FORM 10-QSB SEPTEMBER 30, 2003
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U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2003
Commission file number: 0-24092
[GRAPHIC OMITTED]
POSITRON
Positron Corporation
A Texas Corporation
I.D. No. 76-0083622
1304 Langham Creek Drive, Suite 300, Houston, Texas 77084
(281) 492-7100
Indicate by check mark whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
past 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days.
Yes X No
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As of September 30, 2003, there were 53,185,803 shares of the Registrant's
Common Stock, $ .01 par value outstanding.
Transitional Small Business Disclosure Format. Yes No X
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FORM 10-QSB SEPTEMBER 30, 2003
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POSITRON CORPORATION
TABLE OF CONTENTS
FORM 10-QSB FOR THE QUARTER ENDED SEPTEMBER 30, 2003
PAGE
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PART I - FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
Condensed Balance Sheet as of September 30, 2003 3
Condensed Statements of Operations for the three and nine months ended
September 30, 2003 and 2002 4
Condensed Statements of Cash Flows for the nine months ended
September 30, 2003 and 2002 5
Selected Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation 10
Item 3. Controls and Procedures 12
PART II - OTHER INFORMATION 12
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signature Page 14
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FORM 10-QSB SEPTEMBER 30, 2003
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POSITRON CORPORATION
CONDENSED BALANCE SHEET
SEPTEMBER 30, 2003
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
ASSETS
------
Current assets:
Cash and cash equivalents $ 36
Accounts receivable, net 104
Inventories 1,264
Prepaid expenses 35
Other current assets 31
---------
Total current assets 1,470
Property and equipment, net 243
---------
Total assets $ 1,713
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable, trade and accrued liabilities $ 1,723
Customer deposits 140
Unearned revenue 35
Current portion of capital lease obligation 8
---------
Total current liabilities 1,906
Stockholders' equity (deficit):
Series A Preferred Stock: $1.00 par value; 8% cumulative,
convertible, redeemable; 5,450,000 shares authorized;
510,219 shares issued and outstanding 510
Common Stock: $0.01 par value; 100,000,000 shares authorized;
53,245,959 shares issued and 53,185,803 shares outstanding 532
Additional paid-in capital 55,183
Subscription receivable (30)
Accumulated deficit (56,373)
Treasury Stock: 60,156 shares at cost (15)
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Total stockholders' equity (deficit) (193)
---------
Total liabilities and stockholders' equity $ 1,713
=========
See accompanying notes
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POSITRON CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Three Months Ended Nine Months Ended
------------------------ ------------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2003 2002 2003 2002
----------- ----------- ----------- -----------
Revenues:
System sales $ 34 $ -- $ 3,459 $ 3,319
Upgrades -- -- 265 --
Service and component 342 333 1,020 994
----------- ----------- ----------- -----------
Total revenues 376 333 4,744 4,313
Costs of sales and services:
System sales 155 -- 3,171 3,272
Upgrades -- -- 95 --
Service, warranty and component 173 136 517 437
----------- ----------- ----------- -----------
Total costs of sales and services 328 136 3,783 3,709
----------- ----------- ----------- -----------
Gross profit 48 197 961 604
Operating expenses:
Research and development 168 272 620 804
Selling and marketing 101 95 277 337
General and administrative 332 459 1,046 1,307
----------- ----------- ----------- -----------
Total operating expenses 601 826 1,943 2,448
----------- ----------- ----------- -----------
Loss from operations (553) (629) (982) (1,844)
Other income (expense)
Gain on sale of Cardiac PET Software -- -- 2,376 --
Interest income -- -- -- 2
Interest expense -- (52) (100) (259)
Deposit forfeiture -- -- -- 50
----------- ----------- ----------- -----------
Total other income (expense) -- (52) 2,276 (207)
----------- ----------- ----------- -----------
Net income (loss) $ (553) $ (681) $ 1,294 $ (2,051)
=========== =========== =========== ===========
Basic and diluted income (loss) per common
share $ (0.01) $ (0.01) $ 0.02 $ (0.03)
Weighted average number of shares
outstanding
Basic 53,179 62,173 59,109 62,173
Diluted 53,179 62,173 60,586 62,173
See accompanying notes
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POSITRON CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Nine Months Ended
------------------------
Sept. 30, Sept. 30,
2003 2002
----------- -----------
Cash flows from operating activities:
Net income (loss) $ 1,294 $ (2,051)
Adjustments to reconcile net income (loss) to net cash
used in operating activities
Depreciation 65 69
Amortization -- 100
Gain on sale of Cardiac PET Software (2,376) --
Changes in operating assets and liabilities:
Accounts receivable 975 (81)
Inventory 2,020 1,633
Prepaid expenses 48 28
Other current assets 52 45
Accounts payable and accrued liabilities 272 32
Customer deposits (2,248) (42)
Unearned revenue (143) (254)
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Net cash used in operating activities (41) (521)
Cash flows from investing activities:
Capital expenditures (5) (7)
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Net cash used in investing activities (5) (7)
Cash flows from financing activities:
Repayment of capital lease obligation (25) (29)
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Net cash used in financing activities (25) (29)
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Net decrease in cash and cash equivalents (71) (557)
Cash and cash equivalents, beginning of period 107 635
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Cash and cash equivalents, end of period $ 36 $ 78
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See accompanying notes
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FORM 10-QSB SEPTEMBER 30, 2003
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POSITRON CORPORATION
SELECTED NOTES TO CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
---------------------
The accompanying unaudited interim financial statements have been prepared
in accordance with generally accepted accounting principles and the rules
of the U.S. Securities and Exchange Commission, and should be read in
conjunction with the audited financial statements and notes thereto
contained in the Annual Report Form 10-KSB for Positron Corporation (the
"Company") for the year ended December 31, 2002. In the opinion of
management, all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of financial position and the results of
operations for the interim periods presented have been reflected herein.
The results of operations for interim periods are not necessarily
indicative of the results to be expected for the full year. Notes to the
financial statements which would substantially duplicate the disclosures
contained in the audited financial statements for the most recent fiscal
year ended December 31, 2002, as reported in the Form 10-KSB, have been
omitted.
Certain prior period amounts have been reclassified to conform to current
period presentation.
2. ACCOUNTING POLICIES
-------------------
REVENUE RECOGNITION
Revenues from POSICAMTM system contracts are recognized when all
significant costs have been incurred and the system has been shipped to the
customer. The Company also recognizes revenue on bill and hold transactions
when the product is completed and is ready to be shipped and the risk of
loss is transferred to the customer. In certain cases, at the customers'
request, the Company is storing the product for a brief period of time.
Revenues from maintenance contracts are recognized over the term of the
contract. Service revenues are recognized upon performance of the services.
3. SALE OF CARDIAC PET SOFTWARE
----------------------------
The Company entered into a loan arrangement on June 29, 2001 with Imatron
Inc. ("Imatron"), a stockholder of the Company, for the purpose of
borrowing up to $2,000,000 to fund operating activities. This loan was
collateralized by substantially all the assets of the Company. Interest was
charged on the outstanding principal balance at an annual rate of 10% and
was payable monthly. As of June 29, 2003 the principal balance of the loan
was $2,000,000. Principal on the loan amounting to $1,000,000 and $500,000
was to be repaid within five (5) business days of December 31, 2001 and
March 31, 2002, respectively. The remaining $500,000 of loan principal and
all unpaid interest was due and payable no later than June 30, 2002.
In conjunction with the loan, the Company granted Imatron warrants to
purchase 6,000,000 shares of common stock, at an exercise price of $.30 per
share that were exercisable through June 30, 2006. The warrants issued to
Imatron had an approximate value of $200,000 at the date of issue. Such
cost was treated as a loan origination cost and amortized to expense over
the twelve-month term of the note payable, using the effective interest
method.
Imatron had previously acquired 9,000,000 shares of the Company's common
stock on January 22, 1999. General Electric Company ("GE") acquired Imatron
on December 19, 2001.
Effective June 29, 2003, the Company entered into a Technology Purchase
Agreement to transfer its Cardiac PET Software to GE in exchange for
cancellation of the indebtedness under this loan and the surrender of the
9,000,000 shares of common stock and the warrant to purchase 6,000,000
shares of common stock. The Company recognized a gain of $2,376,000 related
to the sale of this technology. This gain resulted from the cancellation of
the Company's obligation for $2,000,000 in principal and accrued interest
of $376,000 under the loan. The Company's future commitment to provide
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FORM 10-QSB SEPTEMBER 30, 2003
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assistance to GE for the purpose of fully utilizing and exploiting this
technology, as well as the compensation for these services, were provided
for in a separate service agreement discussed below.
As part of the transactions contemplated by the Technology Purchase
Agreement, the Company entered into a Software License Agreement. Pursuant
to terms of the Software License Agreement, the Company received an
irrevocable license from GE to continue using, modifying, distributing and
otherwise exploiting the Cardiac PET Software in perpetuity.
In conjunction with the Technology Purchase Agreement, the Company also
entered into an Agreement For Services for the purpose of assisting GE in
fully utilizing and exploiting the Cardiac PET Software. The Company agreed
to provide services for a period of six quarters (eighteen months) for a
fee of $50,000 per each 3-month period during the term of this agreement.
GE committed to pay the fee for the first two quarters of $50,000 (total of
$100,000) within two business days of the July 29, 2003 and will make
payment of any subsequent quarters in advance of such quarter. GE may
terminate the Agreement For Services at any time after it has paid the fees
for at least four quarters.
4. INVENTORIES
-----------
Inventories at September 30, 2003 consisted of the following (in
thousands):
Raw materials $ 949
Work in progress 415
-------
Subtotal 1,364
Less reserve for obsolescence (100)
-------
Total $1,264
=======
5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
----------------------------------------
Accounts payable and accrued liabilities at September 30, 2003 consisted of
the following (in thousands):
Trade accounts payable $ 485
Accrued royalties 308
Accrued property taxes 293
Accrued professional fees 180
Accrued compensation 145
Sales taxes payable 130
Accrued rent 97
Accrued warranty costs 60
Other accrued liabilities 25
------
Total $1,723
======
6. EARNINGS PER SHARE
------------------
Basic earnings per common share are based on the weighted average number of
common shares outstanding in each period and earnings adjusted for
preferred stock dividend requirements. Diluted earnings per common share
assume that any dilutive convertible preferred shares outstanding at the
beginning of each period were converted at those dates, with related
interest, preferred stock dividend requirements and outstanding common
shares adjusted accordingly. It also assumes that outstanding common shares
were increased by shares issuable upon exercise of those stock options and
warrants for which market price exceeds exercise price, less shares which
could have been purchased by the Company with related proceeds. The
convertible preferred stock and outstanding stock options and warrants were
not included in the computation of diluted earnings per common share for
the three and nine month periods ended September 30, 2002 and the three
month period ended September 30, 2003, since it would have resulted in an
antidilutive effect.
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FORM 10-QSB SEPTEMBER 30, 2003
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The following table sets forth the computation of basic and diluted
earnings per share.
Three Months Ended Nine Months Ended
------------------------ ----------------------
Sept. 30, Sept. 30, Sept. 30, Sept 30,
2003 2002 2003 2002
----------- ----------- ---------- ----------
(In Thousands, except per share data)
Numerator
Basic and diluted income (loss) $ (553) $ (681) $ 1,294 $ (2,051)
Denominator
Denominator for basic earnings per share-
weighted average shares 53,179 62,173 59,109 62,173
Effect of dilutive securities
Convertible Series A Preferred Stock -- -- 510 --
Stock Warrants -- -- 776 --
Stock Options -- -- 191 --
----------- ----------- ---------- ----------
Denominator for diluted earnings per share-
adjusted weighted average shares and
assumed conversions 53,179 62,173 60,586 62,173
=========== =========== ========== ==========
Basic and diluted income (loss) per
share $ (0.01) $ (0.01) $ 0.02 $ (0.03)
7. LITIGATION
----------
PROFUTURES CAPITAL BRIDGE FUND, L.P.
On September 26, 2000, ProFutures Bridge Capital Fund, L.P. ("ProFutures")
filed a complaint against the Company in Colorado state court for
declaratory relief and breach of contract (the "Complaint"). The Complaint
alleged that the Company breached four stock purchase warrants issued to
ProFutures on the basis that the Company failed to notify ProFutures of
dilutive events and failed to register the full number of shares ProFutures
was allegedly entitled to purchase under the warrants when, on February 14,
2000, the Company registered 1,500,000 shares of stock underlying
ProFutures' warrants instead of 4,867,571. The Complaint further alleged
that the Company's issuance of shares of common stock to Imatron, Inc. on
or about January 22, 1999, (the "Imatron Transaction") was a dilutive event
pursuant to the anti-dilution provisions contained in the four stock
purchase warrants. The Complaint sought declarations that the consideration
received by the Company in the Imatron Transaction increased the number of
shares issuable under the warrants, the Company breached the warrants by
failing to notify ProFutures of the Imatron Transaction and its effect on
ProFutures' warrants at the time of the Imatron Transaction and that the
Company further breached the warrants by failing to register the number of
shares ProFutures alleged were purchasable under its warrants. The
Complaint sought an unspecified amount of monetary damages.
The Colorado State level case of ProFutures v. Positron, District Court,
City and County of Denver, Colorado, Case No. 00CV7146, was tried before
the Court in June 2002. The Court issued its Findings of Fact, Conclusions
of Law and Judgment on November 13, 2002. The Court agreed with Positron's
determination of the value of the consideration paid for the shares issued
to Imatron and that there was no evidence of fraud by Positron. The Court
agreed with ProFutures that Positron breached the 1996 stock purchase
warrant with ProFutures by failing to give ProFutures written notice
stating the adjusted exercise price and the new number of shares
deliverable as a result of the Imatron Transaction and by failing to
register the shares to which ProFutures was entitled under the warrant as a
result of the Imatron Transaction. Nevertheless, the Court also found that
ProFutures' alleged damages were uncertain and speculative and that
ProFutures was not entitled to recover actual damages. Therefore ProFutures
was awarded $1 in nominal damages.
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FORM 10-QSB SEPTEMBER 30, 2003
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ProFutures has appealed the trial Court's findings and Positron has
cross-appealed. Those appeals are presently pending before the Court of
Appeals, State of Colorado.
In the federal case of ProFutures v. Positron, et al., United States
District Court for the District of Colorado, Case No. 02-N-0154, the
Complaint alleged two causes of action against the Company: fraudulent
transfer and injunctive relief. The allegations arose out of a June 2001
loan agreement between Positron and Imatron. The action was dismissed in
2002 without prejudice.
CHINA XINXING
In July 2001 and February 2002, the Company received demands from China
Xinxing Shanghai Import and Export Company ("China Xinxing"), a company
located in Shanghai, China, for payment of an arbitration award in favor of
China Xinxing and against the Company, in the total amount of approximately
$297,000. The award was rendered on or about August 25, 2000 by arbitrators
affiliated with the Shanghai Sub-commission of the China International
Economic and Trade Arbitration Commission (CIETAC Case No. SM9872, Award
No. (2000) HMZZ 1154). The award represents the amount of a refund
(together with arbitration costs) of an advance payment made by China
Xinxing under a contract with the Company dated September 12, 1996. In
August 2002, China Xinxing filed suit in the United States to obtain
confirmation and enforcement of the award.
The Company entered into a Settlement Agreement and Release with China
Xinxing in November 2002. The Company was obligated to pay the $297,000
obligation in five periodic monthly installments of $50,000 beginning in
November 2002, with a sixth final payment of approximately $47,000 due in
March 2003. The Company has paid all six installments, and China Xinxing
has executed a Satisfaction of Judgment reflecting satisfaction all of the
Company's obligations under the award, the Judgment entered on the award,
and the Settlement Agreement.
10P10, L.P.
In December 2001, 10P10, L.P., the Company's previous landlord for its
premises located at 16350 Park Ten Place, Suite 150, Houston, Texas, filed
a complaint (Cause No. 2001-65534 in the 165th Judicial District Court of
Harris County, Texas) against the Company alleging breach of lease
agreement. The Company disputes the amount of lease commissions and
construction costs charged by 10P10, L.P. in conjunction with the
subleasing of the premises. Although 10P10, L.P. asserted a claim in excess
of $150,000, a subsequent analysis of the transactions under the lease has
resulted in the reduction of the lease obligation alleged by 10P10, L.P. to
approximately $97,000. Although the Company disputes the amount of the
claim, due to the pending lawsuit, Company management has recorded $97,000
as an accrued liability as of September 30, 2003. Although the case is set
for trial on a two week docket beginning November 10, 2003, the Company has
requested a continuance of the trial setting until February 2004.
8. SUPPLEMENTAL CASH FLOW DATA
---------------------------
Three Months Ended Nine Months Ended
---------------------- ----------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2003 2002 2003 2002
---------- ---------- ---------- ----------
Supplemental disclosure of cash flow
information (In thousands):
Cash paid for interest $ 1 $ 2 $ 2 $ 9
Cash paid for income taxes $ -- $ -- $ -- $ --
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FORM 10-QSB SEPTEMBER 30, 2003
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
We are including the following cautionary statement in this Quarterly Report on
Form 10-QSB to make applicable and utilize the safe harbor provision of the
Private Securities Litigation Reform Act of 1995
regarding any forward-looking statements made by, or on behalf of, the Company.
Forward-looking statements include statements concerning plans, objectives,
goals, strategies, future events or performance and underlying assumptions and
other statements, which are other than statements of historical facts. Certain
statements contained herein are forward-looking statements and, accordingly,
involve risks and uncertainties, which could cause actual results or outcomes to
differ materially from those expressed in the forward-looking statements.
Our expectations, beliefs and projections are expressed in good faith and are
believed by us to have a reasonable basis, including without limitations, our
examination of historical operating trends, data contained in our records and
other data available from third parties, but there can be no assurance that our
expectations, beliefs or projections will result, or be achieved, or be
accomplished.
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------------------------------------------
2003 AND 2002
-------------
We realized a loss of $553,000 during the three months ended September 30, 2003
compared to a loss of $681,000 for the same quarter in 2002.
We did not sell any systems during the quarters ended September 30, 2003 and
2002. Revenues from system sales in the quarter ended September 30, 2003
included a $34,000 increase in the contract price for a system that was sold in
a prior period. Our service revenues increased $9,000 to $342,000 in the three
months ended September 30, 2003 from $333,000 in the same period in 2002.
Service revenues in the quarter ended September 30, 2003 included the
recognition of $50,000 in fees relating to support provided to GE Medical
Systems in conjunction with the purchase of the Cardiac PET Software.
We generated gross profits of $48,000 during the three months ended September
30, 2003 compared to $197,000 in gross profits for the same three months in
2002. We recognized $34,000 in revenues from system sales in the three month
period ended September 30, 2003, offset by $155,000 in expenses related to
manufacturing labor, equipment and overhead. We earned profits of $169,000 from
services in the third quarter of 2003, compared to profits of $197,000 from
services in the same quarter in 2002.
Our operating expenses decreased $225,000 to $601,000 for the three months ended
September 30, 2003 from $826,000 for the same period in 2002. Research and
development expenses declined $104,000 to $168,000 from $272,000 primarily due
to lower payroll costs and a reduction in the use of outside consultants. Legal
fees decreased $106,000 to $41,000 in the quarter ended September 30, 2003 from
$147,000 in the same period in 2002, as a result of a reduction in activities
associated with litigation.
Interest expense decreased to a nominal amount in the quarter ended September
30, 2003, as a result of the cancellation of the indebtedness to Imatron
effective June 29, 2003. Interest expense of $52,000 in the third quarter of
2002 was primarily attributable to the indebtedness to Imatron.
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------------------------------------------------------
2003 AND 2002
-------------
We earned income of $1,294,000 in the nine months ended September 30, 2003
compared to a loss of $2,051,000 during the same period in 2002. We earned
income in the first nine months of 2003 primarily as a result of the $2,376,000
gain related to the sale of the Cardiac PET Software.
We generated revenues of $3,459,000 on the sale of three systems during the nine
month period ended September 30, 2003. This compares to revenues of $3,319,000
from the sale of three systems in the same period in 2002. We earned revenues of
$265,000 from upgrades of systems in the nine month period ended September 30,
2003 compared to no revenues from system upgrades in the same nine month period
in the previous year. Our service revenues increased $26,000 to $1,020,000 in
the nine months ended September 30, 2003 from $994,000 in the same period in
2002. Service revenues in the nine month period ended September 30, 2003
included the recognition of $50,000 in fees relating to support provided to GE
Medical Systems in conjunction with the purchase of the Cardiac PET Software.
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We generated gross profits of $961,000 during the nine months ended September
30, 2003 compared to $604,000 for the same period in 2002. We earned profits of
$554,000 from the sale of three systems, $170,000 from upgrades of systems and
$503,000 from service in the first nine months of 2003, offset by $266,000 in
expense related to manufacturing labor and overhead. This compares to profits
of $47,000 from the sale of three systems and $557,000 from service in the same
period in 2002.
Our operating expenses decreased $505,000 to $1,943,000 for the nine months
ended September 30, 2003 from $2,448,000 for the same period in 2002. Research
and development expenses declined $184,000 to $620,000 from $804,000 primarily
due to lower payroll costs and a reduction in the use of outside consultants.
Sales and marketing expenses decreased $60,000 to $277,000 from $337,000 as a
result of lower payroll, travel and advertising costs. General and
administrative expenses decreased $261,000 to $1,046,000 in the nine month
period ended September 30, 2003 from $1,307,000 during the same period in the
prior year. This decrease in general and administrative expenses was primarily
the result of the reduction in legal fees by $437,000. This decrease was
partially offset by a $123,000 reduction in the amount of rent credits earned
relating to the obligation on the abandoned lease space.
Interest expense decreased $159,000 to $100,000 in the nine month period ended
September 30, 2003 from $259,000 for the same period in 2002. Interest charged
on the loan obligation to Imatron amounted to $100,000 and $150,000 during the
nine month periods ended September 30, 2003 and 2002, respectively. Interest
expense in the nine month period ended September 30, 2002 also included $100,000
of loan cost amortization.
We recognized a gain of $2,376,000 on the sale of our Cardiac PET Software in
the nine month period ended September 30, 2003.
FINANCIAL CONDITION
--------------------
We had cash and cash equivalents of $36,000 and accounts receivable of $104,000
on September 30, 2003. On the same date, we had accounts payable and accrued
liabilities outstanding of $1,723,000. We did not sell any imaging systems in
the third quarter of 2003. In order to resolve our liquidity problems, we must
sell imaging systems or seek alternative sources of debt or equity funding.
However, there is no assurance that we will be successful in selling new systems
or securing additional debt or equity funds.
Since inception, we have been unable to sell our POSICAMTM systems in quantities
sufficient to be operationally profitable. Consequently, we have sustained
substantial losses. Due to the sizable selling prices of our systems and the
limited number of systems sold or placed into service each year, revenues have
fluctuated significantly from year to year. We have an accumulated deficit of
$56,373,000 at September 30, 2003. The Company will need to increase system
sales to achieve continued profitability.
These events raise doubt as to our ability to continue as a going concern. The
report of our independent public accountants, which accompanied our financial
statements for the year ended December 31, 2002, was qualified with respect to
that risk. If we are unable to obtain debt or equity financing to meet our cash
needs we may have to severely limit or cease our business activities or may seek
protection from our creditors under the bankruptcy laws.
NEW ACCOUNTING PRONOUNCEMENTS
-------------------------------
Please refer to the Annual Report Form 10-KSB for the year ended December 31,
2002 and the Quarterly Report Form 10-QSB for the quarterly period ended June
30, 2003 for disclosures regarding the Company's treatment of new accounting
pronouncements.
CRITICAL ACCOUNTING POLICIES
------------------------------
REVENUE RECOGNITION
Revenues from POSICAMTM system contracts are recognized when all significant
costs have been incurred and the system has been shipped to the customer. The
Company also recognizes revenue on
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FORM 10-QSB SEPTEMBER 30, 2003
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bill and hold transactions when the product is completed and is ready to be
shipped and the risk of loss is transferred to the customer. In certain cases,
at the customers' request, the Company is storing the product for a brief period
of time. Revenues from maintenance contracts are recognized over the term of the
contract. Service revenues are recognized upon performance of the services.
ITEM 3 - CONTROLS AND PROCEDURES
As of September 30, 2003, the Company carried out an evaluation, under the
supervision and with the participation of the Company's management, including
the Company's Chairman of the Board of Directors and Chief Financial Officer, of
the effectiveness of the design and operation of the Company's disclosure
controls and procedures (as defined in Exchange Act Rule 13a-15(e) and Rule
15d-15(e)). Based upon that evaluation, the Company's Chairman of the Board of
Directors and Chief Financial Officer concluded that the Company's disclosure
controls and procedures are effective at a reasonable level in timely alerting
them to material information relating to the Company that is required to be
included in the Company's periodic filings with the Securities and Exchange
Commission. There has been no change in the Company's internal control over
financial reporting that occurred during the Company's most recent fiscal
quarter that has materially affected or is reasonably likely to materially
affect, the Company's internal control over financial reporting.
The Company's management, including the Chairman of the Board of Directors and
Chief Financial Officer, do not expect that the Company's disclosure controls or
internal controls will prevent all error and all fraud. A control system, no
matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met due to
numerous factors, ranging from errors to conscious acts of an individual, or
individuals acting together. In addition, the design of a control system must
reflect the fact that there are resource constraints, and the benefits of
controls must be considered relative to their costs. Because of the inherent
limitations in a cost-effective control system, misstatements due to error
and/or fraud may occur and not be detected.
PART II OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
The information regarding legal proceedings set forth above under Part I -
Financial Information, Note 7 to the Condensed Financial Statements, is hereby
incorporated by reference into Part II, Item 1 - Legal Proceedings.
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5 - OTHER INFORMATION
None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
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12
FORM 10-QSB SEPTEMBER 30, 2003
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Exhibit Description of the Exhibit
31.1 Chief Executive Officer and Chief Financial Officer
Certification of Periodic Financial Report Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Chief Executive Officer and Chief Financial Officer
Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
On July 14, 2003, the Company filed a current report on Form 8-K for
the purpose of reporting under Item 2 thereof the cancellation of a $2,000,000
note and other obligations in exchange for sale of the Cardiac PET Software to
General Electric Company and for the purpose of reporting under Item 5 thereof
the resignation of Michael Golden and the appointment of Gary Brooks as the
Company's Chief Financial Officer.
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FORM 10-QSB SEPTEMBER 30, 2003
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
POSITRON CORPORATION
(Registrant)
Date: November 14, 2003 /s/ Gary H. Brooks
----------------------
Gary H. Brooks
Chairman, CEO, & CFO
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FORM 10-QSB SEPTEMBER 30, 2003
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EXHIBIT INDEX
Exhibit Description of the Exhibit
31.1 Chief Executive Officer and Chief Financial Officer
Certification of Periodic Financial Report Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Chief Executive Officer and Chief Financial Officer
Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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15