FORM 10-QSB JUNE 30, 2003
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U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2003
Commission file number: 0-24092
[GRAPHIC OMITED]
POSITRON
Positron Corporation
A Texas Corporation
I.D. No. 76-0083622
1304 Langham Creek Drive, Suite 300, Houston, Texas 77084
(281) 492-7100
Indicate by check mark whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
past 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days.
Yes X No
--- ---
As of June 30, 2003, there were 53,173,303 shares of the Registrant's Common
Stock, $ .01 par value outstanding.
Transitional Small Business Disclosure Format. Yes No X
--- ---
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FORM 10-QSB JUNE 30, 2003
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POSITRON CORPORATION
TABLE OF CONTENTS
FORM 10-QSB FOR THE QUARTER ENDED JUNE 30, 2003
PART I - FINANCIAL INFORMATION PAGE
----
Item 1. Condensed Financial Statements
Condensed Balance Sheet as of June 30, 2003 3
Condensed Statements of Operations for the three and six months ended
June 30, 2003 and 2002 4
Condensed Statements of Cash Flows for the six months ended
June 30, 2003 and 2002 5
Selected Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation 10
Item 3. Controls and Procedures 12
PART II - OTHER INFORMATION 13
Signature Page 14
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FORM 10-QSB JUNE 30, 2003
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POSITRON CORPORATION
CONDENSED BALANCE SHEET
JUNE 30, 2003
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
ASSETS
------
Current assets:
Cash and cash equivalents $ 120
Accounts receivable, net 259
Inventories 1,329
Prepaid expenses 67
Other current assets 36
---------
Total current assets 1,811
Property and equipment, net 265
---------
Total assets $ 2,076
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable, trade and accrued liabilities $ 1,519
Customer deposits 75
Unearned revenue 111
Current portion of capital lease obligation 11
---------
Total current liabilities 1,716
Stockholders' equity:
Series A Preferred Stock: $1.00 par value; 8% cumulative,
convertible, redeemable; 5,450,000 shares authorized;
510,219 shares issued and outstanding 510
Common Stock: $0.01 par value; 100,000,000 shares authorized;
53,233,459 shares issued and 53,173,303 shares outstanding 532
Additional paid-in capital 55,183
Subscription receivable (30)
Accumulated deficit (55,820)
Treasury Stock: 60,156 shares at cost (15)
---------
Total stockholders' equity 360
---------
Total liabilities and stockholders' equity $ 2,076
=========
See accompanying notes
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FORM 10-QSB JUNE 30, 2003
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POSITRON CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Three Months Ended Six Months Ended
-------------------------------- --------------------------------
June 30, June 30, June 30, June 30,
2003 2002 2003 2002
--------------- --------------- --------------- ---------------
Revenues:
System sales $ -- $ 2,169 $ 3,425 $ 3,319
Upgrades 265 -- 265 --
Service and component 336 315 678 661
--------------- --------------- --------------- ---------------
Total revenues 601 2,484 4,368 3,980
Costs of sales and services:
System sales 155 2,174 3,016 3,272
Upgrades 95 -- 95 --
Service, warranty and component 178 161 344 301
--------------- --------------- --------------- ---------------
Total costs of revenues 428 2,335 3,455 3,573
--------------- --------------- --------------- ---------------
Gross profit 173 149 913 407
Operating expenses:
Research and development 208 267 452 532
Selling and marketing 105 146 176 242
General and administrative 353 545 714 848
--------------- --------------- --------------- ---------------
Total operating expenses 666 958 1,342 1,622
--------------- --------------- --------------- ---------------
Loss from operations (493) (809) (429) (1,215)
Other income (expense)
Gain on sale of Cardiac PET Software 2,376 -- 2,376 --
Interest income -- 1 -- 2
Interest expense (49) (101) (100) (207)
Deposit forfeiture -- 50 -- 50
--------------- --------------- --------------- ---------------
Total other income (expense) 2,327 (50) 2,276 (155)
--------------- --------------- --------------- ---------------
Net income (loss) $ 1,834 $ (859) $ 1,847 $ (1,370)
=============== =============== =============== ===============
Basic and diluted loss per common share $ 0.03 $ (0.01) $ 0.03 $ (0.02)
Weighted average number of basic and
diluted common shares outstanding
62,074 62,173 62,124 62,173
See accompanying notes
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POSITRON CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Six Months Ended
------------------
June 30, June 30,
2003 2002
-------- --------
Cash flows from operating activities:
Net income (loss) $ 1,847 $(1,370)
Adjustment to reconcile net loss to net cash
used in operating activities
Depreciation 43 46
Amortization -- 100
Gain on sale of Cardiac PET Software (2,376) --
Changes in operating assets and liabilities:
Accounts receivable 820 (306)
Inventory 1,955 1,842
Prepaid expenses 16 (10)
Other current assets 47 33
Accounts payable and accrued liabilities 68 (174)
Customer deposits (2,313) (395)
Unearned revenue (67) (166)
-------- --------
Net cash provided by (used in) operating activities 40 (400)
Cash flows from investing activities:
Capital expenditures (5) (7)
-------- --------
Net cash used in investing activities (5) (7)
Cash flows from financing activities:
Repayment of capital lease obligation (22) (20)
-------- --------
Net cash used in financing activities (22) (20)
-------- --------
Net increase (decrease) in cash and cash equivalents 13 (427)
Cash and cash equivalents, beginning of period 107 635
-------- --------
Cash and cash equivalents, end of period $ 120 $ 208
======== ========
See accompanying notes
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FORM 10-QSB JUNE 30, 2003
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POSITRON CORPORATION
SELECTED NOTES TO CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
-----------------------
The accompanying unaudited interim financial statements have been prepared
in accordance with generally accepted accounting principles and the rules
of the U.S. Securities and Exchange Commission, and should be read in
conjunction with the audited financial statements and notes thereto
contained in the Annual Report Form 10-KSB for Positron Corporation (the
"Company") for the year ended December 31, 2002. In the opinion of
management, all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of financial position and the results of
operations for the interim periods presented have been reflected herein.
The results of operations for interim periods are not necessarily
indicative of the results to be expected for the full year. Notes to the
financial statements which would substantially duplicate the disclosures
contained in the audited financial statements for the most recent fiscal
year ended December 31, 2002, as reported in the Form 10-KSB, have been
omitted.
Certain prior period amounts have been reclassified to conform to current
period presentation.
2. ACCOUNTING POLICIES AND NEW PRONOUNCEMENTS
----------------------------------------------
REVENUE RECOGNITION
Revenues from POSICAM(TM) system contracts are recognized when all
significant costs have been incurred and the system has been shipped to the
customer. The Company also recognizes revenue on bill and hold transactions
when the product is completed and is ready to be shipped and the risk of
loss is transferred to the customer. In certain cases, at the customers'
request, the Company is storing the product for a brief period of time.
Revenues from maintenance contracts are recognized over the term of the
contract. Service revenues are recognized upon performance of the services.
SFAS NO. 149
In April 2003, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 149, "Amendment of
Statement 133 on Derivative Instruments and Hedging Activities", which
amends and clarifies accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under
FASB Statement No. 133, Accounting for Derivative Instruments and Hedging
Activities. The changes in this Statement improve financial reporting by
requiring that contracts with comparable characteristics be accounted for
similarly, and will result in more consistent reporting of contracts as
either derivatives or hybrid instruments. The implementation of SFAS No.
149 did not impact the Company's financial position or results of
operations.
SFAS NO. 150
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity",
which establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. It requires the issuer to classify a financial instrument that is
within its scope as a liability (or an asset in some circumstances). Many
of those instruments were previously classified as equity. The
implementation of SFAS No. 150 did not impact the Company's financial
position or results of operations.
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FORM 10-QSB JUNE 30, 2003
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3. SALE OF CARDIAC PET SOFTWARE
--------------------------------
The Company entered into a loan arrangement on June 29, 2001 with Imatron
Inc. ("Imatron"), a stockholder of the Company, for the purpose of
borrowing up to $2,000,000 to fund operating activities. This loan was
collateralized by substantially all the assets of the Company. Interest was
charged on the outstanding principal balance at an annual rate of 10% and
was payable monthly. As of June 29, 2003 the principal balance of the loan
was $2,000,000. Principal on the loan amounting to $1,000,000 and $500,000
was to be repaid within five (5) business days of December 31, 2001 and
March 31, 2002, respectively. The remaining $500,000 of loan principal and
all unpaid interest was due and payable no later than June 30, 2002.
In conjunction with the loan, the Company granted Imatron warrants to
purchase 6,000,000 shares of common stock, at an exercise price of $.30 per
share that are exercisable through June 30, 2006. The warrants issued to
Imatron had an approximate value of $200,000 at the date of issue. Such
cost has been treated as a loan origination cost and was amortized to
expense over the twelve-month term of the note payable, using the effective
interest method.
Imatron had previously acquired 9,000,000 shares of the Company's common
stock on January 22, 1999. General Electric Company ("GE") acquired Imatron
on December 19, 2001.
Effective June 29, 2003, the Company entered into a Technology Purchase
Agreement to transfer its Cardiac PET Software to GE in exchange for
cancellation of the indebtedness under this loan and the surrender of the
9,000,000 shares of common stock and the warrant to purchase 6,000,000
shares of common stock. The Company recognized a gain of $2,376,000 related
the sale of this technology. This gain resulted from the cancellation of
the Company's obligation for $2,000,000 in principal and accrued interest
of $376,000 under the loan. The Company's future commitment to provide
assistance to GE for the purpose of fully utilizing and exploiting this
technology, as well as the compensation for these services, were provided
for in a separate service agreement discussed below.
As part of the transactions contemplated by the Technology Purchase
Agreement, the Company entered into a Software License Agreement. Pursuant
to terms of the Software License Agreement, the Company received an
irrevocable license from GE to continue using, modifying, distributing and
otherwise exploiting the Cardiac PET Software in perpetuity.
In conjunction with the Technology Purchase Agreement, the Company also
entered into an Agreement For Services for the purpose of assisting GE in
fully utilizing and exploiting the Cardiac PET Software. The Company agreed
to provide services for a period of six quarters (eighteen months) for a
fee of $50,000 per each 3-month period during the term of this agreement.
GE committed to pay the fee for the first two quarters' $50,000 (total of
$100,000) within two business days of the July 29, 2003 and will make
payment of any subsequent quarters in advance of such quarter. GE may
terminate the Agreement For Services at any time after it has paid the fees
for at least four quarters.
4. INVENTORIES
-----------
Inventories at June 30, 2003 consisted of the following (in thousands):
Raw materials $ 1,045
Work in progress 384
----------
Subtotal 1,429
Less reserve for obsolescence (100)
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Total $ 1,329
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FORM 10-QSB JUNE 30, 2003
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5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
--------------------------------------------
Accounts payable and accrued liabilities at June 30, 2003 consisted of the
following (in thousands):
Trade accounts payable $ 362
Accrued royalties 303
Accrued property taxes 258
Accrued professional fees 180
Sales taxes payable 129
Accrued compensation 105
Accrued rent 97
Accrued warranty costs 60
Other accrued liabilities 25
---------
Total $ 1,519
=========
6. EARNINGS PER SHARE
--------------------
Basic earnings per common share are based on the weighted average number of
common shares outstanding in each period and earnings adjusted for
preferred stock dividend requirements. Diluted earnings per common share
assume that any dilutive convertible preferred shares outstanding at the
beginning of each period were converted at those dates, with related
interest, preferred stock dividend requirements and outstanding common
shares adjusted accordingly. It also assumes that outstanding common shares
were increased by shares issuable upon exercise of those stock options and
warrants for which market price exceeds exercise price, less shares which
could have been purchased by the Company with related proceeds. The
convertible preferred stock and outstanding stock options and warrants were
not included in the computation of diluted earnings per common share for
the three and six month periods ended June 30, 2002 since it would have
resulted in an antidilutive effect.
The following table sets forth the computation of basic and diluted
earnings per share.
Three Months Ended Six Months Ended
------------------ -----------------
June 30, June 30, June 30, June 30,
2003 2002 2003 2002
-------- -------- ------- --------
(In Thousands, except per share data)
Numerator
Basic and diluted income (loss) $ 1,834 $ (859) $ 1,847 $(1,370)
Denominator
Basic earnings per share-weighted
average shares outstanding 62,074 62,173 62,124 62,173
Basic and diluted income (loss) per
Common share $ 0.03 $ (0.01) $ 0.03 $ (0.02)
7. LITIGATION
----------
PROFUTURES CAPITAL BRIDGE FUND, L.P.
On September 26, 2000, ProFutures Bridge Capital Fund, L.P. ("ProFutures")
filed a complaint against the Company in Colorado state court for
declaratory relief and breach of contract (the "Complaint"). The Complaint
alleged that the Company breached four stock purchase warrants issued to
ProFutures on the basis that the Company failed to notify ProFutures of
dilutive events and failed to register the full number of shares ProFutures
as allegedly entitled to purchase under the warrants when, on February 14,
2000, the Company registered 1,500,000 shares of stock underlying
ProFutures' warrants instead of 4,867,571. The Complaint further alleged
that the
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FORM 10-QSB JUNE 30, 2003
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Company's issuance of shares of common stock to Imatron, Inc. on or about
January 22, 1999, (the "Imatron Transaction") was a dilutive event pursuant
to the anti-dilution clauses of the four stock purchase warrants. The
Complaint sought declarations that the consideration received by the
Company in the Imatron Transaction increased the number of shares issuable
under the warrants, the Company breached the warrants by failing to notify
ProFutures of the Imatron Transaction and its effect on ProFutures'
warrants at the time of the Imatron Transaction and that the Company
further breached the warrants by failing to register the number of shares
ProFutures alleged were purchasable under its warrants. The Complaint
sought an unspecified amount of monetary damages.
The Colorado State level case of ProFutures v. Positron, District Court,
City and County of Denver, Colorado, Case No. 00CV7146, was tried before
the Court in June 2002. The Court issued its Findings of Fact, Conclusions
of Law and Judgment on November 13, 2002. The Court agreed with Positron's
determination of the value of the consideration paid for the shares issued
to Imatron and that there was no evidence of fraud by Positron. The Court
agreed with ProFutures that Positron breached the 1996 stock purchase
warrant with ProFutures by failing to give ProFutures written notice
stating the adjusted exercise price and the new number of shares
deliverable as a result of the Imatron Transaction and by failing to
register the shares to which ProFutures was entitled under the warrant as a
result of the Imatron Transaction. Nevertheless, the Court also found that
ProFutures' alleged damages were uncertain and speculative and the
ProFutures was not entitled to recover actual damages. Therefore ProFutures
was awarded $1 in nominal damages. ProFutures has appealed the trial
Court's findings and Positron has cross-appealed. Those appeals are
presently pending before the Court of Appeals, State of Colorado.
In the federal case of ProFutures v. Positron, et al., United States
District Court for the District of Colorado, Case No. 02-N-0154, the
Complaint alleged two causes of action against the Company: fraudulent
transfer and injunctive relief. The allegations arose out of a June 2001
loan agreement between Positron and Imatron. The action was dismissed in
2002 without prejudice.
CHINA XINXING
In July 2001 and February 2002, the Company received demands from China
Xinxing Shanghai Import and Export Company ("China Xinxing"), a company
located in Shanghai, China, for payment of an arbitration award in favor of
China Xinxing and against the Company, in the total amount of approximately
$297,000. The award was rendered on or about August 25, 2000 by arbitrators
affiliated with the Shanghai Sub-commission of the China International
Economic and Trade Arbitration Commission (CIETAC Case No. SM9872, Award
No. (2000) HMZZ 1154). The award represents the amount of a refund
(together with arbitration costs) of an advance payment made by China
Xinxing under a contract with the Company dated September 12, 1996. In
August 2002, China Xinxing filed suit in the United States to obtain
confirmation and enforcement of the award.
The Company entered into a Settlement Agreement and Release with China
Xinxing in November 2002. The Company was obligated to pay the $297,000
obligation in five periodic monthly installments of $50,000 beginning in
November 2002, with a sixth final payment of approximately $47,000 due in
March 2003. The Company has paid all six installments, and China Xinxing
has executed a Satisfaction of Judgment reflecting satisfaction all of the
Company's obligations under the award, the Judgment entered on the award,
and the Settlement Agreement.
10P10, L.P.
In December 2001, 10P10, L.P., the Company's previous landlord for its
premises located at 16350 Park Ten Place, Suite 150, Houston, Texas, filed
a complaint (Cause No. 2001-65534 in the 165th Judicial District Court of
Harris County, Texas) against the Company alleging breach of lease
agreement. The Company disputes the amount of lease commissions and
construction costs charged by 10P10, L.P. in conjunction with the
subleasing of the premises. Although 10P10, L.P. asserted a claim in excess
of $150,000, a subsequent analysis of the transactions under the lease has
resulted in the reduction of the lease obligation alleged by 10P10, L.P. to
approximately $97,000. Although the Company disputes the amount of the
claim, due to the pending lawsuit, Company management took a conservative
position and has recorded $97,000 as an accrued liability as of June 30,
2003. The case is set for trial on a two week docket
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FORM 10-QSB JUNE 30, 2003
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beginning November 10, 2003.
8. SUPPLEMENTAL CASH FLOW DATA
---------------------------
Three Months Ended Six Months Ended
------------------ -------------------
June 30, June 30, June 30, June 30,
2003 2002 2003 2002
-------- ------- -------- ---------
Supplemental disclosure of cash flow
information (In thousands):
Cash paid for interest $ 1 $ 2 $ 1 $ 7
Cash paid for income taxes $ -- $ -- $ -- $ --
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
We are including the following cautionary statement in this Quarterly Report on
Form 10-QSB to make applicable and utilize the safe harbor provision of the
Private Securities Litigation Reform Act of 1995 regarding any forward-looking
statements made by, or on behalf of, the Company. Forward-looking statements
include statements concerning plans, objectives, goals, strategies, future
events or performance and underlying assumptions and other statements, which are
other than statements of historical facts. Certain statements contained herein
are forward-looking statements and, accordingly, involve risks and
uncertainties, which could cause actual results or outcomes to differ materially
from those expressed in the forward-looking statements.
Our expectations, beliefs and projections are expressed in good faith and are
believed by us to have a reasonable basis, including without limitations, our
examination of historical operating trends, data contained in our records and
other data available from third parties, but there can be no assurance that our
expectations, beliefs or projections will result, or be achieved, or be
accomplished.
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2003
--------------------------------------------------------------------------------
AND 2002
--------
We earned income of $1,834,000 for the three months ended June 30, 2003 compared
to a loss of $859,000 for the same quarter in 2002. The income achieved in the
first quarter of 2003 resulted primarily from $2,376,000 in earnings related to
the sale of our Cardiac PET Software.
We did not sell any systems during the quarter ended June 30, 2003. This
compares to the sale of two systems for $2,169,000 in the same quarter in 2002.
We earned revenues of $265,000 from upgrades of systems in the second quarter of
2003 compared to no revenues from system upgrades in the same three-month period
in the previous year. Our service revenues increased $21,000 to $336,000 in the
three months ended June 30, 2003 from $315,000 in the same period in 2002.
We generated gross profits of $173,000 during the three months ended June 30,
2003 compared to $149,000 for the same three months in 2002. We earned profits
of $170,000 from upgrades of systems and $158,000 from customer service in the
second quarter of 2003, offset by $155,000 in expense related to manufacturing
labor and overhead. This compares to profits of $154,000 from customer service,
offset by a loss of $5,000 on the sale of two systems in the same quarter in
2002.
Our operating expenses decreased $292,000 to $666,000 for the three months ended
June 30, 2003 from $958,000 for the same period in 2002. Research and
development expenses declined $59,000 to $208,000 from $267,000 primarily due to
the reduction in the use of outside consultants. Legal fees decreased $223,000
to $45,000 the quarter ended June 30, 2003 from $268,000 in the same period in
2002, as a result of the reduction in legal activities associated with
litigation.
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Interest expense decreased $52,000 to $49,000 in the second quarter of 2003 from
$101,000 from the same period in 2002. Interest expense in the quarter ended
June 30, 2002 included $50,000 of loan cost amortization.
We generated earnings of $2,376,000 from the sale of our Cardiac PET Software in
the three month period ended June 30, 2003.
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2003
--------------------------------------------------------------------------------
AND 2002
--------
We earned income of $1,847,000 for the six months ended June 30, 2003 compared
to a loss of $1,370,000 for the same period in 2002. The income achieved in the
first six months of 2003 resulted primarily from $2,376,000 in earnings related
to the sale of our Cardiac PET Software.
We generated revenues of $3,425,000 on the sale of three systems during the six
month period ended June 30, 2003. This compares to revenues of $3,319,000 from
the sale of three systems in the same period in 2002. We earned revenues of
$265,000 from upgrades of systems in the six month period ended June 30, 2003
compared to no revenues from system upgrades in the same six month period in the
previous year. Our service revenues increased $17,000 to $678,000 in the six
months ended June 30, 2003 from $661,000 in the same period in 2002.
We generated gross profits of $913,000 during the six months ended June 30, 2003
compared to $407,000 for the same six-month period in 2002. We earned profits
of $564,000 from the sale of three systems, $170,000 from upgrades of systems
and $334,000 from customer service in the first six months of 2003, offset by
$155,000 in expense related to manufacturing labor and overhead. This compares
to profits of $47,000 from the sale of three systems and $360,000 from customer
service in the same period in 2002.
Our operating expenses decreased $280,000 to $1,342,000 for the six months ended
June 30, 2003 from $1,622,000 for the same period in 2002. Research and
development expenses declined $80,000 to $452,000 from $532,000 primarily due to
the reduction in the use of outside consultants. Legal fees decreased $331,000
to $51,000 the six-month period ended June 30, 2003 from $382,000 in the same
period in 2002, as a result of the reduction in legal activities associated with
litigation.
Interest expense decreased $107,000 to $100,000 in the six month period ended
June 30, 2003 from $207,000 from the same period in 2002. Interest expense in
the six-month period ended June 30, 2002 included $100,000 of loan cost
amortization.
We generated earnings of $2,376,000 from the sale of our Cardiac PET Software in
the six month period ended June 30, 2003.
FINANCIAL CONDITION
--------------------
We had cash and cash equivalents of $120,000 and accounts receivable of $259,000
on June 30, 2003. On the same date, we had accounts payable and accrued
liabilities outstanding of $1,519,000. We did not sell any imaging systems in
the second quarter of 2003. In order to resolve our liquidity problems, we must
sell imaging systems or seek alternative sources of debt or equity funding.
However, there is no assurance that we will be successful in selling new systems
or securing additional debt or equity funds.
Since inception, we have been unable to sell our POSICAM(TM) systems in
quantities sufficient to be operationally profitable. Consequently, we have
sustained substantial losses. Due to the sizable selling prices of our systems
and the limited number of systems sold or placed into service each year,
revenues have fluctuated significantly from year to year. We have an accumulated
deficit of $55,820,000 at June 30, 2003. The Company will need to increase
system sales to achieve continued profitability.
These events raise doubt as to our ability to continue as a going concern. The
report of our independent public accountants, which accompanied our financial
statements for the year ended December 31, 2002, was qualified with respect to
that risk. If we are unable to obtain debt or equity financing to meet our cash
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needs we may have to severely limit our cease our business activities or may
seek protection from our creditors under the bankruptcy laws.
NEW ACCOUNTING PRONOUNCEMENTS
-------------------------------
In April 2003, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 149, "Amendment of
Statement 133 on Derivative Instruments and Hedging Activities", which amends
and clarifies accounting and reporting for derivative instruments, including
certain derivative instruments embedded in other contracts (collectively
referred to as derivatives) and for hedging activities under FASB Statement No.
133, Accounting for Derivative Instruments and Hedging Activities. The changes
in this Statement improve financial reporting by requiring that contracts with
comparable characteristics be accounted for similarly, and will result in more
consistent reporting of contracts as either derivatives or hybrid instruments.
The implementation of SFAS No. 149 did not impact the Company's financial
position or results of operations.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity", which
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires the issuer to classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). Many of those instruments
were previously classified as equity. The implementation of SFAS No. 150 did
not impact the Company's financial position or results of operations.
CRITICAL ACCOUNTING POLICIES
------------------------------
REVENUE RECOGNITION
Revenues from POSICAM(TM) system contracts are recognized when all significant
costs have been incurred and the system has been shipped to the customer. The
Company also recognizes revenue on bill and hold transactions when the product
is completed and is ready to be shipped and the risk of loss is transferred to
the customer. In certain cases, at the customers' request, the Company is
storing the product for a brief period of time. Revenues from maintenance
contracts are recognized over the term of the contract. Service revenues are
recognized upon performance of the services.
ITEM 3 - CONTROLS AND PROCEDURES
As of June 30, 2003, the Company carried out an evaluation, under the
supervision and with the participation of the Company's management, including
the Company's President 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-14(c). Based upon that evaluation, the
Company's President and Chief Financial Officer concluded that the Company's
disclosure controls and procedures are effective 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 significant changes in the Company's internal controls or, to
the Company's knowledge, in other factors that could significantly affect those
internal controls subsequent to the date the Company carried out its evaluation,
and there have been no corrective actions with respect to significant
deficiencies and material weaknesses.
The Company's management, including the President and the Chief Financial
Officer, does not expect that our disclosure controls or our 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. Further, 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 all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within the Company have been detected. These inherent limitations include
the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or mistake. Additionally, controls
can be circumvented by the individual acts of some persons, by collusion of two
or more people, or by management override of the control. The design of any
system of controls also is based in part upon certain assumptions about the
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likelihood of future events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions;
over time, control may become inadequate because of changes in conditions, or
the degree of compliance with the policies or procedures may deteriorate.
Because of the inherent limitations in a cost-effective control system,
misstatements due to error or fraud may occur and not be detected.
PART II OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
The information regarding legal proceedings set forth above under Part I -
Financial Information, Note 7 to the Condensed Financial Statements, is hereby
incorporated by reference into Part II, Item 1 - Legal Proceedings.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit Description of the Exhibit
31.1 Chief Executive Officer and Chief Financial Officer
Certification of Periodic Financial Report Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Chief Executive Officer and Chief Financial Officer
Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on From 8-K
There were no reports filed on From 8-K for the quarterly period ended
June 30, 2003.
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FORM 10-QSB JUNE 30, 2003
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
POSITRON CORPORATION
(Registrant)
Date: August 14, 2003 /s/ Gary H. Brooks
----------------------
Gary H. Brooks
Chairman, CEO, & CFO
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EXHIBIT INDEX
Exhibit Description of the Exhibit
31.1 Chief Executive Officer and Chief Financial Officer
Certification of Periodic Financial Report Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Chief Executive Officer and Chief Financial Officer
Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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