ITEM 1. DESCRIPTION OF BUSINESS
Special Cautionary Notice Regarding Forward-Looking Statements
This Report contains statements that constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and the Securities Exchange Act of 1934. Various matters discussed in this document and in documents incorporated by reference herein, including matters discussed under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” may constitute forward-looking statements for purposes of the Securities Act and the Securities Exchange Act. These statements are based on many assumptions and estimates and are not guarantees of future performance and may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Imagin Molecular Corporation (the “Company” or “Imagin”) to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. The words “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “estimate,” and similar expressions are intended to identify such forward-looking statements. For those statements, we claim the protection of the safe harbor for forward looking statements contained in the U.S. Private Securities Litigation Reform Act of 1995.
The Company’s actual results may differ materially from the results anticipated in these forward-looking statements due to a variety of factors, including, without limitation: inability to retain or grow our business due to lack of capital funding; change in customer demand; uncertainties relating to our ability to increase our market share; the existence and likelihood of strategic acquisitions and our ability to timely develop and market new products or services that will be accepted by the market.
Although these forward looking statements reflect the good faith judgment of our management, such statements can only be based upon facts and factors currently known to us. Except as required by applicable law, we disclaim any intention or obligation to update or revise any forward looking statements, whether as a result of new information, future events or otherwise. You should read this Annual Report and other documents, if any, that we incorporate by reference with the understanding that actual future results may be materially different from what we expect. All forward looking statements attributable to us are expressly qualified by these cautionary statements.
Imagin Molecular Corporation, a Delaware corporation (“Imagin”, the “Registrant” or the “Company”), refocused its business strategy in April 2005 to concentrate on business opportunities in positron emission tomography (PET) through holdings in strategically related divisions based in the manufacturing of PET devices ownership of PET imaging centers and the diagnosis and treatment of cancer, heart and neurological diseases. PET is an advanced medical diagnostic imaging procedure used by physicians in the detection of certain cancers, coronary disease and neurological disorders including Alzheimer's disease. Through its wholly owned subsidiary, Imagin Nuclear Partners, a New York Corporation (“INP”) the Registrant intends to acquire, operate and administer out-patient medical diagnostic imaging centers that utilize PET and PET/CT scanning equipment. INP specializes in using evidence based bioinformatics specifically positioned in the market to provide the maximal cost effective benefit to their joint venture partner and the community. The Registrant is also the parent of Positron Acquisition Corporation, a Nevada corporation (“PAC”) which is the holder of 8,026,000 shares of common stock and 722,358 shares of Series B Convertible Preferred Stock of Positron Corporation, a publicly owned Texas Corporation (“Positron”), and manufacturers of certain of the PET scanners Imagin uses in its operations. Imagin Molecular Corporation is also the parent of Cipher Multimedia, Inc. (“Cipher”) formed in August 2002 as a new media marketing and distribution solution company that provides distribution solutions for publishers of digital content. As the Registrant focuses its business to concentrate on opportunities in positron emission tomography, the operations of Cipher have for the most part been discontinued.
CORPORATE ORGANIZATION
The Company commenced its operations upon incorporation. On June 21, 2000, the shareholders of Buffalo approved the merger of Buffalo with and into the Registrant. The merger was effected on July 14, 2000. As a result, the corporate domicile and name of Buffalo were changed to Delaware and Momentum Holdings Corporation (“Momentum”), respectively.
On September 15, 2003, Cipher Multimedia, Inc., an Illinois corporation (“Cipher”) and Momentum executed a Share Exchange Agreement whereby Momentum exchanged 14,052,800 newly issued shares of common stock for all of the issued and outstanding shares of capital stock of Cipher. As a result of the purchase and exchange of shares, Cipher acquired voting control of Momentum on August 19, 2003 and became Momentum's majority shareholder. The total number of issued and outstanding shares of Momentum after the Exchange increased to 16,452,811.
On November 24, 2003, the Company amended its Articles of Incorporation to change the name of the Company to Cipher Holding Corporation and to increase its authorized capital stock to 100,000,000 shares, of which 95,000,000 are common and 5,000,000 are "blank check" preferred stock authorizing the Company's Board of Directors to set the rights and preferences of the preferred stock without further stockholder action.
On April 19, 2005, Imagin formed Positron Acquisition Corp. (“PAC”) a wholly owned subsidiary organized under the laws of the State of Nevada.
On November 18, 2005 the Company formed a wholly owned subsidiary, Imagin Nuclear Partners Corporation, a New York corporation (“INP”), to provide Positron Emission Tomography myocardial perfusion imaging technology (“PET” or “PET imaging technology”) and related technical and educational services to diagnose and treat patients with coronary artery disease and patients who are at risk of developing coronary heart disease.
On March 13, 2007, the Registrant reorganized its wholly-owned subsidiary Cipher Multimedia, Inc., an Illinois corporation (“Cipher”) as a Nevada corporation via merger with Cipher Multimedia, Inc., a Nevada corporation (“Cipher-NV”). In accordance with the Plan of Merger, each ten shares of Cipher were exchanged for one share of Cipher-NV common stock. On March 14, 2007, Cipher settled obligations with its two largest creditors by retiring $148,973 in obligations to Patrick Rooney, the Registrant’s former chairman and Chief Executive officer and Cipher’s founder, for 7,448,673 shares of Cipher-NV common stock, and retiring $35,750 of interest payable to a third-party in exchange for the issuance of 1,787,500 shares of Cipher’s common stock. On March 20, 2007, realizing that Cipher’s software encryption business no longer fit the Registrant’s business model of medical imaging services, the Registrant’s Board of Directors resolved to spin off the 3,513,200 shares of Cipher common stock held by the Registrant as a special dividend to its Shareholders of record as of March 26, 2007
BUSINESS DEVELOPMENT
Through its wholly-owned subsidiary, Imagin Nuclear Partners Corporation, the Company utilizes Positron Emission Tomography myocardial perfusion imaging technology (“PET” or “PET imaging technology”) and related technical and educational services to lease their system to aid in the diagnosis and treatment of patients with coronary artery disease as well as those who are at risk of developing coronary heart disease. The Company will attempt to establish heart health centers to provide imaging technology for the diagnosis and non-invasive management of coronary artery disease. The Company plans to use PET perfusion imaging and vigorous risk factor modification programs to diagnose and guide the management of patients with coronary artery disease. This program is aimed at the regression of coronary atherosclerosis and stabilization of plaque to prevent the clinical events of myocardial infarction, sudden death and unstable coronary syndromes requiring invasive intervention (PTCA or bypass surgery). To achieve such objectives the Company would need to raise a significant amount of working capital.
The Company’s methodology differs than that of traditional invasive coronary procedures by health care providers that has not resulted in significant improvement in clinical outcomes for coronary patients, primarily due to what the Company perceives as limitations of the imaging technology currently employed by health care providers and the failure to focus on lifestyle modification programs for coronary patients. The Company believes that the current barriers to entry of Positron Emission Tomography Myocardial Perfusion Imaging (PET MPI) have prevented widespread utilization.
Studies have shown that the utilization of PET imaging technology is a cost-effective approach to the diagnosis of coronary artery disease when compared to the cost of utilizing traditional imaging technology and invasive procedures.. The Company believes with PET technology being offered at more economical prices compared to the less accurate, less expensive, routinely used, diagnostic exam of Single Photon Emission Computed Tomography (SPECT) that the barriers to entry may be significantly reduced leading to an increased utilization.
INP does not have a current center for these services, having terminated its operations located at Beth Israel Medical Center in the First Quarter 2009.
PRODUCTS AND SERVICES
The Company intends to market its cardiovascular PET and noninvasive coronary artery disease reversal program to General/Family/Internal Medicine physicians in metropolitan areas within the United States. These physicians are the primary gatekeepers for patients suspected of having coronary artery disease and are responsible 40% of all referrals for nuclear imaging. This referral patterned has steadily increased more than 15% per year over the last 5 years, because of the advent of lipid management programs.
The Company anticipates its initial target states are New York, New Jersey, Pennsylvania, Maryland, Florida and Texas, where cardiac patient demographics and cardiovascular PET reimbursement are well established.
Cardiovascular PET Perfusion Imaging
The Company believes the therapeutic paradigm is now shifting away from expensive, anatomically driven treatment (e.g., coronary angiography followed by revascularization), toward identification of the vulnerable plaque, with subsequent biological stabilization of the atherosclerotic process, using aggressive lipid lowering medical management. A fundamental question for General/Family/Internal Medicine physicians which manage patients with coronary artery disease is which patients will require invasive intervention and which only require noninvasive but aggressive medical management. In addition those patients on noninvasive therapy we need to know how hard should we push lipid reduction to achieve coronary disease reversal in the individual patient?
PET myocardial perfusion imaging (MPI) can now assist in answering these critical questions for patients, insurers and referring doctors, because of the unique physical advantages of positron imaging power of positron emission tomography. PET's advantages over single photon emission computed tomography (SPECT) nuclear imaging results in an improvement in diagnostic accuracy results that rivals that of the angiogram itself.
Coronary Disease Reversal Program
The Company intends to educate referring physicians about the program and the intensive patient / primary physician relationship necessary for success.
Smoking Cessation - Stopping smoking is an essential step in the reversal program. There are many programs from insurance companies to help the patient quit.
Diet Modification - The diet that we currently recommend is no more than 10% of calories as fat. This includes unrestricted vegetables and protein in the form of skinless chicken, turkey, buffalo meat, venison, fish and all shellfish. Beef and pork are once a month items. Fruit is appropriate for desert. For over weight patients, carbohydrates sources such as bread, potatoes, rice, pasta, pastry and sweets have to be portion controlled to achieve lean body mass. Once lean mean body mass is achieved, we add back enough of carbohydrates to stay at a static weight.
Exercise Program - The three essential criteria for a successful program of physical activity are (1) to determine individual preferences for the type of exercise, (2) activity for at least thirty to sixty minutes per day for five to six days per week, (3) do something each day even if the required minimum can not be met.
Cholesterol Management - Total cholesterol, through medical management, is controlled down to 110 to 140 achieving levels similar to limiting those populations that simply do not have coronary disease such as found in Central China and in Central Africa. Our goal is to drive LDL below 90, HDL’s above 45 and triglycerides below 90. Statin drugs are used to accomplish acceptable values. The physician needs to check liver enzymes and the cholesterol profile each month for three months. Dose modifications are necessary to achieve regression due to the individual variability factor. Often combination therapy with two or more lipid agents is necessary.
MARKET ENVIRONMENT
Coronary artery disease (CAD), remains the major cause of death in the U.S., claiming over 650,000 lives annually, which constitutes more than 25% of all deaths in adults over 35 years of age. Moreover, nearly twice this number of acute myocardial infarctions occur each year. 60% of acute myocardial infarction and sudden death occur unexpectedly, in previously apparently healthy people, with no antecedent symptoms.
The Company believes that excessive, invasive, cardiological procedures do not result in improved clinical outcomes for patients. The frequency of utilization of coronary arteriography (CATH), coronary artery bypass surgery (CABG) and percutaneous transluminal coronary intervention (PTCI) procedures in the United States has increased annually 50 - 150% with no subsequent improvement in the hard endpoints of coronary death and recurrent MI at one year.
We have learned, while utilization of invasive coronary procedures in the US has exploded over the past few years with no improvement of outcomes, from a large number of well conducted lipid lowering trials, which employed quantitative coronary arteriography, that aggressive noninvasive management of CAD with a very low fat diet and lipid lowering drugs, may reduce acute MI and coronary death by up to 85% or more. Interestingly this remarkable clinical benefit occurs despite only minimal angiographic improvement in coronary lumen diameter. This is because it is the young, mild, plaque which is actively inflamed that is structurally vulnerable, and therefore prone to rupture suddenly, leading to death or an acute coronary syndrome, rather than the older, more severe, structurally stable stenosis, which is typically responsible for chronic stable angina. It is this stable lesion that is usually the stenosis targeted for mechanical intervention.
The management of CAD in the new millennium is undergoing critical reappraisal driven by the need for health care cost containment. The Company’s business plan is to provide a basis for the shift away from expensive, anatomically driven treatment (e.g., coronary angiography followed by revascularization), toward identification of the vulnerable plaque, with subsequent biological stabilization of the atherosclerotic process, using aggressive lipid lowering medical management. Which patients will require invasive vs. aggressive noninvasive management? How hard should we push lipid reduction to achieve coronary disease reversal in the individual patient?
CUSTOMERS
The Company’s primary potential customers are General/Family/Internal Medicine physicians in Metropolitan areas. A metropolitan population can be defined as having multiple General/Family/Internal Medicine physician offices and a referral population of at least 500,000 patients.
IMAGIN NUCLEAR PARTNERS CORPORATION
On November 18, 2005 the Company formed a wholly owned subsidiary, Imagin Nuclear Partners Corporation, a New York corporation (“INP”), the Company utilizes Positron Emission Tomography myocardial perfusion imaging technology (“PET” or “PET imaging technology”) and related technical and educational services to lease their system to aid in the diagnosis and treatment of patients with coronary artery disease as well as those who are at risk of developing coronary heart disease. Imagin Nuclear Partners Corporation is headquartered in Niagara Falls, New York.
Sales and Marketing
To fulfill its business plan Imagin Nuclear Partners will approach physicians who primarily see Medicaid patients to solicit referrals. Medicaid physicians are not routinely solicited for referrals due to the traditional low fees associated. Imagin Nuclear Partners believes that the Medicaid population will result in a significant portion of their monthly volume. Imagin Nuclear Partners hopes to solicit large self insured companies and present the GM report with real patient data to justify the increased use of PET along with Coronary Disease Reversal. To achieve such objectives the Company would need to raise a significant amount of working capital.
Government Regulation
The Company’s operations which assess medical imaging and physician referral will be required to adhere to a wide variety of other regulations governing the operation of its business. For example, federal regulations commonly known as the “Stark Laws” impose civil penalties and exclusion from participation in the Medicare program of reimbursement for referrals by physicians for “designated health services” to certain entities with which the referring physician has a financial relationship, if those referrals do not fall within an exception created by law or regulation. “Designated health services” include PET services. Implementing regulations have been issued regarding referrals for clinical laboratory services, but no final implementing regulations have been issued regarding PET services. It is possible that these proposed rules will be found to apply to PET scanners, thereby restricting physician referrals for PET services by an investor-physician or a physician who has a compensation arrangement with Imagin Nuclear Partners.
In addition, several states in which Imagin Nuclear Partners intends to operate have enacted or are considering legislation that restricts physician referral arrangements in a manner similar to the Stark Laws and requires physicians to disclose any financial interest they have with a health care provider to their patients to whom they recommend that provider. Possible sanctions for violating these provisions include loss of medical licensure and civil and criminal sanctions. These state laws vary from state to state and seldom have been interpreted by the courts or regulatory agencies. Nonetheless, Imagin Nuclear Partners expects that these laws will be strictly enforced.
The Company will also be required to comply with other state and federal laws prohibiting the payment or receipt of bribes, kickbacks, rebates and any other direct or indirect remuneration in return for or to induce the referral of an individual to a person for the furnishing, directing or arranging of services, items or equipment, commonly referred to as anti-kickback laws. Violation of the anti-kickback laws may result in civil and criminal penalties, loss of medical licensure and exclusion from the Medicare and other federal health care programs to the extent such federal reimbursement program beneficiaries are involved.
Customers
Customers for our imaging operations would be patients of the medical centers with whom we intend to conduct our business either through joint ventures or equity ownership.
Patents
We do not have any patents or patents pending and rely on the intellectual property rights of Positron Corporation and other third-party suppliers.
CIPHER MULTIMEDIA, INC.
Cipher Multimedia, Inc., a Nevada Corporation (“Cipher”) was formed in August 2002. Cipher is a digital distribution solution and marketing company which secures and allows access to digital content through proprietary encoding, encryption and authorization technology. Cipher’s technology and services allow publishers and distributors to distribute digital content in a secure format to mass markets. Secured video and software content is distributed through new and existing commercial product offerings and distribution channels.
Cipher’s Digital Rights Management (“DRM”) technology protects or controls access to digital content. Cipher’s technology allows publishers and distributors to distribute full-feature video and/or software in a secure format. Secured digital content is delivered in the form of CD/DVDs, diskettes and Internet download format. The consumer has the ability to view a sample of the video or demonstration of the software before purchasing of the product by unlocking the full product for immediate use on their personal computer. The purchase and delivery transactions are immediate and are facilitated though Cipher’s transaction processing service. Cipher’s technology protects publisher’s content from copyright infringement by restricting access only to authorized purchasers.
On March 13, 2007, the Registrant reorganized Cipher as a Nevada corporation via merger with Cipher Multimedia, Inc., a Nevada corporation (“Cipher-NV”). In accordance with the Plan of Merger, each ten shares of Cipher were exchanged for one share of Cipher-NV common stock. On March 20, 2007, realizing that Cipher’s software encryption business no longer fit the Registrant’s business model of medical imaging services, the Registrant’s Board of Directors resolved to spin off the 3,513,200 shares of Cipher common stock held by the Registrant as a special dividend to its Shareholders of record as of March 26, 2007. The operations of Cipher Multimedia, Inc. are limited and have been discontinued from an accounting perspective.
POSITRON ACQUISITION CORP.
On April 19, 2005, Imagin formed Positron Acquisition Corp. (“PAC”) a wholly-owned subsidiary organized under the laws of the State of Nevada.
On May 23, 2005, PAC acquired two convertible notes receivable issued by Positron (the “Positron Notes”) in favor of IDC. The Positron Notes are convertible into shares of Positron’s Series C and Series D Preferred Stock that are in turn convertible, under certain circumstances, into 64,000,000 shares of Positron’s common stock, par value $.01 per share. Imagin acquired the Positron Notes in exchange for 30,000,000 newly issued shares of Imagin’s common stock. On September 30, 2006, Imagin exchanged the Positron Notes for a total of 762,358 of Positron’s Series B Convertible Preferred Stock, par value $1.00 per share (the “Series B”). The Series B are convertible into shares of Positron’s common stock, par value $0.001 per share, at the rate of 100 shares of Common stock for each Series B. On September 7, 2006, PAC converted 40,000 shares of Series B into 4,000,000 shares of common stock.
Positron designs, manufactures and markets medical imaging devices utilizing Positron Emission Tomography (“PET”) technology. PET technology permits the measurement of the biological processes of organs and tissues and produces anatomical and structural images. PET systems are used by physicians in the diagnosis and management of heart disease and certain other neurological and oncological illnesses.
Following the acquisition of the Positron Notes, the Company changed its principal operations from multimedia encryption technology to positron emission tomography and medical imaging and related services.
EMPLOYEES
On March 31, 2010, the Company had two officers who dedicate part time services.
ITEM 1A
ITEM 1A - RISK FACTORS
We also caution you that this Annual Report contains forward-looking statements. The words "believes," "should be," "anticipates," "plans," "expects," "intends," and "estimates," and similar expressions identify these forward-looking statements. These forward-looking statements are contained principally under the headings "Summary," "Risk Factors," "Financial Statements," "Management's Discussion and Analysis of Operations," "Business," and "Management." Although we believe that our expectations reflected in these forward-looking statements are based on reasonable assumptions, our expectations may not prove to be correct. Because these forward-looking statements are also subject to risks and uncertainties, actual results may differ materially from the expectations expressed by these forward-looking statements. Important factors that could cause actual results to differ materially from the expectations reflected in our forward-looking statements include the following risk factors:
It Is Difficult to Evaluate the Company’s Business and Prospects Because it Does Not Have Any Operating History
The Company has yet to generate significant revenue from operations. The Company’s lack of working capital, make it difficult to evaluate the Company’s current business prospects or to accurately predict its future revenue or results of operations. The Company’s revenue and income potential continue to be unproven, and its business model is evolving. Because of the rapidly changing nature of medical imaging and medical reimbursement, the Company may need to modify its business model to adapt to these changes. Accordingly, the Company is subject to all of the risks, uncertainties, expenses and difficulties frequently encountered by companies seeking to break into a difficult-to-penetrate and rapidly changing industry segment.
The Penny Stock Rules May Have an Adverse Effect Upon Liquidity of the Company’s Shares
If the shares of the Company’s common stock are listed on The Nasdaq Stock Market or certain other national securities exchanges and the price thereof is below $5.00, then subsequent purchases of such securities will be subject to the requirements of the penny stock rules absent the availability of another exemption. The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in "penny stocks." Penny stocks generally are equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on The Nasdaq Stock Market). The penny stock rules require a broker-dealer to deliver a standardized risk disclosure document required by the SEC, to provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, monthly account statements showing the market value of each penny stock held in the customer's account, to make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for a stock that becomes subject to the penny stock rules.
Lack of Profitability
The Company currently operates at a loss. No assurance can be given that the Company will achieve sufficient revenues for profitability. We believe that we will continue to incur operating and net losses for at least the foreseeable future. The rate at which we will incur losses is expected to increase from current levels for a period when we intend to increase our costs and expenses. Even if the Company attains profitability, there is no assurance that it can sustain or increase profitability on a quarterly or annual basis in the future. If revenues grow slower than anticipated, or if operating expenses exceed expectations or cannot be adjusted accordingly, the Company’s business, results of operations and financial condition will be materially and adversely affected.
Dependence on Executive Officers and Directors
The Company’s success is dependent on the efforts and abilities of its officers and directors. The Company currently does not have employment agreements with its executive officers. The loss of the services of any of these individuals could materially and adversely affect the development of the Company’s business plan.
The Company’s ability to attract and retain qualified marketing and management personnel is critical to its operations. While management believes it will be able to attract and retain sufficient professional employees to meet its needs, there can be no assurance that management is correct. If the Company is unable to employ the qualified employees needed, then its business would be materially and adversely affected.
Dependence Upon Third Party Relationships
The Company will be dependent on various third parties for their technologies, equipment and related services and even for providing customers to the Company. As a result, the Company's ability to generate revenues may be adversely affected by the failure of these third parties to provide equipment and related services to the Company. In addition, there can be no assurance that the Company will be successful in establishing and maintaining such relationships with those entities on favorable terms.
Risks Associated with Technological Change
The market in which the Company competes is characterized by rapidly changing technology; evolving industry standards, frequent new product and service announcements, introductions and enhancements, and changing customer demands. These market characteristics are heightened by the emerging nature of medical imaging and health care industries. Accordingly, the Company’s future success will depend on its ability to adapt to rapidly changing technologies, its ability to adapt its services to meet evolving industry standards. The Company’s failure to successfully adapt to such changes in a timely manner could have a material adverse effect on the Company’s business, results of operations and financial condition.
Government Regulation
Laws and regulations directly applicable to the reimbursement by government and private insurance companies will have a material impact on our expected operations. Our ability to obtain payment for services which we extend to patients is directly related to governmental regulation, as well as, the manner in which we are able to obtain business. A change in these regulations may occur in which we are unable to adjust quickly enough in order to obtain payment to fund our operations or materially modify our plan of operations.
Need for Future Funding
The Company may need to raise additional funds through public or private debt or sale of equity to achieve our current business strategy. The financing we need may not be available when needed. Even if this financing is available, it may be on terms that we deem unacceptable or are materially adverse to your interests with respect to dilution of book value, dividend preferences, liquidation preferences, or other terms and may involve a substantial dilution to our shareholders. Our inability to obtain financing will inhibit our ability to implement our development strategy, and as a result, could require us to diminish or suspend our development strategy and possibly cease our operations.
If we are unable to obtain additional financing on reasonable terms, we could be forced to delay, scale back or eliminate certain product and service development programs. In addition, such inability to obtain additional financing on reasonable terms could have a negative effect on our business, operating results, or financial condition to such extent that we are forced to restructure, file for bankruptcy, sell assets or cease operations, any of which could put your investment dollars at significant risk.
Potential Decrease in Market Price
Sales of substantial amounts of our common stock in the public market could decrease the prevailing market price of our common stock. If this is the case, investors in our shares of common stock may be forced to sell such shares at prices below the price they paid for their shares, or in the case of the investors in the May 2006 financing, prices below the price they converted their notes and warrants into shares. In addition, a decreased market price may result in potential future investors losing confidence in us and failing to provide needed funding. This will have a negative effect on our ability to raise equity capital in the future.
General Condition of the Healthcare Market
The Company’s business is subject to global economic conditions, and in particular, market conditions in the healthcare industry. The Company’s operations may be adversely affected by the continued declines in employee benefit spending by large corporations and small to medium sized businesses. If global economic conditions worsen, or a prolonged slowdown in providing such benefits exists, then the Company may experience adverse operating results.
ITEM 2.
ITEM 2. PROPERTIES
We neither rent nor own any properties. We utilize the office space and equipment of our executive officers at no cost. Management estimates such amounts to be immaterial. We currently have no policy with respect to investments or interests in real estate, real estate mortgages or securities of, or interests in, persons primarily engaged in real estate activities.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
None.
PART II
ITEM 4.
ITEM 4. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Market Information.
Since approximately November 1996, the Company’s common stock, its only class of trading equity securities, has been traded on the NASD OTC Bulletin Board (“OTCBB”) under the symbol "IMGM.OB". The following table sets forth the range of high and low reported closing sales prices for the Company’s common stock for each fiscal quarter for the past two fiscal years as reported by the OTCBB. These quotations reflect interdealer prices without adjustment for retail mark-ups, markdowns or commissions and may not necessarily represent actual transactions.
(b) Holders
As of December 31, 2009, we had 74,443,284 shares of Common Stock outstanding, held by approximately 1,163 holders of record.
Series A Preferred
As of December 31, 2009 no shares of Series A Preferred were outstanding.
All of the securities set forth above were issued by the Company pursuant to Section 4(2) of the Securities Act of 1933, as amended, or the provisions of Rule 504 of Regulation D promulgated under the Securities Act. All such shares issued contained a restrictive legend and the holders confirmed that they were acquiring the shares for investment and without intent to distribute the shares. All of the purchasers were friends or business associates of the Company’s management and all were experienced in making speculative investments, understood the risks associated with investments, and could afford a loss of the entire investment. The Company has never utilized an underwriter for an offering of its securities.
(c) Dividends.
The Registrant has paid no dividends during the fiscal years ended December 31, 2009 and 2008. There are no restrictions on the Registrant's present or future ability to pay dividends.
The payment by the Registrant of dividends, if any, in the future rests within the discretion of its Board of Directors and will depend, among other things, upon the Registrant's earnings, its capital requirements, and its financial conditions, as well as other relevant factors.
(d) Securities authorized for issuance under equity compensation plans.
The Company’s equity plan information required by this item is set forth under Item 10 of Part III below.
ITEM 5.
ITEM 5. SELECTED FINANCIAL DATA
Not applicable
ITEM 6.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Imagin Molecular Corporation has focused its business strategy to concentrate on business opportunities in positron emission tomography (PET) through holdings in strategically related divisions based in the manufacturing of PET devices ownership of PET imaging center and the diagnosis and treatment of cancer, heart and neurological diseases. PET is an advanced medical diagnostic imaging procedure used by physicians in the detection of certain cancers, coronary disease and neurological disorders including Alzheimer's disease.
The Company’s wholly owned subsidiary, Imagin Nuclear Partners Corporation, a New York corporation (“INP”), provides Positron Emission Tomography myocardial perfusion imaging technology (“PET” or “PET imaging technology”) and related technical and educational services to diagnose and treat patients with coronary artery disease and patients who are at risk of developing coronary heart disease. Imagin Nuclear Partners Corporation is headquartered in Niagara, New York.
Relationship with Beth Israel Hospital
In February 2006, Imagin Nuclear Partners purchased a Positron HZL-R Imaging Camera from Positron as well as a CTI Infusion Cart from Bracco Diagnostics, Inc. Also, in February 2006, the Company commenced operations of a PET center under the name Imagin Nuclear Partners at the cardiac center located within Beth Israel Medical Center (“BIMC”) in New York. The Company’s intention is to leverage its existing relationship with the New York State Department of Health Cardiac Advisory Committee to secure a “pilot program” aimed at demonstrating the cost efficiency of cardiac PET in selected markets on predetermined procedure indications. Under the initial contract with BIMC, the Company reimbursed BIMC on a fixed monthly basis for various operating expenses associated with performing scans, including physician’s fees, technologist fees, rents and other administrative expenses. In February 2007, the Company and BIMC temporarily suspended operations at the facility pending re-negotiation of the original contract. The parties executed a new agreement, the terms of which are discussed in detail below.
In May 2007, INP and Beth Israel Medical Center executed an Equipment Lease Agreement (the “Agreement”) for certain positron emission tomography (“PET”) scanning cameras and related radiologic equipment (the “Equipment”). Under the terms of the Agreement, BIMC will lease the equipment for use in its on site PET Lab where it performs PET scans on its patients. The initial lease term is three (3) years commencing on June 4, 2007 (the “Effective Date”).
On December 31, 2008, INP advised BIMC that it had breached the Agreement for failure to make certain payments under the Agreement. In addition, INP advised BIMC that it was seeking payment of $188,700 for 102 inpatient scans that BIMC had requested it perform on behalf of BIMC patients and had failed to reimburse INP.
INP also asserted other claims in the aggregate amount of $318,144 and ceased supplying rubidium to BIMC thereafter. Also in the first quarter 2009, BIMC asserted that INP had breached the Agreement and demanded that INP remove the scanner located therein. INP is seeking a purchaser or another business opportunity to implement the device, however, no assurance can be given that such an agreement will be reached or if reached that it will be on terms favorable to the Company.
Sale of Asset and Debt Settlement
December 31, 2008, INP advised Beth Israel Medical Center that it had breached the Equipment Lease Agreement (the “Agreement”) for certain positron emission tomography (“PET”) scanning cameras and related radiologic equipment (the “Equipment”), for failure to make certain payments under the Agreement (See Note 9). INP also asserted other claims in the aggregate amount of $318,144 and ceased supplying rubidium to BIMC thereafter. Additionally, BIMC asserted that INP had breached the Agreement and demanded that INP remove the scanner located therein.
On May 1, 2009, INP and Positron Corporation (“Positron”) executed a Bailment Agreement (the “Bailment”) whereby,
INP shall provide the Equipment to Positron for the purpose of remanufacturing, reconditioning, remarketing and reselling. Positron will take the Equipment subject to the perfected security interest of Cherry Creek Asset-Backed Income Fund II, LP (“Cherry Creek”) (See note 8). Pursuant to the terms of the Bailment, Positron is obligated to instruct any buyer of the Equipment to remit any payment to the Company’s legal counsel for disbursement to pay off the note due Cherry Creek pursuant to a letter agreement dated May 1, 2009 between INP and Cherry Creek.
In October 2009, Positron sold the Equipment. The Company recorded a sale of the Equipment to Positron in the amount of $245,000 and a gain on the sale of the asset of $65,017. At the time of the sale, the Equipment had a book value of $179,983.
Results of Operations
For the years ended December 31, 2009 and 2008, the Company had net losses of $1,222,239 and $930,529, respectively.
Revenues - The Company did not record any revenues during the year ended December 31, 2009. Revenues for the year ended December 31, 2008 were $613,045. The decrease in revenue was due to the termination of the Company’s relationship with Beth Israel Medical Center.
For the years ended December 31, 2009 and 2008, costs of revenues were $90,315 and $424,025. Despite not performing any scans in 2009, the Company did incur the cost of the rubidium. In March 2009, the Company terminated the rubidium supply agreement. Under the terms of its agreement with its rubidium supplier, the Company was required give a 90 day notice prior to terminating the agreement. During the 90 day termination period the Company was required to continue its purchase of rubidium. The expense incurred subsequent to termination has been classified as an operating expense.
Operating Expenses - Operating expenses were $1,103,879 and $177,093 for the years ended December 31, 2009 and 2008, respectively. For the year ended December 31, 2009, operating expenses include approximately $180,000 of costs due pursuant to termination provisions under the Company’s rubidium supply agreement. In prior periods, all rubidium cost were included as cost of revenues. Additionally, operating expenses include approximately $800,000 of compensation expense related to the issuance of 20,000,000 stock options to certain employees and directors. Other operating costs incurred consisted primarily of professional fees.
Other Income (Expense) - Interest expense on notes payable was $15,142 and $22,413 for the years ended December 31, 2009 and 2008, respectively. The interest accrued is on the outstanding balance on the note due to Cherry Creek. In October 2009, the Company paid off the note due to Cherry Creek for a settlement amount of $193,000. The Company recorded miscellaneous income of $14,400, the difference between the recorded obligation including accrued interest, and the settlement amount.
The Company accounts for it’s investment in the securities of Positron Corporation securities using the equity method of accounting. . For the years ended December 31, 2009 and 2008 the Company recorded equity in the losses of Positron of $89,394 and $258,351, respectively.
At December 31, 2008, the Company recorded an other-than-temporary impairment charge of $734,068 against the carrying value of its investment in the securities of Positron Corporation. The Company’s wholly-owned subsidiary, PAC, holds both common and preferred shares of Positron Corporation. The fair market value of the common was determined using Positron’s quoted stock price on December 31, 2008 while the fair market value of the preferred shares was based on relative values of the same class of securities sold by Positron during recent private placements.
During the year ended December 31, 2009, the Company recorded a gain on the sale of the PET system that was previously in operation at the Beth Israel facility. Pursuant to the terms of a bailment agreement, in October 2009, the Company sold the asset to Positron Corporation after Positron found an independent third party to purchase the asset. The Company recorded a gain on the sale of approximately $65,000, which is included in other income.
Liquidity and capital resources
At December 31, 2009, the Company had current assets of $140 and current liabilities of $640,298 compared to December 31, 2008 when the Company had current assets and current liabilities of $942 and $535,968, respectively. Cash and cash equivalents at December 31, 2009 were $140. The Company’s investment in the securities of Positron decreased to $286,773 at December 31, 2009 from $376,167 at December 31, 2008 as a result of recording its proportionate share of Positron losses under the equity method of accounting.
Current liabilities at December 31, 2009 include accounts payable and accrued liabilities of $611,074 and $29,224 due to Positron Corporation. Accrued expenses include $527,000 due to the former supplier of the rubidium used to perform the scans with the PET system at Beth Israel. In October 2009, the Company paid off the note payable and accrued interest due Cherry Creek Partners.
During the year ended December 31, 2009, the Company used net cash in operations of $88,816 compared to net cash provided by operating activities of $273,761 for the year ended December 31, 2008. The Company did not record any revenues for the year ended December 31, 2009.
The Company had net cash provided by investing activities of $245,000 for the year ended December 31, 2009, all coming from the sale of the PET system to Positron Corporation. The Company used $902,875 in cash in investing activities related to the notes receivable due from Positron Corporation during the year ended December 31, 2008.
Net cash used in financing activities for the year ended December 31, 2009 was $156,986. The Company used proceeds from the sale of the PET system to pay off the balance of $182,710 owed to Cherry Creek Partners for a note payable. Additionally, the Company received advances from Positron Corporation approximating $25,000 during the current year. Net cash provided by financing activities during the year ended December 31, 2008 was $605,936 which included a total of $970,000 in equity investments and advances made by Solaris Opportunity Fund (“Solaris”), a related party. Financing activities also includes approximately $71,000 of payments to Cherry Creek against the note payable and repayment of amounts borrowed from affiliates of approximately $293,000.
On December 31, 2009, the Company had an accumulated deficit of $4,770,160 and total stockholders’ deficit of $583,443. The Company is dependent upon raising additional debt or equity financings to resolve its liquidity issues and allow it to continue to operate as a going concern. As discussed above, our audited financial statements at December 31, 2009, expressed substantial doubt about our ability to continue as a “going concern”. Our continued operations will depend on whether we are able to raise additional funds through various potential sources, such as equity and debt financing, and strategic alliances. Such additional funds may not become available on acceptable terms, if at all, and there can be no assurance that any additional funding that we do obtain will be sufficient to meet our needs in the long term. Through December 31, 2009, virtually all of our financing has been through private placements of common stock and loans by our executive officer. We intend to continue to fund operations from cash on-hand and through the similar sources of capital previously described for the foreseeable future. We can give no assurances that any additional capital that we are able to obtain will be sufficient to meet our needs. We believe that we will continue to incur net losses and negative cash flows from operating activities for the foreseeable future. Based on the resources available to us at December 31, 2009, we will need additional equity or debt financing to sustain our operations through 2010 and we will need additional financing thereafter until we can achieve profitability, if ever. These matters raise substantial doubt about our ability to continue as a going concern.
ITEM 7.
ITEM 7. FINANCIAL STATEMENTS
The required Financial Statements and notes thereto are contained in a separate section of this report beginning with the page following the signature page.
ITEM 8.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Item 8A(T). CONTROL AND PROCEDURES
Disclosure Controls and Procedures
In accordance with Rule 13a-15(b) of the Securities Exchange Act of 1934 as amended (the “Exchange Act”), as of the end of the period covered by this Annual Report on Form 10-K, the Company’s management evaluated, with the participation of the Company’s principal executive and financial officer, the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Exchange Act). Disclosure controls and procedures are defined as those controls and other procedures of an issuer that are designed to ensure that the information required to be disclosed by the issuer in the reports it files or submits under the Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. Based on their evaluation of these disclosure controls and procedures, the Company’s chairman of the board and chief executive and financial officer has concluded that that there are material weaknesses in our disclosure controls and procedures.
The material weaknesses in our disclosure control procedures are as follows:
1.
Lack of formal policies and procedures necessary to adequately review significant accounting transactions. The Company utilizes a third party independent contractor for the preparation of its financial statements. Although the financial statements and footnotes are reviewed by our management, we do not have a formal policy to review significant accounting transactions and the accounting treatment of such transactions. The third party independent contractor is not involved in the day to day operations of the Company and may not be provided information from management on a timely basis to allow for adequate reporting/consideration of certain transactions. In the case of the Company’s recent restatement of the investment in Positron securities, a periodic review (not less than quarterly) and discussion of significant transactions (i.e. increasing advances to a related party) may have led to more timely adoption of the proper method of accounting.
2.
Audit Committee and Financial Expert. The Company does not have a formal audit committee with a financial expert, and thus the Company lacks the board oversight role within the financial reporting process.
We intend to initiate measures to remediate the identified material weaknesses including, but not necessarily limited to, the following:
·
Establishing a formal review process of significant accounting transactions that includes participation of the Chief Executive Officer, the Chief Financial Officer and the Company’s corporate legal counsel.
·
Form an Audit Committee that will establish policies and procedures that will provide the Board of Directors a formal review process that will among other things, assure that management controls and procedures are in place and being maintained consistently.
Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2009. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework. Based on its evaluation, our management concluded that there is a there is a significant deficiency and a material weakness in our internal control over financial reporting.
The significant deficiency relates to a lack of segregation of duties due to the small number of employees involvement with general administrative and financial matters. However, management believes that compensating controls are in place to mitigate the risks associated with the lack of segregation of duties. Compensating controls include outsourcing certain financial functions to an independent contractor.
The material weakness relates to a lack of formal policies and procedures necessary to adequately review significant accounting transactions. The Company utilizes a third party independent contractor for the preparation of its financial statements. Although the financial statements and footnotes are reviewed by our management, we do not have a formal policy to review significant accounting transactions and the accounting treatment of such transactions. The third party independent contractor is not involved in the day to day operations of the Company and may not be provided information from management on a timely basis to allow for adequate reporting/consideration of certain transactions. We intend to initiate measures to remediate the identified material weaknesses including establishing a formal review process for significant accounting transactions that includes the participation of the Company’s management and corporate legal counsel, and establishing a formal audit committee.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.
ITEM 8B. OTHER INFORMATION.
None.
PART III
ITEM 9.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CORPORATE GOVERNANCE
(a) Identify Directors and Executive Officers.
The following table sets forth: (1) names and ages of all persons who presently are and who have been selected as directors of the Registrant; (2) all positions and offices with the Registrant held by each such person; (3) the term or office of each person named as a director; and (4) any period during which he or she has served a such:
SUMMARY COMPENSATION TABLE
There is no understanding or arrangement between any directors or any other person or persons pursuant to which such individual, was or is to be, selected as a director or nominee of the Registrant.
Business Experience
Joseph G. Oliverio - Age 40, Mr. Oliverio commenced service as the Company’s Chief Executive Officer and was also appointed to serve on the Company’s Board of Directors. Mr. Oliverio also serves as the President of Positron Corporation, a publicly-owned Texas corporation, and affiliate of the Registrant. Mr. Oliverio was the former Chief Operating Officer of Michael E. Merhige, M.D., LLC, and a well known coronary disease reversal and prevention center in Niagara, New York. Mr. Oliverio earned an MBA from the University of Phoenix and a BS in Nuclear Medicine Technology from State University of New York at Buffalo. Mr. Oliverio is a certified nuclear medicine technologist.
Corey Conn - Age 48, Chief Financial Officer, and Director: Mr. Conn is a co-founder of Cipher Multimedia, Inc. Mr. Conn also serves as the Chief Financial Officer and director of Positron Corporation, a publicly-owned Texas corporation, an affiliate of the Registrant. Since September, 1999. Mr. Conn has served as Managing Director of Virtual Partnerships, LLC, a business development and business strategy consulting firm. Previously, Mr. Conn was Vice President of Business Development at iLX, an e-business and e-transformation services provider from June 1996 to September 1999.
Neil Sy - Age 40, Chairman, and Director: Mr. Sy is currently engaged in capital raising ventures including consumer medicine and real estate properties in Chicago, Illinois and Las Vegas, Nevada. Prior thereto and from 1997 to 2003, Mr. Sy was a member of the Chicago Board Options Exchange as a market maker. Prior thereto, and from 1992 to 1997, Mr. Sy worked on the Chicago Board Options Exchange as a trade manager. Mr. Sy received a Bachelor’s Degree in Business Administration from Southern Illinois University.
Directorship
Except as disclosed in this Item, each director of the Registrant has indicated to the Registrant that he is not presently a director in any other Registrant with a class of securities registered pursuant to Section 12 of the 34 Act or subject to the requirements of Section 15(d) of such act or any investment company registered under the Investment Company Act of 1940.
(b) Identification of Certain Significant Employees
The Registrant does not presently employ any person as a significant employee who is not an executive officer but who makes or is expected to make a significant contribution to the business of the Registrant.
(c) Family Relationships
No family relationship exists between any director or executive officer of the Registrant.
(d) Involvement in Certain Legal Proceedings
No event listed in Sub-paragraphs (1) through (4) of Subparagraph (d) of Item 401 of Regulation S-K, has occurred with respect to any present executive officer or director of the Registrant or any nominee for director during the past five years which is material to an evaluation of the ability or integrity of such director or officer.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Exchange Act, as amended, requires the Registrant's executive officers and directors and persons who own more than 10% of a registered class of the Registrant's equity securities, to file with the SEC initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership, of Common Stock and other equity securities of the Registrant on Forms 3, 4, and 5, respectively. Executive officers, directors and greater than 10% shareholders are required by SEC regulations to furnish the Registrant with copies of all Section 16(a) reports they file. To the Registrant's knowledge, all beneficial owners of greater than 10% of Registrant's Common Stock have complied with all Section 16(a) filing requirements applicable to them during the Registrant's most recent fiscal year.
Code of Ethics
The Registrant has adopted its Code of Ethics and Business Conducts that applies to all officers, directors, and employees of the Registrant.
ITEM 10.
ITEM 10. EXECUTIVE COMPENSATION.
The following Summary Compensation Table shows certain compensation information for each of the Named Executive Officers. Compensation data is shown for the years ended December 31, 2009 and 2008. This information includes the dollar value of base salaries, bonus awards, the number of stock options granted, and certain other compensation, if any, whether paid or deferred.
(a) On August 14, 2009, the Company granted 10,000,000 stock options each to Mr. Conn and Mr. Sy at an exercise price of $0.015 per share. The options vest immediately and expire five (5) years from the date of grant.
Equity Compensation Plan Information
2007 Stock Option Plan
Imagin Molecular Corporation’s Board administers the 2007 Stock Option Plan (the "2007 Plan"), which was adopted by the Board effective May 14, 2007. The 2007 Plan provides for the grant stock options to directors, officers, employees and consultants. The administrator is authorized to determine the terms of each award granted under the plan, including the number of shares, exercise price, term and exercisability. Options may not be exercised more than five years after the date of grant. In the case of an optionee who is a director or officer of the Company, upon termination of employment for any reason other than death or termination for cause, 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 an optionee who is an employee or consultant of the Company, upon termination of employment for any reason other than death or termination for cause, each option may be exercised for a period of 60 days; to the extent it is exercisable on the date of termination. In the case of a termination due to death, an option will remain exercisable for a period of one year; to the extent it is exercisable on the date of termination. . In the case of a termination due to cause, any unexercised options shall expire immediately. A total of 5,000,000 shares of Common Stock have been authorized for issuance under the 2007 Plan. As of December 31, 2009, all shares had been issued to under the 2007 Plan.
ITEM 11.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners. The information is furnished as of December 31, 2009, as to the number of shares of the Registrant's Common Stock, $.001 par value per share, owned beneficially, or known by the Registrant to own beneficially, more than 5% of any class of such security:
(a)
Based on 75,000,000 shares of Common Stock outstanding on April 15, 2010.
(b)
Represents shares owned directly.
(c)
Patrick G. Rooney is the principal stockholder of Cipher Multimedia, Inc. and holds dispositive voting power.
(b) Security Ownership of Management. The following information is furnished as of December 31, 2009, as to the number of shares of the Registrant's Common Stock, $.001 par value per share owned beneficially by each executive officer and director of the Registrant and by all executive officers and directors as a group:
(a) Includes 10,000,000 shares that may be acquired by Mr. Conn and Mr. Sy pursuant to stock options that are or will become exercisable within 60 days of April 15, 2010.
(b) Calculation based on 75,000,000 shares of common stock outstanding as of April 15, 2010 plus stock options that are or will become exercisable within 60 days of April 15, 2010
ITEM 12.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
On May 1, 2009, INP and Positron Corporation (“Positron”) executed a Bailment Agreement (the “Bailment”) whereby, INP shall provide the Equipment to Positron for the purpose of remanufacturing, reconditioning, remarketing and reselling. Positron will take the Equipment subject to the perfected security interest of Cherry Creek Asset-Backed Income Fund II, LP (“Cherry Creek”) (See note 8). Pursuant to the terms of the Bailment, Positron is obligated to instruct any buyer of the Equipment to remit any payment to the Company’s legal counsel for disbursement to pay off the note due Cherry Creek pursuant to a letter agreement dated May 1, 2009 between INP and Cherry Creek.
In March 2009, the Equipment, which was previously reported as property and equipment, net of accumulated depreciation has was reclassified to a current asset as an asset being held for sale. The Company did not record depreciation related to the Equipment after March 2009. In October 2009, Positron sold the Equipment. The Company recorded a sale of the Equipment to Positron in the amount of $245,000 and a gain on the sale of the asset of $65,017.
During the year ended December 31, 2007, the Company advanced funds to Positron Corporation and its wholly-owned subsidiary Imaging Pet Technologies (collectively “Positron”). Imagin’s Chief Executive Officer and Director, Joseph Oliverio and its Chief Financial Officer and Director, Corey Conn are both officers and directors of Positron Corporation.. On April 10, 2008, the advances were formalized into a promissory note (“Note 1”), with interest at 8%, due on December 31, 2008 and secured by a pledge of 100,000,000 shares of Positron’s common stock (the “Security”). During the nine months ended September 30, 2008, the Company advanced Positron additional funds in the amount of $835,000. On August 18, 2008, those advances were formalized into a promissory note (“Note 2”), with interest at 8%, due on December 31, 2008. The August 18, 2008 note is also secured by the Security. Accrued interest due to the Company for the note was $67,875 at September 30, 2008.
On November 18, 2008, the Company, Solaris Opportunity Fund, L.P. and Positron Corporation executed and consummated a Securities Exchange Agreement whereby the Company transferred and assigned all of its rights title and interest to Note 1, Note 2 and the Pledged Shares to Solaris in exchange for the return of the 20,000,000 shares of the Company’s common stock and 4,387,500 shares of the Company’s Series A Preferred Stock, to be retired and cancelled on the Company’s books and records and the retirement and satisfaction of any obligations to the advances made in the amount of $200,000 to the Company by Solaris. Simultaneously therewith, Solaris exchanged Note 1, Note 2 plus accrued interest and the Pledged Shares and the retirement and satisfaction of any obligations to the advances made to Positron Corporation in the aggregate amount of $1,155,000 for the issuance of 100,000 shares of the Company’s Series S Preferred Stock (the “Exchange”). At December 31, 2008, the Company had not yet retired its common shares received in the Exchange and therefore those shares are being held in treasury.
Director Independence
We currently use NASDAQ’s general definition for determining director independence, which states that “independent director” means a person other than an officer or employee of the company or its subsidiaries or any other individual having a relationship, that, in the opinion of the company’s Board of Directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of the director.
One of our three current directors, Neil Sy, meets this definition of independence.
ITEM 13.
ITEM 13. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table sets forth the aggregate fees billed to us for fiscal years ended December 31, 2009 and 2008 by our auditors, Frank L. Sassetti & Co.
(1) Audit fees consist of fees billed for professional services rendered for the audit of the Registrant's annual financial statements and review of the interim consolidated financial statements included in quarterly reports and services that are normally provided in connection with statutory and regulatory filings or engagements.
(2) Audit-Related fees consist of fees billed for consultation regarding financial accounting and reporting matters.
(3) Tax fees consist of fees billed for professional services rendered for tax compliance, tax advice and tax planning (domestic and international). These services include assistance regarding federal, state and international tax compliance, acquisitions and international tax planning.
The Board of Directors has considered the role of Frank L. Sassetti & Co. in providing certain tax services to Imagin and has concluded that such services are compatible with Frank L. Sassetti Co.’s independence as our auditors. In addition, the Board of Directors has approved providing certain tax services since the effective date of the SEC rules. The rule states that an auditor is not independent of an audit client if the services it provides to the client are not appropriately approved. The Board of Directors will continue to pre-approve all audit and permissible non-audit services provided by the independent auditors until an audit committee is formed which will then be responsible for approving audit fees. We are looking for new board members that would be qualified to serve on an audit committee. When the audit committee is formed one of their first assignments will be to propose to the board a code of ethics.
The Board of Directors has adopted a policy for the pre-approval of services provided by the independent auditors, pursuant to which it may pre-approve any service consistent with applicable law, rules and regulations. Under the policy, the Board of Directors may also delegate authority to pre-approve certain specified audit or permissible non-audit services to one or more of its members, including the Chairman. A member to whom pre-approval authority has been delegated must report its pre-approval decisions, if any, to the Board of Directors at its next meeting, and any such pre-approvals must specify clearly in writing the services and fees approved. Unless the Board of Directors determines otherwise, the term for any service pre-approved by a member to whom pre-approval authority has been delegated is twelve months.
ITEM 15.
ITEM 15. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
EXHIBITS
*
Filed herewith
#
Furnished herewith
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned persons, and in the capacities so indicated on April 15, 2010.
Frank L. Sassetti & Co.
Certified Public Accountants
The Board of Directors
Imagin Molecular Corporation
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have audited the accompanying consolidated balance sheets of Imagin Molecular Corporation and Subsidiaries as of December 31, 2009 and 2008, and the related consolidated statements of operations, stockholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Imagin Molecular Corporation and Subsidiaries as of December 31, 2009 and 2008, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has a significant accumulated deficit which raises substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Frank L. Sassetti & Co.
April 15, 2010
Oak Park, Illinois
6611 W. North Avenue * Oak Park, Illinois 60302 * Phone (708) 386-1433 * Fax (708) 386-0139
IMAGIN MOLECULAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2009 AND 2008
See accompanying notes to financial statements.
IMAGIN MOLECULAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
See accompanying notes to financial statements.
IMAGIN MOLECULAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
See accompanying notes to financial statements.
IMAGIN MOLECULAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
See accompanying notes to financial statements.
IMAGIN MOLECULAR CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
(CONTINUED)
Supplementary Schedule of Noncash Transactions
On July 7, 2009, the Company returned 20,000,000 shares of treasury stock to unissued shares reducing common stock $20,000 and additional paid in capital by $360,300.
During the year ended December 31, 2009, shareholder loans in the amount of $5,560 were forgiven and reclassified to additional paid in capital.
On November 18, 2008, Solaris, Positron and the Company executed and consummated a Securities Exchange Agreement whereby the Company transferred and assigned all of its rights title and interest to notes receivable and accrued interest totaling $2,248,875 due from Positron in exchange for the return of the 20,000,000 shares of the Company’s common stock and 4,387,500 shares of Series A to be retired and cancelled on the Company’s books and records and the retirement and satisfaction of any obligations to the advances made in the amount of $200,000.
See accompanying notes to financial statements.
IMAGIN MOLECULAR CORPORATION
NOTES TO CONSOLIDATED STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
NOTE 1. BUSINESS ORGANIZATION
Imagin Molecular Corporation (“Imagin” or the “Company”) was originally incorporated under the laws of the State of Delaware. Imagin commenced operations upon incorporation and was in the development stage through the first quarter of 2006 and through that period had very little revenue. Imagin’s subsidiary Cipher Multimedia, Inc (“Cipher”) operated Imagin’s original business, a digital distribution solution and marketing company which secures and allows access to digital content through proprietary encoding, encryption and authorization technology.
In 2005 Imagin’s Board of Director’s resolved to change the Company’s principal operations from multimedia encryption technology to positron emission tomography and medical imaging. Operations began in the second quarter of 2006 and the Company no longer operated in the development stage. On March 20, 2007, the Company’s Board of Directors authorized the spin-off of Cipher to the Company’s Shareholders of record on March 26, 2007. Solely from an accounting perspective, the results of Cipher are presented as discontinued operations in the Company’s consolidated statements of operations and cash flows. See Positron Acquisition Corp. and Imagin Nuclear Partners discussions below.
Positron Acquisition Corp.
On April 19, 2005, the Company organized a wholly owned subsidiary, under the laws of the state of Nevada, named Positron Acquisition Corp. (“PAC”). Imagin’s original intent to create PAC was to acquire controlling interest in Positron Corporation (“Positron”), a publicly owned Texas corporation.
The Company holds 722,358 shares of Positron Corporation Series B Preferred Stock and 4,000,000 shares of the Positron Common Stock.
Imagin Nuclear Partners Corporation
In 2006, the Company’s wholly-owned subsidiary Imagin Nuclear Partners Corporation (“INP”) commenced scanning patients using Positron Emission Tomography myocardial perfusion imaging technology (“PET” or “PET imaging technology”) at a cardiac imaging center located in Beth Israel Medical Center in New York City (“BIMC”). Through BIMC, the Company has performed PET imaging on several hundred patients.
In May 2007, INP and BIMC executed a new lease agreement whereby BIMC leases PET scanning cameras and other related radiologic equipment from INP for the purpose of operating a PET Lab at its site. The initial term of the agreement is three years. (See NOTE 8) INP intends to joint venture with hospitals or physician groups to own or operate nuclear medicine imaging centers throughout North America.
On December 31, 2008, INP advised BIMC that it had breached the Agreement for failure to make certain payments under the Agreement. In addition, INP advised BIMC that it was seeking payment for certain inpatient scans that BIMC had requested it perform on behalf of BIMC patients and had failed to reimburse INP.
INP also asserted other claims in the aggregate amount of $318,144 and subsequently ceased supplying rubidium to BIMC thereafter. Also in the first quarter 2009, BIMC asserted that INP had breached the Agreement and demanded that INP remove the scanner located therein. In August 2009, BIMC made payment for scans and services rendered in December 2008 in the amount of $51,000. In November 2009, INP sold the scanner to Positron Corporation which sold it to an unrelated third party -see note 7.
NOTE 2. GOING CONCERN
These financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The Company has sustained losses since inception and has accumulated losses of $4,770,160 and total stockholders’ deficit of $583,443 as of December 31, 2009. The Company will need to raise additional capital to continue operations.
The Company has made a significant investment into the securities of Positron Corporation, a publicly owned Texas Corporation and affiliate of the Company (“Positron”). As of December 31, 2009, the Company held 4,000,000 shares of Positron’s common stock and 722,358 shares of Positron’s Series B Convertible Preferred stock.
While the Company is expending its best efforts to achieve its operating goals, there is no assurance that such activity will generate sufficient funds to accomplish its business purpose, or that the Company’s business plan will be successful. Furthermore, there can be no assurance that amounts invested in and advanced to Positron Corporation will ever be realized.
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Nature of Operations
For the years ended December 31, 2009 and 2008, the financial statements include the accounts and transactions of Cipher Multimedia, Inc. (a discontinued operation), Positron Acquisition Corp. and Imagin Nuclear Partners Corporation (subsidiaries). All Intercompany transactions and balances have been eliminated.
.
Cash and Cash Equivalents
The Company considers all highly liquid instruments with original maturities of three months or less to be cash equivalents.
Revenue recognition
The Company recognizes revenue from PET scans when the procedure is performed or as determined on a contractual basis between the Company and the provider. Scan revenue represents the amount charged to patients net of contractual adjustments. Contractual adjustments may arise due to the terms of reimbursement of Medicaid, Medicare and managed care providers. Such adjustments represent the difference between the charges at established rates and estimated recoverable amounts and are recognized as a reduction of revenue in the period services are rendered. Any differences between estimated contractual adjustments and actual final settlements under reimbursement contracts are recognized as contractual adjustments in the period final settlements are determined.
Loss Per Share
Loss per share is computed based on the weighted average number of shares of common stock outstanding. Stock options and warrants are not included in the computation of the weighted average number of shares outstanding for dilutive net loss per common share during each of the periods presented in the Statement of Operations, as the effect would be antidilutive.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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.
Income Taxes
Income taxes are accounted for under the liability method. Deferred income taxes are provided for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and amounts used for income tax purposes. Deferred taxes are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or the entire deferred tax asset will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of the enactment. We recognize tax benefits when we believe the benefit is more likely than not to be sustained upon review from the relevant authorities. We recognize penalties and interest expense related to unrecognized tax benefits in income tax expense.
Fair Value of Financial Instruments
The Company measures its financial assets and liabilities in accordance with generally accepted accounting principles. The guidance for “Fair Value Measurements,” requires certain disclosures regarding the fair value of financial instruments. For certain of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, the carrying amounts approximate fair value due to their short maturities.
The guidance for “Fair Value Measurements” defines fair value, establishes a framework for measuring fair value and provides the related disclosure requirements. The statement indicates, among other things, that a fair value measurement assumes that the transaction to sell an asset or transfer a liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability based upon an exit price model.
The guidance for “Fair Value Measurements” prescribes a fair value hierarchy in order to increase consistency and comparability in fair value measurements and related disclosures. The hierarchy is broken down into three levels based on the reliability of inputs as follows:
Level 1-Valuations based on quoted prices in active markets for identical assets. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment.
Level 2-Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, directly or indirectly. Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3-Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
The Company believes that the carrying value of it’s receivables, payables and accruals approximate fair value.
Equity Method Investments
We evaluate equity method investments for impairment by assessing whether the fair value of the investment has declined below its carrying value for a period we consider other-than-temporary. If we determine that a decline in fair value below our carrying value is other-than-temporary, an impairment charge is recognized to reduce the carrying value of the investment to its fair value.
New Accounting Pronouncements
The Financial Accounting Standards Board (“ FASB ”), in June 2009, issued new accounting guidance that established the FASB Accounting Standards Codification, (“ Codification” or “ASC ”) as the single source of authoritative GAAP to be applied by nongovernmental entities, except for the rules and interpretive releases of the SEC under authority of federal securities laws, which are sources of authoritative GAAP for SEC registrants. The FASB will no longer issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts; instead the FASB will issue Accounting Standards Updates. Accounting Standards Updates will not be authoritative in their own right as they will only serve to update the Codification. These changes and the Codification itself do not change GAAP. This new guidance became effective for interim and annual periods ending after September 15, 2009. Other than the manner in which new accounting guidance is referenced, the adoption of these changes did not have a material effect on the Company’s consolidated financial statements.
In May 2009, the FASB issued new accounting guidance, under ASC Topic 855 on subsequent events, which sets forth: 1) the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements; 2) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements; and 3) the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. This guidance was effective for interim and annual periods ending after June 15, 2009. The adoption of this guidance did not have a material effect on the Company’s consolidated financial statements.
In August 2009, FASB issued Accounting Standards Update 2009-05 which includes amendments to Subtopic 820-10, “ Fair Value Measurements and Disclosure--Overall.” The update provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using one or more of the techniques provided for in this update. The amendments in this update clarify that a reporting entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of the liability and also clarifies that both a quoted price in an active market for the identical liability at the measurement date and the quoted price for the identical liability when traded as an asset in an active market when no adjustments to the quoted price of the asset are required are Level 1 fair value measurements. The adoption of this standard did not have a material impact on the Company’s financial position, results of operations and cash flows.
The FASB has published FASB Accounting Standards Update 2009-13, “Revenue Recognition (Topic 605)-Multiple Deliverable Revenue Arrangements,” which addresses the accounting for multiple-deliverable arrangements to enable vendors to account for products or services (deliverables) separately rather than as a combined unit. Specifically, this guidance amends the criteria in Subtopic 605-25, “Revenue Recognition-Multiple-Element Arrangements,” for separating consideration in multiple-deliverable arrangements. This guidance establishes a selling price hierarchy for determining the selling price of a deliverable, which is based on: (a) vendor-specific objective evidence; (b) third-party evidence; or (c) estimates. This guidance also eliminates the residual method of allocation and requires that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method and also requires expanded disclosures. FASB Accounting Standards Update 2009-13 is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company’s financial position, results of operations and cash flows.
NOTE 4. CIPHER MULTIMEDIA INC. REORGANIZATION / DISCONTINUED OPERATIONS
On March 13, 2007, the Registrant reorganized its wholly-owned subsidiary Cipher Multimedia, Inc., an Illinois corporation (“Cipher”) as a Nevada corporation via merger with Cipher Multimedia, Inc., a Nevada corporation (“Cipher-NV”). In accordance with the Plan of Merger, each ten shares of Cipher were exchanged for one share of Cipher-NV common stock. On March 14, 2007, Cipher settled obligations with its two largest creditors by retiring $148,973 in obligations to Patrick Rooney, the Registrant’s former chairman and Chief Executive officer and Cipher’s founder, for 7,448,673 shares of Cipher-NV common stock, and retiring $35,750 of interest payable to a third-party in exchange for the issuance of 1,787,500 shares of Cipher’s common stock. On March 20, 2007, realizing that Cipher’s software encryption business no longer fit the Registrant’s business model of medical imaging services, the Registrant’s Board of Directors resolved to spin off the 3,513,200 shares of Cipher common stock held by the Registrant as a special dividend to its Shareholders of record as of March 26, 2007.
After the merger between Cipher and Cipher-NV, the Registrant no longer holds a majority of the common stock of the reorganized subsidiary, Cipher-NV. In accordance with generally accepted accounting principles, the Registrant believes itself to be the primary beneficiary as evidenced by continued management control over the operations of the subsidiary. This being the case, the operations of Cipher-NV for the years ended December 31, 2009 and 2008 continue to be consolidated in the Registrant’s financial statements and are reflected as discontinued operations.
Summarized financial information for discontinued operations for the years ended December 31, 2009 and 2008 were as follows:
NOTE 5. RELATED PARTIES AND SECURITIES EXCHANGE AGREEMENT
Between May 2007 and March 2008, Solaris Opportunity Fund, L.P. (“Solaris”) made equity investments in the Company in the amount of $2,167,000. The Company issued Solaris 20,000,000 common shares and 4,387,500 shares of Series A Preferred Stock. Pursuant to the terms of a Securities Exchange Agreement dated November 18, 2008 (see discussion below), the Company exchanged two notes receivable plus accrued interest due from Positron Corporation and reacquired all the outstanding common and preferred stock issued to Solaris. In addition, in June 2008 Solaris advanced the Company an additional $200,000. This advanced was also settled upon execution of the Securities Exchange Agreement dated November 18, 2008.
During the year ended December 31, 2007, the Company advanced funds to Positron Corporation and its wholly-owned subsidiary Imaging Pet Technologies (collectively “Positron”). Imagin’s Chief Executive Officer and Director, Joseph Oliverio and its Chief Financial Officer and Director, Corey Conn are both officers and directors of Positron Corporation.. On April 10, 2008, the advances were formalized into a promissory note (“Note 1”), with interest at 8%, due on December 31, 2008 and secured by a pledge of 100,000,000 shares of Positron’s common stock (the “Security”). During the period January 1 - August 18, 2008, the Company advanced Positron additional funds in the amount of $835,000. On August 18, 2008, those advances were formalized into a promissory note (“Note 2”), with interest at 8%, due on December 31, 2008. The August 18, 2008 note is also collateralized by the Security.
Securities Exchange Agreement among Positron Corporation, Imagin Molecular Corporation and Solaris Opportunity Fund, L.P.
On November 18, 2008, the Company, Solaris Opportunity Fund, L.P. and Positron Corporation executed and consummated a Securities Exchange Agreement whereby the Company transferred and assigned all of its rights, title and interest to Note 1, Note 2 and the Pledged Shares to Solaris in exchange for the return of the 20,000,000 shares of the Company’s common stock and 4,387,500 shares of the Company’s Series A Preferred Stock, to be retired and cancelled on the Company’s books and records and the retirement and satisfaction of any obligations to the advances made in the amount of $200,000 to the Company by Solaris. Simultaneously therewith, Solaris exchanged Note 1, Note 2 plus accrued interest and the Pledged Shares and the retirement and satisfaction of any obligations to the advances made to Positron Corporation in the aggregate amount of $1,155,000 for the issuance of 100,000 shares of the Company’s Series S Preferred Stock (the “Exchange”).
Advances from shareholder and related parties
Patrick G. Rooney, the Company’s former Chairman, President and Chief Executive Officer, advanced funds to finance the Company’s working capital requirements. On December 31, 2009 and 2008 advances and loans, including accrued interest, made to the Company by Mr. Rooney totaled $5,560 and $5,200, respectively. On December 31, 2009, Mr. Rooney forgave the debt owed him by the Company, consequently the Company reclassified the debt to additional paid in capital.
Advances from related parties at December 31, 2009 and 2008 consisted of the following:
NOTE 6. INVESTMENT IN SECURITIES OF POSITRON
At December 31, 2007, the Company owned approximately 4% of Positron Corporation’s (“Positron”) outstanding common stock and 722,358 Series B Preferred Shares or approximately 11.5% of the class. Despite holdings of less than 20% of the voting stock of Positron, management believes that events and transactions occurring during the second half of 2007 and continuing into the first quarter of 2008 has given the Company the ability to exercise an increasing degree of influence over certain operating and financial policies. The events and transactions include advances of funds by the Company to Positron beginning in July 2007 and totaling $1,346,000 at December 31, 2007. The advances were subsequently converted to a note receivable that is collateralized by Positron common stock. In addition to the financing, on January 2, 2008 Corey Conn, who serves as Chief Financial Officer for both companies, was elected to the Positron Board of Directors. The two companies share one other common director; however Positron has four directors that are not on the Company’s Board. . In considering the accounting guidance with respect to the investment in Positron, and events and transactions occurring during the third quarter of 2007 as well as the current relationship between the Company and Positron, the Company adopted the equity method of accounting with respect to the Positron securities during the third quarter of 2007.
Based on its percentage of ownership of Positron common stock, for the year ended December 31, 2009 and 2008, the Company recorded equity in the losses of Positron of $110,733 and $258,351, respectively. Additionally, on December 31, 2008, the Company recorded an impairment charge of $734,068 against the carrying value of the investment. The impairment charge was computed by comparing current fair market value of the investment with the carrying value. The asset was not deemed impaired at December 31, 2009,
Summarized financial information for Positron for the years ended December 31, 2009 and 2008 follows:
The underlying common shares related to anti-dilutive securities not included in Positron’s net loss per share calculation as of December 31, 2009 were as follows:
NOTE 7. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 2009 and 2008 consisted of the following:
On December 31, 2008, INP advised Beth Israel Medical Center that it had breached the Equipment Lease Agreement (the “Agreement”) for certain positron emission tomography (“PET”) scanning cameras and related radiologic equipment (the “Equipment”), for failure to make certain payments under the Agreement (See Note 9). INP also asserted other claims in the aggregate amount of $318,144 and ceased supplying rubidium to BIMC thereafter. Additionally, BIMC asserted that INP had breached the Agreement and demanded that INP remove the scanner located therein.
On May 1, 2009, INP and Positron Corporation (“Positron”) executed a Bailment Agreement (the “Bailment”) whereby,
INP shall provide the Equipment to Positron for the purpose of remanufacturing, reconditioning, remarketing and reselling. Positron will take the Equipment subject to the perfected security interest of Cherry Creek Asset-Backed Income Fund II, LP (“Cherry Creek”) (See note 8). Pursuant to the terms of the Bailment, Positron is obligated to instruct any buyer of the Equipment to remit any payment to the Company’s legal counsel for disbursement to pay off the note due Cherry Creek pursuant to a letter agreement dated May 1, 2009 between INP and Cherry Creek.
In March 2009, the Equipment, which was previously reported as property and equipment, net of accumulated depreciation has was reclassified to a current asset as an asset being held for sale. The Company did not record depreciation related to the Equipment after March 2009. In October 2009, Positron sold the Equipment. The Company recorded a sale of the Equipment to Positron in the amount of $245,000 and a gain on the sale of the asset of $65,017. At the time of the sale, the Equipment had a book value of $179,983.
NOTE 8. NOTES PAYABLE
On September 11, 2006, the Company issued a 12% secured promissory note to Cherry Creek Capital Partners (“Cherry Creek”), an unrelated party, in the amount of $300,000. Pursuant to the terms of the note, commencing on October 1, 2006, as amended the Company made a payment of $17,566 in November 2006 and is required to make 30 consecutive monthly installments of $11,142, including interest, commencing in July 2007. A final payment of all outstanding principal and accrued interest is due and payable on March 10, 2010. The promissory note is secured by certain assets of the Company including 4,000,000 shares of common stock of Positron Corporation, for which the Company has granted Cherry Creek a security interest.
The Company defaulted on the terms of the promissory note. On March 16, 2009, Cherry Creek issued a Notice of Right To Cure and Demand for Payment of all past due amounts. On May 1, 2009, the Company and Cherry Creek executed a letter agreement (the “Agreement”) whereby, Cherry Creek acknowledged that Positron Corporation (“Positron”), in its capacity as remarketing agent (see Note 5), has taken possession of the equipment, defined in Note 9, that collateralizes the note. Pursuant to the terms of the Agreement, Positron shall instruct any buyer of the equipment to remit all payments to the Company’s legal counsel for disbursement to Cherry Creek for full payment of the note and all accrued interest. In October 2009, the Company sold the machine to Positron and satisfied its obligation to Cherry Creek. Positron subsequently sold the machine to an unrelated third party.
NOTE 9. EQUIPMENT LEASE AGREEMENT
In May 2007, the Company’s wholly-owned subsidiary, INP and Beth Israel Medical Center (“BIMC”) executed an Equipment Lease Agreement (the “Agreement”) for certain positron emission tomography (“PET”) scanning cameras and related radiologic equipment (the “Equipment”). Under the terms of the Agreement, BIMC leased the equipment for use in its on site PET Lab where it performs PET scans on its patients. The initial lease term was three (3) years commencing on June 4, 2007 (the “Effective Date”).
On December 31, 2008, INP advised BIMC that it had breached the Agreement for failure to make certain payments under the Agreement. In addition, INP advised BIMC that it was seeking payment of $188,700 for 102 inpatient scans that BIMC had requested it perform on behalf of BIMC patients and had failed to reimburse INP for. Due to the uncertainty surrounding the reimbursement of the scans, the Company had either reserved against revenue amounts previously recorded or did not record these scans as revenue.
INP also asserted other claims in the aggregate amount of $318,144 and ceased supplying rubidium to BIMC thereafter. BIMC asserted that INP had breached the Agreement and demanded that INP remove the scanner located therein. On May 1, 2009, INP executed a bailment agreement with Positron Corporation, the terms of which provide Positron with possession of the Equipment for the purpose of remanufacturing, reconditioning, remarketing and reselling. In October 2009, the Company sold the machine to Positron and satisfied its obligation to Cherry Creek. Positron subsequently sold the machine to an unrelated third party.
NOTE 10. STOCK OPTIONS
In May 2009, the Company issued 780,000 shares of it common stock to unrelated party for services performed. The Company recorded professional fees expense of $39,000 related to the common stock issued.
On August 14, 2009, the Company granted 20,000,000 stock options to employees and board members at an exercise price of $0.015 per share. The options vest immediately and expire five (5) years from the date of grant. The Company recorded compensation expense of $800,000 related to stock option grants.
For all of the Company’s stock-based compensation plans, the fair value of each grant was estimated at the date of grant using the Black-Scholes option-pricing model. Black-Scholes utilizes assumptions related to volatility, the risk-free interest rate, the dividend yield (which is assumed to be zero, as the Company has not paid cash dividends to date and does not currently expect to pay cash dividends) and the expected term of the option. Expected volatilities utilized in the model are based mainly on the historical volatility of the Company’s stock price over a period commensurate with the expected life of the share option as well as other factors. The risk-free interest rate is derived from the zero-coupon U.S. government issues with a remaining term equal to the expected life at the time of grant. Fair market value using the Black-Scholes option-pricing model for the options issued on August 14, 2009 was determined using the following assumptions:
On January 25, 2010, the Company issued 556,716 shares of common stock to Corey Conn, Chief Financial Officer as compensation. The Company recorded compensation expense of $38,970 for this transaction.
NOTE 11. INCOME TAXES
The Company has incurred losses since its inception and, therefore, has not been subject to federal income taxes. As of December 31, 2009, the Company had net operating loss (“NOL”) carryforwards for income tax purposes of approximately $4,200,000, which expire in 2022 through 2028. Under the provisions of Section 382 of the Internal Revenue Code the greater than 50% ownership change of the Company’s common stock limits the Company’s ability to utilize its NOL carryforwards to reduce future taxable income and related tax liabilities.
Section 382 allows an owner shift any time there is a transfer of stock by a person who directly, or indirectly, owns more than 5% of the corporation and the percentage of stock of the corporation owned by one or more five percent shareholders has increased, in the aggregate, by more than 50 percentage points over the lowest percentage of stock owned by such shareholders at any time during the "testing period." The "testing period" is generally a three-year period ending on the date of any owner or equity structure shift.
The amount of post-change income that may be offset by pre-change losses is limited each year by the "Section 382 Limitation." Generally, the Section 382 Limitation is an amount equal to the value of the old loss corporation multiplied by a long-term interest rate established monthly by the Internal Revenue Service. The Company has not yet determined the qualifying events and resulting limitation that may impact utilization of net operating losses against future periods.
Deferred income taxes consist of the following as of December 31, 2009 and 2008:
Due to the uncertainty of future realization of the net deferred tax asset, a valuation allowance has been placed against the net deferred tax assets..
FY2008
IMAGIN MOLECULAR CORPORATION
FORM 10-K
NOTE 12. STOCKHOLDERS' EQUITY
On May 29, 2009, the Company issued 780,000 shares of its common stock to an unrelated party as payment for a debt obligation for services incurred in 2009. The fair market value of the common stock issued was $39,000.
During 2009 the Company cancelled and retired 20,000,000 treasury shares that it had acquired in November 2008 pursuant to a Securities Exchange Agreement between Solaris, Positron and the Company.
On January 28, 2008, the Company consummated a Securities Purchase and Subscription Agreement with Solaris Opportunity Fund, L.P., a Delaware limited partnership ("Solaris"). Solaris acquired 175,000 shares of the Registrant's Series A Convertible Preferred Stock for $70,000. The preferred shares are convertible into a total of 3,500,000 shares of Imagin common stock. Solaris' Managing Member, Patrick G. Rooney, is the principal shareholder of the Company and its former Chairman and Chief Executive Officer, and founder of its subsidiary Cipher-NV. Mr. Rooney is also the Chairman of Positron Corporation, a publicly owned Texas corporation and an affiliate of the Company.
On March 10, 2008 the Company consummated a Securities Purchase and Subscription Agreements with Solaris. Under the Agreement Solaris acquired 1,850,000 shares of the Registrant's Series A Convertible Preferred Stock for $700,000. The preferred shares are convertible into a total of 37,000,000 shares of Imagin common stock.
On November 18, 2008, Solaris, Positron and the Company executed and consummated a Securities Exchange Agreement whereby the Company transferred and assigned all of its rights title and interest to notes receivable and accrued interest due from Positron exchange for the return of the 20,000,000 shares of the Company’s common stock and 4,387,500 shares of Series A to be retired and cancelled on the Company’s books and records and the retirement and satisfaction of any obligations to the advances made in the amount of $200,000. (See Note 5).
NOTE 13. LOSS PER SHARE
The following information details the computation of basic and diluted loss per share:
All common stock equivalents in the years ended December 31, 2009 and 2008 were excluded from the above calculation as their effect was anti-dilutive.
Anti-dilutive securities (based on conversions to common shares) not included in net loss per share calculation (in thousands):
NOTE 14. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)