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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, 2001
Commissions file number: 0-24092
POSITRON
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 (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
--- ---
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.[X]
Issuer's revenues for fiscal year ended December 31, 2001: $2,540,000.
Aggregate market value of common stock held by non-affiliates of the Registrant
as of March 18, 2002: $6,839,063.
As of March 18, 2002, there were 62,173,303 shares of the Registrant's common
stock, $.01 par value outstanding
Documents incorporated by reference: None
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Positron Corporation (the "Company") was incorporated in the State of Texas on
December 20, 1983, and commenced commercial operations in 1986. The Company
designs, manufactures, markets and services advanced medical imaging devices
utilizing positron emission tomography ("PET") technology under the trade-name
POSICAM(TM) systems. 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(TM)
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(TM) system for marketing in 1985, and as of December 31, 2001, the
Company has sold twenty one (21) POSICAM(TM) systems, of which fourteen (14) are
in leading medical facilities in the United States and five (5) are installed in
international medical institutions. The Company has repurchased a system which
is being held in inventory for resale. The Company presently markets its
POSICAM(TM) systems at list prices of up to $1.7 million depending upon the
configuration and equipment options of the particular system.
The following table provides summary information regarding the Company's
installed base of POSICAM(TM) systems, which were operational as of December 31,
2001:
Install
Site Location Clinical Application Date
---- ---------------- ----------------------------- --------
Saint Joseph's Hospital Atlanta, GA Cardiology 1988
Cleveland Clinic Foundation Cleveland, OH Cardiology/Neurology/Oncology 1988
Memorial Hospital Jacksonville, FL Cardiology/Oncology/Neurology 1988
Kennestone Hospital Marietta, GA Cardiology/Oncology/Neurology 1989
Medical City Dallas Dallas, TX Cardiology/Oncology/Neurology 1990
Yale/Veterans Administration New Haven, CT Neurology/Oncology/Cardiology 1991
Beth Israel New York, NY Cardiology/Oncology/Neurology 1991
Crawford Long Hospital Atlanta, GA Cardiology/Oncology 1992
Hermann Hospital Houston, TX Cardiology/Oncology/Neurology 1993
Bergan Mercy Hospital Omaha, NE Cardiology/Oncology/Neurology 1995
Buffalo Cardiology & Pulmonary Assoc. Buffalo, NY Cardiology/Oncology 1995
Hadassah Hospital Israel Cardiology/Oncology/Neurology 1995
Baptist Hospital Nashville, TN Cardiology/Oncology/Neurology 1996
Nishidai Clinic (3 systems) Japan Cardiology/Oncology/Neurology 2000
National Institute of Radiological Sciences Japan Cardiology/Oncology/Neurology 2000
Coronary Disease Reversal & Prevention Buffalo, NY Cardiology/Oncology/Neurology 2000
McAllen PET Imaging Center McAllen, TX Cardiology/Oncology 2001
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 can 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(TM) 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
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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(TM) 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(TM) 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(TM) 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(TM)
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.
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 includes 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 400 dedicated PET
systems are currently operational in the United States and approximately 200
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(TM) 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
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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 the organ in its
natural processes, such as blood flow and metabolism, without affecting its
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, and a neurological PET scan 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(TM) systems have been designed flexibly to
be used with both cyclotron and generator processed radiopharmaceuticals, they
have proprietary design features that enhance their ability to use generator
processed 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.
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(TM) HZ, POSICAM(TM) HZL series and now the
mPower(TM) series of systems, Positron is pursuing the full oncology, cardiology
and neurology related PET application markets. The Company believes that it can
capture additional market share by leveraging its strong reputation in the
cardiology marketplace to continue to strengthen its leadership position in this
sector, while building its expertise and reputation in the oncology and
neurology application markets.
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. In 2000, the Company discontinued its direct sales
approach and is now working with and adding key distributors who have geographic
or market expertise. The approach allows the Company to pay for sales expense
at the time of sales. 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(TM) SYSTEM
At the heart of the POSICAM(TM) system is its detector assembly, which detects
the gammas from positron emissions, and electronic circuits that pinpoint the
location of each emission. POSICAM(TM) systems are easy to use and are neither
physically confining nor intimidating to patients. POSICAM(TM) scans are
commonly performed on an outpatient basis.
The Company's POSICAM(TM) system compares favorably with PET systems produced by
other manufacturers based upon count rate and sensitivity. 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(TM) 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
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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, and
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(TM) 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(TM) 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(TM) 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(TM) system enhances the accuracy of
the interpreted image set.
An integral part of a POSICAM(TM) 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(TM) systems are a trained nurse, a trained
technician and an overseeing physician for patient management and safety.
POSICAM(TM) HZ, HZL AND MPOWER(TM). In addition to the basic POSICAM(TM) system,
the Company offers two advanced versions, the POSICAM(TM) HZ and the POSICAM(TM)
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(TM) systems employ new detector concepts to satisfy these needs while
maintaining the high count rate capability and sensitivity of the basic
POSICAM(TM). In May 1991, the Company received approval from the FDA to market
the POSICAM(TM) HZ, and in May 1993, the Company received a patent for the
innovative light guide and detector staggering concepts used in the POSICAM(TM)
HZ and HZL. In July 1993, the Company received FDA approval to market in the
United States the POSICAM(TM) HZL, which has a larger axial field of view than
the POSICAM(TM) HZ, facilitating whole body scanning and the scanning of large
organs. The Company is currently in the process of filing a new 510(k) with the
FDA for enhancements in the systems that will be seen in the mPower(TM) product.
The Company believes that the special features of the POSICAM(TM) HZL and
MPower(TM) 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 six (6) 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(TM)
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(TM) systems,
eleven (11) of which are under formal service contracts: three (3) service
contracts are automatically renewed on a month-to-month basis; and, eight (8)
expire in 2002. The Company is currently negotiating to extend all of the
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service contracts expiring in 2002; however, there can be no assurance that such
extensions will be obtained.
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(TM) systems during 2001 and 2000.
COMPETITION
The Company faces competition from three other 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. in a joint venture with
CTI, Inc. of Knoxville, Tennessee ("CTI/Siemens"), and ADAC Medical Systems,
which was acquired by Philips Medical ("ADAC/Philips"). GE, CTI/Siemens and
ADAC/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". In addition, two Japanese manufacturers, Hitachi and
Shimadzu, have manufactured and sold PET scanners in Japan but not in the United
States. These manufacturers represent additional sources of competition that
have greater financial, technological and personnel resources than the Company.
GE and CTI/Siemens each introduced a scanner in 2001 that combined CT scanning
and PET in one gantry. This scanner type could put Positron at a competitive
disadvantage. 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.
THIRD-PARTY REIMBURSEMENT
POSICAM(TM) systems are purchased or leased primarily 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
Medicade 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 a 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. This program was to be finalized in 2002. Although expanding,
Medicare and Medicaid reimbursement for PET imaging continues to be restrictive.
Although HCFA broadened coverage in 2000, the agency has maintained that it
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intends to evaluate the effectiveness of PET and may change its policy toward
reimbursement at some future date. 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 1996, 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, 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.
In March 2000, the FDA issued a "Draft Guidance" finding FDG and NH3
(radiopharmaceuticals used in the Company's PET scanner) to be safe and
effective for broad oncology and cardiology indications. There is no
assurance, however, that the FDA's findings in the future will not change or
that additional radiopharmaceuticals will be approved.
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(TM) system will likely have a material adverse
effect on the Company's business, financial condition, results of operations and
cash flows.
MANUFACTURING
The Company believes that it currently has the ability to assemble its
POSICAM(TM) scanners in a 9,000 square foot area of its 12,800 square foot
corporate 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(TM) system in two to
three months. The Company cannot assure that its facilities will remain
adequate.
There are several essential components of the Company's POSICAM(TM) and
mPower(TM) systems which are obtained from limited or sole sources, including
bismuth germinate oxide ("BGO") crystals, which detect gamma photons from
positron emissions, and photomultiplier tubes, which convert light energy
emitted by such crystals into electrical impulses for use in the image
reconstruction process. During 2000, the Company qualified a second vendor for
BGO crystal assemblies. This has reduced the Company's exposure in this critical
component. While the Company attempts to make alternate supply arrangements for
photomultiplier tubes and other critical components, in the event that the
supply of any of these components is interrupted, there is no assurance that
those arrangements can be made and will provide sufficient quantities of
components on a timely or uninterrupted basis. Further, there is no assurance
that the cost of supplies will not rise significantly or that components from
alternate suppliers will continue to meet the Company's needs and quality
control requirements.
RESEARCH AND DEVELOPMENT
The Company's POSICAM(TM) 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 $1,125,000 and $1,071,000 for years 2001 and 2000,
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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 4.5% in the aggregate of
gross revenues from sales, uses, leases, licensing or rentals of the relevant
technology. In 1993, each royalty holder agreed to reduced royalty payments to
3% in the aggregate in exchange for receiving certain loans and entering into
certain consulting agreements. The consulting agreements provided that if the
Company defaulted in its obligations under those agreements, Dr. Gould and Mr.
Mullani would be entitled to reinstatement of their earlier royalties. In April
1998, the Company received a demand letter from Mr. Mullani alleging defaults
under his consulting agreement. The Company believed that such defaults, if
any, may also have occurred regarding Dr. Gould's agreement, although he made no
formal demand. In 1999 and 2000, the Company reached separate agreements with
Dr. Gould, Mr. Mullani and the Clayton Foundation regarding payment of
royalties, both retroactively and for the futureThe Company issued 168,000
shares of its common stock in February 2000 and paid approximately $39,000 to
Dr. Gould in complete settlement of all past royalty obligations. In May 2000,
the Company paid approximately $275,000 to Mr. Mullani to settle all past
royalty obligations. In July 2000, the Company issued 266,466 shares of its'
common stock to the Clayton Foundation in complete settlement of all obligations
for past royalties due.
Two of the Company's patents, issued in January 1986 and February 1987 and
expiring in January 2003 and February 2004, respectively, relate to the
staggered crystal array design of its original POSICAM(TM) systems. One
additional patent issued in June 1987 and expiring in June 2004 relates to
technology which the Company, by obtaining the patent, has reserved the right to
use. The Company maintains certain of its patents in Germany and has applied
for certain patents in Japan.
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, 2001, backlog consisted of an outstanding order for one
POSICAMTM HZL system. In conjunction with this order, the Company received a
$345,000 deposit from the customer in October 2001.
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 liability insurance with coverage of $1 million
per occurrence and an annual aggregate maximum of $2 million.
EMPLOYEES
As of December 31, 2001, the Company employed thirty-two (32) full-time
employees and two (2) full-time consultants: seven (7) in engineering, six (6)
in customer support, twelve (12) in manufacturing, three (3) in sales and
marketing, and four (4) in the executive and administration department. None of
the Company's employees are represented by a union. The Company believes its
relations with its employees are good.
RISKS ASSOCIATED WITH BUSINESS ACTIVITIES
HISTORY OF LOSSES. To date the Company has been unable to sell POSICAM(TM)
systems in quantities sufficient to be operationally profitable. Consequently,
the Company has sustained substantial losses. During the year ended December
31, 2001, the Company had a net loss of approximately $3,706,000, compared to
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net income of $81,000 during 2000. At December 31, 2001, the Company had an
accumulated deficit of approximately $54,700,000. 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(TM) 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.
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. At December 31, 2001, the Company had cash and cash
equivalents and short-term investments that totaled $635,000 compared to
$2,201,000 at December 31, 2000. The Company concluded a private placement in
August 1999, which resulted in an equity infusion of approximately $11,400,000
net to the Company. In 2001, the Company received $2,000,000 in proceeds on a
note payable to a stockholder. In spite of the equity infusion and loan
proceeds, the Company believes that it is possible that it may continue to
experience operating losses and accumulate deficits in the foreseeable future.
NASDAQ SMALLCAP MARKET ELIGIBILITY FAILURE TO MEET MAINTENANCE REQUIREMENTS:
DELISTING OF SECURITIES FROM THE NASDAQ SYSTEM. The Company's common stock was
previously listed on the NASDAQ SmallCap Market. The Board of Governors of the
National Association of Securities Dealers, Inc. ("NASD") has established
certain standards for the continued listing of a security on the NASDAQ SmallCap
Market. The standards required for the Company to maintain such listing
include, among other things, that the Company have total capital and surplus of
at least $2,000,000. In 1997, the Company failed to maintain its NASDAQ stock
market listing and may not meet the substantially more stringent requirements to
be re-listed for some time in the future. There can be no assurances that the
Company will ever meet the capital and surplus requirements needed to be
re-listed under the NASDAQ SmallCap Market System.
Trading of the Company's common stock is currently conducted on the NASD's
Electronic Bulletin Board. Trading in the common stock is covered by rules
promulgated under the Exchange Act for non-NASDAQ and non-exchange listed
securities. Under such rules, broker/dealers who recommend such securities to
persons other than established customers and accredited investors must make a
special written suitability determination for the purchaser and receive the
purchaser's written agreement to a transaction prior to sale. Securities are
exempt from these rules if the market price is at least $5.00 per share. As of
December 31, 2001, the closing price of the Company's common stock was $0.095.
In addition, the SEC has adopted regulations that generally define a penny stock
to be any equity security that has a market price of less than $5.00 per share,
subject to certain exceptions. The Company's common stock is currently subject
to such penny stock rules. The regulations require the delivery, prior to any
transaction involving a penny stock, of a disclosure schedule explaining the
penny stock market and the risks associated therewith. As a penny stock, the
market liquidity for the Company's common stock is severely affected due to the
limitations placed on broker/dealers that sell the common stock in the public
market.
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(TM) 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.
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NO ASSURANCE OF MARKET ACCEPTANCE. The POSICAM(TM) 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(TM) systems will be
accepted by the target markets, or that the Company's sales of POSICAM(TM)
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, manufacturing, 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.
Moreover, the FDA routinely inspects medical device manufacturers to determine
compliance with Quality System Regulations, and conducted such a routine
inspection of the Company's operation in November 2001. The inspection resulted
in issuance of five inspectional observations. The Company is in the process of
addressing all five inspectional observations and providing responses to the
FDA. The Company is cooperating fully and intends to continue to work with the
FDA on all compliance matters. However, there can be no assurance that any of
the Company's corrective actions or responses to the FDA will be determined
adequate by the FDA, or that any such corrective actions and responses will meet
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FY 2001 POSITRON CORPORATION FORM 10-KSB
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expected dates of completion for compliance.
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.
While in the past the Company has received notice of only minor violations which
were promptly and easily corrected, and while the Company believes that it has
taken adequate measures to prevent the recurrence of any violations, 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(TM) 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 liability insurance coverage in the amount of $1 million
per occurrence and an annual aggregate maximum of $2 million. 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.
ITEM 2. DESCRIPTION OF PROPERTY
The Company occupies a 12,800 square foot facility in Houston, Texas. That
facility includes area for system assembly and testing, a computer room for
hardware and software product design, and office space. The rental rate for the
facility is $6,744 per month through April 30, 2001 and the monthly rate
increases to $7,171 for the period from May 1, 2001 through March 31, 2003. The
Company anticipates that the facility will be sufficient for 2002 operating
activities.
ITEM 3. LEGAL PROCEEDINGS
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PROFUTURES CAPITAL BRIDGE FUND, L.P.
On September 26, 2000, ProFutures Capital Bridge Fund, L.P. ("ProFutures") filed
a complaint against the Company in Colorado state court for declaratory relief
and breach of contract. ProFutures alleges in its complaint that the Company
breached four stock purchase warrants when, on February 14, 2000, the Company
registered only 1,500,000 shares of stock underlying ProFutures warrants instead
of the 4,867,571 that ProFutures claims it is entitled to purchase. ProFutures
claims that it is entitled to purchase these additional shares of stock under
the anti-dilution provisions in its warrants and as the result of the Company
sale of additional shares of stock and issuance of additional warrants. Prior
to being sued by ProFutures, the Company notified ProFutures that its Board of
Directors had determined that as a result of the Imatron Transaction that
ProFutures was entitled to purchase an additional 965,894 shares of common stock
under its warrants. ProFutures seeks in its complaint for a declaration that
it is entitled to purchase the additional shares of stock under its warrants and
for damages for breach of the warrants in an unspecified amount. The Company
believes that ProFutures' claim that it is entitled to purchase additional
shares is without merit. The Company has retained counsel and intends to
vigorously defend the ProFutures' lawsuit. The Company cannot, however, provide
assurance as to the outcome. If it is decided that ProFutures is entitled under
its warrants to purchase some or all of the claimed additional shares of stock,
upon the exercise of the warrants, the Company's shareholders would suffer
additional dilution and the price of the Company's common stock could drop.
On January 5, 2002, ProFutures filed a second complaint against the Company,
also naming its directors S. Lewis Meyer and Gary H. Brooks and its investor
Imatron Inc. ("Imatron") as co-defendants, in Colorado Sate Court for fraudulent
transfer and injunctive relief based upon alleged violations of various sections
of the Texas Business and Commerce code. The defendants removed the case to the
United States District Court for the District of Colorado and filed a motion to
dismiss, which is pending as of this date. ProFutures alleges in its complaint
that the Company committed fraud when they entered into a loan agreement with
Imatron on June 29, 2001, wherein Imatron agreed to loan the Company
$2,000,000. As security for the loan, the Company granted Imatron a first
priority security interest in all of the Company assets. ProFutures alleges
that the loan transaction was an illegal transfer pursuant to Texas law on the
basis that the defendants knew the amount of monetary damages claimed by
ProFutures in the related September 26, 2000, Colorado state litigation at the
time of the June 29, 2001, loan transaction and that the loan transaction was an
effort to hinder, delay and defraud ProFutures with respect to that pre-existing
monetary damage claim. ProFutures seeks the following relief: declarations from
the court that the loan transfer is fraudulent and therefore void; injunctions
prohibiting the Company from making any further payments to Imatron and
prohibiting Imatron from enforcing its rights under the agreement. The Company
believes that ProFutures' claims are without merit and has retained counsel to
vigorously defend against the claims. The Company cannot, however, provide
assurance as to the outcome. If the court holds in favor of ProFutures on this
matter there could be a material adverse effect on the business of the Company.
CHINA XINXING
In July 2001 and February 2002, the Company received demands from 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 its February
2002 demand, China Xinxing threatened to file suit in the United States to
obtain confirmation and enforcement of the award. The amount of the arbitration
award is included in accrued liabilities at December 31, 2001.
10P10, L.P.
In December 2001, 10P10, L.P. the Company's landlord for its premises located at
16350 Park Ten Place, Suite 150, Houston, Texas, filed a complaint 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. The claim amount of
approximately $130,000 is included in accrued liabilities as of December 31,
2001.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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FY 2001 POSITRON CORPORATION FORM 10-KSB
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No matter was submitted to a vote of the Company's stockholders, through the
solicitation of proxies or otherwise, during the fourth quarter of fiscal year
2001.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
In December 1993, the Company completed an initial public offering of 1,750,000
shares of common stock and 1,946,775 redeemable warrants (the "Redeemable
Warrants") to purchase common stock (the "Initial Public Offering"). Prior to
the Initial Public Offering there was no public market for the Company's common
stock. The Redeemable Warrants expired in December 1998. The Company's common
stock is currently traded in the over-the-counter securities market, and quoted
on the NASD's Electronic Bulletin Board under the symbol POSC. The Company's
common stock and, prior to their expiration, the Redeemable Warrants, were
previously traded on the NASDAQ SmallCap Market but were 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 2001 and 2000, 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.
2001 2000
------------ ------------
High Low High Low
----- ----- ----- -----
First Quarter $0.40 $0.13 $1.06 $0.47
Second Quarter $0.26 $0.10 $0.87 $0.40
Third Quarter $0.28 $0.19 $0.69 $0.34
Fourth Quarter $0.24 $0.07 $0.51 $0.15
There were approximately 264 shareholders of record of common stock as of March
18, 2002, 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 Preferred Stock Statement of Designation prohibits the payment of
common stock dividends until all required dividends have been paid on the series
of preferred stock. As of December 31, 2001, approximately $237,000 of
preferred stock dividends are undeclared and unpaid by the Company.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
GENERAL
The Company was incorporated in December 1983 and commenced commercial
operations in 1986. Since that time, the Company has generated revenues
primarily from the sale and service contract revenues derived from the Company's
POSICAM(TM) system, 14 of which are currently in operation in certain medical
facilities in the United States and 5 are operating in international medical
institutions. The Company has never been able to sell its POSICAM(TM) systems
in sufficient quantities to achieve operating profitability.
In May 1998, the Company entered into a series of agreements (the "Imatron
Transaction") with Imatron, a New Jersey corporation and technology-based
company engaged principally in the business of designing, manufacturing and
marketing a high performance computed tomography system, pursuant to which on
January 22, 1999, Imatron acquired majority ownership of the Company. In
conjunction with the execution of definitive agreements in May 1998, Imatron
began making working capital advances available to the Company of up to $500,000
in order to enable the Company to meet a portion of its current obligations.
The loan agreement was thereafter amended by oral agreement to increase the
working capital advances available under the loan agreement up to an additional
$100,000. As of December 31, 1998, the Company had borrowed $600,000 pursuant
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FY 2001 POSITRON CORPORATION FORM 10-KSB
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to those agreements. The loan bore interest at 1/2% over the prime rate and was
secured by all of Positron's assets.
Pursuant to the agreement, Imatron acquired 9,000,000 shares of the Company's
common stock on January 22, 1999, representing, at that time, a majority
ownership of the outstanding common stock of the Company on a fully-diluted and
as-if-converted basis, excluding out-of-the-money warrants and options
determined at that time. In exchange, the Company received from Imatron (a)
nominal cash; (b) an immediate loan of up to $500,000 in working capital to
assist the Company in meeting then current financial obligations; (c) an
agreement that Imatron would undertake all reasonable efforts to have its
affiliate, Imatron Japan, Inc. assist the Company in the sale of 10 POSICAM(TM)
systems over the next three years; (d) an agreement that Imatron would help
facilitate the recapitalization of the Company to support its re-entry into the
medical imaging market by using its best efforts to arrange for additional
third-party equity financing for the Company over an eighteen-month period in an
aggregate amount of not less than $8,000,000; and (e) a new management team
selected by Imatron.
Consummation of the issuance of shares to Imatron was conditioned upon, among
other things (a) the resignation of each officer of Positron, (b) the
resignation of at least three of the four Positron directors and the appointment
of Imatron's nominees to fill such vacancies, and (c) Positron shareholder
approval of an amendment to Positron's Articles of Incorporation to increase its
authorized common stock to 100,000,000 shares of common stock. All of those
conditions were met, and the shares were issued on January 22, 1999. Through
Imatron's efforts, private placements were concluded in August 1999 resulting in
a net equity infusion of approximately $11.4 million to Positron.
As part of the consummation of the Imatron Transaction in January 1999, all of
the Company's officers resigned and all directors, except for Gary B. Wood,
resigned from the Board. S. Lewis Meyer was appointed as Chairman of the
Company's Board of Directors. Mr. Meyer is neither an employee nor an executive
officer of the Company. Gary H. Brooks was also appointed to serve on the
Company's Board of Directors. Additionally, Mr. Brooks was appointed as
President, Secretary, and Acting Chief Financial Officer. The Company's
shareholders approved an amendment to Positron's Articles of Incorporation to
increase its authorized common stock to 100,000,000 shares.
RESULTS OF OPERATIONS
The operations of the Company for the year ended December 31, 2001 resulted in a
net loss of $3,706,000 compared to a net income of $81,000 in 2000. Operating
results were positively impacted in 2000 by the recognition of $779,000 in
profits from the sale of five systems, $1,192,000 in gains that resulted from
the resolution of warranty matters with customers and a $580,000 bad debt
recovery.
REVENUES: The Company generated $872,000 in revenues from the sale of one
system in the year ended December 31, 2001 compared to revenues of $5,200,000
from the sale of five systems in 2000. Revenues from service and components
increased by $144,000 to $1,668,000 in 2001 compared to $1,524,000 in 2000 due
to normal fluctuations in customer service needs.
COST OF SALES AND SERVICES: The Company incurred costs of $1,331,000 on the
sale of one system and $775,000 on the write-down of inventory items in 2001
compared to costs of $4,421,000 related to the sale of the five systems in 2000.
Service and component costs increased by $151,000 to $800,000 in 2001 compared
to $649,000 in 2000.
OPERATING EXPENSES: Selling, general and administrative expenses decreased
$488,000 to $2,154,000 in 2001 from $2,642,000 in 2000. The Company increased
research and development costs by $54,000 to $1,125,000 in 2001 compared to
$1,071,000 in 2000.
OTHER INCOME (EXPENSES): Interest expense increased $87,000 to $93,000 in 2001
from $6,000 in 2000 primarily as a result of interest charges on the note
payable to a stockholder. Interest income in 2001 decreased $228,000 to $45,000
from $273,000 in 2000 as a result of significant reductions in the amounts of
invested funds in 2001. Operating results in 2000 were affected by $1,192,000
in gains that resulted from the resolution of warranty matters with customers
and a $580,000 bad debt recovery, less costs of $293,000 related to a judgment
against the Company for the refund of a deposit to a customer. Extraordinary
gains of $394,000 were recognized on the extinguishments of debt in 2000.
NET OPERATING LOSS CARRYFORWARDS
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FY 2001 POSITRON CORPORATION FORM 10-KSB
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The Company has incurred losses since its inception and, therefore, has not been
subject to federal income taxes. As of December 31, 2001, the Company had net
operating loss ("NOL") carryforwards for income tax purposes of approximately
$6,906,000, which expire in 2002 through 2021. 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. Additionally, because United States tax
laws limit the time during which NOL carryforwards may be applied against future
taxable income, the Company will be unable to take advantage of approximately
$42,000,000 of NOL's that it had previously accumulated to offset taxable
income.
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, 2001 the Company had an
accumulated deficit of $54,700,000. 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, 2001 the Company had cash and cash equivalents of $635,000
compared to cash and cash equivalents and short-term investments of $2,201,000
at December 31, 2000. In 2001, the Company received proceeds of $2,000,000 from
a note payable to a stockholder. The Company utilized a significant amount of
its available cash in 2001 to fund operating activities. It is possible that
the Company will continue to experience operating losses and accumulate deficits
in the future.
The opinion of the Company's independent auditor for the year ended December
31, 2001, 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 or obtain additional capital.
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(TM)
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
Ham, Langston & Brezina, L.L.P. has been the Company's principal independent
accountants since 1997. No disagreements exist between the Company and Ham,
Langston & Brezina, L.L.P. on any matters of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure.
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PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
DIRECTORS AND EXECUTIVE OFFICERS
The directors, executive officers and key employees of the Company as of March
18, 2002 consist of the following individuals:
NAME AGE POSITION
----------------- --- -----------------------------------------------------------
S. Lewis Meyer 57 Director, Chairman of the Board
Gary H. Brooks 53 Director, President, Chief Executive Officer and Secretary
(appointed CEO effective February 1, 2002)
Sachio Okamura 49 Director (appointed April 1, 2001)
Wayne E. Webster 49 Vice President Marketing, Sales, & Service
(appointed January 16, 2001)
Ross K. Hartz 49 Vice President of Engineering
Michael L. Golden 48 Chief Financial Officer (appointed March 1, 2002)
S. Lewis Meyer was appointed as Chairman of the Board on January 22, 1999 in
connection with a series of agreements entered into by the Company and Imatron
Inc. in May 1998. In January 1999 Imatron purchased 9,000,000 shares of Company
common stock, representing a majority of the Company's common stock at the time
("Imatron Transaction"). While the Chairman of its Board of Directors, Mr. Meyer
is neither an employee nor an executive of the Company. Mr. Meyer served as
Chief Executive Officer of Imatron from June 1993 through December 2001. From
April 1991 until joining Imatron he was Vice President, Operations of Otsuka
Electronics (U.S.A.), Inc., Fort Collins, Colorado, a manufacturer of clinical
MR systems and analytical NMR spectrometers. From August 1990 to April 1991 he
was a founding partner of Medical Capital Management, a company engaged in
providing consulting services to medical equipment manufacturers, imaging
services providers and related medical professionals. Prior thereto he was
Founder, President and Chief Executive Officer of American Health Services
Corp., (now Insight Health Services) a developer and operator of diagnostic
imaging and treatment centers. Mr. Meyer is a director of FiNet.com, Inc. and
the Chairman of its Compensation Committee. Mr. Meyer received his B.S. degree
in Physics from the University of the Pacific, Stockton, California in 1966, an
M.S. degree in Physics from Purdue University in 1968, and a Ph.D. in Physics
from Purdue University in 1971.
Gary H. Brooks has served as a director since January 22, 1999, on which date he
was also appointed as President, Secretary and Acting Chief Financial Officer of
the Company. In February 2002, Mr. Brooks was appointed Chief Executive Officer
of the Company. Prior to joining the Company on a full-time basis, Mr. Brooks
served as Vice President of Finance and Administration, Chief Financial Officer
and Secretary for Imatron since December 1993. Prior to joining Imatron, he was
Chief Financial Officer and Director for five years at Avocet, a privately-held
sports electronics manufacturer located in Palo Alto, California. Mr. Brooks
received his B.A. in Zoology in 1971 from the University of California,
Berkeley, and an M.B.A. in Finance and Accounting in 1973 from the University of
California, Los Angeles.
Sachio Okamura has served as a director since his appointment to the Board of
the Company on April 1, 2001. Mr. Okamura has performed bio-medial 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
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FY 2001 POSITRON CORPORATION FORM 10-KSB
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1993. Mr. Okamura received a BS in Biochemistry in 1975 from the University of
California, Davis and a Master of International Business fro the American
Graduate School of International Management in 1978.
Wayne E. Webster joined the Company in March 2000 as Eastern Regional Sales
Manager and was appointed as Vice President of Sales, Marketing, and Service on
January 16, 2001. In his current positron, he is responsible for strategic
planning and development of sales and marketing and service for the installed
base of imaging systems. From 1992 to 1999, Mr. Webster served as President and
CEO of PracSys Corporation, a Massachusetts venture capital funded startup,
involved in the development of particle accelerators for medical and industrial
uses. From 1985 to 1990, he served as Executive Vice President of Scanditronix,
Inc., one of the three original companies serving the PET imaging and
pharmaceutical markets. Mr. Webster received a BA in Biology and Chemistry in
1974 from Salem State College.
Ross K. Hartz joined the Company as the Director of Hardware Engineering in
1987, and has served several roles within the Company. Since February 2001,
Mr. Hartz has held the positron of Vice President of Engineering. From 1980
through 1987, Mr. Hartz was the Chief Engineer for the PET Project in the
Division of Cardiology at the University of Texas Health Science Center in
Houston. Mr. Hartz received a BS in Electrical Engineering in 1975 from the
University of Arizona, followed by an MS in Electrical Engineering with a
Biomedical Certificate in 1997 from Washington University in St. Louis,
Missouri.
Michael L. Golden joined the Company as Controller in August 2000 and was
appointed as Chief Financial Officer in March 2002. From 1991 to 2000, as an
individual practitioner, he performed accounting, financial reporting and
consulting activities for client companies. From 1983 to 1991, he served as
Assistant Controller and Vice President/Controller of the Houston based real
estate firm of Century Development Corporation. From 1978 to 1983, Mr. Golden
served on the audit staff of the Houston office of Touche Ross & Co. Mr. Golden
received a BS in Marketing in 1975 from Louisiana State University and a MBA in
Accounting in 1978 from Texas A&M University. He is a Certified Public
Accountant.
Dr. Gary B. Wood served as a director from April 1990 to March 2001, when he
resigned as a director of the Company.
Antonio P. Falcao served as a director from December 1999 until his death in
December 2001.
ITEM 10. EXECUTIVE COMPENSATION
The following tables set forth certain information with respect to compensation
paid by the Company and certain information regarding stock options issued to
certain of the individuals who have acted as executive officers of the Company
during 2001, 2000 and 1999.
SUMMARY COMPENSATION TABLE
Restricted
Name and Principal Fiscal Salary Other Annual Stock Options/ LTIP All Other
Position Year ($) (a) Bonus Compensation Awards SARs Payouts Compensation
------------------ ------ --------- ------- ------------ ---------- --------- ------- -------------
Gary H. Brooks, 2001 $ 211,000 -- -- -- -- -- $ 1,582 (b)
President, Chief 2000 $ 201,833 -- -- -- -- -- $ 1,590 (b)
Executive Officer 1999 $ 80,484 (c) -- -- -- -- -- $ 20,000 (d)
and Secretary
Wayne E. Webster 2001 $ 157,000 (e) -- -- -- 1,460,000 -- $ 1,610 (b)
Vice President 2000 $ 80,397 40,000 $ 738 (b)
Marketing, Sales,
& Service
Ross K. Hartz 2001 $ 156,685 -- -- -- -- -- $ 2,350 (b)
Vice President 2000 $ 144,742 $33,982 -- -- -- -- $ 2,171 (b)
of Engineering 1999 $ 166,700 -- -- -- 300,000 -- $ 2,500 (b)
(a) Amounts shown include cash compensation earned with respect to the year
shown above.
(b) Represents the Company's matching contributions to its 401(k) plan.
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FY 2001 POSITRON CORPORATION FORM 10-KSB
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(c) Mr. Brooks served as President on a part-time basis from January 22, 1999
until September 1, 1999, and thereafter on a full-time basis. This number
reflects compensation paid through December 31, 1999.
(d) Reflects $20,000 in reimbursement of relocation expenses.
(e) This number reflects compensation paid to Mr. Webster from the time he was
hired in March 2000 through December 31, 2000.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth the options granted during the last fiscal year
to each of the named executive officers of the Company:
Option/SAR Grants In Fiscal Year 2001
Individual Grants
-----------------------------------
% Of Total
Number of Options
Securities Granted to Exercise or
Under Options Employees in Base Price Market Expiration
Name Granted (#) Fiscal Year(a) ($/Sh) Price Date
---------------- ------------------- -------------- ------------- ------- ----------
Wayne E. Webster 600,000 41.1% $ 0.26 $ 0.26 01/17/11
Wayne E. Webster 860,000 58.9% $ 0.30 $ 0.20 08/16/11
(a) A total of 1,460,000 options were granted to employees, including executive
officers, during the last fiscal year.
OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES
The following table sets forth the options exercised during the last fiscal year
by Named Executive Officers of the Company:
AGGREGATED OPTIONS/SAR EXERCISES IN FISCAL YEAR 2001 AND FISCAL YEAR-END
OPTION/SAR VALUES
Unexercised Unexercised In-The-Money
Shares Options/SARs at Fiscal Year-End Options/SARs At Fiscal Year-End
Acquired On Value ------------------------------- --------------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
------------ ------------ -------- -------------- --------------- ------------- -----------------
NONE IN 2001
------------
COMPENSATION OF DIRECTORS
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.
On and after October 6, 1999, each non-employee director is eligible to receive
an option to purchase 25,000 shares of common stock under Positron's 1999
Non-employee Directors' Stock Option Plan. 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 Positron which lapses
in four equal annual installments, beginning on the first anniversary of the
date of grant.
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The 1999 Non-Employee Directors' Plan replaces portions of the 1994 Stock Option
Plan, pursuant to which both employee and non-employee directors were eligible
to receive stock option grants. Pursuant to the 1994 Plan, each non-employee
director was automatically granted a one time stock option to purchase 10,500
shares of common stock at the time of election, and on reelection an option to
purchase that number of shares equal to the quotient derived by dividing $15,000
by the fair market value of the common stock on the date of grant. 160,000
shares had been reserved for issuance to non-employee directors under the 1994
Plan, of which 113,724 non-statutory options had been granted as of December 31,
1998. No additional option grants were made to non-employee directors in 1999,
and the Plan was terminated by the Board of Directors effective October 6, 1999,
simultaneous with the adoption by the Board of the 1999 Non-Employee Directors'
Plan.
COMPENSATION ARRANGEMENTS
Effective January 22, 1999, the Company entered into an employment agreement
with Gary H. Brooks. Pursuant to the Agreement, he was appointed initially as
President of the Company with an initial employment term ending June 15, 2000,
with a rolling six month basis thereafter. From January 22, 1999 until June 15,
1999, and then from June 15, 1999 through August 31, 1999, his base salary was
$1,000 and $3,417 per month respectively, reflecting his less than full-time
commitments to the office during these periods. Effective September 1, 1999 and
with his full-time assignment with the Company, his salary increased to $185,000
on an annualized basis. In addition to participation in the Company's group
benefit plans and a monthly automobile allowance, Mr. Brooks was given the
opportunity to purchase for $20,000 a warrant to purchase 3,000,000 shares of
the Company's common stock exercisable at $0.30 per share. The warrant, and the
underlying common stock, are subject to the Company's repurchase right, which
lapses 25% immediately and the remainder quarterly over the next three years.
The base salary for Mr. Brooks was increased to $205,000 effective June 15, 2000
and was increased again to $217,000 effective January 1, 2002. The Board can
terminate Mr. Brooks' employment without cause on thirty days' written notice
and the payment of base salary for the remainder of the employment term or six
months, whichever is greater.
Effective January 17, 2001, the Company reached an agreement on the revised
terms of employment with Wayne E. Webster in conjunction with his appointment as
Vice President of Marketing, Sales, and Service. Mr. Webster's employment is at
will. This agreement established an annual base salary of $140,000, as well as
a commission structure that ranges from .7% to 1.5% of the contract amount on
the sale of systems (excluding sales in Japan). In addition to participation in
the Company's group benefit plans and a monthly automobile allowance, Mr.
Webster was awarded an option to purchase an additional 600,000 shares of the
Company's common stock exercisable at $0.26 per share. This stock option is
subject to quarterly vesting over a four-year period and expires after ten
years.
COMPENSATION PLANS
EMPLOYEE STOCK OPTION PLAN
Positron has had several employee stock option plans, most recently the 1994
Stock Option Plan, which was terminated by the Board effective October 6, 1999,
and the 1999 Employee Stock Option Plan, which was adopted by the Board
effective June 15, 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. Both the 1994 Plan and the 1999 Plan are
administered by the Board of Directors. The administrator is authorized to
determine the terms of each option granted under the plans, including the number
of shares, exercise price, term and exercisability. Options granted under the
plans 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 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).
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. As of December 31,
2001, a total of 3,612,500 options have been granted under the 1999 Stock Option
Plan, of which none have been exercised and 2,897,500 are outstanding, and of
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FY 2001 POSITRON CORPORATION FORM 10-KSB
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which 2,897,500 are subject to vesting and 883,749 are fully vested. As of
December 31, 2001, a total of 147,495 fully vested options remain outstanding
under the 1994 Stock Option Plan.
NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
The 1999 Non-employee Directors' Stock Option 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 As of December 31, 2001, a total of 150,000
fully vested options have been granted and 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 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. As
of December 31, 2001, no options have been granted under the 1999 Stock Bonus
Incentive Plan.
1994 INCENTIVE AND NON-STATUTORY OPTION PLAN
On June 3, 1994, the shareholders of the Company approved the 1994 Incentive and
Non-statutory Option Plan (the "1994 Plan"). The 1994 Plan was an arrangement
under which certain individuals could be granted options for incentive stock
options and Non-statutory stock options as described below. Subject to
adjustment as set forth in the 1994 Plan, the aggregate number of shares of the
Company's common stock that could be the subject of awards was 610,833. Of the
610,833 shares of common stock available under the 1994 Plan 160,000 were
reserved for issuance to non-employee directors.
The Compensation Committee of the Board of Directors administered the 1994 Plan.
The Compensation Committee consisted of two or more directors who, except for
automatic grants for non-employee directors under Section 7 of the 1994 Plan,
were not eligible and did not, within one year prior to the appointment of the
Compensation Committee, receive equity securities of the Company under the 1994
Plan or any other incentive plan of the Company. The 1994 Plan was terminated
effective October 6, 1999.
1999 EMPLOYEE STOCK PURCHASE PLAN
A total of 500,000 shares of common stock have been reserved for issuance under
Positron's Employee Stock Purchase Plan (the "Purchase Plan"), none of which has
as 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.
401(K) 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
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FY 2001 POSITRON CORPORATION FORM 10-KSB
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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's contributions to the 401(k) Plan on behalf of all employees in the
years ended December 31, 2001 and 2000 was approximately $28,000 and $20,000,
respectively.
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 2001 or 2000.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables, based in part upon information supplied by officers,
directors and principal shareholders, set forth certain information regarding
the ownership of the Company's voting securities as of March 18, 2002 by (i) all
those known by the Company to be beneficial owners of more than five percent of
any class of the Company's voting securities; (ii) each director; (iii) each
named executive officer; and (iv) all executive officers and directors of the
Company as a group. Unless otherwise indicated, each of the shareholders has
sole voting and investment power with respect to the shares beneficially owned,
subject to community property laws where applicable.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS(a)
Number of Shares of
Name and Address of Beneficial Owner Common Stock % of Outstanding Common Stock(b)
------------------------------------- ------------------- --------------------------------
General Electric Company (c) 9,000,000 14.4%
Dapicod Investments Co., Ltd.(d) 5,000,000 8.0%
(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 information made known to the Company.
(b) Based on 62,173,303 common shares outstanding on March 18, 2002.
(c) The 9,000,000 shares of common stock beneficially owned by General Electric
Company ("GE") are held in the name of GE's wholly-owned subsidiary,
Imatron Inc., acquired by GE in a transaction consummated on December 19,
2001. The headquarters offices of GE are located at 3135 Easton Turnpike,
Fairfield, CT 06431.
(d) Edificio Peninsula, Praca do Bom Sucesso 127/131 - 7th, ESC. 702, Ap.
551236EC Galiza, 4051-401 Porto, Portugal.
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SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table presents the security ownership of the Company's Directors
and Named Executive Officers:
Beneficial Percent
Title of Class Name of Beneficial Owner Ownership(aa) of Class(bb)
-------------- ----------------------------------------------- ------------- ------------
Common Gary H. Brooks 3,050,000(cc) 4.9%
Common S. Lewis Meyer 1,629,000(dd) 2.6%
Common Sachio Okamura 185,000(ee) *
Common Wayne E. Webster 277,500(ff) *
Common Ross K. Hartz 257,080(gg) *
-------------
Common All Directors and Executive Officers as a Group 5,398,580 8.7%
=============
* Does not exceed 1% of the referenced class of securities.
(aa) Ownership is direct unless indicated otherwise.
(bb) Calculation based on 62,173,303 common shares outstanding as of March 18,
2002.
(cc) Includes 50,000 shares owned directly and 3,000,000 shares issuable upon
the exercise of warrants that are exercisable as of March 18, 2002 or that
will become exercisable within 60 days thereafter.
(dd) Includes 79,000 shares owned directly and 1,550,000 shares issuable upon
the exercise of warrants and options that are exercisable as of March 18,
2002 or that will become exercisable within 60 days thereafter.
(ee) Includes 185,000 shares issuable upon the exercise of warrants and options
that are exercisable as of March 18, 2002 or that will become exercisable
within 60 days thereafter.
(ff) Mr. Webster was granted options to purchase 1,500,000 shares of common
stock in connection with his employment, of which 277,500 are vested as of
March 18, 2002.
(gg) Includes 20,830 shares owned directly and options to purchase 330,000
shares of common stock in connection with his employment, of which 236,250
are vested as of March 18, 2002.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
NOTE PAYABLE TO STOCKHOLDER
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. The loan is collateralized by
substantially all of the assets of the Company. As of December 31, 2001,
principal of $2,000,000 has been advanced on the loan. The loan bears interest
on the outstanding principal balance at an annual rate of 10% and is payable
monthly. Principal on the loan amounting to $1,000,000 and $500,000 shall 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
is due and payable no later than June 30, 2002.
The Company has not made the interest payments that are due monthly on the loan,
resulting in outstanding accrued interest of approximately $78,000 at December
31, 2001. The portion of the loan principal due on December 31, 2001 is
currently in default.
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 is being amortized to expense over the
twelve-month term of the note payable, using the effective interest method.
On December 19, 2001, Imatron was acquired by General Electric Company. General
Electric Company is a competing manufacturer of PET imaging systems.
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ITEM 13. EXHIBITS, LISTS AND REPORTS ON FORM 8-K
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).
4.2 Form of Redeemable Warrant (included as part of Exhibit 4.5)
4.3 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).
4.4 Warrant Agreement dated as of February 29, 1996, between Positron Corporation and
Continental Stock Transfer & Trust Company (incorporated herein by reference to Exhibit 4.4
of the Company's Annual Report on Form 10-KSB for the year ended December 31, 1995).
4.5 Specimen Redeemable Warrant Certificate to Purchase Shares of common stock
(incorporated herein by reference to Exhibit 4.5 of the Company's Annual Report on Form 10-
KSB for the year ended December 31, 1995).
4.6 Stock Purchase Warrant dated as of February 7, 1996 issued by Positron Corporation to
Boston Financial & Equity Corporation (incorporated herein by reference to Exhibit 4.6 of the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1995).
4.7 Statement of Designation Establishing Series B 8% Cumulative Convertible Redeemable
Preferred Stock of Positron Corporation, dated July 9, 1996.
4.8 Form of Warrant Agreement dated as of July 10, 1996, between Positron Corporation and
Brooks Industries Profit Sharing Plan.
4.9 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)).
4.10 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)).
4.11 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)).
4.12 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)).
4.13 Stock Purchase Warrant dated as of September 20, 1999 issued by Positron Corporation to
Uro-Tech, Ltd. as replacement for 1995 Warrant (incorporated herein by reference to Exhibit
4.13 to the Company's Registration Statement on Form SB-2 (File No. 333-30316)).
4.14 Form of Stock Purchase Agreement executed in connection with July 1999 Private Placement
(incorporated by reference to Exhibit 5.1 to the Company's Report on 8-K dated August 18,
1999.)
4.15 Form of common stock Purchase Warrant in connection with July 1999 Private Placement
(incorporated by reference to Exhibit 5.2 to the Company's Report on 8-K dated August 18,
1999.)
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).
-------------------------------------------------------------------------------------------------------
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FY 2001 POSITRON CORPORATION FORM 10-KSB
-------------------------------------------------------------------------------------------------------
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)).
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+ Stock Purchase Warrant dated October 31, 1993, issued to Gary B. Wood (incorporated
herein by reference to Exhibit 10.15 to the Company's Registration Statement on Form SB-2
(File No. 33-68722)).
10.13 Amendment No. 1 to Exhibit 10.22 (incorporated herein by reference to Exhibit 10.23 to the
Company's Registration Statement on Form SB-2 (File No. 33-68722)).
10.14+ 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)).
10.15 Stock Purchase Warrant dated February 25, 1993, issued to K. Lance Gould (incorporated
herein by reference to Exhibit 10.26 to the Company's Registration Statement on Form SB-2
(File No. 33-68722)).
10.16+ Consulting Agreement dated February 23, 1995, effective December 15, 1994, by and
between Positron Corporation and F. David Rollo, M.D. Ph.D., FACNP.
10.17+ 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)).
10.18+ 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)).
10.19 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)).
10.20+ 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)).
10.21 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)).
10.22 Stock Purchase Warrant dated as of October 31, 1993 issued to Gerald Hillman (incorporated
herein by reference to Exhibit 10.56 to the Company's Registration Statement on Form SB-2
(File No. 33-68722)).
10.23 Stock Purchase Warrant dated as of October 31, 1993 issued to The Dover Group
(incorporated herein by reference to Exhibit 10.57 to the Company's Registration Statement
on Form SB-2 (File No. 33-68722)).
10.24 Stock Purchase Warrant dated as of October 31, 1993 issued to John Wilson (incorporated
herein by reference to Exhibit 10.63 to the Company's Registration Statement on Form SB-2
File No. 33-68722)).
10.25+ Stock Purchase Warrant dated as of October 31, 1993 issued to Robert Guezuraga
(incorporated herein by reference to Exhibit 10.64 to the Company's Registration Statement
on Form SB-2 (File No. 33-68722)).
-------------------------------------------------------------------------------------------------------
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FY 2001 POSITRON CORPORATION FORM 10-KSB
-------------------------------------------------------------------------------------------------------
10.26 Stock Purchase Warrant dated as of October 31, 1993 issued to Richard Ronchetti
(incorporated herein by reference to Exhibit 10.65 to the Company's Registration Statement
on Form SB-2 (File No. 33-68722)).
10.27 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).
10.28 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)).
10.29 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)).
10.30 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)).
10.31+ Employment Agreement dated as of August 19, 1993, by and between Positron Corporation
and Richard E. Hitchens (incorporated herein by reference to Exhibit 10.83 to the Company's
Registration Statement on Form SB-2 (File No. 33-68722)).
10.32+ Employment Agreement dated as of August 19, 1993, by and between Positron Corporation
and Howard R. Baker (incorporated herein by reference to Exhibit 10.84 to the Company's
Registration Statement on Form SB-2 (File No. 33-68722)).
10.33 Amended and Restated Warrant Agreement dated as of April 14, 1994, by and between
Positron Corporation and Continental Stock Transfer and Trust Company (including form of
Warrant Certificate).
10.34 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)).
10.35 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)).
10.36 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)).
10.37 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)).
10.38 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)).
10.39 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).
10.40+ Employment Agreement dated January 1, 1996 by and between Werner J. Haas, Ph.D. and
Positron Corporation (incorporated herein by reference to Exhibit 10.40 of the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1995).
10.41 Loan and Security Agreement made as of November 14, 1995, between Positron Corporation
and Uro-Tech, Ltd. (incorporated herein by reference to Exhibit 10.41 of the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1995).
10.42 First Modification and Extension Agreement made as of January 3, 1996, by Positron
Corporation and Uro-Tech, Ltd. (incorporated herein by reference to Exhibit 10.42 of the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1995).
10.43 Second Modification and Extension Agreement made as of February 26, 1996 by Positron
Corporation and Uro-Tech, Ltd. (incorporated herein by reference to Exhibit 10.43 of the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1995).
-------------------------------------------------------------------------------------------------------
-25-
FY 2001 POSITRON CORPORATION FORM 10-KSB
-------------------------------------------------------------------------------------------------------
10.44 Uro-Tech Loan Conversion Agreement dated as of November 14, 1995, between Positron
Corporation and Uro-Tech, Ltd. (incorporated herein by reference to Exhibit 10.44 of the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1995).
10.45 Promissory Note dated September 14, 1995, in the principal amount of $1,500,000 payable to
Uro-Tech, Ltd. (incorporated herein by reference to Exhibit 10.45 of the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1995).
10.46 Promissory Note dated September 14, 1995, in the principal amount of $1,000,000 payable to
Uro-Tech, Ltd. (incorporated herein by reference to Exhibit 10.46 of the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1995).
10.47 Revolving Finance agreement with Boston Financial & Equity Corporation (incorporated
herein by reference to Exhibit 10.47 of the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1995).
10.48 Security Agreement Boston Financial & Equity Corporation (incorporated herein by reference
to Exhibit 10.48 of the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1995).
10.49 Supplement to Security Agreement Security Interest in Inventory (incorporated herein by
reference to Exhibit 10.49 of the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1995).
10.50 Inter-Creditor Agreement (incorporated herein by reference to Exhibit 10.50 of the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1995).
10.51 Loan Agreement between Positron Corporation and ProFutures Bridge Capital Fund, L.P.
dated November 1, 1996 (incorporated by reference to Exhibit 10.51 to the Company's Report
on Form 10-KSB for the year ended December 1996).
10.52 Promissory Note dated November 14, 1996, in the principal amount of $1,400,000 payable to
ProFutures Bridge Capital Fund, L.P. (incorporated by reference to Exhibit 10.52 to the
Company's Report on Form 10-KSB for the year ended December 1996).
10.53 InterCreditor Agreement dated November 14, 1996 among Uro-Tech, Ltd., Boston Financial &
Equity Corporation and ProFutures Bridge Capital Fund, L.P. (incorporated by reference to
Exhibit 10.53 to the Company's Report on Form 10-KSB for the year ended December 1996).
10.54 Amendment to BF&E loan (incorporated by reference to Exhibit 10.54 to the Company's
Report on Form 10-KSB for the year ended December 1996).
10.55 Amendment to Uro-Tech loan (incorporated by reference to Exhibit 10.55 to the Company's
Report on Form 10-KSB for the year ended December 1996).
10.56 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).
10.57 Loan Agreement between Positron Corporation and Imatron, Inc.
10.58 Sales and Marketing Agreement With Beijing Chang Feng Medical (incorporated by reference
to Exhibit 10.58 to the Company's Report on Form 10KSB/A-Z for the year ended December
31, 1996).
10.59 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).
10.60 Promissory Note from Positron Corporation to Imatron, Inc.
10.61+ Employment Agreement dated as of January 22, 1999 by and between Positron Corporation
and Gary H. Brooks (incorporated by reference to Exhibit 10.61 to the Company's Registration
Statement on Form SB-2 (file No. 333-30316)).
10.62 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)).
10.63+ 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)).
10.64+ 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)).
10.65+ 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)).
10.66+ 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)).
-------------------------------------------------------------------------------------------------------
-26-
FY 2001 POSITRON CORPORATION FORM 10-KSB
-------------------------------------------------------------------------------------------------------
10.67 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)).
10.68 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)).
10.69 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)).
10.70 Loan Agreement with Imatron Inc dated June 29, 2001 (incorporation herein by reference to
the Company's Report on 8-K dated July 12, 2001).
10.71 Employment Agreement dated as of January 17, 2001 by and between Positron Corporation
and Wayne E. Webster.
24.1 Powers of Attorney (included on signature page hereto)
27.1 Financial Data Schedule
+ Management contract or compensatory plan or arrangement identified pursuant to Item 13(a).
Form 8-K Reports:
No current report on form 8-K was filed by the Company during the fourth quarter
of 2001.
--------------------------------------------------------------------------------
-27-
FY 2001 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: March 29, 2002 By: /s/ Gary H. Brooks
-------------------
Gary H. Brooks
President & CEO
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/ S. Lewis Meyer
S. Lewis Meyer March 29, 2002
--------------------------------------------
Director and Chairman of the Board
/s/ Gary H. Brooks
Gary H. Brooks March 29, 2002
--------------------------------------------
Director, President, Chief Executive Officer
and Secretary
/s/ Sachio Okamura
Sachio Okamura March 29, 2002
--------------------------------------------
Director
--------------------------------------------------------------------------------
-28-
FY 2001 POSITRON CORPORATION FORM 10-KSB
--------------------------------------------------------------------------------
POSITRON CORPORATION
____________
FINANCIAL STATEMENTS
WITH REPORT OF INDEPENDENT ACCOUNTANTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
--------------------------------------------------------------------------------
-29-
FY 2001 POSITRON CORPORATION FORM 10-KSB
--------------------------------------------------------------------------------
FINANCIAL STATEMENTS
TABLE OF CONTENTS
__________
PAGE
----
Report of Independent Accountants 31
Balance Sheet as of December 31, 2001 32
Statements of Operations for the
years ended December 31, 2001 and 2000 33
Statements of Stockholders' Equity (Deficit)
for the years ended December 31, 2001
and 2000 34
Statements of Cash Flows for the years
ended December 31, 2001 and 2000 35
Notes to Financial Statements 36
--------------------------------------------------------------------------------
-30-
FY 2001 POSITRON CORPORATION FORM 10-KSB
--------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Stockholders
Positron Corporation
We have audited the accompanying balance sheet of Positron Corporation as of
December 31, 2001 and the related statements of operations, stockholders' equity
(deficit) and cash flows for the two years in the period then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Positron Corporation as of
December 31, 2001, and the results of its operations and its cash flows for the
two years in the period then ended in conformity with generally accepted
accounting principles.
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.
/s/ Ham, Langston & Brezina, L.L.P.
Houston, Texas
February 22, 2002
--------------------------------------------------------------------------------
-31-
FY 2001 POSITRON CORPORATION FORM 10-KSB
--------------------------------------------------------------------------------
POSITRON CORPORATION
BALANCE SHEET
DECEMBER 31, 2001
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
------
Current assets:
Cash and cash equivalents $ 635
Accounts receivable, net 184
Inventories 4,887
Prepaid expenses 54
Loan costs 100
Other current assets 118
--------
Total current assets 5,978
Property and equipment, net 375
--------
Total assets $ 6,353
========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Note payable to stockholder $ 2,000
Accounts payable, trade and accrued liabilities 2,496
Unearned revenue 318
Current portion of capital lease obligation 40
--------
Total current liabilities 4,854
Capital lease obligation 33
--------
Total liabilities 4,887
Stockholders' equity:
Series A Preferred Stock: $1.00 par value; 8% cumulative, convertible, redeemable; 510
5,450,000 shares authorized; 510,219 shares issued and outstanding.
Common stock: $0.01 par value; 100,000,000 shares authorized; 622
62,233,459 shares issued and 62,173,303 shares outstanding.
Additional paid-in capital 55,079
Subscription receivable (30)
Accumulated deficit (54,700)
Treasury Stock: 60,156 shares at cost (15)
--------
Total stockholders' equity 1,466
--------
Total liabilities and stockholders' equity $ 6,353
========
See notes to financial statements
--------------------------------------------------------------------------------
-32-
FY 2001 POSITRON CORPORATION FORM 10-KSB
--------------------------------------------------------------------------------
POSITRON CORPORATION
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Year Ended December 31,
------------------------
2001 2000
----------- -----------
Revenue:
System sales $ 872 $ 5,200
Service and component 1,668 1,524
----------- -----------
Total revenue 2,540 6,724
Costs of sales and services:
System sales 1,331 4,421
Service, warranty and component 800 649
Write-down of inventory to net realizable value 775 --
----------- -----------
Total costs of sales and services 2,906 5,070
----------- -----------
Gross profit (loss) (366) 1,654
Selling, general and administrative 2,154 2,642
Research and development 1,125 1,071
----------- -----------
Loss from operations (3,645) (2,059)
Other income (expenses):
Interest expense (93) (6)
Interest income 45 273
Loss on retirement of property (13) --
Gain on reversal of warranty reserves -- 1,192
Bad debt recovery -- 580
Other expense -- (293)
----------- -----------
Total other income (expense) (61) 1,746
----------- -----------
Net loss before extraordinary gain (3,706) (313)
Extraordinary gain on extinguishment of debt -- 394
----------- -----------
Net income (loss) $ (3,706) $ 81
=========== ===========
Basic and diluted income (loss) per common share
Before extraordinary item $ (0.06) $ (0.01)
Extraordinary item 0.00 0.01
----------- -----------
Net income (loss) per common share $ (0.06) $ 0.00
=========== ===========
Weighted average shares outstanding
Basic 62,063 59,248
Diluted 62,063 76,434
See notes to financial statements
--------------------------------------------------------------------------------
-33-
FY 2001 POSITRON CORPORATION FORM 10-KSB
--------------------------------------------------------------------------------
POSITRON CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
(IN THOUSANDS, EXCEPT SHARE DATA)
Series A Additional Subscrip-
Preferred Stock Common Stock Paid-In tion Accumulated Treasury
Shares Amount Shares Amount Capital Receivable Deficit Stock Total
--------- -------- ---------- ------- -------- ------------ --------- ------- --------
Balance at
December 31, 1999 980,942 $ 981 57,534,710 $ 575 $ 53,917 $ (30) $(51,075) $ (15) $ 4,353
Net income -- -- -- -- -- - 81 -- 81
Conversion of debt
to equity -- -- 434,466 5 294 -- -- -- 299
Sale of common
stock -- -- 3,000,000 30 120 -- -- -- 150
Conversion of
preferred stock into
common stock (470,723) (471) 1,022,130 10 461 -- -- -- --
Issuance of
common stock for
services -- -- 116,000 1 34 -- -- -- 35
--------- -------- ---------- ------- -------- ------------ --------- ------- --------
Balance at
December 31, 2000 510,219 510 62,107,306 621 54,826 (30) (50,994) (15) 4,918
Net loss -- -- -- -- -- -- (3,706) -- (3,706)
Conversion of debt
to equity -- -- 126,153 1 53 -- -- -- 54
Warrants issued
pursuant to note
payable to
shareholder -- -- -- -- 200 -- -- -- 200
--------- -------- ---------- ------- -------- ------------ --------- ------- --------
Balance at
December 31, 2001 510,219 $ 510 62,233,459 $ 622 $ 55,079 $ (30) $(54,700) $ (15) $ 1,466
========= ======== ========== ======= ======== ============ ========= ======= ========
See notes to financial statements
--------------------------------------------------------------------------------
-34-
FY 2001 POSITRON CORPORATION FORM 10-KSB
--------------------------------------------------------------------------------
POSITRON CORPORATION
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Year Ended December 31,
--------------------------
2001 2000
------------ ------------
Cash flows from operating activities:
Net income (loss) $ (3,706) $ 81
Adjustments to reconcile net loss to net cash used in operating activities
Loss on retirement of property 13 --
Extraordinary gain on extinguishment of debt -- (394)
Depreciation expense 105 88
Amortization expense 100 --
Common stock issued as compensation for services -- 35
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 344 (427)
Increase in inventories (497) (3,707)
Decrease in prepaid expenses 53 1
Decrease (increase) in other current assets 310 (278)
Decrease in accounts payable and accrued liabilities (254) (269)
Decrease in other liabilities (22) (23)
Increase in unearned revenue 150 --
------------ ------------
Net cash used in operating activities (3,404) (4,893)
Cash flows from investing activities:
Capital expenditures (126) (228)
Decrease (increase) in short-term investments 2,087 (2,087)
------------ ------------
Net cash provided by (used in) investing activities 1,961 (2,315)
Cash flows from financing activities:
Proceeds of note payable to stockholder 2,000 --
Repayment of capital lease obligation (36) (8)
Proceeds from sale of common stock -- 150
------------ ------------
Net cash provided by financing activities 1,964 142
------------ ------------
Net increase (decrease) in cash and cash equivalents 521 (7,066)
Cash and cash equivalents, beginning of year 114 7,180
------------ ------------
Cash and cash equivalents, end of year $ 635 $ 114
============ ============
See notes to financial statements
--------------------------------------------------------------------------------
-35-
FY 2001 POSITRON CORPORATION FORM 10-KSB
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
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, manufactures, markets and services its POSICAMTM system
advanced medical imaging devices, utilizing positron emission tomography
("PET") technology. 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.
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 and Japan. The Company provides a reserve for accounts where
collectibility is uncertain. Collateral is generally not required for
credit granted.
INVENTORY
---------
Inventories are stated at the lower of cost or market and include material,
labor and overhead. 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. 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.
--------------------------------------------------------------------------------
-36-
FY 2001 POSITRON CORPORATION FORM 10-KSB
--------------------------------------------------------------------------------
REVENUE RECOGNITION
--------------------
Revenues from POSICAMTM system contracts are recognized when all
significant costs have been incurred and the system has been shipped to the
customer. Revenues from maintenance contracts are recognized over the term
of the contract. Service revenues are recognized upon performance of the
services.
ADVERTISING
-----------
Nondirect-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 2001 and 2000 were $161,000
and $349,000, respectively.
RESEARCH AND DEVELOPMENT EXPENSES
------------------------------------
All costs related to research and development are charged to expense as
incurred.
WARRANTY COSTS
---------------
The Company accrues for the cost of product warranty on POSICAMTM systems
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.
EARNINGS PER COMMON SHARE
----------------------------
Basic earnings per share are calculated by dividing net income by the
weighted average common shares outstanding during the period. Diluted
earnings per share is calculated by dividing net income by the weighted
average number of common shares used in the basic earnings per share
calculation plus the number of common shares that would be issued assuming
conversion of all potentially dilutive securities outstanding, less common
shares which could have been repurchased by the Company with the related
proceeds.
ESTIMATES
---------
The preparation of financial statements in conformity with generally
accepted accounting principles requires 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.
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.
COMPREHENSIVE INCOME
---------------------
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standard ("SFAS") No. 130, "Reporting Comprehensive Income".
Comprehensive income includes such items as unrealized gains or losses on
certain investment securities and certain foreign currency translation
adjustments. The Company's financial statements include none of the
additional elements that affect comprehensive income. Accordingly,
comprehensive income and net income are identical.
SEGMENT INFORMATION
--------------------
Effective January 1, 1998 the Company adopted SFAS 131, "Disclosures About
Segments of an Enterprise and Related Information". SFAS 131 requires a
company to disclose financial and other information, as defined by the
statement, about its business segments, their products and services,
geographic areas, major customers, revenues, profits, assets and other
information. The Company believes that it operates in only one business
segment and does not have geographically diversified business operations.
Accordingly, the adoption of SFAS 131 did not have a significant impact on
the Company (See Note 16).
--------------------------------------------------------------------------------
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FY 2001 POSITRON CORPORATION FORM 10-KSB
--------------------------------------------------------------------------------
2. GOING CONCERN CONSIDERATION
---------------------------
The Company utilized a significant amount of its available cash in 2001 to
fund its operating activities. As a result, the Company had cash and cash
equivalents of only $635,000 at December 31, 2001. At the same date, the
Company had accounts payable and accrued liabilities of $2,496,000 and was
in default on a $2,000,000 note payable to a stockholder. In the first
quarter of 2002, the Company received purchase contracts and related down
payments from customers for three imaging systems.
Due to the sizeable price of each system and the limited number of systems
that have been sold or placed into service in previous years, the Company's
revenues have fluctuated, and may likely continue to fluctuate
significantly from quarter to quarter and year to year. There can be no
assurance that the Company will be successful in implementing its business
plan and ultimately achieving operational profitability.
3. ACCOUNTS RECEIVABLE
--------------------
Accounts receivable at December 31, 2001 of $184,000 consisted of billings
related to service contracts.
4. INVENTORIES
-----------
Inventories at December 31, 2001 consisted of the following (in thousands):
Raw materials $1,950
Work in progress 1,487
Finished goods 1,550
-------
Subtotal 4,987
Less reserve for obsolescence (100)
-------
Total $4,887
=======
5. PROPERTY AND EQUIPMENT
----------------------
Property and equipment at December 31, 2001 consisted of the following (in
thousands):
Furniture and fixtures $ 138
Computers and peripherals 273
Machinery and equipment 123
-------
Subtotal 534
Less accumulated depreciation (159)
-------
Total $ 375
=======
6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIE
---------------------------------------
Accounts payable and accrued liabilities at December 31, 2001 consisted of
the following (in thousands):
Trade accounts payable $ 706
System deposit liability 696
Accrued rent 398
Accrued compensation 206
Accrued professional fees 200
Sales taxes payable 92
Accrued interest 78
Accrued warranty costs 50
Other accrued liabilities 41
Accrued royalties 29
-------
Total $2,496
=======
In July 2000, the Company received the final and unconditional acceptance
of a POSICAMTM system from a medical organization. Obtaining this
acceptance resulted in the recognition of a $1,020,000 gain on the reversal
of a warranty reserve. An agreement was also finalized in July 2000 with
another medical organization that provided for the return of a POSICAMTM
system and a $380,000 settlement payment to the Company. This agreement
resulted in the recognition of a $172,000 gain on the reversal of a
warranty reserve and a $580,000 bad debt recovery.
7. NOTE PAYABLE TO STOCKHOLDER
------------------------------
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. The loan is
collateralized by substantially all of the assets of the Company. As of
December 31, 2001, principal of $2,000,000 has been advanced on the loan.
The loan bears interest on the outstanding principal balance at an annual
rate of 10% and is payable monthly. Principal on the loan amounting to
$1,000,000 and $500,000 shall 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 is due and payable no later than
--------------------------------------------------------------------------------
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FY 2001 POSITRON CORPORATION FORM 10-KSB
--------------------------------------------------------------------------------
June 30, 2002.
The Company has not made the interest payments that are due monthly on the
loan, resulting in outstanding accrued interest of approximately $78,000 at
December 31, 2001. The portion of the loan principal due on December 31,
2001 is currently in default.
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 is being amortized to
expense over the twelve-month term of the note payable, using the effective
interest method.
8. OPTIONS AND WARRANTS
----------------------
Following is an analysis of options and warrants and related activity:
OPTIONS
-------
Effective June 3, 1994, the shareholders of the Company approved the 1994
Incentive and Nonstatutory Option Plan (the "1994 Plan"). The 1994 Plan as
amended, provides for the issuance of an aggregate of 601,833 common stock
options to key employees, directors, and certain consultants and advisors
of the Company. The 1994 Plan also provides that the exercise price of
Incentive Options shall not be less than the fair market value of the
shares on the date of the grant. The exercise price per share of
Nonstatutory options shall not be less than the par value of the common
stock or 50% of the fair market value of the common stock on the date of
grant. The 1994 Plan is administered by the Compensation Committee of the
Board of Directors. The committee has the authority to determine the
individuals to whom awards will be made, the amount of the awards, and all
other terms and conditions of the awards.
The 1994 Plan also provides that each non-employee director automatically
receives options to purchase 10,500 shares of common stock at the date such
individual becomes a non-employee director. Each non-employee director who
is a director on the first business day following each Annual Shareholder
Meeting also receives an option to purchase a number of shares of common
stock having a value of $15,000 as determined by the fair market value of
the common stock at the date of grant. The terms of the 1994 Plan regarding
issuances to non-employee directors were suspended during the years ended
December 31, 1999 and 1998. All 1994 Plan options expire within ten years
of the date of the grant.
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. Both the 1994
Plan and the 1999 Plan are administered by the Board of Directors. The
administrator is authorized to determine the terms of each option granted
under the plans, including the number of shares, exercise price, term and
exercisability. Options granted under the plans 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). As of December 31, 2001, a total of 3,612,500 stock options
have been awarded under the 1999 Plan.
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
--------------------------------------------------------------------------------
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FY 2001 POSITRON CORPORATION FORM 10-KSB
--------------------------------------------------------------------------------
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. Options covering 150,000
shares of common stock have been granted under the Directors' Plan at
December 31, 2001.
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.
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 has 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, 2001.
A summary of stock option activity is as follows:
SHARES PRICE RANGE
ISSUABLE OR WEIGHTED
UNDER AVERAGE
OUTSTANDING EXERCISE
OPTIONS PRICE
------------ -------------
Balance at December 31, 1999 2,060,178 $ 1.33
Granted 740,000 $0.28 - $1.06
Exercised --
Forfeited (425,183) $2.63 - $4.13
------------
Balance at December 31, 2000 2,374,995 $ 0.61
Granted 1,535,000 $0.21 - $0.30
Exercised -- --
Forfeited (715,000) $0.44 - $0.53
------------
Balance at December 31, 2001 3,194,995 $ 0.48
============
The Company has elected to apply the disclosure only provisions of
Statement of Financial Accounting No. 123, Accounting for Stock-Based
---------------------------------------------------------------------------
Compensation ("SFAS 123") which, if fully adopted by the Company, would
------------
change the method the Company applies in recognizing the cost of the Plan.
Adoption of the cost recognition provisions of SFAS 123 is optional and the
Company has decided not to elect those provisions. As a result, the Company
continues to apply Accounting Principles Board Opinion No. 25 ("APB 25")
------------------------------------------
and related interpretations in accounting for the measurement and
recognition of the Plan's cost.
The shares exercisable for vested options and the corresponding weighted
average exercise price was 1,181,244 shares and $0.67 per share at December
31, 2001.
--------------------------------------------------------------------------------
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FY 2001 POSITRON CORPORATION FORM 10-KSB
--------------------------------------------------------------------------------
Following is a summary of stock options outstanding at December 31, 2001.
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------- -------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF TERM EXERCISE EXERCISE
EXERCISE PRICE SHARES (IN YEARS) PRICE SHARES PRICE
--------------- --------- -------------- ---------- -------- ---------
2.625 140,500 3.20 $ 2.63 140,500 $ 2.63
3.750 - $4.125 6,995 3.66 $ 3.95 6,995 $ 3.95
0.280 - $1.031 842,500 7.60 $ 0.34 525,624 $ 0.32
0.410 - $1.060 670,000 8.50 $ 0.62 266,875 $ 0.62
0.213 - $0.260 1,535,000 9.50 $ 0.28 241,250 $ 0.25
--------- ---------
0.280 - $4.125 3,194,995 $ 0.48 1,181,244 $ 0.67
========= =========
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 1999 and 1998 was estimated on the date of grant using the Black
Scholes option-pricing model with the following assumptions used to
calculate fair value of options awarded in 2001 and 2000: (i) average
dividend yield of 0.00%; (ii) expected volatility of 70.00% and 80.00%,
respectively; (iii) expected life of three (3) years; and (iv) estimated
risk-free interest rate of 6.00%.
The pro forma disclosures as if the Company adopted the cost recognition
requirements of SFAS 123 are as follows (in thousands):
2001 2000
-------------------------- -----------------------
As Reported Pro Forma As Reported Pro Forma
----------- ------------- ----------- ----------
Net income (loss) $ (3,706) $ (3,970) $ 81 $ (148)
=========== ============= =========== ==========
Basic and dilutive net income
(loss) per common share
Before extraordinary
item $ (0.06) (0.06) $ (0.01) $ (0.01)
Extraordinary item 0.00 $ 0.00 0.01 0.01
----------- ------------- ----------- ----------
Net income (loss) per
common share $ (0.06) $ (0.06) $ 0.00 $ 0.00
=========== ============= =========== ==========
The effects of applying SFAS 123 in this proforma disclosure are not
indicative of future results. SFAS 123 does not apply to awards prior to
1995. Additional awards in future years are not anticipated by the Company.
WARRANTS
--------
During 2001, the Company issued a total of 6,000,000 warrants to a
stockholder in connection with a note payable (See Note 7).
--------------------------------------------------------------------------------
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FY 2001 POSITRON CORPORATION FORM 10-KSB
--------------------------------------------------------------------------------
A summary of warrant activity is as follows:
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
SHARES EXERCISE PRICE PRICE
----------- --------------- ---------
Balance at December 31, 1999 29,186,345 $ 0.05-$2.40 $ 0.43
Warrants converted to common stock (3,000,000) $ 0.05 $ 0.05
-----------
Balance at December 31, 2000 26,186,345 $ 0.05-$2.40 $ 0.35
Warrants issued to stockholder in 6,000,000 $ 0.30 $ 0.30
connection with note payable
Expired (1,726,345) $ 1.00-$2.00 $ 1.94
-----------
Balance at December 31, 2001 30,460,000 $ 0.05-$2.40 $ 0.25
===========
All outstanding warrants are currently exercisable. A summary of
outstanding stock warrants at December 31, 2001 follows:
REMAINING
NUMBER OF COMMON CONTRACTUAL EXERCISE
STOCK EQUIVALENTS EXPIRATION DATE LIFE (YEARS) PRICE
----------------- --------------- ------------ ---------
7,650,000 August 2004 2.7 $ 0.05
10,810,000 August 2004 2.7 $ 0.30
6,000,000 June 2006 4.5 $ 0.30
250,000 January 2007 5.1 $ 2.40
1,250,000 March 2008 6.3 $ 0.25
4,500,000 June 2009 7.5 $ 0.30
-----------------
30,460,000
=================
No compensation expense related to options and warrants was recognized by
the Company in the accompanying statement of operations during the years
ended December 31, 2001 or 2000.
9. 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 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, 2000, stated dividends that are undeclared and unpaid on
the Series A Preferred Stocks total $237,000. The Company anticipates that
such dividends, if and when declared, will be paid in shares of Series A
Preferred Stock.
--------------------------------------------------------------------------------
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FY 2001 POSITRON CORPORATION FORM 10-KSB
--------------------------------------------------------------------------------
10. INCOME TAXES
-------------
The Company has incurred losses since its inception and, therefore, has not
been subject to federal income taxes. As of December 31, 2001, the Company
had net operating loss ("NOL") carryforwards for income tax purposes of
approximately $6,906,000, which expire in 2002 through 2021. 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.
Additionally, because United States tax laws limit the time during which
NOL carryforwards may be applied against future taxable income, the Company
will be unable to take advantage of approximately $42,000,000 of NOL's that
it had previously accumulated to offset taxable income.
The composition of deferred tax assets and the related tax effects at
December 31, 2001 are as follows (in thousands):
Deferred tax assets:
Net operating losses $ 2,348
Inventory basis difference 458
Basis of property and equipment 17
Accrued liabilities and reserves 314
Valuation allowance (3,137)
--------
Net deferred tax asset $ --
========
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 income (loss) is as follows
(amounts in thousands):
2001 2000
------------------ ---------------
AMOUNT % AMOUNT %
-------- -------- ------- ------
Benefit (provision) for income
tax at federal statutory rate $ 1,260 34.0 $ (28) 34.0
Other (16) (0.4) -- --
Change in valuation allowance (1,244) (33.6) 28 (34.0)
-------- -------- ------- ------
$ - - $ - -
======== ======== ======= ======
11. 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's contribution
expense was approximately $28,000 and $20,000 in 2001 and 2000,
respectively. The Board of Directors of the Company may authorize
additional discretionary contributions; however, no additional Company
contributions have been made as of December 31, 2001.
12. RELATED PARTY TRANSACTIONS
----------------------------
The Company has an incentive compensation plan for certain key employees
and its 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. To date, the Company has not paid any bonuses
pursuant to the incentive compensation plan.
In May 1998, the Company entered into an agreement (the "Imatron
Transaction") with Imatron. Pursuant to the agreement, Imatron acquired
9,000,000 shares of the Company's common stock on January 22, 1999,
representing at that time, a
--------------------------------------------------------------------------------
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FY 2001 POSITRON CORPORATION FORM 10-KSB
--------------------------------------------------------------------------------
majority ownership of the outstanding common stock of the Company on a
fully-diluted and as-if-converted basis, excluding out-of-the-money
warrants and options determined at that time. In exchange, the Company
received from Imatron (a) nominal cash; (b) an immediate loan of up to
$500,000 in working capital to assist the Company in meeting then current
financial obligations; (c) an agreement that Imatron would undertake all
reasonable efforts to have its affiliate, Imatron Japan, Inc. assist the
Company in the sale of 10 POSICAM(TM) systems over the next three years;
(d) an agreement that Imatron would help facilitate the recapitalization of
the Company to support its re-entry into the medical imaging market by
using its best efforts to arrange for additional third-party equity
financing for the Company over an eighteen-month period in an aggregate
amount of not less than $8,000,000; and (e) a new management team selected
by Imatron. During the year ended December 31, 2001, Imatron loaned the
Company $2,000,000 (Note 7). On December 19, 2001, Imatron was acquired by
General Electric Company. General Electric Company is a competing
manufacturer of PET imaging systems.
13. COMMITMENTS AND CONTINGENCIES
-------------------------------
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
4.5% in the aggregate of gross revenues from sales, uses, leases, licensing
or rentals of the relevant technology. In 1993 each royalty holder agreed
to reduce royalty payments to 3% in the aggregate in exchange for receiving
certain loans and entering into certain consulting agreements. The
consulting agreements provided that if the Company defaulted in its
obligations under those agreements, Dr. Gould and Mr. Mullani would be
entitled to reinstatement of their earlier royalties. In April 1998 the
Company received a demand letter from Mr. Mullani alleging defaults under
his consulting agreement. The Company also believed that such defaults, if
any, may also have occurred regarding Dr. Gould's agreement, although he
made no formal demand.
The Company reached separate agreements with Dr. Gould, Mr. Mullani and the
Clayton Foundation regarding payment of royalties in the past and in the
future. The Company issued 168,000 shares of its common stock in February
2000 and paid approximately $39,000 to Dr. Gould in complete settlement of
all past royalty obligations. In May 2000, the Company paid approximately
$275,000 to Mr. Mullani to settle all past royalty obligations. In July
2000, the Company issued 266,466 shares of its common stock to the Clayton
Foundation in complete settlement of all obligations for past royalties.
LEASE AGREEMENTS
-----------------
The Company operates in leased facilities under an operating lease that
expires in March 2003 and contains no renewal options. The rental rate for
the facility is $6,744 per month through April 30, 2001 and the monthly
rate increases to $7,171 for the period from May 1, 2001 through March 31,
2003.
Prior to 1998, the Company leased its office and manufacturing facility and
certain office equipment under noncancelable operating leases with
unexpired terms ranging from one to four years. In March 1998, the Company,
under severe cash flow constraints, was forced to leave its long-term
office and manufacturing facility lease and move its operations to a
facility with significantly reduced space and a more affordable lease
payment. However, the Company was unable to obtain a release from its
original lease and has been notified by its former landlord that all
amounts due under its original lease will be due according to the lease
terms. Company management believes that the landlord has leased its space
to new tenants at favorable lease rates and that its exposure is limited to
any shortfall in lease payments experienced by the former landlord. At
December 31, 2001, the exposure related to the lease with its former
landlord is approximately $398,000, based upon the remaining future
payments due on the lease. However, the amounts due the landlord will be
increased by costs incurred in subleasing space and reduced by payments by
tenants that occupy the lease space. An obligation of approximately
$398,000 is recorded at December 31,2001 related to the abandoned lease.
The cost of leasing the Company's operating facility amounted to
approximately $85,000 and $78,000 for the years ended December 31, 2001 and
2000, respectively. Operating expenses were reduced by approximately
$34,000 in 2001 and increased by $74,000 in 2000 as a result of credits and
charges associated with the abandoned lease. Future minimum lease payments
--------------------------------------------------------------------------------
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FY 2001 POSITRON CORPORATION FORM 10-KSB
--------------------------------------------------------------------------------
due under non-cancelable operating leases with original lease terms of
greater than one year and expiration dates subsequent to
December 31, 2001, are summarized as follows:
YEAR ENDED AMOUNT
DECEMBER 31, (IN THOUSANDS)
------------ --------------
2002 $ 484
2003 22
---------------
Total minimum lease payments $ 506
==============
The above lease payment schedule consists primarily of payments due under
the Company's lease with its former landlord.
In August 2000, the Company leased a marketing display exhibit under a
three year lease with monthly rental payments of $3,850. As a capital
lease, the display exhibit had a fair value of approximately $117,000 at
the inception of the lease and the incremental borrowing rate is 11%.
Amortization of the capital lease is included in depreciation expense.
Future minimum lease payments due under this capital lease and the present
value of the minimum lease payment is summarized as follows:
AMOUNT
YEAR ENDED DECEMBER 31, (IN THOUSANDS)
----------------------- ---------------
2002 $ 46
2003 35
---------------
Total minimum lease payments 81
Less imputed interest (8)
---------------
Present value of minimum lease payments $ 73
===============
LITIGATION
----------
ProFutures Capital Bridge Fund, L.P.
----------------------------------------
On September 26, 2000, ProFutures Capital Bridge Fund, L.P. ("ProFutures")
filed a complaint against the Company in Colorado state court for
declaratory relief and breach of contract. ProFutures alleges in its
complaint that the Company breached four stock purchase warrants when, on
February 14, 2000, the Company registered only 1,500,000 shares of stock
underlying ProFutures warrants instead of the 4,867,571 that ProFutures
claims it is entitled to purchase. ProFutures claims that it is entitled to
purchase these additional shares of stock under the anti-dilution
provisions in its warrants and as the result of the Company sale of
additional shares of stock and issuance of additional warrants. Prior to
being sued by ProFutures, the Company notified ProFutures that its Board of
Directors had determined that as a result of the Imatron Transaction that
ProFutures was entitled to purchase an additional 965,894 shares of common
stock under its warrants. ProFutures seeks in its complaint for a
declaration that it is entitled to purchase the additional shares of stock
under its warrants and for damages for breach of the warrants in an
unspecified amount. The Company believes that ProFutures' claim that it is
entitled to purchase additional shares is without merit. The Company has
retained counsel and intends to vigorously defend the ProFutures' lawsuit.
The Company cannot, however, provide assurance as to the outcome. If it is
decided that ProFutures is entitled under its warrants to purchase some or
all of the claimed additional shares of stock, upon the exercise of the
warrants, the Company's shareholders would suffer additional dilution and
the price of the Company's common stock could drop.
On January 5, 2002, ProFutures filed a second complaint against the
Company, also naming its directors S. Lewis Meyer and Gary H. Brooks and
its investor Imatron Inc. ("Imatron") as co-defendants, in Colorado Sate
Court for fraudulent transfer and injunctive relief based upon alleged
violations of various sections of the Texas Business and Commerce code. The
defendants removed the case to the United States District Court for the
District of Colorado and filed a motion to dismiss, which is pending as of
this date. ProFutures alleges in its complaint that the Company committed
fraud when they entered into a loan agreement with Imatron on June 29,
2001, wherein Imatron agreed to loan the Company
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FY 2001 POSITRON CORPORATION FORM 10-KSB
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$2,000,000. As security for the loan, the Company granted Imatron a first
priority security interest in all of the Company assets. ProFutures alleges
that the loan transaction was an illegal transfer pursuant to Texas law on
the basis that the defendants knew the amount of monetary damages claimed
by ProFutures in the related September 26, 2000, Colorado state litigation
at the time of the June 29, 2001, loan transaction and that the loan
transaction was an effort to hinder, delay and defraud ProFutures with
respect to that pre-existing monetary damage claim. ProFutures seeks the
following relief: declarations from the court that the loan transfer is
fraudulent and therefore void; injunctions prohibiting the Company from
making any further payments to Imatron and prohibiting Imatron from
enforcing its rights under the agreement. The Company believes that
ProFutures' claims are without merit and has retained counsel to vigorously
defend against the claims. The Company cannot, however, provide assurance
as to the outcome. If the court holds in favor of ProFutures on this matter
there could be a material adverse effect on the business of the Company.
CHINA XINXING
In July 2001 and February 2002, the Company received demands from 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 its February 2002 demand, China Xinxing threatened
to file suit in the United States to obtain confirmation and enforcement of
the award. The amount of the arbitration award is included in accrued
liabilities at December 31, 2001.
10P10, L.P.
In December 2001, 10P10, L.P. the Company's landlord for its premises
located at 16350 Park Ten Place, Suite 150, Houston, Texas, filed a
complaint 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.
The claim amount of approximately $130,000 is included in accrued
liabilities as of December 31, 2001.
14. EARNINGS PER SHARE
--------------------
The following information details the computation of basic and diluted
earnings per share:
Year Ended December
31, (In thousands,
except for per share
data)
------------------
2001 2000
-------- --------
Numerator (basic and diluted):
Net loss before extraordinary gain $(3,706) $ (313)
Extraordinary gain -- 394
-------- --------
Net income (loss) $(3,706) $ 81
======== ========
Denominator:
Denominator for basic earnings per share-weighted average shares 62,063 59,248
Effect of dilutive securities
Convertible Series A Preferred Stock -- 613
Stock Warrants -- 16,087
Stock options -- 486
-------- --------
Denominator for diluted earnings per share-adjusted weighted average
shares and assumed conversions 62,063 76,434
======== ========
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FY 2001 POSITRON CORPORATION FORM 10-KSB
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Basic and diluted income (loss) per common share
Before extraordinary item $ (0.06) $ (0.01)
Extraordinary item 0.00 0.01
-------- --------
Net income (loss) per common share $ (0.06) $ (0.00)
======== ========
All common stock equivalents in the year ended December 31, 2001 were
excluded from the above calculation, as their effect was anti-dilutive. A
total of 2,503,840 common stock equivalents were also excluded from the
earnings per share calculation in the year ended December 31, 2000 because
their effect was anti-dilutive.
15. SEGMENT INFORMATION AND MAJOR CUSTOMERS
-------------------------------------------
As discussed in Note 1, 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, 2001 and 2000 the Company had a limited
number of customers as follows:
2001 2000
----- -----
Number of customers 17 16
Customers accounting for more than
10% of revenues 1 2
Percent of revenues derived from
largest customer 34% 62%
Percent of revenues derived from
second largest customer 7% 15%
Approximately 62% of the Company's revenue in 2000 was derived from Imatron
Japan.
16. SUPPLEMENTAL CASH FLOW DATA
------------------------------
2001 2000
----- -----
Supplemental disclosure of cash flow information (in thousands):
Cash paid for interest $ 15 $ 6
Non-cash investing and financing activities (in thousands):
Equipment acquired under lease agreement $ -- $ 117
17. EXTRAORDINARY GAIN
------------------
Extraordinary gains of $394,000 for the year ended December 31, 2000, were
the result of settlement of outstanding liabilities pertaining to
royalties, compensation agreements, and other accounts payables for less
than their stated or accrued amounts. These extraordinary gains did not
result in tax benefits because the Company has had recurring tax losses.
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