U.S.
SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-KSB
ANNUAL
REPORT
UNDER
SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR
THE FISCAL YEAR ENDED DECEMBER 31, 2006
Commissions
file number: 0-24092
Positron
Corporation
A
Texas
Corporation
1304
Langham Creek Drive, Suite 300, Houston, Texas 77084
(281)
492-7100
IRS
Employer Identification Number: 76-0083622
Securities
registered under Section 12(b) of the Exchange Act: NONE
Securities
registered under Section 12(g) of the Exchange Act: COMMON STOCK, $.01 PAR
VALUE
Check
whether the issuer is not required to file reports pursuant to Section 13 or
15(d) of the Exchange Act. £
Check
whether the issuer (1) filed all reports required to be filed by Section 13
or
15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for
such shorter period that the registrant was required to file such reports),
and
(2) has been subject to such filing requirements for the past 90
days.
|
Yes S
|
No £
|
Check
if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained,
to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. £
Indicate
by check mark whether the registrant is a shell Company (as defined in Rule
12b-2 of the Exchange Act.) S
Issuer's
revenues for fiscal year ended December 31, 2006: $2,213,000.
Aggregate
market value of common stock held by non-affiliates of the Registrant as
of
April 10, 2007: $6,020,520.
As
of
April 10, 2007, there were 87,205,202 shares of the Registrant's common stock,
$.01 par value outstanding.
Transitional
Small Business Disclosure Format (check one): Yes £ No S
1
|
FY
2006
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
PART
I
Item
1. Description of Business
General
Positron
Corporation (the “Company”) was incorporated in the State of Texas on December
20, 1983, and commenced commercial operations in 1986. The Company
designs, manufactures, markets and services advanced medical imaging devices
utilizing positron emission tomography ("PET”) technology under the trade-name
POSICAM™ systems. POSICAM(TM) systems incorporate patented and proprietary
software and technology for the diagnosis and treatment of patients in the
areas
of cardiology, oncology and neurology. Positron Corporation offers unique
combination of low cost technology and disease specific software solutions
differentiating themselves from all other medical device
manufacturers. Unlike other currently available imaging technologies,
PET technology permits the measurement of the biological processes of organs
and
tissues as well as producing anatomical and structural
images. POSICAM™ systems, which incorporate patented and proprietary
technology, enable physicians to diagnose and treat patients in the areas of
cardiology, neurology and oncology. The Food and Drug Administration
(“FDA”) approved the initial POSICAM™ system for marketing in 1985, and as of
December 31, 2005, the Company has sold twenty eight (28) POSICAM™ systems, of
which eleven (11) are in leading medical facilities in the United States and
six
(6) are installed in international medical institutions. The Company
has reacquired one system, which is being held in inventory for
resale. The Company presently markets its POSICAM™ systems at list
prices of up to $1.7 million depending upon the configuration and equipment
options of the particular system.
PET
technology is an advanced imaging technique, which permits the measurement
of
the biological processes of organs and tissues, as well as producing anatomical
and structural images. Other advanced imaging techniques, such as
magnetic resonance imaging (“MRI”) and computed tomography (“CT”), produce
anatomical and structural images, but do not image or measure biological
processes. The ability to measure biological abnormalities in tissues
and organs allows physicians to detect disease at an early stage, and provides
information, which would otherwise be unavailable, to diagnose and treat
disease. The Company believes that PET technology could lower the
total cost of diagnosing and tracing certain diseases by providing a means
for
early diagnosis and reducing expensive, invasive or unnecessary procedures,
such
as angiograms or biopsies which, in addition to being costly and painful, may
not be necessary or appropriate.
Commercialization
of PET technology commenced in the mid-1980s and the Company is one of several
commercial manufacturers of PET imaging systems in the United
States. Although the other manufacturers are substantially larger,
the Company believes that its POSICAM™ systems have proprietary operational and
performance characteristics, which may provide certain performance advantages
over other commercially available PET systems. Such performance
advantages include: (i) high count-rate capability and high sensitivity, which
result in faster, more accurate imaging; (ii) enhanced ability to use certain
types of radiopharmaceuticals, which reduces reliance on a cyclotron and
enhances patient throughput; (iii) ability to minimize patient exposure to
radiation; and (iv) ability to minimize false positive and false negative
diagnoses of disease. The medical imaging industry in which the
Company is engaged is, however, subject to rapid and significant technological
change. There can be no assurance that the POSICAM™ systems can be
upgraded to meet future innovations in the PET industry or that new technologies
will not emerge, or existing technologies will not be improved, which would
render the Company’s products obsolete or non-competitive. See “Item 1.
Description of Business – Risks Associated with Business Activities—Substantial
Competition and Effects of Technological Change”.
The
Company’s initial focus was the clinical cardiology market, where its POSICAM™
systems have been used to assess the presence and extent of coronary artery
disease, such as the effect of arterial blockages and heart damage due to heart
attacks. In 1994 and 1995, the Company made technological advances
which allowed it to market its products to the neurological and oncological
markets. Neurological applications of POSICAM™ systems include
diagnoses of certain brain disorders, such as epileptic seizures, dementia,
stroke, Alzheimer’s disease, Pick’s disease and Parkinson’s
disease. In oncology, POSICAM™ systems are used in the diagnosis and
evaluation of melanoma and tumors of the bone and various organs and tissues
such as the brain, lungs, liver, colon, breasts and lymphatic
system.
2
|
FY
2006
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
Medical
Imaging Industry Overview
Diagnostic
imaging allows a physician to assess disease, trauma or dysfunction without
the
necessity of surgery. The diagnostic imaging industry includes ultrasound,
X-ray, MRI, CT, and nuclear medicine (which include PET and Single-Photon
Emission Computed Tomography (“SPECT”)). MRI technology uses powerful magnetic
fields to provide anatomical and structural images of the brain, the spine
and
other soft tissues, as well as determining the location and size of
tumors. CT scans use X-ray beams to obtain anatomical and structural
images of bones and organs. Nuclear medicine focuses on providing
information about the function and biological processes of organs and tissues
through the use of radiopharmaceuticals.
The
first
prototype PET scanner was developed in the mid 1970s and the first commercial
PET scanner was constructed in 1978. Approximately 1,600 dedicated
PET systems are currently operational in the United States and approximately
500
additional dedicated PET systems are in commercial use
internationally.
PET
Technology
The
PET
imaging process begins with the injection of a radiopharmaceutical (a drug
containing a radioactive agent) by a trained medical person into a patient’s
bloodstream. After being distributed within the patient’s body, the
injected radiopharmaceutical undergoes a process of radioactive decay, whereby
positrons (positively charged electrons) are emitted and subsequently converted
along with free electrons into two gamma rays or photons. These paired gamma
events are detected by the POSICAM™ systems as coincidence
events. The source of the photons is determined and is reconstructed
into a color image of the scanned organ utilizing proprietary computer
software. Since certain functional processes, such as blood flow,
metabolism or other biochemical processes, determine the concentration of the
radiopharmaceutical throughout the body, the intensity or color at each point
in
the PET image directly maps the vitality of the respective function at that
point within an organ.
In
cardiology, PET imaging is an accurate, non-invasive method of diagnosing or
assessing the severity of coronary artery disease. Unlike other
imaging technologies, PET technology allows a physician to determine whether
blood flow to the heart muscle is normal, thereby identifying narrowed coronary
arteries, and whether damaged heart muscle is viable and may benefit from
treatment such as bypass surgery or angioplasty. In addition, dynamic
and gated imaging can display and measure the ejection fraction and wall motion
of the heart.
In
neurology, PET imaging is now being used as a surgical planning tool to locate
the source of epileptic disturbances in patients with uncontrollable
seizures. In other neurological applications, PET is used in the
diagnosis of dementia, Alzheimer’s disease, Pick’s disease and Parkinson’s
disease, and in the evaluation of stroke severity.
In
oncology, PET imaging has historically been used to measure the metabolism
of
tumor masses after surgery or chemotherapy. Clinical experience has
shown that PET is more accurate than CT scans or MRI in determining the
effectiveness of chemotherapy and radiotherapy in the treatment of
cancer. PET scans are becoming commonly used to assess suspected
breast cancer and whether the lymph system has become involved. Whole
body PET scans are now routinely performed to survey the body for
cancer. This application enables oncologists to see the total
picture of all metastases in a patient, thereby allowing them to properly tailor
the course of treatment.
The
radiopharmaceuticals employed in PET imaging are used by organs in their natural
processes, such as blood flow and metabolism, without affecting their normal
function, and quickly dissipate from the body. Radiopharmaceuticals
used in PET procedures expose patients to a certain amount of radiation, which
is measured in units of milliRads. Exposure to radiation can cause
damage to living tissue, and the greater the radiation exposure, the greater
the
potential for damage. Certain PET procedures expose a patient to less
radiation than would be associated with other imaging technologies. A
PET cardiac scan, using the radiopharmaceutical Rubidium-82, results in exposure
of approximately 96 milliRads, while a neurological PET scan using 18-FDG,
results in exposure of approximately 390 milliRads. In contrast, a
typical chest X-ray results in exposure of approximately 150 milliRads and
a CT
scan results in exposure of approximately 500 to 4,000 milliRads, depending
on
the procedure.
Radiopharmaceuticals
used in PET technology can be created using many natural substances including
carbon, oxygen, nitrogen and fluorine. The PET procedure to be
performed determines the type of radiopharmaceutical
used. Radiopharmaceuticals are made ready for use at a clinic,
hospital, or commercial nuclear pharmacy by either a cyclotron or generator.
Cyclotrons require an initial capital investment of up to $2 million, an
additional capital investment for site preparation, and significant annual
operating expenses. Generators require an initial capital investment
of approximately $60,000, no additional capital investment for site preparation,
and monthly operating expenses of approximately $30,000. While
POSICAM™ systems have been designed flexibly to be used with both cyclotron and
generator-produced radiopharmaceuticals; they have proprietary design features
that enhance their ability to use generator-produced
radiopharmaceuticals. As a result, clinics or hospitals intending to
focus on certain cardiac PET applications can avoid the significant capital
and
operating expenses associated with a cyclotron.
3
|
FY
2006
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
Marketing
Strategy
The
Company’s initial marketing strategy targeted clinical cardiology based on
research conducted at the University of Texas. This research showed
the commercial potential of clinical cardiology applications of PET imaging.
With the development of the POSICAM™ HZ, POSICAM™ HZL, mPowerTM, and
the Company’s
upcoming technology from our joint venture partner in China, Positron will
present to the market affordable technology that specializes in cardiac
imaging. The Company believes that it can capture significant market
share by leveraging its strong reputation in the cardiology marketplace with
combining physician and patient concentric software
applications.
To
market
its systems, Positron relies on referrals from users of its existing base of
installed scanners, trade show exhibits, trade journal advertisements, clinical
presentations at professional and industry conferences, and published articles
in trade journals. The Company uses both sales personnel and key distributors
who have geographic or market expertise. Positron incurs minimal
expense for sales until there is a completed sale. Positron continued
to broaden its communications with the market in support of sales through its
developing distribution network and using the internet and directed mailings.
We
believe that this approach will be cost effective and allow Positron to compete
cost effectively with larger competitors. There is no assurance that
the Company’s marketing strategy is sufficiently aggressive to compete against
larger, better funded competitors.
The
POSICAM™ System
At
the
heart of the POSICAM™ system is its detector assembly, which detects the gammas
from positron emissions, and electronic circuits that pinpoint the location
of
each emission. POSICAM™ systems are easy to use and are neither physically
confining nor intimidating to patients. POSICAM™ scans are commonly performed on
an outpatient basis.
The
Company’s POSICAM™ system compares favorably with PET systems produced by other
manufacturers based upon count rate and sensitivity. The count-rate
and sensitivity of an imaging system determine its ability to detect, register
and assimilate the greatest number of meaningful positron emission events in
the
shortest period of time. The high count-rate capability and sensitivity of
the
POSICAM™ systems result in good diagnostic accuracy as measured by fewer false
positives and false negatives. Further benefits of high count-rate
and sensitivity include faster imaging and the ability to use short half-life
radiopharmaceuticals, thereby reducing patient exposure to radiation and
potentially reducing the capital cost to some purchasers by eliminating the
need
for a cyclotron for certain cardiac applications.
The
detector assembly consists of crystals, which scintillate (emit light) when
exposed to gamma photons from positron-electron annihilations, in combination
with photomultiplier tubes, which are coupled to the crystals and convert the
scintillations into electrical impulses. The Company employs its own
patented staggered crystal array design for the POSICAM™
detectors. Unlike competing PET systems, this feature permits
the configuration of the detector crystals to collect overlapping slices and
more accurately measure the volume of interest by eliminating image sampling
gaps. This is important since under-sampling, or gaps in sampling,
can contribute to an inaccurate diagnosis. The crystal design also reduces
“dead
time” - the time interval following the detection and registration of an event
during which a subsequent event cannot be detected. The basic unit of
identification within each crystal module is small, thereby reducing the
probability of multiple hits during a dead period for higher levels of
radioactive flux (activity in the patient).
The
POSICAM™ system creates a high number of finely spaced image
slices. An image slice is a cross-sectional view that is taken at an
arbitrary angle to the angle of the organ being scanned, and not necessarily
the
angle a physician wishes to view. The POSICAM™ computer can then
adjust the cross-sectional view to create an image from any desired
angle. The high number of finely spaced image slices created by the
POSICAM™ system enhances the accuracy of the interpreted image set.
4
|
FY
2006
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
An
integral part of a POSICAM™ system is its proprietary data acquisition
microprocessor and its application system software. The Company’s
software can reconstruct an image in five seconds or less. The
Company has expended substantial effort and resources to develop computer
software that is user-friendly and clinically oriented. The only
personnel needed to perform clinical studies with the POSICAM™ systems are a
trained nurse, a trained technician and an overseeing physician for patient
management and safety.
POSICAM™
HZ, HZL and mPowerTM
In
addition to the basic POSICAM™ system, the Company offers two advanced versions,
the POSICAM™ HZ and the POSICAM™ HZL, which are now being further enhanced to
become the mPowerTM product
line. Oncologists and neurologists require enhanced resolution and a
large field of view to detect small tumors and scan large organs, such as the
liver. The mPower™ systems employ new detector concepts to satisfy
these needs while maintaining the high count rate capability and sensitivity
of
the basic POSICAM™. In May 1991, the Company received approval from
the FDA to market the POSICAM™ HZ, and in May 1993, the Company received a
patent for the innovative light guide and detector staggering concepts used
in
the POSICAM™ HZ and HZL. In July 1993, the Company received FDA
approval to market in the United States the POSICAM™ HZL, which has a larger
axial field of view than the POSICAM™ HZ, facilitating whole body scanning and
the scanning of large organs. In July 2002, the Company received FDA
approval to market in the United States the POSICAM™ mPower™
system.
The
Company believes that the special features of the POSICAM™ HZL and mPowerTM systems
enhance
their usefulness in oncology and neurology applications. Furthermore,
many price sensitive hospitals and health care providers may seek to leverage
external resources for the delivery of PET diagnostic services for their
patients. To respond to this market need, the Company intends to expand into
the
mobile PET market, for which the Company has previously received 510(k) approval
from the FDA. In addition, the POSICAMTM system has
been
registered with the State of Texas Department of Health, Bureau of Radiation
Control, as a Device suitable for both stationary and mobile use.
Customer
Service and Warranty
The
Company has three (3) field service engineers in the United States who have
primary responsibility for supporting and maintaining the Company’s installed
equipment base. In addition, the Company has field engineers involved
in site planning, customer training, sales of hardware upgrades, sales and
administration of service contracts, telephone technical support and customer
service.
The
Company typically provides a one-year warranty to purchasers of POSICAM™
systems. However, in the past, the Company offered multi-year
warranties to facilitate sales of its systems. Following the warranty
period, the Company offers purchasers a comprehensive service contract under
which the Company provides all parts and labor, system software upgrades
and
unlimited service calls. The Company offers to provide service to all
of its POSICAM™ systems; however at year end 2006, the company had ten (10)
service contracts in force and one (1) system under manufacturer’s
warranty.
The
Company’s service goal is to maintain maximum system uptime. Success
of a clinical site is largely dependent on patient volume during normal working
hours and, therefore, equipment uptime and reliability are key factors in this
success. Records compiled by the Company show an average uptime of
more than 95% for all installed POSICAM™ systems during 2006 and
2005.
Competition
The
Company faces competition primarily from three very large commercial
manufacturers of PET systems and from other imaging technologies. The Company
does not believe that MRI and CT scan imaging represent significant competing
technologies, but rather complementary technologies to PET, since PET, MRI
and
CT scans each provide information not available from the
others. However, magnetic resonance angiography (“MRA”) is seen by
some cardiologists to be competitive with PET myocardial perfusion imaging
(“MPI”).
The
Company’s primary competition from commercial manufacturers of PET systems comes
from General Electric Medical Systems (“GEMS”) a division of General Electric
Company (“GE”), Siemens Medical Systems, Inc. (“Siemens) and Philips Medical
(“Philips”). GE, Siemens and Philips have substantially greater
financial, technological and personnel resources than the
Company. See “Item 1. Description of Business—Risk
Associated with Business Activities—Substantial Competition and Effects of
Technological Change.
5
|
FY
2006
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
GE,
Siemens and Philips have introduced a scanner that combines CT scanning and
PET
in one unit. In collaboration with its joint venture partner, Neusoft
Medical Systems, Positron will introduce a PET/CT scanner. High field MRI
technology, an advanced version of MRI, is in the development stage, but is
a
potential competitor to PET in certain neurology and oncology
applications. Presently, high field MRI may be useful in performing
certain research (non-clinical) applications such as blood flow studies to
perform “brain mapping” to localize the portions of the brain associated with
individual functions (such as motor activities and vision). However, high field
MRI does not have the capability to assess metabolism. The Company
cannot presently predict the future competitiveness of high field MRI or
CT.
Third-Party
Reimbursement
POSICAM™
systems are primarily purchased by medical institutions and clinics, which
provide health care services to their patients. Such institutions or
patients typically bill or seek reimbursement from various third-party payers
such as Medicare, Medicaid, other governmental programs and private insurance
carriers for the charges associated with the provided healthcare
services. The Company believes that the market success of PET imaging
depends largely upon obtaining favorable coverage and reimbursement policies
from such programs and carriers.
Medicare/Medicaid
reimbursement. Prior to March 1995, Medicare and
Medicaid did not provide reimbursement for PET imaging. Decisions as
to such policies for major new medical procedures are typically made by the
Center for Medicare and Medicaid Services (“CMS”) formerly the U.S. Health Care
Financing Administration, based in part on recommendations made to it by the
Office of Health Technology Assessment (“OHTA”). Historically, OHTA
has not completed an evaluation of a procedure unless all of the devices and/or
drugs used in the procedure have received approval or clearance for marketing
by
the FDA. Decisions as to the extent of Medicaid coverage for
particular technologies are made separately by the various state Medicaid
programs, but such programs tend to follow Medicare national coverage
policies. In 1999, CMS approved reimbursement on a trial basis for
limited cardiac, oncological, and neurological diagnostic
procedures. In December 2000, CMS expanded its coverage in
cardiology, oncology and neurology for centers utilizing true PET
scanners. In July 2001, CMS further expended its coverage of these
procedures and virtually eliminated reimbursement for SPECT imagers performing
PET scans. This helped to strengthen the market for “true” PET
scanners. In 2001, CMS also implemented its procedures to
differentiate hospital based outpatient services from free-standing outpatient
services. Under this new program, hospital based PET centers are to
be paid less for providing PET services than free-standing
centers. Through 2004, CMS has continued to approve additional
procedures for reimbursement. Effective January 30, 2005, CMS
announced PET coverage for cervical cancer. Although expanding,
Medicare and Medicaid reimbursement for PET imaging continues to be restrictive.
The Company believes that restrictive reimbursement policies have had a very
significant adverse affect on widespread use of PET imaging and have, therefore,
adversely affected the Company’s business, financial condition, results of
operations and cash flows.
In
1995,
CMS approved reimbursement for one PET procedure in cardiology. In
1998, four additional procedures in cardiology, oncology and neurology were
approved. In February 1999, three additional procedure reimbursements
were approved in oncology. In December 2000, six additional procedure
reimbursements were approved in oncology, one in cardiology and one in
neurology. In 2001, further refinements of the reimbursement policies
were introduced with expansion in oncology. Whether CMS will continue
to approve additional reimbursable procedures, and whether private insurers
will
follow CMS’s lead are unknown at this time. PET scanner demand in the
US increased markedly after the announcement of increasing
reimbursement. It is unknown at this time if the increase in demand
will be sustained as reimbursement expands.
Private
insurer reimbursement. Until the expansion of coverage
of CMS, most insurance carriers considered PET imaging to be an investigational
procedure and did not reimburse for procedures involving PET
imaging. However, this perspective has begun to change as a result of
Medicare’s expanding acceptance of reimbursements for certain PET
procedures. The Company believes that certain private insurance
carriers are expanding coverage as experience is gained with PET imaging
procedures. While they may not have broad PET reimbursement policies
in place today, those providing some reimbursement for PET scans do so on a
case-by-case basis.
Any
limitation of Medicare, Medicaid or private payer coverage for PET procedures
using the POSICAM™ system will likely have a material adverse effect on the
Company’s business, financial condition, results of operations and cash
flows.
6
|
FY
2006
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
Manufacturing
Joint
Venture with Neusoft Medical Systems Co., Ltd.
On
June
30, 2005 the Company entered into a Joint Venture Contract with Neusoft Medical
Systems Co., Inc. of Shenyang, Lianoning Province, People's Republic of China
("Neusoft"). Pursuant to the Joint Venture Contract the parties
formed a jointly-owned company, Neusoft Positron Medical Systems Co., Ltd.
(the
"JV Company"), to engage in the manufacturing of PET and CT/PET medical imaging
equipment. The JV Company received its business license and was
organized in September 2005.
The
Company and Neusoft are active in researching, developing, manufacturing,
marketing and/or selling Positron Emission Tomography ("PET") and both
parties seek to mutually benefit from each other's strengths, and intend to
cooperate in the research, development and manufacturing of PET
technology. The purpose and scope of the JV Company's technology
business is to research, develop and manufacture Positron Emission Tomography
systems (PET), and an integrated X-ray Computed Tomography system (CT) and
PET
system (PET/CT), and to otherwise provide relevant technical consultation
and
services.
The
parties to the joint venture contributed an aggregate of US $2,000,000 in
capital contributions. Neusoft's aggregate contribution to the capital of the
JV
Company is 67.5% of the total registered capital of the Company, or US$
1,350,000, and was made in cash. The Company's aggregate contribution to the
capital of the JV Company is 32.5% of the total registered capital of the
Company, or US$ 650,000, of which US$ 250,000 was made in cash, and US$ 400,000
was made in the form of a technology license. Positron has
transferred to the JV Company certain of its PET technology, while Neusoft
made
available to the JV Company certain CT technology for the development and
production of an integrated PET/CT system. The parties share the
profits, losses and risks of the JV Company in proportion to and, in the event
of losses, to the extent of their respective contributions to the registered
capital of the JV Company.
Sales
of Neusoft Positron Medical Systems Co., Ltd.
Products
The
joint
venture will sell products manufactured by the JV Company to both joint venture
parties for further resale in the marketplace. After the ramp-up period of
the
JV Company, each party has rights to and risk obligations for its capacity
of
products required from the JV Company. The parties intend that the manufacturing
capacity of the JV Company will be shared on an equivalent basis to each party's
contribution to the registered capital of the JV Company, as measured by the
manufacturing work and resources needed by the JV Company for the resulting
products.
Under
its
Joint Venture Contract with Neusoft, the Company has the exclusive right to
sell
PET system products developed by the JV Company in Canada, the U.S. and Mexico
under its registered trademarks, and PET/CT products developed by the JV Company
in Canada and under the trademark of "Neusoft Positron." The Company
and Neusoft have equal rights to sell PET/CT products developed by the JV
Company in the U.S. and Mexico under the trademark of "Neusoft
Positron." Neusoft has the exclusive right to sell products developed
by the JV Company in China under its registered trademarks. Each of
Neusoft and the Company has the right to sell products developed by the JV
Company in the countries and regions worldwide with the exception of China,
Canada, the U.S. and Mexico where select exclusive rights apply.
While
the
parties believe that the joint venture will meet their objectives, there can
be
no assurance that the joint venture will meet such objectives, including the
development, production and timely delivery of PET and PET/CT
systems.
The
Company believes that although manufacturing and select research and development
has been outsourced, if necessary, it has the ability to assemble its POSICAM™
scanners in its facility located in Houston, Texas. Scanners are
generally produced by assembling parts furnished to the Company by outside
suppliers. The Company believes that it can assemble and test a
typical POSICAM™ system in two to three months.
There
are
several essential components of the Company’s POSICAM™ and mPowerTM systems
which are
obtained from limited or sole sources, including bismuth germinate oxide (“BGO”)
crystals, which detect gamma photons from positron emissions, and
photomultiplier tubes, which convert light energy emitted by such crystals
into
electrical impulses for use in the image reconstruction
process. During 2000, the Company qualified a second vendor for BGO
crystal assemblies. This has reduced the Company’s exposure in this
critical component. While the Company attempts to make alternate
supply arrangements for photomultiplier tubes and other critical components,
in
the event that the supply of any of these components is interrupted, there
is no
assurance that those arrangements can be made and will provide sufficient
quantities of components on a timely or uninterrupted basis. Further,
there is no assurance that the cost of supplies will not rise significantly
or
that components from alternate suppliers will continue to meet the Company’s
needs and quality control requirements.
7
|
FY
2006
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
Research
and Development
The
Company’s POSICAM™ systems are based upon proprietary technology initially
developed at the University of Texas Health Science Center (“UTHSC”) in Houston,
Texas, under a $24 million research program begun in 1979 and funded by UTHSC
and The Clayton Foundation for Research (“Clayton Foundation”), a Houston-based,
non-profit organization. Since that time, the Company has funded
further product development and commercialization of the
system. These research and development activities are costly and
critical to the Company’s ability to develop and maintain improved
systems. The Company’s research and development expenses were
approximately $1,165,000 and $446,000 for the years 2006 and 2005,
respectively. The Company’s inability to conduct such
activities in the future may have a material adverse affect on the Company’s
business as a whole.
Patent
and Royalty Arrangements
The
Company acquired the know-how and patent rights for positron imaging from three
entities: the Clayton Foundation, K. Lance Gould (formerly a director) and
Nizar
A. Mullani (also formerly a director.) Pursuant to agreements with
each of them, the Company was obligated to pay royalties of up to 4.0% in the
aggregate of gross revenues from sales, uses, leases, licensing or rentals
of
the relevant technology. Royalty obligations amounting to
approximately $373,000 were included in liabilities at December 31,
2006.
The
Company has several historic domestic and international patents pertaining
to
positron emission tomography technology and currently maintains one active
U.S.
patent relating to the unique construction and arrangement of the photo detector
module array used in its devices. This was issued in May 1993 and
expires in December of 2011.
The
Company seeks to protect its trade secrets and proprietary know-how through
confidentiality agreements with its consultants. The Company requires
each consultant to enter into a confidentiality agreement containing provisions
prohibiting the disclosure of confidential information to anyone outside the
Company, and requiring disclosure to the Company of any ideas, developments,
discoveries or investigations conceived during service as a consultant and
the
assignment to the Company of patents and proprietary rights to such matters
related to the business and technology of the Company.
Backlog
As
of
December 31, 2006, the Company had no outstanding orders for mPower™
systems.
Product
Liability and Insurance
Medical
device companies are subject to a risk of product liability and other liability
claims in the event that the use of their products results in personal injury
claims. The Company has not experienced any product liability claims
to date. The Company maintains comprehensive liability insurance
coverage for its products and premises exposures with an A++ industry leading
insurance carrier.
Employees
As
of
December 31, 2006, the Company employed ten (10) full-time employees and three
(3) consultants: four (4) in engineering, one (1) in customer support, four
(4)
in manufacturing, four (4) in the executive and administration
department. None of the Company’s employees are represented by a
union.
8
|
FY
2006
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
Risks
Associated with Business Activities
History
of Losses. To date the Company has been unable to sell
POSICAM™ systems in quantities sufficient to be operationally
profitable. Consequently, the Company has sustained substantial
losses. During the year ended December 31, 2006, the Company had a
net loss of approximately $6,586,000, compared to a net loss of $3,806,000
during 2005. At December 31, 2006, the Company had an accumulated
deficit of approximately $68,825,000. There can be no assurances that
the Company will ever achieve the level of revenues needed to be operationally
profitable in the future and if profitability is achieved, that it will be
sustained. Due to the sizable sales price of each POSICAM™ system and
the limited number of systems that have been sold or placed in service in
each
fiscal period, the Company’s revenues have fluctuated, and may likely continue
to fluctuate significantly from quarter to quarter and from year to
year. The opinion of the Company’s independent auditors for the year
ended December 31, 2006 expressed substantial doubt as to the Company’s ability
to continue as a going concern. The Company will need to increase
system sales to become profitable and/or obtain additional
capital.
Recruiting and Retention of Qualified Personnel. The Company’s success is dependent to a significant degree upon the efforts of its executive officers and key employees. The loss or unavailability of the services of any of its key personnel could have a material adverse effect on the Company. The Company’s success is also dependent upon its ability to attract and retain qualified personnel in all areas of its business, particularly management, research and development, sales and marketing and engineering. There can be no assurance that the Company will be able to continue to hire and retain a sufficient number of qualified personnel. If the Company is unable to retain and attract such qualified personnel, its business, operating results and cash flows could be adversely affected.
Working
Capital The Company had cash and cash
equivalents of $115,000 at December 31, 2006. The Company received
$2,478,000 and $2,569,000 in proceeds from financings in 2006 and 2005,
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.
The
Penny Stock Rules May Have an Adverse Effect Upon Liquidity of the Company’s
Shares
If
the
shares of the Registrant's common stock are listed on The Nasdaq Stock Market
or
certain other national securities exchanges and the price thereof is below
$5.00, then subsequent purchases of such securities will be subject to the
requirements of the penny stock rules absent the availability of another
exemption. The SEC has adopted rules that regulate broker-dealer practices
in
connection with transactions in "penny stocks." Penny stocks generally are
equity securities with a price of less than $5.00 (other than securities
registered on certain national securities exchanges or quoted on The Nasdaq
Stock Market). The penny stock rules require a broker-dealer to deliver a
standardized risk disclosure document required by the SEC, to provide the
customer with current bid and offer quotations for the penny stock, the
compensation of the broker-dealer and its salesperson in the transaction,
monthly account statements showing the market value of each penny stock held
in
the customer's account, to make a special written determination that the penny
stock is a suitable investment for the purchaser and receive the purchaser's
written agreement to the transaction. These disclosure requirements may have
the
effect of reducing the level of trading activity in the secondary market for
a
stock that becomes subject to the penny stock rules.
Substantial
Competition and Effects of Technological Change. The
industry in which the Company is engaged is subject to rapid and significant
technological change. There can be no assurance that POSICAM™ systems
can be upgraded to meet future innovations in the PET industry or that new
technologies will not emerge, or existing technologies will not be improved,
which would render the Company’s products obsolete or
non-competitive. The Company faces competition in the United States
PET market primarily from GE, CTI/Siemens and ADAC/Philips, each of which has
significantly greater financial and technical resources and production and
marketing capabilities than the Company. In addition, there can be no
assurance that other established medical imaging companies, any of which would
likely have greater resources than the Company, will not enter the market.
The
Company also faces competition from other imaging technologies, which are more
firmly established and have a greater market acceptance, including
SPECT. There can be no assurance that the Company will be able to
compete successfully against any of its competitors.
9
|
FY
2006
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
No
Assurance of Market Acceptance. The
POSICAM™ systems involve new technology that competes with more established
diagnostic techniques. The purchase and installation of a PET system
involves a significant capital expenditure on the part of the
purchaser. A potential purchaser of a PET system must have an
available patient base that is large enough to provide the utilization rate
needed to justify such capital expenditure. There can be no assurance
that PET technology or the Company’s POSICAM™ systems will be accepted by the
target markets, or that the Company’s sales of POSICAM™ systems will increase or
that the Company will be profitable.
Patents
and Proprietary Technology. The Company holds certain
patent and trade secret rights relating to various aspects of its PET
technology, which are of material importance to the Company and its future
prospects. There can be no assurance, however, that the Company’s
patents will provide meaningful protection from competitors. Even if
a competitor’s products were to infringe on patents held by the Company, it
would be costly for the Company to enforce its rights, and the efforts at
enforcement would divert funds and resources from the Company’s
operations. Furthermore, there can be no assurance that the Company’s
products will not infringe on any patents of others.
In
addition, the Company requires each of its consultants to enter into a
confidentiality agreement designed to assist in protecting the Company’s
proprietary rights. There can be no assurance that these agreements will provide
meaningful protection or adequate remedies for the Company’s trade secrets or
proprietary know-how in the event of unauthorized use or disclosure of such
information, or that others will not independently develop substantially
equivalent proprietary information and techniques or otherwise gain access
to
the Company’s trade secrets and proprietary know-how.
Government
Regulation. Various aspects of testing,
remanufacturing, labeling, selling, distributing and promoting our systems
and
the radiopharmaceuticals used with them are subject to regulation on the federal
level by the FDA and in Texas by the Texas Department of Health and other
similar state agencies. In addition, sales of medical devices outside the
United States may be subject to foreign regulatory requirements that vary widely
from country to country. The FDA regulates medical devices based on their
device classification. Positron’s device is listed as a Class II medical
device, the safety and effectiveness for which are regulated by the use of
special controls such as published performance standards. To date, the FDA
has not published performance standards for PET systems. If the FDA does
publish performance standards for PET systems, there can be no assurance that
the standards will not have a potentially adverse effect on our product,
including substantial delays in manufacturing or disrupting the Company’s
marketing activities. Other FDA controls, reporting requirements and
regulations also apply to manufacturers of medical devices, including:
reporting of adverse events and injuries, and the mandatory compliance with
the
Quality System Regulations commonly known as Good Manufacturing
Practices.
In
addition to the regulatory requirements affecting the day-to-day operations
of
the Company’s product, the FDA requires medical device manufacturers to submit
pre-market clearance information about their proposed new devices and/or
proposed significant changes to their existing device prior to their
introduction into the stream of commerce. This process, commonly referred
to as a 510(k) Clearance, is an extensive written summary of performance
information, comparative information with existing medical devices, product
labeling information, safety and effectiveness information, intended use
information, and the like. Until the FDA has had the opportunity to
thoroughly review and “clear” the submission, commercial distribution of the
product is specifically disallowed. Although the FDA is required to
respond to all pre-market notifications within ninety days of receiving them,
the FDA often takes longer to respond. Once the FDA has cleared the
device, it notifies the manufacturer in terms of a “substantial equivalence”
letter. The manufacturer may begin marketing the new or modified device
when it receives the substantial equivalence letter. If the FDA requires
additional information or has specific questions, or if the Company is notified
that the device is not “substantially equivalent” to a device that has already
been cleared, the Company may not begin to market the device. A
non-substantial equivalence determination or request for additional information
of a new or significantly modified product could materially affect the Company’s
financial results and operations. There can be no assurance that any additional
product or enhancement that the Company may develop will be approved by the
FDA. Delays in receiving regulatory approval could have a material adverse
effect on the Company’s business. The Company submitted an application for
such a 510(k) clearance on June 18, 2002 and was granted a new 510(k) on July
12, 2002, number K022001.
10
|
FY
2006
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
In
addition to complying with federal requirements, the Company is required under
Texas state law to register with the State Department of Health with respect
to
maintaining radiopharmaceuticals on premises for testing, research and
development purposes. Positron submitted a new application to the Texas
Department of Health for a Radioactive Material License on July 10, 2000 and
was
granted a Radioactive Material License with an expiration date of July 31,
2007.
During a July 2005 Radiation audit, the company was noted for minor
violations, which were addressed and corrected. At this time the company
is in full compliance with Texas Radiation Codes, however, there is no assurance
that violations may not occur in the future which could have a material adverse
effect on the Company’s operations. In addition, Texas state law requires
a safety evaluation of devices that contain radioactive materials. The
Company submitted an application for such an evaluation to the Texas Department
of Health, Bureau of Radiation Control. As a result, Positron’s medical
diagnostic scanner has been placed on the Registry of Radioactive Sealed Sources
and Devices as of September 20, 2001.
The
Company’s operations and the operations of PET systems are subject to regulation
under federal and state health safety laws, and purchasers and users of PET
systems are subject to federal and state laws and regulations regarding the
purchase of medical equipment such as PET systems. All laws and
regulations, including those specifically applicable to the Company, are subject
to change. The Company cannot predict what effect changes in laws and
regulations might have on its business. Failure to comply with applicable
laws and regulatory requirements could have material adverse effect on the
Company’s business, financial conditions, results of operations and cash
flows.
Further,
sales of medical devices outside the country may be subject to foreign
regulatory requirements. These requirements vary widely from country to
country. There is no assurance that the time and effort required to meet
those varying requirements may not adversely affect Positron’s ability to
distribute its systems in some countries.
Certain
Financing Arrangements. In order to sell its POSICAM™
systems, the Company has from time to time found it necessary
to participate in
ventures with certain customers or otherwise assist customers in their financing
arrangements. The venture arrangements have involved lower cash
prices for the Company’s systems in exchange for interests in the venture. These
arrangements expose the Company to the attendant business risks of the
ventures. The Company has, in certain instances, sold its systems to
financial intermediaries, which have, in turn, leased the
system. Such transactions may not give rise to the same economic
benefit to the Company as would have occurred had the Company made a direct
cash
sale at its regular market price on normal sale terms. There can be
no assurance that the Company will not find it necessary to enter similar
transactions to effect future sales. Moreover, the nature and extent
of the Company’s interest in such ventures or the existence of remarketing or
similar obligations could require the Company to account for such transactions
as “financing arrangements” rather than “sales” for financial reporting
purposes. Such treatment could have the effect of delaying the
recognition of revenue on such transactions and may increase the volatility
of
the Company’s financial results.
Product
Liability and Insurance. The use of the Company’s
products entails risks of product liability. There can be no
assurance that product liability claims will not be successfully asserted
against the Company. The Company maintains product liability
insurance coverage for the POSICAM™ systems in the amount of $1 million per
occurrence and an annual aggregate maximum of $2
million. Separate coverage is maintained for the nuclear
imaging devices sold by IPT (through IS2) in the amount of $2 million aggregate
plus a $1 million excess policy. However, there can be no assurance that the
Company will be able to maintain such insurance in the future or, if maintained,
that such insurance will be sufficient in amount to cover any successful product
liability claims. Any uninsured liability could have a material
adverse effect on the Company.
No
Dividends. The Company has never paid cash dividends on
its common stock and does not intend to pay cash dividends on its common stock
in the foreseeable future.
Significant
Transactions.
Imaging
Pet Technologies
The
Company and Quantum Molecular Pharmaceuticals Inc., a Canadian
radiopharmaceutical corporation (“QMP”) acquired all of the operating assets of
IS2 Medical Systems Inc., a developer and manufacturer of nuclear imaging
devices based in Ottawa, Ontario, Canada (“IS2”) through a minority-owned
subsidiary of the Company, Imaging PET Technologies, Inc. (“IPT”). The Company
and QMP hold 49.9% and 50.1%, respectively, of the capital stock of IPT. On
May 8, 2006, to finalize certain obligations of QMP related to the Quantum
Molecular Technologies Joint Venture, the Company agreed to issue 650,000 shares
of Series B Convertible Preferred Stock (the “Series B”), convertible into
65,000,000 shares of the Company’s common stock, to IPT in exchange for a
promissory note in the amount of $1,300,000. See, Quantum Molecular
Technologies, below.
11
|
FY
2006
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
On
June
5, 2006, IPT completed the acquisition of IS2 through a series of events which
resulted in the net assets of IS2 being transferred to IPT. On April
28, 2006, debenture holders and promissory note holders of IS2 were put on
notice that the IS2 was in default of its covenants relating to revenue
targets. In turn, the debenture/note holders demanded
payment. On May 29, 2006, the debentures and notes totaling
$1,435,727 were assigned to IPT by the holders in exchange for
$1,000,000. The original holders assigned their security agreements
to IPT who exercised those agreements immediately and assumed the net assets
of
IS2. In addition to the net assets, the Company assumed leases and
contracts. Employments contracts were established with the Company
upon acquisition.
Acquisition
of Imagin Interest in IPT
On
January 26, 2007, the Company executed and consummated a Securities Purchase
Agreement (the “Agreement”) with Imagin Diagnostic Centres, Inc. (“IMAGIN”), to
acquire 11,523,000 shares of common stock of IPT. The Shares represented
approximately a 50.1% of IPT’s issued and outstanding common stock. As a result
of the acquisition of the Shares, the Company owns 100% of the common stock
of
IPT. As consideration for the shares, the Company and IMAGIN agreed to
cancel a
promissory note in the principal amount of $2,400,000 made by IMAGIN
subsidiary, QMP and later assigned to IMAGIN. As of the date of the
Agreement, the Company had been advised by IMAGIN that it had acquired
all
of QMP's interest in IPT as well as QMP's other holdings of the Company's
related securities.
Quantum
Molecular Technologies
On
December 28, 2005, the Company entered into a Memorandum of Understanding with
Imagin Diagnostic Centres, Inc. (“IMAGIN”) and Quantum Molecular Pharmaceutical,
Inc. ("QMP"), a Canadian company and majority-owned subsidiary of
IMAGIN. The Memorandum provides that the parties will form a joint
venture to be called Quantum Molecular Technologies JV (the “QMT
JV”). Initially, the joint venture will be owned 20%, 29% and 51% by
the Company, IMAGIN and QMP, respectively. The Company has the right
to increase its interest in the joint venture to a maximum of 51% by the
issuance to QMP of up to 150 million shares of the Company's common
stock. In consideration for the Company's 20% interest in the joint
venture, the Company is obligated to loan to the joint venture sufficient funds,
in the form of senior debt, to meet the joint venture's capital requirements
as
determined by the Company. In turn, IMAGIN and QMP have committed to
purchase up to $4 million in preferred equity in the Company.
On
May 8,
2006, the Company amended certain aspects of the QMT JV. Whereas the Company
originally held 20% of the interests of the QMT JV, Quantum and IMAGIN assigned
100% of their interest to the Company. Additionally, the investment
amount Quantum and IMAGIN originally committed to in the amount of $4,000,000
was restated to $2,400,000 to reflect the assignment of the QMT JV interests
and
participation by the Company in the IPT joint venture acquisition and subsequent
financing. The $2,400,000 investment is in the form of a promissory note to
the
Company. In exchange for the assignment of QMT JV interests and the
investment, the Company issued Series B Convertible Preferred Stock, convertible
into 345,000,000 shares of the Company’s common stock to Quantum and IMAGIN, pro
rata.
The
joint
venture was formed to develop a new generation of PET technologies using
concepts and research and development activities conceived and to be implemented
by Dr. Irving Weinberg. QMT will continue these development efforts.
The Company will have the right to manufacture and sell any PET products
developed by the joint venture in exchange for royalty payments still to be
negotiated.
Dr.
Weinberg has been at the forefront of the evolution of PET, tracing his roots
back to the UCLA group that created the PET industry. Later, as a
practicing radiologist and entrepreneur, Dr. Weinberg designed and built the
first breast-specific PET scanner, which was able to detect the earliest form
of
breast cancer better than any other modality.
Secured
Convertible Notes Payable
On
May
26, 2006, the Company consummated a financing agreement for $2,000,000 (the
“Financing”) with private investors (the “Investors”) in the form of secured
convertible debentures in the aggregate amount of $2,000,000, with interest
at
the rate of 6% and a maturity date of May 23, 2009 (the “Debentures”). The
Debentures are convertible into shares of the Company’s Common Stock at the
product of the Applicable Percentage and the average of the lowest three (3)
trading prices for the common stock during the twenty (20) trading day period
prior to conversion. The “Applicable Percentage” is the equivalent of 50%;
provided, however, that the Applicable Percentage shall be increased to (i)
55%
in the event that a Registration Statement is filed within thirty days of the
closing and (ii) 65% in the event that the Registration Statement becomes
effective within one hundred and twenty days from the Closing. The Company
has
the right to repay principal and interest in cash, if the price of the Company’s
Common Stock is below $.20 on the last business day of a month. The
Company simultaneously issued to the Investors warrants to purchase 30,000,000
shares of Common Stock at an exercise price of $.15 per share (the “Warrants”).
The Warrants are exercisable for seven (7) years following the
Closing.
12
|
FY
2006
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
The
Company agreed to filing a Registration Statement with the Securities and
Exchange Commission (“SEC”) for the shares of Common Stock underlying the
Debentures and Warrants within 30 days from the Closing Date. The Company
received the second traunch of the funding when the Registration Statement
was
filed with the SEC and will receive the third and final traunch of the funding
when the Registration Statement is declared effective by the SEC. There are
penalty provisions for the Company should the filing not become effective within
120 days of the Closing Date. The Debentures are secured by the Company’s assets
and intellectual property.
Item
2. Description of Property
The
Company is headquartered in Houston, Texas, where it currently leases a
7,963
square foot facility. That facility includes area for system assembly
and testing, a computer room for hardware and software product design,
and
office space. This facility lease is on a month-to-month basis at a monthly
rental rate of $4,671 monthly. The Company anticipates that the
facility will be sufficient for its 2007 operating activities.
The
Company also leases office space in Buffalo, New York on a month-to-month basis
at a monthly rental rate of $900. IPT leases a facility in Ottawa,
Ontario, Canada under an operating lease that expires on July 31, 2008. Monthly
rent for the Ottawa facility is approximately $8,300.
Item
3. Legal Proceedings
None.
Item
4. Submission of Matters to a Vote of Security
Holders
On
May
18, 2006 at the Company’s annual meeting, shareholders holding a majority of the
Company’s voting stock approved proposals to amend and restate its Articles of
Incorporation to increase the number of authorized shares of Common Stock
from
100,000,000 to 800,000,000, approve the Positron Corporation Amended and
Restated 2005 Stock Incentive Plan and ratified the appointment of Ham, Langston
& Brezina, L.L.P. as the Company's independent auditors for the fiscal year
ending December 31, 2006.
PART
II
Item
5. Market for Common Equity and Related Stockholder
Matters
The
Company’s common stock is currently traded and quoted on the NASDAQ OTC Bulletin
Board under the symbol POSC. The Company’s common stock was previously traded on
the NASDAQ SmallCap Market but was delisted in 1997 because the
Company was unable to comply with various financial and compliance requirements
for continued inclusion on the NASDAQ SmallCap Market. See “Item 1.
Description of Business – Risks Associated with Business
Activities.”
The
following range of the high and low reported closing sales prices for the
Company’s common stock for each quarter in 2006 and 2005, 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.
|
2006
|
2005
|
|||||||||||||||
|
High
|
Low
|
High
|
Low
|
|||||||||||||
|
First
Quarter
|
$ |
0.26
|
$ |
0.08
|
$ |
0.16
|
$ |
0.06
|
||||||||
|
Second
Quarter
|
$ |
0.17
|
$ |
0.11
|
$ |
0.09
|
$ |
0.05
|
||||||||
|
Third
Quarter
|
$ |
0.13
|
$ |
0.07
|
$ |
0.09
|
$ |
0.04
|
||||||||
|
Fourth
Quarter
|
$ |
0.12
|
$ |
0.06
|
$ |
0.09
|
$ |
0.05
|
||||||||
13
|
FY
2006
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
There
were approximately 265 shareholders of record of common stock as of April
10,
2007, including broker-dealers holding shares beneficially owned by their
customers.
The
Company has never paid cash dividends on its common stock. The
Company does not intend to pay cash dividends on its common stock in the
foreseeable future. The Series A, B and G Preferred Stock Statements
of Designation prohibit the Company from paying any common stock dividends
until
all required dividends have been paid on the Series A and any outstanding
Series
B and G Preferred Stock. As of December 31, 2006 and 2005,
stated dividends that are undeclared and unpaid on the Series A Preferred
Stock
totaled $485,000 and $448,000. Stated dividends that are undeclared and unpaid
on the Series G Preferred Stock totaled $16,000 as of December 31,
2006. The Company anticipates that such dividends, if and when
declared, will be paid in shares of Series A Preferred Stock.
Series
G Preferred
In
2006,
the Company issued 204,482 Units in a private placement. Each Unit consisted
of
one share of a new series of preferred stock designated Series G Preferred
Stock
and a warrant exercisable for 50 shares of common stock (the "Units"). The
purchase price was $5.50 per Unit, with $5.00 of the Unit purchase price
allocated to the purchase of the share of Series G Preferred Stock and $0.50
allocated to the purchase of the warrant, for a total offering amount of
$1,124,650. The net proceeds of the private placement were approximately
$1,096,000.
Each
share of Series G Preferred Stock is convertible into 100 shares of common
stock. Eight percent dividends accrue on the Series G Preferred Stock and may
be
paid in cash or in Common Stock in the Company's discretion. The Series G
Preferred Stock is senior to the Company's common stock and junior in priority
to the Registrant's Series A Preferred Stock in liquidation. Except as required
by law and in the case of various actions affecting the rights of the Series
G
Preferred Stock, holders of the Series G Preferred Stock are not entitled to
vote on matters requiring shareholder vote. While the Series G Preferred Stock
is outstanding or any dividends thereon remain unpaid, no common stock dividends
may be paid or declared by the Company. The 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.
Series
B Preferred Stock
On
September 30, 2006 the Board of Directors authorized a new series of preferred
stock designated Series B Preferred Stock. The number of shares
authorized was 9,000,000. Each share of Series B Preferred Stock
$1.00 par value is convertible into 100 shares of the Company’s Common Stock.
The Series B Preferred Stock is senior to the Company’s Common Stock and junior
in priority to the Company’s A and G Preferred Stock in liquidation. Holders of
the Series B Preferred Stock are entitled to 100 votes per share on all matters
requiring shareholder vote. While Series B Preferred Stock is
outstanding no Common Stock dividends may be paid or declared by the
Company. The Series B Preferred Stock may be redeemed in whole or in
part, at the option of the Company, at any time at a price of $1.00 per
share. As of December 31, 2006, 5,739,860.5 shares of Series B
Preferred Stock were outstanding.
The
Company and Imagin Diagnostic Centres, Inc converted principal and interest
of
$1,164,192 outstanding upon the Series E Convertible Promissory Notes and
principal and interest of $877,669 of Convertible Secured Notes into 690,930.5
shares of Series B Preferred Stock.
The
Company and Positron Acquisition Corp. converted principal and interest of
$818,066 outstanding upon the Series D Secured Convertible Promissory Notes
and
770,000 shares of Series C Preferred Stock into 762,358 shares of Series B
Preferred Stock. Positron Acquisition Corp. subsequently converted 40,000 shares
of Series B Preferred Stock into 4,000,000 shares of the Company’s Common
Stock.
The
Company and Quantum Molecular Pharmaceuticals, Inc. (“QMP”) converted
principal and interest of $453,144 outstanding upon the Series F Secured
Convertible Promissory Notes into 226,572 shares of Series B Preferred
Stock. The Company has been advised by IMAGIN that it had
acquired all of the Company’s securities
owned by QMP.
The
Company’s equity plan information required by this item is set forth under Item
11 of Part III below.
14
|
FY
2006
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
Item
6.
Management’s
Discussion and Analysis or Plan of Operation
General
Positron
Corporation (the “Company”) was incorporated in 1983 and commenced commercial
operations during 1986. The Company designs, markets and services its
POSICAMTM
system advanced medical imaging devices, utilizing positron emission tomography
(“PET”) technology. Since the commencement of commercial operations,
revenues have been generated primarily from the sale and service contract
revenues derived from the Company’s POSICAM™ system, 11 of which are currently
in operation in certain medical facilities in the United States and 6 are
operating in international medical institutions. The Company has never been
able
to sell its POSICAM™ systems in sufficient quantities to achieve operating
profitability.
The
Company’s joint venture with Neusoft Medical Systems Co., Inc. of Shenyang,
Lianoning Province, People's Republic of China ("Neusoft"), named Neusoft
Positron Medical Systems Co., Ltd. ("NPMS"), is active in the development and
manufacture of Positron Emission Tomography systems (PET), and an integrated
X-ray Computed Tomography system (CT) and PET system (PET/CT). These
systems utilize the Company’s patented and proprietary technology, an imaging
technique which assesses the biochemistry, cellular metabolism and physiology
of
organs and tissues, as well as producing anatomical and structural
images. Targeted markets include medical facilities and diagnostic
centers located throughout the world. POSICAMTM systems
are used
by physicians as diagnostic and treatment evaluation tools in the areas of
cardiology, neurology and oncology. The Company faces competition principally
from three other companies which specialize in advanced medical imaging
equipment. To date NPMS has not produced a PET or CT system for
sale.
In
June
2006, the Company and Quantum Molecular Pharmaceuticals Inc., a Canadian
radiopharmaceutical corporation (“QMP”) acquired all of the operating assets of
IS2 Medical Systems Inc., a developer and manufacturer of nuclear imaging
devices based in Ottawa, Ontario, Canada (“IS2”) through a minority-owned
subsidiary of the Company, Imaging PET Technologies, Inc. (“IPT”). The Company
and Quantum held 49.9% and 50.1%, respectively, of the total registered capital
of IPT. However, in January 2007, the Company acquired Quantum’s interest in IPT
in exchange for preferred stock and the extinguishment of a note payable due
the
Company from QMP.
IS2
develops, builds and services gamma cameras that offer clinical users high
quality performance specifications in the industry. IS2’s signature product is
its PulseCDC™ compact digital cardiac camera. Over 150 cameras have been sold,
primarily in Canada.
On
December 28, 2005, the Company entered into a Memorandum of Understanding
with
Imagin Diagnostic Centres, Inc. (“IMAGIN”) and QMP. The Memorandum provided for
the parties to form a joint venture to be called Quantum Molecular Technologies
JV (the “QMT JV”). Initially, the joint venture was owned
20%, 29% and 51% by the Company, IMAGIN and QMP, respectively. On May
8, 2006, the Company amended certain aspects of the QMT JV. Whereas the Company
originally held 20% of the interests of the QMT JV, Quantum and IMAGIN assigned
100% of their interest to the Company in exchange for the preferred stock
of the
Company. On April 13, 2006, the QMT JV incorporated under the name
Quantum Molecular Technologies, Inc. (“QMT”) and acquired certain intangible
assets in the form of capitalized research and development costs from IMAGIN
for
a note payable.
Using
concepts and research and development activities conceived and to be implemented
by Dr. Irving Weinberg, an exclusive consultant to QMP, QMT is developing
certain next generation technologies including PET-enabled surgical tools and
solid-state photo detector technology, which have implications in both molecular
imaging and PET and which could have further application in the military and
aerospace segments. The first solid-state detector technology patent has been
filed by QMT. The Company will have the right to manufacture and sell
any PET products developed by QMT in exchange for royalty payments still to
be
negotiated.
15
|
FY
2006
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
Results
of Operations
Consolidated
results of operations for the year ending December 31, 2006 include; full
year
operations of Positron; the operations of Positron’s wholly-owned subsidiary,
IPT, for the period October 1 – December 31, 2006; and the operations of
Positron’s wholly-owned subsidiary, QMT, from April 13 – December 31,
2006.
Revenues
- The Company generated sales of systems in
2006
of $1,268,000 including approximately $850,000 of sales of IS2 gamma
cameras. Positron system sales include two refurbished PET systems.
The Company did not generate any revenue from system sales in
2005. Service and upgrade revenue in 2006 was $945,000, an increase
of 24% or $183,000 over revenues of $762,000 in 2005. Sales of parts and
materials to NPMS accounted for $180,000 of the increase.
Costs
of Revenues - Costs of revenues increased by $135,000 to
$1,423,000 during the year ended December 31, 2006 from $1,288,000 in the
prior
year. Costs of system sales were $689,000 in
2006. The Company incurred service revenue costs of $721,000
and $621,000 in 2006 and 2005, respectively. The16% increase over the prior
year
is due in part to the warranty expiration of one system which was then moved
to
a service contract In addition, the Company
experienced several problems with one particular machine which resulted in
significant services costs. In 2005 the Company expensed $656,000 of
excess inventory and field service parts as it ceased manufacturing activities
at its Houston facility.
Operating
Expenses - The Company’s operating expenses
increased $2,077,000 to $4,603,000 for the year ended December 31, 2006 from
$2,526,000 in 2005.
Selling,
general and administrative expenses increased $500,000 to $2,639,000 from
$2,139,000 in the prior year. The acquisition of IPT is the primary
reason for the increase. IPT’s selling, general and administrative
expenses in 2006 were $401,000. Positron’s selling, general and administrative
costs were $2,104,000, a decrease of 1.6% from the prior
year. Positron recorded expenses of $471,000 related to shares of its
common stock that were issued for services performed, the majority of which
was
issued to firms promoting Positron common stock to the market
place. Positron’s selling, general and administrative salary expense
decreased to $383,000 in 2006 from $778,000 in 2005. The decrease is a
result of
overall cost reduction efforts on the part of Positron’s
management.
Research
and development expenses increased $719,000 to $1,165,000 from $446,000 in
the
prior year. IPT’s research and developments costs were $166,000 and QMT’s were
$418,000. IPT continues improvement and development of the IS2 gamma
cameras. QMT is developing certain next generation technologies
including PET-enabled surgical tools and solid-state photo detector technology,
which have implications in both molecular imaging and PET and which could
have
further application in the military and aerospace
segments. Positron’s research and development costs increased 30% to
$581,000 in 2006 from $446,000 in 2005. The increase is due primarily
to costs associated with the NPMS joint venture and related costs of
manufacturing modernization at the Company’s Houston facility.
Operating
expenses in 2006 include a charge for impairment of the intangible asset
recorded upon the acquisition of QMT. The impaired asset acquired consisted
of
capitalized patent and research and development costs. The Company
wrote off the entire asset totaling $369,000.
Stock
based compensation expense for the year ended December 31, 2006 was $430,000
and
resulted primarily from the immediate vesting of 6,000,000 of the 11,500,000
options granted on November 16, 2006 to officers and directors of the Company,
and stock based compensation expense related to 7,500,000 options issued
in
December of 2005 by the Company to Joseph Oliverio, Positron’s President and
Chief Executive Officer. Of Mr. Oliverio’s options, 2,000,000 vested
immediately, 2,000,000 vested in December 2006 and 3,500,000 vest in December
2007. The 2006 compensation also includes expense for the vesting of outstanding
options granted to employees prior to 2005. For the year ended
December 31, 2005 the Company reversed expense related to stock based
compensation by $59,000. The reversal resulted from the application of
the
variable accounting rules to the re-pricing of certain warrants and options,
which preceded the application of FASB 123(R).
16
|
FY
2006
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
Other
Income (Expenses) -.Interest expense of $860,000
for the year ended December 31, 2006 is a decrease from $985,000 in interest
expense during 2005, but only includes nine months of interest on all
convertible debentures to affiliated entities including IMAGIN, PAC, Solaris
and
Quantum. The debentures were all converted to shares of the Company’s
Series B Preferred Stock in September 2006. The Company also issued
$1,500,000 of new convertible secured debentures in 2006. Interest expense
in
2006 includes amortization of loan costs, debt discounts and beneficial
conversion features of the new convertible debenture. The Company also recorded
derivative losses of $1,784,000 resulting from embedded derivatives with the
issuance of convertible debentures. For the year ended December 31, 2006 the
Company recorded equity in the losses of joint ventures, IPT and NPMS, of
$373,000. NPMS did not have any operating activity during 2005.
Income
Taxes – There is no provision for income taxes
due to ongoing operating losses. As of December 31, 2006, we had net
operating loss carryforwards of approximately $18,000,000 for Federal reporting
purposes. These amounts expire at various times through 2026. See Note 14 to
the
Notes to the Consolidated Financial Statements. The Company has provided a
full
valuation allowance against the net deferred tax assets at December 31,
2006 and 2005.
Extraordinary
Gain – The Company recorded an extraordinary gain
on the acquisition of IS2 by IPT. The extraordinary gain is the
excess of the net assets acquired over the purchase price paid for
IS2. The extraordinary gain recognized for the year ended December
31, 2006 was $241,000.
Net
Operating Loss - For the year ended December 31,
2006, the Company had a net loss of $6,586,000, or $0.08 per share, of which
$5,657,000 was from domestic operations and $929,000 was generated in Canada,
compared to a net loss of $3,806,000, or $0.06 per share, for the year ended
December 31, 2005. The increase is due to increases in research and development
and selling and general and administrative costs primarily from the acquisition
of IS2, and derivative losses from the issuance of convertible
debentures. Increase in net loss per share in 2006 was offset in part
by a significant increase in the weighted average number of shares outstanding
of 81,508,000 in 2006 as compared to 65,044,000 in 2005.
Liquidity
and Capital Reserves
Since
its
inception the Company has been unable to sell POSICAMTM systems
in
quantities sufficient to be operationally profitable. Consequently,
the Company has sustained substantial losses. At December 31, 2006,
the Company had an accumulated deficit of $68,825,000. 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.
At
December 31, 2006, the Company had cash and cash equivalents of $115,000
compared to $209,000 at December 31, 2005. The Company received
$2,478,000 and $2,569,000 in 2006 and 2005 respectively, in equity and debt
financings. In spite of the funding, the Company believes that
it is possible that it may continue to experience operating losses and
accumulate deficits in the foreseeable future. If the Company is
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.
The
opinion of the Company’s independent auditor for the year ended December 31,
2006, expressed substantial doubt as to the Company’s ability to continue as a
going concern. The Company will need to increase system sales to
become profitable and/or obtain additional capital.
17
|
FY
2006
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
Related
Party Transactions
IMAGIN
Transaction
Financing
Agreements dated May 21, 2004
On
May
26, 2004 and June 17, 2004, the Company sold two separate secured convertible
promissory notes under a Note Purchase Agreement dated May 21, 2004, to IMAGIN
in the principal amounts of $400,000 and $300,000,
respectively. Interest accrued on the outstanding principal at the
rate of ten percent (10%) per annum and was payable annually to the extent
of
positive cash flow on the anniversary dates of these notes. The
principal and any unpaid interest were due on the earlier to occur of May
21,
2006 or when declared due and payable by IMAGIN upon occurrence of an event
of
default. The notes were initially convertible into new shares of
Series C Preferred Stock that, in turn was convertible into an aggregate
of
35,000,000 shares of the Company’s common stock. These notes were
collateralized by all of the assets of the Company. On October 21,
2005, $770,000 in principal and accrued and unpaid interest were converted
into 770,000 shares of Series C Preferred Stock. These shares of
Series C Preferred Stock were subsequently assigned by IMAGIN to Positron
Acquisition Corp. In a second stage of the May 2004 financing IMAGIN
agreed to purchase additional secured convertible promissory notes in the
aggregate principal amount of $1,300,000. These notes were to be
purchased over a six and a half month period, commencing July 15, 2004 and
were
due and payable on May 21, 2006. These notes were initially
convertible into new shares of Series D Preferred Stock that, in turn is
convertible into an aggregate of 52,000,000 shares of the Company’s common
stock. As of June 30, 2005, principal of $1,208,500 had been advanced
related to these notes. On June 30, 2005, IMAGIN converted $575,000
of these promissory notes into shares of Series D Preferred Stock that, in
turn
were converted into 23,000,000 shares of the Company’s common
stock. This conversion reduced the principal owed under these
promissory notes from $1,208,500 to $633,500. The remaining $633,500 of
principal convertible notes plus notes for $63,350 in accrued interest was
assigned by IMAGIN to Positron Acquisition Corp, a wholly-owned subsidiary
of
Imagin Molecular Corporation, an affiliate of the
Company.
In
September 2006 the convertible instruments discussed above were converted to
shares of Positron Corporation Series B Preferred Stock. See discussion
below.
Financing
Agreements dated August 8, 2005
On
August
8, 2005, the Company sold to IMAGIN 10% secured convertible promissory notes
under a Note Purchase Agreement, dated the same date, in the aggregate principal
amount of $400,000. As of September 30, 2005, IMAGIN has purchased
$400,000 of these notes. These notes are due and payable on August 7,
2008. These notes are convertible into an aggregate of 20,000,000
shares of the Company’s common stock.
Pursuant
to the terms of the agreements, the Company granted to IMAGIN a security
interest in all of its assets to secure payment of the convertible promissory
notes. The security interest is subordinate to the security interest
previously granted in the same collateral to IMAGIN and Solaris.
In
September 2006 the convertible instruments discussed above were converted to
shares of Positron Corporation Series B Preferred Stock. See discussion
below.
Financing
Agreements dated October 31, 2005
On
October 31, 2005, the Company sold to IMAGIN 10% secured convertible promissory
notes under a Note Purchase Agreement, dated the same date, in the aggregate
principal amount of $400,000. As of January 2006, IMAGIN has
purchased $400,000 of these notes. These notes are due and payable on
October 31, 2008. These notes are convertible into an aggregate of
20,000,000 shares of the Company’s common stock.
Pursuant
to the terms of the agreements, the Company granted to IMAGIN a security
interest in all of its assets to secure payment of the convertible promissory
notes. The security interest is subordinate to the security interest
previously granted in the same collateral to IMAGIN and Solaris.
In
September 2006 the convertible instruments discussed above were converted to
shares of Positron Corporation Series B Preferred Stock. See discussion
below.
18
|
FY
2006
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
Transactions
with Solaris Opportunity Fund, L.P.
Financing
Agreements dated February 28, 2005
On
February 28, 2005, the Company entered into a series of agreements with Solaris
pursuant to which Solaris agreed to purchase an aggregate of $1,000,000 face
amount of the Company’s 10% secured convertible promissory notes. As
of September 30, 2005, Solaris had purchased all $1,000,000 of these
notes. These notes are due and payable on March 6,
2007. The notes were initially convertible into new shares of Series
E Preferred Stock that, in turn are convertible into an aggregate of 22,000,000
shares of the Company’s common stock. Pursuant to the terms of the
agreements, the Company granted to Solaris a security interest in all of its
assets to secure payment of the convertible promissory notes. The
security interest is subordinate to the security interest previously granted
in
the same collateral to IMAGIN.
During
2006 Solaris sold the $1,000,000 principal amount of these notes to
IMAGIN.
In
September 2006 the convertible instruments discussed above were converted to
shares of Positron Corporation Series B Preferred Stock. See discussion
below
Financing
Agreements dated June 27, 2005
On
June
27, 2005, the Company entered into a series of agreements with Solaris pursuant
to which Solaris agreed to purchase an aggregate of $400,000 face amount of
the
Company’s 10% secured convertible promissory notes. As of September
30, 2005, Solaris had purchased all $400,000 of these notes. These
notes were due and payable on March 6, 2007. The notes are initially
convertible into new shares of Series F Preferred Stock that, in turn are
convertible into an aggregate of 20,000,000 shares of the Company’s common
stock. Pursuant to the terms of the agreements, the Company granted
to Solaris a security interest in all of its assets to secure payment of the
convertible promissory notes. The security interest is subordinate to
the security interest previously granted in the same collateral to IMAGIN and
Solaris.
During
2006 Solaris sold the principal amount of these notes to Quantum Molecular
Pharmaceuticals, Inc. (“QMP”).
In
September 2006 the convertible instruments discussed above were converted to
shares of Positron Corporation Series B Preferred Stock. See discussion
below
Conversion
To Series B Preferred Stock
On
September 30, 2006 the Board of Directors authorized a new series of preferred
stock designated Series B Preferred Stock. The number of shares
authorized was 9,000,000. Each share of Series B Preferred Stock
$1.00 par value is convertible into 100 shares of the Company’s Common Stock.
The Series B Preferred Stock is senior to the Company’s Common Stock and junior
in priority to the Company’s A and G Preferred Stock in liquidation. Holders of
the Series B Preferred Stock are entitled to 100 votes per share on all matters
requiring shareholder vote. While Series B Preferred Stock is
outstanding no Common Stock dividends may be paid or declared by the
Company. The Series B Preferred Stock may be redeemed in whole or in
part, at the option of the Company, at any time at a price of $1.00 per
share. As of December 31, 2006, 5,739,860.5 shares of Series B
Preferred Stock were outstanding.
The
Company and IMAGIN, Inc converted principal and interest of $1,164,192
outstanding upon the Series E Convertible Promissory Notes and principal and
interest of $877,669 of Convertible Secured Notes into 690,930.5 shares of
Series B Preferred Stock.
The
Company and Positron Acquisition Corp. converted principal and interest of
$818,066 outstanding upon the Series D Secured Convertible Promissory Notes
and
770,000 shares of Series C Preferred Stock into 762,358 shares of Series B
Preferred Stock. Positron Acquisition Corp. subsequently converted 40,000 shares
of Series B Preferred Stock into 4,000,000 shares of the Company’s Common
Stock.
The
Company and QMP converted principal and interest of $453,144 outstanding upon
the Series F Secured Convertible Promissory Notes into 226,572 shares of Series
B Preferred Stock.
19
|
FY
2006
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
Acquisition
of IMAGIN Interest in IPT
On
January 26, 2007, the Company executed and consummated a Securities Purchase
Agreement (the “Agreement”) with IMAGIN, to acquire 11,523,000 shares of common
stock of IPT. The Shares represented approximately a 50.1% of IPT’s issued and
outstanding common stock. As a result of the acquisition of the Shares,
the
Company owns 100% of the common stock of IPT. As consideration for the
shares,
the Company and IMAGIN agreed to cancel a promissory note in the principal
amount of $2,400,000 made by IMAGIN subsidiary, Quantum and later assigned
to
IMAGIN. As of the date of the Agreement, the Company had been advised
by IMAGIN that it had acquired all of QMP’s interest in IPT as well as
QMP's other holdings of the Company's related
securities.
Immediately
following the acquisition of the Shares, IPT acquired all of the outstanding
capital stock of the Company’s wholly-owned subsidiary, QMT. The purchase price
of the acquisition was $2,800,000, in the form of a promissory note made in
favor of the Company, payable on or before July 1, 2008, and secured by a pledge
of all of the issued and outstanding shares of QMT
New
Accounting Pronouncements
In
June
2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections,"
which will require entities that voluntarily make a change in accounting
principle to apply that change retroactively to prior periods' financial
statements unless this would be impracticable. SFAS No. 154supersedes Accounting
Principles Board Opinion No. 20, "Accounting Changes"("APB No. 20"), which
previously required that most voluntary changes in accounting principle be
recognized by including in the current period's net income the cumulative effect
of changing to the new accounting principle. SFAS No. 154 also makes
a distinction between "retrospective application" of an accounting principle
and
the "restatement" of financial statements to reflect the correction of an
error. Another significant change in practice under SFA No. 154 will
be that if an entity changes its method of depreciation, amortization, or
depletion for long-lived, non-financial assets, the change must be accounted
for
as a change in accounting principle. SFAS No. 154 applies to
accounting changes and error corrections that are made in fiscal years beginning
after December 15, 2005. The provisions of SFAS No. 154 did not
impact the Company's consolidated financial statements.
In
June
2006, the FASB released FASB Interpretation No. 48, "Accounting for Uncertainty
in Income Taxes," an interpretation of FASB Statement No. 109 ("FIN 48"). FIN
48
prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to
be
taken in a tax return. A company must determine whether it is
"more-likely-than-not" that a tax position will be sustained upon examination,
including resolution of any related appeals or litigation procedures, based
on
the technical merits of the position. Once it is determined that a
position meets the more-likely-than-not recognition threshold, the position
is
measured to determine the amount of benefit to recognize in the financial
statements. This interpretation is effective for fiscal years beginning after
December 15, 2006. Earlier application of the provisions of this
interpretation is encouraged if the enterprise has not yet issued financial
statements, including interim financial statements, in the period this
interpretation is adopted. The provisions of FIN 48 are not expected to have
a
material effect the Company's consolidated financial statements.
Critical
Accounting Policies
In
response to the Securities and Exchange Commission’s Release No. 33-8040,
“Cautionary Advice Regarding Disclosure About Critical Accounting Policies,” we
have identified critical accounting policies based upon the significance of
the
accounting policy to our overall financial statement presentation, as well
as
the complexity of the accounting policy and our use of estimates and subjective
assessments. We have concluded our critical accounting policies are
as follows:
Inventory
Inventories
are stated at the lower of cost or market. Cost is determined using
the first-in, first-out (FIFO) method of inventory valuation.
Revenue
Recognition
Revenues
from POSICAMTM
system contracts 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.
20
|
FY
2006
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
Information
Regarding and Factors Affecting Forward Looking Statements
The
Company is including the following cautionary statement in this Annual Report
on
Form 10-KSB to make applicable and take advantage of the safe harbor provision
of the Private Securities Litigation Reform Act of 1995 for any forward looking
statements made by, or on behalf of the Company. Forward looking
statements include statements concerning plans, objectives, goals, strategies,
future events or performance and underlying assumptions and other statements
which are other than statements of historical facts. Certain
statements contained herein are forward looking statements and, accordingly,
involve risks and uncertainties which could cause actual results or outcomes
to
differ materially from those expressed in the forward looking
statements.
The
Company’s expectations, beliefs and projections are expressed in good faith and
are believed by the Company to have a reasonable basis, including without
limitations, management’s examination of historical operating trends, data
contained in the Company’s records and other data available from third parties,
but there can be no assurance that management’s expectations, beliefs or
projections will result or be achieved or accomplished. In addition
to other factors and matters discussed elsewhere herein, the following are
important factors that, in the view of the Company, could cause actual results
to differ materially from those discussed in the forward looking
statements: the ability of the Company to attain widespread market
acceptance of its POSICAM™ systems; the ability of the Company to obtain
acceptable forms and amounts of financing to fund future operations; demand
for
the Company’s services; and competitive factors. The Company
disclaims any obligation to update any forward looking statements to reflect
events or circumstances after the date hereof.
Item
7. Financial Statements
The
required Financial Statements and the notes thereto are contained in a separate
section of this report beginning with the page following the signature
page.
Item
8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
On
May
30, 2006, Ham, Langston & Brezina, L.L.P. (“HLB”), the Registrant’s
accountants informed the Registrant that they were resigning as the Registrant’s
certifying independent accountants.
HLB's
audit report on the financial statements for the year ended December 31, 2005
contained no adverse opinion or disclaimer of opinion and was not qualified
or
modified as to uncertainty, audit scope, or accounting principles but was
qualified on a going concern basis.
During
the Registrant's two most recent fiscal years and any subsequent interim period
preceding the resignation of HLB, there were no disagreements with HLB on any
matter of accounting principles or practices, financial statement disclosure,
or
auditing scope or procedure, which disagreements if not resolved to the
satisfaction of HLB, would have caused HLB to make reference to the subject
matter of the disagreements in connection with its report.
During
the Registrant's two most recent fiscal years and any subsequent interim period
preceding the resignation of HLB, there have been no reportable events of the
type required to be disclosed by Item 304(a)(1)(v) of Regulation
S-K
On
July
10, 2006, Positron Corporation (the "Registrant") engaged Frank L. Sassetti
& Co. to be its independent registered public accounting firm. The
Registrant's engagement of Frank L. Sassetti & Co. was approved by the
Registrant's Board of Directors.
21
|
FY
2006
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
Item
8A. Controls and Procedures
As
of
December 31, 2006, the Company carried out an evaluation, under the supervision
and with the participation of the Company’s management, including the Company’s
Chairman of the Board and Chief Financial Officer, of the effectiveness of
the
design and operation of the Company’s disclosure controls and procedures (as
defined in Exchange Act Rule 13a-15(e) and Rule 15d-15(e)). Based
upon that evaluation, the Company’s Chief Executive Officer and Chief Financial
Officer concluded that the Company’s disclosure controls and procedures are
effective at a reasonable level in timely alerting them to material information
relating to the Company that is required to be included in the Company’s
periodic filings with the Securities and Exchange Commission. There
have been no changes in the Company’s internal controls over financial reporting
that occurred during the Company’s most recent fiscal quarter that has
materially affected or is reasonably likely to materially affect, the Company’s
internal control over financial reporting.
The
Company’s management, including the Chairman of the Board and Chief Financial
Officer, do not expect that the Company’s disclosure controls or internal
controls will prevent all error and all fraud. A control system, no
matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met due to
numerous factors, ranging from errors to conscious acts of an individual, or
individuals acting together. In addition, the design of a control
system must reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their
costs. Because of the inherent limitations in a cost-effective
control system, misstatements due to error and/or fraud may occur and not be
detected.
Item
8B. Other Information
On
March
26, 2007, the Registrant formed Homeland Radiation Detection Systems, Inc.,
a
Texas corporation (“HRDS”) as a wholly-owned subsidiary. HRDS has
filed a provisional patent for production of a device that is capable of
detecting illicit radioactive sources at a distance which the Company intends
to
develop and market for homeland security applications.
PART
III
Item
9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange
Act
The
following table sets forth: (1) names and ages of all persons who presently
are
and who have been selected as directors of the Registrant; (2) all positions
and
offices with the Registrant held by each such person; (3) any period during
which he or she has served a such:
|
Name
|
Age
|
Position
with the Company
|
||
|
Patrick
G. Rooney
|
44
|
Chairman
of the Board – Elected 2004
|
||
|
Joseph
G. Oliverio
|
37
|
President
and Director – Elected 2006
|
||
|
Corey
N. Conn
|
45
|
Chief
Financial Officer
|
||
|
Timothy
M. Gabel
|
37
|
Vice
President of Operations
|
||
|
Sachio
Okamura
|
55
|
Director
– Elected 2001
|
||
|
Dr.
Anthony (Tony) C. Nicholls
|
58
|
Director
– Elected 2005
|
||
|
J.
David Wilson
|
49
|
Director
– Elected 2006 – Resigned
2006
|
Directors
are elected annually and serve until the next annual meeting and until his
successor has been elected
and qualified, or until his
earlier death, resignation or removal.
Patrick
G. Rooney. Mr. Rooney has served as Chairman of the
Company since July 26, 2004. Since March 2003, Mr. Rooney has been
the Managing Director of Solaris Opportunity Fund L.P., an investing/trading
hedge fund. Through years 1985-2000, Patrick G. Rooney and/or Rooney
Trading was a member of The Chicago Board of Options Exchange, The Chicago
Board
of Trade and The Chicago Mercantile Exchange. In September 1998
through March 2003, Mr. Rooney was the Managing Director of Digital Age
Ventures, Ltd., a venture capital investment company. Mr. Rooney
attended Wagner College of New York from 1980 through 1984.
22
|
FY
2006
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
Joseph
G. Oliverio. Mr. Oliverio has served as President of
the Company since December 27, 2005. Mr. Oliverio also serves as
the Chief Executive Officer of Imagin Molecular Corporation, a publicly-owned
Delaware corporation, and affiliate of the Registrant. Mr.
Oliverio has also joined the Board of Directors of Neusoft-Positron Medical
Systems Co., Ltd., a joint venture with Neusoft Medical Systems of China
that
will manufacture the Company's PET and PET/CT products. Prior to becoming
President of the Company, Mr. Oliverio was the Chief Operating Officer
of
Michael E. Merhige, M.D., LLC, a well known coronary disease reversal
and
prevention center. Mr. Oliverio earned an MBA from the University of
Phoenix and a BS in Nuclear Medicine Technology from State University
of New
York at Buffalo, and is a certified nuclear medicine
technologist. Mr. Oliverio has performed more than 13,000 combined
heart and cancer PET scans using Positron devices and brings to the Company
a
valuable combination of business, clinical and technical skill
sets. Mr. Oliverio has been involved with the Company in various
capacities since 1995. Mr. Oliverio has also joined the Board of
Directors of Neusoft-Positron Medical Systems Co., Ltd., a joint venture
with
Neusoft Medical Systems of China that will manufacture the Company's
PET and
PET/CT products. Mr. Oliverio earned an MBA from the University of Phoenix
and a
BS in Nuclear Medicine Technology from State University of New York at
Buffalo,
and is a certified nuclear medicine technologist.
Corey
N. Conn. Mr. Conn was appointed by the Board of
Directors to serve as Chief Financial Officer in 2005. Mr. Conn also
serves as the Chief Financial Officer of Imagin Molecular Corporation,
a
publicly-owned Delaware corporation, and affiliate of the
Registrant. Mr. Conn was Vice President of Business Development at
iXL, an e-business and e-transformations services provider from 1995
- 1999 and
also served as Managing Director of Virtual Partnerships, LLC, a business
development and business strategy consulting firm from 1999 - 2004. Mr.
Conn
served as a member of the Board of Directors of Uniloc, Inc., from April
2000 to
July 2002. Mr. Conn received a Bachelor’s Degree in Business Administration from
Bradley University
Timothy
M. Gabel has served at the Vice President of Operations for
Positron Corporation since March of 2006. Prior hereto and from 1996,
Mr. Gabel specialized in international business, international technical
project
management, product research and development, lean manufacturing implementation,
and product design with the automotive components supplier, Delphi
Corporation. His experience includes technology transfer, and joint
venture partnership development with companies in China, Japan, Mexico
and
Europe. Mr. Gabel holds four U.S. patents, and earned his Bachelor’s of Science
in Mechanical Engineering from the State University of New York at
Buffalo.
Sachio
Okamura. Mr. Okamura has served as a director since his
appointment to the Board of the Company on April 1, 2001. Mr. Okamura
has performed bio-medical consulting services for Okamura Associates, Inc.
from
1993 through the present date. These consulting services have
included regulatory, distribution, licensing, joint venture, investment,
merger
and acquisition activities involving businesses in the United States and
Japan. Mr. Okamura was in charge of bio-medical business development
for various offices of Mitsubishi Corporation from 1978 through
1993. Mr. Okamura received a BS in Biochemistry in 1975 from the
University of California, Davis and a Master of International Business
from the
American Graduate School of International Management in
1978.
Dr.
Anthony (Tony) C. Nicholls. Dr. Nicholls was nominated for
election to the Board of Directors by the vote of the Board of
Directors. Dr. Nicholls is currently CEO of L3Technology Ltd in
England, a company formed to commercialize patented medical technology developed
in UK government research laboratories. Additionally, he is Chairman
of the Alpha Omega Hospital Management Trust Ltd (London, UK) which undertakes
the construction and management of cancer treatment "Centres of Excellence"
and
a Director of European Diagnostics plc (London UK) a company developing products
for patient point-of-care testing. Until 2002, Dr Nicholls was
Chairman and CEO of FAS Medical Ltd, a company primarily involved in the
management of central venous catheterization complications. Prior to
working with FAS Medical Ltd., Dr. Nicholls was the Head of Microbiology and
Immunology at the Midhurst Medical Research Institute in the UK. Dr.
Nicholls is a graduate of the University of Birmingham School of Medical
Sciences and has a Ph.D. in Immunology.
J.
David Wilson. Mr. Wilson was appointed as the Company's
Chief Executive Officer on October 27, 2005 and resigned in April
2006. He is a cancer survivor, dedicated PET and radiopharmaceutical
executive, and founder, Chief Executive Officer and President of Quantum
Molecular Pharmaceutical, Inc. From 2003 through 2005, Mr. Wilson
founded and served as President of CI Pharma Inc., a radiopharmaceutical company
formed to cater to a new vertical market for cancer staging and diagnosis
drugs. From 2002 to 2003, Mr. Wilson founded and served as the Vice
President of Sales of Careimaging Corp., a nuclear medicine imaging company
that
brought Positron Emission Tomography for private clinical cancer diagnosis
and
staging to Ontario, Canada. Mr. Wilson received a BA in Economics
from York University in 1981.
23
|
FY
2006
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
Item
10. Executive Compensation
Summary
Compensation Table
The
following Summary Compensation Table shows certain compensation information for
each of the Named Executive Officers. Compensation data is shown for
the years ended December 31, 2006, 2005 and 2004. This
information includes the dollar value of base salaries, bonus awards, the number
of stock options granted, and certain other compensation, if any, whether paid
or deferred.
|
Annual
Compensation
|
Long-Term
Compensation
Awards
|
||||||||||||||||||||||||||||
|
Name
and Principal Position
|
Year
|
Salary
(a)
|
Bonus
|
Other
Annual
Compensation
|
Restricted
Stock
Awards
|
Options/
SARs
|
LTIP
Payouts
|
All
Other
Compensation
|
|||||||||||||||||||||
|
Patrick
G. Rooney
|
2006
|
--
|
--
|
--
|
--
|
5,000,000
|
--
|
$ |
110,000
|
||||||||||||||||||||
|
Chairman
of the Board
|
2005
|
--
|
--
|
--
|
--
|
--
|
--
|
$ |
10,000
|
||||||||||||||||||||
|
Joseph
G. Oliverio
|
2006
|
$ |
135,000
|
--
|
--
|
--
|
--
|
--
|
--
|
||||||||||||||||||||
|
President
|
2005
|
--
|
--
|
--
|
--
|
7,500,000
|
--
|
--
|
|||||||||||||||||||||
|
J.
David Wilson
|
2006
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
|||||||||||||||||||||
|
Chief
Executive Officer
|
2005
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
|||||||||||||||||||||
|
Corey
N. Conn
|
2006
|
$ |
96,000
|
--
|
--
|
--
|
4,000,000
|
--
|
--
|
||||||||||||||||||||
|
Chief
Financial Officer
|
2005
|
$ |
25,000
|
||||||||||||||||||||||||||
|
Timothy
M. Gabel
|
2006
|
$ |
74,000
|
1,500,000
|
|||||||||||||||||||||||||
|
Vice
President of Operations
|
|||||||||||||||||||||||||||||
|
Gary
H. Brooks (b)
|
2006
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
|||||||||||||||||||||
|
President,
CEO, CFO
|
2005
|
$ |
190,000
|
--
|
--
|
--
|
--
|
--
|
$ |
111,500
|
|||||||||||||||||||
|
and
Secretary
|
2004
|
$ |
223,000
|
--
|
--
|
--
|
500,000
|
--
|
$ |
1,900
|
|||||||||||||||||||
|
Griffith
L. Miller II (c)
|
2006
|
$ |
55,000
|
--
|
--
|
--
|
--
|
--
|
--
|
||||||||||||||||||||
|
President,
COO and CFO
|
2005
|
$ |
105,000
|
--
|
--
|
--
|
--
|
--
|
--
|
||||||||||||||||||||
|
2004
|
$ |
94,000
|
--
|
--
|
--
|
--
|
--
|
--
|
|||||||||||||||||||||
|
David
S. Yeh (d)
|
2006
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
|||||||||||||||||||||
|
Executive
V.P. Sales &
|
2005
|
$ |
130,000
|
--
|
--
|
--
|
--
|
--
|
--
|
||||||||||||||||||||
|
Marketing
|
2004
|
$ |
119,000
|
||||||||||||||||||||||||||
|
(a)
|
Amounts
shown include cash compensation earned with respect to the year
shown
above.
|
|
(b)
|
Compensation
for Mr. Brooks in 2005 includes regular compensation of $167,000 and
$23,000 of vacation pay through September 29, 2005. All
other compensation for Mr. Brooks includes an $111,500 severance
obligation.
|
|
(c)
|
Mr.
Miller resigned in August 2006. Compensation for Mr. Miller in 2005
includes regular compensation of $97,500 and $7,500 of vacation
pay.
|
|
(d)
|
Mr. Yeh
served as an officer of the Company from July 2004 through July
2005.
|
Employment
Agreements
The
Company has an employment agreement with Joseph G. Oliverio, President of the
Company. Mr. Oliverio receives a base salary of
$150,000. Mr. Oliverio has an option grant exercisable for 7,500,000
shares of Common Stock at an exercise price of $0.05 per share. On
the date of grant of the option 2,000,000 shares vested, with an additional
2,000,000 shares vesting on December 27, 2006 and the remainder vesting on
December 27, 2007. Mr. Oliverio is entitled to 6 months
severance upon a termination "without cause".
24
|
FY
2006
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
Option
Grants in Last Fiscal Year
During
2006, the Company issued 11,575,000 stock options to officers and directors,
75,000 of which were issued in accordance with the Company’s Non-Employee
Director Stock Option Plan and 11,500,000 in accordance with the Amended
and
Restated 2005 Stock Incentive Plan.
.
Equity
Compensation Plan Information
The
following table summarizes share and exercise information about the Company's
equity compensation plans as of December 31, 2006.
|
Plan
Category
|
Number
of Securities to be Issued Upon Exercise of Outstanding
Options, Warrants
and Rights
|
Weighted-Average
Exercise Price of Outstanding Options, Warrants and
Rights
|
Number
of Securities Remaining Available for Future Issuance Under
Equity
Compensation Plans (excluding securities included in 1st
column)
|
|||
|
All
Equity Compensation Plans Approved by Security Holders
|
19,500,000
|
$0.06
|
26,814,000
(1)
|
|||
|
(1)
|
Includes
3,275,000 shares available for issuance under the 1999 Stock
Option Plan,
225,000 shares available for issuance under the 1999 Non-Employee
Directors' Plan, 684,000 shares available for issuance under
the 1999
Stock Bonus Incentive Plan, 500,000 shares available under the
1999 Employee Stock Purchase Plan, 21,000,000 shares available
under the
2005 Amended and Restated Stock Incentive Plan and 1,130,000 available
under the 2006 Stock Incentive Plan.
|
SUMMARY
OF EQUITY COMPENSATION PLANS
Equity-Based
Compensation
Key
Employee Incentive Compensation.
The
Company has an incentive compensation plan for certain key employees and
it’s
Chairman. The incentive compensation plan provides for annual bonus
payments based upon achievement of certain corporate objectives as determined
by
the Company's Compensation Committee, subject to the approval of the Board
of
Directors. During 2006, the Company did not pay any bonus pursuant to
the incentive compensation plan.
1999
Employee Stock Option Plan
Positron's
Board administers the 1999 Employee Stock Option Plan ("1999 Plan"), which
was
adopted by the Board effective June 15, 1999. The 1999 Plan provides
for the grant of options to officers, employees (including employee directors)
and consultants. The administrator is authorized to determine the
terms of each option granted under the plan, including the number
of shares, exercise price, term and
exercisability. Options granted under the plan may be incentive stock
options or nonqualified stock options. The exercise price of
incentive stock options may not be less than 100% of the fair market value
of
the Common Stock as of the date of grant (110% of the fair market value in
the
case of an optionee who owns more than 10% of the total combined voting power
of
all classes of the Company's capital stock). Options may not be
exercised more than ten years after the date of grant (five years in the case
of
10% shareholders). Upon termination of employment for any reason
other than death or disability, each option may be exercised for a period of
90
days, to the extent it is exercisable on the date of termination. In
the case of a termination due to death or disability, an option will remain
exercisable for a period of one year, to the extent it is exercisable on the
date of termination. The Board has authorized up to an aggregate of
4,000,000 shares of Common Stock for issuance under the 1999 Plan. As
of December 31, 2006, 225,000 options are outstanding, of which 152,396 are
vested.
25
|
FY
2006
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
Non-Employee
Directors' Stock Option Plan
The
1999
Non-Employee Directors' Stock Option Plan ("Directors' Plan") provides for
the
automatic grant of an option to purchase 25,000 shares of Common Stock to
non-employee directors upon their election or appointment to the Board, and
subsequent annual grants also in the amount of 25,000 shares of Common
Stock. The exercise price of the options is 85% of the fair market
value of the Common Stock on the date of grant. The Directors' Plan
is administered by the Board. Options granted under the Directors'
Plan become exercisable in one of two ways: either in four equal
annual installments, commencing on the first anniversary of the date of grant,
or immediately but subject to the Company's right to repurchase, which
repurchase right lapses in four equal annual installments, commencing on
the
first anniversary of the date of grant. To the extent that an option
is not exercisable on the date that a director ceases to be a director of
the
Company, the unexercisable portion terminates. The Board has authorized up
to an
aggregate of 500,000 shares of Common Stock for issuance under the Directors'
Plan. As of December 31, 2006, 250,000 fully vested options
remain outstanding under the Directors' Plan.
1999 Stock
Bonus Incentive Plan
In
October 1999, the Board adopted an Employee Stock Bonus Incentive Plan, which
provides for the grant of bonus shares to any Company employee or consultant
to
recognize exceptional service and performance beyond the service recognized
by
the employee's salary or consultant's fee. The Board has authorized
up to an aggregate of 1,000,000 shares of Common Stock for issuance as bonus
awards under the Stock Bonus Plan. The Stock Bonus Plan is currently
administered by the Board. Each grant of bonus shares is in an amount
determined by the Board, up to a maximum of the participant's
salary. The shares become exercisable according to a schedule to be
established by the Board at the time of grant. As of
December 31, 2006, 316,000 shares of Common Stock have been granted under
the 1999 Stock Bonus Incentive Plan.
1999
Employee Stock Purchase Plan
The
Company's 1999 Employee Stock Purchase Plan ("Purchase Plan") was adopted by
the
Board of Directors and approved by the shareholders
in 1999. A total of 500,000 shares of Common Stock have
been reserved for issuance under the Purchase Plan, none of which has yet been
issued. The Purchase Plan permits eligible employees to purchase
Common Stock at a discount through payroll deductions during offering periods
of
up to 27 months. Offering periods generally will begin on the first
trading day of a calendar quarter. The initial offering period began
on January 1, 2000. The price at which stock is purchased
under the Purchase Plan will be equal to 85% of the fair market value
of Common Stock on the first or last day of the offering period, whichever
is
lower. No shares have been issued under the Purchase Plan at December
31, 2006.
Amended
and Restated 2005 Stock Incentive Plan
Positron's
Board administers the Amended and Restated 2005 Stock Incentive Plan ("2005
Plan"), which was adopted by the Board effective November 18,
2005. The 2005 Plan provides for the grant of options and stock to
directors, officers, employees and consultants. The administrator is
authorized to determine the terms of each award granted under the plan,
including the number of shares, exercise price, term and
exercisability. Options granted under the plan may be incentive stock
options or nonqualified stock options. The exercise price of
incentive stock options may not be less than 100% of the fair market value
of
the Common Stock as of the date of grant (110% of the fair market value in
the
case of an optionee who owns more than 10% of the total combined voting power
of
all classes of the Company's capital stock). Options may not be
exercised more than ten years after the date of grant (five years in the
case of
10% shareholders). Upon termination of employment for any reason other than
death or disability, each option may be exercised for a period of 90 days;
to
the extent it is exercisable on the date of termination. In the case
of a termination due to death or disability, an option will remain exercisable
for a period of one year; to the extent it is exercisable on the date of
termination. A total of 40,000,000 shares of Common Stock have been authorized
for issuance under the 2005 Plan. As of December 31, 2006, a
total of 19,000,000 options have been granted under the 2005 Plan, none of
which
have been exercised, and of which 10,000,000 are fully
vested.
26
|
FY
2006
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
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,
2006, 3,870,000 shares had been issued to consultants under the 2006
Plan.
401(k)
Savings Plan
The
Company has a 401(k) Retirement Plan and Trust (the "401(k) Plan") which became
effective as of January 1, 1989. Employees of the Company
who have completed one-quarter year of service and have attained age
21 are eligible to participate in the 401(k) Plan. Subject to certain
statutory limitations, a participant may elect to have his or her compensation
reduced by up to 20% and have the Company contribute such amounts to the 401(k)
Plan on his or her behalf ("Deferral Contributions"). The Company
makes contributions in an amount equal to 25% of the participant's Deferral
Contributions up to 6% of his/her compensation ("Employer
Contributions"). Additionally, the Company may make such additional
contributions, as it shall determine each year in its discretion. All
Deferral and Employer Contributions made on behalf of a participant are
allocated to his/her individual accounts and such participant is permitted
to
direct the investment of such accounts.
A
participant is fully vested in the current value of that portion of his/her
accounts attributable to Deferral Contributions. A participant's
interest in that portion of his/her accounts attributable to Employer
Contributions is generally fully vested after five years of
employment. Distributions under the 401(k) Plan are made upon
termination of employment, retirement, disability and
death. In addition, participants may make withdrawals in
the event of severe hardship or after the participant attains age fifty-nine
and
one-half. The 401(k) Plan is intended to qualify under Section 401 of
the Internal Revenue Code of 1986, so that contributions made under
the 401(k) Plan, and income earned on contributions, are not taxable to
participants until withdrawal from the 401(k) Plan.
The
Company did not make any contributions to the 401(k) Plan on behalf of employees
in the year ended December 31, 2006.
Policy
with Respect to $1 Million Deduction Limit
It
is the
Company's policy, where practical, to avail itself of all proper deductions
under the Internal Revenue Code. Amendments to the Internal Revenue
in 1993, limit, in certain circumstances, the deductibility of compensation
in
excess of $1 million paid to each of the five highest paid executives in one
year. The total compensation of the executive officers did not exceed
this deduction limitation in fiscal year 2006 or 2005.
Compensation
of Directors
Directors
who are also employees of the Company receive no fees for services provided
in
that capacity, but are reimbursed for out-of-pocket expenses incurred in
connection with attendance at meetings of the Board of Directors and its
committees.
27
|
FY
2006
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
Non-Employee
Director Compensation
Beginning
January 22, 1999 through current date, non-employee directors were not
separately compensated for their services on the Board although they continued
to be reimbursed for their reasonable expenses associated with attending board
and committee meetings.
Historically,
each non-employee director was eligible to receive an initial option to purchase
25,000 shares of Common Stock under the Company's 1999 Non-Employee Directors'
Stock Option Plan upon their election or appointment to the
Board. The exercise price is equal to 85% of the fair market value of
the Common Stock on the date of grant. In addition, so long as the
Plan is in effect and there are shares available for grant, each director in
service on January 1 of each year (provided the director has served continuously
for at least the preceding 30 days) is eligible to receive an option to purchase
25,000 shares of Common Stock at an exercise price equal to
85% of the fair market value of the Common Stock on the
date of grant. Initial options as well as annual options granted
under the Plan are subject to one or two schedules, either vesting over four
years or vesting fully on the date of grant. In the latter event, the
Common Stock acquired upon exercise of such options are subject to a right
of
repurchase in favor of the Company which lapses in four equal annual
installments, beginning on the first anniversary of the date of
grant. The Company anticipates, subject to shareholder approval, that
future grants to non-employee directors may be made under the 2005 Stock
Incentive Plan with exercise prices for such grants equal to 100% of the fair
market value of the Common Stock on the date of grant.
Item
11. Security Ownership of Directors, Officers and Certain
Beneficial Owners
The
following tables, based in part upon information supplied by officers, directors
and principal shareholders, set forth certain information regarding the
beneficial ownership of the Company's voting securities by (i) all those known
by the Company to be beneficial owners of more than 5% of the Company's voting
securities; (ii) each director (iii) the Company's Chief Executive Officer
and
the four other highest paid executive officers (the "Named Executive Officers");
and (iv) the directors and executive officers as a group.
Security
Ownership of Certain Beneficial Owners(a)
|
Name
and Address of Beneficial Owner
|
Number
of Shares of Common Stock
|
%
of Outstanding Common Stock(b)(c)
|
||||||
|
IMAGIN
Diagnostic Centres, Inc.
|
460,299,250 | (d) | 69.6 | % | ||||
|
Positron
Acquisition Corp.
|
80,261,800 | (e) | 12.1 | % | ||||
|
Imaging
Pet Technologies, Inc.
|
65,000,000 | (f) | 9.8 | % | ||||
|
(a)
|
Security
ownership information for beneficial owners is taken from statements
filed
with the Securities and Exchange Commission pursuant to Sections
13(d),
13(g) and 16(a) and/or information made known to the
Company.
|
|
(b)
|
Based
on 87,205,202 shares of Common Stock outstanding on April 10,
2007.
|
|
(c)
|
The
percentage of outstanding Common Stock assumes full conversion
Convertible
Series A and B Preferred Stock into Common Stock and is based on
the
Company's outstanding shares of Common Stock as of April 10 ,
2007.
|
|
(d)
|
Includes
18,974,000 shares owned directly, shares issuable upon full conversion
of
4,367,503 shares of Series B Preferred Stock into Common Stock,
and
4,575,000 shares that may be acquired pursuant to warrants that
are or
will become exercisable within 60 days of April 10, 2007. The
address for IMAGIN is 5160 Yonge Street, Suite 300, Toronto, Ontario,
M2N
6L9.
|
|
(e)
|
Includes
8,026,000 shares owned directly and shares issuable upon full conversion
of 722,358 shares of Series B Preferred Stock into Common
Stock. The address for Positron Acquisition Corp. is 104 W.
Chestnut Street #315, Hinsdale, Illinois
60521.
|
|
|
(f)
|
Represents
shares issuable upon full conversion of 650,000 shares of Series
B
Preferred Stock into Common Stock. The address for Imaging Pet
Technologies, Inc. is 5160 Yonge Street, Suite 300, Toronto, Ontario,
M2N
6L9.
|
28
|
FY
2006
|
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
|
4,000,000
|
(dd)
|
4.4 | % | |
|
Common
|
Sachio
Okamura
|
650,000
|
(ee)
|
*
|
||
|
Common
|
Patrick
G. Rooney
|
2,575,000
|
(ff)
|
2.9 | % | |
|
Common
|
Dr.
Anthony C. Nicholls
|
550,000
|
(gg)
|
*
|
||
|
Common
|
Corey
N. Conn
|
2,000,000
|
(hh)
|
2.2 | % | |
|
Common
|
Timothy
M. Gabel
|
1,500,000
|
(ii)
|
1.7 | % | |
|
Common
|
All
Directors and Executive Officers as a Group
|
11,275,000
|
11.4 | % | ||
|
*
|
Does
not exceed 1% of the referenced class of
securities.
|
|
(aa)
|
Ownership
is direct unless indicated
otherwise.
|
|
(bb)
|
Calculation
based on 87,205,202 shares of Common Stock outstanding as of
April
10, 2007 plus stock options that are or will become exercisable
within 60 days of April 10, 2007.
|
|
(cc)
|
The
percentage of outstanding Common Stock assumes full conversion
of the 10%
secured convertible notes into Common Stock and is based on
the Company's
outstanding shares of Common Stock as of April 10,
2007.
|
|
(dd)
|
Includes
4,000,000 shares that may be acquired by Mr. Oliverio pursuant
to stock
options that are or will become exercisable within 60 days
of April 10,
2007.
|
|
(ee)
|
Includes
650,000 shares that may be acquired by Mr. Okamura pursuant
to stock
options that are or will become exercisable within 60 days
of April 10,
2007
|
|
|
(ff)
|
Includes
2,575,000 shares that may be acquired by Mr. Rooney pursuant
to stock
options that are or will become exercisable within 60 days
of April 10,
2007.
|
|
(gg)
|
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 10,
2007.
|
|
(hh)
|
Includes
2,000,000 shares that may be acquired by Mr. Conn pursuant
to stock
options that are or will become exercisable within 60 days
of April 10,
2007.
|
|
|
(ii)
|
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 10,
2007.
|
Item
12. Certain Relationships and Related
Transactions
Imaging
PET Technologies, Inc.
On
June
5, 2006, the Company and Quantum Molecular Pharmaceuticals Inc., a Canadian
radiopharmaceutical corporation (“Quantum”) acquired all of the operating assets
of IS2 Medical Systems Inc., a developer and manufacturer of nuclear imaging
devices based in Ottawa, Ontario, Canada (“IS2”) through a minority-owned
subsidiary of the Company, Imaging PET Technologies, Inc. (“IPT”). Initially,
the Company and Quantum hold 49.9% and 50.1%, respectively, of the total
outstanding capital stock of IPT. The Company acquired the remaining
50.1% of the capital stock of IPT from Imagin Diagnostic Centers, Inc., which
had acquired the shares from Quantum, in exchange for the cancellation of a
promissory note in the amount of $2,400,000 Imagin had made in favor of the
Company.
29
|
FY
2006
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
Conversion
of Notes Payable to Series B Preferred Stock
In
2006,
the Company converted all outstanding convertible notes and outstanding shares
of preferred stock with its three largest affiliated creditors into shares
of
Series B Convertible Preferred Stock. The Company and Imagin Diagnostic Centres,
Inc converted principal and interest of $1,164,192 outstanding upon the Series
E
Convertible Promissory Notes and principal and interest of $877,669 of
Convertible Secured Notes into 690,930.5 shares of Series B Preferred
Stock. The Company and Positron Acquisition Corp. converted principal
and interest of $818,066 outstanding upon the Series D Secured Convertible
Promissory Notes and 770,000 shares of Series C Preferred Stock into 762,358
shares of Series B Preferred Stock. Positron Acquisition Corp. subsequently
converted 40,000 shares of Series B Preferred Stock into 4,000,000 shares of
the
Company’s Common Stock. The Company and Quantum Molecular
Pharmaceuticals, Inc. converted principal and interest of $453,144 outstanding
upon the Series F Secured Convertible Promissory Notes into 226,572 shares
of
Series B Preferred Stock.
Item
13. Exhibits
|
3.1
|
|
Articles
of Incorporation of the Registrant (incorporated herein by reference
to
Exhibit 3.1 to the Company’s Registration Statement on Form SB-2 (File No.
33-68722)).
|
|
|
|
|
|
3.2
|
|
By-laws
of the Registrant, as amended (incorporated herein by reference
to Exhibit
3.2 to the Company’s Registration Statement on Form SB-2 (File No.
33-68722)).
|
|
|
|
|
|
4.1
|
|
Specimen
Stock Certificate (incorporated herein by reference to Exhibit
4.1 of the
Company’s Annual Report on Form 10-KSB for the year ended December 31,
1994).
|
30
|
4.2
|
|
Statement
of Designation Establishing Series A 8% Cumulative Convertible
Redeemable
Preferred Stock of Positron Corporation, dated February 28, 1996
(incorporated herein by reference to Exhibit 4.3 of the Company’s Annual
Report on Form 10-KSB for the year ended December 31,
1995).
|
|
|
|
|
|
4.3
|
|
Warrant
Agreement dated as of June 15, 1999 between Positron Corporation and
Gary Brooks (incorporated herein by reference to Exhibit 4.9 to the
Company's Registration Statement on Form SB-2 (File
No. 333-30316)).
|
|
4.4
|
|
Stock
Purchase Warrant dated as of June 15, 1999 issued by Positron
Corporation to Gary H. Brooks (incorporated herein by reference
to
Exhibit 4.10 to the Company's Registration Statement on
Form SB-2 (File No. 333-30316)).
|
|
|
|
|
|
4.5
|
|
Warrant
Agreement dated as of June 15, 1999 between Positron Corporation and
S. Lewis Meyer (incorporated herein by reference to Exhibit 4.11 to
the Company's Registration Statement on Form SB-2 (File
No. 333-30316)).
|
|
|
|
|
|
4.6
|
|
Stock
Purchase Warrant dated as of June 15, 1999 issued by Positron
Corporation to S. Lewis Meyer (incorporated herein by reference
to
Exhibit 4.12 to the Company's Registration Statement on
Form SB-2 (File No. 333-30316)).
|
|
|
|
|
|
4.7
|
|
Statement
of Designation Establishing Series C Preferred Stock of Positron
Corporation dated May 21, 2004 (incorporated by reference to
Exhibit 4.1
to the Company's Report on Form 8-K dated May 21, 2004)
|
|
|
|
|
|
4.8
|
|
Statement
of Designation Establishing Series D Preferred Stock of Positron
Corporation dated May 21, 2004 (incorporated by reference to
Exhibit 4.2
to the Company's Report on Form 8-K dated May 21, 2004)
|
|
|
|
|
|
4.9
|
|
Statement
of Designation Establishing Series E Preferred Stock of Positron
Corporation dated February 28, 2005 (incorporated by reference
to Exhibit
4.18 to the Company's Annual Report on Form 10-KSB dated April
19,
2005)
|
|
|
|
|
|
4.10
|
|
Statement
of Designation Establishing Series F Preferred Stock of Positron
Corporation (incorporated herein by reference to Exhibit 4.1
to the
Company’s Current Report on Form 8-K dated June 27,
2005).
|
|
|
|
|
|
10.1
|
|
Lease
Agreement dated as of July 1, 1991, by and between Lincoln National
Pension Insurance Company and Positron Corporation (incorporated
herein by
reference to Exhibit 10.1 to the Company’s Registration Statement on Form
SB-2 (File No. 33-68722)).
|
|
|
|
|
|
10.2
|
|
Agreement
dated as of March 1, 1993, by and between Positron Corporation
and Oxford
Instruments (UK) Limited (incorporated herein by reference to
Exhibit 10.2
to the Company’s Registration Statement on Form SB-2 (File No.
33-68722)).
|
|
|
|
|
|
10.3
|
|
International
Distribution Agreement dated as of November 1, 1992, by and between
Positron Corporation and Batec International, Inc. (incorporated
herein by
reference to Exhibit 10.3 to the Company’s Registration Statement on Form
SB-2 (File No. 33-68722)).
|
|
|
|
|
|
10.4 †
|
|
1994
Incentive and Nonstatutory Option Plan (incorporated herein by
reference
to Exhibit A to Company’s Proxy Statement dated May 2,
1994).†
|
|
|
|
|
|
10.5
|
|
Amended
and Restated 1987 Stock Option Plan (incorporated herein by reference
to
Exhibit 10.5 to the Company’s Registration Statement on Form SB-2 (File
No. 33-68722)).†
|
|
|
|
|
|
10.6
|
|
Retirement
Plan and Trust (incorporated herein by reference to Exhibit 10.6
to the
Company’s Registration Statement on Form SB-2 (File No.
33-68722)).†
|
31
|
|
|
|
|
10.7
|
|
Amended
and Restated License Agreement dated as of June 30, 1987, by
and among The
Clayton Foundation for Research, Positron Corporation, K. Lance
Gould,
M.D., and Nizar A. Mullani (incorporated herein by reference
to Exhibit
10.7 to the Company’s Registration Statement on Form SB-2 (File No.
33-68722)).
|
|
|
|
|
|
10.8
|
|
Clarification
Agreement to Exhibit 10.7 (incorporated herein by reference to
Exhibit
10.8 to the Company’s Registration Statement on Form SB-2 (File No.
33-68722)).
|
|
|
|
|
|
10.9
|
|
Royalty
Assignment dated as of December 22, 1988, by and between K. Lance
Gould
and Positron Corporation (incorporated herein by reference to
Exhibit
10.10 to the Company’s Registration Statement on Form SB-2 (File No.
33-68722)).
|
|
|
|
|
|
10.10
|
|
Royalty
Assignment dated as of December 22, 1988, by and between Nizar
A. Mullani
and Positron Corporation (incorporated herein by reference to
Exhibit
10.11 to the Company’s Registration Statement on Form SB-2 (File No.
33-68722)).
|
|
10.11
|
|
Royalty
Assignment dated as of December 22, 1988, by and between The Clayton
Foundation and Positron Corporation (incorporated herein by reference
to
Exhibit 10.12 to the Company’s Registration Statement on Form SB-2 (File
No. 33-68722)).
|
|
|
|
|
|
10.12
|
|
Consulting
Agreement dated as of January 15, 1993, by and between Positron
Corporation and K. Lance Gould, M.D. (incorporated herein by
reference to
Exhibit 10.24 to the Company’s Registration Statement on Form SB-2 (File
No. 33-68722)).
|
|
|
|
|
|
10.13
|
|
Consulting
Agreement dated February 23, 1995, effective December 15, 1994,
by and
between Positron Corporation and F. David Rollo, M.D. Ph.D.,
FACNP.
|
|
|
|
|
|
10.14
|
|
Consulting
Agreement dated as of January 15, 1993, by and between Positron
Corporation and Nizar A. Mullani (incorporated herein by reference
to
Exhibit 10.31 to the Company’s Registration Statement on Form SB-2 (File
No. 33-68722)).
|
|
|
|
|
|
10.15
|
|
Consulting
Agreement dated as of November 12, 1993, by and between Positron
Corporation and OmniMed Corporation (incorporated herein by reference
to
Exhibit 10.35 to the Company’s Registration Statement on Form SB-2 (File
No. 33-68722)).
|
|
|
|
|
|
10.16
|
|
Contract
No. 1318 dated as of December 30, 1991, by and between Positron
Corporation and The University of Texas Health Science Center
at Houston
(incorporated herein by reference to Exhibit 10.39 to the Company’s
Registration Statement on Form SB-2 (File No.
33-68722)).
|
|
|
|
|
|
10.17
|
|
Letter
Agreement dated July 30, 1993 between Positron Corporation and
Howard
Baker (incorporated herein by reference to Exhibit 10.52 to the
Company’s
Registration Statement on Form SB-2 (File No.
33-68722)).
|
|
|
|
|
|
10.18
|
|
Technology
Transfer Agreement dated as of September 17, 1990, by and between
Positron
Corporation and Clayton Foundation for Research (incorporated
herein by
reference to Exhibit 10.54 to the Company’s Registration Statement on Form
SB-2 (File No. 33-68722)).
|
|
|
|
|
|
10.19
|
|
Form
of Amended and Restated Registration Rights Agreement dated as
of November
3, 1993, by and among Positron and the other signatories thereto
(1993
Private Placement) (incorporated herein by reference to Exhibit
10.73 to
the Company’s Registration Statement on Form SB-2 (File No.
33-68722).
|
|
|
|
|
|
10.20
|
|
Registration
Rights Agreement dated as of July 31, 1993, by and among Positron
and the
other signatories thereto (other than the 1993 Private Placement)
(incorporated herein by reference to Exhibit 10.74 to the Company’s
Registration Statement on Form SB-2 (File No.
33-68722)).
|
32
|
10.21
|
|
Software
Licenses dated as of March 1, 1993, by and between Positron Corporation
and Oxford Instruments (UK) Limited (incorporated herein by reference
to
Exhibit 10.81 to the Company’s Registration Statement on Form SB-2 (File
No. 33-68722)).
|
|
|
|
|
|
10.22
|
|
Distribution
Agreement dated as of June 1, 1993, by and between Positron Corporation
and Elscint, Ltd. (incorporated herein by reference to Exhibit
10.82 to
the Company’s Registration Statement on Form SB-2 (File No.
33-68722)).
|
|
|
|
|
|
10.23
|
|
First
Amendment to Amended and Restated Registration Rights Agreement,
dated as
of November 19, 1993, by and among Positron Corporation and the
other
signatories thereto (incorporated herein by reference to Exhibit
10.91 to
the Company’s Registration Statement on Form SB-2 (File No.
33-68722)).
|
|
|
|
|
|
10.24
|
|
Agreement
made and entered into as of October 31, 1993, by and between
Positron
Corporation and Nizar A. Mullani (incorporated herein by reference
to
Exhibit 10.97 to the Company’s Registration Statement on Form SB-2 (File
No. 33-68722)).
|
|
|
|
|
|
10.25
|
|
Agreement
made and entered into as of October 31, 1993, by and between
Positron
Corporation and K. Lance Gould (incorporated herein by reference
to
Exhibit 10.98 to the Company’s Registration Statement on Form SB-2 (File
No. 33-68722)).
|
|
|
|
|
|
10.26
|
|
Agreement
made and entered into as of November 15, 1993, by and between
Positron
Corporation and Nizar A. Mullani (incorporated herein by reference
to
Exhibit 10.100 to the Company’s Registration Statement on Form SB-2 (File
No. 33-68722)).
|
|
10.27
|
|
Agreement
made and entered into as of November 15, 1993, by and between
Positron
Corporation and K. Lance Gould (incorporated herein by reference
to
Exhibit 10.101 to the Company’s Registration Statement on Form SB-2 (File
No. 33-68722)).
|
|
|
|
|
|
10.28
|
|
First
Amendment made and entered as of January 25, 1994, by and between
Emory
University d/b/a Crawford Long Hospital and Positron Corporation
(incorporated herein by reference to Exhibit 10.102 of the Company’s
Annual Report on Form 10-KSB for the year ended December 31,
1993).
|
|
|
|
|
|
10.29
|
|
Acquisition
Agreement between General Electric Company and Positron Corporation
dated
July 15, 1996 (incorporated by reference to Exhibit 10.56 to
the Company’s
Report on Form 10-KSB for the year ended December 31,
1996).
|
|
|
|
|
|
10.30
|
|
Sales
and Marketing Agreement With Beijing Chang Feng Medical (incorporated
by
reference to Exhibit 10.58 to the Company’s Report on Form 10-KSB/A for
the year ended December 31, 1996).
|
|
|
|
|
|
10.31
|
|
Stock
Purchase Agreement between Positron Corporation and Imatron,
Inc.
(incorporated hereby by reference to Annex A to the Company’s Proxy
Statement dated December 18, 1998).
|
|
|
|
|
|
10.32
|
|
Agreement
and Release dated as of November 30, 1999 by and among Positron
Corporation, K. Lance Gould and University of Texas Medical Center
(incorporated herein by reference to Exhibit 10.62 to the Company's
Registration Statement on Form SB-2 (File
No. 333-30316)).
|
|
|
|
|
|
10.33
|
|
1999
Stock Option Plan (incorporated herein by reference to Exhibit 10.63
to the Company's Registration Statement on Form SB-2 (File
No. 333-30316)).†
|
|
|
|
|
|
10.34
|
|
1999
Non-Employee Directors' Stock Option Plan (incorporated herein
by
reference to Exhibit 10.64 to the Company's Registration Statement on
Form SB-2 (File No. 333-30316)).†
|
|
|
|
|
|
10.35
|
|
1999
Stock Bonus Incentive Plan (incorporated herein by reference
to
Exhibit 10.65 to the Company's Registration Statement on
Form SB-2 (File
No. 333-30316)).†
|
33
|
10.36
|
|
1999
Employee Stock Purchase Plan (incorporated herein by reference
to
Exhibit 10.66 to the Company's Registration Statement on
Form SB-2 (File No. 333-30316)).†
|
|
|
|
|
|
10.37
|
|
Stock
Purchase Warrant dated September 1, 1999 issued by Positron to S.
Okamura and Associates, Inc. (incorporated herein by reference
to
Exhibit 10.67 to the Company's Registration Statement on
Form SB-2 (File No. 333-30316)).
|
|
|
|
|
|
10.38
|
|
Stock
Purchase Warrant dated August 18, 1999 issued by Positron to Morris
Holdings Ltd. (incorporated herein by reference to Exhibit 10.68 to
the Company's Registration Statement on Form SB-2 (File
No. 333-30316)).
|
|
|
|
|
|
10.39
|
|
Stock
Purchase Warrant dated January 20, 2000 issued by Positron to Vistula
Finance Limited (incorporated herein by reference to Exhibit 10.69 to
the Company's Registration Statement on Form SB-2 (File
No. 333-30316)).
|
|
|
|
|
|
10.40
|
|
Loan
Agreement with Imatron Inc dated June 29, 2001 (incorporation
herein by
reference to the Company’s Report on Form 8-K dated July 12,
2001)
|
|
|
|
|
|
10.41
|
|
Technology
Purchase Agreement, dated as of June 29, 2003, by and between
General
Electric Company and Positron Corporation (incorporated by reference
to
Exhibit 10.1 to the Company's Current Report on Form 8-K filed
on July 14,
2003)
|
|
|
|
|
|
10.42
|
|
Software
License Agreement, dated as of June 29, 2003, by and between
General
Electric Company and Positron Corporation (incorporated by reference
to
Exhibit 10.2 to the Company's Current Report on Form 8-K filed
on July 14,
2003)
|
|
|
|
|
|
10.43
|
|
Agreement
for Services, dated as of June 29, 2003, by and between General
Electric
Company and Positron Corporation (incorporated by reference to
Exhibit
10.3 to the Company's Current Report on Form 8-K filed on July
14,
2003)
|
|
|
|
|
|
10.44
|
|
Note
Purchase Agreement dated May 21, 2004 between Positron and IMAGIN
Diagnostic Centres, Inc. (incorporated by reference to Exhibit
10.1 to the
Company's Report on Form 8-K dated May 21,
2004)
|
|
10.45
|
|
Secured
Convertible Promissory Note dated May 21, 2004 in the principal
amount of
$400,000 (incorporated by reference to Exhibit 10.2 to the Company's
Report on Form 8-K dated May 21, 2004)
|
|
|
|
|
|
10.46
|
|
Form
Secured Convertible Promissory Note in the principal amount of
$300,000
(incorporated by reference to Exhibit 10.3 to the Company's Report
on Form
8-K dated May 21, 2004)
|
|
|
|
|
|
10.47
|
|
Security
Agreement dated May 21, 2004 between Positron and IMAGIN Diagnostic
Centres, Inc. (entered into in connection with Note Purchase
Agreement)
(incorporated by reference to Exhibit 10.4 to the Company's Report
on Form
8-K dated May 21, 2004)
|
|
|
|
|
|
10.48
|
|
Loan
Agreement dated May 21, 2004 between Positron and IMAGIN Diagnostic
Centres, Inc. (incorporated by reference to Exhibit 10.5 to the
Company's
Report on Form 8-K dated May 21, 2004)
|
|
|
|
|
|
10.49
|
|
Security
Agreement dated May 21, 2004 between Positron and IMAGIN Diagnostic
Centres, Inc. (entered into in connection with Loan Agreement)
(incorporated by reference to Exhibit 10.7 to the Company's Report
on Form
8-K dated May 21, 2004)
|
|
|
|
|
|
10.50
|
|
Voting
Agreement dated May 21, 2004 between Positron and IMAGIN Diagnostic
Centres, Inc. (incorporated by reference to Exhibit 10.8 to the
Company's
Report on Form 8-K dated May 21, 2004)
|
|
|
|
|
|
10.51
|
|
Registration
Rights Agreement dated May 21, 2004 between Positron and IMAGIN
Diagnostic
Centres, Inc. (incorporated by reference to Exhibit 10.9 to the
Company's
Report on Form 8-K dated May 21,
2004)
|
34
|
10.52
|
|
Note
Purchase Agreement dated February 28, 2005 between Positron and
Solaris
Opportunity Fund, L.P. (incorporated by reference to Exhibit
10.83 to the
Company's Annual Report on Form 10-KSB/A for the fiscal year
ended
December 31, 2005)
|
|
|
|
|
|
10.53
|
|
Secured
Convertible Promissory Note dated March 7, 2005 in the principal
amount of
$200,000 in favor of Solaris Opportunity Fund, L.P. (incorporated
by
reference to Exhibit 10.84 to the Company's Annual Report on
Form 10-KSB/A
for the fiscal year ended December 31, 2005)
|
|
|
|
|
|
10.54
|
|
Security
Agreement dated February 28, 2005 between Positron and Solaris
Opportunity
Fund, L.P. (incorporated by reference to Exhibit 10.85 to the
Company's
Annual Report on Form 10-KSB/A for the fiscal year ended December
31,
2005)
|
|
|
|
|
|
10.55
|
|
Registration
Rights Agreement dated February 28, 2005 between Positron and
Solaris
Opportunity Fund, L.P. (incorporated by reference to Exhibit
10.86 to the
Company's Annual Report on Form 10-KSB/A for the fiscal year
ended
December 31, 2005)
|
|
|
|
|
|
10.56
|
|
Warrant
Purchase Agreement by and among Positron Corporation, Carlos
Sao Paulo,
Sofia Salema Garcao, Maria Madalena Pimental and José Maria Salema Garção
dated May 12, 2005 (incorporated by reference to Exhibit 10.1
to the
Company's Report on Form 8-K dated May 12, 2005)
|
|
|
|
|
|
10.57
|
|
Note
Purchase Agreement dated June 27, 2005 between Positron and Solaris
Opportunity Fund, L.P. (incorporated by reference to Exhibit
10.1 to the
Company's Report on Form 8-K dated June 27, 2005)
|
|
|
|
|
|
10.58
|
|
Form
Secured Convertible Promissory Note (incorporated by reference
to Exhibit
10.2 to the Company's Report on Form 8-K dated June 27,
2005)
|
|
|
|
|
|
10.59
|
|
Security
Agreement dated June 27, 2005 between Positron and Solaris Opportunity
Fund, L.P. (incorporated by reference to Exhibit 10.3 to the
Company's
Report on Form 8-K dated June 27, 2005)
|
|
|
|
|
|
10.60
|
|
Registration
Rights Agreement dated June 27, 2005 between Positron and Solaris
Opportunity Fund, L.P. (incorporated by reference to Exhibit
10.4 to the
Company's Report on Form 8-K dated June 27, 2005)
|
|
10.61
|
|
Note
Purchase Agreement dated August 8, 2005 between Positron and
IMAGIN
Diagnostic Centres, Inc. (incorporated by reference to Exhibit
10.1 to the
Company's Report on Form 8-K dated August 8, 2005)
|
|
|
|
|
|
10.62
|
|
Form
Secured Convertible Promissory Note (incorporated by reference
to Exhibit
10.2 to the Company's Report on Form 8-K dated August 8,
2005)
|
|
|
|
|
|
10.63
|
|
Registration
Rights Agreement dated August 8, 2005 between Positron and IMAGIN
Diagnostic Centres, Inc. (incorporated by reference to Exhibit
10.3 to the
Company's Report on Form 8-K dated August 8, 2005)
|
|
|
|
|
|
10.64
|
|
Agreement
between Gary H. Brooks and Positron Corporation dated September
29, 2005
(incorporated by reference to Exhibit 10.1 of the Company's Report
on Form
8-K dated September 29, 2005)
|
|
|
|
|
|
10.65
|
|
Note
Purchase Agreement dated October 31, 2005 between Positron and
IMAGIN
Diagnostic Centres, Inc. (incorporated by reference to Exhibit
10.1 of the
Company's Report on Form 8-K dated October 31, 2005)
|
|
|
|
|
|
10.66
|
|
Form
Secured Convertible Promissory Note (incorporated by reference
to Exhibit
10.2 of the Company's Report on Form 8-K dated October 31,
2005)
|
|
|
|
|
|
10.67
|
|
Registration
Rights Agreement dated October 31, 2005 between Positron and
IMAGIN
Diagnostic Centres, Inc. (incorporated by reference to Exhibit
10.3 of the
Company's Report on Form 8-K dated October 31,
2005)
|
35
|
10.68
|
|
Joint
Venture Contract dated July 30, 2005 between Positron Corporation
and
Neusoft Medical Systems Co., Ltd. (incorporated by reference
to Exhibit
10.1 of the Company's Quarterly Report on Form 10-QSB for the
quarter
ended September 30, 2005)
|
|
|
|
|
|
10.69
|
|
Technologies
Contribution Agreement dated July 30, 2005 between Positron Corporation
and Neusoft Positron Medical Systems Co., Ltd. (incorporated
by reference
to Exhibit 10.2 of the Company's Quarterly Report on Form 10-QSB
for the
quarter ended September 30, 2005)
|
|
|
|
|
|
10.70
|
|
Software
Sub-License Agreement dated September 6, 2005 between Positron
Corporation
and Neusoft Positron Medical Systems Co., Ltd. (incorporated
by reference
to Exhibit 10.3 of the Company's Quarterly Report on Form 10-QSB
for the
quarter ended September 30, 2005)
|
|
|
|
|
|
10.71
|
|
Trademark
License Agreement dated July 30, 2005 between Positron Corporation
and
Neusoft Positron Medical Systems Co., Ltd. (incorporated by reference
to
Exhibit 10.4 of the Company's Quarterly Report on Form 10-QSB
for the
quarter ended September 30, 2005)
|
|
|
|
|
|
10.72
|
|
Corporate
Name License Agreement dated July 30, 2005 between Positron Corporation
and Neusoft Positron Medical Systems Co., Ltd. (incorporated
by reference
to Exhibit 10.5 of the Company's Quarterly Report on Form 10-QSB
for the
quarter ended September 30, 2005)
|
|
|
|
|
|
10.73
|
|
Employment
Agreement dated December 27, 2005 between Positron Corporation
and Joseph
G. Oliverio (incorporated by reference to Exhibit 10.1 of the
Company's
Current Report on Form 8-K filed on March 9, 2006)†
|
|
|
|
|
|
10.74
|
|
Joseph
G. Oliverio Stock Option Agreement (incorporated by reference
to Exhibit
10.2 of the Company's Current Report on Form 8-K filed on March
9,
2006)†
|
|
|
|
|
|
10.75
|
|
Joseph
G. Oliverio Notice of Grant of Stock Option (incorporated by
reference to
Exhibit 10.3 of the Company's Current Report on Form 8-K filed
on March 9,
2006)†
|
|
|
|
|
|
10.76
|
|
Amended
and Restated 2005 Stock Incentive Plan (incorporated by reference
to
Exhibit 10.4 of the Company's Current Report on Form 8-K filed
on March 9,
2006)†
|
|
|
|
|
|
10.77
|
|
2005
Stock Incentive Plan - Form Notice of Grant of Stock Option (incorporated
by reference to Exhibit 10.5 of the Company's Current Report
on Form 8-K
filed on March 9, 2006)†
|
|
|
|
|
|
10.78
|
|
2005
Stock Incentive Plan - Form Stock Option Agreement (incorporated
by
reference to Exhibit 10.6 of the Company's Current Report on
Form 8-K
filed on March 9, 2006)†
|
|
|
|
|
|
10.79*
|
|
Memorandum
of Understanding between Quantum Molecular Pharmaceutical, Inc.,
Imagin
Diagnostic Centres, Inc. and Positron Corporation dated December
28,
2005.
|
|
|
|
|
|
10.80
|
|
2006
Stock Incentive Plan (incorporated by reference to the Company's
Current
Report on Form 8-K filed on , 2006)
|
|
|
|
|
|
10.81
|
|
Statement
of Designation Establishing Series G Preferred Stock of Positron
Corporation (incorporated by reference to the Company's Current
Report on
Form 8-K filed on March 9, 2006.)
|
|
|
|
|
|
10.82
|
|
Form
of Series G Unit Subscription Agreement (incorporated by reference
to the
Company's Current Report on Form 8-K filed on March 9,
2006).
|
|
|
|
|
|
10.83
|
|
Form
of Common Stock Purchase Warrant (incorporated by reference to
the
Company's Current Report on Form 8-K filed on March 9,
2006).
|
|
|
|
|
|
10.84
|
|
Securities
Purchase Agreement dated May 23, 2006 (incorporated by reference
to
Exhibit 10.6 of the Company's Current Report on Form 8-K filed
on June 1,
2006).
|
36
|
10.85
|
|
Callable
Secured Convertible Note in favor of AJW Offshore, Ltd dated
May 23, 2006
(incorporated by reference to the Company's Current Report on
Form 8-K
filed on June 1, 2006).
|
|
|
|
|
|
10.86
|
|
Callable
Secured Convertible Note in favor of AJW Partners, LLC dated
May 23, 2006
(incorporated by reference to the Company's Current Report on
Form 8-K
filed on June 1, 2006).
|
|
|
|
|
|
10.87
|
|
Stock
Purchase Warrant in favor of AJW Qualified Partners, LLC (incorporated
by
reference to the Company's Current Report on Form 8-K filed on
June1,
2006).
|
|
|
|
|
|
10.88
|
|
Stock
Purchase Warrant in favor of AJW Offshore, Ltd. (incorporated
by reference
to the Company's Current Report on Form 8-K filed on June 1,
2006).
|
|
10.89
|
|
Stock
Purchase Warrant in favor of New Millennium Capital Partners,
II
(incorporated by reference to the Company's Current Report on
Form 8-K
filed on June 1, 2006).
|
|
10.90
|
|
Registration
Rights Agreement dated May 23, 2006 (incorporated by reference
to the
Company's Current Report on Form 8-K filed on June 1,
2006).
|
|
|
|
|
|
10.91
|
|
Security
Agreement dated May 23, 2006 (incorporated by reference to the
Company's
Current Report on Form 8-K filed on June 1, 2006).
|
|
|
|
|
|
10.92
|
|
Intellectual
property Security Agreement.( incorporated by reference to the
Company's
Current Report on Form 8-K filed on June 1, 2006)
|
|
|
|
|
|
10.93
|
|
Securities
Purchase Agreement dated January 26, 2007 (incorporated by reference
to
the Company's Current Report on Form 8-K filed on January 31,
2006).
|
|
|
|
|
|
10.94
|
|
Purchase
Agreement dated January 26, 2007 (incorporated by reference to
the
Company's Current Report on Form 8-K filed on January 31,
2006.
|
|
|
|
|
|
10.95
|
|
Non-Negotiable
Promissory Note dated January 26, 2007 (incorporated by reference
to the
Company's Current Report on Form 8-K filed on January 31,
2006.
|
|
|
|
|
|
10.96
|
|
Collateral
Pledge Agreement dated January 26, 2007 (incorporated by reference
to the
Company's Current Report on Form 8-K filed on January 31,
2006.
|
|
|
|
|
|
14.1
|
|
Code
of Business Conduct and Ethics (incorporated by reference to
Exhibit 14.1
to the Company’s Report on Annual Form 10-KSB dated March 30,
2005).
|
|
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
|
37
Item
14. Principal Accountant Fees and Services
On
May
30, 2006, Ham, Langston & Brezina, L.L.P. (“HLB”), the Registrant’s
accountants informed the Registrant that they were resigning as the Registrant’s
certifying independent accountants.
On
July
10, 2006, Positron Corporation (the "Registrant") engaged Frank L. Sassetti
& Co. to be its independent registered public accounting firm. The
Registrant's engagement of Frank L. Sassetti & Co. was approved by the
Registrant's Board of Directors.
The
following table shows the fees billed to the Company for the audits and other
services provided by Frank L. Sassetti & Co. and Ham, Langston &
Brezina, L.L.P. for fiscal 2006 and 2005.
|
Fiscal
2006
|
Fiscal
2005
|
|||||||
|
Audit
fees (1)
|
$ |
25,511
|
$ |
45,319
|
||||
|
Audit-related
fees
|
--
|
--
|
||||||
|
Tax
fees (2)
|
--
|
$ |
3,500
|
|||||
|
All
other fees
|
--
|
--
|
||||||
|
1)
|
Audit
fees represent fees for professional services provided in connection
with
the audit of our financial statements and review of our quarterly
financial statements
and audit services provided in connection
with other statutory or
regulatory filings.
|
|
2)
|
For fiscal
2005 tax fees principally included tax compliance fees of
$3,500.
|
All
audit
related services, tax services and other services are and were pre-approved
by
the Company's Board of Directors, which concluded that the provision of such
services by Frank L. Sassetti & Co. and Ham, Langston & Brezina, L.L.P.
was compatible with the maintenance of that firm's independence in the conduct
of its auditing functions.
38
|
FY
2006
|
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
10, 2007
|
By:
|
/s/
Patrick G. Rooney
|
|
|
Patrick
G. Rooney
|
|||
|
Chairman
of the Board
|
POWER
OF ATTORNEY
Each
person whose signature appears below hereby constitutes and appoints Patrick
G.
Rooney, his attorney-in-fact, with the power of substitution, for him in any
and
all capacities, to sign any amendments to this Report on Form 10-KSB, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting to said
attorney-in-fact, or his substitute or substitutes, the power and authority
to
perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact,
or
his substitute or substitutes, may do or cause to be done by virtue
hereof.
In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on
the
dates indicated.
|
/s/
Patrick G. Rooney
|
April
10, 2007
|
|
|
Patrick
G. Rooney
|
|
|
|
Chairman
of the Board
|
||
|
/s/
Joseph G. Oliverio
|
April
10, 2007
|
|
|
Joseph
G. Oliverio
|
||
|
President
|
||
|
(principal
executive officer)
|
||
|
/s/
Corey N. Conn
|
April
10, 2007
|
|
|
Corey
N. Conn
|
|
|
|
Chief
Financial Officer
|
||
|
(principal
accounting officer)
|
||
|
/s/
Sachio Okamura
|
April
10, 2007
|
|
|
Sachio
Okamura
|
|
|
|
Director
|
||
|
/s/
Dr. Anthony C. Nicholls
|
April
10, 2007
|
|
|
Dr.
Anthony c. Nicholls
|
||
|
Director
|
39
|
FY
2006
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
POSITRON
CORPORATION AND SUBSIDIARIES
FINANCIAL
STATEMENTS
WITH
REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
for
the years ended December 31, 2006 and 2005
40
|
FY
2006
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
FINANCIAL
STATEMENTS
TABLE
OF CONTENTS
|
Page
|
||
|
Reports
of Independent Registered Public Accounting Firms
|
42-43
|
|
|
Consolidated
Balance Sheet as of December 31, 2006 and 2005
|
44
|
|
|
Consolidated
Statements of Operations and Comprehensive Income for the years
ended December 31, 2006 and 2005
|
45
|
|
|
Consolidated
Statements of Stockholders’ Deficit for the years ended December 31, 2006
and 2005
|
46-49
|
|
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2006
and
2005
|
50
|
|
|
Notes
to Consolidated Financial Statements
|
51
|
41
|
FY
2006
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
Certified
Public Accountants
The
Board
of Directors
Positron
Corporation
REPORT
OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We
have
audited the accompanying balance sheet of Positron Corporation as of December
31, 2006, and the related statements of operations and comprehensive income,
stockholders' equity, and cash flows for the year ended December 31,
2006. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis
for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Positron Corporation as of December
31, 2006, and the results of its operations and its cash flows for the year
ended December 31, 2006, in conformity with accounting principles generally
accepted in the United States of America.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has a significant accumulated deficit which
raises substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to these matters are also
described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainly.
/s/
Frank
L. Sassetti & Co.
March
26,
2007
Oak
Park,
Illinois
6611
W.
North Avenue * Oak Park, Illinois 60302 * Phone (708) 386-1433 * Fax (708)
386-0139
42
|
FY
2006
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board
of
Directors and Stockholders
Positron
Corporation
We
have
audited the accompanying balance sheet of Positron Corporation as of December
31, 2005 and the related statement of operations, changes in stockholders’
deficit and cash flows for each of the two years in the period ended December
31, 2005. These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis
for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Positron Corporation as of December
31, 2005, and the results of its operations and its cash flows for each of
the
two years in the period ended December 31, 2005 in conformity with accounting
principles generally accepted in the United States of America.
The
accompanying financial statements have been prepared assuming the Company will
continue as a going concern. As discussed in Note 2 to the financial
statements, the Company has suffered recurring losses from operations and low
inventory turnover. These factors raise substantial doubt about the
Company’s ability to continue as a going concern. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
|
Ham,
Langston & Brezina, L.L.P.
|
|
|
Houston,
Texas
|
|
|
March
30, 2006
|
43
|
FY
2006
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
POSITRON
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEET
December
31, 2006 and 2005
(In
thousands, except share data)
|
ASSETS
|
2006
|
2005
|
||||||
|
Current
assets:
|
||||||||
|
Cash
and cash equivalents
|
$ |
115
|
$ |
209
|
||||
|
Accounts
receivable
|
208
|
--
|
||||||
|
Inventories
|
1,476
|
202
|
||||||
|
Due
from affiliates
|
2,955
|
--
|
||||||
|
Prepaid
expenses
|
115
|
66
|
||||||
|
Other
current assets
|
63
|
21
|
||||||
|
Total
current assets
|
4,932
|
498
|
||||||
|
Investment
in Joint Venture
|
23
|
230
|
||||||
|
Property
and equipment, net
|
64
|
120
|
||||||
|
Other
assets
|
252
|
57
|
||||||
|
Total
assets
|
$ |
5,271
|
$ |
905
|
||||
|
LIABILITIES
AND STOCKHOLDERS’ DEFICIT
|
||||||||
|
Current
liabilities:
|
||||||||
|
Accounts
payable, trade and
accrued liabilities
|
$ |
2,627
|
$ |
1,694
|
||||
|
Customer
deposits
|
241
|
15
|
||||||
|
Unearned
revenue
|
146
|
66
|
||||||
|
Due
to affiliates
|
507
|
--
|
||||||
|
Convertible
notes payable to affiliated
entity, less discount
of $6
|
--
|
627
|
||||||
|
Total
current liabilities
|
3,521
|
2,402
|
||||||
|
Obligation
under capital lease
|
7
|
--
|
||||||
|
Convertible
notes payable to affiliated
entities, less discount
of$884
|
--
|
1,216
|
||||||
|
Convertible
notes payable, less
discount of $1,272
|
28
|
--
|
||||||
|
Deposits
for unissued preferred stock
|
850
|
195
|
||||||
|
Derivative
liabilities for convertible
debentures
|
2,165
|
--
|
||||||
|
Majority
interest in income
of consolidated subsidiary
|
(168 | ) |
--
|
|||||
|
Total
liabilities
|
6,403
|
3,813
|
||||||
|
Stockholders’
deficit:
|
||||||||
|
Series
A Preferred Stock: $1.00 par value; 8%
cumulative, convertible,
redeemable; 5,450,000
shares authorized;
464,319 shares issued
and
outstanding.
|
464
|
464
|
||||||
|
Series
B Preferred Stock:
$1.00 par value; convertible,
redeemable; 9,000,000
shares authorized;
5,739,860.5 shares
issued and outstanding
in
2006
|
5,740
|
--
|
||||||
|
Series
C Preferred Stock:
$1.00 par value; 6%
cumulative, convertible,
redeemable; 840,000
shares authorized;
770,000 shares issued
and
outstanding in 2005
|
--
|
770
|
||||||
|
Series
G Preferred Stock: $1.00 par value; 8%
cumulative, convertible,
redeemable; 3,000,000
shares authorized;
204,482 shares issued
and
outstanding in 2006
|
204
|
--
|
||||||
|
Common
stock: $0.01 par value; 800,000,000
shares authorized;
86,205,202 and 77,775,046
shares outstanding.
|
862
|
778
|
||||||
|
Additional
paid-in capital
|
60,400
|
57,364
|
||||||
|
Other
comprehensive income
|
38
|
--
|
||||||
|
Subscription
receivable
|
--
|
(30 | ) | |||||
|
Accumulated
deficit
|
(68,825 | ) | (62,239 | ) | ||||
|
Treasury
Stock: 60,156 shares at cost
|
(15 | ) | (15 | ) | ||||
|
Total
stockholders’ deficit
|
(1,132 | ) | (2,908 | ) | ||||
|
Total
liabilities and stockholders’ deficit
|
$ |
5,271
|
$ |
905
|
||||
See
notes
to financial statements
44
|
FY
2006
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
POSITRON
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
For
the years ended December 31, 2006 and 2005
(In
thousands, except per share data)
|
2006
|
2005
|
|||||||
|
Revenue:
|
||||||||
|
System
sales
|
1,268
|
--
|
||||||
|
System
upgrades
|
180
|
37
|
||||||
|
Service
and components
|
765
|
725
|
||||||
|
Total
revenue
|
2,213
|
762
|
||||||
|
Costs
of revenues:
|
||||||||
|
System
sales
|
689
|
--
|
||||||
|
System
upgrades
|
13
|
11
|
||||||
|
Service,
warranty and components
|
721
|
621
|
||||||
|
Write-off
of inventory and field service
parts
|
--
|
656
|
||||||
|
Total
costs of revenues
|
1,423
|
1,288
|
||||||
|
Gross
(loss) profit
|
790
|
(526 | ) | |||||
|
Selling,
general and administrative
|
2,639
|
2,139
|
||||||
|
Research
and development
|
1,165
|
446
|
||||||
|
Impairment
of intangible asset
|
369
|
--
|
||||||
|
Stock
based compensation
|
430
|
(59 | ) | |||||
|
Total
operating expenses
|
4,603
|
2,526
|
||||||
|
Loss
from operations
|
(3,813 | ) | (3052 | ) | ||||
|
Other
income (expenses):
|
||||||||
|
Interest
expense
|
(860 | ) | (985 | ) | ||||
|
Interest
income
|
--
|
1
|
||||||
|
Equity
in losses of unconsolidated subsidiaries
|
(373 | ) | (20 | ) | ||||
|
Derivative
losses
|
(1,784 | ) | ||||||
|
Other
income
|
--
|
250
|
||||||
| (3,017 | ) | (754 | ) | |||||
|
Loss
before income taxes, majority interest and extraordinary
gain
|
(6,830 | ) | (3,806 | ) | ||||
|
Majority
interest in loss of consolidated
subsidiary
|
3
|
--
|
||||||
|
Loss
before income taxes and extraordinary
gain
|
(6,827 | ) | (3,806 | ) | ||||
|
Income
taxes
|
--
|
--
|
||||||
|
Loss
before extraordinary gain
|
(6,827 | ) | (3,806 | ) | ||||
|
Extraordinary
gain on acquisition of business
|
241
|
--
|
||||||
|
Net
loss
|
$ | (6,586 | ) | $ | (3,806 | ) | ||
|
Other
comprehensive income
|
||||||||
|
Foreign
currency translation gain
|
38
|
--
|
||||||
|
Comprehensive
income
|
$ | (6,548 | ) | $ | (3,806 | ) | ||
|
Basic
and diluted loss per common share
|
$ | (0.08 | ) | $ | (0.06 | ) | ||
|
Basic
and diluted weighted average shares
outstanding
|
81,508
|
65,044
|
||||||
See
notes
to financial statements
45
|
FY
2006
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
POSITRON
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ DEFICIT
For
the year ended December 31, 2005
(In
thousands, except share data)
|
Series
A
Preferred
Stock
|
Series
B
Preferred
Stock
|
Series
C
Preferred
Stock
|
Series
G
Preferred
Stock
|
Common
Stock
|
||||||||||||||||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
|||||||||||||||||||||||||||||||
|
Balance
December 31, 2004
|
510,219
|
$ |
510
|
--
|
$ |
--
|
--
|
$ |
--
|
--
|
$ |
--
|
53,245,959
|
$ |
532
|
|||||||||||||||||||||||||
|
Net
loss
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
||||||||||||||||||||||||||||||
|
Compensation
related to repricing of warrants and options
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||
|
Compensation
related to
Issuance
options
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
||||||||||||||||||||||||||||||
|
Conversion
of debt to equity
|
--
|
--
|
--
|
--
|
770,000
|
770
|
--
|
--
|
24,250,000
|
243
|
||||||||||||||||||||||||||||||
|
Conversion
of preferred stock
Into
common stock
|
(45,900 | ) | (46 | ) |
--
|
--
|
--
|
--
|
--
|
--
|
139,243
|
1
|
||||||||||||||||||||||||||||
|
Issuance
of common stock
For
services
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
200,000
|
2
|
||||||||||||||||||||||||||||||
|
Beneficial
conversion feature of
Convertible
debt
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
||||||||||||||||||||||||||||||
|
Loan
discount
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
||||||||||||||||||||||||||||||
|
Balance
December 31, 2005
|
464,319
|
$ |
464
|
--
|
--
|
770,000
|
$ |
770
|
--
|
--
|
77,835,202
|
$ |
778
|
|||||||||||||||||||||||||||
46
|
FY
2006
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
POSITRON
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ DEFICIT
For
the year ended December 31, 2005
(In
thousands, except share data)
(Continued)
|
Additional
Paid-in
Capital
|
Subscription
Receivable
|
Other
Comprehensive
Income
|
Accumulated
Deficit
|
Treasury
Stock
|
Total
|
|||||||||||||||||||
|
Balance
December 31, 2004
|
$ |
55,547
|
$ | (30 | ) | $ |
--
|
$ | (58,433 | ) | $ | (15 | ) | $ | (1,889 | ) | ||||||||
|
Net
loss
|
--
|
--
|
--
|
(3,806 | ) |
--
|
(3,806 | ) | ||||||||||||||||
|
Compensation
related to repricing
of
warrants and options
|
(95 | ) |
--
|
--
|
--
|
--
|
(95 | ) | ||||||||||||||||
|
Compensation
related to
Issuance
options
|
20
|
--
|
--
|
--
|
--
|
20
|
||||||||||||||||||
|
Conversion
of debt to equity
|
344
|
--
|
--
|
--
|
--
|
1,357
|
||||||||||||||||||
|
Conversion
of preferred stock
Into
common stock
|
45
|
--
|
--
|
--
|
--
|
--
|
||||||||||||||||||
|
Issuance
of common stock
For
services
|
14
|
--
|
--
|
--
|
--
|
16
|
||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Beneficial
conversion feature of
Convertible
debt
|
1,425
|
--
|
--
|
--
|
--
|
1,425
|
||||||||||||||||||
|
Loan
discount
|
64
|
--
|
--
|
--
|
--
|
64
|
||||||||||||||||||
|
Balance
December 31, 2005
|
$ |
57,364
|
$ | (30 | ) |
--
|
$ | (62,239 | ) | $ | (15 | ) | $ | (2,908 | ) | |||||||||
47
|
FY
2006
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
POSITRON
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ DEFICIT
For
the year ended December 31, 2006
(In
thousands, except share data)
|
Series
A
Preferred
Stock
|
Series
B
Preferred
Stock
|
Series
C
Preferred
Stock
|
Series
G
Preferred
Stock
|
Common
Stock
|
||||||||||||||||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
|||||||||||||||||||||||||||||||
|
Balance
December 31, 2005
|
464,319
|
$ |
464
|
--
|
$ |
--
|
770,000
|
$ |
770
|
--
|
$ |
--
|
77,835,202
|
$ |
778
|
|||||||||||||||||||||||||
|
Net
loss
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
||||||||||||||||||||||||||||||
|
Exercise
of options
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
500,000
|
5
|
||||||||||||||||||||||||||||||
|
Compensation
related to
Issuance
options
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
||||||||||||||||||||||||||||||
|
Conversion
of debt Series C
Preferred
to new series of
Preferred
stock
|
--
|
--
|
1,679,861
|
1,680
|
(770,000 | ) | (770 | ) |
--
|
--
|
--
|
--
|
||||||||||||||||||||||||||||
|
Conversion
of preferred stock
Into
common stock
|
--
|
--
|
(40,000 | ) | (40 | ) |
--
|
--
|
--
|
--
|
4,000,000
|
40
|
||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||
|
Issuance
of preferred stock through
Private
placement net of total
Offering
costs of 28,975
|
--
|
--
|
--
|
--
|
--
|
--
|
204,482
|
204
|
--
|
--
|
||||||||||||||||||||||||||||||
|
Issuance
of common stock
For
services
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
3,870,000
|
39
|
||||||||||||||||||||||||||||||
|
Issuance
of preferred stock for
Acquisition
of subsidiary
|
--
|
--
|
4,100,000
|
4,100
|
--
|
--
|
--
|
--
|
--
|
--
|
||||||||||||||||||||||||||||||
|
Loan
discount
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
||||||||||||||||||||||||||||||
|
Change
in foreign currency
Translation
gain
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
||||||||||||||||||||||||||||||
|
Cancelled
subscriptions
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
||||||||||||||||||||||||||||||
|
Balance
December 31, 2006
|
464,319
|
$ |
464
|
5,732,861
|
$ |
5,740
|
--
|
--
|
204,482
|
$ |
204
|
86,205,202
|
$ |
862
|
||||||||||||||||||||||||||
48
|
FY
2006
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
POSITRON
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ DEFICIT
For
the year ended December 31, 2006
(In
thousands, except share data)
(Continued)
|
Additional
Paid-in
Capital
|
Subscription
Receivable
|
Other
Comprehensive
Income
|
Accumulated
Deficit
|
Treasury
Stock
|
Total
|
|||||||||||||||||||
|
Balance
December 31, 2005
|
$ |
57,364
|
$ | (30 | ) | $ |
--
|
$ | (62,239 | ) | $ | (15 | ) | $ | (2,908 | ) | ||||||||
|
Net
loss
|
--
|
--
|
--
|
(6,586 | ) |
--
|
(6,586 | ) | ||||||||||||||||
|
Exercise
of options
|
20
|
--
|
--
|
--
|
--
|
25
|
||||||||||||||||||
|
Compensation
related to
Issuance
options
|
430
|
--
|
--
|
--
|
--
|
430
|
||||||||||||||||||
|
Conversion
of debt Series C
Preferred
to new series of
Preferred
stock
|
2,074
|
--
|
--
|
--
|
--
|
2,984
|
||||||||||||||||||
|
Conversion
of preferred stock
Into
common stock
|
--
|
--
|
--
|
--
|
--
|
--
|
||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Issuance
of preferred stock
Through
private placement
Net
of total offering
Costs
of 28,975
|
891
|
--
|
--
|
--
|
--
|
1,095
|
||||||||||||||||||
|
Issuance
of common stock
For
services
|
432
|
--
|
--
|
--
|
--
|
471
|
||||||||||||||||||
|
Issuance
of preferred stock for
Acquisition
of subsidiary
|
(1,700 | ) |
--
|
--
|
--
|
--
|
2,400
|
|||||||||||||||||
|
Loan
discount
|
919
|
--
|
--
|
--
|
--
|
919
|
||||||||||||||||||
|
Change
in foreign currency
Translation
gain
|
--
|
--
|
38
|
--
|
--
|
38
|
||||||||||||||||||
|
Cancelled
subscriptions
|
(30 | ) |
30
|
--
|
--
|
--
|
--
|
|||||||||||||||||
|
Balance
December 31, 2006
|
$ |
60,400
|
--
|
$ |
38
|
$ | (68,825 | ) | $ | (15 | ) | $ | (1,132 | ) | ||||||||||
49
|
FY
2006
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
POSITRON
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
For
the years ended December 31, 2006 and 2005
(In
thousands)
|
2006
|
2005
|
|||||||
|
Cash
flows from operating activities:
|
||||||||
|
Net
loss
|
$ | (6,586 | ) | $ | (3,806 | ) | ||
|
Adjustments
to reconcile net loss to net cash used in operating
activities
|
||||||||
|
Derivative
losses
|
1,784
|
--
|
||||||
|
Compensation
related to re-pricing of warrants and options
|
--
|
(95 | ) | |||||
|
Compensation
related to issuance of options
|
430
|
20
|
||||||
|
Depreciation
expense
|
49
|
71
|
||||||
|
Amortization
of intangible assets
|
8
|
--
|
||||||
|
Gain
on disposal of assets
|
(53 | ) |
--
|
|||||
|
Write-off
of inventory and field service parts
|
--
|
656
|
||||||
|
Issuance
of common stock for services
|
471
|
16
|
||||||
|
Equity
in losses of joint venture
|
373
|
20
|
||||||
|
Amortization
of loan costs, debt discount and beneficial conversion
feature
|
644
|
691
|
||||||
|
Majority
interest in income of consolidated subsidiary
|
(3 | ) |
--
|
|||||
|
Extraordinary
gain on acquisition of business
|
(241 | ) |
--
|
|||||
|
Impairment
of intangible asset
|
369
|
--
|
||||||
|
Changes
in operating assets and liabilities:
|
||||||||
|
Accounts
receivable
|
(7 | ) |
--
|
|||||
|
Inventories
|
528
|
(103 | ) | |||||
|
Prepaid
expenses
|
49
|
(4 | ) | |||||
|
Other
current assets
|
235
|
7
|
||||||
|
Field
service parts
|
27
|
36
|
||||||
|
Accounts
payable and accrued liabilities
|
187
|
371
|
||||||
|
Customer
deposits
|
43
|
(1 | ) | |||||
|
Unearned
revenue
|
80
|
(87 | ) | |||||
|
Net
cash used in operating activities
|
(1,613 | ) | (2,208 | ) | ||||
|
Cash
flows from investing activities:
|
||||||||
|
Investment
in subsidiary, net of cash received
|
(534 | ) | (250 | ) | ||||
|
Purchase
of property and equipment
|
(18 | ) | (35 | ) | ||||
|
Proceeds
from disposal of assets
|
77
|
--
|
||||||
|
Purchase
of intangible assets
|
(434 | ) |
--
|
|||||
|
Net
cash used in investing activities
|
(909 | ) | (285 | ) | ||||
|
Cash
flows from financing activities:
|
||||||||
|
Proceeds
from issuance of Series G Preferred Stock
|
901
|
194
|
||||||
|
Proceeds
from issuance of convertible securities
|
1,080
|
--
|
||||||
|
Proceeds
from notes payable to affiliated entities
|
200
|
2,375
|
||||||
|
Advance
to affiliate
|
(39 | ) |
--
|
|||||
|
Repayment
of capital lease obligation
|
(3 | ) |
--
|
|||||
|
Proceeds
from private placement
|
297
|
--
|
||||||
|
Net
cash provided by financing activities
|
2,436
|
2,569
|
||||||
|
Effect
of exchange rate changes on cash and cash equivalents
|
(8 | ) |
--
|
|||||
|
Net
(decrease) increase in cash and cash equivalents
|
(94 | ) |
76
|
|||||
|
Cash
and cash equivalents, beginning of year
|
209
|
133
|
||||||
|
Cash
and cash equivalents, end of year
|
$ |
115
|
$ |
209
|
||||
|
Supplemental
cash flow information:
|
||||||||
|
Interest
paid
|
--
|
--
|
||||||
|
Income
taxes paid
|
--
|
--
|
||||||
|
Non-cash
disclosures
|
||||||||
|
Issuance
of common stock to satisfy severance obligation
|
$ |
25
|
--
|
|||||
|
Convertible
debenture discount with corresponding increase to paid in capital
for
value of warrants
|
$ |
919
|
--
|
|||||
|
Convertible
debenture discount with corresponding increase to derivative
liabilities
for beneficial conversion feature
|
$ |
2,268
|
--
|
|||||
|
Issuance
of Series B Preferred Stock to satisfy accrued interest
obligation
|
$ |
380
|
--
|
|||||
|
Conversion
of debentures to Series B Preferred Stock
|
$ |
2,934
|
--
|
|||||
|
Conversion
of Series C Preferred Stock to Series B Preferred Stock
|
$ |
770
|
--
|
|||||
See
notes to financial
statements
50
|
FY
2006
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
POSITRON
CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2006 AND 2005
|
1.
|
Description
of Business and Summary of Significant Accounting
Policies
|
Description
of Business
Positron
Corporation (the “Company”) was incorporated on December 20, 1983 in the state
of Texas and commenced commercial operations during 1986. The Company
designs, markets and services its POSICAMTM system
advanced
medical imaging devices, utilizing positron emission tomography (“PET”)
technology, and has the ability to participate in manufacturing through its’
joint venture with Neusoft Medical Systems Co., LTD. These systems
utilize the Company’s patented and proprietary technology, an imaging technique
which assesses the biochemistry, cellular metabolism and physiology of organs
and tissues, as well as producing anatomical and structural
images. Targeted markets include medical facilities and diagnostic
centers located throughout the world. POSICAMTM systems
are used
by physicians as diagnostic and treatment evaluation tools in the areas of
cardiology, neurology and oncology. The Company faces competition principally
from three other companies which specialize in advanced medical imaging
equipment.
On
June
5, 2006, the Company, through a minority-owned subsidiary of the Company,
Imaging PET Technologies, Inc. (“IPT”), and Quantum Molecular Pharmaceuticals
Inc., a Canadian radiopharmaceutical corporation (“QMP”) acquired all of the
operating assets of IS2 Medical Systems Inc., a developer and manufacturer
of
nuclear imaging devices based in Ottawa, Ontario, Canada (“IS2”).
Initially, the Company and QMP held 49.9% and 50.1%, respectively, of the
total outstanding capital stock of IPT. On January 26, 2007,
the Company acquired the remaining 50.1% of the capital stock of IPT from
Imagin Diagnostic Centers, Inc. (“IMAGIN”), which had acquired the shares from
QMP, in exchange for the cancellation of a promissory note in the amount
of
$2,400,000 IMAGIN had made in favor of the Company.
In
applying the requirements of Financial Accounting Standards Board No. 46, as
revised, (“FIN 46(R)), upon IPT’s acquisition of IS2, the Company considered
several facts in determining whether the operations of IPT warrant consolidation
under the guidelines of FIN 46(R). These facts and the Companies accounting
treatment of the operations of the variable interest entity are discussed
below.
During
the initial months following the acquisition, IS2 continued to operate under
its
existing pre-acquisition management while QMP and the Company formulated
operational plans for their joint venture and more specifically
IS2. At this point, the Company did not deem itself to be the primary
beneficiary as defined by FIN 46(R) and therefore accounted for its investment
in IPT under the equity method by recording its proportionate share of IPT’s
losses as a reduction of its investment. The equity method was
applied consistently from the date of acquisition through September 30,
2006.
During
the fourth quarter of 2006 Positron’s management significantly increased their
involvement in the operations of IPT and IS2 after the termination of IS2’s
Chief Executive Officer. Additionally, the Company began funding its
operations and those of its wholly-owned subsidiary, Quantum Molecular
Technologies, Inc., with the assets of IPT through loans and cash
advances. Finally, in January 2007 Positron acquired QMP’s entire
interest in IPT, giving it 100% ownership. Due to the increase in
management control by Positron over IPT and the subsequent acquisition of
QMP’s
interest, reconsideration has been given to Positron’s relationship with IPT
under the guidance of FIN 46(R), and the Company believes itself to be the
primary beneficiary of the variable interest entity. As such, IPT’s results of
operations for the period October 1 to December 31, 2006 and its balance
sheet
at December 31, 2006 are consolidated in the Company’s financial statements
presented herein.
51
|
FY
2006
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
Principles
of Consolidation
For
the
year ended December 31, 2006, the financial statements include the transactions
of Positron Corporation, Imaging Pet Technologies, Inc. from October 1, 2006
and
Quantum Molecular Technologies, from its date of Incorporation of April 13,
2006. From the date of acquisition of June 5, 2006 through September 30, 2006,
the transactions of IPT were accounted for by the Company under the equity
method with the Company recording its proportionate share of IPT’s losses as
expense in the period incurred. All Intercompany transactions and balances
have
been eliminated.
For
the
year ended December 31, 2005, the financial statements include only the
transactions of Positron Corporation.
Basis
of Presentation and Use of Estimates
These
financial statements have been prepared in conformity with accounting principles
generally accepted in the United States of America (GAAP). Such principles
require management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts
of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Affiliated
Entities
Affiliated
entities of Positron include companies with common significant shareholders,
joint venture companies, joint venture partners and companies with common
management or control. Such companies include Imagin Diagnostic
Centres, Inc. (“IMAGIN”), Quantum Molecular Pharmaceuticals, Inc. (“QMP”),
Imagin Molecular Corporation (“IMGM”), Solaris Opportunity Fund (“Solaris”),
Neusoft Positron Medical Systems Co., Ltd. (“NPMS”), Positron Acquisition
Corporation (“PAC”) and Imagin Nuclear Partners (“INP”). PAC and INP are
wholly-owned subsidiaries of IMGM.
Foreign
Currency Translation
As
of
December 31, 2006 the accounts of the Company’s subsidiaries, IPT and QMT were
maintained, and their consolidated financial statements were expressed in
Canadian dollars. Such consolidated financial statements were translated into
U.S. Dollars (USD) in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 52, "Foreign Currency Translation.” According to the
Statement, all assets and liabilities were translated at the exchange rate
on
the balance sheet date, stockholder's equity are translated at the historical
rates and statement of operations items are translated at the weighted average
exchange rates. The resulting translation adjustments are reported under other
comprehensive income in accordance with SFAS No. 130, "Reporting Comprehensive
Income”.
Cash
Equivalents and Short-term Investments
For
the
purposes of reporting cash flows, the Company considers highly liquid, temporary
cash investments with an original maturity period of three months or less to
be
cash equivalents. Short-term investments include certificates of
deposits, commercial paper and other highly liquid investments that do not
meet
the criteria of cash equivalents. Cash equivalents and short-term
investments are stated at cost plus accrued interest which approximates fair
value.
Concentrations
of Credit Risk
Cash
and
accounts receivables are the primary financial instruments that subject the
Company to concentrations of credit risk. The Company maintains its
cash in banks or other financial institutions selected based upon management's
assessment of the bank's financial stability. Cash balances
periodically exceed the $100,000 federal depository insurance
limit.
Accounts
receivable arise primarily from transactions with customers in the medical
industry located throughout the world, but concentrated in the United States,
Canada and Japan. The Company provides a reserve for accounts where
collectibility is uncertain. Collateral is generally not required for
credit granted.
52
|
FY
2006
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
Inventory
Inventories
are stated at the lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) method of
inventory valuation.
|
|
Property
and Equipment
|
Property
and equipment are recorded at cost and depreciated for financial statement
purposes using the straight-line method over estimated useful lives of three
to
seven years, and declining balance methods for IPT’s computer software. Gains or
losses on dispositions are included in the statement of operations in the period
incurred. Maintenance and repairs are charged to expense as
incurred.
|
|
Impairment
of Long-Lived Assets
|
Periodically,
the Company evaluates the carrying value of its plant and equipment, and
long-lived assets, which includes patents and other intangible assets, by
comparing the anticipated future net cash flows associated with those assets
to
the related net book value. If an impairment is indicated as a result
of such reviews, the Company would remove the impairment based on the fair
market value of the assets, using techniques such as projected future discounted
cash flows or third party valuations.
53
|
FY
2006
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
Revenue
Recognition
Revenues
from POSICAMTM
system contracts and other nuclear imaging devices are recognized when all
significant costs have been incurred and the system has been shipped to the
customer. Revenues from maintenance contracts are recognized over the
term of the contract. Service revenues are recognized upon
performance of the services.
Advertising
Indirect-response
advertising costs are charged to operations the first time the advertising
takes
place. The cost of direct-response advertising is not
significant. Advertising expenses for 2006 and 2005 were $92,000 and
$128,000, respectively.
Research
and Development Expenses
All
costs
related to research and development costs are charged to expense as
incurred.
Stock
Based Compensation
In
December 2004, the Financial Accounting Standards Board (“FASB”) issued
SFAS No. 123(R), “Share-Based Payment,” a revision of SFAS
Statement No. 123. The Company adopted SFAS 123(R) effective
January 1, 2006, using the modified prospective application method, and
beginning with the first quarter of 2006, the Company measures all employee
share-based compensation awards using a fair value based method and record
share-based compensation expense in its financial statements if the requisite
service to earn the award is provided..
The
adoption of SFAS No. 123(R) did not affect the Company’s net cash flow, but
it did have a negative impact on its results of operations. In accordance with
SFAS 123(R), the Company recognizes the expense attributable to stock awards
that are granted or vest in periods ending subsequent to December 31, 2005
in the statements of operations.
For
the
year ended December 31, 2005, the Company elected to apply the intrinsic
value-based method to account for employee stock option awards under the
provisions of Accounting Principles Board Opinion (“APB”) No. 25, “Accounting
for Stock Issued to Employees,” and to provide disclosures based on the fair
value in the Notes to the Consolidated Financial statements as permitted by
SFAS
No. 123. Under the intrinsic value method , compensation expense, if
any, is recognized for the difference between the exercise price of the option
and the fair value of the underlying common stock as of a measurement
date.
As
described above, prior to January 1, 2006 the Company used the intrinsic
value
method to measure compensation expense associated with grants of stock options
to employees. Under SFAS 123, compensation cost is measured at the grant
date
based on the fair value of the awards and is recognized over the service
period,
which is usually the vesting period. The fair value of options
granted during 2005 was estimated on the date of grant using the Black Scholes
option-pricing model with the following assumptions used to calculate fair
value:
|
Expected
life (years)
|
5
|
|||
|
Risk
free rate of return
|
4.5 | % | ||
|
Dividend
yield
|
0
|
|||
|
Expected
volatility
|
133 | % |
54
|
FY
2006
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
Pro-forma
net loss and net loss per share is as follows:
|
2005
|
|||||
|
Net
loss as reported
|
$ | (3,806 | ) | ||
|
Add:
|
Stock-based
employee compensation expense included in reported net
loss
|
(59 | ) | ||
|
Deduct:
|
Stock-based
employee compensation expense determined under fair value
based method for
all awards
|
(110 | ) | ||
|
Pro-Forma
net loss
|
$ | (3,975 | ) | ||
|
Loss
per share
|
|||||
|
Basic
and diluted as reported
|
$ | (0.06 | ) | ||
|
Basic
and diluted pro-forma
|
$ | (0.06 | ) | ||
Warranty
Costs
The
Company accrues for the cost of product warranty on
POSICAMTM
systems and other nuclear imaging devices at the time of
shipment. Warranty periods generally range up to a maximum of one
year but may extend for longer periods. Actual results could differ
from the amounts estimated.
Loss
Per Common Share
Basic
loss per common share is calculated by dividing net income by the weighted
average common shares outstanding during the period. Stock options
and warrants are not included in the computation of the weighted average number
of shares outstanding for dilutive net loss per common share during each of
the
period presented in the Statement of Operations and Comprehensive Income, as
the
effect would be antidilutive.
Fair
Value of Financial Instruments
The
Company includes fair value information in the notes to the financial statements
when the fair value of its financial instruments is different from the book
value. When the book value approximates fair value, no additional
disclosure is made.
New
Accounting Pronouncement
In
June
2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections,"
which will require entities that voluntarily make a change in accounting
principle to apply that change retroactively to prior periods' financial
statements unless this would be impracticable. SFAS No. 154supersedes Accounting
Principles Board Opinion No. 20, "Accounting Changes"("APB No. 20"), which
previously required that most voluntary changes in accounting principle be
recognized by including in the current period's net income the cumulative effect
of changing to the new accounting principle. SFAS No. 154 also makes
a distinction between "retrospective application" of an accounting principle
and
the "restatement" of financial statements to reflect the correction of an
error. Another significant change in practice under SFA No. 154 will
be that if an entity changes its method of depreciation, amortization, or
depletion for long-lived, non-financial assets, the change must be accounted
for
as a change in accounting principle. SFAS No. 154 applies to
accounting changes and error corrections that are made in fiscal years beginning
after December 15, 2005. The provisions of SFAS No. 154 did not
impact the Company's consolidated financial statements
55
|
FY
2006
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
In
June
2006, the FASB released FASB Interpretation No. 48, "Accounting for Uncertainty
in Income Taxes," an interpretation of FASB Statement No. 109 ("FIN 48"). FIN
48
prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to
be
taken in a tax return. A company must determine whether it is
"more-likely-than-not" that a tax position will be sustained upon examination,
including resolution of any related appeals or litigation procedures, based
on
the technical merits of the position. Once it is determined that a
position meets the more-likely-than-not recognition threshold, the position
is
measured to determine the amount of benefit to recognize in the financial
statements. This interpretation is effective for fiscal years beginning after
December 15, 2006. Earlier application of the provisions of this
interpretation is encouraged if the enterprise has not yet issued financial
statements, including interim financial statements, in the period this
interpretation is adopted. The provisions of FIN 48 are not expected to have
a
material effect the Company's consolidated financial statements.
|
2.
|
Going
Concern Consideration
|
Since
its
inception the Company has been unable to sell POSICAMTM systems
in
quantities sufficient to be operationally profitable. Consequently,
the Company has sustained substantial losses. At December 31, 2006,
the Company had an accumulated deficit of $68,825,000 and a stockholders’
deficit of $1,132,000. Due to the sizable prices of the Company’s
systems and the limited number of systems sold or placed in service each year,
the Company’s revenues have fluctuated significantly year to year.
The
Company utilized proceeds of $1,080,000 from notes payable and $1,095,000 from
issuance of Series G Preferred to acquire the assets of IPT and to fund
operating activities. The Company had cash and cash equivalents of
$115,000 at December 31, 2006. At the same date, the Company had
accounts payable and accrued liabilities of $2,627,000. In addition,
debt service and working capital requirements for the upcoming year may reach
beyond current cash balances.
The
Company plans to continue to raise funds as required through equity and debt
financing to sustain business operations. These factors raise
substantial doubt about the Company’s ability to continue as a going
concern.
There
can
be no assurance that the Company will be successful in implementing its business
plan and ultimately achieving operational profitability. The
Company’s long-term viability as a going concern is dependent on its ability to
1) achieve adequate profitability and cash flows from operations to sustain
its
operations, 2) control costs and expand revenues from existing or new business
and 3) meet current commitments and fund the continuation of its business
operation in the near future.
|
3.
|
Imaging
Pet Technologies – Business
Acquisition
|
The
Company and Quantum Molecular Pharmaceuticals Inc., a Canadian
radiopharmaceutical corporation (“QMP”) acquired all of the operating assets of
IS2 Medical Systems Inc., a developer and manufacturer of nuclear imaging
devices based in Ottawa, Ontario, Canada (“IS2”) through a minority-owned
subsidiary of the Company, Imaging PET Technologies, Inc. (“IPT”). The Company
and QMP hold 49.9% and 50.1%, respectively, of the total registered capital
of
IPT. On May 8, 2006, to finalize certain obligations of QMP related to the
Quantum Molecular Technologies Joint Venture, the Company agreed to issue
Series
B Convertible Preferred Stock (the “Series B”), convertible into 65,000,000
shares of the Company’s common stock, to IPT in exchange for a promissory note
in the amount of $1,300,000. See, Quantum Molecular Technologies,
below.
On
June
5, 2006, IPT completed the acquisition of IS2 through a series of events which
resulted in the net assets of IS2 being transferred to IPT. On April
28, 2006, debenture holders and promissory note holders of IS2 were put on
notice that IS2 was in default of its covenants relating to revenue
targets. In turn, the debenture/note holders demanded
payment. On May 29, 2006, the debentures and notes totaling
$1,435,727 were assigned to IPT by the holders in exchange for
$1,000,000. The original holders assigned their security agreements
to IPT who exercised those agreements immediately and assumed the net assets
of
IS2. In addition to the net assets, the Company assumed leases and
contracts. Employments contracts were established with the Company
upon acquisition.
56
|
FY
2006
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
|
The
net assets acquired include the following (in thousands):
|
||||
|
Cash
and equivalents
|
$ |
605
|
||
|
Accounts
receivable
|
65
|
|||
|
Investment
tax credits
|
340
|
|||
|
Prepaid
expenses
|
51
|
|||
|
Inventories
|
1,319
|
|||
|
Property
and equipment
|
105
|
|||
|
Deferred
patent costs
|
74
|
|||
|
Accounts
payable and accrued liabilities
|
(754 | ) | ||
|
Customer
deposits
|
(364 | ) | ||
|
Capital
lease obligations
|
(14 | ) | ||
|
Net
value of assets acquired
|
1,427
|
|||
|
Purchase
Price
|
1,000
|
|||
|
Excess
of net assets acquired over purchase price
|
$ |
427
|
||
|
The
excess of the net assets acquired over the purchase price was
allocated as
follows:
|
||||
|
Write-down
of property and equipment
|
$ |
105
|
||
|
Write-down
of deferred patent costs
|
74
|
|||
|
Extraordinary
gain on before currency translation adjustment
|
241
|
|||
|
Effect
of currency translation
|
7
|
|||
| $ |
427
|
|||
Acquisition
of IMAGIN Interest in IPT
On
January 26, 2007, the Company executed and consummated a Securities Purchase
Agreement (the “Agreement”) with Imagin Diagnostic Centres, Inc. (“IMAGIN”), to
acquire 11,523,000 shares of common stock of IPT. The Shares represented
approximately a 50.1% of IPT’s issued and outstanding common stock. As a result
of the acquisition of the Shares, the Company owns 100% of the common
stock of
IPT. As consideration for the shares, the Company and IMAGIN agreed to
cancel a
promissory note in the principal amount of $2,400,000 made by IMAGIN
subsidiary,
QMP and later assigned to IMAGIN. As of the date of the Agreement, the
Company
had been advised by IMAGIN that it had acquired all of QMP’s interest in IPT as
well as QMP's other holdings of the Company's related
securities.
|
4.
|
Quantum
Molecular Technologies
|
On
December 28, 2005, the Company entered into a Memorandum of Understanding
with
Imagin Diagnostic Centres, Inc. (“IMAGIN”) and Quantum Molecular Pharmaceutical,
Inc. ("QMP"), a Canadian company and majority-owned subsidiary of
IMAGIN. The Memorandum provides that the parties will form a joint
venture to be called Quantum Molecular Technologies JV (the “QMT
JV”). Initially, the joint venture would be owned 20%, 29% and 51% by
the Company, IMAGIN and QMP, respectively. The Company had the right
to increase its interest in the joint venture to a maximum of 51% by the
issuance to QMP of up to 150 million shares of the Company's common
stock. In consideration for the Company's 20% interest in the joint
venture, the Company was obligated to loan to the joint venture sufficient
funds, in the form of senior debt, to meet the joint venture's capital
requirements as determined by the Company. In turn, IMAGIN and QMP
had committed to purchase up to $4 million in preferred equity in the
Company.
On
May 8,
2006, the Company amended certain aspects of the QMT JV transaction. Whereas
the
Company originally held 20% of the interests of the QMT JV, QMP and IMAGIN
assigned 100% of their interest to the Company. Additionally, the
investment amount QMP and IMAGIN originally committed to in the amount of
$4,000,000 was restated to $2,400,000 to reflect the assignment of the QMT
JV
interests and participation by the Company in the IPT joint venture acquisition
and subsequent financing. The $2,400,000 investment is in the form of a
promissory note to the Company. In exchange for the assignment of
QMT JV interests and the investment, the Company issued 3,450,000
shares of Series B Convertible Preferred Stock, convertible into 345,000,000
shares of the Company’s common stock to QMP and IMAGIN, pro
rata.
57
|
FY
2006
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
On
April
13, 2006, the QMT JV was incorporated under the name Quantum Molecular
Technologies, Inc. (“QMT”) and acquired certain intangible assets in the form of
capitalized research and development costs from IMAGIN for a note payable in
the
amount of $368,755. As discussed above, on May 8, 2006 the
Company acquired 100% of the IMAGIN and QMP interests in
QMT. QMT had limited operating activity during the period
between April 13, 2006 and May 8, 2006, as such the Company has consolidated
100% of the operations of QMT from the date of acquisition.
Using
concepts and research and development activities conceived and to be implemented
by Dr. Irving Weinberg, QMT is developing certain next generation technologies
including PET-enabled surgical tools and solid-state photo detector technology,
which have implications in both molecular imaging and PET and which could have
further application in the military and aerospace segments. The first
solid-state detector technology patent has been filed by QMT. The
Company will have the right to manufacture and sell any PET products developed
by QMT in exchange for royalty payments still to be negotiated.
|
5.
|
Inventories
|
Inventories
at December 31, 2006 and 2005 consisted of the following (in
thousands):
|
2006
|
2005
|
|||||||
|
Raw
materials
|
$ |
949
|
$ |
235
|
||||
|
Work
in progress
|
577
|
17
|
||||||
|
Subtotal
|
1,526
|
252
|
||||||
|
Less
reserve for obsolescence
|
(50 | ) | (50 | ) | ||||
|
Total
|
$ |
1,476
|
$ |
202
|
||||
The
Company expensed $522,000 of excess inventory as it ceased manufacturing
activities at its Houston facility in 2005.
|
6.
|
Investment
in Joint Venture
|
On
June
30, 2005 the Company entered into a Joint Venture Contract with Neusoft Medical
Systems Co., Inc. of Shenyang, Lianoning Province, People's Republic of China
("Neusoft"). Pursuant to the Joint Venture Contract the parties
formed a jointly-owned company, Neusoft Positron Medical Systems Co., Ltd.
(the
"NPMS"), to engage in the manufacturing of PET and CT/PET medical imaging
equipment. NPMS received its business license and was organized in
September 2005.
The
Company and Neusoft are active in researching, developing, manufacturing,
marketing and/or selling Positron Emission Tomography ("PET")
technology and both parties seek to mutually benefit from each other's
strengths, and intend to cooperate in the research, development and
manufacturing of PET technology. The purpose and scope of NPMS's
technology business is to research, develop and manufacture Positron Emission
Tomography systems (PET), and an integrated X-ray Computed Tomography
system (CT) and PET system (PET/CT), and to otherwise provide relevant technical
consultation and services.
The
parties to the joint venture contributed an aggregate of US $2,000,000 in
capital contributions. Neusoft's aggregate contribution to the capital of NPMS
is 67.5% of the total registered capital of the Company, or US$ 1,350,000,
and
was made in cash. The Company's aggregate contribution to the capital of NPMS
is
32.5% of the total registered capital of the Company, or US$ 650,000, of which
US$ 250,000 was made in cash, and US$ 400,000 was made in the form of a
technology license. Positron has transferred to NPMS certain of its
PET technology, while Neusoft made available to NPMS certain CT technology
for
the development and production of an integrated PET/CT system. The
parties share the profits, losses and risks of NPMS in proportion to
and, in the event of losses, to the extent of their respective contributions
to
the registered capital of NPMS.
58
|
FY
2006
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
Following
are the condensed financial statements of Neusoft Positron Medical Systems
Co.,
Ltd. for the years ended December 31, 2006 and 2005.
NEUSOFT
POSITRON MEDICAL SYSTEMS CO., LTD.
CONDENSED
BALANCE SHEETS
DECEMBER
31, 2006
(In
thousands)
|
2006
|
2005
|
|||||||
|
ASSETS
|
||||||||
|
Current
assets:
|
||||||||
|
Cash
and cash equivalents
|
$ |
220
|
$ |
1,295
|
||||
|
Other
current assets
|
504
|
4
|
||||||
|
Total
current assets
|
724
|
1,299
|
||||||
|
Intangibles
and other assets
|
653
|
646
|
||||||
|
Total
assets
|
$ |
1,377
|
$ |
1,945
|
||||
|
Current
liabilities:
|
||||||||
|
Other
current liabilities
|
(55 | ) |
3
|
|||||
|
Total
current liabilities
|
(55 | ) |
3
|
|||||
|
Capital
|
1,432
|
1,942
|
||||||
|
Total
liabilities and capital
|
$ |
1,377
|
$ |
1,945
|
||||
NEUSOFT
POSITRON MEDICAL SYSTEMS CO., LTD.
CONDENSED
STATEMENTS OF OPERATIONS
FOR
THE YEAR ENDED DECEMBER 31, 2006 AND 2005
(in
thousands)
|
2006
|
2005
|
|||||||
|
Revenue
|
$ |
--
|
$ |
--
|
||||
|
Expense
|
||||||||
|
General
and administrative expense
|
575
|
61
|
||||||
|
Total
expense
|
575
|
61
|
||||||
|
Net
loss
|
$ | (575 | ) | $ | (61 | ) | ||
|
7.
|
Property
and Equipment
|
Property
and equipment at December 31, 2006 and 2005 consisted of the following (in
thousands):
|
2006
|
2005
|
|||||||
|
Furniture
and fixtures
|
$ |
130
|
$ |
161
|
||||
|
Computers
and peripherals
|
74
|
318
|
||||||
|
Machinery
and equipment
|
26
|
134
|
||||||
|
Subtotal
|
230
|
613
|
||||||
|
Less
accumulated depreciation
|
(166 | ) | (493 | ) | ||||
|
Total
|
$ |
64
|
$ |
120
|
||||
59
|
FY
2006
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
|
8.
|
Other
Assets
|
Other
assets at December 31, 2006 and 2005 consisted of the following (in
thousands):
|
2006
|
2005
|
|||||||
|
Field
service parts and supplies
|
$ |
17
|
$ |
45
|
||||
|
Intangible
assets
|
57
|
--
|
||||||
|
Deferred
loan costs
|
178
|
12
|
||||||
|
Total
|
$ |
252
|
$ |
57
|
||||
The
Company expensed $134,000 of excess field service parts and supplies in
2005.
|
9.
|
Accounts
Payable and Accrued
Liabilities
|
Accounts
payable and accrued liabilities at December 31, 2006 and 2005 consisted of
the
following (in thousands):
|
2006
|
2005
|
|||||||
|
Trade
accounts payable
|
$ |
1,431
|
$ |
441
|
||||
|
Accrued
royalties
|
373
|
352
|
||||||
|
Accrued
interest
|
44
|
260
|
||||||
|
Sales
taxes payable
|
260
|
236
|
||||||
|
Accrued
compensation
|
249
|
159
|
||||||
|
Accrued
property taxes
|
65
|
113
|
||||||
|
Accrued
professional fees
|
92
|
80
|
||||||
|
Insurance
premiums payable
|
--
|
43
|
||||||
|
Accrued
warranty costs
|
113
|
10
|
||||||
|
Total
|
$ |
2,627
|
$ |
1,694
|
||||
Accrued
compensation includes severance payments payable to the Company's former Chief
Executive Officer, Gary H. Brooks. Mr. Brooks resigned effective
September 29, 2005. In connection with his resignation, the Company
agreed to make severance payments to Mr. Brooks of $18,583.33 per month for
a
period of six months, and to extend the expiration date of options held by
Mr.
Brooks through September 30, 2006, and warrants held by Mr. Brooks until the
later of (i) October 31, 2007 for 7,000,000 warrants and June 2009 for
500,000 warrants, and (ii) the date on which a registration statement filed
with the Securities Exchange Commission permitting a sale of the shares
underlying such warrants shall have become effective and shall have remained
effective for a period of six months. Unpaid severance obligations at
December 31, 2006 and 2005 total approximately $ 55,000 and $ 97,000,
respectively. In March 2007, the Company fully paid all severance amounts owed
to Mr. Brooks
|
10.
|
Convertible
Notes Payable to Affiliated
Entities
|
Notes
payable to affiliated entities at December 31, 2006 and 2005 consisted of the
following (in thousands):
|
2006
|
2005
|
|||||||
|
IMAGIN
Diagnostic Centres, Inc., less discount of $610
|
$ |
--
|
$ |
1,723
|
||||
|
Solaris
Opportunity Fund, L.P., less discount of $280
|
--
|
120
|
||||||
|
Total
|
$ |
--
|
$ |
1,843
|
||||
60
|
FY
2006
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
IMAGIN
Diagnostic Centres, Inc.
Financing
Agreements dated May 21, 2004
On
May
26, 2004 and June 17, 2004, the Company sold two separate secured convertible
promissory notes under a Note Purchase Agreement dated May 21, 2004, to IMAGIN
Diagnostic Centres, Inc. (“IMAGIN”) in the principal amounts of $400,000 and
$300,000, respectively. Interest is charged on the outstanding
principal at the rate of ten percent (10%) per annum and is payable annually
to
the extent of positive cash flow on the anniversary dates of these
notes. The principal and any unpaid interest were to be paid on the
earlier to occur of May 21, 2006 or when declared due and payable by IMAGIN
upon
occurrence of an event of default. The notes were initially
convertible into new shares of Series C Preferred Stock that, in turn are
convertible into an aggregate of 35,000,000 shares of the Company’s common
stock. These notes were collateralized by all of the assets of the
Company. Principal of $700,000 has been advanced related to these
notes. An additional $70,000 in accrued interest on these
notes was converted to loan principal on May 21, 2005. On October 21,
2005, IMAGIN converted loan principal of $770,000 on promissory notes into
770,000 shares of Series C Preferred Stock. On March 17, 2006, IMAGIN
Diagnostic Centres, Inc. assigned to Positron Acquisition Corp. its interest
in
770,000 shares of the Company’s Series C Preferred Stock, 4,026,000 shares of
the Company’s common stock and the Company’s secured convertible notes in the
aggregate principal amount of $696,850, which are convertible into 696,850
shares of the Company’s Series D Preferred Stock and in turn are convertible
into 27,874,000 shares of the Company’s common stock. Positron
Acquisition Corporation is a wholly-owned subsidiary of Imagin Molecular
Corporation, Inc. (“IMGM”), an affiliate of the Company through common
ownership. IMAGIN is a significant shareholder of both the Company
and IMGM.
In
a
second stage of the financing IMAGIN agreed to purchase additional secured
convertible promissory notes in the aggregate principal amount of
$1,300,000. These notes were to be purchased over a six and a half
month period, commencing July 15, 2004. These notes were due and
payable on May 21, 2006. These notes were initially convertible into
new shares of Series D Preferred Stock that, in turn was convertible into an
aggregate of 52,000,000 shares of the Company’s common stock. As of
June 30, 2005, principal of $1,208,500 had been advanced related to these
notes. On June 30, 2005, IMAGIN converted $575,000 of these
promissory notes into shares of Series D Preferred Stock that, in turn were
converted into 23,000,000 shares of the Company’s common stock. This
conversion reduced the principal owed under these promissory notes from
$1,208,500 to $633,500.
As
a
result of these financing agreements, several agreements were also reached
involving option and warrants contracts for the purchase of common stock of
the
Company.
|
|
·
|
The
Company agreed to exchange 917,068 outstanding options currently
held by
its employees for new options that are exercisable for the purchase
of
common stock at a price of $0.02 per share. The new options
issued to the employees are subject to four year vesting in equal
monthly
installments. This re-pricing will require the Company to apply the
variable accounting rules established in Interpretation No. 44 of
the
Financial Accounting Standards Board (“FIN 44”) to these options and
record changes in compensation based upon movements in the stock
price. The Company recognized $13,000 and $10,100 in
compensation related to the re-pricing of options in 2004 and 2005,
respectively, in accordance with the variable accounting rules established
in FIN 44. The market value of the Company’s common stock
increased to $0.09 per share at December 31, 2005, resulting in an
intrinsic value of $0.07 per share.
|
|
|
·
|
The
Company agreed to re-price the outstanding warrants currently held
by its
President & CEO for the purchase of 3,500,000 shares of common stock
at $0.02 per share. The Company recognized $350,000 in
compensation expense in 2004 and reversed $105,000 in compensation
expense
in 2005, in accordance with the variable accounting rules established
in
FIN 44. The market value of the Company’s common stock
increased to $0.09 per share at December 31, 2005, resulting in an
intrinsic value of $0.07 per share. The Company agreed to issue
a new warrant to its President & CEO for the purchase of 4,000,000
shares of common stock at $0.02 per share. The Company agreed
to re-price outstanding warrants for the purchase of 9,150,000 shares
of
common stock. These warrants have been surrendered and new
warrants will be issued to the same third party holders for the purchase
of 4,575,000 shares of common stock at $0.02 per share. New
warrants for the purchase of 4,575,000 shares of common stock at
$0.02 per
share (the remaining half of the surrendered warrants) will also
be issued
to IMAGIN.
|
61
|
FY
2006
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
Financing
Agreements dated August 8, 2005
On
August
8, 2005, the Company sold to IMAGIN 10% secured convertible promissory notes
under a Note Purchase Agreement, dated the same date, in the aggregate principal
amount of $400,000. As of December 31, 2005, IMAGIN has purchased
$400,000 of these notes. These notes are due and payable on August 7,
2008. These notes are convertible into an aggregate of 20,000,000
shares of the Company’s common stock.
In
accordance with generally accepted accounting principals in the event the
conversion price is less than the Company’s stock price at the date of the
agreement, the difference is considered to be a beneficial conversion feature
and is amortized over the period from the date of issuance to the stated
maturity date. The fair value of the common stock at the commitment
date of $1,200,000 less the $400,000 in loan proceeds, results in intrinsic
value of $800,000 for the beneficial conversion feature. However, the
beneficial conversion feature is limited to the $400,000 proceeds of the
debt. Due to the fact that there were not enough common shares
available to facilitate the conversion of the debt into common stock on August
8, 2005, no beneficial conversion feature was recorded for this
transaction.
Financing
Agreements dated October 31, 2005
On
October 31, 2005, the Company sold to IMAGIN 10% secured convertible promissory
notes under a Note Purchase Agreement, dated the same date, in the aggregate
principal amount of $400,000. As of December 31, 2005, IMAGIN has
purchased $300,000 of these notes. In January 2006, the Company
received the final $100,000 for the purchase of the notes. These notes are
due
and payable on October 31, 2008. These notes are convertible into an
aggregate of 20,000,000 shares of the Company’s common stock. Full
convertibility of the notes into shares of common stock will require an
amendment to the Company’s Articles of Incorporation which must be approved by
the shareholders.
In
accordance with generally accepted accounting principals in the event the
conversion price is less than the Company’s stock price at the date of the
agreement, the difference is considered to be a beneficial conversion feature
and is amortized over the period from the date of issuance to the stated
maturity date. The fair value of the common stock at the commitment
date of $1,800,000 less the $300,000 in loan proceeds, results in intrinsic
value of $1,500,000 for the beneficial conversion feature. However,
the beneficial conversion feature is limited to the $300,000 of the
debt. Due to the fact that there were not enough common shares
available to facilitate the conversion of the debt into common stock on October
31, 2005, no beneficial conversion feature was recorded for this
transaction.
Solaris
Opportunity Fund, L.P.
Financing
Agreements dated February 28, 2005
On
February 28, 2005, the Company entered into a series of agreements with a
related party, Solaris Opportunity Fund (“Solaris”) pursuant to which Solaris
agreed to purchase an aggregate of $1,000,000 face amount of the Company’s 10%
secured convertible promissory notes. As of December 31, 2005,
Solaris has purchased $1,000,000 of these notes. These notes are due
and payable on March 6, 2007. The notes were initially convertible
into new shares of Series E Preferred Stock that, in turn are convertible into
an aggregate of 22,000,000 shares of the Company’s common stock
In
accordance with generally accepted accounting principles in the event the
conversion price is less than the Company’s stock price at the date of the
agreement, the difference is considered to be a beneficial conversion feature
and is amortized over the period from the date of issuance to the stated
maturity date. On February 28, 2005, enough common shares were
available to facilitate the conversion of substantially all of the debt into
common stock. The fair value of the related Series E Preferred Stock
at the commitment date of $2,200,000 less the $1,000,000 in loan proceeds,
results in an intrinsic value of $1,200,000 for the beneficial conversion
feature. However, the beneficial conversion feature is limited to the
$1,000,000 proceeds of the debt. The balance of the unamortized
discount was approximately $604,000 at December 31, 2005. During 2006 this
convertible note payable was sold to IMAGIN.
62
|
FY
2006
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
Financing
Agreements dated June 27, 2005
On
June
27, 2005, the Company entered into a series of agreements with Solaris pursuant
to which Solaris agreed to purchase an aggregate of $400,000 face amount of
the
Company’s 10% secured convertible promissory notes. As of December
31, 2005, Solaris has purchased $400,000 of these notes. These notes
are due and payable on March 6, 2007. The notes are initially
convertible into new shares of Series F Preferred Stock that, in turn are
convertible into an aggregate of 20,000,000 shares of the Company’s common
stock.
In
accordance with generally accepted accounting principles in the event the
conversion price is less than the Company’s stock price at the date of the
agreement, the difference is considered to be a beneficial conversion feature
and is amortized over the period from the date of issuance to the stated
maturity date. On June 27, 2005, enough common shares were available
to facilitate the conversion of all of the debt into common
stock. The fair value of the related Series F Preferred Stock at the
commitment date of $1,600,000 less the $400,000 in loan proceeds, results
in an
intrinsic value of $1,200,000 for the beneficial conversion
feature. However, the beneficial conversion feature is limited to the
$400,000 proceeds of the debt. The balance of the unamortized
discount was approximately $280,000 at December 31, 2005. During 2006
this convertible note payable was sold to QMP.
Conversion
of Notes Payable to Series B Preferred Stock
In
2006,
the Company converted all outstanding convertible notes payable and accrued
interest due to affiliated entities to Series B Preferred Stock (see note 13).
Following is a description of each conversion:
The
Company and IMAGIN converted principal and interest of $1,164,192 outstanding
upon the Series E Convertible Promissory Notes and principal and interest
of
$877,669 of Convertible Secured Notes into 690,930.5 shares of Series B
Preferred Stock.
The
Company and Positron Acquisition Corp. converted principal and interest of
$818,066 outstanding upon the Series D Secured Convertible Promissory Notes
and
770,000 shares of Series C Preferred Stock into 762,358 shares of Series B
Preferred Stock. Positron Acquisition Corp. subsequently converted 40,000 shares
of Series B Preferred Stock into 4,000,000 shares of the Company’s Common
Stock.
The
Company and QMP converted principal and interest of $453,144 outstanding
upon
the Series F Secured Convertible Promissory Notes into 226,572 shares of Series
B Preferred Stock. The Company has been advised by IMAGIN that it had
acquired all of QMP’s interest
in the
securities of the Company.
|
11.
|
Secured
Convertible Notes
Payable
|
Pursuant
to the terms of a Security Agreement and a Registration Rights Agreement (the
“Agreements”) dated May 23, 2006, the Company agreed to issue to private
investors (the “Investors”) callable secured convertible notes (the
“Debentures”) in the amount of $2,000,000, with interest at the rate of 6%
annually. The Debentures are convertible into shares of the Company’s
Common Stock as the product of the “Applicable Percentage” and the average of
the lowest three (3) trading prices for the common stock during the twenty
(20)
day period prior to conversion. Applicable Percentage is 50%; provided, however
that the percentage shall be increased to (i) 55% in the event that a
Registration Statement is filed within thirty days of the closing of the
transaction and (ii) 65% in the event the Registration Statement becomes
effective within one hundred and twenty days of the closing of the
transaction. The Company filed a Registration Statement on June 20,
2006. The Company may repay principal and interest in cash in the
event that the price of the Company’s Common Stock is below $0.20 on the last
business day of a month. Pursuant to the terms of the Agreements, the
Company issued to the Investors warrants to purchase 30,000,000 shares of Common
Stock at an exercise price of $0.15 per share. These warrants are exercisable
seven (7) years from the closing of the transaction.
63
|
FY
2006
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
On
May
23, 2006 the Company issued Debentures in the amount of $700,000 with a maturity
date of May 23, 2009. On June 21, 2006 the Company issued Debentures in the
amount of $600,000 with a maturity date of June 21, 2009. Pursuant to
the terms of the Agreements, the Company shall issue Debentures and receive
the
third traunch in the amount of $700,000 when the Registration Statement is
declared effective by the Securities and Exchange Commission. Legal and other
fees incurred in conjunction with the Debentures issued on May 23, 2006 and
June
21, 2006 were $130,000 and $90,000, respectively and are being amortized over
the maturity periods of the Debentures.
As
a
result of the beneficial conversion features contained in the Convertible
Debentures, the derivatives embedded in the Debentures have been classified
as
derivative liabilities. Fair value of the embedded derivatives is determined
using the Black Sholes Valuation Method. The combined liabilities recorded
for
the year ended December 31, 2006 totaled $2,164,400. Of such amount, $380,600
was recorded as debt discount and is being amortized over the term of the
Debentures and $1,783,400 was charged to loss on derivative obligations. The
Company recorded a gain on derivative obligations of $73,000 for the three
months ended December 31, 2006. Additionally, the Company recorded a
discount of $919,400 against the Convertible Debentures for the fair market
value of the warrants issued. The discount, which was recorded as an increase
to
additional paid-in capital, is being amortized to interest expense over the
term
of the Debentures, utilizing the effective interest method.
|
12.
|
Options
and Warrants
|
Options
1999
Employee Stock Option Plan
Effective
June 15, 1999, the shareholders of the Company adopted the 1999 Stock Option
Plan (the “1999 Plan”) and terminated the 1994 Stock Option Plan, effective
October 6, 1999. The 1994 Plan provided for the grant of options to
officers, directors, key employees and consultants of the Company. The 1999
Plan
provides for the grant of options to officers, employees (including employee
directors) and consultants. The 1999 Plan is administered by
the Board of Directors. The administrator is authorized to determine
the terms of each option granted under the plan, including the number of shares,
exercise price, term and exercisability. Options granted under the
plan may be incentive stock options or nonqualified stock
options. The exercise price of incentive stock options may not be
less than 100% of the fair market value of the common stock as of the date
of
grant (110% of the fair market value in the case an optionee owns more than
10%
of the total combined voting power of all classes of Positron capital
stock). Options may not be exercised more than ten years after the
date of grant (five years in the case of 10% stockholders). The Board
has authorized 4,000,000 shares of Common Stock for issuance under the 1999
Plan. As of December 31, 2006, 225,000 options are outstanding,
of which 152,396 are vested.
Non-Employee
Directors’ Stock Option Plan
Effective
October 6, 1999, the shareholders of the Company approved the 1999 Non-Employee
Directors’ Stock Option Plan (the “Directors’ Plan”) which provides for the
automatic grant of an option to purchase 25,000 shares of common stock to
non-employee directors upon their election or appointment to the Board, and
subsequent annual grants also in the amount of 25,000 shares of common
stock. The exercise price of the options is 85% of the fair market
value of the common stock on the date of grant. The Directors’ Plan
is administered by the Board. Options granted under the Directors’
Plan become exercisable in one of two ways: either in four equal
annual installments, commencing on the first anniversary of the date of grant,
or immediately but subject to the Company’s right to repurchase, which
repurchase right lapses in four equal annual installments, commencing on
the
first anniversary of the date of grant. To the extent that an option
is not exercisable on the date that a director ceases to be a director of
the
Company, the unexercisable portion terminates. The Board has authorized 500,000
shares of Common Stock for issuance under the 1999 Plan. As of
December 31, 2006, 250,000 fully vested options remain outstanding under
the Directors' Plan.
64
|
FY
2006
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
1999
Stock Bonus Incentive Plan
In
October 1999 the Board adopted an Employee Stock Bonus Incentive Plan (the
“Stock Bonus Plan”), effective November 1, 1999. The Stock Bonus Plan
provides for the grant of bonus shares to any Positron employee or consultant
to
recognize exceptional service and performance beyond the service recognized
by
the employee’s salary or consultant’s fee. The Board has authorized
up to an aggregate of 1,000,000 shares of common stock for issuance as bonus
awards under the Stock Bonus Plan. The Stock Bonus Plan is currently
administered by the Board. Each grant of bonus shares is in an amount
determined by the Board, up to a maximum of the participant’s
salary. The shares become exercisable according to a schedule to be
established by the Board at the time of grant. A total of 316,000
shares have been issued under the Stock Bonus Plan at December 31,
2006.
1999
Employee Stock Purchase Plan
The
shareholders of the Company approved the 1999 Employee Stock Purchase Plan
(the
“Purchase Plan”) in October 1999. A total of 500,000 shares of common
stock have been reserved for issuance under the Purchase Plan, none of which
has
yet been issued. The Purchase Plan permits eligible employees to
purchase common stock at a discount through payroll deductions during offering
periods of up to 27 months. Offering periods generally will begin on the first
trading day of a calendar quarter. The initial offering period began
on January 1, 2000. The price at which stock is purchased under the
Purchase Plan will be equal to 85% of the fair market value of common stock
on
the first or last day of the offering period, whichever is lower. No
shares have been issued under the Purchase Plan at December 31,
2006.
Amended
and Restated 2005 Stock Incentive Plan
Positron's
Board administers the Amended and Restated 2005 Stock Incentive Plan ("2005
Plan"), which was adopted by the Board effective November 18, 2005 and approved
by the shareholders at the 2006 Annual Meeting. The 2005 Plan
provides for the grant of options and stock to directors, officers, employees
and consultants. The administrator is authorized to determine the
terms of each award granted under the plan, including the number of shares,
exercise price, term and exercisability. Options granted under the
plan may be incentive stock options or nonqualified stock options. The exercise
price of incentive stock options may not be less than 100% of the fair market
value of the Common Stock as of the date of grant (110% of the fair market
value
in the case of an optionee who owns more than 10% of the total combined voting
power of all classes of the Company's capital stock). Options may not
be exercised more than ten years after the date of grant (five years in the
case
of 10% shareholders). Upon termination of employment for any reason
other than death or disability, each option may be exercised for a period
of 90
days, to the extent it is exercisable on the date of termination. In
the case of a termination due to death or disability, an option will remain
exercisable for a period of one year, to the extent it is exercisable on
the
date of termination. A total of 40,000,000 shares of
Common Stock have been authorized for issuance under the 2005
Plan. As of December 31, 2006, a total of 19,000,000 options have
been granted under the 2005 Plan, none of which have been exercised, and
of
which 10,000,000 are fully vested.
65
|
FY
2006
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
2006
Stock Incentive Plan
On
April
10, 2006, the Company’s Board of Directors adopted a 2006 Stock Incentive Plan
(“2006 Plan”). The 2006 Plan is administered by the Board and provides for the
direct issuance of stock and grants of nonqualified stock options to directors,
officers, employees and consultants. The administrator is authorized to
determine the terms of each award granted under the plan, including the number
of shares, exercise price, term and exercisability. Stock and options may be
granted for services rendered or to be rendered. A total of 5,000,000 shares
of
common stock have been authorized for issuance under the 2006
Plan. The Company issued 3,870,000 shares of common stock to
consultants under the 2006 Plan. Accordingly the Company recorded consulting
expense equal to the fair market value of the shares issued of $470,900 for
the
year ended December 31, 2006.
A
summary
of stock option activity is as follows:
|
Shares
Issuable
Under
Outstanding
Options
|
Price
Range
or
Weighted
Average
Exercise
Price
|
|||||||
|
Balance
at December 31, 2004
|
1,722,272
|
$ |
0.32
|
|||||
|
Granted
|
7,625,000
|
$ |
0.03
- $0.12
|
|||||
|
Forfeited
|
(597,272 | ) | $ |
0.02
- $4.13
|
||||
|
Balance
at December 31, 2005
|
8,750,000
|
$ |
0.05
|
|||||
|
Granted
|
11,575,000
|
$ |
0.05
- $0.06
|
|||||
|
Forfeited
|
(325,000
|
) | $ |
0.01
- $2.63
|
||||
|
Exercised
|
(500,000 | ) | $ |
0.05
|
||||
|
Balance
at December 31, 2006
|
19,500,000
|
$ |
0.06
|
|||||
Following
is a summary of stock options outstanding at December 31, 2006 and
2005.
|
Options
Outstanding
|
Options
Exercisable
|
|||||||||||||||||||||
|
Range
of
Exercise
Price
|
Shares
|
Weighted
Average
Remaining
Term
(in
Years)
|
Weighted
Average
Exercise
Price
|
Shares
|
Weighted
Average
Exercise
Price
|
|||||||||||||||||
| $ |
0.020
|
75,000
|
3.63
|
$ |
0.02
|
48,438
|
$ |
0.02
|
||||||||||||||
| $ |
0.050
|
7,500,000
|
4.00
|
$ |
0.05
|
4,000,000
|
$ |
0.05
|
||||||||||||||
| $ |
0.060
|
11,500,000 | 4.00 | $ | 0.06 | 6,000,000 | $ | 0.06 | ||||||||||||||
| $ |
0.111
|
25,000
|
4.25
|
$ |
0.11
|
25,000
|
$ |
0.11
|
||||||||||||||
| $ |
0.077
|
25,000
|
5.00
|
$ |
0.08
|
25,000
|
$ |
0.08
|
||||||||||||||
| $ |
0.010
- $0.050
|
175,000
|
7.06
|
$ |
0.04
|
128,958
|
$ |
0.02
|
||||||||||||||
| $ |
0.034
- $0.119
|
50,000
|
7.25
|
$ |
0.09
|
50,000
|
$ |
0.09
|
||||||||||||||
| $ |
0.102
|
50,000
|
8.00
|
$ |
0.10
|
50,000
|
$ |
0.10
|
||||||||||||||
| $ |
0.043
|
25,000
|
8.67
|
$ |
0.04
|
25,000
|
$ |
0.04
|
||||||||||||||
| $ |
0.09
|
75,000 | 9.00 | $ | 0.09 |
75,000
|
$ | 0.09 | ||||||||||||||
|
Balance
at 12/31/2006
|
19,500,000
|
$ |
0.06
|
10,427,396
|
$ |
0.06
|
||||||||||||||||
|
Balance
at 12/31/2005
|
8,750,000
|
$ |
0.05
|
3,050,625
|
$ |
0.05
|
||||||||||||||||
The
Company recognized $10,100 in compensation related to the re-pricing of options
in 2005
66
|
FY
2006
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
For
all
of the Company’s stock-based compensation plans, the fair value of each grant
was estimated at the date of grant using the Black-Scholes option-pricing model.
Black-Scholes utilizes assumptions related to volatility, the risk-free interest
rate, the dividend yield (which is assumed to be zero, as the Company has not
paid cash dividends to date and does not currently expect to pay cash dividends)
and the expected term of the option. Expected volatilities utilized in the
model
are based mainly on the historical volatility of the Company’s stock price over
a period commensurate with the expected life of the share option as well as
other factors. The risk-free interest rate is derived from the zero-coupon
U.S.
government issues with a remaining term equal to the expected life at the time
of grant. Fair market value using the Black-Scholes option-pricing model for
the
year ended December 31, 2006 was determined using the following
assumptions:
|
Expected
life (years)
|
3-10
|
|||
|
Risk
free rate of return
|
4.65%-4.75 | % | ||
|
Dividend
yield
|
0
|
|||
|
Expected
volatility
|
230 | % |
Warrants
A
summary
of warrant activity is as follows:
|
Number
of
Shares
|
Exercise
Price
|
Weighted
Average
Exercise
Price
|
||||||||||
|
Balance
at December 31, 2004
|
18,150,000
|
$ |
0.05
- $2.40
|
$ |
0.23
|
|||||||
|
Issues
and expirations in 2005
|
--
|
--
|
--
|
|||||||||
|
Balance
at December 31, 2005
|
18,150,000
|
$ |
0.23
|
|||||||||
|
New
warrants issued with Series G Preferred Stock
|
10,224,100
|
$ |
0.10
|
$ |
0.10
|
|||||||
|
New
warrants issued with secured convertible debentures
|
30,000,000
|
$ |
0.15
|
$ |
0.15
|
|||||||
|
Balance
at December 31, 2006
|
58,374,100
|
$ |
0.12
|
|||||||||
All
outstanding warrants are currently exercisable. A summary of
outstanding stock warrants at December 31, 2006 follows:
|
Number
of Common
Stock
Equivalents
|
Expiration
Date
|
Remaining
Contractual
Life
(Years)
|
Exercise
Price
|
|||||||||
|
3,825,000
|
(a)
|
--
|
$ |
0.02
|
||||||||
|
250,000
|
|
January
2007
|
0.1
|
$ |
2.40
|
|||||||
|
500,000
|
October
2007
|
0.8
|
$ |
0.02
|
||||||||
|
1,250,000
|
March
2008
|
1.3
|
$ |
0.25
|
||||||||
|
10,224,000
|
April
2008
|
1.3
|
$ |
0.10
|
||||||||
|
3,750,000
|
June
2009
|
2.5
|
$ |
0.02
|
||||||||
|
8,575,000
|
May
2010
|
3.4
|
$ |
0.02
|
||||||||
|
30,000,000
|
May
2013
|
6.4
|
$ |
0.15
|
||||||||
|
58,374,100
|
||||||||||||
(a)
Warrants expire on the date on which a registration statement
filed with the Securities Exchange Commission permitting a sale of the
shares issuable upon exercise of the warrant shall have become effective
and shall have remained effective for a period of six months.
67
|
FY
2006
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
|
13.
|
Preferred
Stock
|
The
Company’s Articles of Incorporation authorize the Board of Directors to issue
10,000,000 shares of preferred stock from time to time in one or more
series. The Board subsequently authorized an additional 9,000,000
shares designated as Series B Preferred Stock. The Board of Directors
is authorized to determine, prior to issuing any such series of preferred stock
and without any vote or action by the shareholders, the rights, preferences,
privileges and restrictions of the shares of such series, including dividend
rights, voting rights, terms of redemption, the provisions of any purchase,
retirement or sinking fund to be provided for the shares of any series,
conversion and exchange rights, the preferences upon any distribution of the
assets of the Company, including in the event of voluntary or involuntary
liquidation, dissolution or winding up of the Company, and the preferences
and
relative rights among each series of preferred stock.
Series
A Preferred Stock
In
February, March and May of 1996, the Company issued 3,075,318 shares of Series
A
8% Cumulative Convertible Redeemable Preferred Stock $1.00 par value (“Series A
Preferred Stock”) and Redeemable common stock Purchase Warrants to purchase
1,537,696 shares of the Company’s Common Stock. The net proceeds of
the private placement were approximately $2,972,000. Subject to
adjustment based on issuance of shares at less than fair market value, each
share of the Series A Preferred Stock was initially convertible into one share
of common stock. Each Redeemable common stock Purchase Warrant is
exercisable at a price of $2.00 per share of common stock. Eight
percent (8%) dividends on the Series A Preferred Stock may be paid in cash
or in
Series A Preferred Stock at the discretion of the Company. The Series
A Preferred Stock is senior to the Company’s common stock in
liquidation. Holders of the Series A Preferred stock may vote on an
as if converted basis on any matter requiring shareholder vote. While
the Series A Preferred Stock is outstanding or any dividends thereon remain
unpaid, no common stock dividends may be paid or declared by the
Company. The Series A Preferred Stock may be redeemed in whole or in
part, at the option of the Company, at any time subsequent to March 1998 at
a
price of $1.46 per share plus any undeclared and/or unpaid dividends to the
date
of redemption. Redemption requires at least 30 days advanced notice
and notice may only be given if the Company’s common stock has closed above
$2.00 per share for the twenty consecutive trading days prior to the
notice.
As
of
December 31, 2006 and 2005, stated dividends that are undeclared and unpaid
on
the Series A Preferred Stock total approximately $485,000 and
$448,000. The Company anticipates that such dividends, if and when
declared, will be paid in shares of Series A Preferred Stock.
Series
B Preferred Stock
On
September 30, 2006 the Board of Directors authorized a new series of preferred
stock designated Series B Preferred Stock. The number of shares
authorized was 9,000,000. Each share of Series B Preferred Stock
$1.00 par value is convertible into 100 shares of the Company’s Common Stock.
The Series B Preferred Stock is senior to the Company’s Common Stock and junior
in priority to the Company’s A, C, D, E and G Preferred Stock in liquidation.
Holders of the Series B Preferred Stock are entitled to 100 votes per share
on
all matters requiring shareholder vote. While Series B Preferred
Stock is outstanding no Common Stock dividends may be paid or declared by the
Company. The Series B Preferred Stock may be redeemed in whole or in
part, at the option of the Company, at any time at a price of $1.00 per
share. As of December 31, 2006, 5,739,860.5 shares of Series B
Preferred Stock were outstanding.
68
|
FY
2006
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
Series
C Preferred Stock
The
Company has designated 840,000 shares as Series C 6% Cumulative Convertible
Redeemable Preferred Stock $1.00 par value (“Series C Preferred
Stock”). Each share of the Series C Preferred Stock is convertible
into 50 shares of Common Stock. Six percent dividends accrue on the
Series C Preferred Stock and may be paid in cash or in Common Stock depending
on
the Company's operating cash flow. The Series C Preferred Stock is
senior to the Company's Common Stock and junior in priority to the Company's
Series A Preferred Stock in liquidation. Holders of the Series C
Preferred Stock are entitled to 130 votes per share on any matter requiring
shareholder vote. While the Series C Preferred Stock is outstanding
or any dividends thereon remain unpaid, no Common Stock dividends may be paid
or
declared by the Company. The Series C Preferred Stock may be redeemed
in whole or in part, at the option of the Company, at any time at a price of
$1.00 per share plus any undeclared and/or unpaid dividends to the date of
redemption.
On
October 21, 2005, IMAGIN converted loan principal of $770,000 on promissory
notes into 770,000 shares of Series C Preferred Stock $1.00 par value (“Series C
Preferred Stock”).
On
September 30, 2006, the Company and Positron Acquisition Corp. converted
principal and interest of $818,066 outstanding upon the Series D Secured
Convertible Promissory Notes and 770,000 shares of Series C Preferred Stock
into
762,358 shares of Series B Preferred Stock. Positron Acquisition Corp.
subsequently converted 40,000 shares of Series B Preferred Stock into 4,000,000
shares of the Company’s Common Stock.
As
of
December 31, 2006 there were no outstanding shares of Series C Preferred
Stock.
Series
D Preferred Stock
The
Company has designated 1,560,000 shares of preferred stock as 6% Cumulative
Convertible Redeemable Series D Preferred Stock $1.00 par value. Each
share of the Series D Preferred Stock is convertible into 40 shares of Common
Stock. Six percent dividends accrue on the Series D Preferred Stock
and may be paid in cash or in Common Stock depending on the Company's operating
cash flow. The Series D Preferred Stock is senior to the Company's
Common Stock and junior in priority to the Company's Series A and C Preferred
Stock in liquidation. Except as required by law and in the case of
various actions affecting the rights of the Series D Preferred Stock, holders
of
the Series D Preferred Stock are not entitled to vote on matters requiring
shareholder vote. While the Series D Preferred Stock is outstanding
or any dividends thereon remain unpaid, no Common Stock dividends may be paid
or
declared by the Company. The Series D Preferred Stock may be redeemed
in whole or in part, at the option of the Company, at any time at a price of
$1.00 per share plus any undeclared and/or unpaid dividends to the date of
redemption. The Company has issued 10% secured convertible promissory
notes in the principal amount of $696,850, which remain outstanding and are
convertible into 696,850 shares of Series D Preferred Stock.
On
September 30, 2006, the Company and Positron Acquisition Corp. converted
principal and interest of $818,066 outstanding upon the Series D Secured
Convertible Promissory Notes and 770,000 shares of Series C Preferred Stock
into
762,358 shares of Series B Preferred Stock. Positron Acquisition Corp.
subsequently converted 40,000 shares of Series B Preferred Stock into 4,000,000
shares of the Company’s Common Stock.
As
of
December 31, 2006 there were no outstanding shares of Series D Preferred
Stock.
Series
E Preferred Stock
The
Company has designated 1,200,000 shares of preferred stock as 6% Cumulative
Convertible Redeemable Series E Preferred Stock $1.00 par value. Each
share of the Series E Preferred Stock is convertible into 22 shares of
Common Stock. Six percent dividends accrue on the Series E Preferred
Stock and may be paid in cash or in Common Stock depending on the Company's
operating cash flow. The Series E Preferred Stock is senior to the
Company's Common Stock and junior in priority to the Company's Series A, C
and D
Preferred Stock in liquidation. Except as required by law and in the
case of various actions affecting the rights of the Series E Preferred Stock,
holders of the Series E Preferred Stock are not entitled to vote on matters
requiring shareholder vote. While the Series E Preferred Stock is
outstanding or any dividends thereon remain unpaid, no Common Stock dividends
may be paid or declared by the Company. The Series E Preferred Stock
may be redeemed in whole or in part, at the option of the Company, at any time
at a price of $1.00 per share plus any undeclared and/or unpaid dividends to
the
date of redemption. The Company has issued 10% secured convertible
promissory notes in the principal amount of $1,000,000, which are convertible
into 1,000,000 shares of Series E Preferred Stock.
69
|
FY
2006
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
On
September 30, 2006, the Company and IMAGIN converted principal and
interest of
$1,164,192 outstanding upon the Series E Convertible Promissory Notes
and
principal and interest of $877,669 of Convertible Secured Notes into
690,930.5
shares of Series B Preferred Stock.
As
of
December 31, 2006 there were no outstanding shares of Series E Preferred
Stock.
Series
F Preferred Stock
The
Company has designated 600,000 shares of preferred stock as Series F Preferred
Stock $1.00 par value. Each share of the Series F Preferred
Stock is convertible into 50 shares of Common Stock. Six percent
dividends accrue on the Series F Preferred Stock and may be paid in cash or
in
Common Stock depending on the Company's operating cash flow. The
Series F Preferred Stock is senior to the Company's Common Stock and junior
in
priority to the Company's Series A, C, D and E Preferred Stock in
liquidation. Except as required by law and in the case of various
actions affecting the rights of the Series F Preferred Stock, holders of the
Series F Preferred Stock are not entitled to vote on matters requiring
shareholder vote. While the Series F Preferred Stock is outstanding
or any dividends thereon remain unpaid, no Common Stock dividends may be paid
or
declared by the Company. The Series F Preferred Stock may be redeemed
in whole or in part, at the option of the Company, at any time at a price of
$1.00 per share plus any undeclared and/or unpaid dividends to the date of
redemption. The Company has issued 10% secured
convertible promissory notes in the principal amount of $400,000, which are
convertible into 400,000 shares of Series F Preferred Stock.
On
September 30, 2006, the Company and QMP converted principal and interest
of
$453,144 outstanding upon the Series F Secured Convertible Promissory Notes
into
226,572 shares of Series B Preferred Stock.
As
of
December 31, 2006 there were no outstanding shares of Series F Preferred
Stock.
Series
G Preferred Stock
In
2006,
the Company issued 204,482 Units in a private placement. Each Unit consists
of
one share of a new series of preferred stock designated Series G Preferred
Stock
and a warrant exercisable for 50 shares of common stock (the "Units"). The
purchase price was $5.50 per Unit, with $5.00 of the Unit purchase price
allocated to the purchase of the share of Series G Preferred Stock and $0.50
allocated to the purchase of the warrant, for a total offering amount of
$1,124,650. The net proceeds of the private placement were approximately
$1,096,000.
The
Company has designated 3,000,000 shares of preferred stock as Series G Preferred
Stock $1.00 par value. Each share of Series G Preferred Stock is convertible
into 100 shares of common stock. Eight percent dividends accrue on the Series
G
Preferred Stock and may be paid in cash or in Common Stock in the Company's
discretion. The Series G Preferred Stock is senior to the Company's common
stock
and junior in priority to the Registrant's Series A, C, D, E and F Preferred
Stock in liquidation. Except as required by law and in the case of various
actions affecting the rights of the Series G Preferred Stock, holders of the
Series G Preferred Stock are not entitled to vote on matters requiring
shareholder vote. While the Series G Preferred Stock is outstanding or any
dividends thereon remain unpaid, no common stock dividends may be paid or
declared by the Company. The Series G Preferred Stock may be redeemed in whole
or in part, at the option of the Company, at any time at a price of $5.00 per
share plus any undeclared and/or unpaid dividends to the date of
redemption.
As
of
December 31, 2006, stated dividends that are undeclared and unpaid on the Series
G Preferred Stock total approximately $16,000.
|
14.
|
Income
Taxes
|
The
Company has incurred losses since its inception and, therefore, has not been
subject to federal income taxes. As of December 31, 2006, the Company
had net operating loss (“NOL”) carryforwards for income tax purposes of
approximately $18,000,000, which expire in 2007 through 2026. Under
the provisions of Section 382 of the Internal Revenue Code the greater than
50%
ownership changes that occurred in the Company in connection with the Imatron
Transaction and in connection with the private placement of the Company’s common
stock limited the Company’s ability to utilize its NOL carryforward to reduce
future taxable income and related tax liabilities.
70
|
FY
2006
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
The
composition of deferred tax assets and the related tax effects at December
31,
2006 are as follows (in thousands):
|
2006
|
2005
|
|||||||
|
Deferred
tax assets:
|
||||||||
|
Net
operating losses:
|
||||||||
|
Domestic
|
$ |
5,835
|
$ |
4,980
|
||||
|
Foreign
|
196
|
--
|
||||||
|
Stock
option compensation
|
172
|
--
|
||||||
|
Accrued
liabilities and reserves
|
198
|
251
|
||||||
|
Inventory
basis difference
|
68
|
95
|
||||||
|
6,469
|
5,326
|
|||||||
|
Valuation
allowance
|
(6,469 | ) | (5,326 | ) | ||||
|
Total
deferred tax assets
|
$ |
--
|
$ |
--
|
||||
The
difference between the income tax benefit in the accompanying statement of
operations and the amount that would result if the U.S. Federal statutory rate
of 34% were applied to pre-tax loss is as follows (amounts in
thousands):
|
2006
|
2005
|
|||||||||||||||
|
Amount
|
%
|
Amount
|
%
|
|||||||||||||
|
Benefit
for income tax at federal statutory rate
|
$ |
2,321
|
34.0
|
$ |
1,294
|
34.0
|
||||||||||
|
Expenses
not deductible for tax purposes
|
(901 | ) | (13.2 | ) | (325 | ) | (8.5 | ) | ||||||||
|
Statutory
rate difference - foreign subsidiary
|
(203 | ) | (3.0 | ) |
--
|
--
|
||||||||||
|
Other
|
(74 | ) | (1.1 | ) |
--
|
--
|
||||||||||
|
Change
in valuation allowance
|
(1,143 | ) | (16.7 | ) |
(969)
|
(25.5 | ) | |||||||||
| $ |
--
|
--
|
$ |
--
|
--
|
|||||||||||
|
15.
|
401(k)
Plan
|
The
Positron Corporation 401(k) Plan and Trust (the “Plan”) covers all of the
Company’s employees who are United States citizens, at least 21 years of age and
have completed at least one quarter of service with the
Company. Pursuant to the Plan, employees may elect to reduce their
current compensation by up to the statutorily prescribed annual limit and have
the amount of such reduction contributed to the Plan. The Plan provides for
the
Company to make contributions in an amount equal to 25 percent of the
participant’s deferral contributions, up to 6 percent of the employee’s
compensation, as defined in the Plan agreement. The
Company made no contributions in 2006 and 2005. The Board of
Directors of the Company may authorize additional discretionary contributions;
however, no such contributions were by the Company in 2006 or 2005.
|
16.
|
Related
Party Transactions
|
Affiliated
Companies
In
September 2006, the Company sold a refurbished HZL PET Imaging machine to Imagin
Nuclear Partners (“INP”), a wholly-owned subsidiary of Imagin Molecular
Corporation, an affiliate of the Company. The sales price of the machine was
$200,000. The Company also billed $18,000 for time and expense related to
installation. As of December 31, 2006 INP owes the Company
$185,385.
71
|
FY
2006
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
In
2006
sales to NPMS approximated $180,000. As of December 31, 2006 the
Company has
a
receivable in the amount of $179,053 due from NPMS, for parts and materials
purchased on behalf of the joint venture.
Key
Employee Incentive Compensation
The
Company has an incentive compensation plan for certain key employees and
it’s
Chairman. The incentive compensation plan provides for annual bonus
payments based upon achievement of certain corporate objectives as determined
by
the Company’s compensation committee, subject to the approval of the board of
directors. During 2006 the Company did not pay any bonus pursuant to
the incentive compensation plan.
|
17.
|
Commitments
and Contingencies
|
Employment
Agreement
Effective
December 27, 2005, the Company entered into an employment agreement with Joseph
G. Oliverio, President of the Company. Under the Agreement, Mr.
Oliverio receives an initial base salary of $100,000 per annum which increases
to $150,000 per annum on March 1, 2006. Mr. Oliverio also
received an option grant exercisable for 7,500,000 shares of Common Stock at
an
exercise price of $0.05 per share. On the date of grant of the option
2,000,000 shares vested, with an additional 2,000,000 shares vesting on
December 27, 2006 and the remainder on December 27,
2007. Mr. Oliverio is entitled to six months severance upon a
termination "without cause".
Royalty
Agreements
The
Company acquired the know-how and patent rights for Positron Imaging from three
entities: the Clayton Foundation, K. Lance Gould (formerly a director) and
Nizar
A. Mullani (also formerly a director.) Pursuant to agreements with
each of them, the Company was obligated to pay royalties of up to 4.0% in the
aggregate of gross revenues from sales, uses, leases, licensing or rentals
of
the relevant technology. Royalty obligations amounting to
approximately $373,000 and $352,000 were included in liabilities at December
31,
2006 and 2005, respectively.
Lease
Agreements
The
Company operates in leased facilities under three separate operating leases,
two
of which are on a month-to-month basis and a third, for the IS2 facility in
Canada, expires July 31, 2008. The rental rate for the month-to-month leased
facilities was $5,600. Monthly rental charges for the IS2 facility were
$8,300. The cost of leasing the Company’s operating
facility amounted to approximately $125,000 and $56,000 in 2006 and 2005,
respectively.
At
December 31, 2006, approximate future minimum rental payments under operating
leases are as follows:
|
2007
|
$ |
97,480
|
||
|
2008
|
58,745
|
|||
| $ |
156,225
|
Litigation
From
time
to time the Company may be involved in various legal actions in the normal
course of business for which the Company maintains insurance. The
Company is currently not aware of any material litigation affecting the
Company.
|
18.
|
Loss
Per Share
|
The
following information details the computation of basic and diluted loss per
share:
72
|
FY
2006
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
|
Year
Ended
December
31,
(In
thousands, except
for
per share
data)
|
||||||||
|
2006
|
2005
|
|||||||
|
Numerator:
|
||||||||
|
Basic
and diluted net loss:
|
$ | (6,586 | ) | $ | (3,806 | ) | ||
|
Denominator:
|
||||||||
|
Denominator
for basic earnings per share-weighted average shares
|
81,508
|
65,044
|
||||||
|
Effect
of dilutive securities
|
||||||||
|
Convertible
Series A Preferred Stock
|
--
|
--
|
||||||
|
Stock
Warrants
|
--
|
--
|
||||||
|
Stock
Options
|
--
|
--
|
||||||
|
Denominator
for diluted earnings per share-adjusted weighted Average shares
and
assumed conversions
|
81,508
|
65,044
|
||||||
|
Basic
and diluted loss per common share
|
$ | (0.08 | ) | $ | (0.06 | ) | ||
All
common stock equivalents in the years ended December 31, 2006 and 2005 were
excluded from the above calculation as their effect was
anti-dilutive.
|
19.
|
Segment
Information and Major
Customers
|
The
Company has operations in the United States and Canada. Selected financial
data
by geographic area was as follows (in thousands):
|
2006
|
2005
|
|||||||
|
United
States:
|
||||||||
|
Revenues
|
$ |
1,295
|
$ |
762
|
||||
|
Operating
expenses
|
3,114
|
2,526
|
||||||
|
Net
loss
|
(5,657 | ) | (3,806 | ) | ||||
|
Canada:
|
||||||||
|
Revenues
|
$ |
918
|
--
|
|||||
|
Operating
expenses
|
1,489
|
--
|
||||||
|
Net
loss
|
(929 | ) |
--
|
|||||
The
Company believes that all of its material operations are conducted in the
servicing and sales of medical imaging devices and it currently reports as
a
single segment.
During
the years ended December 31, 2006 and 2005 the Company had a limited number
of
customers as follows:
|
2006
|
2005
|
|||||||
|
Number
of customers
|
18
|
8
|
||||||
|
Customers
accounting for more than 10% of revenues
|
--
|
5
|
||||||
|
Percent
of revenues derived from largest customer
|
9 | % | 28 | % | ||||
|
Percent
of revenues derived from second largest
customer
|
8 | % | 15 | % | ||||
73
|
FY
2006
|
POSITRON
CORPORATION
|
FORM
10-KSB
|
|
20.
|
Subsequent
Events
|
Acquisition
of IMAGIN Interest in IPT
On
January 26, 2007, the Company executed and consummated a Securities Purchase
Agreement (the “Agreement”) with IMAGIN, to acquire 11,523,000 shares of common
stock IPT. The Shares represented approximately a 50.1% of IPT’s issued and
outstanding common stock. As a result of the acquisition of the Shares,
the
Company owns 100% of the common stock of IPT. As consideration for the
shares,
the Company and IMAGIN agreed to cancel a promissory note in the principal
amount of $2,400,000 made by IMAGIN subsidiary, QMP and later assigned
to
IMAGIN. As of the date of the Agreement, the Company had been advised
by IMAGIN that it had acquired all of QMP’s interest in IPT as well as QMP's
other holdings of the Company's related securities.
Immediately
following the acquisition of the Shares, IPT acquired all of the outstanding
capital stock of the Company’s wholly-owned subsidiary, QMT. The purchase price
of the acquisition was $2,800,000, in the form of a promissory note made in
favor of the Company, payable on or before July 1, 2008, and secured by a pledge
of all of the issued and outstanding shares of QMT.
Newly
Formed Subsidiary
On
March
26, 2007, the Company formed Homeland Radiation Detection Systems, Inc., a
Texas
corporation and wholly-owned subsidiary (“HRDS”) HRDS has filed
a provisional patent for production of a device that is capable of detecting
illicit radioactive sources at a distance which the Company intends to develop
and market for homeland security applications.
Severance
Obligation
In
March
2007, the Company paid Gary Brooks, the Company’s former Chief Executive
Officer, $58,325 as full settlement of the Company’s severance obligation to Mr.
Brooks pursuant to the severance agreement dated September 29,
2005. The Company has no further amounts due to Mr. Brooks under the
severance agreement.
EXHIBITS
|
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
|
- 74
-