U.S.
SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
S ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
FOR
THE FISCAL YEAR ENDED DECEMBER 31, 2008
Commissions
file number: 0-24092
Positron
Corporation
A Texas
Corporation
7715 Loma
Ct. Suite A, Fishers, IN. 46038 (317) 576-0183
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
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes £ No S
Indicate
by a check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.
Yes ¨ No x
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 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 ¨
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not 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-K or any amendment to this
Form 10-K. x
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of “large accelerated filer”, “accelerated filer”, or “smaller
reporting company in Rule 12b-2 of the Exchange Act (check one):
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Large
accelerated filer ¨
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Accelerated
filer ¨
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Non-accelerated
filer ¨
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Smaller
reporting Company x
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act.).
Yes ¨ No x
Issuer's
revenues for fiscal year ended December 31, 2008: $2,126,000.
Aggregate
market value of common stock held by non-affiliates of the Registrant as of
April 14, 2009: $4,557,228.83.
As of
April 14, 2009, there were 198,140,384 shares of the Registrant's common stock,
$.01 par value outstanding.
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PART I
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Item
1.
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3
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Item
1A
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11
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Item
1B
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Item
2.
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Item
3.
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Item
4.
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PART
II
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Item
5.
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Item
6.
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Item
7.
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Item
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Item
8.
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Item
9.
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Item
9A(T)
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Item
9B.
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PART
III
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Item
10.
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24
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Item
11.
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25
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Item
12.
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30
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Item
13.
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Item
14.
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32
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PART
IV
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Item
15.
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32
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33
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PART
I
Forward-Looking
Statements
This
report contains various forward-looking statements regarding our business,
financial condition, results of operations and future plans and projects.
Forward-looking statements discuss matters that are not historical facts and can
be identified by the use of words such as “believes,” “expects,” “anticipates,”
“intends,” “estimates,” “projects,” “can,” “could,” “may,” “will,” “would” or
similar expressions. In this report, for example, we make forward-looking
statements regarding, among other things, our expectations about the rate of
revenue growth in specific business segments and the reasons for that growth and
our profitability, our expectations regarding an increase in sales, strategic
traction and sales and marketing spending, uncertainties relating to our ability
to compete, uncertainties relating to our ability to increase our market share,
changes in coverage and reimbursement policies of third-party payors and the
effect on our ability to sell our products and services, the existence and
likelihood of strategic acquisitions and our ability to timely develop new
products or services that will be accepted by the market.
Although
these forward-looking statements reflect the good faith judgment of our
management, such statements can only be based upon facts and factors currently
known to us. Forward-looking statements are inherently subject to risks and
uncertainties, many of which are beyond our control. As a result, our actual
results could differ materially from those anticipated in these forward-looking
statements as a result of various factors, including those set forth below under
the caption “Risk Factors.” For these statements, we claim the protection of the
safe harbor for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995. You should not unduly rely on these
forward-looking statements, which speak only as of the date on which they were
made. They give our expectations regarding the future but are not guarantees. We
undertake no obligation to update publicly or revise any forward-looking
statements, whether as a result of new information, future events or otherwise,
unless required by law.
Corporate
Information
Positron
Corporation (the "Company" or “Positron”) was incorporated in 1983 and is
currently headquartered in Fishers, Indiana. Unless the context requires
otherwise, in this report the terms “we,” “us” and “our” refer to Positron
Corporation.
Item
1. Business
General
Overview
Positron
Corporation operates through: Molecular Imaging Devices and Radiopharmaceutical
Products. The Molecular Imaging Devices provide Positron Emission Tomography
(PET) scanners and Single Photon Emission Computed Tomography (SPECT) cameras.
The Radiopharmaceutical Products offer the world’s first robotic systems
for distribution and delivery of radiopharmaceuticals and provides
radiopharmaceutical agents used for the diagnosis of cardiac diseases. The
Company attempts to create revenue by offering low cost molecular imaging
devices, disease specific software, radiopharmaceutical distribution and
delivery systems, and radiopharmaceuticals agents for cardiac nuclear
medicine.
Positron
Corporation operates through the following: Molecular Imaging Devices and
Radiopharmaceutical Products. The Molecular Imaging Devices provides
Positron Emission Tomography (PET) scanners and Single Photon Emission Computed
Tomography (SPECT) cameras. The Radiopharmaceutical Products offers
world’s first robotic systems for distribution and delivery of
radiopharmaceuticals and provides radiopharmaceutical agents used for the
diagnosis of cardiac diseases. The Company attempts to create revenue by
offering low cost molecular imaging devices, disease specific software,
radiopharmaceutical distribution and delivery systems, and
radiopharmaceuticals agents for cardiac nuclear medicine.
On
November 18, 2008, the Company, Solaris Opportunity Fund, L.P. and
Imagin Molecular Corporation executed and consummated a Securities Exchange
Agreement whereby Imagin transferred and assigned all of its rights title and
interest two notes receivable due from the Company (“Note 1 and Note 2”) and
related pledged securities to Solaris in exchange for the return of the
20,000,000 shares of Imagin’s common stock and 4,387,500 shares of Imagin’s
Series A Preferred Stock, to be retired and cancelled on Imagin’s books and
records and the retirement and satisfaction of any obligations to the advances
made in the amount of $200,000 to Imagin by Solaris. Simultaneously therewith,
Solaris exchanged Note 1, Note 2 plus accrued interest and the Pledged Shares
and the retirement and satisfaction of any obligations to the advances made to
the Company in the aggregate amount of $1,155,000 for the issuance of 100,000
shares of the Company’s Series S Preferred Stock (the “Exchange”). As
a result of the Exchange, Solaris Opportunity Fund, L.P. became the Company’s
controlling shareholder, holding approximately 60% of the Company’s voting
capital stock.
Market
Opportunity
Molecular Imaging Devices for
Cardiology Segment
Cardiovascular
diseases (CVD) are the cause of death of approximately 17 million people
worldwide, almost one-third of all deaths (WHO, 2005). CVD accounted for 38% of
all deaths, or 1 of every 2.6 deaths in the United States (American Heart and
Stroke Association, 2005).
Diagnostic
imaging may facilitate the early diagnosis of diseases and disorders,
potentially minimizing the scope, cost and amount of care required, and
potentially reducing the need for more invasive procedures. Nuclear medicine is
a form of diagnostic imaging in which depictions of the internal anatomy or
physiology are generated primarily through non-invasive means. Currently, five
major types of non-invasive diagnostic imaging technologies are available:
x-ray; magnetic resonance imaging (MRI); computerized tomography (CT);
ultrasound; and nuclear imaging.
Nuclear
imaging uses very low-level radioactive material, called radiopharmaceuticals,
injected to a patient. The radiopharmaceuticals are specially formulated to
concentrate temporarily in the specific part of the body to be studied. The
radiation signals emitted by the materials are then converted into an image of
the body part or organ. Nuclear imaging, in contrast to other diagnostic imaging
modalities, shows not only the anatomy or structure of an organ or body part,
but also its function—including blood flow, organ function, metabolic activity
and biochemical activity. In cardiology, nuclear medicine provides the most
accurate non-invasive tests for identifying narrowed coronary arteries, mild
cholesterol build-up or diffuse coronary vascular disease that are responsible
for most heart attacks. Management of coronary disease (CAD) currently utilizes
noninvasive diagnostic testing as a ‘‘gatekeeper’’ and invasive coronary
arteriography, when results are abnormal, to provide a definitive diagnosis of
CAD. There are two major modalities in nuclear medicine imaging, gamma cameras
and Positron Emission Tomography (PET), both of which are used for
cardiovascular procedures. The most widely used imaging acquisition technology
utilizing gamma cameras is single photon emission computed tomography, or SPECT.
The Company believes that due to recent market dynamic changes, including the
fact that the reimbursement rate for a dedicated cardiac PET has been almost
doubled by CMS in 2008, the PET technology will become more utilized in nuclear
cardiology.
Our Products
Since
1983, the Company has been designing, manufacturing, marketing and servicing
advanced molecular imaging devices / software for Cardiology utilizing PET
technology under the trade name POSICAM™, and since 2006, SPECT technology under
the trade name Pulse CDC™. Positron’s SPECT and PET cardiac molecular
imaging devices are installed in more than 150 hospitals and physician
offices around the world.
Through
our Chinese joint venture, Neusoft Positron Medical Systems, we believe we have
upgraded our PET imaging system to accommodate the growing need by cardiologists
for competitively priced, high quality molecular imaging devices. The
Attrius™ Cardiac PET system has been submitted for approval from the Food and
Drug Administration in January 2009. The Company believes that the cardiac
market for PET is quickly emerging and provides an immediate opportunity to
capture significant market share. Cardiac/ nuclear professional societies
such as American College of
Cardiology (ACC) and American Society of Nuclear Cardiology (ASNC) have
predicted that cardiac PET will be rapidly disseminated only if three factors are addressed: cost of entry, increase of peer reviewed literature and the
utilizing the quantitative abilities of PET. Positron’s technology
for PET imaging provides image quality comparable to other PET manufacturer with
significantly less costs. In addition, Positron offers a software patient
management solution to improve patient care, including software by K. Lance
Gould, M.D., a world renowned expert of cardiac PET technology. The
Company has formed an exclusive relationship agreement with Dr. Gould in an
effort to better differentiate from competition.
.
Radiopharmaceuticals Delivery
Segment
According
to Bio-Tech Systems (www.biotechsystems.com), a research firm that
covers the diagnostic imaging market, radiopharmaceutical sales alone reached
$1.93 billion in 2007, and an additional $1.57 billion for imaging agents, both
expected to double by 2014. In a study conducted by Frost & Sullivan
(www.frost.com), the medical imaging consumables market is expected to grow at a
compound annual rate of 14 percent, driven by an aging baby boomer population
and persons 65 and over, and increasing more than twice as fast as the total
population.
Until
2008, the two most prescribed cardiac radiopharmaceuticals, Rb82 Rubidium
(Cardiogen®) and
Tc-99m Sestamibi (Cardiolite®), have
been protected by patents combined with exclusive distribution relationships.
However, since the end of 2008, the primary nuclear cardiology products are
available generically, which opens the billion dollar nuclear cardiology
radiopharmaceutical market.
Positron
Corporation intends to capture and create recurring revenue of generic
radiopharmaceuticals distributed to the medical imaging community with any
nuclear molecular imaging systems installed as well as complimentary to the
Positron Corporation’s devices sales. It will be achieved by (i) developing and
producing of automated dose dispensing capital equipment for the
radiopharmaceutical, chemotherapy, medical imaging and pharmaceutical industry;
(ii) seeking FDA approvals or distribution rights for radiopharmaceutical
products that support the sale of our capital equipment; (iii) manufacturing
newly available generic radiopharmaceutical generators, and (iv) developing a
licensing model for adding radiopharmacy products to existing compounding
regional pharmacies.
Our Products and Services
Positron
has developed a “virtual pharmacy” solution which will allow placing dose
delivery systems into the physician’s offices. Positron’s radiopharmaceutical
delivery systems, Nuclear Pharm-Assist®, are being used by nuclear pharmacies
and premier healthcare institutions. The Nuclear Pharm-Assist® reduces clients’
overheads and the overall radiation exposure of workers, improves the efficiency
of the pharmacy and complies with newly enacted sterility requirements. The
Nuclear Pharm-Assist® provides flexibility to an imaging provider that is
unprecedented in the industry. Radiopharmaceuticals are cumbersome to compound
and typically have a six hour expiration time once the compounding is started.
Currently, the compounding difficulties and short drug expiration forces most
nuclear medicine departments to utilize the local centralized nuclear pharmacy.
With less than 600 centralized nuclear pharmacies, mainly owned by four
companies, the choices and services are limited for nuclear medicine imaging
providers. As a result, a centralized nuclear pharmacy can dictate the hours of
operation and what drug manufacturers are utilized by an imaging provider.
Positron Corporation will seek to change the paradigm of imaging by allowing the
physician freedom to choose how to manage their imaging department.
Positron
Corporation believes immediate market opportunities for the Nuclear
Pharm-Assist® may exist with Centralized Nuclear Pharmacies and large hospitals
and may continue due to USP-97. June 1, 2008, marks the release of the final
version of the United States Pharmacopeia Chapter 797 compounding regulations.
USP-797 is the first USP chapter for the practice of pharmacy that is
enforceable by the FDA. Most Nuclear medicine facilities and nuclear pharmacies
are under prepared—from training, operating procedures, construction and
financial constraints—to conform to these regulations. The Nuclear Pharm-Assist®
meets the requirements of USP-797 as a compounding aseptic containment isolator
(CACI) and will provide the ISO Class 5 environment necessary for USP-797
compliance as well as automating the basic radiopharmaceutical compounding
procedures. The Nuclear Pharm-Assist® is a unique solution for Nuclear Medicine
facilities to assist in achieving rapid, cost effective compliance.
Positron
Corporation is expanding its offering of automated devices by configuring the
technology of the Nuclear Pharm-Assist® specifically to the needs of Nuclear
Cardiology. This specific dose delivery system under the name the Nuclear
Cardio-Assist™ provides nuclear cardiology departments the ease of “Unit Dose”
with the reliability of an “In-House” supply. The Nuclear Cardio-Assist™
replaces typical “Hot” lab equipment and acts as a “virtual” nuclear pharmacy
with “Unit Dose” availability, at the touch of a button, 24/7. The Nuclear
Cardio-Assist™ is a self-contained device that provides a platform for
compliance with all regulations that involve compounding and dispensing sterile
injectables. Single patient doses can be compounded from various “Cold” kits, as
needed, to meet customer specifications for each patient. The Nuclear
Cardio-Assist™ can also be configured for use in general Nuclear Medicine
departments. The Company intends to separate itself from other competitors in
both equipment and radiopharmacy by marketing its complete turnkey offering of
radiopharmaceuticals, camera service and imaging as a total solution to
customers under the name PosiRx™. Positron’s
PosiRx™ will offer
financing and partnership flexibility to imaging providers with the choice of
radiopharmaceuticals, radiopharmaceutical dispensing systems, molecular imaging
devices, and equipment service directly from Positron. Customers can
choose all services as a complete package or individual parts that suit their
needs. Positron is able to offer innovative distribution and dose
dispensing of radiopharmaceuticals directly to imaging providers as a result of
their cutting edge “virtual pharmacy” device, the Nuclear
Pharm-Assist®.
|
FY
2008
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
Competitive
Strengths
We
believe that our Company has the following competitive strengths:
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·
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Well-Known Name among
Cardiologists. The high count-rate capability and sensitivity of
the Positron’s PET systems result in good diagnostic accuracy, faster
imaging and ability to use short half-life radiopharmaceuticals, which
made Positron’s PET systems a system of choice for certain cardiac
applications.
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·
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The Only Low Price Cardiac PET
System in the Market. All major PET manufacturers have discontinued
manufacturing of PET only systems, offering PET systems combined with
Computerized Tomography (PET/CT) instead. A very expensive CT component
provides certain advantages in oncology applications but is redundant for
cardiac imaging procedures. Positron intends to fill this market niche
with its Attrius™ Cardiac PET system from Positron Chinese joint venture,
Neusoft Positron Medical Systems.
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|
·
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Software Patient Management
Solution to Improve Patient Care for Cardiologists. The Positron
coronary disease reversal and prevention online management system focuses
on optimal patient outcomes and the economic impact of their downstream
care to change the way coronary artery disease (CAD) patients are
managed.
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·
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Unique Radiopharmaceutical
Delivery Systems. Positron’s revolutionary “virtual pharmacy”
solutions, Nuclear Pharm-Assist® and Nuclear Cardio-Assist™, allows
placing pharmaceutical dose delivery systems into the physician’s offices
and provides unprecedented “Unit Dose” flexibility to imaging providers at
the touch of a button, 24/7. The systems meets the requirements of the
United States Pharmacopeia Chapter 797 compounding regulations as a
compounding aseptic containment isolator (CACI) and provides the ISO Class
5 environment necessary for USP-797 compliance as well as automating the
basic radiopharmaceutical compounding procedures. Most Nuclear medicine
facilities and nuclear pharmacies are under prepared and have to make
considerable investments to meet requirements of USP-797 which are in
force since June 2008.
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·
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Complete Turnkey Offering of
Radiopharmaceuticals, Camera Service and Imaging as a Total Solution to
Customers. PosiRx™ program by Positron offers financing and
partnership flexibility to imaging providers with the choice of
radiopharmaceuticals, radiopharmaceutical dispensing systems, molecular
imaging devices, and equipment service directly from Positron.
Customers can choose all services as a complete package or individual
parts that suit their needs.
|
Business
Strategy
We intend
to increase our revenues by:
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·
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Focus
on the cardiac diagnostic market, which though highly competitive, has not
being properly addressed to accommodate the trends from government
pressures to reduce the healthcare burden while improving
outcomes.
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·
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Cost
leadership – we offer customers cost-savings
solutions.
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·
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Diversification
of our business into the radiophamaceutical market with a final goal to
catch a significant share of recurring monthly revenue from
radiopharmaceuticals.
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·
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Product
differentiation by not only uniqueness of our PET systems, software
patient management solutions and pharmaceutical delivery systems, but
offering to customers a total imaging
solution.
|
|
FY
2008
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
Sales
and Marketing
To market
its equipment and services, Positron relies on referrals from users of its
existing base of installed scanners and cameras, 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.
|
FY
2008
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
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 services domestic customers of our SPECT systems remotely through
Internet access that facilitates system diagnosis without the need for field
service or repair. When physical repair is required, our modular part
replacement capability allows our field service engineers to perform field
repairs that minimize customer downtime.
The
Company typically provides a one-year warranty to purchasers of our
equipment. 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. At year end 2008, the company had twenty three (23) service
contracts in force and four (4) systems 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 PET systems during 2007 and 2006; a study of 50
SPECT cameras yielded an average uptime of all units of 99.94 % and less than
one service related incoming call per month.
Competition
The
Company faces competition primarily from three very large commercial
manufacturers of PET systems and SPECT cameras 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 and
SPECT cameras comes from General Electric Medical Systems (“GE”), Siemens
Medical Systems, Inc. (“Siemens) and Philips Medical (“Philips”), all of
which offer a full line of imaging cameras for each diagnostic imaging
technology, including x-ray, MRI, CT, ultrasound and nuclear medicine, or
SPECT/CT and PET/CT imaging. The molecular imaging systems sold by these
competitors have been in use for a longer period of time than our products and
are more widely recognized and used by physicians and
hospitals.
In
Radiopharmaceutical Delivery Segment, Positron faces competition primarily from
Cardinal Health, PETNET Solutions, a fully owned subsidiary of Siemens Medical
Solutions USA, Covidien Ltd., and GE healthcare.
Many of
our competitors enjoy significant competitive advantages over us, including:
greater name recognition; greater financial, technical and service resources;
established relationships with healthcare professionals; established
distribution networks; additional lines of products and the ability to offer
rebates or bundle products to offer discounts or incentives; and greater
resources for product development and sales and marketing. See “Item
1. Description of Business—Risk Associated with Business
Activities—Substantial Competition and Effects of Technological
Change.
Third-Party
Reimbursement
Our
customers typically rely on the Medicare and Medicaid programs and private
payors for reimbursement. As a result, demand for our products is dependent in
part on the coverage and reimbursement policies of these payors. Third party
coverage and reimbursement is subject to extensive federal, state, local, and
foreign regulation, and private payor rules and policies. In many instances, the
applicable regulations, policies and rules have not been definitively
interpreted by the regulatory authorities or the courts, and are open to a
variety of interpretations and are subject to change without
notice.
The
scopes of coverage and payment policies vary among third-party private payors.
For example, some payors will not reimburse a provider unless the provider has a
contract with the payor, and in many instances such payors will not enter into
such contracts. Other payors prohibit reimbursement unless physicians own or
lease our systems and cameras on a full-time basis, or meet certain
accreditation or privileging standards. Such requirements and limitations can
significantly restrict the types of business models we can successfully
utilize.
Medicare
reimbursement rules impose many standards and policies on the payment of
services that our customers provide. For instance, the Medicare prohibition on
the “mark-up” of diagnostic tests can restrict what a physician may charge
Medicare for diagnostic tests. Medicare also imposes medical necessity and other
standards on physician and facilities that bill Medicare for
services.
|
FY
2008
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
Any
limitation of Medicare, Medicaid or private payer coverage for PET or SPECT
procedures using will likely have a material adverse effect on the Company’s
business, financial condition, results of operations and cash
flows.
Manufacturing
Our
manufacturing strategy combines our internal design expertise and proprietary
process technology with strategic outsourcing to achieve cost efficiencies. All
of the Company’s PET systems will be manufactured through its joint venture,
Neusoft Positron Medical Systems, at its developmental and manufacturing
facility in Shenyang, China. The manufacturing of the Nuclear Pharm-Assist® line
takes place in Indianapolis, Indiana metropolitan area. To utilize the
synergies between various product lines, the Company has recently made a
decision to concentrate all manufacturing facilities in Indianapolis and moved
the manufacturing of SPECT cameras there from a facility in Ottawa,
Canada.
We expect
to continue outsourcing additional components and processes to gain efficiencies
and cost savings. We expect to perform subassembly and final system performance
tests, packaging and labeling at our facility. We provide connectivity solutions
which include consulting and configured computers. We also sell accessories
which are outsourced and include printers, equipment for handling and measuring
radioactive materials, and software for the cameras and systems.
We and
our third-party manufacturers are subject to the FDA’s Quality System
Regulation, state regulations, and regulations promulgated by the European
Union. We are currently certified under ISO 9001:2000 and ISO 13485:2003 quality
standards.
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, in the 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. , 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.
|
FY
2008
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
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 JV
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. During 2008, as a
result of additional capital contributions by Neusoft, the Company’s share in JV
Company decreased to 10%.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.
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.
The joint
venture has submitted Attrius™ Cardiac PET to FDA in January 2009 and hopes to
obtain FDA 510k regulatory approval in the second quarter of 2009.
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.
Research and
Development
The
Company’s research and development expenses were approximately $1,027,000 and
$1,361,000 for the years 2008 and 2007, respectively. The research and
development activities have been focused on a solid-state alternative to
traditional photomultiplier technologies, development of radiopharmaceutical
delivery systems, and improvements to PulseCDC camera. These research and
development activities are costly and critical to the Company’s ability to
develop and maintain improved products. 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.
|
FY
2008
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
Patent,
Trademarks 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 $247,000 were included in liabilities at December 31,
2008.
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 also has 3 U.S. patents for gamma cameras, three patents pending
covering the solid-state (quantum photodetector) technology and configuration of
imaging apparatus and systems and one patent pending for radiopharmaceuticals
delivery devices.
As of
December 31, 2008, we hold trademark registrations in the United States for
the following marks: Attrius™, POSICAM™, Pulse CDC™, Nuclear
Pharm-Assist®.
The
Company seeks to protect its trade secrets and proprietary know-how through
confidentiality agreements with its employees and consultants. The
Company requires our employees, consultants and advisors 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 and the assignment to the Company of patents and
proprietary rights to such matters related to the business and technology of the
Company. Despite any measures taken to protect our intellectual property,
unauthorized parties may attempt to copy aspects of our products or to obtain
and use information that we regard as proprietary.
Backlog
As of
December 31, 2008, the Company had no outstanding orders for PET systems pending
FDA 510 approval and no outstanding orders for a PulseCDC system. A backlog of
five Nuclear Pharm-Assist® devices currently exists. The Company is expected to
deliver these units in the 2nd quarter of 2009.
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 does not currently maintain liability insurance
to cover these risks. .
Employees
As of
December 31, 2008, the Company employed twenty (20) full-time employees and four (4)
consultants: four (4) in engineering, seven (7) in
customer support, two (2) in manufacturing, three (3) in
sales and marketing, eight (8) in the executive and administration
department. None of the Company’s employees are represented by a
union.
Available
Information
Positron
Corporation is required to file annual, quarterly and special reports, proxy
statements and other information with the Securities and Exchange Commission
(SEC). Investors may read and copy any document that Positron Corporation files,
including this Annual Report on Form 10-K, at the SEC’s Public Reference
Room at 450 F Street, N.W., Washington, DC 20549. Investors may obtain
information on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. In addition, the SEC maintains an Internet site at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding issuers that file electronically with the SEC, from which investors
can electronically access Positron’s SEC filings.
Item 1A. Risk Factors
Risks
Associated with Business Activities
History of
Losses. To date the Company has been unable to sell its
systems in quantities sufficient to be operationally
profitable. Consequently, the Company has sustained substantial
losses. During the year ended December 31, 2008, the Company had a
net loss of approximately $8,975,000, compared to a net loss of $7,780,000
during 2007. At December 31, 2008, the Company had an accumulated
deficit of approximately $85,580,000. 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 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, 2008 expressed substantial doubt as to the Company’s ability
to continue as a going concern. The Company will need
to obtain additional capital and increase system sales to
become profitable.
|
FY
2008
|
POSITRON
CORPORATION
|
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
$7,000 at December 31, 2008. The Company received $5,279,000 in
proceeds from private placements of securities and financings in 2008 and 2007,
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.
A Small Number of
Large Stockholders and Thinly Traded Market. A small number of our
current stockholders hold a substantial number of shares of our common stock
that they may sell in the public market. In addition, our common stock is thinly
traded and any significant sales of our common stock may cause volatility in our
common stock price. Sales by our current stockholders of a substantial
number of shares, or the expectation that such sale may occur, could
significantly reduce the market price of our common stock. We have also
registered all shares of common stock that we may issue under our employee
benefit plans. Accordingly, these shares can be freely sold in the public market
upon issuance, subject to restrictions under the securities laws. If any of
these stockholders cause a large number of securities to be sold in the public
market, the sales could reduce the trading price of our common stock. These
sales also could impede our ability to raise capital in the future.
In
addition, these stockholders, acting together, will be able to significantly
influence all matters requiring approval by our stockholders, including the
election of directors and the approval of mergers or other business combination
transactions. The interests of this group of stockholders may not always
coincide with our interests or the interests of other stockholders, and they may
act in a manner that advances their best interests and not necessarily those of
other stockholders. As a result of their actions or inaction our stock price may
decline.
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 Company’s
systems can be upgraded to meet future innovations in the 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. Many of our competitors enjoy significant
competitive advantages over us, including: greater name recognition; greater
financial, technical and service resources; established relationships with
healthcare professionals; established distribution networks; additional lines of
products and the ability to offer rebates or bundle products to offer discounts
or incentives; and greater resources for product development and sales and
marketing. 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. There can be no assurance that the
Company will be able to compete successfully against any of its
competitors.
The downturn in
the U.S. economy. Our
revenues may be significantly impacted by the downturn in the U.S. economy. The
slowing economy may also drive greater pricing pressures from our competition,
increase the rate at which we lose business, or lead to disruptions in our
supply chain, any of which would impede our ability to become profitable.
Further, we cannot assure you that an improvement in economic conditions will
result in an immediate, if at all positive, improvement in our operating results
or cash flows.
Dependence upon
third-party suppliers and the availability of certain radiopharmaceuticals.
We rely on a limited number of third parties to manufacture and supply
certain key components of our products. Alternative sources of production and
supply may not be readily available. We have also outsourced production of PET
systems to a single contract manufacturer. If a disruption in the availability
of parts, or in the operations of these suppliers were to occur, our business
could be materially affected. For this reason, we have backup plans in place
that are designed to prevent delays in production. If these plans are
unsuccessful, delays in the production of systems for an extended period of time
could cause the loss of revenue, which could significantly harm our business and
results of operations. Our equipment leasing service will involve the use of
certain radiopharmaceuticals. If we experience disruptions in the supply of
these radiopharmaceuticals, that will cause us to cancel services that would
otherwise be provided. If we are unable to obtain an adequate supply of the
necessary radiopharmaceuticals, we may be unable to lease our equipment, and our
business may be harmed.
No Assurance of
Market Acceptance. The Company’s systems involve new
technology that competes with more established technologies. The
purchase and installation of our system involves a significant capital
expenditure on the part of the purchaser. A potential purchaser of
our 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 the Company’s systems
will be accepted by the target markets, or that the Company’s sales of 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 technologies, which are
of material importance to the Company and its future prospects. Our
pending U.S. and foreign patent applications, which include claims to material
aspects of our products and procedures that are not currently protected by
issued patents, may not issue as patents in a form that will be advantageous to
us. Any patents we have obtained or do obtain may be challenged by
re-examination or otherwise invalidated or eventually found unenforceable. Both
the patent application process and the process of managing patent disputes can
be time consuming and expensive. Competitors may attempt to challenge or
invalidate our patents, or may be able to design alternative techniques or
devices that avoid infringement of our patents, or develop products with
functionalities that are comparable to ours. In the event a competitor infringes
upon our patent or other intellectual property rights, litigation to enforce our
intellectual property rights or to defend our patents against challenge, even if
successful, could be expensive and time consuming and could require significant
time and attention from our management. Furthermore, there can be no assurance
that the Company’s products will not infringe on any patents of others. We may
not have sufficient resources to enforce our intellectual property rights or to
defend our patents against challenges from others.
|
FY
2008
|
POSITRON
CORPORATION
|
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.
We are directly, or indirectly through our clients, subject to
extensive regulation by both the federal government and the states in which we
conduct our business including: the federal Medicare and Medicaid anti-kickback
laws, other Medicare laws, regulations, rules, manual provisions, and policies
that prescribe the requirements for coverage and payment for services performed
by us and our DIS customers; the federal False Claims statutes; the federal
Health Insurance Portability and Accountability Act of 1996, or HIPAA; the Stark
Law; the federal Food, Drug and Cosmetic Act; federal and state radioactive
materials laws; state food and drug and pharmacy laws and regulations; state
laws that prohibit the practice of medicine by non-physicians and fee-splitting
arrangements between physicians and non-physicians; state scope-of-practice
laws; and federal rules prohibiting the mark-up of diagnostic tests to Medicare
under certain circumstances. If our customers are unable or unwilling to comply
with these statutes, regulations, rules and policies, utilization rates of our
services and products will decline and our business will be harmed.
We
maintain a compliance program to identify and correct any compliance issues and
remain in compliance with all applicable laws, to train employees, to audit and
monitor our operations, and to achieve other compliance goals. Like most
companies with compliance programs, we occasionally discover compliance
concerns. In such cases, we take responsive action including corrective measures
when necessary. There can be no assurance that our responsive actions will
insulate us from liability associated with any detected compliance
concerns.
If our
past or present operations are found to be in violation of any of the laws,
regulations, rules or policies described above or the other laws or regulations
to which we or our customers are subject, we may be subject to civil and
criminal penalties, damages, fines, exclusion from federal or state health care
programs, or the curtailment or restructuring of our operations. Similarly, if
our customers are found to be non-compliant with applicable laws, they may be
subject to sanctions, which could have a negative impact on us. If we are
excluded from federal or state health care programs, our customers who
participate in those programs could not do business with us. Any penalties,
damages, fines, curtailment or restructuring of our operations would adversely
affect our ability to operate our business and our financial results. Any action
against us for violation of these laws, even if we successfully defend against
it, could cause us to incur significant legal expenses, divert our management’s
attention from the operation of our business, and damage our
reputation.
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.
|
FY
2008
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
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.
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.
Item 1B. Unresolved Staff Comments
None.
Item
2. Properties
The
Company is headquartered in Fishers, Indiana, where it currently leases an
office and warehouse. This facility lease is a one year lease expiring in
September 2009. Rentals payments for the facility are $4,671 monthly. In
addition, In January 2009, the Company executed a one year operating lease for
its remaining Houston operations. The lease term is from February 1, 2009 to
January 31, 2010. Monthly rent for the facility is $1000. The Company
anticipates that the facility will be sufficient for its 2009 operating
activities.
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 Small Cap 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 Small Cap 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 2008 and 2007, 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.
|
2008
|
2007
|
|||||||||||||||
|
High
|
Low
|
High
|
Low
|
|||||||||||||
|
First
Quarter
|
$
|
0.07
|
$
|
0.04
|
$
|
0.13
|
$
|
0.08
|
||||||||
|
Second
Quarter
|
$
|
0.10
|
$
|
0.04
|
$
|
0.11
|
$
|
0.09
|
||||||||
|
Third
Quarter
|
$
|
0.09
|
$
|
0.05
|
$
|
0.10
|
$
|
0.06
|
||||||||
|
Fourth
Quarter
|
$
|
0.07
|
$
|
0.01
|
$
|
0.07
|
$
|
0.04
|
||||||||
|
FY
2008
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
There
were approximately 290 shareholders of record of common stock as of April 15,
2009, including broker-dealers holding shares beneficially owned by their
customers.
|
FY
2008
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
Item 6. Selected
Financial Data
Not
applicable
Item
7. Management’s Discussion and Analysis or Plan of
Operation
The
following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our selected financial data and
our financial statements and the accompanying notes included in this annual
report. The following discussion may contain forward-looking statements that
reflect our plans, estimates and beliefs and involve risks, uncertainties and
assumptions. Our actual results could differ materially from those discussed in
these forward-looking statements. Factors that could cause or contribute to
these differences include those discussed below and under the headings “Risk
Factors” and “Forward-Looking Statements.”
Overview
Positron
Corporation is a vertically integrated company in the field of Cardiac Nuclear
Medicine. We operate our continuous business through the following:
Molecular Imaging Devices
includes the development, manufacture and sale of Positron Emission Tomography
(PET) scanners and Single Photon Emission Computed Tomography (SPECT) gamma
cameras;
Radiopharmaceutical Products
includes the development, manufacture and sale of robotic systems for
distribution and delivery of radiopharmaceuticals and provides
radiopharmaceutical agents used for the diagnosis of cardiac
diseases.
We sell
our imaging systems to physician offices, hospitals, and imaging centers
primarily in the United States, although we have sold a small number of imaging
systems internationally. We sell our radiopharmaceutical delivery systems to
physician offices, hospitals, and nuclear pharmacies.
Our
Market
According
to the U.S. Department of Health and Human Services, there are more than 22,000
cardiovascular diseases specialists today in the U.S., and their number will
increase to 31,000 by 2020. This is the target market for our products and
services, as well as hospitals in the United States that performs or could
perform nuclear cardiac procedures, and radiopharmacies that need to comply with
the requirements of USP-797 or want to automate the delivery of
radiopharmaceuticals. We are able to offer a total customer solution which
includes low cost molecular imaging devices, disease specific software,
radiopharmaceutical distribution and delivery systems, and
radiopharmaceuticals agents for Cardiac Nuclear Medicine. We believe our
market has been negatively affected by declining reimbursements from Medicare
and Medicaid programs, pricing pressures, and continuing efforts by some third
party payors to reduce health care expenditures by requiring physicians to
obtain specific accreditations or certifications, or disallowing reimbursement
if imaging is performed with leased cameras. We expect each of these trends to
continue.
General
During
2008, we acquired Dose Shield, Inc. (“Dose Shield”), the developer and
manufacturer of radiopharmaceutical delivery systems. This acquisition was aimed
at accelerating our revenue growth and diversifying the lines of products and
services that we offer. The acquisition of Dose Shield allows our business to
not only offer new equipment complimentary to our molecular imaging devices, but
also to penetrate the radiopharmaceutical market. We believe that these
developments will contribute to our future revenue growth in 2009.
Additionally, in late 2008 we moved production of SPECT systems from
Ottawa to Indianapolis, where we concentrated our manufacturing. We believe our
product business benefited from significant cost reductions partially due to
outsourcing some of our manufacturing processes. Furthermore, we have
significantly lowered overhead expenses.
Within
our Molecular Imaging Devices business, we hope to experience an
increase in sales with the launch of sales of new PET systems from our Chinese
joint venture, Neusoft Positron Medical Systems. Our PET imaging system has been
upgraded to accommodate the growing need by cardiologists for less expensive,
high quality molecular imaging devices in today’s challenging
economy. The Attrius™ Cardiac PET system has been submitted to the
Food and Drug Administration for approval in January 2009. The Company believes
that the cardiac market for PET is quickly emerging and provides an immediate
opportunity to capture significant market share with a low-cost Cardiac PET.
Positron’s technology for PET imaging provides image quality comparable to other
PET manufactures with significantly less costs. In addition, Positron offers a
software patient management solution to improve patient care, including software
by K. Lance Gould, M.D., a world renowned expert of cardiac PET
technology. The Company has formed an exclusive collaboration with
Dr. Gould in an effort to better differentiate from competition.
.
Our
Radiopharmaceutical Products segment expects revenue growth from sales of
radiopharmaceutical delivery systems and recurring revenue from delivery of
radiopharmaceuticals. We believe that there is an immediate market opportunity
for our radiopharmaceutical delivery system with centralized nuclear pharmacies
and large hospitals, many of which are not compliant with the United States
Pharmacopeia Chapter 797 compounding regulations. Our Nuclear Pharm-Assist®
systems reduce clients’ overheads and the overall radiation exposure of workers,
improves the efficiency of the pharmacy and complies with newly enacted
sterility requirements.
We intend
to enter the market as the first medical device manufacturer to sell the
pharmaceutical directly to the end customer. Currently the cardiac drugs for
SPECT imaging are prepared at centralized Radiopharmacies where they are
marked up considerably. Our “virtual pharmacy” solution
allows placing dose delivery systems into the physician’s offices. Our Nuclear
Cardio-Assist™ provides nuclear cardiology departments the ease of “Unit Dose”
with the reliability of an “In-House” supply. The Nuclear Cardio-Assist™
automatically elutes a generator, compounds kits, performs quality control,
fills a syringe, assays the dose in the syringe and dispenses the dose in the
syringe ready for patient injection. The Nuclear Cardio-Assist™ replaces typical
“Hot” lab equipment and acts as a “virtual” nuclear pharmacy with “Unit Dose”
availability, at the touch of a button, 24/7.
We
believe that these initiatives are intended to drive the Company towards
consistent profitability and cash flow.
We expect
increased sales and marketing spending to build on our 2009
sales.
|
FY
2008
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
2008
Significant Transactions
Positron Pharmaceuticals –
Dose Shield Acquisition
On June
5, 2008, the Company, and its wholly-owned subsidiary Positron Pharmaceuticals
Company, a Nevada corporation (“Positron Pharmaceuticals”), executed and
consummated a Stock Purchase Agreement to acquire all of the issued and
outstanding stock (the “Acquisition”) of Dose Shield Corporation, an Indiana
corporation (“Dose Shield”). The purchase price of the Acquisition
consisted of: 80,000,000 shares of the Registrant’s common stock, par value
$0.01 per share (the "Common Stock"), deliverable in two equal tranches, the
first 40,000,000 shares at the closing, the second contingent upon verification
by an independent third party that Dose Shield’s Cardio-Assist device is deemed
in commercially reasonable working order and is ready for resale not later than
December 31, 2009; (ii) cash in the amount of $600,000, $60,000 payable, at the
closing and the balance due on December 31, 2008, unless extended for one year
with interest at the rate of 8%; earn out payments through December 31, 2009
equal to the lesser of (x) 50% of the net revenue generated from sales of
Pharm-Assist equipment, including receivables, or (y) $600,000. In addition, the
Company is obligated to pay royalties equal to 1.5% of net revenues generated
from all future sales of all Dose Shield equipment sold by Positron
Pharmaceuticals following the Closing. Future royalty obligations would be
expensed to operations as incurred.
The
assets acquired and liabilities assumed included accounts receivable and
deferred revenues from sales contracts that were executed by Dose Shield’s
majority shareholder NukeMed Corporation. NukeMed, acting as Dose
Shield’s sales and marketing agent, entered into several sales agreements for
Nuclear Pharm -Assist™ systems. The agreements and all obligations
were assigned to Positron Pharmaceuticals Company in the
Acquisition. The Nuclear Pharm-Assist™ system is designed to
support the staff of nuclear medicine departments and nuclear
pharmacies. The Nuclear Pharm -Assist™ compounds kits, fills vials
and syringes, assays vials and syringes and dispenses vial and syringes in a
shielded container. The unique design reduces worker radiation
exposure and repetitive motion injuries. The shielding is integrated into the
design and is considered standard.
Notes Payable/Due to
Affiliated Entities And Securities Exchange Agreement
Notes
Payable – Affiliated Entities
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. During the year ended December 31, 2008, IMGM advanced an additional
$835,000 to the Company. 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 (“Note
1”). Note 1 was 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”). On August 18, 2008, the
advances totaling $835,000 were also formalized into a promissory note, with
interest at 8%, due on December 31, 2008 (“Note 2”). Note 2 was also secured by
the Pledged Shares. Prior to the” Exchange” (see discussion below), accrued
interest on Notes 1 & 2 at totaled $68,000.
Advances
from Related Party
During
the year ended December 31, 2008, Solaris Opportunity Fund, L.P. (“Solaris”)
advanced the Company a total of $1,155,000. Solaris' Managing
Member, Patrick G. Rooney, is also the Chairman of Positron. Pursuant to a
Securities Exchange Agreement (see discussion below), the Company retired all
advances due to Solaris.
At
December 31, 2008 advances due to three related parties totaled
$133,000.
Securities
Exchange Agreement among Positron Corporation, Imagin Molecular Corporation and
Solaris Opportunity Fund, L.P.
On
November 18, 2008, the Company, Solaris Opportunity Fund, L.P. and Imagin
Molecular Corporation executed and consummated a Securities Exchange Agreement
whereby Imagin transferred and assigned all of its rights title and interest to
Note 1, Note 2 and the Pledged Shares to Solaris in exchange for the return of
the 20,000,000 shares of Imagin’s common stock and 4,387,500 shares of Imagin’s
Series A Preferred Stock, to be retired and cancelled on Imagin’s books and
records and the retirement and satisfaction of any obligations to the advances
made in the amount of $200,000 to Imagin by Solaris. Simultaneously therewith,
Solaris exchanged Note 1, Note 2 plus accrued interest and the Pledged Shares
and the retirement and satisfaction of any obligations to the advances made to
the Company in the aggregate amount of $1,155,000 for the issuance of 100,000
shares of the Company’s Series S Preferred Stock (the “Exchange”). As
a result of the Exchange, Solaris Opportunity Fund, L.P. became the Company’s
controlling shareholder, holding approximately 60% of the Company’s voting
capital stock.
|
FY
2008
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
Results
of Operations
Consolidated
results of operations for the year ending December 31, 2008 include Positron and
its wholly-owned subsidiaries Imaging Pet Technologies (“IPT”) and Positron
Pharmaceuticals (“Pharma”). Consolidated results of operations for
the year ending December 31, 2007 include Positron and IPT.
Revenues
- The Company generated
revenues of $2,126,000 and $3,309,000 for the years ended December 31, 2008 and
2007, respectively. Revenue from sales of PulseCDC gamma cameras was $793,000 in
2008 compared to $1,991,000 in 2007. The decrease in camera sales is
attributable to three primary factors; 1) a change in the Company’s sales model
moving away from using distributors to utilizing a direct sales force. This
proved to be unsuccessful. 2) decrease in the value of the US dollar
compared to the Canadian dollar provided less incentive for US customers to
purchase machines from IPT 3) downturn in general economic
conditions. Service revenue totaled $1,150,000 and $1,215,000 for the years
ended December 31, 2008 and 2007, respectively.
Costs of
Sales - Costs of sales and gross profit (loss) % for the year ended
December 31, 2008 were $2,939,000 and (38.3%), respectively compared to
$2,928,000 and 11.5% for the year ended December 31, 2007. The significant
decrease in gross profit is due in large part to activities in the Company’s
subsidiary Positron Pharmaceuticals whose gross loss was approximately
$554,000. Subsequent to the Company’s acquisition of Dose Shield,
Pharma spent significant amounts on the re-design of its Nuclear Pharm-Assist®
systems that were already in process and for which we had established contract
sales prices that were not adjusted. All additional costs were charged to the
cost of the machines. Cost of sales also includes a write down of $412,000 taken
upon the disposal of obsolete parts during the move from Ottawa to Indianapolis,
and a charge for an additional reserve of $39,000 for slow moving
parts.
Operating
Expenses - The
Company’s operating expenses were $7,514,000 for the year ended December 31,
2008 compared to $7,593,000 for the year ended December 31,
2007.
Selling,
general and administrative expenses decreased $418,000 to $3,222,000 from
$3,640,000 in the prior year. During the year ended December
31, 2008, the Company closed the IPT facility in Ottawa and moved the remaining
operations to Indianapolis. IPT’s selling, general and administrative expenses
decreased from $1,759,000 to $763,000 for the years ended December 31, 2007 and
2008, respectively. Pharma’s selling, general and administrative
expenses were $316,000 for the year ended December 31, 2008
Research
and development expenses for the year ended December 31, 2008 decreased $334,000
to $1,027,000 from $1,361,000 for the year ended December 31, 2007. IPT’s
research and developments costs were $408,473 for the year ended December 31,
2008 compared to $822,000 for in 2007. During 2007 IPT’s wholly-owned
subsidiary, QMT, was 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. During 2008, the
Company suspended QMT’s research. Positron’s research and development were
$618,000 and $538,000 for the years ended December 31, 2008 and 2007,
respectively. The increase is due to mainly to an increase in
modernization expense related to NPMS joint venture totaled $214,000 and $81,000
in 2008 and 2007, respectively. Modernization expenses increased as
the Company prepared for submission of The Attrius™ Cardiac PET
system to the FDA in January 2009.
|
FY
2008
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
Operating
expenses in 2008 include a charge for impairment of the intangible asset
recorded related to the acquisition of Dose Shield. At the date of acquisition
in June 2006, the Company recorded the excess of purchase price over the fair
value of the net assets of $3,265,000 as an intangible asset. The entire amount
was deemed impaired at December 31, 2008. 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 an intangible asset. The total impairment
charge recorded in 2007 was $2,592,000. SFAS 142 requires that
goodwill be tested for impairment annually, utilizing the “fair value”
methodology., The Company uses December 31 as the date for its annual impairment
test.
Other Income
(Expenses) -
..Interest expense was $687,000 and $199,000 for the years ended December 31,
2008 and 2007, respectively. Interest expense in 2008 included $526,000 of
discount amortization related to convertible debentures compared to $124,000
recorded in 2007. Interest expense for the year ended December 31, 2008 also
includes $68,000 of interest on two notes payable to Imagin
Molecular. Those notes together with the accrued interest were
retired in exchange for the 100,000 shares of the Company’s Series S Preferred
Stock.
The
Company recorded derivative gains of $63,000 for the year ended December 31,
2008 and derivative losses of $386,000 for the year ended December 31,
2007. Derivative gains resulted from changes in variables used to
calculate fair market value using the Black Sholes Model. Specifically,
decreases of the Company’s stock price and less price volatility yielded a lower
fair market value of the conversion features resulting in a decrease to the
derivative liability during the year..
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.
Income
Taxes – There is
no provision for income taxes due to ongoing operating losses. As of December
31, 2008, we had net operating loss carryforwards of approximately $25,000,000
for Federal reporting purposes. These amounts expire at various times through
2028. The Company has provided a full valuation allowance against the net
deferred tax assets at December 31, 2008 and 2007.
Under the
provisions of Section 382 of the Internal Revenue Code a greater than 50%
ownership change that occurs in the Company limits the Company’s
ability to utilize certain pre-existing NOL’s to reduce
future taxable income and related tax liabilities.
|
FY
2008
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
Net Operating
Loss - For the
year ended December 31, 2008, the Company had a net loss of $8,975,000, or $0.07
per share, of which $7,493,000 was from domestic operations and $1,482,000 was
generated in Canada, compared to a net loss of $7,780,000, or $0.08 per share,
for the year ended December 31, 2007, of which $5,408,000 was from domestic
operations and $2,372,000 was generated in Canada. The increase is due primarily
to the impairment charge for the full write-down of goodwill recorded
from the acquisition of Dose Shield in June
2008.
Liquidity
and Capital Resources
At
December 31, 2008, the Company had current assets of $1,033,000 and total assets
of $1,104,000 compared to December 31, 2007 when current assets were $2,071,000
and total assets were $2,277,000. The decrease in current assets is attributable
primarily to decreases in inventory from $1,172,000 at December 31, 2007 to
$755,000 at December 31, 2008. The inventory decrease is attributable
to the closing and moving of the IPT Ottawa facility to
Indianapolis. Additionally, amounts due from affiliates decreased
from $355,000 to $40,000 as a result of approximately $293,000 in payments
received from Imagin Nuclear Partners and a reduction of net amounts due from
NPMS of approximately $22,000 during 2008.
Current
liabilities at December 31, 2008 were $7,254,000 compared to $4,147,000 at
December 31, 2007. Accounts payable and accrued liabilities were
$2,687,000 and $2,314,000 at December 31, 2008 and 2007,
respectively. At December 31, 2008, current liabilities also included
$599,000 of convertible debentures which are due in May and June 2009 and
related derivative liabilities of $2,314,000, and $540,000 of notes payable
related to the acquisition of Dose Shield. Current amounts due to affiliates
decreased from $1,346,000 at December 31, 2007 to $133,000 at December 31, 2008
as a result of the execution of a Securities Exchange Agreement whereby the
Company issued Series S Preferred Shares in exchange for the retirement of two
notes payable plus accrued interest due to Imagin Molecular
Corporation.
Net cash
used in operating activities during the year ended December 31, 2008 was
$3,407,000 compared to $3,500,000 used in operating activities during the year
ended December 31, 2007.
Net cash
provided by investing activities of $762,000 during the year ended December 31,
2008 included $835,000 of advances from Imagin Molecular Corporation that were
converted to notes and subsequently exchanged for shares of the Company’s Series
S Preferred Stock. Advances from Imagin Molecular in 2007 totaled
$1,281,000, all of which was also converted and subsequently exchanged for
Series S Preferred. Investing activities at December 31, 2008 also
included a payment of $60,000 as partial payment toward the purchase price for
the acquisition of Dose Shield in June 2008.
Net cash
provided by financing activities was $2,415,000 and $2,409,000 for the years
ended December 31, 2008 and 2007, respectively. During the year ended December
31, 2008, the Company issued preferred stock for cash totaling $1,115,000 and
also received proceeds from related parties of $1,288,000, the majority of which
was received from the Solaris Opportunity Fund. During the year ended
December 31, 2007, the Company raised $2,656,000 in a private placement of its
Series B Preferred Stock.
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 $85,580,000 at December 31, 2008. The Company
will need to increase system sales and apply the research and development
advancements to achieve profitability in the future. We expect to experience an
increase in sales with the launch of sales Attrius™ Cardiac PET system and
through sales from of radiopharmaceutical delivery systems and recurring revenue
from delivery of radiopharmaceuticals. of Nuclear Pharm-Assist® systems. Through
the Company’s joint venture with Neusoft Medical Systems, PET system material
cost of goods and labor costs will be significantly lower. The Company expects
that these developments will have a positive impact on the sales & service
volumes and increased net margins. However, there is no assurance that the
Company will be successful in selling new systems.
The
Company's ability to achieve its objectives is dependent on its ability to
sustain and enhance its revenue stream and to continue to raise funds through
loans, credit and the private placement of restricted securities until such time
as the Company achieves profitability. To date, management has been successful
in raising cash on an as-needed basis for the continued operations of the
Company. There is no guarantee that management will be able to continue to raise
needed cash in this fashion.
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, 2008, 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.
The
Company has no material commitments for capital expenditures at this time. The
Company has no “off balance sheet” source of liquidity
arrangements.
|
FY
2008
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
New
Accounting Pronouncements
In
September 2006 the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements. SFAS
No. 157 provides enhanced guidance for using fair value to measure assets
and liabilities. SFAS No. 157 applies whenever other standards require or
permit assets or liabilities to be measured at fair value. SFAS No. 157 is
effective for fiscal years beginning after November 15, 2007. In
February 2008, the FASB issued FASB Staff Position
(“FSP”) No. 157-2, Effective Date of FASB Statement
No. 157, which defers the effective date of SFAS No. 157 for
one year for non-financial assets and liabilities, except for items that are
recognized or disclosed at fair value in an entity’s financial statements on a
recurring basis (at least annually). In October 2008, the FASB issued FSP
No. 157–3, Determining
the Fair Value of a Financial Asset When the Market for That Asset Is Not
Active, which clarifies the application of SFAS No. 157 in a market
that is not active. On January 1, 2008, the Company adopted the provisions of
SFAS No. 157 for financial assets and liabilities recognized or disclosed
at fair value on a recurring and non–recurring basis and the provisions FSP
No. 157-3. The adoption of SFAS 157 did not have a material
impact on the Company’s financial statements. Consistent with the
provisions of FSP No. 157–2, the Company elected to defer the adoption of
SFAS No. 157 for non–financial assets and liabilities measured at fair
value on a non–recurring basis. The Company is in the process of evaluating
these portions of the standard and therefore has not yet determined the impact
that the adoption will have on its 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.
In March
2008, the FASB issued FASB Statement No. 161 Disclosures about Derivative
Instruments and Hedging Activities an amendment of FASB Statement No. 133
(“SFAS No. 161”), which changes the disclosure requirements for derivative
instruments and hedging activities. Pursuant to SFAS No.161, Entities
are required to provide enhanced disclosures about (a) how and why an entity
uses derivative instruments, (b) how derivative instruments and related hedged
items are accounted for under Statement 133 and its related interpretations, and
(c) how derivative instruments and related hedged items affect an entity’s
financial position, financial performance, and cash flows. SFAS No.
161 is effective for financial statements issued for fiscal years and interim
periods beginning after November 15, 2008 with early application encouraged.
SFAS No. 161 encourages but does not
require disclosures for earlier periods presented for comparative purposes at
initial adoption. In years after initial adoption, this Statement
requires comparative disclosures only for periods subsequent to initial
adoption. The Company does not expect the adoption of SFAS No. 161 to
have a material impact on the financial results of the Company.
In April
2008, the FASB issued FSP No. 142-3, Determination of the Useful Life of
Intangible Assets. FSP 142-3 amends the factors an entity should consider in
developing renewal or extension assumptions used in determining the useful life
of recognized intangible assets under SFAS 142, Goodwill and Other Intangible
Assets, and adds certain disclosures for an entity’s accounting policy of the
treatment of the costs, period of extension, and total costs
incurred. FSP 143-3 must be applied prospectively to intangible
assets acquired after January 1, 2009. The Company is currently
evaluating the impact that FSP 142-3 will have on its financial position or
results of operations.
In May
2008, the Financial Accounting Standards Board (the “FASB”) issued FAS No. 162,
“The Hierarchy of Generally Accepted Accounting Principles” (“FAS 162”). This
statement identifies the sources of accounting principles and the framework for
selecting the principles used in the preparation of financial statements of
nongovernmental entities that are presented in accordance with GAAP. With the
issuance of this statement, the FASB concluded that the GAAP hierarchy should be
directed toward the entity and not its auditor, and reside in the accounting
literature established by the FASB as opposed to the American Institute of
Certified Public Accountants (AICPA) Statement on Auditing Standards No. 69,
“The Meaning of Present Fairly in Conformity With Generally Accepted Accounting
Principles.” This statement is effective 60 days following the SEC’s approval of
the Public Company Accounting Oversight Board amendments to AU Section 411, “The
Meaning of Present Fairly in Conformity With Generally Accepted Accounting
Principles.” The adoption of FAS 162 is not expected to have a material impact
on the Company’s results from operations or financial position.
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.
|
FY
2008
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
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.
Revenue
Recognition
Revenues
from 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-K 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 7A. Quantitative
and Qualitative Disclosures About Market Risk
The
Company is not exposed to market risk related to interest rates and foreign
currencies.
Item
8. 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 9. Changes in and
Disagreements with Accountants on Accounting and Financial
Disclosure
None.
Item
9A. Controls and Procedures
Evaluation
of Disclosure Controls and Procedures.
In
accordance with Rule 13a-15(b) of the Securities Exchange Act of 1934 as amended
(the “Exchange Act”), as of the end of the period covered by this Annual Report on Form 10-K,
the Company’s management evaluated, with the participation of the Company’s
principal executive and financial officer, the effectiveness of the design and
operation of the Company’s disclosure controls and procedures (as defined in
Rule 13a-15(e) or Rule 15d-15(e) under the Exchange Act). Disclosure controls
and procedures are defined as those controls and other procedures of an issuer
that are designed to ensure that the information required to be disclosed by the
issuer in the reports it files or submits under the Act is recorded, processed,
summarized and reported, within the time periods specified in the Commission’s
rules and forms. Based on their evaluation of these disclosure controls and
procedures, the Company’s chairman of the board and chief executive and
financial officer has concluded that that there are material weaknesses in our
disclosure controls and procedures.
|
FY
2008
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
The
material weaknesses in our disclosure control procedures are as
follows:
|
|
1.
|
Lack of
formal policies and procedures necessary to adequately review significant
accounting transactions. The Company
utilizes a third party independent contractor for the preparation of its
financial statements. Although the financial statements and footnotes are
reviewed by our management, we do not have a formal policy to review
significant accounting transactions and the accounting treatment of such
transactions. The third party independent contractor is not involved in
the day to day operations of the Company and may not be provided
information from management on a timely basis to allow for adequate
reporting/consideration of certain
transactions.
|
|
|
2.
|
Audit
Committee and Financial Expert. The Company does not have a formal
audit committee with a financial expert, and thus the Company lacks the
board oversight role within the financial reporting process.
|
We intend
to initiate measures to remediate the identified material weaknesses including,
but not necessarily limited to, the following:
|
|
·
|
Establishing
a formal review process of significant accounting transactions that
includes participation of the Chief Executive Officer, the Chief Financial
Officer and the Company’s corporate legal
counsel.
|
|
|
·
|
Form
an Audit Committee that will establish policies and procedures that will
provide the Board of Directors a formal review process that will among
other things, assure that management controls and procedures are in place
and being maintained consistently.
|
Item
9A(T). Controls and Procedures
Internal
Control Over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act). Our management assessed the effectiveness of our
internal control over financial reporting as of December 31, 2008. In making
this assessment, our management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal
Control-Integrated Framework. Based on its evaluation, our management concluded
that there is a significant deficiency and a material weakness in our internal
control over financial reporting.
The
significant deficiency relates to a lack of segregation of duties due to the
small number of employees involvement with general administrative and financial
matters. However, management believes that compensating controls are in place to
mitigate the risks associated with the lack of segregation of duties.
Compensating controls include outsourcing certain financial functions to an
independent contractor.
The
material weakness relates to a lack of formal policies and procedures necessary
to adequately review significant accounting transactions. The Company utilizes a
third party independent contractor for the preparation of its financial
statements. Although the financial statements and footnotes are reviewed by our
management, we do not have a formal policy to review significant accounting
transactions and the accounting treatment of such transactions. The third party
independent contractor is not involved in the day to day operations of the
Company and may not be provided information from management on a timely basis to
allow for adequate reporting/consideration of certain transactions. We intend to
initiate measures to remediate the identified material weaknesses including
establishing a formal review process for significant accounting transactions
that includes the participation of the Company’s management and
corporate legal counsel, and establishing a formal audit committee.
This
annual report 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.
Item
9B. Other Information
None.
|
FY
2008
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
PART
III
Item
10. 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 and executive officers 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
|
46
|
Chairman
of the Board – Elected 2004
|
|
Joseph G. Oliverio
|
39
|
President
and Director – Elected 2006
|
|
John
Zehner
|
40
|
Executive
Vice President
|
|
Corey N. Conn
|
47
|
Chief
Financial Officer and Director – Elected 2008
|
|
Timothy M. Gabel
|
39
|
Vice
President of Operations
|
|
Scott Stiffler
|
39
|
Director of Quality & Regulatory
Affairs
|
|
Sachio Okamura
|
57
|
Director
– Elected 2001
|
|
Dr. Anthony
(Tony) C. Nicholls
|
60
|
Director
– Elected 2005
|
|
Joseph C. Sardano
|
58
|
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.
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 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.
John
Zehner. Mr. Zehner has served as Executive Vice-President of Positron,
since June 2008. Mr. Zehner has over 14 years of experience in the Nuclear
Medicine field. Zehner has been part of several start-ups, mergers and
acquisitions. In 1993, he assisted in the start-up of Northern Virginia
Isotopes, Inc., a nuclear pharmacy focused on distributing radioactive
pharmaceuticals for diagnostics and therapy to the Washington, D.C. market.
In 1994, he established Valley Isotopes, Inc., a nuclear pharmacy in Winchester,
Virginia. In 1995, Zehner led the formation of Eastern Isotopes, Inc. through
the merger of three nuclear pharmacies and later established its pharmaceutical
manufacturing division for FDG in 1998. In 1999, he became President and COO of
Eastern Isotopes, Inc. and under his leadership grew sales from approximately $4
million to over $34 million by 2003. In 2007, Zehner formed NukeMed, Inc. and
Dose Shield after leading the extremely lucrative sale of Eastern Isotopes, Inc.
to IBA, SA, a Belgium life science company.
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 President 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 to 1999 and
also served as Managing Director of Virtual Partnerships, LLC, a business
development and business strategy consulting firm from 1999 to 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.
|
FY
2008
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
Timothy M.
Gabel has served as 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.
Scott
Stiffler. Mr. Stiffler has served as Director of Quality and Regulatory Affairs
since September 2008. Mr. Stiffler is responsible for
maintaining ISO and FDA regulatory compliance at
Positron. Prior
thereto Mr. Stiffler served as a Certified
Six Sigma Black Belt as well as a Program Manager for the development of
delivery devices at Eli Lilly and Company. While at Eli Lilly Mr.
Stiffler was responsible for the development of one of their highest volume
insulin pens as well as several quality and cost improvement
projects. Prior to Eli Lilly Mr. Stiffler worked for 10 years in the
automotive industry as an engineer and project manager. He has a degree in
Mechanical Engineering from Purdue University and an
MBA from Indiana University’s Kelley
School of Business.
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 has served as a director since
2005. Dr. Nicholls is an independent consultant with over 30 years
experience in medical devices and diagnostics research. He has
lectured in 45 countries of the world on subjects varying from the rapid
diagnosis of Sepsis, Tuberculosis and Aids to vaccine production, environmental
responsibility and entrepreneurship. He co-founded FAS Medical Ltd.,
and as CEO, raised (CDN) $6 million, achieved a listing on CDNX and established
sales of the company's products in 21 countries. Previously he was CEO of
Trinity Biotech PLC and oversaw a successful IPO on NASDAQ. Earlier,
Dr. Nicholls held senior management posts with Cambridge Biotech Corp. (Exec.
VP), Biotech Research Labs Inc. (Pres. & COO), Fisher Scientific (Senior VP.
& Gen. Manager), Ciba Corning Medical (Director, New Technology Development)
and Flow General (International Scientific Director). Dr. Nicholls' academic
career included seven years as Head of Microbiology and Immunology at the
Midhurst Medical Research Institute in Sussex, England, where he published
numerous papers on tuberculosis, pneumonia and sepsis. Dr. Nicholls
is a graduate of the University of Birmingham School of Medical
Sciences and has a Ph.D. in Immunology.
Joseph C.
Sardano. Mr. Sardano has been elected as a director in 2008. 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 led 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
11. 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, 2008 and 2007. 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.
|
FY
2008
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
|
Name
and Principal Position
|
Year
|
Salary
(a)
|
Bonus
|
Restricted
Stock
Awards
|
Option
Awards
|
Nonequity
incentive plan compensation
|
All
Other Compensation
|
Total
|
|||||||||||||||||||||
|
Patrick
G. Rooney
|
2008
|
$ | 100,000 | -- | -- | -- | -- | -- | $ | 100,000 | |||||||||||||||||||
|
Chairman
of the Board
|
2007
|
$ | 86,629 | -- | -- | $ | 143,556 | -- | -- | $ | 230,185 | ||||||||||||||||||
|
Joseph
G. Oliverio
|
2008
|
$ | 150,000 | -- | -- | -- | -- | -- | $ | 150,000 | |||||||||||||||||||
|
President
|
2007
|
$ | 156,250 | -- | -- | $ | 93,348 | -- | -- | $ | 249,598 | ||||||||||||||||||
|
Corey
N. Conn
|
2008
|
$ | 100,000 | -- | -- | -- | -- | -- | $ | 100,000 | |||||||||||||||||||
|
Chief
Financial Officer
|
2007
|
$ | 103,158 | -- | -- | $ | 114,800 | -- | -- | $ | 217,958 | ||||||||||||||||||
|
Timothy
M. Gabel
|
2008
|
$ | 100,000 | -- | -- | -- | -- | -- | $ | 100,000 | |||||||||||||||||||
|
Vice
President of Operations
|
2007
|
$ | 102,833 | -- | -- | $ | 57,400 | -- | -- | $ | 160,233 | ||||||||||||||||||
|
John
Zehner
|
2008
|
$ | 58,333 | -- | -- | -- | -- | -- | $ | 58,333 | |||||||||||||||||||
|
Executive
Vice President
|
2007
|
-- | -- | -- | -- | -- | -- | -- | |||||||||||||||||||||
|
Scott
Stiffler
|
2008
|
$ | 16,667 | -- | -- | -- | -- | -- | 16,667 | ||||||||||||||||||||
|
Director
of Quality and Regulatory Affairs
|
2007
|
-- | -- | -- | -- | -- | -- | -- | |||||||||||||||||||||
(a) Mr.
Zehner’s 2008 salary is for the partial year beginning on June 6, 2008, the date
of acquisition of Dose Shield. Mr. Stiffler began employment with the
Company in October 2008.
Employment
Agreements
Positron
has an employment agreement with John Zehner, Executive Vice President. The term
of the employment agreement is for a period of three years commencing on June 1,
2008; and is subject to automatic renewals for two (2) successive one year
periods. Mr. Zehner has a base salary of $100,000. The base compensation may be
increased (but not decreased) from time to time upon review by and within the
sole and absolute discretion of the Board of Directors of Positron. The
employment agreement cannot be terminated without cause.
|
FY
2008
|
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, 2008.
|
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
1 column)
|
|||||||||
|
All
Equity Compensation Plans Approved by Security Holders
|
19,425,000
|
$
|
0.06
|
26,500,000
|
(1)
|
|||||||
|
(1)
|
Includes
21,000,000 shares available under the 2005 Amended and Restated and
5,500,000 shares available for issuance under the 2008 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 2008, the Company did not pay any bonus pursuant to the
incentive compensation plan.
|
FY
2008
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
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, 2008, a total of 19,000,000 options have been
granted under the 2005 Plan, none of which have been exercised, and of
which 19,000,000 are fully vested.
2006
Stock Incentive Plan
Positron's
Board administers the 2006 Stock Incentive Plan ("2006 Plan"), which was adopted
by the Board effective April 10, 2006. The 2006 Plan provides for the
direct issuance of stock and grants of nonqualified stock options to directors,
officers, employees and consultants. The administrator is authorized
to determine the terms of each award granted under the plan, including the
number of shares, exercise price, term and exercisability. Stock and
options may be granted for services rendered or to be
rendered. Options may not be exercised more than ten years after the
date of grant. Upon termination of employment for any reason other
than death or disability, each option may be exercised for a period of 90 days,
to the extent it is exercisable on the date of termination. In the
case of a termination due to death or disability, an option will remain
exercisable for a period of one year, to the extent it is exercisable on the
date of termination. A total of 5,000,000 shares of Common Stock have
been authorized for issuance under the 2006 Plan. As of December 31,
2008, all shares available under the 2006 Plan had been
issued.
|
FY
2008
|
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, 2008, all shares under the 2007 Plan had
been issued to consultants.
2008
Stock Incentive Plan
Positron's
Board of Directors (the “Board”) administers the 2008 Stock Incentive Plan
("2008 Plan"), which was adopted by the Board effective July 28, 2008. The
purpose of the 2008 Plan is to advance the interests of the Company’s
stockholders by enhancing the Company’s ability to attract, retain and motivate
persons who are expected to make important contributions to the Company and by
providing such persons with equity ownership opportunities and performance-based
incentives that are intended to better align their interests with those of the
Company’s stockholders. The 2008 Plan provides for the direct issuance of
Awards including stock options, restricted stock awards and unrestricted stock
awards. All of the Company’s employees, officers and directors (including
persons who have entered into an agreement with the Company under which they
will be employed by the Company in the future), as well as all of the Company’s
consultants and advisors that are natural persons, are eligible to the awards
under the 2008 Plan. 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 6,000,000 shares of Common Stock
have been authorized for issuance under the 2008 Plan. As of December
31, 2008, 500,000 shares had been issued under the 2008
Plan.
401(k)
Savings Plan
The
Company has a 401(k) Retirement Plan and Trust (the "401(k) Plan") which became
effective as of January 1, 1989. Employees of the Company who have completed
one-quarter year of service and have attained age 21 are eligible to participate
in the 401(k) Plan. Subject to certain statutory limitations, a participant may
elect to have his or her compensation reduced by up to 20% and have the Company
contribute such amounts to the 401(k) Plan on his or her behalf ("Deferral
Contributions"). The Company makes contributions in an amount equal to 25% of
the participant's Deferral Contributions up to 6% of his/her compensation
("Employer Contributions"). Additionally, the Company may make such additional
contributions, as it shall determine each year in its discretion. All Deferral
and Employer Contributions made on behalf of a participant are allocated to
his/her individual accounts and such participant is permitted to direct the
investment of such accounts.
A
participant is fully vested in the current value of that portion of his/her
accounts attributable to Deferral Contributions. A participant's interest in
that portion of his/her accounts attributable to Employer Contributions is
generally fully vested after five years of employment. Distributions under the
401(k) Plan are made upon termination of employment, retirement, disability and
death. In addition, participants may make withdrawals in the event of severe
hardship or after the participant attains age fifty-nine and one-half. The
401(k) Plan is intended to qualify under Section 401 of the Internal Revenue
Code of 1986, so that contributions made under the 401(k) Plan, and income
earned on contributions, are not taxable to participants until withdrawal from
the 401(k) Plan.
The
Company did not make any contributions to the 401(k) Plan on behalf of employees
in the year ended December 31, 2008.
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 2008 or 2007.
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.
|
FY
2008
|
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 Company
anticipates that future grants to non-employee directors may be made the with
exercise prices for such grants equal to 100% of the fair market value of the
Common Stock on the date of grant.
Item
12. 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)
|
|||||||
|
Solaris
Opportunity Fund, L.P.
|
1,114,274,140 |
(c)
|
61.2 | % | |||||
|
IMAGIN
Diagnostic Centres, Inc.
|
362,325,250 |
(d)
|
19.9 | % | |||||
|
|
(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)
|
The
percentage of outstanding Common Stock assumes full conversion of
Convertible Series A, B, and S Preferred Stock into Common Stock and is
based on 198,140,384 shares of Common Stock outstanding on April 15,
2009.
|
|
(c)
|
Includes
12,274,140 shares owned directly, shares issuable upon full conversion of
1,020,000 shares of Series B Preferred Stock into Common Stock, and shares
issuable upon full conversion of 100,000 shares of Series S Preferred
Stock into Common Stock. The address for Solaris Opportunity Fund
is 700 Commerce Suite 500 Dr. Oak Brook Il
60523
|
|
(d)
|
Includes
23,000,000 shares owned directly, shares issuable upon full conversion of
3,623,252 shares of Series B Preferred Stock into Common Stock, and
4,575,000 shares that may be acquired pursuant to warrants to purchase
common shares that are or will become exercisable within 60 days of April
14, 2009. The address for IMAGIN is 3014 - 610 Granville St.,
Vancouver, British Columbia,
V6C
3T3, Canada. .
|
|
FY
2008
|
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 )
|
3.4
|
%
|
||
|
Common
|
Sachio Okamura
|
575,000
(dd )
|
*
|
|||
|
Common
|
Patrick G. Rooney
|
5,075,000
(ee)
|
2.3
|
%
|
||
|
Common
|
Dr. Anthony C. Nicholls
|
550,000
(ff) )
|
*
|
|||
|
Common
|
Corey N. Conn
|
4,000,000
(gg) )
|
1.8
|
%
|
||
|
Common
|
Timothy M. Gabel
|
1,500,000
(hh)
|
*
|
|||
|
Common
|
All
Directors and Executive Officers as a Group
|
19,200,000
|
8.8
|
%
|
||
|
*
|
Does
not exceed 1% of the referenced class of
securities.
|
|
|
(aa)
|
Ownership
is direct unless indicated otherwise.
|
|
(bb)
|
Calculation
based on 198,140,384 shares of Common Stock outstanding as of April
14, 2009 plus stock options that are or will become exercisable within 60
days of April 14, 2009.
|
|
|
(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,
2009.
|
|
|
(dd)
|
Includes
575,000 shares that may be acquired by Mr. Okamura pursuant to stock
options that are or will become exercisable within 60 days of April 14,
2009.
|
|
|
(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,
2009.
|
|
|
(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,
2009.
|
|
|
(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 14,
2009.
|
|
|
(hh)
|
Includes
1,500,000 shares that may be acquired by Mr. Gabel pursuant to stock
options that are or will become exercisable within 60 days of April 14,
2009.
|
The
address for all officers and directors of the Company is 7715 Loma Ct. Suite A,
Fishers, IN. 46038.
Item
13. Certain Relationships and Related Transactions
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. During the nine months ended September 30, 2008, IMGM advanced an
additional $835,000 to the Company. 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
(“Note 1”). Note 1 was 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”). On August 18, 2008, the
advances totaling $835,000 were also formalized into a promissory note, with
interest at 8%, due on December 31, 2008 (“Note 2”). Note 2 was also secured by
the Pledged Shares. Upon a default of either promissory note or the Pledge, IMGM
may sell the Pledged Shares to repay any and all amounts due under the Note
and/or the August 18, 2008 Note. Accrued interest on the Notes at
September 30, 2008 is $68,000.
On
November 18, 2008, the Company, Solaris Opportunity Fund, L.P., Solaris
Management, LLC, and Imagin Molecular Corporation executed and consummated a
Securities Exchange Agreement whereby Imagin transferred and assigned all of its
rights title and interest to Note 1, Note 2 and the Pledged Shares to Solaris in
exchange for the return of the 20,000,000 shares of Imagin’s common stock and
4,387,500 shares of Imagin’s Series A Preferred Stock, to be retired and
cancelled on Imagin’s books and records and the retirement and satisfaction of
any obligations to the advances made in the amount of $200,000 to Imagin by
Solaris. Simultaneously therewith, Solaris exchanged Note 1, Note 2 and the
Pledged Shares and the retirement and satisfaction of any obligations to the
advances made to the Company in the aggregate amount of $1,195,000 for the
issuance of 100,000 shares of the Company’s Series S Preferred Stock (the
“Exchange”). As a result of the Exchange, Solaris Opportunity Fund,
L.P. became the Company’s controlling shareholder, holding approximately 60% of
the Company’s voting capital stock. Patrick G. Rooney, the Chairman of Positron,
is Managing Member of the Solaris Opportunity Fund.
|
FY
2008
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
Item
14. Principal Accountant Fees and Services
The
following table shows the fees billed to the Company for the audits and other
services provided by Frank L. Sassetti & Co., its independent registered
public accounting firm for fiscal 2008 and 2007.
|
Fiscal
2008
|
Fiscal
2007
|
|||||||
|
Audit
fees (1)
|
$
|
57,942
|
$
|
36,573
|
||||
|
Audit-related
fees
|
20,386
|
--
|
||||||
|
Tax
fees
|
4,150
|
--
|
||||||
|
All
other fees
|
--
|
--
|
||||||
(1) Audit
fees consist of fees billed for professional services rendered for the audit of
the Registrant's annual financial statements and review of the interim
consolidated financial statements included in quarterly reports and services
that are normally provided in connection with statutory and regulatory filings
or engagements.
(2)
Audit-Related fees consist of fees billed for due diligence and audit procedures
related to an acquisition.
(3) Tax
fees consist of fees billed for professional services rendered for tax
compliance, tax advice and tax planning (domestic and international). These
services include assistance regarding federal, state and international tax
compliance, acquisitions and international tax planning.
The Board
of Directors has considered the role of Frank L. Sassetti & Co. in providing
certain tax services to Imagin and has concluded that such services are
compatible with Frank L. Sassetti Co.’s independence as our auditors. In
addition, the Board of Directors has approved providing certain tax services
since the effective date of the SEC rules. The rule states that an auditor is
not independent of an audit client if the services it provides to the client are
not appropriately approved. The Board of Directors will continue to pre-approve
all audit and permissible non-audit services provided by the independent
auditors until an audit committee is formed which will then be responsible for
approving audit fees. We are looking for new board members that would be
qualified to serve on an audit committee. When the audit committee is formed one
of their first assignments will be to propose to the board a code of
ethics.
The Board
of Directors has adopted a policy for the pre-approval of services provided by
the independent auditors, pursuant to which it may pre-approve any service
consistent with applicable law, rules and regulations. Under the policy, the
Board of Directors may also delegate authority to pre-approve certain specified
audit or permissible non-audit services to one or more of its members, including
the Chairman. A member to whom pre-approval authority has been delegated must
report its pre-approval decisions, if any, to the Board of Directors at its next
meeting, and any such pre-approvals must specify clearly in writing the services
and fees approved. Unless the Board of Directors determines otherwise, the term
for any service pre-approved by a member to whom pre-approval authority has been
delegated is twelve months.
.
Item
15. Exhibits
|
|
(a)
|
Exhibits
|
|
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
|
|
|
(b)
|
Reports on Form
8-K
|
There
were no current reports on Form 8-K for the quarter ending December 31,
2008.
|
FY
2008
|
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 15, 2009
|
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-K, 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
15, 2009
|
|
Patrick G. Rooney
|
|
|
Chairman
of the Board
|
|
|
/s/
Joseph G. Oliverio
|
April
15, 2009
|
|
Joseph G. Oliverio
|
|
|
President
|
|
|
(principal
executive officer)
|
|
|
/s/
Corey N. Conn
|
April
15, 2009
|
|
Corey N. Conn
|
|
|
Chief
Financial Officer
|
|
|
(principal
accounting officer)
|
|
|
Director
|
|
|
/s/
Sachio Okamura
|
April
15, 2009
|
|
Sachio Okamura
|
|
|
Director
|
|
|
/s/
Dr. Anthony C. Nicholls
|
April
15, 2009
|
|
Dr. Anthony
C. Nicholls
|
|
|
Director
|
|
|
/s/
Joseph C. Sardano
|
April
15, 2009
|
|
Joseph
C. Sardano
|
|
|
Director
|
POSITRON
CORPORATION AND SUBSIDIARIES
FINANCIAL
STATEMENTS
WITH
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
for
the years ended December 31, 2008 and 2007
FINANCIAL
STATEMENTS
TABLE
OF CONTENTS
|
Page
|
|
|
Report
of Independent Registered Public Accounting Firm
|
36
|
|
Consolidated
Balance Sheet as of December 31, 2008 and 2007
|
37
|
|
Consolidated
Statements of Operations and Comprehensive Income for the years ended
December 31, 2008 and 2007
|
38
|
|
Consolidated
Statement of Stockholders’ Deficit for the two years ended December 31,
2008
|
39
|
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2008 and
2007
|
41
|
|
Notes
to Consolidated Financial Statements
|
42
|
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 consolidated balance sheets of Positron Corporation as
of December 31, 2008 and 2007 and the related consolidated 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 consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Positron Corporation as of
December 31, 2008 and 2007, 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 consolidated 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 15,
2009
Oak Park,
Illinois
6611 W.
North Avenue * Oak Park, Illinois 60302 * Phone (708) 386-1433 * Fax (708)
386-0139
POSITRON
CORPORATION AND SUBSIDIARY
CONSOLIDATED
BALANCE SHEETS
December
31, 2008 and 2007
(In
thousands, except share data)
|
ASSETS
|
2008
|
2007
|
||||||
|
Current
assets:
|
||||||||
|
Cash
and cash equivalents
|
$ | 7 | $ | 192 | ||||
|
Accounts
receivable, net of allowance for doubtful accounts of $40 and
$7
|
230 | 222 | ||||||
|
Inventories
|
755 | 1,172 | ||||||
|
Due
from affiliates
|
40 | 355 | ||||||
|
Prepaid
expenses
|
1 | 106 | ||||||
|
Other
current assets
|
-- | 24 | ||||||
|
Total
current assets
|
1,033 | 2,071 | ||||||
|
Investment
in Joint Venture
|
-- | -- | ||||||
|
Property
and equipment, net
|
28 | 56 | ||||||
|
Other
assets
|
43 | 150 | ||||||
|
Total
assets
|
$ | 1,104 | $ | 2,277 | ||||
|
LIABILITIES
AND STOCKHOLDERS’ DEFICIT
|
||||||||
|
Current
liabilities:
|
||||||||
|
Accounts
payable, trade and accrued liabilities
|
$ | 2,687 | $ | 2,314 | ||||
|
Customer
deposits
|
253 | 397 | ||||||
|
Notes
payable
|
540 | -- | ||||||
|
Convertible
notes payable, less discount of $608
|
599 | -- | ||||||
|
Unearned
revenue
|
728 | 90 | ||||||
|
Due
to affiliates
|
133 | 1,346 | ||||||
|
Derivative
liabilities for convertible debentures
|
2,314 | -- | ||||||
|
Total
current liabilities
|
7,254 | 4,147 | ||||||
|
Obligation
under capital lease
|
-- | 13 | ||||||
|
Convertible
notes payable, less discount of $105
|
11 | 135 | ||||||
|
Deposits
for unissued preferred stock
|
100 | 375 | ||||||
|
Derivative
liabilities for convertible debentures, net of current
portion
|
289 | 2,550 | ||||||
|
Total
liabilities
|
7,654 | 7,220 | ||||||
|
Stockholders’
deficit:
|
||||||||
|
Series
A Preferred Stock: $1.00 par value; 8% cumulative, convertible,
redeemable; 5,450,000 shares authorized; 457,599 and 464,319 shares issued
and outstanding.
|
457 | 464 | ||||||
|
Series
B Preferred Stock: $1.00 par value; convertible, redeemable;
9,000,000 shares authorized; 6,214,861 and 5,926,111 shares
issued and outstanding
|
6,215 | 5,926 | ||||||
|
Series
G Preferred Stock: $1.00 par value; convertible, redeemable;
3,000,000 shares authorized; 111,391 shares issued and
outstanding
|
29 | 29 | ||||||
|
Series
S Preferred Stock: $1.00 par value; convertible, redeemable;
100,000 shares authorized; 100,000 shares issued and
outstanding
|
100 | -- | ||||||
|
Common
stock: $0.01 par value; 800,000,000 shares authorized;
160,240,384 and 102,555,302 shares outstanding.
|
1,602 | 1,026 | ||||||
|
Additional
paid-in capital
|
70,686 | 64,314 | ||||||
|
Other
comprehensive income
|
(44 | ) | (82 | ) | ||||
|
Accumulated
deficit
|
(85,580 | ) | (76,605 | ) | ||||
|
Treasury
Stock: 60,156 shares at cost
|
(15 | ) | (15 | ) | ||||
|
Total
stockholders’ deficit
|
(6,550 | ) | (4,943 | ) | ||||
|
Total
liabilities and stockholders’ deficit
|
$ | 1,104 | $ | 2,277 | ||||
See notes
to financial statements.
POSITRON
CORPORATION AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
For
the years ended December 31, 2008 and 2007
(In
thousands, except per share data)
|
2008
|
2007
|
|||||||
|
Sales
|
$ | 2,126 | $ | 3,309 | ||||
|
Costs
of sales
|
2,939 | 2,928 | ||||||
|
Gross
profit (loss)
|
(813 | ) | 381 | |||||
|
Selling,
general and administrative
|
3,222 | 3,640 | ||||||
|
Research
and development
|
1,027 | 1,361 | ||||||
|
Impairment
of intangible asset
|
3,265 | 2,592 | ||||||
|
Total
operating expenses
|
7,514 | 7,593 | ||||||
|
Loss
from operations
|
(8,327 | ) | (7,212 | ) | ||||
|
Other
income (expenses):
|
||||||||
|
Interest
expense
|
(687 | ) | (199 | ) | ||||
|
Equity
in losses of unconsolidated subsidiaries
|
-- | (23 | ) | |||||
|
Derivative
gains (losses)
|
63 | (386 | ) | |||||
|
Other
|
(24 | ) | 15 | |||||
| (648 | ) | (593 | ) | |||||
|
Loss
before income taxes, majority interest and extraordinary
gain
|
(8,975 | ) | (7,805 | ) | ||||
|
Majority
interest in loss of consolidated subsidiary
|
-- | 25 | ||||||
|
Loss
before income taxes and extraordinary gain
|
(8,975 | ) | (7,780 | ) | ||||
|
Income
taxes
|
-- | -- | ||||||
|
Net
loss
|
$ | (8,975 | ) | $ | (7,780 | ) | ||
|
Other
comprehensive income (loss)
|
||||||||
|
Foreign
currency translation gain (loss)
|
38 | (120 | ) | |||||
|
Comprehensive
loss
|
$ | (8,937 | ) | $ | (7,900 | ) | ||
|
Basic
and diluted loss per common share
|
$ | (0.07 | ) | $ | (0.08 | ) | ||
|
Basic
and diluted weighted average shares outstanding
|
134,556 | 95,875 | ||||||
See notes
to financial statements.
POSITRON
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ DEFICIT
For
the two years ended December 31, 2008
(In
thousands, except share data)
|
Series
A
|
Series
B
|
Series
S
|
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 | ||||||||||||||||||||||||||
|
Net
loss
|
-- | -- | -- | -- | -- | -- | -- | -- | -- | -- | ||||||||||||||||||||||||||||||
|
Compensation
related to Issuance of options
|
-- | -- | -- | -- | -- | -- | -- | -- | -- | -- | ||||||||||||||||||||||||||||||
|
Conversion
of debentures to common stock
|
-- | -- | -- | -- | -- | -- | -- | -- | 1,372,052 | 13 | ||||||||||||||||||||||||||||||
|
Issuance
of common stock for cash
|
-- | -- | -- | -- | -- | -- | -- | -- | 1,000,000 | 10 | ||||||||||||||||||||||||||||||
|
Issuance
of common stock for services
|
-- | -- | -- | -- | -- | -- | -- | -- | 14,000,000 | 140 | ||||||||||||||||||||||||||||||
|
Issuance
of common stock for debt settlement
|
-- | -- | -- | -- | -- | -- | -- | -- | 1,296,108 | 13 | ||||||||||||||||||||||||||||||
|
Issuance
of common stock for partial purchase price for acquisition
|
-- | -- | -- | -- | -- | -- | -- | -- | 40,000,000 | 400 | ||||||||||||||||||||||||||||||
|
Conversion
of Series A preferred stock Into common stock
|
(6,720 | ) | (7 | ) | -- | -- | -- | -- | -- | -- | 16,922 | -- | ||||||||||||||||||||||||||||
|
Issuance
of Series B preferred stock through private placement
|
-- | -- | 288,750 | 289 | -- | -- | -- | -- | -- | -- | ||||||||||||||||||||||||||||||
|
Issuance
of Series S preferred stock for settlement of notes
payable
|
-- | -- | -- | -- | 100,000 | 100 | -- | -- | -- | -- | ||||||||||||||||||||||||||||||
|
Change
in foreign currency Translation gain
|
-- | -- | -- | -- | -- | -- | -- | -- | -- | -- | ||||||||||||||||||||||||||||||
|
Balance
December 31, 2008
|
457,599 | $ | 457 | 6,214,861 | $ | 6,215 | 100,000 | $ | 100 | 111,391 | $ | 29 | 160,240,384 | $ | 1,602 | |||||||||||||||||||||||||
See notes
to financial statements.
POSITRON
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ DEFICIT
For
the two years ended December 31, 2008
(In
thousands, except share data)
(Continued)
|
Additional
|
Other
|
Treasury
|
||||||||||||||||||||||
|
Paid-in
|
Comprehensive
|
Accumulated
|
Stock
|
|||||||||||||||||||||
|
Capital
|
Income
|
Deficit
|
Shares
|
Amount
|
Total
|
|||||||||||||||||||
|
Balance
December 31, 2006
|
$ | 60,552 | $ | 38 | $ | (68,825 | ) | 60,156 | $ | (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 | ) | 60,156 | $ | (15 | ) | $ | (4,943 | ) | |||||||||
|
Net
loss
|
-- | -- | (8,975 | ) | -- | -- | (8,975 | ) | ||||||||||||||||
|
Compensation
related to Issuance options
|
3 | -- | -- | -- | -- | 3 | ||||||||||||||||||
|
Conversion
of debentures to common stock
|
(3 | ) | -- | -- | -- | -- | 10 | |||||||||||||||||
|
Issuance
of common stock for cash
|
40 | -- | -- | -- | -- | 50 | ||||||||||||||||||
|
Issuance
of common stock for services
|
520 | -- | -- | -- | -- | 660 | ||||||||||||||||||
|
Issuance
of common stock for debt settlement
|
75 | -- | -- | -- | -- | 88 | ||||||||||||||||||
|
Issuance
of common stock for partial purchase price for acquisition
|
1,600 | -- | -- | -- | -- | 2,000 | ||||||||||||||||||
|
Conversion
of Series A preferred stock into common stock
|
7 | -- | -- | -- | -- | -- | ||||||||||||||||||
|
Issuance
of Series B preferred stock through private placement
|
826 | -- | -- | -- | -- | 1,115 | ||||||||||||||||||
|
Issuance
of Series S preferred stock for settlement of notes
payable
|
3,304 | -- | -- | -- | -- | 3,404 | ||||||||||||||||||
|
Change
in foreign currency Translation gain
|
-- | 38 | -- | -- | -- | 38 | ||||||||||||||||||
|
Balance
December 31, 2008
|
$ | 70,686 | $ | ( 44 | ) | $ | (85,580 | ) | 60,156 | $ | (15 | ) | $ | (6,550 | ) | |||||||||
See notes
to financial statements.
POSITRON
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
For
the years ended December 31, 2008 and 2007
(In
thousands)
|
2008
|
2007
|
|||||||
|
Cash
flows from operating activities:
|
||||||||
|
Net
loss
|
$ | (8,975 | ) | $ | (7,780 | ) | ||
|
Adjustments
to reconcile net loss to net cash used in operating
activities
|
||||||||
|
Derivative
(gains) losses
|
(63 | ) | 386 | |||||
|
Compensation
related to issuance of options
|
3 | 412 | ||||||
|
Depreciation
expense
|
14 | 31 | ||||||
|
Amortization
of intangible assets
|
38 | 10 | ||||||
|
Loss
on disposal of assets
|
24 | 4 | ||||||
|
Issuance
of common stock for services
|
660 | 511 | ||||||
|
Equity
in losses of joint venture
|
-- | 23 | ||||||
|
Amortization
of loan costs, debt discount and beneficial
conversion feature
|
600 | 180 | ||||||
|
Majority
interest in income of consolidated subsidiary
|
-- | (25 | ) | |||||
|
Impairment
of intangible asset
|
3,265 | 2,592 | ||||||
|
Preferred
stock issued for interest
|
68 | -- | ||||||
|
Changes
in operating assets and liabilities:
|
||||||||
|
Accounts
receivable
|
(20 | ) | 12 | |||||
|
Inventories
|
588 | 516 | ||||||
|
Prepaid
expenses
|
93 | 24 | ||||||
|
Other
current assets
|
29 | 46 | ||||||
|
Accounts
payable and accrued liabilities
|
516 | (503 | ) | |||||
|
Customer
deposits
|
(99 | ) | 117 | |||||
|
Unearned
revenue
|
(148 | ) | (56 | ) | ||||
|
Net
cash used in operating activities
|
(3,407 | ) | (3,500 | ) | ||||
|
Cash
flows from investing activities:
|
||||||||
|
Proceeds
from notes payable to affiliated entities
|
835 | 1,281 | ||||||
|
Partial
payment of purchase price of acquisition, net of cash
received
|
(60 | ) | -- | |||||
|
Purchase
of property and equipment
|
(13 | ) | (23 | ) | ||||
|
Net
cash used provided by investing activities
|
762 | 1,258 | ||||||
|
Cash
flows from financing activities:
|
||||||||
|
Payment
of notes payable
|
(41 | ) | -- | |||||
|
Proceeds
from related party advances
|
1,288 | -- | ||||||
|
Repayment
of notes payable due to affiliated entities
|
-- | (547 | ) | |||||
|
Advance
to affiliated entities
|
-- | (72 | ) | |||||
|
Repayment
of advances made to affiliated entities
|
296 | 363 | ||||||
|
Capital
lease obligation
|
(18 | ) | 9 | |||||
|
Common
stock issued
|
50 | -- | ||||||
|
Preferred
stock issued
|
1,115 | -- | ||||||
|
Deposit
for unissued securities
|
(275 | ) | -- | |||||
|
Proceeds
from private placement
|
-- | 2,656 | ||||||
|
Net
cash provided by financing activities
|
2,415 | 2,409 | ||||||
|
Effect
of exchange rate changes on cash and cash equivalents
|
45 | (90 | ) | |||||
|
Net
(decrease) increase in cash and cash equivalents
|
(185 | ) | 77 | |||||
|
Cash
and cash equivalents, beginning of year
|
192 | 115 | ||||||
|
Cash
and cash equivalents, end of year
|
$ | 7 | $ | 192 | ||||
|
Supplemental
cash flow information:
|
||||||||
|
Interest
paid
|
-- | -- | ||||||
|
Income
taxes paid
|
-- | -- | ||||||
|
Non-cash
disclosures
|
||||||||
|
Issuance
of common stock to satisfy debt obligation
|
$ | 88 | -- | |||||
|
Fair
market value of warrants issued with Series B Preferred shares recorded
increase to paid in capital for value of warrants
|
$ | 493 | -- | |||||
|
Convertible
debenture discount with corresponding increase to derivative liabilities
for beneficial conversion feature
|
$ | 285 | -- | |||||
|
Series
S Preferred Stock exchanged for retirement of notes payable and accrued
interest due to related parties
|
$ | 3,404 | ||||||
|
Conversion
of Series A Preferred Stock to common stock
|
$ | 7 | -- | |||||
|
Conversion
of debentures to common stock
|
$ | 51 | ||||||
|
Conversion
of accrued interest to convertible notes payable
|
$ | 116 | -- | |||||
|
Common
stock issued for acquisition of Dose Shield
|
$ | 2,000 | -- | |||||
|
Debt
recorded for acquisition of Dose Shield
|
$ | 540 | ||||||
|
Conversion
of Series G Preferred to Common Stock
|
-- | $ | 23 | |||||
See notes to financial
statements
POSITRON
CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008 AND 2007
|
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. Positron
Corporation operations include Molecular Imaging Devices and Radiopharmaceutical
Distribution Products. The Molecular Imaging Devices portion of the business
provides Positron Emission Tomography (PET) scanners and Single Photon Emission
Computed Tomography (SPECT) cameras. Radiopharmaceutical Products
offers the world’s first robotic systems for distribution and delivery of
radiopharmaceuticals and provides radiopharmaceutical agents used for the
diagnosis of cardiac diseases. The Company attempts to create revenue by
offering low cost molecular imaging devices, disease specific software,
radiopharmaceutical distribution and delivery systems, and
radiopharmaceutical agents for cardiac nuclear medicine. The Company,
participates in manufacturing of its PET scanner through its’ joint venture with
Neusoft Medical Systems Co., LTD. These systems will 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. The Company’s 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.
|
|
|
In
October 2008, the Company closed the IPT facility in Canada and
consolidated operations with Positron Pharmaceuticals in the United
States. At December 31, 2008, IPT continued to operate as a
separate legal and accounting entity. However, the Company’s management is
currently considering structural changes that include a merger of the U.S.
and Canadian operations.
|
On June
5, 2008, the Company, and its wholly-owned subsidiary Positron Pharmaceuticals
Company, a Nevada corporation (“Positron Pharmaceuticals”), executed and
consummated a Stock Purchase Agreement to acquire all of the issued and
outstanding stock (the “Acquisition”) of Dose Shield Corporation, an Indiana
corporation (“Dose Shield”). The purchase price of the Acquisition
consisted of: 80,000,000 shares of the Registrant’s common stock, par value
$0.01 per share (the "Common Stock"), deliverable in two equal tranches, the
first 40,000,000 shares at the closing, the second contingent upon verification
by an independent third party that Dose Shield’s Cardio-Assist device is deemed
in commercially reasonable working order and is ready for resale not later than
December 31, 2009; (ii) cash in the amount of $600,000, $60,000 payable at the
closing and the balance due on December 31, 2008, unless extended for one year
with interest at the rate of 8%; earn out payments through December 31, 2009
equal to the lesser of (x) 50% of the net revenue generated from sales of
Pharm-Assist equipment, including receivables, or (y) $600,000. In addition, the
Company is obligated to pay royalties equal to 1.5% of net revenues generated
from all future sales of all Dose Shield equipment sold by Positron
Pharmaceuticals following the Closing. Future royalty obligations would be
expensed to operations as incurred.
The
assets acquired and liabilities assumed included accounts receivable
and deferred revenues from sales contracts that were executed by Dose Shield’s
majority shareholder NukeMed Corporation. NukeMed, acting as Dose
Shield’s sales and marketing agent, entered into several sales agreements for
Nuclear Pharm -Assist™ systems. The agreements and all obligations
were assigned to Positron Pharmaceuticals in the
Acquisition. The Nuclear Pharm-Assist™ system is designed to
support the staff of Nuclear Medicine Departments and Nuclear Pharmacies. The
Nuclear Pharm -Assist™ compounds, kits, fills, assays and dispenses vials and
syringes in a shielded container. The unique design reduces worker
radiation exposure and repetitive motion injuries. The shielding is integrated
into the design and is considered standard.
Principles of
Consolidation
For the
years ended December 31, 2008 and 2007, the financial statements include the
transactions of Positron Corporation and its wholly-owned subsidiaries Imaging
Pet Technologies, Inc. (“IPT”) and Positron Pharmaceuticals acquired in 2008.
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, 2008 and 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 federal depository insurance limit.
Accounts
receivable arise primarily from transactions with customers in the medical
industry located throughout the world, but concentrated in the United States 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 and declining balance methods 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.
Income
Taxes
The
Company accounts for income taxes under Statement of Financial Accounting
Standards No. 109, “Accounting for Income Taxes”. Under Statement No.
109, the asset and liability method is used in accounting for income
taxes. Deferred taxes are recognized for temporary differences
between the bases of assets and liabilities for financial statement and income
tax purposes. The temporary differences relate primarily to net
operating loss carryforwards. A valuation allowance is recorded for
deferred tax assets when it is more likely than not that some or all of the
deferred tax assets will not be realized through future operations.
In
addition, the Company follows the provisions of FASB
Interpretation No. 48,"Accounting for Uncertainty in Income Taxes," an
interpretation of FASB Statement No.109 ("FIN 48"). FIN 48 prescribes a
recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a
tax return. A company must determine whether it is "more-likely-than-not" that a
tax position will be sustained upon examination, including resolution of any
related appeals or litigation procedures, based on the technical merits of the
position. Once it is determined that a position meets the
more-likely-than-not recognition threshold, the position is measured to
determine the amount of benefit to recognize in the financial statements. Review
of the Company’s possible tax for 2008 and 2007 did not result in any 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.
Revenue
Recognition
Revenues
from 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 2008 and 2007 were $126,000 and
$95,000, respectively.
Research and Development
Expenses
All costs
related to research and development costs are charged to expense as
incurred.
Stock Based
Compensation
The
Company measures all employee share-based compensation awards under the
provisions of SFAS No. 123(R) which uses 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 the
Company’s 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, 2008 and 2007, service costs charged to expense were $706,000 and
$1,036,000, respectively. Warranty expense for Pulse CDC gamma
systems sold by was $97,000 and $196,000 for the years ended December 31, 2008
and 2007, 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
periods presented in the Statement of Operations and Comprehensive Income, as
the effect would be antidilutive.
Fair Value of Financial
Instruments
The
Company includes fair value information in the notes to the financial statements
when the fair value of its financial instruments is different from the book
value. When the book value approximates fair value, no additional
disclosure is made.
|
|
New Accounting
Pronouncements
|
In
September 2006 the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements. SFAS
No. 157 provides enhanced guidance for using fair value to measure assets
and liabilities. SFAS No. 157 applies whenever other standards require or
permit assets or liabilities to be measured at fair value. SFAS No. 157 is
effective for fiscal years beginning after November 15, 2007. In
February 2008, the FASB issued FASB Staff Position
(“FSP”) No. 157-2, Effective Date of FASB Statement
No. 157, which defers the effective date of SFAS No. 157 for
one year for non-financial assets and liabilities, except for items that are
recognized or disclosed at fair value in an entity’s financial statements on a
recurring basis (at least annually). In October 2008, the FASB issued FSP
No. 157–3, Determining
the Fair Value of a Financial Asset When the Market for That Asset Is Not
Active, which clarifies the application of SFAS No. 157 in a market
that is not active. On January1, 2008, the Company adopted the provisions of
SFAS No. 157 for financial assets and liabilities recognized or disclosed
at fair value on a recurring and non–recurring basis and the provisions FSP
No. 157-3. The adoption of SFAS 157 did not have a material
impact on the Company’s financial statements. Consistent with the
provisions of FSP No. 157–2, the Company elected to defer the adoption of
SFAS No. 157 for non–financial assets and liabilities measured at fair
value on a non–recurring basis. The Company is in the process of evaluating
these portions of the standard and therefore has not yet determined the impact
that the adoption will have on its 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.
In March
2008, the FASB issued SFAS Statement No. 161 Disclosures about Derivative
Instruments and Hedging Activities an amendment of FASB Statement No. 133
(“SFAS No. 161”), which changes the disclosure requirements for derivative
instruments and hedging activities. Pursuant to SFAS No.161, Entities
are required to provide enhanced disclosures about (a) how and why an entity
uses derivative instruments, (b) how derivative instruments and related hedged
items are accounted for under Statement 133 and its related interpretations, and
(c) how derivative instruments and related hedged items affect an entity’s
financial position, financial performance, and cash flows. SFAS No.
161 is effective for financial statements issued for fiscal years and interim
periods beginning after November 15, 2008 with early application encouraged.
SFAS No. 161 encourages but does not require disclosures for earlier periods
presented for comparative purposes at initial adoption. In years
after initial adoption, this Statement requires comparative disclosures only for
periods subsequent to initial adoption. The Company does not expect
the adoption of SFAS No. 161 to have a material impact on the financial results
of the Company.
In April
2008, the FASB issued FSP No. 142-3, Determination of the Useful Life of
Intangible Assets. FSP 142-3 amends the factors an entity should consider in
developing renewal or extension assumptions used in determining the useful life
of recognized intangible assets under SFAS 142, Goodwill and Other Intangible
Assets, and adds certain disclosures for an entity’s accounting policy of the
treatment of the costs, period of extension, and total costs
incurred. FSP 143-3 must be applied prospectively to intangible
assets acquired after January 1, 2009. The Company is currently
evaluating the impact that FSP 142-3 will have on its financial position or
results of operations.
In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles” (“SFAS 162”). This statement identifies the sources of
accounting principles and the framework for selecting the principles used in the
preparation of financial statements of nongovernmental entities that are
presented in accordance with GAAP. With the issuance of this statement, the FASB
concluded that the GAAP hierarchy should be directed toward the entity and not
its auditor, and reside in the accounting literature established by the FASB as
opposed to the American Institute of Certified Public Accountants (AICPA)
Statement on Auditing Standards No. 69, “The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles.” This statement is
effective 60 days following the SEC’s approval of the Public Company Accounting
Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles.” The adoption of FAS
162 is not expected to have a material impact on the Company’s results from
operations or financial position.
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, Pulse
systems or systems acquired with the purchase of Dose Shield in quantities
sufficient to be operationally profitable. Consequently, the Company
has sustained substantial losses. At December 31, 2008, the Company
had an accumulated deficit of $85,580,000 and a stockholders’ deficit of
$6,550,000. Due to the sizable prices of the Company’s systems and
the limited number of systems sold or placed in service each year, the Company’s
revenues have fluctuated significantly year to year.
The
Company utilized proceeds of $1,165,000 from issuance of Series B Preferred and
common stock to fund operating activities in 2008. The Company had
cash and cash equivalents of $7,000 at December 31, 2008. At the same
date, the Company had accounts payable and accrued liabilities of
$2,687,000. In addition, debt service and working capital
requirements for the upcoming year may reach beyond our 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
3) meet current commitments and fund the continuation of its business operation
in the near future and 4) raise additional funds through debt and/or equity
financings.
3. Positron Pharmaceuticals –
Dose Shield Acquisition
On June
5, 2008, the Company, and its wholly-owned subsidiary Positron Pharmaceuticals
Company, a Nevada corporation (“Positron Pharmaceuticals”), executed and
consummated a Stock Purchase Agreement to acquire all of the issued and
outstanding stock (the “Acquisition”) of Dose Shield Corporation, an Illinois
corporation (“Dose Shield”). The purchase price of the Acquisition
consisted of: 80,000,000 shares of the Registrant’s common stock, par value
$0.01 per share (the "Common Stock"), deliverable in two equal tranches, the
first 40,000,000 shares at the closing, the second contingent upon verification
by an independent third party that Dose Shield’s Cardio-Assist device is deemed
in commercially reasonable working order and is ready for resale not later than
December 31, 2009; (ii) cash in the amount of $600,000, $60,000 payable, at the
closing and the balance due on December 31, 2008, unless extended for one year
with interest at the rate of 8%; earn out payments through December 31, 2009
equal to the lesser of (x) 50% of the net revenue generated from sales of
Pharm-Assist equipment, including receivables, or (y) $600,000. In addition, the
Company is obligated to pay royalties equal to 1.5% of net revenues generated
from all future sales of all Dose Shield equipment sold by Positron
Pharmaceuticals following the Closing. Future royalty obligations would be
expensed to operations as incurred.
The
assets acquired and liabilities assumed included accounts receivable and
deferred revenues from sales contracts that were executed by Dose Shield’s
majority shareholder NukeMed Corporation. NukeMed, acting as Dose
Shield’s sales and marketing agent, entered into several sales agreements for
Nuclear Pharm -Assist™ systems. The agreements and all obligations
were assigned to Positron Pharmaceuticals Company in the
Acquisition. The Nuclear Pharm-Assist™ system is designed to
support the staff of nuclear medicine departments and nuclear
pharmacies. The Nuclear Pharm -Assist™ compounds kits, fills vials
and syringes, assays vials and syringes and dispenses vial and syringes in a
shielded container. The unique design reduces worker radiation
exposure and repetitive motion injuries. The shielding is integrated into the
design and is considered standard.
The cost
of the Acquisition was allocated to the assets acquired and liabilities assumed
from Dose Shield and NukeMed based on their preliminary fair values as of
the acquisition date, with the amount exceeding the fair value recorded as an
intangible asset. The contingent payment of 40,000,000 shares of
common stock will be recorded as additional intangible asset at the time the
contingency is resolved. The earn out payments would be recognized as
compensation expense when and if earned. As the estimated fair values
of certain assets and liabilities are preliminary in nature, they are subject to
adjustment as additional information is obtained, including, but not limited to,
settlement of the contingent payment, the final reconciliation and valuation of
tangible assets and the Company incurring direct acquisition costs in connection
with this transaction.
The
following table summarizes the preliminary allocation of the cost of the
acquisition to the assets acquired and liabilities assumed as of the close of
the acquisition (in thousands):
|
As
of June 5, 2008
|
||||
|
Assets
Acquired
|
||||
|
Trade
accounts receivables
|
$ | 23 | ||
|
Inventory
|
374 | |||
|
Trademarks
|
6 | |||
|
Intangible
asset
|
3,265 | |||
|
Total
Assets Acquired
|
3,668 | |||
|
Liabilities
Assumed
|
||||
|
Accounts
payable and accrued expenses including direct costs of
acquisition
|
282 | |||
|
Unearned
revenues
|
786 | |||
|
Total
Liabilities Assumed
|
1,068 | |||
|
Purchase
Price
|
$ | 2,600 | ||
If the
acquisition had occurred at the beginning of the period, net sales for the year
ended December 31, 2008 would have been $2,171,000. Net loss for
the year would have been $9,275,000, and loss per share would have been
$.06 per share.
In
addition, John Zehner, Dose Shield’s former principal shareholder and executive
officer executed a three year employment agreement with the Registrant to serve
as president of Positron Pharmaceuticals. Mr. Zehner’s employment is
for three years with a base salary of $100,000 per year, with the Registrant’s
option to increase the base salary to $150,000 in the event it has received
appropriate funding.
|
|
Intangible Asset
and 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 (or 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.
In
performing the first step of the fiscal 2008 intangible asset or goodwill
impairment test, management determined there was an indicator of impairment in
the intangible asset recorded for the acquisition of Dose Shield because the
carrying value of the reporting unit exceeded its estimated fair
value.
In
performing the second step of the impairment test, the Company allocated the
estimated fair values of the Positron Pharmaceuticals 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. Based on
the Company’s annual review of goodwill in 2008, the Company recorded an
impairment charge of $3,265,000, for the Positron Pharmaceuticals reporting unit
which represented the entire intangible asset balance.
During
the year ended December 31, 2007 the Company recorded an impairment charge of
$2,592,000 against intangible assets recorded for the acquisition of
IPT.
|
4.
|
Inventories
|
Inventories
at December 31, 2008 and 2007 consisted of the following (in
thousands):
|
2008
|
2007
|
|||||||
|
Finished
systems
|
$ | 111 | $ | -- | ||||
|
Raw
materials and service parts
|
526 | 1,004 | ||||||
|
Work
in progress
|
156 | 379 | ||||||
| 793 | 1,383 | |||||||
|
Less:
Reserve for obsolete inventory
|
(38 | ) | (211 | ) | ||||
| $ | 755 | $ | 1,172 | |||||
|
5.
|
Due From
Affiliates
|
Due from
affiliates at December 31, 2008 and 2007 consisted of the following (in
thousands):
|
2008
|
2007
|
|||||||
|
INP
|
$ | 3 | $ | 320 | ||||
|
NPMS
|
37 | 24 | ||||||
|
IMAGIN
|
-- | 11 | ||||||
|
Total
|
$ | 40 | $ | 355 | ||||
|
6.
|
Investment in Joint
Venture
|
On June
30, 2005 the Company entered into a Joint Venture Contract with Neusoft Medical
Systems Co., Inc. of Shenyang, Lianoning Province, People's Republic of China
("Neusoft"). Pursuant to the Joint Venture Contract the parties
formed a jointly-owned company, Neusoft Positron Medical Systems Co., Ltd. (the
"NPMS"), to engage in the manufacturing of PET and CT/PET medical imaging
equipment. NPMS received its business license and was organized in
September 2005.
The
Company and Neusoft are active in researching, developing, manufacturing,
marketing and/or selling Positron Emission Tomography ("PET")
technology and both parties seek to mutually benefit from each other's
strengths, and intend to cooperate in the research, development and
manufacturing of PET technology. NPMS , has upgraded the PET imaging
system to accommodate the growing need by cardiologists for competitively
priced, high quality molecular imaging devices in today’s challenging
economy. The Attrius™ Cardiac PET system has been submitted to the
FDA in January 2009.
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 initially represented 32.5% of the total registered
capital of the Company, or US$ 650,000, of which US$ 250,000 was made in cash,
and US$ 400,000 was made in the form of a technology license. The
Company’s ownership of the JV Company has subsequently been diluted to 10% as a
result of additional cash contributions by Neusoft. The Company has
transferred to the JV Company certain of its PET technology, while Neusoft made
available to the JV Company certain CT technology for the development and
production of an integrated PET/CT system. Initially, the Company
accounted for its investment in NPMS under the equity method of accounting and
shared 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. During the year ended December
31, 2007 the Company’s investment had been written down to zero as a result of
losses in NPMS. As a result of the dilution of the
Company’s ownership in NPMS to 10%, the equity method of accounting is no longer
applicable,
7. Property and
Equipment
Property
and equipment at December 31, 2008 and 2007 consisted of the following (in
thousands):
|
2008
|
2007
|
|||||||
|
Furniture
and fixtures
|
$ | 8 | $ | 130 | ||||
|
Computer
equipment
|
33 | 89 | ||||||
|
Machinery
and equipment
|
-- | 32 | ||||||
| 41 | 251 | |||||||
|
Less:
Accumulated depreciation
|
(13 | ) | (195 | ) | ||||
| $ | 28 | $ | 56 | |||||
|
8.
|
Other
Assets
|
Other assets at December 31, 2008 and
2007 consisted of the following (in thousands):
|
2008
|
2007
|
|||||||
|
Intangible
assets
|
$ | 12 | $ | 45 | ||||
|
Deferred
loan costs
|
31 | 105 | ||||||
|
Total
|
$ | 43 | $ | 150 | ||||
|
9.
|
Accounts Payable and
Accrued Liabilities
|
Accounts
payable and accrued liabilities at December 31, 2008 and 2007 consisted of the
following (in thousands):
|
2008
|
2007
|
|||||||
|
Trade
accounts payable
|
$ | 1,966 | $ | 1,529 | ||||
|
Accrued
royalties
|
247 | 311 | ||||||
|
Accrued
interest
|
103 | 139 | ||||||
|
Sales
taxes payable
|
107 | 103 | ||||||
|
Accrued
compensation
|
175 | 63 | ||||||
|
Accrued
property taxes
|
36 | 45 | ||||||
|
Accrued
professional fees
|
31 | 25 | ||||||
|
Accrued
warranty costs
|
22 | 84 | ||||||
|
Other
|
-- | 15 | ||||||
|
Total
|
$ | 2,687 | $ | 2,314 | ||||
|
10.
|
Notes Payable/Due to
Affiliated Entities And Securities Exchange
Agreement
|
Notes Payable – Affiliated
Entities
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. During the year ended December 31, 2008, IMGM advanced an additional
$835,000 to the Company. 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 (“Note
1”). Note 1 was 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”). On August 18, 2008, the
advances totaling $835,000 were also formalized into a promissory note, with
interest at 8%, due on December 31, 2008 (“Note 2”). Note 2 was also secured by
the Pledged Shares. Prior to the” Exchange” (see discussion below), accrued
interest on Notes 1 & 2 at totaled $68,000.
Advances from Related
Party
During
the year ended December 31, 2008, Solaris Opportunity Fund, L.P. (“Solaris”)
loaned the Company a total of $1,155,000. Solaris' Managing Member,
Patrick G. Rooney, is also the Chairman of Positron. Pursuant to a Securities
Exchange Agreement (see discussion below), the Company retired all advances due
to Solaris.
At
December 31, 2008 and 2007, advances due to related parties totaled
$133,000 and $1,346,000, respectively.
Securities Exchange
Agreement among Positron Corporation, Imagin Molecular Corporation and Solaris
Opportunity Fund, L.P.
On
November 18, 2008, the Company, Solaris Opportunity Fund, L.P. and Imagin
Molecular Corporation executed and consummated a Securities Exchange Agreement
whereby Imagin transferred and assigned all of its rights title and interest to
Note 1, Note 2 and the Pledged Shares to Solaris in exchange for the return of
the 20,000,000 shares of Imagin’s common stock and 4,387,500 shares of Imagin’s
Series A Preferred Stock, to be retired and cancelled on Imagin’s books and
records and the retirement and satisfaction of any obligations to the advances
made in the amount of $200,000 to Imagin by Solaris. Simultaneously therewith,
Solaris exchanged Note 1, Note 2 plus accrued interest and the Pledged Shares
and the retirement and satisfaction of any obligations to the advances made to
the Company in the aggregate amount of $1,155,000 for the issuance of 100,000
shares of the Company’s Series S Preferred Stock (the “Exchange”). As
a result of the Exchange, Solaris Opportunity Fund, L.P. became the Company’s
controlling shareholder, holding approximately 60% of the Company’s voting
capital stock.
|
11.
|
Secured Convertible
Notes Payable
|
Pursuant
to the terms of a Security Agreement and a Registration Rights Agreement (the
“Agreements”) dated May 23, 2006, the Company agreed to issue to private
investors (the “Investors”) callable secured convertible notes (the
“Debentures”) in the amount of $2,000,000, with interest at the rate of 6%
annually. The Debentures are convertible into shares of the Company’s
Common Stock as the product of the “Applicable Percentage” and the average of
the lowest three (3) trading prices for the common stock during the twenty (20)
day period prior to conversion. Applicable Percentage is 50%; provided, however
that the percentage shall be increased to (i) 55% in the event that a
Registration Statement is filed within thirty days of the closing of the
transaction and (ii) 65% in the event the Registration Statement becomes
effective within one hundred and twenty days of the closing of the
transaction. The Company filed a Registration Statement on June 20, 2006 that
was subsequently withdrawn. 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.
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, 2008, the beneficial conversion features had an estimated fair
value of $2,314,000. In valuing the beneficial conversion features at December
31, 2008, the Company used the closing price of its common stock of $0.034, risk
free rate of return of 0.875%; dividend yield of 0%; the conversion price as
defined in the debt agreement; remaining term to maturity; and a volatility
factor of 200%. For the year ended December 31, 2008 the Company recorded
derivative gains from the beneficial conversion features in the Convertible
Debentures of $236,000. For the year ended December 31, 2007, the Company
recorded derivative losses from the beneficial conversion features in the
Convertible Debentures of $386,000.
On
January 4, 2008 the Investors converted debentures in the amount of $40,986 into
872,052 shares of the Company’s common stock at a price of $0.047 per
share. On March 6, 2008, the Investors converted debentures in the
amount of $5,500 into 250,000 shares of common stock at a price of $0.022 per
share. On April 1, 2008, the Investors converted debentures in the
amount of $5,500 into 250,000 shares of common stock at a price of $0.022 per
share. The conversions resulted in a reduction of approximately $44,000 to the
unamortized debt discount. On June 6, 2008 the Company made a cash payment to
the Investors of $42,000 representing $40,986 of principal and $1,014 of accrued
interest.
At
December 31, 2008 the balance of the convertible debentures net of discount of
$608,000 was $599,000, all of which are current liabilities.
Accrued Interest Converted
To Notes
On
January 31, 2008, the Investors converted accrued interest of $115,900 related
to the Debentures into three Callable Secured Convertible Notes (the “Notes”)
with interest at the rate of 2% annually. The Notes are convertible
into shares of the Company’s Common Stock at the product of the “Applicable
Percentage” and the average of the lowest three (3) trading prices for the
common stock during the twenty (20) day period prior to conversion. Applicable
Percentage is 50%.
At the
date of issuance, the beneficial conversion features had an estimated initial
fair value of $285,000, of which $115,900 was recorded as a discount to the debt
and $169,000 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 Scholes Valuation
Method based on the fair value of the Company’s common stock of $0.065; risk
free rate of return of 2.125%; dividend yield of 0%; the conversion
price as defined in the debt agreement; 3 year term to maturity; and a
volatility factor of 237%. The debt discount is being amortized over the term of
the Convertible Debentures using the effective interest method.
At
December 31, 2008, the beneficial conversion features had an estimated fair
value of $289,000. In valuing the beneficial conversion features at December 31,
2008, the Company used the closing price of its common stock of $0.034, risk
free rate of return of 0.875%; dividend yield of 0%; the conversion price as
defined in the debt agreement; remaining term to maturity; and a volatility
factor of 226%. For the year ended December 31, 2008 the Company recorded
derivative losses from the beneficial conversion features in the Convertible
Debentures of $4,000.
At
December 31, 2008 the balance of the Notes net of discount of $105,000 was
$11,000, all of which are non-current liabilities.
|
12.
|
Stock Options and
Warrants
|
Options
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. No shares
were issued under the plan for the years ended December 31, 2008 or 2007. As of
December 31, 2008, a total of 19,000,000 options have been granted under the
2005 Plan, none of which have been exercised, and of which 19,000,000 are fully
vested.
2006 Stock Incentive
Plan
On April
10, 2006, the Company’s Board of Directors adopted a 2006 Stock Incentive Plan
(“2006 Plan”). The 2006 Plan is administered by the Board and provides for the
direct issuance of stock and grants of nonqualified stock options to directors,
officers, employees and consultants. The administrator is authorized to
determine the terms of each award granted under the plan, including the number
of shares, exercise price, term and exercisability. Stock and options may be
granted for services rendered or to be rendered. A total of 5,000,000 shares of
common stock have been authorized for issuance under the 2006 Plan. No shares
were issued under the plan for the years ended December 31, 2008 or 2007. As of
December 31, 2008, 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. The entire 5,000,000 available shares were
issued by the Company during the year ended December 31, 2007 for which the
Company recorded corresponding consulting expenses of $345,000
2008 Stock Incentive
Plan
Positron's
Board of Directors (the “Board”) administers the 2008 Stock Incentive Plan
("2008 Plan"), which was adopted by the Board effective July 28, 2008. The
purpose of the 2008 Plan is to advance the interests of the Company’s
stockholders by enhancing the Company’s ability to attract, retain and motivate
persons who are expected to make important contributions to the Company and by
providing such persons with equity ownership opportunities and performance-based
incentives that are intended to better align their interests with those of the
Company’s stockholders. The 2008 Plan provides for the direct issuance of
Awards including stock options, restricted stock awards and unrestricted stock
awards. All of the Company’s employees, officers and directors (including
persons who have entered into an agreement with the Company under which they
will be employed by the Company in the future), as well as all of the Company’s
consultants and advisors that are natural persons, are eligible to the awards
under the 2008 Plan. 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 6,000,000 shares of Common Stock
have been authorized for issuance under the 2008 Plan. For the year
ended December 31, 2008, the Company issued 500,000 shares of stock under the
plan and recorded a corresponding consulting expense of $15,000. As of December
31, 2008, 500,000 shares had been issued under the 2008 Plan.
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, 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 | |||||
|
Granted
|
-- | -- | ||||||
|
Forfeited
|
-- | -- | ||||||
|
Exercised
|
-- | -- | ||||||
|
Balance
at December 31, 2008
|
19,425,000 | $ | 0.06 | |||||
Following
is a summary of stock options outstanding at December 31, 2008 and
2007.
|
Options Outstanding
|
Options Exercisable
|
|||||||||||||||||||||
|
Range
of Exercise Price
|
Shares
|
Weighted
Average Remaining Term (in
Years)
|
Weighted
Average Exercise Price
|
Shares
|
Weighted
Average Exercise Price
|
|||||||||||||||||
| $ | 0.05 | 7,500,000 | 2.00 | $ | 0.05 | 7,500,000 | $ | 0.05 | ||||||||||||||
| $ | 0.06 | 11,500,000 | 2.00 | $ | 0.06 | 11,500,000 | $ | 0.06 | ||||||||||||||
| $ | 0.11 | 25,000 | 2.25 | $ | 0.11 | 25,000 | $ | 0.11 | ||||||||||||||
| $ | 0.08 | 25,000 | 3.00 | $ | 0.08 | 25,000 | $ | 0.08 | ||||||||||||||
| $ | 0.01 | 25,000 | 4.00 | $ | 0.01 | 25,000 | $ | 0.01 | ||||||||||||||
| $ | 0.05 | 20,000 | 4.33 | $ | 0.05 | 20,000 | $ | 0.05 | ||||||||||||||
| $ | 0.03 | 25,000 | 5.00 | $ | 0.03 | 25,000 | $ | 0.03 | ||||||||||||||
| $ | 0.02 | 205,000 | 5.42 | $ | 0.02 | 205,000 | $ | 0.02 | ||||||||||||||
| $ | 0.04 - $0.12 | 100,000 | 6.06 | $ | 0.09 | 100,000 | $ | 0.09 | ||||||||||||||
|
Balance
at 12/31/2008
|
,19,425,000 | $ | 0.06 | 19,425,000 | $ | 0.06 | ||||||||||||||||
|
Balance
at 12/31/2007
|
19,425,000 | $ | 0.06 | 18,903,646 | $ | 0.06 | ||||||||||||||||
The
Company did not grant any stock options during the years ended December 31, 2008
and 2007. Stock-based compensation included in general and administrative
expense is $3,200 and $412,000 for the years ended December 31, 2008 and 2007,
respectively.
The
aggregate intrinsic value in the table below is before income taxes, based on
the Company’s closing stock price of $0.034 as of the last business day of the
year ended December 31, 2008. There were no options exercised during
the years ended December 31, 2008 and 2007.
|
Number
of Options
|
Weighted
Average Exercise Price
|
Aggregate
Intrinsic Value
|
||||||||||
|
Options
Outstanding And Exercisable
|
19,425,000 | $ | 0.06 | $ | 155,400 | |||||||
Warrants
In March
2008, the Company issued 162,500 shares of its Series B Preferred Stock in a
private placement to investors for $650,000. For every two shares of
Series B Preferred purchased, the Company issued a warrant exercisable for 100
shares of common stock at an exercise price of $0.10 per shares. The warrants
were valued using the Black Sholes Valuation Method based on the fair value of
the Company’s common stock of $0.06; an exercise price of $0.10; a 2 year term;
risk free rate of return of 2.125%; dividend yield of 0%;and a
volatility factor of 181%. The fair value of the warrants of $365,517 was
recorded as an increase to Additional paid-in capital – stock
warrants.
In
October 2008, the Company issued 126,250 shares of its Series B Preferred Stock
in a private placement to investors for $465,000. For every two
shares of Series B Preferred purchased, the Company issued a warrant exercisable
for 100 shares of common stock at an exercise price of $0.10 per shares. The
warrants were valued using the Black Sholes Valuation Method based on the fair
value of the Company’s common stock of $0.08; an exercise price of $0.10; a 2
year term; risk free rate of return of 2.125%; dividend yield of
0%;and a volatility factor of 173%. The fair value of the warrants of $127,442
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, 2006
|
58,374,100 | $ | 0.12 | |||||||||
|
Warrants
expired in 2007
|
(750,000 | ) | $ | 0.03 - $2.40 | $ | 0.81 | ||||||
|
Balance
at December 31, 2007
|
57,624,100 | $ | 0.11 | |||||||||
|
Warrants
expired in 2008
|
(11,474,100 | ) | $ | 0.10-$0.25 | $ | 0.12 | ||||||
|
Warrants
issued with Series B Preferred Stock in private placement
|
14,437,500 | $ | 0.10 | $ | 0.10 | |||||||
|
Balance
at December 31, 2008
|
60,587,500 | $ | 0.10 | |||||||||
All
outstanding warrants are currently exercisable. A summary of
outstanding stock warrants at December 31, 2008 follows:
|
Number
of Common Stock Equivalents
|
Expiration
Date
|
Remaining
Contractual Life (Years)
|
Exercise
Price
|
||||||||
| 3,825,000 |
(a)
|
-- | $ | 0.02 | |||||||
| 3,750,000 |
June
2009
|
0.5 | $ | 0.02 | |||||||
| 8,575,000 |
May
2010
|
1.4 | $ | 0.02 | |||||||
| 30,000,000 |
May
2013
|
4.4 | $ | 0.15 | |||||||
| 8,125,000 |
March
2010
|
1.25 | $ | 0.10 | |||||||
| 6,312,500 |
October
2010
|
1.75 | $ | 0.10 | |||||||
| 60,587,500 | |||||||||||
|
|
(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.
|
13. Preferred
Stock
The
Company’s Articles of Incorporation, as amended 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. Out of the 10,000,000 shares of
preferred, the Board designated 3,000,000 shares Series G Preferred Stock on
April 4 2006, and designated 100,000 shares Series S Preferred Stock on
September 25, 2008. 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, 2008, stated dividends that are undeclared and unpaid on the
Series G Preferred Stock total approximately $558,000.
On March
6, 2008 a shareholder converted 6,720 shares of Series A Preferred Stock into
16,922 shares of the Company’s common stock, par value $0.01 per
share. The fair market value of the common stock on the date of
conversion was $0.05 per share. At December 31, 2008 there were 457,599 shares
of Series A Preferred Stock were outstanding.
Series B Preferred
Stock
On
September 30, 2006 the Board of Directors authorized a 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.
In March
2008, the Company issued 162,500 shares of its Series B Preferred Stock in a
private placement to investors for $650,000. For every two shares of
Series B Preferred purchased, the Company issued a warrant exercisable for 100
shares of common stock at an exercise price of $0.10 per shares. The warrants
were valued using the Black Sholes Valuation Method based on the fair value of
the Company’s common stock of $0.06; an exercise price of $0.10; a 2 year term;
risk free rate of return of 2.125%; dividend yield of 0%;and a
volatility factor of 181%. The fair value of the warrants of $365,517 was
recorded as an increase to Additional paid-in capital – stock
warrants.
In
October 2008, the Company issued 126,250 shares of its Series B Preferred Stock
in a private placement to investors for $465,000. For every two
shares of Series B Preferred purchased, the Company issued a warrant exercisable
for 100 shares of common stock at an exercise price of $0.10 per shares. The
warrants were valued using the Black Sholes Valuation Method based on the fair
value of the Company’s common stock of $0.08; an exercise price of $0.10; a 2
year term; risk free rate of return of 2.125%; dividend yield of
0%;and a volatility factor of 173%. The fair value of the warrants of $127,442
was recorded as an increase to Additional paid-in capital – stock
warrants.
As of
December 31, 2008, 6,214,861 shares of Series B Preferred Stock were
outstanding.
Series G Preferred
Stock
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. 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 accumulate 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, 2008, stated dividends
that are undeclared and unpaid on the Series G Preferred Stock total
approximately $156,000.
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 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%.
On April
11, 2007, 93,091 shares of Series G Preferred were converted into 9,309,100
shares of Positron common stock. As of December 31, 2008 and 2007, 111,391
shares of Series G Preferred Stock were outstanding.
Series S
Preferred
On
November 7, 2008 the Board of Directors authorized a new series of preferred
stock designated Series S Convertible Preferred Stock. The number of
shares authorized was 100,000. Each share of Series S Convertible
Preferred Stock, $1.00 par value per share, is convertible into 10,000 shares of
the Company’s Common Stock, subject to adjustment The Series S
Preferred Stock is senior to the Company’s Common Stock and junior in priority
to the Company’s A, B and G Preferred Stock in liquidation. Holders of the
Series S Preferred Stock are entitled to 10,000 votes per share on all matters
requiring shareholder vote. While Series S Preferred Stock is
outstanding no Common Stock dividends may be paid or declared by the
Company. As of December 31, 2008, 100,000 shares of Series S
Convertible Preferred Stock were outstanding.
On
November 18, 2008, the Company, Solaris Opportunity Fund, L.P. and
Imagin Molecular Corporation executed and consummated a Securities Exchange
Agreement whereby Imagin transferred and assigned all of its rights title and
interest to Note 1, Note 2 and the Pledged Shares ( see “Amounts Due To Related
Parties” in note 13) to Solaris in exchange for the return of the 20,000,000
shares of Imagin’s common stock and 4,387,500 shares of Imagin’s Series A
Preferred Stock, to be retired and cancelled on Imagin’s books and records and
the retirement and satisfaction of any obligations to the advances made in the
amount of $200,000 to Imagin by Solaris. Simultaneously therewith,
Solaris exchanged Note 1, Note 2 and the Pledged Shares and the retirement and
satisfaction of any obligations to the advances made to the Company in the
aggregate amount of $1,195,000 for the issuance of 100,000 shares of the
Company’s Series S Preferred Stock.
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, 2008, the Company
had domestic net operating loss (“NOL”) carryforwards for income tax purposes of
approximately $25,000,000, which expire in 2009 through 2028. Under
the provisions of Section 382 of the Internal Revenue Code greater than 50%
ownership changes that occurred in the Company may significantly limit the
Company’s ability to utilize its NOL carryforwards to reduce future taxable
income and related tax liabilities.
At
December 31, 2007 the Company’s deferred tax asset included $661,000 of foreign
net operating loss carryforwards from its wholly-owned Canadian subsidiary,
IPT. During 2008, the Company closed IPT’s Canadian facility and
consolidated the operation in the United States. The Company’s
management is currently considering structural changes that include a merger of
the U.S. and Canadian operations. For these reasons, it is unlikely that the
foreign net operating losses will ever be utilized and therefore they were
excluded from the calculation of the deferred tax asset and related valuation
allowance at December 31, 2008.
The
composition of deferred tax assets and the related tax effects at December 31,
2008 and 2007 are as follows (in thousands):
|
2008
|
2007
|
|||||||
|
Deferred
tax assets:
|
||||||||
|
Net
operating losses:
|
||||||||
|
Domestic
|
$ | 8,595 | $ | 7,257 | ||||
|
Foreign
|
-- | 673 | ||||||
|
Stock
option compensation
|
287 | 286 | ||||||
|
Accrued
liabilities and reserves
|
147 | 193 | ||||||
| 9,029 | 8,409 | |||||||
|
Valuation
allowance
|
( 9,029 | ) | ( 8,409 | ) | ||||
|
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):
|
2008
|
2007
|
|||||||||||||||
|
Amount
|
%
|
Amount
|
%
|
|||||||||||||
|
Benefit
for income taxes at federal statutory rate
|
$ | 3,052 | 34.0 | % | $ | 2,645 | 34.0 | % | ||||||||
|
Goodwill
impairment – not deductible for tax purposes
|
(1,110 | ) | (12.4 | ) | (881 | ) | (11.3 | ) | ||||||||
|
Expenses
not deductible for tax purposes
|
(163 | ) | (1.8 | ) | (169 | ) | (2.2 | ) | ||||||||
|
Statutory
rate difference – foreign subsidiary
|
-- | -- | (365 | ) | (4.7 | ) | ||||||||||
|
Foreign
NOL’s forfeited (1)
|
(739 | ) | (8.2 | ) | -- | -- | ||||||||||
|
Other
|
59 | 0.6 | 236 | 3.0 | ||||||||||||
|
Change
in valuation allowance
|
(1,099 | ) | (12.2 | ) | (1,466 | ) | (18.8 | ) | ||||||||
| $ | -- | -- | % | $ | -- | -- | % | |||||||||
(1)
Represents deferred tax benefit attributable to net operating losses of Canadian
foreign subsidiary, Imaging Pet Technologies. The Company ceased all
Canadian operations in 2008. Consequently, it is not likely that the Company
will utilize any of the net operating losses accumulated in its foreign
subsidiary.
|
15.
|
401(k)
Plan
|
The
Positron Corporation 401(k) Plan and Trust (the “Plan”) covers all of the
Company’s employees who are United States citizens, at least 21 years of age and
have completed at least one quarter of service with the
Company. Pursuant to the Plan, employees may elect to reduce their
current compensation by up to the statutorily prescribed annual limit and have
the amount of such reduction contributed to the Plan. The Plan allows for the
Company to make discretionary 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 2008 and 2007. The Board of
Directors of the Company may authorize additional discretionary contributions;
however, no such contributions were made by the Company in 2008 or
2007.
|
16.
|
Related Party
Transactions
|
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 2008 or 2007 the Company did not pay any bonus
pursuant to the incentive compensation plan.
17. Commitments and
Contingencies
Employment
Agreement
Effective
December 27, 2005, the Company entered into an employment agreement with Joseph
G. Oliverio, President of the Company. Under the Agreement, Mr.
Oliverio receives an initial base salary of $100,000 per annum which increases
to $150,000 per annum on March 1, 2006. Mr. Oliverio also
received an option grant exercisable for 7,500,000 shares of Common Stock at an
exercise price of $0.05 per share. On the date of grant of the option 2,000,000
shares vested, with an additional 2,000,000 shares vesting on December 27,
2006 and the remainder on December 27, 2007. Mr. Oliverio
is entitled to six months severance upon a termination "without
cause".
Royalty
Agreements
The
Company acquired the know-how and patent rights for Positron Imaging from three
entities: the Clayton Foundation, K. Lance Gould (formerly a director) and Nizar
A. Mullani (also formerly a director.) Pursuant to agreements with
each of them, the Company was obligated to pay royalties of up to 4.0% in the
aggregate of gross revenues from sales, uses, leases, licensing or rentals of
the relevant technology. 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 at $88,135. 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 $247,000 and $311,000 are included in
current liabilities at December 31, 2008 and 2007, respectively.
Lease
Agreements
During
the year ended December 31, 2008, the Company operated its facilities under
three separate operating leases. The Company’s Houston facility operated on
month to month lease for the entire year.
The lease
for the IPT facility in Canada, expired July 31, 2008 at which time the Company
continued the lease on a month to month basis until its operations were
consolidated and moved. Positron Pharmaceuticals has a one year operating lease
expiring in September 2009 with a monthly rent of $4,167. The cost of
leasing the Company’s operating facilities amounted to approximately $144,000
and$167,000 in 2008 and 2007, respectively.
In
January 2009, the Company executed a one year operating lease for its remaining
Houston operations. The lease term is from February 1, 2009 to January 31, 2010.
Monthly rent for the facility is $1000.
At
December 31, 2008, future minimum rental payments under operating leases were
approximately $47,000.
Litigation
From time
to time the Company may be involved in various legal actions in the normal
course of business for which the Company maintains insurance. The
Company is currently not aware of any material litigation affecting the
Company.
18. Loss Per
Share
The
following information details the computation of basic and diluted loss per
share:
|
Year
Ended December 31, (In thousands, except for per share
data)
|
||||||||
|
2008
|
2007
|
|||||||
|
Numerator:
|
||||||||
|
Basic
and diluted net loss:
|
$ | (8,975 | ) | $ | (7,780 | ) | ||
|
Denominator:
|
||||||||
|
Denominator
for basic earnings per share-weighted average shares
|
134,556 | 95,875 | ||||||
|
Effect
of dilutive securities
|
||||||||
|
Convertible Preferred
Stock
|
-- | -- | ||||||
|
Stock
Warrants
|
-- | -- | ||||||
|
Stock
Options
|
-- | -- | ||||||
|
Denominator
for diluted earnings per share-adjusted weighted Average shares and
assumed conversions
|
134,556 | 95,875 | ||||||
|
Basic
and diluted loss per common share
|
$ | (0.07 | ) | $ | (0.08 | ) | ||
All
common stock equivalents in the years ended December 31, 2008 and 2007 were
excluded from the above calculation as their effect was
anti-dilutive.
Anti-dilutive
securities (based on conversions to common shares) not included in net loss per
share calculation (in thousands):
|
2008
|
2007
|
|||||||
|
Convertible
Series A Preferred Stock
|
457 | 464 | ||||||
|
Convertible
Series B Preferred Stock
|
621,486 | 592,611 | ||||||
|
Convertible
Series G Preferred Stock
|
11,139 | 11,139 | ||||||
|
Convertible
Series S Preferred Stock
|
1,000,000 | -- | ||||||
|
Stock
Warrants
|
60,588 | 57,624 | ||||||
|
Stock
Options
|
19,425 | 19,425 | ||||||
| 1,713,095 | 681,263 | |||||||
|
19.
|
Segment Information
and Major Customers
|
The
Company has operations in the United States and Canada. Selected financial data
by geographic area was as follows (in thousands):
|
2008
|
2007
|
|||||||
|
United
States
|
||||||||
|
Revenues
|
$ | 1,009 | $ | 864 | ||||
|
Operating
expenses
|
6,343 | 5,012 | ||||||
|
Net
loss
|
(7,493 | ) | (5,408 | ) | ||||
|
Canada
|
||||||||
|
Revenues
|
$ | 1,117 | $ | 2,445 | ||||
|
Operating
expenses
|
1,171 | 2,581 | ||||||
|
Net
loss
|
(1,482 | ) | (2,372 | ) | ||||
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, 2008 and 2007 the Company had a limited number of
customers as follows:
|
2008
|
2007
|
|||||||
|
Number
of customers
|
68 | 69 | ||||||
|
Customers
accounting for more than 10% of revenues
|
1 | 1 | ||||||
|
Percent
of revenues derived from largest customer
|
10 | % | 12 | % | ||||
|
Percent
of revenues derived from second largest customer
|
8 | % | 8 | % | ||||
|
20.
|
Selected
Quarterly Financial Data (Unaudited) (in thousands, except
per share data)
|
|
Quarter
ended
|
||||||||||||||||
|
March 31,
2008
|
June 30,
2008
|
September
30, 2008
|
December
31, 2008
|
|||||||||||||
|
Net
sales
|
$ | 426 | $ | 767 | $ | 384 | $ | 549 | ||||||||
|
Gross
profit (loss)
|
(122 | ) | 221 | (4 | ) | (908 | ) | |||||||||
|
Net
loss
|
(1,099 | ) | (2,017 | ) | (265 | ) | (5,594 | ) | ||||||||
|
Net
loss per share – basic and diluted
|
$ | (0.01 | ) | $ | (0.02 | ) | $ | (0.00 | )* | $ | (0.03 | ) | ||||
|
Weighted
average basic and diluted shares
|
106,428 | 116,076 | 156,240 | 158,974 | ||||||||||||
* Less than (.001) per
share.
|
Quarter
ended
|
||||||||||||||||
|
March 31,
2007
|
June 30,
2007
|
September
30, 2007
|
December
31, 2007
|
|||||||||||||
|
Net
sales
|
$ | 1,201 | $ | 869 | $ | 570 | $ | 669 | ||||||||
|
Gross
profit (loss)
|
379 | 246 | 121 | (365 | ) | |||||||||||
|
Net
loss
|
(1,119 | ) | (1,107 | ) | (1,504 | ) | (4,050 | ) | ||||||||
|
Net
earnings (loss) per share – basic and diluted
|
$ | (0.01 | ) | $ | (0.01 | ) | $ | (0.02 | ) | $ | (0.04 | ) | ||||
|
Weighted
average basic and diluted shares
|
87,083 | 95,896 | 97,776 | 102,553 | ||||||||||||
EXHIBITS
|
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
|
|
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
|
- 63
-