORATION
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FORM
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The
Company agreed to filing a Registration Statement with the Securities and
Exchange Commission (“SEC”) for the shares of Common Stock underlying the
Debentures and Warrants within 30 days from the Closing Date. The Company
received the second traunch of the funding when the Registration Statement was
filed with the SEC and will receive the third and final traunch of the funding
when the Registration Statement is declared effective by the SEC. There are
penalty provisions for the Company should the filing not become effective within
120 days of the Closing Date. The Company, to satisfy the initial filing
requirement, filed a registration statement on behalf of the Investors on June
20, 2006, which was subsequently withdrawn, re-filed on Form SB2 and amended.
While the registration statement has not yet been declared effective, the
Investors have not given notice to the Company that is in default of the
requirements of the Registration Rights Agreement. The Debentures are secured by
the Company’s assets and intellectual property.
Item
2. Description of Property
The
Company is headquartered in Houston, Texas, where it currently leases an office
and warehouse . This facility lease is on a month-to-month basis at a monthly
rental rate of $4,671 monthly. The Company anticipates that the
facility will be sufficient for its 2008 operating
activities.
IPT
leases a facility in Ottawa, Ontario, Canada under an operating lease that
expires on July 31, 2008. Monthly rent for the Ottawa facility is approximately
$8,300.
Item 3. Legal Proceedings
From time
to time, the Company is involved in legal proceedings arising out of the regular
conduct of its business; none of which we deem to be material. The
Company is not currently a party to any legal proceedings, the adverse outcome
of which, in management’s opinion would have a materially adverse effect on our
results of operations or financial position.
Item
4. Submission of Matters to a Vote of Security Holders
None.
PART
II
Item
5. Market for Common Equity and Related Stockholder Matters
The
Company’s common stock is currently traded and quoted on the NASDAQ
OTC Bulletin Board under the symbol POSC. The Company’s common stock
was previously traded on the NASDAQ SmallCap Market
but was delisted in 1997 because the Company was unable to
comply with various financial and compliance requirements for continued
inclusion on the NASDAQ SmallCap Market. See “Item 1. Description of
Business – Risks Associated with Business Activities.”
The
following range of the high and low reported closing sales prices for the
Company’s common stock for each quarter in 2007 and 2006, all as reported on the
NASDAQ OTC Bulletin Board. These quotations reflect interdealer
prices, without retail mark-up, mark-down or commission and may not represent
actual transactions.
|
2007
|
2006
|
|||||||||||||||
|
High
|
Low
|
High
|
Low
|
|||||||||||||
|
First
Quarter
|
$ | 0.13 | $ | 0.08 | $ | 0.26 | $ | 0.08 | ||||||||
|
Second
Quarter
|
$ | 0.11 | $ | 0.09 | $ | 0.17 | $ | 0.11 | ||||||||
|
Third
Quarter
|
$ | 0.10 | $ | 0.06 | $ | 0.13 | $ | 0.07 | ||||||||
|
Fourth
Quarter
|
$ | 0.07 | $ | 0.04 | $ | 0.12 | $ | 0.06 | ||||||||
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There
were approximately 270 shareholders of record of common stock as of April 10,
2007, including broker-dealers holding shares beneficially owned by their
customers.
The
Company has never paid cash dividends on its common stock. The
Company does not intend to pay cash dividends on its common stock in the
foreseeable future. The Series A, B and G Preferred Stock Statements
of Designation prohibit the Company from paying any common stock dividends until
all required dividends have been paid on the Series A and any outstanding Series
B and G Preferred Stock. As of December 31, 2007 and 2006,
stated dividends that are undeclared and unpaid on the Series A Preferred Stock
totaled $524,000 and $485,000. Stated dividends that are undeclared and unpaid
on the Series G Preferred Stock totaled $89,000 and $44,000 as of December 31,
2007 and 2006, respectively.
Series G
Preferred
In 2006,
the Company issued 204,482 Units in a private placement. Each Unit consisted 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.
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 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 holders of shares of Series G
Preferred Stock are entitled to receive, when, as and if declared by the Board
of Directors of the Company at the annual rate of $0.40 per annum on each
outstanding share of Series G Preferred Such dividends shall cumulate from the
date issued and be paid when, as and if declared, annually on November 1st of each
year commencing on November 1, 2006. 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.
On April
11, 2007, holders of Series G Preferred Stock converted 93,091 shares into
9,390,100 shares of Positron Common Stock, par value $.01 per share. At December
31, 2007 111,391 shares of Series G Preferred Stock remain
outstanding.
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. .
The
Company and Imagin Diagnostic Centres, 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.
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POSITRON CORPORATION
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FORM
10-KSB
|
The
Company and Quantum Molecular Pharmaceuticals, Inc. (‘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 the Company’s securities owned by QMP.
On August
15, 2007, the Company consummated an exchange with holders of the Class A
Preferred Shares (the "Class A Shares") of the Registrant's wholly-owned
subsidiary, Imaging PET Technologies, Inc., an Ontario corporation
("IPT"). The Company issued 186,250 shares of its Series B
Convertible Redeemable Preferred Stock, par value $1.00 per share (the "Series
B"), and IPT exchanged 650,000 shares of its previously issued shares of Series
B, to holders of IPT's Class A Shares (the "Class A Holders"). The
Class A Holders had previously subscribed for the Class A Preferred Shares in an
offering pursuant to the exemptions under the Canadian securities
law.
As of
December 31, 2007, 5,926,111 shares of Series B Preferred Stock were
outstanding
The
Company’s equity plan information required by this item is set forth under Item
11 of Part III below.
Item
6.
Management’s
Discussion and Analysis or Plan of Operation
General
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. Since the commencement of commercial operations, 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.
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.
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. On January 26, 2007, IPT acquired all of the outstanding capital
stock of QMT from Positron for the purchase price of $2,800,000 in the form of a
promissory note.
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FORM
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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.
Results
of Operations
Consolidated
results of operations for the year ending December 31, 2007 include Positron and
its wholly-owned subsidiary IPT, including IPT’s wholly-owned subsidiary
QMT.
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 revenues of $3,309,000 in 2007, of which $1,991,000 were from sales of
IS2 gamma cameras. Service revenue totaled $1,215,000 of which
$762,000 was for service of Positron’s PET systems. In 2006 service
revenue of PET systems was $720,000. The increase in service revenue
is attributed to two additional maintenance contracts for refurbished machines,
one of which was sold in the current year and the other in 2006. Total revenues
also include the $80,000 sales of parts and materials to NPMS.
Costs of
Sales - Costs of sales increased by $1,505,000 to $2,928,000 for the year
ended December 31, 2007 from $1,423,000 for the year ended December 31,
2006. Cost of sales related to gamma cameras sold was $1,892,000 in
2007. The Company incurred service revenue costs of $1,036,000
and $721,000 in 2007 and 2006, respectively. Cost of service for PET
systems was $690,000 and $819,000 for the years ended December 31, 2007 and
2006, respectively. The decrease can be attributed to three customers that did
not renew maintenance agreements for their systems during 2007. Cost
of service of gamma cameras approximated $450,000. Cost of sales
includes a write down of obsolete inventory of $267,000.
Operating
Expenses - The
Company’s operating expenses increased $2,990,000 to $7,593,000 for the year
ended December 31, 2007 compared to $4,603,000 in 2006. The increase
is attributable in large part to an impairment charge of $2,592,000 taken
against goodwill recorded related to the acquisition of the remaining 50.1% of
IPT in January of 2007. (See additional discussion below).
Selling,
general and administrative expenses increased $571,000 to $3,640,000 from
$3,069,000 in the prior year. The acquisition of the remainder of IPT and
inclusion of twelve month’s of its expenses is the primary reason for the
increase. IPT’s selling, general and administrative expenses in 2007
were $1,758,000 compared to $1,008,000 in 2006. Positron’s recorded
selling, general and administrative costs of $1,882,000 in 2007 compared to
$2,104,000 in 2006, a decrease of 10.6% from the prior year. A large
part of the decrease is due to a drop in amounts paid to marketing
consultants. During the year ended December 31, 2006, the Company
incurred marketing consulting expenses of $308,000 compared to $90,000 in the
current year. Stock based compensation expense related to stock
options issued and included in selling, general and administrative expense in
2007 and 2006 was $412,000 and $430,000, respectively. The Company did not issue
any stock options during 2007.
Research
and development expenses for the year ended December 31, 2007 increased $196,000
to $1,361,000 from $1,165,000 for the year ended December 31, 2006. IPT’s
research and developments costs, which include QMT, were $822,000 in 2007
compared $584,000 for the combined companies in 2006. 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 were $538,000
and $581,000 for the years ended December 31, 2007 and 2006,
respectively. The decrease is due primarily to drops in salary and
related expense. Modernization expense related to NPMS joint venture totaled
$81,000 and $95,000 in 2007 and 2006, respectively.
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Operating
expenses in 2007 include a charge for impairment of the intangible asset
recorded related to the acquisition of the remaining 50.1% of IPT during the
first quarter of 2007. At the date of acquisition the Company recorded the
excess of purchase price over the fair value of the net assets as goodwill.
Total goodwill recorded was $2,592,000.
SFAS 142
requires that goodwill be tested for impairment annually, utilizing the “fair
value” methodology. Since the acquisition was made in January, the Company
elected to adopt December 31 as the date for the annual impairment test. The
Company used an income approach to determine the fair value of IPT (the
reporting unit). Under the income approach, the fair value of a
reporting unit is calculated based on the present value of estimated future cash
flows. After performing the tests required under SFAS 142, it was determined
that the carrying value exceeded the fair value of the reporting unit and
resulted in the full impairment of goodwill balance.
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.
Other Income
(Expenses) -.Interest expense was
$199,000 and $860,000 for the years ended December 31, 2007 and 2006,
respectively. Interest expense in 2006 included interest on 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.
Derivative
losses for the year ended December 31, 2007 totaled $386,000 compared to
$1,784,000 in 2006 when the debentures were issued and the fair value of the
embedded derivatives was initially determined and recorded.
For the
year ended December 31, 2007, the Company recorded equity in the losses of the
NPMS joint venture in the amount of $23,000. As of December 31, 2007
the Company’s investment in NPMS had been written down to zero. For the year
ended December 31, 2006 the Company recorded equity in the losses
of two joint ventures, IPT and NPMS, of $373,000. IPT is now a
wholly-owned subsidiary of Positron and its results of operations are included
in the consolidated statement of operations.
Income Taxes
– There is no
provision for income taxes due to ongoing operating losses. As of December 31,
2007, we had net operating loss carryforwards of approximately $22,000,000 for
Federal reporting purposes. These amounts expire at various times through 2027.
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, 2007 and 2006.
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.
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 during the year ended December 31, 2006 was $241,000.
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Net Operating
Loss - For the
year ended December 31, 2007, the Company had a net loss of $7,780,000, or $0.08
per share, of which $5,408,000 was from domestic operations and $2,372,000 was
generated in Canada, compared to a net loss of $6,586,000, or $0.06 per share,
for the year ended December 31, 2006, of which $5,657,000 was from domestic
operations and $929,000 was generated in Canada. The increase is due primarily
to the impairment charge for the full write-down of goodwill recorded upon the
acquisition of IPT in January 2007 and the inclusion of the Canadian operations
for a full year.
Liquidity
and Capital Reserves
The
Company had cash and cash equivalents of $192,000 on December 31,
2007. On the same date, accounts payable and accrued liabilities
outstanding totaled $2,314,000. The Company sold $1,991,000 of gamma
cameras through IPT but did not sell any PET imaging systems during the year
ended December 31, 2007. Increased camera sales, sales of imaging systems and/or
additional debt or equity financings will 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 $76,605,000 at December 31, 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 material cost of goods and
labor costs will be significantly lower. In addition, the Company expects
increased revenue from its IPT SPECT camera subsidiary to come from new sales
campaigns and the 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, 2007, 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
Advance from Related
Party
During
the year ended December 31, 2007, the Company received non-interest bearing
advances from IMGM totaling $1,346,000. Positron’s President and
Director, Joseph Oliverio and its Chief Financial Officer and Director, Corey
Conn are both officers and directors of IMGM.
Acquisition of IMAGIN
Interest in IPT
On
January 26, 2007, the Company executed and consummated a Securities Purchase
Agreement (the “Agreement”) with IDC, 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,
Quantum and later assigned to IDC. 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
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FORM
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New
Accounting Pronouncements
In
September 2006, the FASB issued Statement of Financial Accounting Standards No.
157, Fair Value Measurements. SFAS No. 157 provides enhanced guidance for using
fair value to measure assets and liabilities. The standard also requires
expanded disclosures about the extent to which companies measure assets and
liabilities at fair value, the information used to measure fair value and the
effect of fair value measurements on earnings. SFAS No. 157 is effective for
financial statements issued for fiscal years beginning after November 15, 2007,
and interim periods within those fiscal years. The Company does not expect the
adoption of Statement No. 157 to materially impact the Company’s financial
statements.
In
February 2007, the FASB issued SFAS No. 159 "The Fair Value Option for Financial
Assets and Financial Liabilities". SFAS No. 159 permits entities to choose, at
specified election dates, to measure eligible items at fair value (the "fair
value option"). A business entity shall report unrealized gains and losses on
items for which the fair value option has been elected in earnings at each
subsequent reporting date. The objective is to improve financial reporting by
providing entities with the opportunity to mitigate volatility in reported
earnings caused by measuring related assets and liabilities differently without
having to apply complex hedge accounting provisions. SFAS No. 159 is effective
as of the beginning of an entity's first fiscal year that begins after November
15, 2007. Early adoption is permitted as of the beginning of a fiscal year that
begins on or before November 15, 2007, provided the entity also elects to apply
the provisions of SFAS No. 157, "Fair Value Measurements". . The
Company does not expect the adoption of Statement No. 159 to materially impact
the Company’s financial statements.
In
December 2007, the FASB issued SFAS No. 141(R), 'Business Combinations -
Revised,' that improves the relevance, representational faithfulness, and
comparability of the information that a reporting entity provides in its
financial reports about a business combination and its effects. To accomplish
that, this statement establishes principles and requirements how the acquirer
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, and any non-controlling interest in the
acquiree, recognizes and measures the goodwill acquired in the business
combination or a gain from a bargain purchase, and determines what information
to disclose to enable users of the financial statements to evaluate the nature
and financial effects of the business combination. The changes to current
practice resulting from the application of SFAS No. 141(R) are effective for
financial statements issued for fiscal years beginning after December 15, 2008.
The adoption of SFAS No. 141(R) before December 15, 2008 is prohibited. The
Company has not determined the effect, if any, that may result from the adoption
of SFAS No. 141(R) on its financial statements.
Management
does not believe that any other recently issued, but not yet effective
accounting pronouncements, if adopted, would have a material effect on the
accompanying 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.
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Impairment
of Intangible Assets
Under
FASB Statement No. 142, Goodwill and Other Intangible Assets
(“SFAS 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. Other identifiable intangible assets are amortized over their
estimated useful lives. SFAS 142 requires that goodwill be tested for impairment
annually, utilizing the “fair value” methodology. The Company has adopted
December 31st as the date of the annual impairment test for
goodwill.
Based
on the Company’s annual review of goodwill in 2007, the Company recorded an
impairment charge of $2,592,256, for the IPT reporting unit and represented the
entire goodwill balance.
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.
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.
Item
7. Financial Statements
The
required Financial Statements and the notes thereto are contained in a separate
section of this report beginning with the page following the signature
page.
Item 8. Changes in and Disagreements with
Accountants on
Accounting
and Financial Disclosure
None.
Item
8A(T). Controls and Procedures
Evaluation
of Disclosure Controls and Procedures.
We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our reports filed in accordance with the
Securities Exchange Act of 1934, as amended (the “Exchange Act”)is recorded,
processed, summarized, and reported within the time periods specified in the
SEC’s rules and forms, and that such information is accumulated and communicated
to management, including our Chief Executive Officer and our Chief Financial
Officer, as appropriate, to allow timely decisions regarding required disclosure
based closely on the definition of “disclosure controls and procedures” in
applicable securities laws.
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As
required by Rule 13a-15 of the Exchange Act, as of the end of the period covered
by this Annual Report Form 10-KSB report, we carried out an evaluation, under
the supervision and with participation of our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures. Based on the foregoing, our Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls and
procedures were effective as of the end of the period covered by this report to
provide reasonable assurance that material information required to be disclosed
by us in reports that we file or submit under the Exchange Act is recorded,
processed, summarized, and reported within the time periods specified in SEC
rules and forms.
Management
is aware that there is a lack of segregation of duties due to the small number
of employees dealing with general administrative and financial matters. However,
at this time, management has decided that considering the employees involved,
the control procedures in place, and the outsourcing of certain financial
functions, the risks associated with such lack of segregation are low and the
potential benefits of adding additional employees to clearly segregate duties do
not justify the expenses associated with such increases. Management will
periodically reevaluate this situation. If the volume of the business increases
and sufficient capital is secured, it is our intention to increase staffing to
mitigate the current lack of segregation of duties within the general
administrative and financial functions.
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.
Because of the inherent limitations in all control systems no evaluation of
controls can provide absolute assurance that all control issues, if any, within
a company have been detected. Such limitations include the fact that human
judgment in decision-making can be faulty and that breakdowns in internal
control can occur because of human failures, such as simple errors or mistakes
or intentional circumvention of the established process.
Management’s
Report on Internal Control Over Financial Reporting; Changes in Internal
Controls Over Financial Reporting.
During
the year ended December 31, 2007, there have been no changes in our
internal control over financial reporting that have materially affected, or are
reasonably likely to materially affect, these controls.
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting. Our management, including our principal
financial officer, has, with the assistance of external consultant, conducted an
evaluation of the effectiveness of our internal control over financial
reporting. Based on our evaluation, we have concluded that our internal controls
over financial reporting were effective as of December 31,
2007.
This
Annual Report on Form 10-KSB does not include an attestation report of the
Company’s registered public accounting firm regarding internal control over
financial reporting. Management’s report was not subject to attestation by the
Company’s registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit the Company to provide only
management’s report in this Annual Report on Form 10-KSB.
Item
8B. Other Information
During the year ended December 31, 2007, the Company and
its wholly-owned subsidiary Imaging Pet Technologies were advanced funds from
Imagin Molecular Corporation, a publicly
owned Delaware corporation and affiliate of the Company (“Imagin”). Imagin’s Chief
Executive Officer and Director, Joseph Oliverio and its Chief Financial Officer
and Director, Corey Conn are both officers and directors of Positron
Corporation. At December 31, 2007 the outstanding amount
due to Imagin from
Positron is $1,346,000. On April 10, 2008, the Company executed a
promissory note in favor of Imagin for the full amount of the advances with
interest at the rate of eight percent (8%) per annum, due and payable on December 31,
2008. The repayment of the note is secured by a pledge of 100,000,000
shares of the Company’s Common Stock (the “Pledged Stock”). If we are unable to repay the note, Imagin
may sell a portion or all of the Pledged Stock to recover
any unpaid principal, interest, fees and disbursement. The sale of
such a large number of shares would likely have a material and adverse affect
upon the price of our Common Stock.
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FORM
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PART
III
Item
9. Directors, Executive Officers, Promoters and Control
Persons;
Compliance
with Section 16(a) of the Exchange Act
The
following table sets forth: (1) names and ages of all persons who presently are
and who have been selected as directors of the Registrant; (2) all positions and
offices with the Registrant held by each such person; (3) any period during
which he or she has served a such:
|
Name
|
Age
|
Position with the
Company
|
|
Patrick G. Rooney
|
45
|
Chairman
of the Board – Elected 2004
|
|
Joseph G. Oliverio
|
38
|
President
and Director – Elected 2006
|
|
Corey N. Conn
|
46
|
Chief
Financial Officer and Director – Elected 2008
|
|
Timothy M. Gabel
|
38
|
Vice
President of Operations
|
|
Sachio Okamura
|
56
|
Director
– Elected 2001
|
|
Dr. Anthony
(Tony) C. Nicholls
|
59
|
Director
– Elected 2005
|
|
Joseph C. Sardano
|
57
|
Director
– Elected 2008
|
Directors
are elected annually and serve until the next annual meeting and until his
successor has been elected and qualified, or until his earlier death,
resignation or removal.
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 was the Managing Director of 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. Mr. Oliverio also serves as the Chief
Executive Officer of Imagin Molecular Corporation, a publicly-owned Delaware
corporation, and affiliate of the Registrant. 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. 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. 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.
Corey N.
Conn. Mr. Conn was appointed by the Board of Directors to
serve as Chief Financial Officer in 2005 and was elected as a Director on
January 2, 2008. Mr. Conn also serves as the Chief Financial Officer of Imagin
Molecular Corporation, a publicly-owned Delaware corporation, and affiliate of
the Registrant. 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. Mr. Conn
served as a member of the Board of Directors of Uniloc, Inc., from April 2000 to
July 2002. Mr. Conn received a Bachelor’s Degree in Business Administration from
Bradley University
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Timothy M. Gabel
has served at the Vice President of Operations for Positron Corporation
since March of 2006. Prior hereto and from 1996, Mr. Gabel
specialized in international business, international technical project
management, product research and development, lean manufacturing implementation,
and product design with the automotive components supplier, Delphi
Corporation. His experience includes technology transfer, and joint
venture partnership development with companies in China, Japan, Mexico and
Europe. Mr. Gabel holds four U.S. patents, and earned his Bachelor’s of Science
in Mechanical Engineering from the State University of New York at
Buffalo.
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.
Joseph C.
Sardano – Director: Mr. Sardano served as a Senior Vice President of
Sales and Marketing at Siemens Medical Solutions and CTI Molecular Imaging
before becoming a strategic industry consultant and serving on the board of
directors of various medical imaging companies. Mr. Sardano has served as CTI’s
Senior Vice President of Sales and Marketing since September 2004. In this
capacity, he lad the sales and marketing activities for all business units of
CTI, including the sales of scanners under the sales agency agreement with
Siemens Medical Solutions USA, Inc. Previously, Mr. Sardano served as Vice
President of Sales for CTI Solutions from September 2002 to September 2004.
Prior to joining CTI, Mr. Sardano held several key positions in the medical
industry. He was with GE Medical Systems where he served as Region Sales Manager
from 1999 to 2000 and as P.E.T. Americas Sales Manager from 2001 to 2002. Prior
to that, Mr. Sardano served as Vice President Sales for Elscint Inc., and Vice
President and General Sales Manager for Fisher Scientific. He has also served in
various management capacities with Toshiba America Medical Systems, Medstone
International and Xerox Corporation. Mr. Sardano holds a Bachelor of Arts degree
from Concordia University in Montreal , Canada and an Executive Business
Development Diploma from McGill University .
Item
10. 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, 2007,and 2006. 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.
- 23
-
|
FY 2007
|
POSITRON CORPORATION
|
FORM
10-KSB
|
|
Name and Principal Position
|
Year
|
Salary (a)
|
Bonus
|
Restricted Stock Awards
|
Option Awards
|
Nonequity incentive plan
comp
|
All Other Compensation
|
Total
|
||||||||||||||||||||||
|
Patrick G. Rooney
|
2007
|
$ | 86,629 | -- | -- | $ | 143,556 | -- | -- | $ | 230,185 | |||||||||||||||||||
|
Chairman of the Board
|
2006
|
-- | -- | -- | $ | 111,290 | -- | $ | 110,000 | $ | 221,290 | |||||||||||||||||||
|
Joseph G. Oliverio
|
2007
|
$ | 156,250 | -- | -- | $ | 93,348 | -- | -- | $ | 249,598 | |||||||||||||||||||
|
President
|
2006
|
$ | 135,000 | -- | -- | $ | 228,179 | -- | -- | $ | 363,179 | |||||||||||||||||||
|
Corey N. Conn
|
2007
|
$ | 103,158 | -- | -- | $ | 114,800 | -- | -- | $ | 217,958 | |||||||||||||||||||
|
Chief Financial Officer
|
2006
|
$ | 96,000 | -- | -- | $ | 89,032 | -- | -- | $ | 185,032 | |||||||||||||||||||
|
Timothy M. Gabel
|
2007
|
$ | 102,833 | -- | -- | $ | 57,400 | -- | -- | $ | 160,233 | |||||||||||||||||||
|
Vice President of
Operations
|
2006
|
$ | 74,000 | -- | -- | $ | 22,858 | -- | -- | $ | 96,858 | |||||||||||||||||||
|
Griffith L. Miller II (b)
|
2007
|
-- | -- | -- | -- | -- | -- | -- | ||||||||||||||||||||||
|
President, and COO
|
2006
|
$ | 55,000 | -- | -- | -- | -- | -- | $ | 55,000 | ||||||||||||||||||||
|
(a)
|
Amounts
shown include cash compensation earned with respect to the year shown
above.
|
|
(b)
|
Mr.
Miller resigned in August
2006.
|
Employment
Agreements
The
Company has an employment agreement with Joseph G. Oliverio, President of the
Company. Mr. Oliverio receives a base salary of
$150,000. Mr. Oliverio has 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
upon a termination "without cause".
- 24
-
|
FY 2007
|
POSITRON CORPORATION
|
FORM
10-KSB
|
Equity
Compensation Plan Information
The
following table summarizes share and exercise information about the Company's
equity compensation plans as of December 31, 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
|
19,425,000 | $ | 0.06 | 25,525,000 | (1) | |||||||
|
(1)
|
Includes
3,725,000 shares available for issuance under the 1999 Stock Option Plan,
300,000 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 and 21,000,000 shares available under
the 2005 Amended and Restated 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 2007, 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 December 31, 2007, 225,000 options are outstanding,
of which 203,646 are vested.
- 25
-
|
FY 2007
|
POSITRON CORPORATION
|
FORM
10-KSB
|
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 December 31, 2007, 200,000 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
December 31, 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 December 31, 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 December 31, 2007, a total of 19,000,000 options have been
granted under the 2005 Plan, none of which have been exercised, and of
which 18,500,000 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 December 31,
2007, all shares available under the 2006 Plan had been issued
to.
- 26
-
|
FY 2007
|
POSITRON CORPORATION
|
FORM
10-KSB
|
2007
Omnibus Securities and Incentive Plan
Positron's
Board of Directors (the “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 Awards
including any Distribution Equivalent Right, Option, Performance Share Award,
Performance Unit Award, Restricted Stock Award, Stock Appreciation Right or
Unrestricted Stock Award to key management employees, non-employee directors and
non-employee 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 2007
Plan. As of December 31, 2007, all shares under the 2007 Plan had
been issued to consultants.
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, 2007.
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 2007 or 2006.
Compensation
of Directors
Directors
who are also employees of the Company receive no fees for services provided in
that capacity, but are reimbursed for out-of-pocket expenses incurred in
connection with attendance at meetings of the Board of Directors and its
committees.
- 27
-
|
FY 2007
|
POSITRON CORPORATION
|
FORM
10-KSB
|
Non-Employee
Director Compensation
Beginning
January 22, 1999 through current date, non-employee directors were not
separately compensated for their services on the Board although they continued
to be reimbursed for their reasonable expenses associated with attending board
and committee meetings.
Historically,
each non-employee director was eligible to receive an initial option to purchase
25,000 shares of Common Stock under the Company's 1999 Non-Employee Directors'
Stock Option Plan upon their election or appointment to the Board. The exercise
price is equal to 85% of the fair market value of the Common Stock on the date
of grant. In addition, so long as the Plan is in effect and there are shares
available for grant, each director in service on January 1 of each year
(provided the director has served continuously for at least the preceding 30
days) is eligible to receive an option to purchase 25,000 shares of Common Stock
at an exercise price equal to 85% of the fair market value
of the Common Stock on the date of grant. Initial options as well as annual
options granted under the Plan are subject to one or two schedules, either
vesting over four years or vesting fully on the date of grant. In the latter
event, the Common Stock acquired upon exercise of such options are subject to a
right of repurchase in favor of the Company which lapses in four equal annual
installments, beginning on the first anniversary of the date of grant. The
Company anticipates, subject to shareholder approval, that future grants to
non-employee directors may be made under the 2005 Stock Incentive Plan with
exercise prices for such grants equal to 100% of the fair market value of the
Common Stock on the date of grant.
Item
11. Security Ownership of Directors, Officers and Certain Beneficial
Owners
The
following tables, based in part upon information supplied by officers, directors
and principal shareholders, set forth certain information regarding the
beneficial ownership of the Company's voting securities by (i) all those known
by the Company to be beneficial owners of more than 5% of the Company's voting
securities; (ii) each director (iii) the Company's Chief Executive Officer and
the four other highest paid executive officers (the "Named Executive Officers");
and (iv) the directors and executive officers as a group.
Security
Ownership of Certain Beneficial Owners(a)
|
Name and Address of Beneficial
Owner
|
Number of Shares of Common
Stock
|
% of Outstanding Common Stock(b)(c)
|
||||||
|
IMAGIN
Diagnostic Centres, Inc.
|
460,299,250 | (d) | 66.2 | % | ||||
|
Positron
Acquisition Corp.
|
80,261,800 | (e) | 11.5 | % | ||||
|
(a)
|
Security
ownership information for beneficial owners is taken from statements filed
with the Securities and Exchange Commission pursuant to Sections 13(d),
13(g) and 16(a) and/or information made known to the
Company.
|
|
(b)
|
Based
on 102,555,302 shares of Common Stock outstanding on April 14,
2008.
|
|
(c)
|
The
percentage of outstanding Common Stock assumes full conversion Convertible
Series A and B Preferred Stock into Common Stock and is based on the
Company's outstanding shares of Common Stock as of April 14 ,
2007.
|
|
(d)
|
Includes
18,974,000 shares owned directly, shares issuable upon full conversion of
4,367,503 shares of Series B Preferred Stock into Common Stock, and
4,575,000 shares that may be acquired pursuant to warrants that are or
will become exercisable within 60 days of April 10, 2007. The
address for IMAGIN is 5160 Yonge Street, Suite 300, Toronto, Ontario,
M2N 6L9.
|
|
(e)
|
Includes
8,026,000 shares owned directly and shares issuable upon full
conversion of 722,358 shares of Series B Preferred Stock into Common
Stock. The address for Positron Acquisition Corp. is 104 W. Chestnut
Street #315, Hinsdale,
Illinois 60521.
|
- 28
-
|
FY 2007
|
POSITRON CORPORATION
|
FORM
10-KSB
|
Security
Ownership of Directors, Director Nominees and Executive Officers
|
Title of Class
|
Name of Beneficial Owner
|
Beneficial Ownership (aa) (cc)
|
Percent of Class (bb)
|
|||
|
Common
|
Joseph G. Oliverio
|
7,500,000 (cc)
|
6.2 | % | ||
|
Common
|
Sachio Okamura
|
625,000 (dd)
|
* | |||
|
Common
|
Patrick G. Rooney
|
5,075,000 (ee)
|
4.2 | % | ||
|
Common
|
Dr. Anthony C. Nicholls
|
550,000 (ff))
|
* | |||
|
Common
|
Corey N. Conn
|
4,000,000
(gg))
|
3.3 | % | ||
|
Common
|
Timothy M. Gabel
|
1,000,000 (hh)
|
* | |||
|
Common
|
All
Directors and Executive Officers as a Group
|
18,750,000
|
15.4 | % | ||
|
*
|
Does
not exceed 1% of the referenced class of
securities.
|
|
(aa)
|
Ownership
is direct unless indicated
otherwise.
|
|
(bb)
|
Calculation
based on 102,555,302 shares of Common Stock outstanding as of April 14,
2008 plus stock options that are or will become exercisable within 60 days
of April 14, 2008.
|
|
(cc)
|
Includes
7,500,000 shares that may be acquired by Mr. Oliverio pursuant to stock
options that are or will become exercisable within 60 days of April 14,
2008.
|
|
(dd)
|
Includes
625,000 shares that may be acquired by Mr. Okamura pursuant to stock
options that are or will become exercisable within 60 days of April 14,
2008.
|
|
(ee)
|
Includes
5,075,000 shares that may be acquired by Mr. Rooney pursuant to stock
options that are or will become exercisable within 60 days of April 14,
2008.
|
|
|
(ff)
|
Includes
550,000 shares that may be acquired by Mr. Nicholls pursuant to options
that are or will be exercisable within 60 days of April 14,
2008.
|
|
(gg)
|
Includes
4,000,000 shares that may be acquired by Mr. Conn pursuant to stock
options that are or will become exercisable within 60 days of April 10,
2008.
|
|
(hh)
|
Includes
1,000,000 shares that may be acquired by Mr. Gabel pursuant to stock
options that are or will become exercisable within 60 days of April 14,
2008.
|
The address for all officers and
directors of the Company is 1304 Langham Creek Drive, Suite 300, Houston Texas,
77084.
Item
12. Certain Relationships and Related Transactions
During the year ended December 31, 2007, the Company and
its wholly-owned subsidiary Imaging Pet Technologies were advanced funds from
Imagin Molecular Corporation, a publicly owned Delaware
corporation and affiliate of the Company
(“Imagin”). Imagin’s Chief Executive Officer and Director,
Joseph Oliverio and its Chief Financial Officer and Director, Corey Conn are
both officers and directors of Positron Corporation. At December 31,
2007 the outstanding amount due the Imagin from
Positron is $1,346,000. On April 10, 2008, the Company executed a
promissory note in favor of Imagin for the full amount of the advances with
interest at the rate of eight percent (8%) per annum, due and payable on
December 31, 2008. The repayment of the note is secured by a pledge
of 100,000,000 shares of the Company’s Common Stock (the “Pledged
Stock”). If we are unable to repay the note, Imagin may sell a
portion or all of the Pledged Stock to recover any unpaid principal, interest,
fees and disbursement. The sale of such a large number of shares would
likely have a material and adverse affect upon the price of our Common
Stock.
- 29
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|
FY 2007
|
POSITRON CORPORATION
|
FORM
10-KSB
|
Item
13. Exhibits
|
(a)
|
Exhibits
|
|
10.1
|
Promissory
Note in favor of Imagin Molecular Corporation dated April 10,
2008
|
|
10.2
|
Stock
Pledge Agreement with Imagin Molecular Corporation dated April 10,
2008.
|
|
Chairman
of the Board Certification of Periodic Financial Report Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
|
||
|
Chief
Financial Officer Certification of Periodic Financial Report Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
|
||
|
Chairman
of the Board Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to section 906 of the Sarbanes-Oxley Act of 2002
|
||
|
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
|
|
†
|
Management
contract or compensatory plan or arrangement identified pursuant to Item
13(a).
|
|
|
*
|
Filed
herewith
|
|
|
#
|
Furnished
herewith
|
|
|
(b)
|
Reports
on Form 8-K
|
There
were no current reports on Form 8-K for the quarter ending December 31,
2007.
Item
14. Principal Accountant Fees and Services
On May
30, 2006, Ham, Langston & Brezina, L.L.P. (“HLB”), the Registrant’s
accountants informed the Registrant that they were resigning as the Registrant’s
certifying independent accountants.
On July
10, 2006, Positron Corporation (the "Registrant") engaged Frank L. Sassetti
& Co. to be its independent registered public accounting firm. The
Registrant's engagement of Frank L. Sassetti & Co. was approved by the
Registrant's Board of Directors.
The
following table shows the fees billed to the Company for the audits and other
services provided by Frank L. Sassetti & Co. and Ham, Langston &
Brezina, L.L.P. for fiscal 2007 and 2006.
|
Fiscal 2007
|
Fiscal 2006
|
|||||||
|
Audit
fees (1)
|
$ | 36,573 | $ | 25,511 | ||||
|
Audit-related
fees
|
-- | -- | ||||||
|
Tax
fees
|
-- | -- | ||||||
|
All
other fees
|
-- | -- | ||||||
|
1)
|
Audit
fees represent fees for professional services provided in connection with
the audit of our financial statements and review of our quarterly
financial statements and audit services provided in connection with other
statutory or regulatory filings.
|
All audit
related services, tax services and other services are and were pre-approved by
the Company's Board of Directors, which concluded that the provision of such
services by Frank L. Sassetti & Co. were compatible with the maintenance of
that firm's independence in the conduct of its auditing functions.
- 30
-
|
FY 2007
|
POSITRON CORPORATION
|
FORM
10-KSB
|
SIGNATURES
In
accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
POSITRON
CORPORATION
|
|||
|
Date:
April 14, 2008
|
By:
|
/s/ Patrick G. Rooney
|
|
|
Patrick G. Rooney
|
|||
|
Chairman
of the Board
|
POWER
OF ATTORNEY
Each
person whose signature appears below hereby constitutes and appoints Patrick G.
Rooney, his attorney-in-fact, with the power of substitution, for him in any and
all capacities, to sign any amendments to this Report on Form 10-KSB, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting to said
attorney-in-fact, or his substitute or substitutes, the power and authority to
perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact, or
his substitute or substitutes, may do or cause to be done by virtue
hereof.
In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
|
/s/
Patrick G. Rooney
|
April
14, 2008
|
|
Patrick G. Rooney
|
|
|
Chairman
of the Board
|
|
|
/s/
Joseph G. Oliverio
|
April
14, 2008
|
|
Joseph G. Oliverio
|
|
|
President
|
|
|
(principal
executive officer)
|
|
|
/s/
Corey N. Conn
|
April
14, 2008
|
|
Corey N. Conn
|
|
|
Chief
Financial Officer
|
|
|
(principal
accounting officer)
|
|
|
Director
|
|
|
/s/
Sachio Okamura
|
April
14, 2008
|
|
Sachio Okamura
|
|
|
Director
|
|
|
/s/
Dr. Anthony C. Nicholls
|
April
14, 2008
|
|
Dr. Anthony
C. Nicholls
|
|
|
Director
|
|
|
/s/
Joseph C. Sardano
|
April
14, 2008
|
|
Joseph
C. Sardano
|
|
|
Director
|
- 31
-
|
FY 2007
|
POSITRON CORPORATION
|
FORM
10-KSB
|
POSITRON
CORPORATION AND SUBSIDIARIES
____________
FINANCIAL
STATEMENTS
WITH
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
for
the years ended December 31, 2007 and 2006
- 32
-
|
FY 2007
|
POSITRON CORPORATION
|
FORM
10-KSB
|
FINANCIAL
STATEMENTS
TABLE
OF CONTENTS
__________
|
Page
|
|
|
Report
of Independent Registered Public Accounting Firms
|
34
|
|
Consolidated
Balance Sheet as of December 31, 2007 and 2006
|
35
|
|
Consolidated
Statements of Operations and Comprehensive Income for the years ended
December 31, 2007 and 2006
|
36
|
|
Consolidated
Statements of Stockholders’ Deficit for the years ended December 31, 2007
and 2006
|
37-40
|
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2007 and
2006
|
41
|
|
Notes
to Consolidated Financial Statements
|
42
|
- 33
-
|
FY 2007
|
POSITRON CORPORATION
|
FORM
10-KSB
|
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 sheets of Positron Corporation as of
December 31, 2007and 2006 and the related statements of operations and
comprehensive income, stockholders' equity, and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We
conducted our audits in accordance with 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 audits provide a
reasonable basis for our opinion.
In
our opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Positron Corporation as of December
31, 2007 and 2006, and the results of its operations and its cash flows for the
years then ended, 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.
April 11,
2008
Oak Park,
Illinois
6611 W.
North Avenue * Oak Park, Illinois 60302 * Phone (708) 386-1433 * Fax (708)
386-0139
- 34
-
|
FY 2007
|
POSITRON CORPORATION
|
FORM
10-KSB
|
POSITRON
CORPORATION AND SUBSIDIARY
CONSOLIDATED
BALANCE SHEET
December
31, 2007 and 2006
(In
thousands, except share data)
|
ASSETS
|
2007
|
2006
|
||||||
|
Current
assets:
|
||||||||
|
Cash
and cash equivalents
|
$ | 192 | $ | 115 | ||||
|
Accounts
receivable
|
222 | 208 | ||||||
|
Inventories
|
1,172 | 1,493 | ||||||
|
Due
from affiliates
|
355 | 2,955 | ||||||
|
Prepaid
expenses
|
106 | 115 | ||||||
|
Other
current assets
|
24 | 63 | ||||||
|
Total
current assets
|
2,071 | 4,949 | ||||||
|
Investment
in Joint Venture
|
-- | 23 | ||||||
|
Property
and equipment, net
|
56 | 64 | ||||||
|
Other
assets
|
150 | 235 | ||||||
|
Total
assets
|
$ | 2,277 | $ | 5,271 | ||||
|
LIABILITIES
AND STOCKHOLDERS’
DEFICIT
|
||||||||
|
Current
liabilities:
|
||||||||
|
Accounts
payable, trade and accrued liabilities
|
$ | 2,314 | $ | 2,627 | ||||
|
Customer
deposits
|
397 | 241 | ||||||
|
Unearned
revenue
|
90 | 146 | ||||||
|
Due
to affiliates
|
1,346 | 507 | ||||||
|
Total
current liabilities
|
4,147 | 3,521 | ||||||
|
Obligation
under capital lease
|
13 | 7 | ||||||
|
Convertible
notes payable, less discount of $1,165 and $1,272
|
135 | 28 | ||||||
|
Deposits
for unissued preferred stock
|
375 | 850 | ||||||
|
Derivative
liabilities for convertible debentures
|
2,550 | 2,165 | ||||||
|
Majority
interest in income of consolidated subsidiary
|
-- | (168 | ) | |||||
|
Total
liabilities
|
7,220 | 6,403 | ||||||
|
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; 5,926,111 and 5,739,861 shares issued and
outstanding
|
5,926 | 5,740 | ||||||
|
Series
C Preferred Stock: $1.00 par value; 6% cumulative, convertible,
redeemable; 840,000 shares authorized
|
-- | -- | ||||||
|
Series
G Preferred Stock: $1.00 par value; 8% cumulative, convertible,
redeemable; 3,000,000 shares authorized; 111,391 and 204,482 shares issued
and outstanding
|
29 | 52 | ||||||
|
Common
stock: $0.01 par value; 800,000,000 shares authorized; 102,555,302 and
86,205,202 shares outstanding.
|
1,026 | 862 | ||||||
|
Additional
paid-in capital
|
64,314 | 60,552 | ||||||
|
Other
comprehensive income
|
(82 | ) | 38 | |||||
|
Accumulated
deficit
|
(76,605 | ) | (68,825 | ) | ||||
|
Treasury
Stock: 60,156 shares at cost
|
(15 | ) | (15 | ) | ||||
|
Total
stockholders’ deficit
|
(4,943 | ) | (1,132 | ) | ||||
|
Total
liabilities and stockholders’ deficit
|
$ | 2,277 | $ | 5,271 | ||||
See notes
to financial statements
- 35
-
|
FY 2007
|
POSITRON CORPORATION
|
FORM
10-KSB
|
POSITRON
CORPORATION AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
For
the years ended December 31, 2007 and 2006
(In
thousands, except per share data)
|
2007
|
2006
|
|||||||
|
Sales
|
3,309 | 2,213 | ||||||
|
Costs
of sales
|
2,928 | 1,423 | ||||||
|
Gross
profit
|
381 | 790 | ||||||
|
Selling,
general and administrative
|
3,640 | 3,069 | ||||||
|
Research
and development
|
1,361 | 1,165 | ||||||
|
Impairment
of intangible asset
|
2,592 | 369 | ||||||
|
Total
operating expenses
|
7,593 | 4,603 | ||||||
|
Loss
from operations
|
(7,212 | ) | (3,813 | ) | ||||
|
Other
income (expenses):
|
||||||||
|
Interest
expense
|
(199 | ) | (860 | ) | ||||
|
Equity
in losses of unconsolidated subsidiaries
|
(23 | ) | (373 | ) | ||||
|
Derivative
losses
|
(386 | ) | (1,784 | ) | ||||
|
Other
income
|
15 | -- | ||||||
| (593 | ) | (3,017 | ) | |||||
|
Loss
before income taxes, majority interest and extraordinary
gain
|
(7,805 | ) | (6,830 | ) | ||||
|
Majority
interest in loss of consolidated subsidiary
|
25 | 3 | ||||||
|
Loss
before income taxes and extraordinary gain
|
(7,780 | ) | (6,827 | ) | ||||
|
Income
taxes
|
-- | -- | ||||||
|
Loss
before extraordinary gain
|
(7,780 | ) | (6,827 | ) | ||||
|
Extraordinary
gain on acquisition of business
|
-- | 241 | ||||||
|
Net
loss
|
$ | (7,780 | ) | $ | (6,586 | ) | ||
|
Other
comprehensive (loss) income
|
||||||||
|
Foreign
currency translation (loss) gain
|
(120 | ) | 38 | |||||
|
Comprehensive
loss
|
$ | (7,900 | ) | $ | (6,548 | ) | ||
|
Basic
and diluted loss per common share
|
$ | (0.08 | ) | $ | (0.08 | ) | ||
|
Basic
and diluted weighted average shares outstanding
|
95,875 | 81,508 | ||||||
See notes
to financial statements
- 36
-
|
FY 2007
|
POSITRON CORPORATION
|
FORM
10-KSB
|
POSITRON
CORPORATION AND SUBSIDIARY
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 | 52 | -- | -- | ||||||||||||||||||||||||||||||
|
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 | $ | 52 | 86,205,202 | $ | 862 | ||||||||||||||||||||||||||
- 37
-
|
FY 2007
|
POSITRON CORPORATION
|
FORM
10-KSB
|
POSITRON
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ DEFICIT
For
the year ended December 31, 2006
(In
thousands, except share data)
(Continued)
|
Additional
|
Other
|
|||||||||||||||||||||||
|
Paid-in
|
Subscription
|
Comprehensive
|
Accumulated
|
Treasury
|
||||||||||||||||||||
|
Capital
|
Receivable
|
Income
|
Deficit
|
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
|
1,043 | -- | -- | -- | -- | 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
|
$ | 60,552 | -- | $ | 38 | $ | (68,825 | ) | $ | (15 | ) | $ | (1,132 | ) | ||||||||||
- 38
-
|
FY 2007
|
POSITRON CORPORATION
|
FORM
10-KSB
|
POSITRON
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ DEFICIT
For
the year ended December 31, 2007
(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, 2006
|
464,319 | $ | 464 | 5,739,861 | $ | 5,740 | -- | -- | 204,482 | $ | 52 | 86,205,202 | $ | 862 | ||||||||||||||||||||||||||
|
Net
loss
|
-- | -- | -- | -- | -- | -- | -- | -- | -- | -- | ||||||||||||||||||||||||||||||
|
Compensation
related to Issuance options
|
-- | -- | -- | -- | -- | -- | -- | -- | -- | -- | ||||||||||||||||||||||||||||||
|
Conversion
of Series G preferred stock Into common stock
|
-- | -- | -- | -- | -- | -- | (93,091 | ) | (23 | ) | 9,390,100 | 94 | ||||||||||||||||||||||||||||
|
Issuance
of Series B preferred stock through private placement
|
-- | -- | 186,250 | 186 | -- | -- | -- | -- | -- | -- | ||||||||||||||||||||||||||||||
|
Issuance
of common stock For services
|
-- | -- | -- | -- | -- | -- | -- | -- | 6,960,000 | 70 | ||||||||||||||||||||||||||||||
|
Change
in foreign currency Translation gain
|
-- | -- | -- | -- | -- | -- | -- | -- | -- | -- | ||||||||||||||||||||||||||||||
|
Balance
December 31, 2007
|
464,319 | $ | 464 | 5,926,111 | $ | 5,926 | -- | -- | 111,391 | $ | 29 | 102,555,302 | $ | 1,026 | ||||||||||||||||||||||||||
- 39
-
|
FY 2007
|
POSITRON CORPORATION
|
FORM
10-KSB
|
POSITRON
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ DEFICIT
For
the year ended December 31, 2007
(In
thousands, except share data)
(Continued)
|
Additional
|
Other
|
|||||||||||||||||||||||
|
Paid-in
|
Subscription
|
Comprehensive
|
Accumulated
|
Treasury
|
||||||||||||||||||||
|
Capital
|
Receivable
|
Income
|
Deficit
|
Stock
|
Total
|
|||||||||||||||||||
|
Balance
December 31, 2006
|
$ | 60,552 | -- | $ | 38 | $ | (68,825 | ) | $ | (15 | ) | $ | (1,132 | ) | ||||||||||
|
Net
loss
|
-- | -- | -- | (7,780 | ) | -- | (7,780 | ) | ||||||||||||||||
|
Compensation
related to Issuance options
|
412 | -- | -- | -- | -- | 412 | ||||||||||||||||||
|
Conversion
of Series G preferred stock Into common stock
|
(69 | ) | -- | -- | -- | -- | 2 | |||||||||||||||||
|
Issuance
of Series B preferred stock through private placement
|
2,978 | -- | -- | -- | -- | 3,164 | ||||||||||||||||||
|
Issuance
of common stock For services
|
441 | -- | -- | -- | -- | 511 | ||||||||||||||||||
|
Change
in foreign currency Translation gain
|
-- | -- | (120 | ) | -- | -- | (120 | ) | ||||||||||||||||
|
Balance
December 31, 2007
|
$ | 64,314 | -- | $ | ( 82 | ) | $ | (76,605 | ) | $ | (15 | ) | $ | (4,943 | ) | |||||||||
- 40
-
|
FY 2007
|
POSITRON CORPORATION
|
FORM
10-KSB
|
POSITRON
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
For
the years ended December 31, 2007 and 2006
(In
thousands)
|
2007
|
2006
|
|||||||
|
Cash
flows from operating activities:
|
||||||||
|
Net
loss
|
$ | (7,780 | ) | $ | (6,586 | ) | ||
|
Adjustments
to reconcile net loss to net cash used in operating
activities
|
||||||||
|
Derivative
losses
|
385 | 1,784 | ||||||
|
Compensation
related to re-pricing of warrants and options
|
-- | -- | ||||||
|
Compensation
related to issuance of options
|
412 | 430 | ||||||
|
Depreciation
expense
|
31 | 49 | ||||||
|
Amortization
of intangible assets
|
10 | 8 | ||||||
|
Gain
(loss) on disposal of assets
|
4 | (53 | ) | |||||
|
Issuance
of common stock for services
|
511 | 471 | ||||||
|
Equity
in losses of joint venture
|
23 | 373 | ||||||
|
Amortization
of loan costs, debt discount and beneficial conversion
feature
|
181 | 644 | ||||||
|
Majority
interest in income of consolidated subsidiary
|
(25 | ) | (3 | ) | ||||
|
Extraordinary
gain on acquisition of business
|
-- | (241 | ) | |||||
|
Impairment
of intangible asset
|
2,592 | 369 | ||||||
|
Changes
in operating assets and liabilities:
|
||||||||
|
Accounts
receivable
|
12 | (7 | ) | |||||
|
Inventories
|
516 | 555 | ||||||
|
Prepaid
expenses
|
24 | 49 | ||||||
|
Other
current assets
|
46 | 235 | ||||||
|
Accounts
payable and accrued liabilities
|
(503 | ) | 187 | |||||
|
Customer
deposits
|
117 | 43 | ||||||
|
Unearned
revenue
|
(56 | ) | 80 | |||||
|
Net
cash used in operating activities
|
(3,500 | ) | (1,613 | ) | ||||
|
Cash
flows from investing activities:
|
||||||||
|
Investment
in subsidiary, net of cash received
|
-- | (534 | ) | |||||
|
Purchase
of property and equipment
|
(23 | ) | (18 | ) | ||||
|
Proceeds
from disposal of assets
|
-- | 77 | ||||||
|
Purchase
of intangible assets
|
-- | (434 | ) | |||||
|
Net
cash used in investing activities
|
(23 | ) | (909 | ) | ||||
|
Cash
flows from financing activities:
|
||||||||
|
Proceeds
from issuance of Series G Preferred Stock
|
-- | 901 | ||||||
|
Proceeds
from issuance of convertible securities
|
-- | 1,080 | ||||||
|
Proceeds
from notes payable to affiliated entities
|
1,281 | 200 | ||||||
|
Repayment
of notes payable to affiliated entities
|
(547 | ) | -- | |||||
|
Advance
to affiliated entities
|
(72 | ) | (39 | ) | ||||
|
Repayment
of advances to affiliated entities
|
363 | -- | ||||||
|
Capital
lease obligation
|
9 | (3 | ) | |||||
|
Proceeds
from private placement
|
2,656 | 297 | ||||||
|
Net
cash provided by financing activities
|
3,690 | 2,436 | ||||||
|
Effect
of exchange rate changes on cash and cash equivalents
|
(90 | ) | (8 | ) | ||||
|
Net
(decrease) increase in cash and cash equivalents
|
77 | (94 | ) | |||||
|
Cash
and cash equivalents, beginning of year
|
115 | 209 | ||||||
|
Cash
and cash equivalents, end of year
|
$ | 192 | $ | 115 | ||||
|
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 | |||||
|
Conversion
of Series G Preferred to Common Stock
|
$ | 23 | -- | |||||
See notes
to financial statements
- 41
-
|
FY 2007
|
POSITRON CORPORATION
|
FORM
10-KSB
|
POSITRON
CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2007 AND 2006
|
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.
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 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. 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
$2,592,256. 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 using the “fair value” methodology.
During the fourth quarter, the Company assessed the fair value of the intangible
asset using an income approach. Under the income approach, the fair value of a
reporting unit is calculated based on the present value of estimated future cash
flows. In performing the the fiscal impairment test, management determined there
impairment to the IPT goodwill since the carrying value exceeded its estimated
fair value. Accordingly, during the fourth quarter the Company recorded an
impairment charge of $2,592,256.
- 42
-
|
FY 2007
|
POSITRON CORPORATION
|
FORM
10-KSB
|
Principles of
Consolidation
For the
year ended December 31, 2007, the financial statements include the transactions
of Positron Corporation and its wholly-owned Imagin Pet Technologies, Inc.
(“IPT”). IPT’s financial statements include the operations of QMT.
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.
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 Medical Systems Co. (“NMS”), 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, 2007 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.
- 43
-
|
FY 2007
|
POSITRON CORPORATION
|
FORM
10-KSB
|
Accounts
receivable arise primarily from transactions with customers in the medical
industry located throughout the world, but concentrated in the United States and
Canada. 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.
- 44
-
|
FY 2007
|
POSITRON CORPORATION
|
FORM
10-KSB
|
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 2007 and 2006 were $95,000 and $92,000, 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.
Warranty
Costs
The
Company accrues for the cost of product warranty on
POSICAMTM
systems, Pulse CDC gamma cameras 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. After warranty expiration many customers execute
service contracts to cover their systems. Service contract periods vary with
some customers on month to month contracts and others on quarterly and annual
contracts. Revenue collected in advance of the service period is deferred and
recognized over the term of the contract. Service costs under the contracts are
expensed as incurred. For the years ended December 31, 2007 and 2006, service
costs charged to expense were $1,036,000 and $721,000, respectively. During the
years ended December 31, 2007 and 2006 the Company did not have any Posicam
systems under warranty. Warranty expense for Pulse CDC gamma systems sold by IS2
Medical Systems, Inc. was $196,000 and $221,000 for the years ended December 31,
2007 and 2006, respectively.
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.
- 45
-
|
FY 2007
|
POSITRON CORPORATION
|
FORM
10-KSB
|
New Accounting
Pronouncement
In
September 2006, the FASB issued Statement of Financial Accounting Standards No.
157, Fair Value Measurements. SFAS No. 157 provides enhanced guidance for using
fair value to measure assets and liabilities. The standard also requires
expanded disclosures about the extent to which companies measure assets and
liabilities at fair value, the information used to measure fair value and the
effect of fair value measurements on earnings. SFAS No. 157 is effective for
financial statements issued for fiscal years beginning after November 15, 2007,
and interim periods within those fiscal years. The Company does not expect the
adoption of Statement No. 157 to materially impact the Company’s financial
statements.
In
February 2007, the FASB issued SFAS No. 159 "The Fair Value Option for Financial
Assets and Financial Liabilities". SFAS No. 159 permits entities to choose, at
specified election dates, to measure eligible items at fair value (the "fair
value option"). A business entity shall report unrealized gains and losses on
items for which the fair value option has been elected in earnings at each
subsequent reporting date. The objective is to improve financial reporting by
providing entities with the opportunity to mitigate volatility in reported
earnings caused by measuring related assets and liabilities differently without
having to apply complex hedge accounting provisions. SFAS No. 159 is effective
as of the beginning of an entity's first fiscal year that begins after November
15, 2007. Early adoption is permitted as of the beginning of a fiscal year that
begins on or before November 15, 2007, provided the entity also elects to apply
the provisions of SFAS No. 157, "Fair Value Measurements". . The Company
does not expect the adoption of Statement No. 159 to materially impact the
Company’s financial statements.
In
December 2007, the FASB issued SFAS No. 141(R), 'Business Combinations -
Revised,' that improves the relevance, representational faithfulness, and
comparability of the information that a reporting entity provides in its
financial reports about a business combination and its effects. To accomplish
that, this statement establishes principles and requirements how the acquirer
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, and any non-controlling interest in the
acquiree, recognizes and measures the goodwill acquired in the business
combination or a gain from a bargain purchase, and determines what information
to disclose to enable users of the financial statements to evaluate the nature
and financial effects of the business combination. The changes to current
practice resulting from the application of SFAS No. 141(R) are effective for
financial statements issued for fiscal years beginning after December 15, 2008.
The adoption of SFAS No. 141(R) before December 15, 2008 is prohibited. The
Company has not determined the effect, if any, that may result from the adoption
of SFAS No. 141(R) on its financial statements.
Management
does not believe that any other recently issued, but not yet effective
accounting pronouncements, if adopted, would have a material effect on the
accompanying financial statements.
|
2.
|
Going Concern
Consideration
|
Since its
inception the Company has been unable to sell POSICAMTM or
Pulse systems in quantities sufficient to be operationally profitable.
Consequently, the Company has sustained substantial losses. At December 31,
2007, the Company had an accumulated deficit of $76,605,000 and a stockholders’
deficit of $4,943,000. 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 $2,656,000 from issuance of Series B Preferred to
fund operating activities in 2007. The Company had cash and cash equivalents of
$192,000 at December 31, 2007. At the same date, the Company had accounts
payable and accrued liabilities of $2,314,000. In addition, debt service and
working capital requirements for the upcoming year may reach 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.
- 46
-
|
FY 2007
|
POSITRON CORPORATION
|
FORM
10-KSB
|
|
3.
|
Imaging Pet
Technologies – Business
Acquisition
|
On
December 31, 2005 the Company and Quantum Molecular Pharmaceuticals Inc., a
Canadian radiopharmaceutical corporation (“QMP”) formed a joint venture, Imaging
Pet Technologies (“IPT”). The Company and QMP hold 49.9% and 50.1%,
respectively, of the total registered capital of IPT. 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”). 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. Employment
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 before currency translation adjustment
|
241 | |||
|
Effect
of currency translation
|
7 | |||
| $ | 427 | |||
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.
- 47
-
|
FY 2007
|
POSITRON CORPORATION
|
FORM
10-KSB
|
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.
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 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
$2,592,256. 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 using the “fair value”
methodology.
Goodwill
Impairment
Under
FASB Statement No. 142, Goodwill and Other Intangible Assets
(“SFAS 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. Other identifiable intangible assets are amortized over their
estimated useful lives. SFAS 142 requires that goodwill be tested for impairment
annually, utilizing the “fair value” methodology. The Company has adopted
December 31st as the date of the annual impairment test for
goodwill.
Goodwill
impairment is determined using a two-step process. The first step of the
goodwill impairment test is used to identify potential impairment by comparing
the fair value of a reporting unit with the net book value (of carrying amount),
including goodwill. If the fair value of the reporting unit exceeds the carrying
amount, goodwill of the reporting unit is considered not impaired and the second
step of the impairment test is unnecessary. If the carrying amount of the
reporting unit exceeds the fair value, the second step of the goodwill
impairment test is performed to measure the amount of impairment loss, if any.
The second step of the goodwill impairment test compares the implied fair value
of the reporting unit's goodwill with the carrying amount of that goodwill. If
the carrying amount of the reporting unit's goodwill exceeds the implied fair
value of that goodwill, an impairment loss is recognized in an amount equal to
that excess. The implied fair value of goodwill is determined in the same manner
as the amount of goodwill recognized in a business combination. Accordingly, the
fair value of the reporting unit is allocated to all of the assets and
liabilities of that unit as if the reporting unit had been acquired in a
business combination and the fair value of the reporting unit was the purchase
price paid to acquire the reporting unit. The fair value of the IPT reporting
unit was determined using an income approach. Under the income approach, the
fair value of a reporting unit is calculated based on the present value of
estimated future cash flows. The present value of future cash flows uses our
estimates of revenue for the reporting unit, driven by assumed growth rates and
estimated costs as well as appropriate discount rates.
- 48
-
|
FY 2007
|
POSITRON CORPORATION
|
FORM
10-KSB
|
In
performing the first step of the fiscal 2007 goodwill impairment test,
management determined there was an indicator of impairment in the IPT goodwill
because the carrying value of the reporting unit exceeded its estimated fair
value.
In
performing the second step of the goodwill impairment test, the Company
allocated the estimated fair values of the IPT reporting unit determined in step
one of the impairment test, to the assets and liabilities as if a new
acquisition were being accounted for in accordance with SFAS 141.
Determining
the fair value of the reporting unit under the first step of the goodwill
impairment test and determining the fair value of individual assets and
liabilities of a reporting unit under the second step of the goodwill impairment
test is judgmental in nature and often involves the use of significant estimates
and assumptions. Since the fair value of the IPT reporting unit was derived from
projected revenues associated solely with developed technologies, which were
identified as intangible assets in the original purchase accounting allocation,
the fair value of the reporting unit was hypothetically all allocated to
developed technologies, with no remaining value to assign to goodwill.
Based on the Company’s annual review of goodwill in 2007, the Company
recorded an impairment charge of $2,592,256, for the IPT reporting unit which
represented the entire goodwill balance.
|
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.
On
January 26, 2007, IPT acquired all of the outstanding capital stock of QMT from
Positron for the purchase price of $2,800,000 in the form of a promissory note.
The non-interest bearing promissory note is payable on or before July 1, 2008
and is secured by a pledge of all of the issued and outstanding shares of
QMT.
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.
- 49
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|
FY 2007
|
POSITRON CORPORATION
|
FORM
10-KSB
|
|
5.
|
Inventories
|
Inventories
at December 31, 2007 and 2006 consisted of the following (in
thousands):
|
2007
|
2006
|
|||||||
|
Raw
materials and service parts
|
$ | 1,004 | $ | 966 | ||||
|
Work
in progress
|
379 | 577 | ||||||
| 1,383 | 1,543 | |||||||
|
Less:
Reserve for obsolete inventory
|
(211 | ) | (50 | ) | ||||
| $ | 1,172 | $ | 1,493 | |||||
|
6.
|
Due From
Affiliates
|
Due from
affiliates at December 31, 2007 and 2006 consisted of the following (in
thousands):
|
2007
|
2006
|
|||||||
|
INP
|
$ | 320 | $ | 185 | ||||
|
NPMS
|
24 | 179 | ||||||
|
Solaris
|
-- | 191 | ||||||
|
IMAGIN
|
11 | 2,400 | ||||||
|
Total
|
$ | 355 | $ | 2,955 | ||||
|
7.
|
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. For the years ended December 31, 2007 and 2006, the Company’s expense
related its share of NPMS losses were $208,000 and $23,000, respectively. As of
December 31, 2007, the Company’s investment in NPMS was zero. The Company’s
share of NPMS losses in excess of it’s investment approximates $325,000 as of
December 31, 2007.
- 50
-
|
FY 2007
|
POSITRON CORPORATION
|
FORM
10-KSB
|
Following
are the condensed financial statements of Neusoft Positron Medical Systems Co.,
Ltd. for the years ended December 31, 2007 and 2006.
NEUSOFT
POSITRON MEDICAL SYSTEMS CO., LTD.
CONDENSED
BALANCE SHEETS
DECEMBER
31, 2007 AND 2006
(In
thousands)
|
2007
|
2006
|
|||||||
|
ASSETS
|
||||||||
|
Current
assets:
|
||||||||
|
Cash
and cash equivalents
|
$ | 604 | $ | 220 | ||||
|
Other
current assets
|
573 | 504 | ||||||
|
Total
current assets
|
1,177 | 724 | ||||||
|
Intangibles
and other assets
|
620 | 653 | ||||||
|
Total
assets
|
$ | 1,797 | $ | 1,377 | ||||
|
Current
liabilities:
|
||||||||
|
Current
liabilities
|
1,352 | (55 | ) | |||||
|
Total
current liabilities
|
1,352 | (55 | ) | |||||
|
Capital
|
445 | 1,432 | ||||||
|
Total
liabilities and capital
|
$ | 1,797 | $ | 1,377 | ||||
NEUSOFT
POSITRON MEDICAL SYSTEMS CO., LTD.
CONDENSED
STATEMENTS OF OPERATIONS
FOR
THE YEAR ENDED DECEMBER 31, 2007 AND 2006
(in
thousands)
|
2007
|
2006
|
|||||||
|
Revenue
|
$ | -- | $ | -- | ||||
|
Expense
|
||||||||
|
General
and administrative expense
|
1,048 | 575 | ||||||
|
Total
operating expense
|
1,048 | 575 | ||||||
|
Interest
income
|
(3 | ) | -- | |||||
|
Net
loss
|
$ | (1,045 | ) | $ | (575 | ) | ||
- 51
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FY 2007
|
POSITRON CORPORATION
|
FORM
10-KSB
|
|
8.
|
Property and
Equipment
|
Property
and equipment at December 31, 2007 and 2006 consisted of the following (in
thousands):
|
2007
|
2006
|
|||||||
|
Furniture
and fixtures
|
$ | 130 | $ | 130 | ||||
|
Computer
equipment
|
89 | 74 | ||||||
|
Machinery
and equipment
|
32 | 26 | ||||||
| 251 | 230 | |||||||
|
Less:
Accumulated depreciation
|
(195 | ) | (166 | ) | ||||
| $ | 56 | $ | 64 | |||||
|
9.
|
Other
Assets
|
Other
assets at December 31, 2007 and 2006 consisted of the following (in
thousands):
|
2007
|
2006
|
|||||||
|
Intangible
assets
|
$ | 45 | $ | 57 | ||||
|
Deferred
loan costs
|
105 | 178 | ||||||
|
Total
|
$ | 150 | $ | 235 | ||||
|
10.
|
Accounts Payable and
Accrued Liabilities
|
Accounts
payable and accrued liabilities at December 31, 2007 and 2006 consisted of the
following (in thousands):
|
2007
|
2006
|
|||||||
|
Trade
accounts payable
|
$ | 1,529 | $ | 1,431 | ||||
|
Accrued
royalties
|
311 | 373 | ||||||
|
Accrued
interest
|
139 | 44 | ||||||
|
Sales
taxes payable
|
103 | 260 | ||||||
|
Accrued
compensation
|
63 | 249 | ||||||
|
Accrued
property taxes
|
45 | 65 | ||||||
|
Accrued
professional fees
|
25 | 92 | ||||||
|
Accrued
warranty costs
|
84 | 113 | ||||||
|
Other
|
15 | -- | ||||||
|
Total
|
$ | 2,314 | $ | 2,627 | ||||
- 52
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|
FY 2007
|
POSITRON CORPORATION
|
FORM
10-KSB
|
|
11.
|
Notes Payable/Due to
Affiliated Entities
|
Advance from Related
Party
During
the year ended December 31, 2007, the Company received non-interest bearing
advances from its affiliate, Imagin Molecular Corporation, (“IMGM”) totaling
$1,346,000. Positron’s President and Director, Joseph Oliverio and its Chief
Financial Officer and Director, Corey Conn are both officers and directors of
IMGM.
On
April 10, 2008, the Company and its affiliate, IMGM, formalized the advances of
$1,346,000 from IMGM in the form of a promissory note bearing interest at 8% per
annum, due on December 31, 2008 ( the “Note”). The Note is secured by a pledge
of 100,000,000 shares of Positron’s common stock, par value $0.001, (the
“Pledged Shares”) in accordance with a Stock Pledge Agreement (the “Pledge”).
Upon a default of the Note or the Pledge, IMGM may sell the Pledged Shares to
repay any and all amounts due under the Note.
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.
|
12.
|
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. The Company, to satisfy the
initial filing requirement, filed a registration statement on behalf of the
Investors on June 20, 2006, which was subsequently withdrawn, re-filed on Form
SB2 and amended. While the registration statement has not yet been declared
effective, the Investors have not given notice to the Company that is in default
of the requirements of the Registration Rights Agreement.
- 53
-
|
FY 2007
|
POSITRON CORPORATION
|
FORM
10-KSB
|
At the
dates of issuance, the warrants issued with the Convertible Debentures had a
combined estimated initial fair value of $919,000 which was recorded as a
discount to the debt (debt was written down to zero). The warrants were valued
using the Black Sholes Valuation Method based on the fair value of the Company’s
common stock of $0.125; an exercise price of $0.15; a 7 year term; risk free
rate of return of 5.125%; dividend yield of 0%;and a volatility factor of 168%.
The discount, which was recorded as an increase to additional paid-in capital,
is being amortized over the term of the Convertible Debentures using the
effective interest method.
The
beneficial conversion features included in the Convertible Debentures warrant
separate accounting as embedded derivatives under SFAS No. 133. The derivative
financial instrument is recorded as a liability in the consolidated balance
sheet, and is marked-to-market each quarter with the change in fair value
recorded in the consolidated statement of operations and comprehensive
income.
At the
dates of issuance, the beneficial conversion features had a combined estimated
initial fair value of $2,268,000, of which $381,000 was recorded as a discount
to the debt (debt was written down to zero) and $1,887,000 was immediately
charged to derivative losses and recorded as a liability on the consolidated
balance sheet. The estimated fair value of the beneficial conversion features
was determined using the Black Sholes Valuation Method based on the fair value
of the Company’s common stock of $0.125; risk free rate of return of 5.125%;
dividend yield of 0%; the conversion price as defined in the debt agreement; 3
year term to maturity; and a volatility factor of 168%. The debt discount is
being amortized over the term of the Convertible Debentures using the effective
interest method.
At
December 31, 2007, the beneficial conversion features had an estimated fair
value of $2,550,000. In valuing the beneficial conversion features at December
31, 2007, the Company used the closing price of its common stock of $0.07, risk
free rate of return of 3.25%; dividend yield of 0%; the conversion price as
defined in the debt agreement; remaining term to maturity; and a volatility
factor of 235%. For the years ended December 31, 2007 and 2006, the Company had
derivative losses from the beneficial conversion features in the Convertible
Debentures of $386,000 and $1,784,000, respectively.
On May
24, 2007 the Investors executed a Notice of Conversion to convert $40,985 of
debentures into Positron common shares. In accordance with the Agreement’s, the
conversion price of $0.047 per share represents 55% of the average of the lowest
three (3) trading prices for the common stock during the twenty (20) day period
prior to conversion. Based on the conversion price of $0.047, the debentures
shall be converted to 872,052 shares of Positron Common Stock, par value $0.01
per share. However, the shares were not issued until January 2008 and therefore
the conversion is not reflected in the financial statements at December 31,
2007.
On
February 15, 2008 holders of convertible debentures issued by the Company
executed a Notice of Conversion to convert $5,500 of debentures into Positron
common shares. In accordance with the debenture agreement, the conversion price
of $0.022 per share represents 55% of the average of the lowest three (3)
trading prices for the common stock during the twenty (20) day period prior to
conversion. Based on the conversion price of $0.022, the debentures shall be
converted to 250,000 shares of Positron Common Stock, par value $0.01 per
share.
Related Party
Advances
During
the year ended December 31, 2007, the Company and its wholly-owned subsidiary
Imaging Pet Technologies were advanced funds from
Imagin Molecular Corporation, a publicly owned Delaware
corporation and affiliate of the
Company. Imagin’s Chief Executive Officer and
Director, Joseph Oliverio and its Chief Financial Officer and Director, Corey
Conn are both officers and directors of Positron Corporation. At
December 31, 2007 the outstanding amount due to Imagin from Positron is
$1,346,000. On April 10, 2008, the Company
executed a promissory note in favor of Imagin for the full amount of the
advances with interest at the rate of eight percent (8%) per annum, due and
payable on December 31, 2008. The repayment of the note is secured by
a pledge of 100,000,000 shares of the Company’s Common Stock (the “Pledged
Stock”). If we are unable to repay the note, Imagin may sell a
portion or all of the Pledged Stock to recover any unpaid principal, interest,
fees and disbursement. The sale of such a large number of shares would
likely have a material and adverse affect upon the price of our Common
Stock.
- 54
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|
FY 2007
|
POSITRON CORPORATION
|
FORM
10-KSB
|
|
13.
|
Stock 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,
2007, 225,000 options are outstanding, of which 203,646 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, 2007, 200,000 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,
2007.
- 55
-
|
FY 2007
|
POSITRON CORPORATION
|
FORM
10-KSB
|
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, 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 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 18,500,000 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. As of
December 31, 2007, all shares available under the 2006 Plan had been
issued.
2007 Omnibus Securities and
Incentive Plan
Positron's
Board of Directors (the “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 Awards
including any Distribution Equivalent Right, Option, Performance Share Award,
Performance Unit Award, Restricted Stock Award, Stock Appreciation Right or
Unrestricted Stock Award to key management employees, non-employee directors and
non-employee 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 2007
Plan. As of December 31, 2007, all shares available under the 2007
Plan had been issued.
- 56
-
|
FY 2007
|
POSITRON CORPORATION
|
FORM
10-KSB
|
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, 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 | |||||
|
Granted
|
-- | -- | ||||||
|
Forfeited
|
(75,000 | ) | $ | 0.10 - $0.12 | ||||
|
Exercised
|
-- | -- | ||||||
|
Balance
at December 31, 2007
|
19,425,000 | $ | 0.06 | |||||
Following
is a summary of stock options outstanding at December 31, 2007 and
2006.
|
Options Outstanding
|
Options Exercisable
|
|||||||||||||||||||||
|
Weighted
|
||||||||||||||||||||||
|
Average
|
Weighted
|
Weighted
|
||||||||||||||||||||
|
Remaining
|
Average
|
Average
|
||||||||||||||||||||
|
Range
of
|
Term
|
Exercise
|
Exercise
|
|||||||||||||||||||
|
Exercise Price
|
Shares
|
(in Years)
|
Price
|
Shares
|
Price
|
|||||||||||||||||
| $ | 0.05 | 7,500,000 | 3.00 | $ | 0.05 | 7,500,000 | $ | 0.05 | ||||||||||||||
| $ | 0.06 | 11,500,000 | 3.00 | $ | 0.06 | 11,000,000 | $ | 0.06 | ||||||||||||||
| $ | 0.11 | 25,000 | 3.25 | $ | 0.11 | 25,000 | $ | 0.11 | ||||||||||||||
| $ | 0.08 | 25,000 | 4.00 | $ | 0.08 | 25,000 | $ | 0.08 | ||||||||||||||
| $ | 0.01 | 25,000 | 5.00 | $ | 0.01 | 25,000 | $ | 0.01 | ||||||||||||||
| $ | 0.05 | 20,000 | 5.33 | $ | 0.05 | 20,000 | $ | 0.05 | ||||||||||||||
| $ | 0.03 | 25,000 | 6.00 | $ | 0.03 | 25,000 | $ | 0.03 | ||||||||||||||
| $ | 0.02 | 205,000 | 6.42 | $ | 0.02 | 183,646 | $ | 0.02 | ||||||||||||||
| $ | 0.04 - $0.12 | 100,000 | 7.06 | $ | 0.09 | 100,000 | $ | 0.09 | ||||||||||||||
|
Balance
at 12/31/2007
|
,19,425,000 | $ | 0.06 | 18,903,646 | $ | 0.06 | ||||||||||||||||
|
Balance
at 12/31/2006
|
19,500,000 | $ | 0.06 | 10,427,396 | $ | 0.06 | ||||||||||||||||
- 57
-
|
FY 2007
|
POSITRON CORPORATION
|
FORM
10-KSB
|
For each
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 | % |
The
Company did not grant any stock options during the year ended December 31,
2007.
Stock-based
compensation included in general and administrative expense is $412,000 and
$430,000 for the years ended December 31, 2007 and 2006,
respectively.
The
aggregate intrinsic value in the table below is before income taxes, based on
the Company’s closing stock price of $0.068 as of the last business day of the
year ended December 31, 2007. There were no options exercised during
the year ended December 31, 2007. Total intrinsic value of those options
exercised during the year ended December 31, 2006 was $51,842.
|
Number
of
Options
|
Weighted
Average
Exercise
Price
|
Aggregate
Intrinsic
Value
|
||||||||||
|
Options
Outstanding
|
19,425,000 | $ | 0.06 | $ | 155,400 | |||||||
|
Options
Exercisable
|
18,903,646 | $ | 0.06 | $ | 151,229 | |||||||
Warrants
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 Debentures (See Note
11). In accordance with the terms of the Agreements, the Company issued 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. The warrants were valued using the Black Sholes Valuation Method
based on the fair value of the Company’s common stock of $0.125; an exercise
price of $0.15; a 7 year term; risk free rate of return of 5.125%; dividend
yield of 0%;and a volatility factor of 168%. The fair value of the warrants of
$919,000 was recorded as an increase to Additional paid-in capital – stock
warrants.
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 at an exercise price of
$0.10 per share. The warrants expire on April 11, 2008. The warrants were valued
using the Black Sholes Valuation Method based on the fair value of the Company’s
common stock of $0.13; an exercise price of $0.10; a 2 year term; risk free rate
of return of 5.125%; dividend yield of 0%;and a volatility factor of 159%. The
fair value of the warrants of $1,043,093 was recorded as an increase to
Additional paid-in capital – stock warrants.
A summary
of warrant activity is as follows:
|
Number of Shares
|
Exercise Price
|
Weighted Average Exercise
Price
|
||||||||||
|
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 | |||||||||
|
Warrants
expired in 2007
|
(750,000 | ) | $ | 0.03 - $2.40 | $ | 0.81 | ||||||
|
Balance
at December 31, 2006
|
57,624,100 | $ | 0.11 | |||||||||
- 58
-
|
FY 2007
|
POSITRON CORPORATION
|
FORM
10-KSB
|
All
outstanding warrants are currently exercisable. A summary of outstanding
stock warrants at December 31, 2007 follows:
|
Number
of Common
Stock
Equivalents
|
Expiration
Date
|
Remaining
Contractual
Life
(Years)
|
Exercise
Price
|
||||||||
| 3,825,000 |
(a)
|
-- | $ | 0.02 | |||||||
| 1,250,000 |
March
2008
|
0.3 | $ | 0.25 | |||||||
| 10,224,100 |
April
2008
|
0.3 | $ | 0.10 | |||||||
| 3,750,000 |
June
2009
|
1.5 | $ | 0.02 | |||||||
| 8,575,000 |
May
2010
|
2.4 | $ | 0.02 | |||||||
| 30,000,000 |
May
2013
|
5.4 | $ | 0.15 | |||||||
| 57,624,100 | |||||||||||
|
|
(a)
Warrants expire six months after the date on which a registration
statement is filed and accepted by the Securities Exchange Commission
permitting a sale of the shares issuable upon exercise of the
warrant.
|
|
14.
|
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, 2007 stated dividends that are undeclared and unpaid on the Series
A Preferred Stock total approximately $524,000. As of December 31, 2007, 464,319
shares of Series A Preferred Stock were outstanding.
- 59
-
|
FY 2007
|
POSITRON CORPORATION
|
FORM
10-KSB
|
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, 2007, 5,926,111 shares of Series B
Preferred Stock were outstanding.
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.
At the
dates of issuance, the warrants issued with the Series G Preferred Stock had an
initial fair value of $1,044,000 and was recorded as additional paid-in capital.
The warrants were valued using the Black Sholes Valuation Method based on the
fair value of the Company’s common stock of $0.13; an exercise price of $0.10; a
2 year term; risk free rate of return of 5.125%; dividend yield of 0%;and a
volatility factor of 159%.
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.
The
holders of shares of Series G Preferred Stock are entitled to receive, when, as
and if declared by the Board of Directors of the Company at the annual rate of
$0.40 per annum on each outstanding share of Series G Preferred Such dividends
shall cumulate from the date issued and be paid when, as and if declared,
annually on November 1st of each
year commencing on November 1, 2006. As of December 31, 2007, stated dividends
that are undeclared and unpaid on the Series G Preferred Stock total
approximately $89,000. As of December 31, 2007, 111,391 shares of Series G
Preferred Stock were outstanding
|
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, 2007, the Company had net
operating loss (“NOL”) carryforwards for income tax purposes of approximately
$22,000,000, which expire in 2008 through 2027. 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.
- 60
-
|
FY 2007
|
POSITRON CORPORATION
|
FORM
10-KSB
|
The
composition of deferred tax assets and the related tax effects at December 31,
2007 and 2006 are as follows (in thousands):
|
2007
|
2006
|
|||||||
|
Deferred
tax assets:
|
||||||||
|
Net
operating losses:
|
||||||||
|
Domestic
|
$ | 7,606 | $ | 5,835 | ||||
|
Foreign
|
661 | 196 | ||||||
|
Stock
option compensation
|
165 | 172 | ||||||
|
Accrued
liabilities and reserves
|
192 | 198 | ||||||
|
Inventory
basis difference
|
-- | 68 | ||||||
| 8,624 | 6,469 | |||||||
|
Valuation
allowance
|
( 8,624 | ) | ( 6,469 | ) | ||||
|
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):
|
2007
|
2006
|
|||||||||||||||
|
Amount
|
%
|
Amount
|
%
|
|||||||||||||
|
Benefit
for income taxes at federal statutory rate
|
$ | 2,645 | 34.0 | % | $ | 2,321 | 34.0 | % | ||||||||
|
Expenses
not deductible for tax purposes
|
(170 | ) | (2.2 | ) | (901 | ) | (13.2 | ) | ||||||||
|
Statutory
rate difference – foreign subsidiary
|
(365 | ) | (4.7 | ) | (203 | ) | (3.0 | ) | ||||||||
|
Other
|
45 | .6 | (74 | ) | (1.1 | ) | ||||||||||
|
Change
in valuation allowance
|
(2,155 | ) | (25.1 | ) | (1,143 | ) | (16.7 | ) | ||||||||
| $ | -- | -- | % | $ | -- | -- | % | |||||||||
The
Company adopted FASB Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes” as of January 1, 2007. The Company has reviewed the status of
possible tax uncertainties through 2007. The company’s review did not result in
any uncertain tax positions requiring disclosure. Should the Company need to
record interest and/or penalties related to uncertain tax positions or other tax
authority assessments, it would classify such expenses as part of the income tax
provision. The Company has not changed any of its tax policies nor adopted any
new tax positions during 2007 and believes it has filed appropriate tax returns
in all jurisdictions for which it has nexus. This review included the Company’s
net deferred income tax assets and valuation allowance.
|
16.
|
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 2007 and 2006. The Board of Directors of
the Company may authorize additional discretionary contributions; however, no
such contributions were by the Company in 2007 or 2006.
|
17.
|
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. For the year ended December 31, 2007, the Company billed INP
$55,000 under a maintenance agreement for the machine.
- 61
-
|
FY 2007
|
POSITRON CORPORATION
|
FORM
10-KSB
|
For the
years ended December 31, 2007 and 2006, the Company recorded sales of parts and
materials to NPMS of $80,000 and $180,000 respectively.
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 2007 or 2006 the Company did not pay any bonus pursuant to the
incentive compensation plan.
|
18.
|
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. In January 2008, the Company and the
Clayton Foundation agreed to settle all outstanding royalty obligations for
1,296,108 shares of Positron common stock valued. As a result of the settlement
with the Clayton Foundation, the Company recorded a reversal of royalty
expense of approximately $67,000 for the year ended December 31, 2007. Royalty
obligations amounting to approximately $311,000 and $373,000 were included in
current liabilities at December 31, 2007 and 2006, respectively.
Lease
Agreements
The
Company operates in leased facilities under two separate operating leases, one
of which is on a month-to-month basis and the other, for the IS2 facility in
Canada, expires July 31, 2008. The rental rate for the month-to-month leased
facilities was $8,800. Monthly rental charges for the IS2 facility were $8,300.
The cost of leasing the Company’s operating facilities amounted to approximately
$167,000 and$125,000 in 2007 and 2006, respectively.
At
December 31, 2007, approximate future minimum rental payments under operating
leases are as follows:
|
2008
|
$ | 66,850 | ||
| $ | 66,850 |
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.
- 62
-
|
FY 2007
|
POSITRON CORPORATION
|
FORM
10-KSB
|
|
19.
|
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)
|
||||||||
|
2007
|
2006
|
|||||||
|
Numerator:
|
||||||||
|
Basic
and diluted net loss:
|
$ | (7,780 | ) | $ | (6,586 | ) | ||
|
Denominator:
|
||||||||
|
Denominator
for basic earnings per share-weighted average shares
|
95,875 | 81,508 | ||||||
|
Effect
of dilutive securities
|
||||||||
|
Convertible
Preferred Stock
|
-- | -- | ||||||
|
Stock
Warrants
|
-- | -- | ||||||
|
Stock
Options
|
-- | -- | ||||||
|
Denominator
for diluted earnings per share-adjusted weighted
|
||||||||
|
Average
shares and assumed conversions
|
95,875 | 81,508 | ||||||
|
Basic
and diluted loss per common share
|
$ | (0.08 | ) | $ | (0.08 | ) | ||
All
common stock equivalents in the years ended December 31, 2007 and 2006 were
excluded from the above calculation as their effect was
anti-dilutive.
Anti-dilutive
securities not included in net loss per share calculation (in
thousands):
|
2007
|
2006
|
|||||||
|
Convertible
Series A Preferred Stock
|
464 | 464 | ||||||
|
Convertible
Series B Preferred Stock
|
592,611 | 573,986 | ||||||
|
Convertible
Series G Preferred Stock
|
11,139 | 20,448 | ||||||
|
Stock
Warrants
|
57,624 | 58,374 | ||||||
|
Stock
Options
|
19,425 | 19,500 | ||||||
| 681,263 | 672,772 | |||||||
|
20.
|
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):
|
2007
|
2006
|
|||||||
|
United
States
|
||||||||
|
Revenues
|
$ | 864 | $ | 1,295 | ||||
|
Operating
expenses
|
5,012 | 3,114 | ||||||
|
Net
loss
|
(5,408 | ) | (5,657 | ) | ||||
|
Canada
|
||||||||
|
Revenues
|
$ | 2,445 | $ | 918 | ||||
|
Operating
expenses
|
2,581 | 1,489 | ||||||
|
Net
loss
|
(2,372 | ) | (929 | ) | ||||
- 63
-
|
FY 2007
|
POSITRON CORPORATION
|
FORM
10-KSB
|
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, 2007 and 2006 the Company had a limited number of
customers as follows:
|
2007
|
2006
|
|||||||
|
Number
of customers
|
69 | 18 | ||||||
|
Customers
accounting for more than 10% of revenues
|
-- | -- | ||||||
|
Percent
of revenues derived from largest customer
|
12 | % | 9 | % | ||||
|
Percent
of revenues derived from second largest customer
|
8 | % | 8 | % | ||||
|
21.
|
Subsequent
Events
|
Debenture
conversions
On May
24, 2007 holders of convertible debentures issued by the Company executed a
Notice of Conversion to convert $40,985 of debentures into Positron common
shares. In accordance with the debenture agreement, the conversion price of
$0.047 per share represents 55% of the average of the lowest three (3) trading
prices for the common stock during the twenty (20) day period prior to
conversion. Based on the conversion price of $0.047, the debentures shall be
converted to 872,052 shares of Positron Common Stock, par value $0.01 per share.
However, the shares were not issued until January. 2008 and therefore the
conversion is not reflected in the financial statements at December 31,
2007.
On
February 15, 2008 holders of convertible debentures issued by the Company
executed a Notice of Conversion to convert $5,500 of debentures into Positron
common shares. In accordance with the debenture agreement, the conversion price
of $0.022 per share represents 55% of the average of the lowest three (3)
trading prices for the common stock during the twenty (20) day period prior to
conversion. Based on the conversion price of $0.022, the debentures shall be
converted to 250,000 shares of Positron Common Stock, par value $0.01 per
share.
Convertible Note Payable –
Imagin
On April
10, 2008, the Company and its affiliate, Imagin Molecular Corporation (“IMGM”),
formalized the advances of $1,346,000 from IMGM in the form of a promissory note
bearing interest at 8% per annum, due on December 31, 2008 ( the “Note”). The
Note is secured by a pledge of 100,000,000 shares of Positron’s common stock,
par value $0.001, (the “Pledged Shares”) in accordance with a Stock Pledge
Agreement (the “Pledge”). Upon a default of the Note or the Pledge, IMGM may
sell the Pledged Shares to repay any and all amounts due under the
Note.
- 64
-
|
FY 2007
|
POSITRON CORPORATION
|
FORM
10-KSB
|
EXHIBITS
|
10.3
|
Promissory Note in favor of Imagin Molecular
Corporation dated April 10, 2008
|
|
|
|
||
|
10.4
|
Stock Pledge Agreement with Imagin Molecular
Corporation dated April 10, 2008.
|
|
|
31.1*
|
Chairman
of the Board Certification of Periodic Financial Report Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
31.2*
|
Chief
Financial Officer Certification of Periodic Financial Report Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
32.1#
|
Chairman
of the Board Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
32.2#
|
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
|
|
|
†
|
Management
contract or compensatory plan or arrangement identified pursuant to Item
13(a).
|
|
|
*
|
Filed
herewith
|
|
|
|
||
|
#
|
Furnished
herewith
|
|
Promissory
Note in favor of Imagin Molecular Corporation dated April 10,
2008
|
|
Stock
Pledge Agreement with Imagin Molecular Corporation dated April 10,
2008.
|
|
Chairman
of the Board Certification of Periodic Financial Report Pursuant to
Section 302 of the Sarbanes-Oxley Act of
2002*
|
|
Chief
Financial Officer Certification of Periodic Financial Report Pursuant to
Section 302 of the Sarbanes-Oxley Act of
2002*
|
|
Chairman
of the Board Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to section 906 of the Sarbanes-Oxley Act of
2002#
|
|
Chief
Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to section 906 of the Sarbanes-Oxley Act of
2002#
|
|
*
|
Filed
herewith
|
|
#
|
Furnished
herewith
|
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