Positron totters on the brink of solvency as liquidity woes imperil PET developer

Company has few alternatives as cash runs short

The end game appears to be under way for beleaguered PET developer Positron. The Houston-based company on April 21 announced that its liquidity problems have prevented it from paying its obligations as they are due, and that if the company does not obtain additional financing in the very near future, it will not be able to continue as a going concern.

In conjunction with the going-concern statement, Positron announced that its entire executive staff has left the firm, with the exception of president and CEO Gary Wood. Executive vice president Howard Baker tendered his resignation on April 14, while CFO David Rodrigue left the company in January. In addition, Positron's auditors, Coopers & Lybrand, have resigned, and Positron said it will not be able to file its annual report for 1997 until a new independent auditor is hired.

Positron has been struggling with cash-flow problems for nearly three years. The company has been unable to ship a sufficient number of PET cameras to remain profitable, and its cash-flow problems have hindered the company's ability to buy spare parts to ship orders in its backlog. Positron has steadily cut its payroll, and in January reported that it had 23 employees, compared with 35 the year before.

Positron has examined several avenues to find a way out of its morass, to no avail. The company last year signed an agreement to acquire the PET manufacturing capacity of GE Medical Systems of Milwaukee, but the agreement expired due to Positron's inability to raise the capital required to make the acquisition (SCAN 4/30/97).

An agreement with another PET manufacturer, CTI PET Systems of Knoxville, TN, was announced in January (SCAN 1/14/98). That deal would have helped Positron raise funds by allowing CPS to take over Positron's manufacturing and service operations, thus helping Positron ship several orders in its backlog and recognize revenue from the sales. Positron estimated that its backlog was worth $4.5 million, of which Positron would recognize $2 million.

Like the GE deal, however, the CPS/Positron alliance was never consummated. The companies were unable to reach an agreement on the details of a relationship before the letter of intent covering the deal expired at the end of January, according to Terry Douglass, president of CPS. CPS backed away from the deal when it discovered that there was less business in Positron's backlog than initially expected.

Positron's alternatives at this point appear limited. The company is considering options that include the sale of debt or equity, or the sale of its assets. To cut costs, Positron has relocated its office to a new location in Houston. Positron executives were unavailable for comment as of press time.

What will happen to PET cameras in Positron's installed base if the company goes out of business? Most will probably resort to third-party service arrangements, the route taken by owners of gamma cameras manufactured by Park Medical Systems, which filed for bankruptcy last year. With the expiration of the CPS proposal, however, that company is no longer in a position to service Positron systems, according to Douglass.