10QSB

FORM 10-QSB SEPTEMBER 30, 2005

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2005.

o TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____________ TO ______________.

Commission file number: 0-24092

Positron Corporation

(Exact name of small business issuer as specified in its charter)

Texas	76-0083622
(State of incorporation)	(IRS Employer Identification No.)

1304 Langham Creek Drive, Suite 300, Houston, Texas 77084

(Address of principal executive offices)

(281) 492-7100

(Issuer's telephone number)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

As of September 30, 2005, there were 76,325,046 shares of the Registrant’s Common Stock, $.01 par value outstanding.

Transitional Small Business Disclosure Format (check one). Yeso Nox

1

FORM 10-QSB SEPTEMBER 30, 2005

POSITRON CORPORATION

TABLE OF CONTENTS

Form 10-QSB for the quarter ended September 30, 2005

PART I - FINANCIAL INFORMATION	Page
Item 1. Financial Statements
Balance Sheet as of September 30, 2005	3
Statements of Operations for the three and nine months ended September 30, 2005 and 2004	4
Statements of Cash Flows for the nine months ended September 30, 2005 and 2004	5
Selected Notes to Financial Statements	6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3. Controls and Procedures	14
PART II - OTHER INFORMATION	14
Item 1. Legal Proceedings	14
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	14
Item 3. Defaults Upon Senior Securities	15
Item 4. Submission of Matters to a Vote of Security Holders	15
Item 5. Other Information	15
Item 6. Exhibits	16
Signature Page	17

2

FORM 10-QSB SEPTEMBER 30, 2005

PART 1 - FINANCIAL INFORMATION

ITEM 1. Financial Statements

POSITRON CORPORATION

BALANCE SHEET

September 30, 2005

(In thousands, except share data)

(Unaudited)

ASSETS
Current assets:
Cash and cash equivalents	$	154
Inventories		715
Prepaid expenses		35
Other current assets		40
Total current assets		944
Property and equipment, net		117
Other assets		253
Total assets	$	1,314
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable, trade and accrued liabilities	$	1,599
Customer deposits		15
Unearned revenue		125
Convertible notes payable to affiliated entities, less discount of $21		1,312
Total current liabilities		3,051
Convertible notes payable to affiliated entities, less discount of $1,069		731
Stockholders’ equity (deficit):
Series A Preferred Stock: $1.00 par value; 8% cumulative, convertible, redeemable; 5,450,000 shares authorized; 464,319 shares issued and outstanding		464
Common Stock: $0.01 par value; 100,000,000 shares authorized; 76,385,202 shares issued and 76,325,046 shares outstanding		764
Additional paid-in capital		57,224
Subscription receivable		(30	)
Accumulated deficit		(60,875	)
Treasury Stock: 60,156 shares at cost		(15	)
Total stockholders’ equity (deficit)		(2,468	)
Total liabilities and stockholders’ equity (deficit)	$	1,314

See accompanying notes

3

FORM 10-QSB SEPTEMBER 30, 2005

POSITRON CORPORATION

STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

	Three Months Ended						Nine Months Ended
	Sept. 30, 2005			Sept. 30, 2004			Sept. 30, 2005			Sept. 30, 2004
Revenues:
System sales	$	--		$	1,150		$	--		$	1,150
Upgrades		3			382			37			382
Service and component		175			226			525			705
Total revenues		178			1,758			562			2,237
Costs of sales and service:
System sales		84			1,032			260			1,118
Upgrades		--			177			8			177
Service, warranty and component		50			99			176			248
Total costs of sales and services		134			1,308			444			1,543
Gross profit		44			450			118			694
Operating expenses:
Research and development		92			141			352			242
Selling and marketing		127			160			570			245
General and administrative		457			290			1,165			865
Stock based compensation		(61	)		--			(163	)		350
Total operating expenses		615			591			1,924			1,702
Loss from operations		(571	)		(141	)		(1,806	)		(1,008	)
Other income (expense)
Interest income		--			--			1			--
Interest expense		(284	)		(62	)		(637	)		(84	)
Total other income (expense)		(284	)		(62	)		(636	)		(84	)
Net loss	$	(855	)	$	(203	)	$	($2,442	)	$	(1,092	)
Basic and diluted loss per common share	$	(0.01	)	$	(0.00	)	$	(0.04	)	$	(0.02	)
Weighted average number of basic and diluted shares outstanding		76,325			53,186			61,050			53,186

See accompanying notes

4

FORM 10-QSB SEPTEMBER 30, 2005

POSITRON CORPORATION

STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Nine Months Ended
	Sept. 30, 2005			Sept. 30, 2004
Cash flows from operating activities:
Net loss	$	(2,442	)	$	(1,092	)
Adjustment to reconcile net loss to net cash used in operating activities
Depreciation		58			65
Amortization of loan costs, debt discount and beneficial conversion		441			55
Compensation related to re-pricing of warrants		(164	)		350
Changes in operating assets and liabilities:
Accounts receivable		--			(253	)
Inventory		(94	)		326
Prepaid expenses		27			144
Other current assets		(12	)		(41	)
Field service parts and supplies		(1	)		13
Accounts payable and accrued liabilities		206			(520	)
Customer deposits		(1	)		(75	)
Unearned revenue		(28	)		76
Net cash used in operating activities		(2,010	)		(952	)
Cash flows from investing activities:
Capital expenditures		(19	)		(3	)
Net cash used in investing activities		(19	)		(3	)
Cash flows from financing activities:
Proceeds from notes payable to affiliated entities		2,050			1,250
Deferred loan costs		--			(100	)
Repayment of capital lease obligation		--			(9	)
Net cash provided by financing activities		2,050			1,141
Net increase in cash and cash equivalents		21			186
Cash and cash equivalents, beginning of period		133			5
Cash and cash equivalents, end of period	$	154		$	191

See accompanying notes

5

FORM 10-QSB SEPTEMBER 30, 2005

POSITRON CORPORATION

SELECTED NOTES TO FINANCIAL STATEMENTS

1. Basis of Presentation

The accompanying unaudited interim financial statements have been prepared in accordance with generally accepted accounting principles and the rules of the U.S. Securities and Exchange Commission, and should be read in conjunction with the audited financial statements and notes thereto contained in the Annual Report on Form 10-KSB for Positron Corporation (the “Company”) for the year ended December 31, 2004. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosures contained in the audited financial statements for the most recent fiscal year ended December 31, 2004, as reported in the Form 10-KSB, have been omitted.

2. Accounting Policies

Revenue Recognition

Revenues from POSICAM^TM system contracts are recognized when all significant costs have been incurred and the system has been shipped to the customer. The Company also recognizes revenue on bill and hold transactions when the product is completed and is ready to be shipped and the risk of loss is transferred to the customer. In certain cases, at the customers’ request, the Company is storing the product for a brief period of time. Revenues from maintenance contracts are recognized over the term of the contract. Service revenues are recognized upon performance of the services.

Reclassifications

Certain prior year amounts have been reclassified to conform with the presentation for the current year. Such reclassifications had no impact on net income or stockholders’ equity as previously reported.

3. Going Concern Consideration

Since its inception, the Company has been unable to sell POSICAM™ systems in quantities sufficient to be operationally profitable. Consequently, the Company has sustained substantial losses. At September 30, 2005, the Company had an accumulated deficit of $60,875,000 and a stockholders’ deficit of $2,468,000. Due to the sizable prices of the Company’s systems and the limited number of systems sold or placed in service each year, the Company’s revenues have fluctuated significantly from year to year.

The Company utilized proceeds of $2,050,000 from notes payable to affiliated entities to fund its operating activities for the nine month period ended September 30, 2005. As a result, the Company had cash and cash equivalents of $154,000 at September 30, 2005. At the same date, the Company had accounts payable and accrued liabilities of $1,599,000.

There can be no assurance that the Company will be successful in implementing its business plan and ultimately achieving operational profitability. The Company’s long-term viability as a going concern is dependent on its ability to 1) achieve adequate profitability and cash flows from operations to sustain its operations, 2) control costs and expand revenues from existing or new business and 3) meet current commitments and fund the continuation of its business operation in the near future.

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FORM 10-QSB SEPTEMBER 30, 2005

4. Inventories

Inventories at September 30, 2005 consisted of the following (in thousands):

Raw materials	$	748
Work in progress		17
Subtotal		765
Less reserve for obsolescence		(50	)
Total	$	715

5. Other Assets

Other assets at September 30, 2005 consisted of the following (in thousands):

Field service parts and supplies	$	216
Deferred loan costs		37
Total	$	253

6. Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities at September 30, 2005 consisted of the following (in thousands):

Trade accounts payable	$	347
Accrued royalties		320
Accrued interest		262
Sales taxes payable		236
Accrued compensation		204
Accrued property taxes		107
Accrued professional fees		80
Accrued warranty costs		30
Insurance premiums payable		13
Total	$	1,599

Accrued compensation includes severance payments payable to the Company's former Chief Executive Officer, Gary H. Brooks. Mr. Brooks resigned effective September 29, 2005. In connection with his resignation, the Company agreed to make severance payments to Mr. Brooks of $18,583.33 per month for a period of six months, and to extend the expiration date of options held by Mr. Brooks through September 30, 2006, and warrants held by Mr. Brooks until the later of (i) October 31, 2007 for 7,000,000 warrants and June 2009 for 500,000 warrants, and (ii) the date on which a registration statement filed with the Securities Exchange Commission permitting a sale of the shares underlying such warrants shall have become effective and shall have remained effective for a period of six months.

7. Convertible Notes Payable to Affiliated Entities

Notes payable to affiliated entities at September 30, 2005 consisted to the following (in thousands):

IMAGIN Diagnostic Centres, Inc., less discount of $21	$	1,712
Solaris Opportunity Fund, L.P., less discount of $1,069		331
Total	$	2,043

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FORM 10-QSB SEPTEMBER 30, 2005

IMAGIN Diagnostic Centres, Inc.

Financing Agreements dated May 21, 2004

On May 26, 2004 and June 17, 2004, the Company sold two separate secured convertible promissory notes under a Note Purchase Agreement dated May 21, 2004, to IMAGIN Diagnostic Centres, Inc. (“IMAGIN”) in the principal amounts of $400,000 and $300,000, respectively. Interest is charged on the outstanding principal at the rate of ten percent (10%) per annum and is payable annually to the extent of positive cash flow on the anniversary dates of these notes. The principal and any unpaid interest must be paid on the earlier to occur of May 21, 2006 or when declared due and payable by IMAGIN upon occurrence of an event of default. The notes are initially convertible into new shares of Series C Preferred Stock that, in turn are convertible into an aggregate of 35,000,000 shares of the Company’s common stock. These notes are collateralized by all of the assets of the Company. As of September 30, 2005, principal of $700,000 has been advanced and remains outstanding related to these notes. Full convertibility of the shares of Series C Preferred Stock into common stock will require an amendment to the Company’s Articles of Incorporation which must be approved by the shareholders. The Company has obtained consent to amend its Articles of Incorporation and is preparing to file the amendment.

In a second stage of the financing IMAGIN agreed to purchase additional secured convertible promissory notes in the aggregate principal amount of $1,300,000. These notes were to be purchased over a six and a half month period, commencing July 15, 2004. These notes are due and payable on May 21, 2006. These notes are initially convertible into new shares of Series D Preferred Stock that, in turn is convertible into an aggregate of 52,000,000 shares of the Company’s common stock. As of June 30, 2005, principal of $1,208,500 had been advanced related to these notes. On June 30, 2005, IMAGIN converted $575,000 of these promissory notes into shares of Series D Preferred Stock that, in turn were converted into 23,000,000 shares of the Company’s common stock. This conversion reduced the principal owed under these promissory notes from $1,208,500 to $633,500. Full convertibility of the shares of Series D Preferred Stock into common stock will require an amendment to the Company’s Articles of Incorporation which must be approved by the shareholders. The Company has obtained consent to amend its Articles of Incorporation and is preparing to file the amendment.

The agreements with IMAGIN provided for a $200,000 transaction fee payable to IMAGIN upon completion of the financing. Under terms of these agreements, this fee obligation was to be reduced by an amount equal to $0.02 multiplied by the number of warrants issued to IMAGIN. The agreements with IMAGIN also provided for the issuance of new warrants for the purchase of 4,575,000 shares of common stock, which resulted in a $91,500 decrease in this fee obligation to $108,500. This fee obligation is included in the principal of the notes payable to IMAGIN at September 30, 2005. The Company allocated the proceeds received from this convertible debt with detachable warrants using the relative fair value of the individual elements at the time of issuance. The notes payable to IMAGIN contain an unamortized discount balance of approximately $21,000 at September 30, 2005. The discount of the debt is to be amortized over the term of the notes payable.

Patrick G. Rooney, Chairman of the Board of the Company is the son of Patrick Rooney, Director of Corporate Development of IMAGIN Diagnostic Centres, Inc. Patrick G. Rooney was appointed to the Board of Directors of the Company in connection with the financing with IMAGIN.

Financing Agreements dated August 8, 2005

On August 8, 2005, the Company sold to IMAGIN 10% secured convertible promissory notes under a Note Purchase Agreement, dated the same date, in the aggregate principal amount of $400,000. As of September 30, 2005, IMAGIN has purchased $400,000 of these notes. These notes are due and payable on August 7, 2008. These notes are convertible into an aggregate of 20,000,000 shares of the Company’s common stock. Full convertibility of the notes into shares of common stock will require an amendment to the Company’s Articles of Incorporation which must be approved by the shareholders. The Company has obtained consent for amending its Articles of Incorporation and is preparing to file the amendment.

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FORM 10-QSB SEPTEMBER 30, 2005

In accordance with generally accepted accounting principals in the event the conversion price is less than the Company’s stock price at the date of the agreement, the difference is considered to be a beneficial conversion feature and is amortized over the period from the date of issuance to the stated maturity date. The fair value of the common stock at the commitment date of $1,200,000 less the $400,000 in loan proceeds, results in intrinsic value of $800,000 for the beneficial conversion feature. However, the beneficial conversion feature is limited to the $400,000 proceeds of the debt. Due to the fact that there were not enough common shares available to facilitate the conversion of the debt into common stock on August 8, 2005, no beneficial conversion feature was recorded for this transaction.

Pursuant to the terms of the agreements, the Company granted to IMAGIN a security interest in all of its assets to secure payment of the convertible promissory notes. The security interest is subordinate to the security interest previously granted in the same collateral to IMAGIN and Solaris Opportunity Fund, L.P. (“Solaris”).

Solaris Opportunity Fund, L.P.

Financing Agreements dated February 28, 2005

On February 28, 2005, the Company entered into a series of agreements with Solaris pursuant to which Solaris agreed to purchase an aggregate of $1,000,000 face amount of the Company’s 10% secured convertible promissory notes. As of September 30, 2005, Solaris has purchased $1,000,000 of these notes. These notes are due and payable on March 6, 2007. The notes are initially convertible into new shares of Series E Preferred Stock that, in turn are convertible into an aggregate of 22,000,000 shares of the Company’s common stock. As of September 30, 2005, full convertibility of the shares of Series E Preferred Stock into common stock will require an amendment to the Company’s Articles of Incorporation which must be approved by the shareholders. The Company has obtained consent for amending its Articles of Incorporation and is preparing to file the amendment.

In accordance with generally accepted accounting principles in the event the conversion price is less than the Company’s stock price at the date of the agreement, the difference is considered to be a beneficial conversion feature and is amortized over the period from the date of issuance to the stated maturity date. On February 28, 2005, enough common shares were available to facilitate the conversion of substantially all of the debt into common stock. The fair value of the related Series E Preferred Stock at the commitment date of $2,200,000 less the $1,000,000 in loan proceeds, results in an intrinsic value of $1,200,000 for the beneficial conversion feature. However, the beneficial conversion feature is limited to the $1,000,000 proceeds of the debt.

Pursuant to the terms of the agreements, the Company granted to Solaris a security interest in all of its assets to secure payment of the convertible promissory notes. The security interest is subordinate to the security interest previously granted in the same collateral to IMAGIN.

We have been advised by Solaris that it has since sold the $1,000,000 principal amount of these notes to IMAGIN.

Financing Agreements dated June 27, 2005

On June 27, 2005, the Company entered into a series of agreements with Solaris pursuant to which Solaris agreed to purchase an aggregate of $400,000 face amount of the Company’s 10% secured convertible promissory notes. As of September 30, 2005, Solaris has purchased $400,000 of these notes. These notes are due and payable on March 6, 2007. The notes are initially convertible into new shares of Series F Preferred Stock that, in turn are convertible into an aggregate of 20,000,000 shares of the Company’s common stock. As of September 30, 2005, full convertibility of the shares of Series F Preferred Stock into common stock will require an amendment to the Company’s Articles of Incorporation, which must be approved by the shareholders. The Company has obtained consent for amending its Articles of Incorporation and is preparing to file the amendment.

9

FORM 10-QSB SEPTEMBER 30, 2005

In accordance with generally accepted accounting principles in the event the conversion price is less than the Company’s stock price at the date of the agreement, the difference is considered to be a beneficial conversion feature and is amortized over the period from the date of issuance to the stated maturity date. On June 27, 2005, enough common shares were available to facilitate the conversion of all of the debt into common stock. The fair value of the related Series F Preferred Stock at the commitment date of $1,600,000 less the $400,000 in loan proceeds, results in an intrinsic value of $1,200,000 for the beneficial conversion feature. However, the beneficial conversion feature is limited to the $400,000 proceeds of the debt.

Pursuant to the terms of the agreements, the Company granted to Solaris a security interest in all of its assets to secure payment of the convertible promissory notes. The security interest is subordinate to the security interest previously granted in the same collateral to IMAGIN and Solaris.

Patrick G. Rooney, Chairman of the Board of the Company, is the managing director of the manager of Solaris.

8. Stockholders’ Equity

Stockholders converted 45,900 shares of Series A Preferred Stock into 199,243 shares of common stock during the nine month period ended September 30, 2005.

9. Earnings Per Share

Basic earnings per common share are based on the weighted average number of common shares outstanding in each period and earnings adjusted for preferred stock dividend requirements. Diluted earnings per common share assume that any dilutive convertible preferred shares outstanding at the beginning of each period were converted at those dates, with related interest, preferred stock dividend requirements and outstanding common shares adjusted accordingly. It also assumes that outstanding common shares were increased by shares issuable upon exercise of those stock options and warrants for which market price exceeds exercise price, less shares which could have been purchased by the Company with related proceeds. The convertible preferred stock and outstanding stock options and warrants were not included in the computation of diluted earnings per common share for the three and nine month periods ended September 30, 2004 and 2005 since it would have resulted in an antidilutive effect.

The following table sets forth the computation of basic and diluted earnings per share.

	Three Months Ended						Nine Months Ended
	Sept. 30, 2005			Sept. 30, 2004			Sept. 30, 2005			Sept. 30, 2004
	(In Thousands, except per share data)
Numerator
Basic and diluted loss	$	(855	)	$	(203	)	$	(2,442	)	$	(1,092	)
Denominator
Basic and diluted earnings per share - weighted average shares outstanding		76,325			53,186			61,050			53,186
Basic and diluted loss per common share	$	(0.01	)	$	( 0.00	)	$	(0.04	)	$	(0.02	)

10. Litigation

Please refer to our Quarterly Report on Form 10-QSB for the fiscal quarter ended March 31, 2005, filed on May 16, 2005, which discloses claims that have been filed against the Company. There have been no material developments with respect to these claims since the previously filed Quarterly Report.

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FORM 10-QSB SEPTEMBER 30, 2005

11. Stock Based Compensation

In connection with the May 2004 transaction with IMAGIN, the Company re-priced various options and warrants to employees that are subject to the variable accounting rules. The market price of the Company’s common stock decreased $0.04 from $0.12 at December 31, 2004 to $0.08 at September 30, 2005. Due to the decline in price, application of the variable accounting rules resulted in the reversal of stock based compensation by approximately $163,000 during the nine months ended September 30, 2005.

12 Joint Venture with Neusoft Medical Systems Co., Ltd.

On July 30, 2005, the Company entered into a Joint Venture Contract (the "JV Contract") with Neusoft Medical Systems Co., Ltd. ("Neusoft") to form a jointly-owned company to be organized in the People's Republic of China to develop and manufacture PET and PET/CT systems. Governmental approval of the formation of the joint venture company has been obtained and Neusoft Positron Medical Systems Co., Ltd. (the " JV Company") was organized on September 6, 2005. The JV Company will receive its final authorization upon completion of its capitalization by the parties.

Pursuant to the JV Contract, Neusoft's capital contribution consists of $1,350,000 in cash and it will have a 67.5% interest in the JV Company. The Company's capital contribution consists of the transfer of an undivided interest in its PET technology valued at $400,000 and $250,000 in cash and it will have a 32.5% interest in the JV Company. As of October 31, 2005, substantially all of the technology had been transferred and the Company is in the process of funding its cash contribution. In addition, the Company has agreed to sublicense certain of its cardiac technology in consideration of a $250,000 royalty payment.

13. Subsequent Events

Amendment of Rights of Series C Preferred Stock

On October 3, 2005, the Company entered into an agreement with IMAGIN, under which the Company agreed to amend the Statement of Designation of Series C Preferred Stock to provide each share of Series C Preferred Stock with 130 votes on all matters submitted to or requiring the vote of its shareholders. In consideration for the amendment of the Statement of Designation of Series C Preferred Stock, IMAGIN agreed to convert outstanding 10% secured convertible notes in the principal amount of $770,000 held by IMAGIN into shares of Series C Preferred Stock.

The Company entered into the agreement with IMAGIN to ensure approval of the amendment and restatement of our Articles of Incorporation which provides for a 100-to-1 reverse stock split and maintenance of the number of authorized shares of common stock at 100,000,000. IMAGIN has agreed to convert its shares of Series C Preferred Stock into 385,000 shares of Common Stock following the reverse split. The Company attempted to receive shareholder approval of the amendment at a shareholders meeting held on August 24, 2005, but was unable to obtain enough votes to approve the proposal because of the large number of shares held by offshore investors and the difficulties encountered in communicating with and obtaining proxies from these investors in a timely and cost effective manner. The Company has no reason to believe that they oppose the proposal.

Financing Agreements dated October 31, 2005

On October 31, 2005, the Company entered into a series of agreements with IMAGIN pursuant to which IMAGIN agreed to purchase from the Company 10% convertible secured notes in the aggregate principal amount of $400,000. In addition, the Board approved the sale of an additional 10% convertible secured note in the principal amount of $25,000 to a private investor on the same terms. As of October 31, 2005, IMAGIN has purchased $200,000 of these notes. These notes are due and payable on October 31, 2008 and are convertible into an aggregate of 21,250,000 shares of the Company’s common stock. Full convertibility of the notes into shares of common stock will require an amendment to the Company’s Articles of Incorporation, which must be approved by the shareholders. The Company has obtained consent for amending its Articles of Incorporation and is preparing to file the amendment.

11

FORM 10-QSB SEPTEMBER 30, 2005

ITEM 2 -  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

We are including the following cautionary statement in this Quarterly Report on Form 10-QSB to make applicable and utilize the safe harbor provision of the Private Securities Litigation Reform Act of 1995 regarding any forward-looking statements made by, or on behalf of, the Company. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements, which are other than statements of historical facts. Certain statements contained herein are forward-looking statements and, accordingly, involve risks and uncertainties, which could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements.

Our expectations, beliefs and projections are expressed in good faith and are believed by us to have a reasonable basis, including without limitations, our examination of historical operating trends, data contained in our records and other data available from third parties, but there can be no assurance that our expectations, beliefs or projections will result, or be achieved, or be accomplished.

Comparison of the Results of Operations for the Three Months ended September 30, 2005 and 2004

We experienced a loss of $855,000 for the three months ended September 30, 2005 compared to a loss of $203,000 for the same quarter in 2004. The larger loss in 2005 resulted from increases in costs related to personnel, legal fees and interest, offset by the reversal of expense related to stock based compensation. The loss in the third quarter of 2004 included profits from the sale of a system and system upgrades.

We generated no revenues from sales of systems in the three months ended September 30, 2005 compared to $1,150,000 on the sale of one system in the third quarter of 2004. We earned revenues of $382,000 from upgrades of systems in the third quarter of 2004. Our service revenues decreased $51,000 to $175,000 in the three months ended September 30, 2005 from $226,000 in the same period in 2004. Service revenues in the three month period ended September 30, 2004 included the recognition of $50,000 in revenue relating to support provided to GE Medical Systems in conjunction with the sale of our Cardiac PET Software.

We generated gross profits of $44,000 during the three months ended September 30, 2005 compared to profits of $450,000 for the same three months in 2004. We earned profits from the sale of a system and system upgrades in the third quarter of 2004. Revenues of $50,000 relating to services provided to GE Medical Systems were also included in gross profits in the quarter ended September 30, 2004.

Our operating expenses increased $24,000 to $615,000 for the three months ended September 30, 2005 from $591,000 for the same period in 2004. Research and development expenses decreased $49,000 to $92,000 from $141,000 as a result of a decrease in the use of consultants. Sales and marketing expenses also decreased $33,000 to $127,000 from $160,000 primarily as a result of decreased personnel costs. General and administrative expenses increased $167,000 to $457,000 in the quarter ended September 30, 2005 from $290,000 in the same period in 2004. This increase in general and administrative expenses primarily resulted from increased legal fees and the recording of an obligation of 111,500 for severance pay in 2005. We reversed expense related to stock based compensation by $61,000 in the quarter ended September 30, 2005 relating to the application of the variable accounting rules to the re-pricing of warrants and options.

We recognized interest expense of $284,000 in the third quarter of 2005 compared to $62,000 of interest expense in the same period in 2004. Interest expense in the third quarter of 2005 relates to the notes payable to IMAGIN Diagnostic Centres, Inc. and Solaris Opportunity Fund, L.P. and includes $207,000 in amortization of loan costs, debt discounts and beneficial conversion features.

12

FORM 10-QSB SEPTEMBER 30, 2005

Comparison of the Results of Operations for the Nine Months ended September 30, 2005 and 2004

We experienced a loss of $2,442,000 for the nine months ended September 30, 2005 compared to a loss of $1,092,000 for the same period in 2004. The larger loss in 2005 resulted primarily from increases in costs related to personnel, legal fees and interest, offset by the reversal of expense related to stock based compensation. The loss in 2004 included profits from the sale of a system and system upgrades.

We generated no revenues from sales of systems in the nine months ended September 30, 2005 compared to $1,150,000 on the sale of one system in the same period of the prior year. We earned revenues of $37,000 from upgrades of systems in the first nine months of 2005 compared to $382,000 in revenues from system upgrades in the same period in 2004. Our service revenues decreased $180,000 to $525,000 in the nine months ended September 30, 2005 from $705,000 in the same period in 2004. Service revenues in the nine month period ended September 30, 2004 included the recognition of $150,000 in revenue relating to support provided to GE Medical Systems in conjunction with the sale of our Cardiac PET Software.

We generated gross profits of $118,000 during the nine months ended September 30, 2005 compared to $694,000 for the same period in 2004. We earned profits from the sale of a system and system upgrades in 2004. Revenues of $150,000 relating to services provided to GE Medical Systems were also included in gross profits in the nine months ended September 30, 2004.

Our operating expenses increased $222,000 to $1,924,000 for the nine months ended September 30, 2005 from $1,702,000 for the same period in 2004. Research and development expenses increased $110,000 to $352,000 from $242,000 as a result of increased personnel costs. Sales and marketing expenses also increased $325,000 to $570,000 from $245,000 primarily as a result of increased personnel costs. General and administrative expenses increased $300,000 to $1,165,000 in the nine month period ended September 30, 2005 from $865,000 in the same period in 2004. This increase in general and administrative expenses primarily resulted from increased legal fees and the recording of an obligation of $111,500 for severance pay in 2005. We reversed expense related to stock based compensation by $163,000 in the nine months ended September 30, 2005 related to the application of the variable accounting rules to the re-pricing of warrants and options. We recorded expense of $350,000 related to stock based compensation in the first nine months of 2004.

We recognized interest expense of $637,000 in the first nine months of 2005 compared to $84,000 of interest expense in the same period in 2004. Interest expense in the first nine months of 2005 relates to the notes payable to IMAGIN Diagnostic Centres, Inc. and Solaris Opportunity Fund, L.P. and includes $440,000 in amortization of loan costs, debt discounts and beneficial conversion features.

Financial Condition

We had cash and cash equivalents of $154,000 on September 30, 2005. On the same date, we had accounts payable and accrued liabilities outstanding of $1,599,000. We did not sell any imaging systems in the nine-month period ended September 30, 2005. In order to resolve our liquidity problems, we must sell imaging systems or seek alternative sources of debt or equity funding. However, there is no assurance that we will be successful in selling new systems or securing additional debt or equity funds.

Since inception, we have been unable to sell our POSICAM^TM systems in quantities sufficient to be operationally profitable. Consequently, we have sustained substantial losses. Due to the sizable selling prices of our systems and the limited number of systems sold or placed into service each year, revenues have fluctuated significantly from year to year. We have an accumulated deficit of $60,875,000 at September 30, 2005. The Company will need to increase system sales to achieve profitability in the future.

These events raise doubt as to our ability to continue as a going concern. The report of our independent public accountants, which accompanied our financial statements for the year ended December 31, 2004, was qualified with respect to that risk. If we are unable to obtain debt or equity financing to meet our cash needs we may have to severely limit or cease our business activities or may seek protection from our creditors under the bankruptcy laws.

13

FORM 10-QSB SEPTEMBER 30, 2005

New Accounting Pronouncements

Please refer to the Annual Report Form 10-KSB for the year ended December 31, 2004 for disclosures regarding the Company’s treatment of new accounting pronouncements.

Critical Accounting Policies

Revenue Recognition

Revenues from POSICAM^TM system contracts are recognized when all significant costs have been incurred and the system has been shipped to the customer. The Company also recognizes revenue on bill and hold transactions when the product is completed and is ready to be shipped and the risk of loss is transferred to the customer. In certain cases, at the customers’ request, the Company is storing the product for a brief period of time. Revenues from maintenance contracts are recognized over the term of the contract. Service revenues are recognized upon performance of the services.

ITEM 3 -  CONTROLS AND PROCEDURES

As of September 30, 2005, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chairman of the Board, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e) and Rule 15d-15(e)). Based upon that evaluation, the Company’s Chairman of the Board concluded that the Company’s disclosure controls and procedures are effective at a reasonable level. There has been no change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

The Company’s management, including the Chairman of the Board, do not expect that the Company’s disclosure controls or internal control over financial reporting will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met due to numerous factors, ranging from errors to conscious acts of an individual, or individuals acting together. In addition, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in a cost-effective control system, misstatements due to error and/or fraud may occur and not be detected.

PART II  OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

Please refer to our Quarterly Report on Form 10-QSB for the fiscal quarter ended March 31, 2005, filed on May 16, 2005, which discloses claims which have been filed against the Company. There have been no material developments with respect to these claims since the previously filed Quarterly Report.

ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Recent Sales of Unregistered Securities

On August 8, 2005, the Company sold to IMAGIN Diagnostic Centres, Inc. a 10% secured convertible promissory notes under a Note Purchase Agreement dated August 8, 2005, in the aggregate principal amount of $400,000. These notes are convertible at the option of the holder into an aggregate 20,000,000 shares of the Company’s common stock.

14

FORM 10-QSB SEPTEMBER 30, 2005

The sales of securities described above were exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(2) of the Securities Act of 1933, since the issuance constituted a sale not involving a public offering.

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

At the Registrant's Annual Meeting of Stockholders held on August 24, 2005 (which was adjourned several times) the following proposals were adopted by the margins indicated:

	Number of Shares
	For	Withheld
1.   To elect a five directors to hold office until the Annual Meeting of Shareholders to be held in 2006 or until their respective successors have been elected or appointed
Gary H. Brooks (1)	27,959,696	203,517
Sachio Okamura	50,991,050	172,163
Patrick G. Rooney	50,934,696	228,517
John E. McConnaughy (2)	50,936,050	227,163
Dr. Anthony C. Nicholls	50,941,050	222,163
(1) Resigned on September 29, 2005.
(2) Resigned on October 3, 2005.

	For	Against	Abstain	Not Voted
2.   To approve a proposed amendment and restatement of the Company's Articles of Incorporation to effect a 100 to 1 reverse stock split and to maintain the number of shares of Common Stock authorized at 100,000,000.	28,294,571	1,264,864	18,500	21,585,278
3.   To ratify the appointment of Ham, Langston & Brezina, L.L.P. as the Company's independent auditors for the fiscal year ended December 31, 2005.	50,804,673	207,727	21,000	--

After several adjournments of the Annual Meeting, the Company was unable to obtain enough votes to approve the proposal related to amendment of the Company's Articles of Incorporation because of the large number of shares held by offshore investors and the difficulties encountered in communicating with and obtaining proxies from these investors in a timely and cost effective manner. As a result, subsequent to final adjournment of the meeting, the Company obtained the written consent of sufficient shares to approve the proposal and is in the process of its implementation. A description of the proposal and the consent is contained in the Definitive Information Statement filed with the Commission on October 24, 2005.

ITEM 5 - OTHER INFORMATION

On October 27, 2005, J. David Wilson was appointed as the Company's new Chief Executive Officer and Corey N. Conn as the Company's new Chief Financial Officer and Executive Vice President of Operations. Griffith L. Miller remains the Company's President.

15

FORM 10-QSB SEPTEMBER 30, 2005

ITEM 6 - EXHIBITS

Exhibit	Description of the Exhibit
10.1	Joint Venture Contract dated July 30, 2005 between Positron Corporation and Neusoft Medical Systems Co., Ltd.
10.2	Technologies Contribution Agreement dated July 30, 2005 between Positron Corporation and Neusoft Positron Medical Systems Co., Ltd.
10.3	Software Sub-License Agreement dated September 6, 2005 between Positron Corporation and Neusoft Positron Medical Systems Co., Ltd.
10.4	Trademark License Agreement dated July 30, 2005 between Positron Corporation and Neusoft Positron Medical Systems Co., Ltd.
10.5	Corporate Name License Agreement dated July 30, 2005 between Positron Corporation and Neusoft Positron Medical Systems Co., Ltd.
10.6	Note Purchase Agreement dated August 8, 2005 between Positron Corporation and IMAGIN Diagnostic Centres, Inc. (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 12, 2005 (File No. 000-24092)).
10.7	Form Secured Convertible Promissory Note (incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on August 12, 2005 (File No. 000-24092)).
10.8	Registration Rights Agreement dated August 8, 2005 between Positron Corporation and IMAGIN Diagnostic Centres, Inc. (incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on August 12, 2005 (File No. 000-24092)).
10.9	Agreement between Gary H. Brooks and Positron Corporation dated September 29, 2005 (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 3, 2005 (File No. 000-24092)).
31.1	Chairman of the Board Certification of Periodic Financial Report Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1	Chairman of the Board Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.#

* Filed herewith

# Furnished herewith

16

FORM 10-QSB SEPTEMBER 30, 2005

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		POSITRON CORPORATION
		(Registrant)
Date:	November 14, 2005	/s/ Patrick G. Rooney
		Patrick G. Rooney
		Chairman of the Board

EXHIBIT INDEX

Exhibit	Description of the Exhibit
31.1	Chairman of the Board Certification of Periodic Financial Report Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1	Chairman of the Board Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.#

* Filed herewith

# Furnished herewith

17

EX-10.1

JOINT VENTURE CONTRACT

FOR THE ESTABLISHMENT OF

Neusoft Positron Medical Systems Co., Ltd.

By and between

1.NEUSOFT MEDICAL SYSTEMS CO., LTD.

and

2.POSITRON CORPORATION

ANNEXES

Annex 1	Articles of Association
Annex 2	Technologies Contribution Agreement

-i-

THIS JOINT VENTURE CONTRACT is entered into this July 30, 2005, in accordance with the Law of the People's Republic of China on Chinese-Foreign Equity Joint Ventures and the Regulations for the Implementation of the Law of the People's Republic of China on Chinese-Foreign Equity Joint Ventures (hereinafter collectively referred to as the "Joint Venture Law") and other relevant and officially promulgated Chinese laws and regulations by and between:

NEUSOFT MEDICAL SYSTEMS CO., LTD., a limited liability company incorporated under the laws of the P.R.C., with registered offices at No. 2 Xinxiu Street, Hun Nan New District, Shenyang 110179, PRC (hereinafter referred to as "N M S");

AND

POSITRON CORPORATION, a limited liability company incorporated under the laws of State of Texas of the United States of America, with its registered office at 1304 Langham Creek Drive, Suite 300, Houston, TX 77084 USA (hereinafter referred to as "POSITRON").

NMS and POSITRON may hereinafter be referred to individually as a "Party" or collectively as the "Parties".

WHEREAS, each of POSITRON and NMS are active in researching, developing, manufacturing, marketing and/or selling of Positron Emission Tomography ("PET"); and

WHEREAS, the Parties seek to mutually benefit from each other's strengths, and intend to cooperate in the research, development and manufacturing of PET, as further described below; and

WHEREAS, the Parties intend to form an equity joint venture company to be called "{ 1:9 *WC( MAN ri gAh'RW%: aj" in Chinese and "Neusoft Positron Medical Systems Co., Ltd." in English; and

WHEREAS, the Parties have agreed that the terms and conditions of the creation of such a company shall be as set out herein below, subject to such other terms and conditions as remain to be negotiated between the Parties; and

WHEREAS, the respective board of directors, board of management and/or supervisory board of POSITRON and NMS, as applicable, have duly authorized and approved the execution of this Joint Venture Contract.

NOW, THEREFORE, the Parties express their intentions as follows:

The Parties agree that the following terms and conditions have been the agreed upon terms and conditions of the Joint Venture Contract the Parties intend to enter into.

1. DEFINITIONS

Unless the terms of this Joint Venture Contract provide otherwise, the following terms shall have the meanings set forth below:

(a) "Affiliate", with respect to a Party, shall mean any corporation, partnership, joint venture or other entity controlling, controlled by or under common control with such Party, but shall not include the Company; a person or entity shall be deemed to "control" another person or entity if the former possesses, directly or indirectly, at least 51% of the nominal value of the issued share capital and the power to direct or cause the direction of the management and policies of the latter.

(b) "Articles of Association" shall mean the Articles of Association of the Company dated as of the date hereof between the Parties, and as may be amended or restated from time to time by the Parties.

(c) "Assist" or "Assistance" shall mean, respectively, to actively and aggressively support and implement, or the active and aggressive support and implementation of, an activity or application with full intent and commitment to obtain the results sought by the Party or the Company which is being assisted.

(d) "Board" or "Board of Directors" shall mean the Board of Directors of the Company.

(e) "Business License" shall mean the business license to be issued to the Company by the competent PRC authorities.

(f) "Business Plan" shall mean the annually renewed 5-year operations plan of the Company as set by the Board for implementation by the Management Personnel of the Company.

(g) "Chairman" shall mean the chairman of the Board of Directors of the Company.

(h) "China" or the "PRC" shall mean the People's Republic of China.

(i) "Company" shall mean Neusoft POSITRON Medical Systems Co., Ltd., which is the equity joint venture company established by the Parties pursuant to the Joint Venture Law, other relevant and officially promulgated laws and regulations of the PRC, and this Contract.

(j) "Confidential Information" shall mean technology and know-how as well as trade secrets, strategic business or marketing information, business projections, secret processes and other processes, data, formulae, programs, manuals, designs, sketches, photographs, plans, drawings, specifications, reports, studies, findings, non-patented inventions and ideas, and other information relating to the production, packaging, use, pricing, or sales and distribution, whether of a technical, engineering, operational, business or economic nature, whenever designated as "Confidential" or the like by NMS or POSITRON or their Affiliates and provided by NMS, POSITRON or their Affiliates in connection with the establishment of the Company and any matters related thereto, the implementation of and/or the conduct of the business contemplated by this Contract and the other contracts contemplated herein. Confidential Information, however, shall not include information which is now or hereafter becomes part of the public domain through authorized publication, information which the receiving Party can demonstrate was in its possession at the time of receipt, and information which hereafter comes into the possession of the receiving Party was or is not acquired by the receiving Party directly or indirectly from the providing Party or sources under an obligation of secrecy to such providing Party.

-2-

(k) "Contract" shall mean this Joint Venture Contract and the Annexes attached hereto.

(l) "Contribution Date" shall mean the mutually convenient date determined by the Parties in accordance with Article 6.3 on which the Parties shall simultaneously contribute all of their respective contributions subscribed by themselves to the registered capital of the Company .

(m) "Corporate Name License Agreement" shall mean the agreement to be entered into between the Company and POSITRON or NMS or any of its Affiliate(s) for the license by POSITRON or NMS or such Affiliate(s) of its corporate name to the Company.

(n) "Deputy General Manager" shall mean the deputy general manager of the Company.

(o) "Director" shall mean a member of the Board of Directors.

(p) "Effective Date" shall mean the day on which this Contract has been approved by the Examination and Approval Authority.

(q) "Establishment Date" shall mean the date on which the Business License of the Company is issued.

(r) "Examination and Approval Authority" shall mean the central Ministry of Commerce or such other Chinese authority as is duly authorized by law to approve this Contract.

(s) "Event of Force Majeure" shall mean any event, foreseeable or unforeseeable, the consequences of which are reasonably unavoidable or beyond the reasonable control of a Party, and which prevents total or partial performance of a non-payment obligation under this Contract by such Party.

(t) "Feasibility Study" shall mean the jointly prepared feasibility study as will be prepared by the Parties.

(u) "Foreign Exchange" shall mean any foreign currency which can be freely exchanged, converted, or traded in the open international currency market.

(v) "General Manager" shall mean the general manager of the Company.

(w) "Information" shall mean drawings, specifications, samples, models, processes, procedures, instructions, technology, applied development engineering data, reports, and all other technical or commercial information, data and documents of any kind whatsoever, but excluding any IPRs to which such Information relates.

-3-

(x) "Intellectual Property Rights" ("IPRs") shall mean patents (including reissues, divisions, continuations and extensions thereof), utility models, and registered and unregistered designs including mask works, copyrights and any other form of protection afforded by law to inventions, models, designs or technical Information, and applications therefor.

(y) "Invention(s) of the Company" shall mean any invention, discovery or, modification related to any patent, trademark, copyright, technology know how or, any intellectual property right, whether patentable or not patentable, which is individually or, jointly created, developed, conceived or generated by the Company. For the avoidance of doubt, Invention of Company shall include any invention, discovery or, modification related to any patent, trademark, copyright, technology know how or, any intellectual property right, whether patentable or not patentable, which is individually or, jointly created, developed, conceived or generated by the Company based on the software according to the provisions of the Software Sub-license Agreement and the Original Technologies.

(z) "Joint Venture Term" shall mean the duration of the Company as provided for in Article 21 hereof.

(aa)          "Labour Contract" shall mean the individual labour contract to be entered into between the Company and each Management Personnel and/or each Company Personnel.

(bb)          "Liquidation" shall mean the adoption of a unanimous Board resolution to terminate the Joint Venture Contract pursuant to Articles 22.1(a), (d), (e), (f) or (g) of the Joint Venture Contract.

(cc)          "Liquidation Committee" shall mean the committee consisting of five (5) members, of whom three (3) shall be appointed by NMS, two (2) by POSITRON.

(dd)          "Management Personnel" shall mean the General Manager, Deputy General Manager and such other senior personnel positions that are designated as Management Personnel positions by the Board from time to time.

(ee)          "Original Technologies" shall mean all the patents and Proprietary Information contributed by POSITRON as capital to the Company in accordance with the Technologies Contribution Agreement

(ff)           "Plant Lease Agreement" shall mean the agreement entered into by and between the Company and NMS or NMS's Affiliate concerning the lease of plant by the Company.

(gg)         "Product" or "Products " shall mean the PET system produced by the Company and the PET/CT created by integrating the CT products developed by Philips and Neusoft Medical Systems Co., Ltd. with PET system.

(hh)         "Project Documents" shall mean (a) this Contract; (b) Technologies Contribution Agreements; (c) Corporate Name License Agreement; (d) Software Sub -license Agreement; (e) Trademark License Agreements; and (f) other documents and agreements entered into by NMS, POSITRON or the Company in connection with the transaction hereunder.

-4-

(ii)           "Proprietary Information" shall mean in respect to the technology possessed and owned by POSITRON, NMS or the Company each, which are specifically related to PET and image handling and storage systems, including, all existing and future advanced and technical information (i.e. written information, blueprints, pictures, charts, cassettes, disks, CDs, video-tapes and information systems), skills, technology and experience related to the design, developing, manufacturing, inspecting, marketing and selling of PET, which has not been patented and is not patentable, and all knowledge and experience related to the aforementioned medical technologies. Notwithstanding the foregoing, Proprietary Information shall exclude Software Components, which are based upon third party software. For the avoidance of doubt, Proprietary Information of the Company shall include all the relevant information contributed by POSITRON to the Company as capital.

(jj)           "Renminbi" or "RMB" shall mean the lawful currency of the PRC.

(kk)         "Site" shall mean the site located in Shenyang, China, which will be described in the Plant Lease Agreement.

(ll)           "Software Sub-License Agreement" shall mean the agreement to be entered into between POSITRON and the Company for the sub-license by POSITRON of certain software to the Company.

(mm)        "Technical Documentation of the Company" shall mean the written documentation, drawings, pictures, charts, cassette-tapes, disks, software know how, software platforms, video-tapes, and/or information for PET that are possessed and developed by the Company, which are related to the design, development, assembly, manufacture, quality assurance, management and after-sale services of the technology and products.

(nn)          "Technologies Contribution Agreement" shall mean the agreement entered into between the Parties hereto in the form described in Annex 2 hereto regarding POSITRON's capital contribution in the form of technology.

(oo)          "Three Funds " shall mean, collectively, the Company's reserve fund, the bonus and welfare fund, and the enterprise development fund.

(pp)          "Trademark License Contract" shall mean the agreement to be entered into between the Company and POSITRON or NMS or any of its Affiliate(s) for the license by POSITRON or NMS or such Affiliate(s) of certain trademarks to the Company.

(qq)          "United States Dollars" or "US" shall mean the lawful currency of the United States of America.

(rr)            "Working Personnel" shall mean all employees and staff of the Company other than Management Personnel and members of the Board.

-5-

2. INTERPRETATION

2.1 Words importing the singular shall include the plural and vice versa; words denoting persons shall include bodies corporate and unincorporated associations of persons and vice versa.

2.2 The headings in this Contract do not affect its interpretation.

2.3 The Annexes to this Contract form an integral part of it.

3. REPRESENTATIONS AND WARRANTIES OF THE PARTIES

3.1 Representations and Warranties of NMS

NMS hereby represents and warrants to POSITRON as follows:

(a) NMS is a limited liability company duly organized and validly existing under the laws of the PRC.

(b) NMS has submitted to POSITRON a valid, true and complete copy of its current business license bearing a current annual inspection seal from the relevant administration for industry and commerce.

(c) Each of NMS and its relevant Affiliates has taken all appropriate and necessary corporate action to (i) empower its legal representative or such other duly authorized representative whose signature is affixed hereto and thereto to sign this Contract and all of the contracts contemplated herein to which it is a party, (ii) authorize the execution and delivery of this Contract and all of the contracts contemplated herein to which it is a party, and (iii) authorize the performance and observance of the terms and conditions hereof and thereof.

(d) Each of NMS and its relevant Affiliates has obtained all consents, approvals and authorizations necessary for the valid execution and delivery of this Contract and all of the contracts contemplated herein to which it is a Party and to observe and perform its obligations hereunder and thereunder; provided, however, that this Contract shall be subject to the approval of the Examination and Approval Authority or other examination and approval authority before the same may become effective.

(e) Upon the approval of the Examination and Approval Authority, this Contract shall constitute the legal, valid and binding obligation of NMS enforceable against NMS in accordance with its terms.

(f) NMS 's execution, delivery and performance of this Contract or any of the other contracts contemplated herein will not violate any of their constitutive documents, any other agreement or obligation of NMS, or currently effective law, regulation or decree of China that may be applicable to any aspect of the transactions contemplated hereunder.

-6-

3.2 Representations and Warranties of POSITRON

POSITRON hereby represents and warrants to NMS as follows:

(a) POSITRON is a corporation duly organized, validly existing and in good standing under the laws of the State of Texas of the United States of America.

(b) POSITRON has submitted to NMS a valid, true and complete copy of its proof of registration with the Secretary of State of the State of Texas.

(c) POSITRON has taken all appropriate and necessary corporate action (i) to empower its duly authorized representative whose signature is affixed hereto or thereto to sign this Contract and all of the contracts contemplated herein to which it is a party, (ii) authorize the execution and delivery of this Contract and all of the contracts contemplated herein to which it is a party, (iii) to authorize the performance and observance of the terms and conditions hereof and thereof; provided however, this Contract shall be effective and binding upon POSITRON only when executed by both Gary H. Brooks and Patrick G. Rooney, POSITRON's President and Chairman, respectively.

(d) POSITRON has obtained all consents, approvals and authorizations necessary for the valid execution and delivery of this Contract and all of the contracts referred to herein to which it is a party; provided, however, that this Contract shall be subject to the approval of the Examination and Approval Authority before the same may become effective.

(e) Upon the approval of the Examination and Approval Authority, this Contract shall constitute the legal, valid and binding obligation of POSITRON enforceable against POSITRON in accordance with its terms.

(f) Upon the Contribution Date, POSITRON shall shut down its product line in connection with the PET products and stop competing with the Company, subject to the terms of this Contract.

(g) POSITRON's execution, delivery and performance of this Contract or any of the other contracts contemplated herein will not violate any of their constitutive documents, any other agreement or obligation of POSITRON, or currently effective law, regulation or decree of United States of America and PRC that may be applicable to any aspect of the transactions contemplated hereunder.

4. ESTABLISHMENT OF THE COMPANY

4.1 Establishment of the Company

In accordance with the Joint Venture Law and other relevant and officially promulgated PRC laws and regulations, the Parties hereby agree to establish the Company pursuant to the terms of this Contract. The Company shall be a legal person under the laws of the PRC subject to the protection and jurisdiction of PRC law.

-7-

4.2 Name and Address of the Company

(a)The name of the Company shall be "Neusoft Positron Medical Systems Co., Ltd." in English and "it PEi .' I:izARA. PRiz. " in Chinese.

(b) The legal address of the Company shall be as follows: No. 2 Xinxiu Street, Hun Nan New District, Shenyang 110179, PRC.

4.3 Limited Company

The Company shall be a limited company. The liability of each of the Parties for the obligations, liabilities, debts and losses of the Company shall be limited to that Party's obligation to make its respective contribution to the registered capital of the Company within the period required by Chinese law. Unless it has agreed otherwise in a separate agreement with a third party, a Party shall not be liable for any obligations or liabilities of the Company. Creditors of the Company shall have recourse only to the assets of the Company and shall not have any claim against the Parties for the obligations of the Company, and in case any creditor of the Company brings any action or claim against any Party for any act of omission of the Company, the Company shall defend, at its cost, such Party and hold harmless such Party against such claims or actions or any loss or expenses incurred thereby. A Party shall not be required to provide any further funds to or on behalf of the Company beyond the amount contributed by the Party under this Contract.

4.4 Profits and Losses

The Parties shall share the profits, losses and risks of the Company in proportion to and, in the event of losses, to the extent of their respective contributions to the registered capital of the Company.

4.5 Other Contracts

Within thirty (30) days of the Establishment Date, (i) the Company and NMS or its relevant Affiliate shall duly execute the Plant Lease Agreement, the Trademark License Contract, the Corporate Name License Agreement; and (ii) the Company and POSITRON shall duly execute the Technologies Contribution Agreement, the Trademark License Contract, the Corporate Name License Agreement and the Software Sub - license Agreement. For the avoidance of doubt, no contracts in place between either Party and a third party shall be assigned to the Company without the express written consent of the Board.

4.6 Branches and Offices

The Company may establish branches or offices in the PRC upon the approval of the Board of Directors and registration by the local administration for industry and commerce where such branch or offices shall be located.

-8-

5. PURPOSES, SCOPE OF BUSINESS AND SCALE OF PRODUCTION OF THE COMPANY

5.1 Purposes and Scope of the Company

The purpose and scope of business of the Company shall be research, development, manufacturing of the Positron Emission Tomography system (PET), and an integrated system (PET/CT) by the X-ray Computed Tomography system (CT) and the PET system, and providing relevant technical consultation and services.

5.2 Estimated Scale of Production

The estimated scale of production is as set forth in the Feasibility Study. All projections, figures, costs, capital and funding requirements contained in the Feasibility Study are estimates only and may be adjusted by the Board of Directors during the actual production and operation of the Company based upon the requirements of the market, the ability of the Company to utilize the relevant technology and other factors.

6. TOTAL AMOUNT OF INVESTMENT AND REGISTERED CAPITAL

6.1 Total Amount of Investment

The total amount of investment of the Company shall be Two Million Eight Hundred Thousand United States Dollars (US $2,800,000).

6.2 Registered Capital

The registered capital of the Company shall be Two Million United States Dollars (US $2,000,000) and shall be contributed by the Parties in the following proportions:

(a) NMS's aggregate contribution to the registered capital of the Company shall be sixty-seven point five percent (67.5%) of the total registered capital of the Company, and shall be Renminbi equivalent to One Million Three Hundred and Fifty Thousand United States Dollars (US$ 1,350,000). NMS's contribution shall be made in cash.

(b) POSITRONS aggregate contribution to the registered capital of the Company shall be thirty two point five percent (32.5%) of the total registered capital of the Company, and shall be Six Hundred and Fifty Thousand United States Dollars (US$ 650,000), among which Two Hundred and Fifty Thousand United States Dollars (US$ 250,000) shall be made in cash, and Four Hundred Thousand United States Dollars (US$ 400,000) shall be made in the form of the technology (see the Technologies Contribution Agreement for details).

The exchange rate of USD/RMB shall be according to the foreign exchange rate published by the People's Bank of China on the date of above contribution.

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6.3 Timing of Capital Contributions

Contributions to the registered capital of the Company shall be made by the Parties in full within sixty (60) days after the Establishment Date, and POSITRON shall make its contribution of technology according to the provisions of the Technologies Contribution Agreement. The obligations of a party to make such contributions shall be subject to the other party simultaneously making its contributions and to the Company having received all necessary licenses, permits, leases and authorizations necessary to commence and conduct the business contemplated by this Contract.

6.4 Investment Certificates

Within sixty (60) days after the Parties have made their capital contributions, the Company shall engage an accountant registered in China and approved by the Board to verify such contributions. Upon the issuance of a verification report by such accountant, the Company shall issue to each contributing Party an investment certificate signed by the Chairman evidencing that the contribution was made. Such investment certificate shall be conclusive evidence of each Party's capital contribution and equity interest in the Company.

6.5 Increase or Reduction of Registered Capital

Any increase or reduction in the registered capital of the Company shall be approved by the Board of Directors and submitted to the Examination and Approval Authorities for approval. Upon receipt of such approval, the Company shall register the increase or reduction in the registered capital with the appropriate administration for industry and commerce. Each Party has the right (but no obligation) to contribute towards any increase in the registered capital a proportion of such increase equal to the proportion that such Party's contributions to the registered capital of the Company, when completed, bear to the total registered capital of the Company; provided, however, that the Parties may agree to adjust their proportional interests in the Company's registered capital subject to the approval of the Examination and Approval Authorities. In the event an increase of the registered capital is reasonably necessary, either to fulfill the then-current Business Plan of the Company (which Business Plan is approved by the Board) or to fulfill the actual requirement (as agreed by the Board), and a Party does not want to contribute to such registered capital increase, then such Party shall not unreasonably withhold its consent to increase the registered capital if the other Party hereto is prepared to contribute thereto. Notwithstanding the foregoing, the interest of POSITRON shall not be reduced by reason of any increase in the total registered capital to less than twenty percent (20%) of such capital.

6.6 Indemnification

Each Party hereby agrees to defend and indemnify the Company and the other Party hereto, such Party's Affiliates, directors, officers, employees, and agents from and forever hold harmless the Company and the other Party, such Party's Affiliates, directors, officers, employees, and agents against all claims, actions, proceedings, damages, losses, liabilities, costs and expenses (including reasonable attorney's fees) arising out of, or based upon, a claim from any third party that any use of any of the contributions made by the other Party hereto, (whether or not incorporated in any products) constitutes infringement, or violation or misappropriation of an intellectual property right or other proprietary right of such third party based upon a legal judgment of a court of competent jurisdiction.

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In the event that a contribution by a Party is held in any suit or proceeding to infringe, violate or misappropriate a third party's intellectual property right or other proprietary right, the contributing Party agrees that it shall defend at its own cost and expenses any suit or proceeding brought by any third party against the Company or the company responsible for selling of the Products insofar as such suit or proceeding is based on a claim that the contribution directly infringes any intellectual property right (IPR) of such third party and shall indemnify the Company or the company responsible for selling of the Products against any final award of damages in such suit or proceeding, provided that the contributing Party is notified promptly in writing of any such suit or proceeding for infringement and provided further that the contributing Party is given full authority at its option to settle or conduct the defence thereof, as well as full assistance and cooperation of the Company, and the other Party is provided for in the contributing Party's defence. No costs or expenses shall be incurred for the account of the contributing Party without the prior written consent of the contributing Party. If no appeal can be taken or is taken to the final judgment, and the use of the contributing Party's technology is enjoined, the contributing Party shall at its own option and at its own expense either: (a) replace the contribution, without additional charge, with a compatible, functionally equivalent and non-infringing contribution with an equivalent or better performance; or (b) modify the contribution to avoid the infringement, violation or misappropriation such that the performance is not deteriorated; or (c) procure for the other Party and the Company the right to continue to purchase, distribute; and for the other Party, the Company and their customers, to use the contribution as contemplated by this Contract.

The foregoing states the entire liability of each contributing party in connection with the infringement of third party's IPR by the technology provided by each contributing party hereunder. For purposes of this Article 6.6, contribution of technology to the Company is deemed to include the license of technology by POSITRON to the Company.

7. TRANSFER OF INTEREST

7.1 Non-Encumbrance

Neither Party may encumber its share of the registered capital or its equity interest, rights and obligations under this Contract and other interests in the Company (collectively, "Interest") without (a) obtaining the required approvals, and (b) the prior written consent of the other Party; however, POSITRON does not need to obtain the prior written consent of NMS for any lien created in favor of Imagin Diagnostic Centers, Inc., Cipher Holding Corporation., or Solaris Opportunity Fund, L.P. or their respective assigns ("Positron Investors"), provided that the enforcement of any lien by any POSITRON Investor will not affect POSITRON 's performance of its obligations hereunder.

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7.2 Valuation

Except in the event of valuation pursuant to the Article 22.2 of this Contract, any Party who desires to sell or otherwise transfer its Interest shall bear the cost of any valuation of the Company as a going concern. The Parties shall render all assistance and provide all such documentation and other information to the appraiser as such appraiser may consider necessary and shall ensure that the Company provides same.

7.3 Transfer of Interest

(a) Subject to the provisions of this section 7, a Party may assign, sell or otherwise dispose of all or part of its Interest in the Company to any third party (the "Transfer").

(b) When a Party (the "Transferring Party") wishes to transfer all or part of its Interest to a third party, it shall provide written notice (the "Notice") to the other Party (the "Non-Transferring Party") specifying its wish to make the Transfer; the Interest it wishes to transfer; the terms and conditions of the Transfer; and the identity of the proposed transferee.

(c) The Non-Transferring Party shall have a right of first refusal to purchase the whole of such offered Interest on terms and conditions no less favourable than those specified in the Notice. If the Non-Transferring Party elects to exercise its right of first refusal, it shall notify the Transferring Party in writing within thirty (30) days of the giving of the Notice to the Non-Transferring Party of its intention to purchase the whole of the Interest to be transferred and both Parties shall cause the Directors appointed by it to approve the Transfer at a duly convened Board meeting. The Non-Transferring Party shall then, within thirty (30) days following its written acceptance, subject only to delays caused by obtaining necessary government approvals, purchase such Interest on the terms and conditions specified in the Notice, unless both Parties agree otherwise in writing.

(d) If the Non-Transferring Party fails to respond in writing to the Notice within such thirty (30)-day period, the Non-Transferring Party shall be deemed to have consented to the Transfer. If the Non Transferring Party consents, or is deemed to have consented to the Transfer, the Transferring Party shall be free during the period of ninety (90) days following the expiration of the thirty (30)-day notice period to transfer such Interest to a third party at a price which equals or exceeds the price specified in the Notice and on terms and conditions no more favourable to the third party than those of the original Notice without again complying with the procedures set forth in Articles 7.3 (b) and (c); provided, however, that the Transfer shall not be deemed effective and shall be subject to rescission unless and until (i) a copy of the transfer agreement to be executed between the Transferring Party and the transferee has been submitted to the Non-Transferring Party and, if only a portion of the Transferring Party's Interest in the Company is being transferred, the transferee has agreed therein to assume, jointly and severally with the Transferring Party, the rights and obligations of the Transferring Party under this Contract, or, if all of the Transferring Party's Interest in the Company is being transferred, the transferee has agreed therein to assume all of the rights and obligations of the Transferring Party under this Contract, (ii) the Board of Directors unanimously approves the Transfer at a duly convened Board meeting, and (iii) all necessary amendments to this Contract, the Annexes and other contracts and documents contemplated herein and therein have been submitted for approval to and have received the approval of, the Examination and Approval Authority, and (iv) all other government approvals necessary to give effect to the Transfer have been obtained.

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(e) The Transfer and payment of the purchase price shall be completed within such ninety (90)-day period, subject only to delays caused by obtaining necessary government approvals. If the Transfer is not completed within such ninety (90)-day period, except for the reason indicated above, the Transferring Party shall not be permitted to transfer its Interest to the third party without again complying with the procedures set forth in Articles 7.3(b) and (c).

(f) The Transferring Party shall provide the Non-Transferring Party with a duplicate of the executed transfer agreement with the transferee within fourteen (14) days after such agreement is executed.

7.4 Transfer to Affiliated Companies

Notwithstanding the provisions of Article 7.3, in the event either Party wishes to transfer all or part of its Interest in the Company to an Affiliated Company (which for purposes of this provision shall include any one or more of the POSITRON Investors, provided that the shareholding percentage of such POSITRON Investor(s) shall not be less than 20% of all outstanding shares of POSITRON), such Party may do so upon the other Party's written consent thereto, which shall not be unreasonably withheld. The right of first refusal set out in Article 7.3 shall not apply in such case.

7.5 Continued Implementation of Contract

Until the date of the Transfer of a Party's Interest, both Parties shall continue to fully and timely perform their obligations under this Contract.

7.6 Effect of Transfer

The Transfer of a Party's Interest shall not release such Party from its liability to pay any sums of money accrued, due and payable to the other Party, or to discharge its then-accrued and unfulfilled obligations including any liability to the Company or the other Party in respect of any breach of this Contract pursuant to Article 24 hereof.

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8. RESPONSIBILITIES OF THE PARTIES

8.1 Responsibilities of NMS:

Among its responsibilities under this Contract, NMS shall:

(a) Make its contributions to the registered capital of the Company in accordance with the relevant provisions of this Contract;

(b) Enter into, or cause its Affiliates to enter into, the Annexes hereto and any other contracts contemplated herein to which it or any of its Affiliates is a party;

(c) Assist the Company in obtaining the Business License providing for a term of validity and scope of business acceptable to both Parties;

(d) Assist the Company in handling the registration of the Company's right to use the Sites with all relevant government departments and handling all other necessary procedures to ensure that the Company has the right to use the Sites for the Joint Venture Term;

(e) Assist the Company in obtaining the Chinese tax preferences, holidays and concessions and other preferential tax treatment available to or for the Company;

(f) Assist the Company, if requested, in handling all licenses, approvals and registrations for the importation of technology in accordance with the terms set forth in the Technologies Contribution Agreement and Software Sub-License Agreement;

(g) Assist the Company with the smooth transfer of employees from NMS who are recruited by the Company;

(h) Supply to the Company such CT products as the Company may require for its Products at prices not greater than the lesser of (i) cost plus 8%, or (ii) the lowest price at which such products are sold to unaffiliated parties; and

(i) Handle other matters entrusted to it by the Company and as agreed from time to time by NMS.

8.2 Responsibilities of POSITRON:

Among its responsibilities under this Contract, POSITRON shall:

(a) Make its contributions to the registered capital of the Company in accordance with the relevant provisions of this Contract;

(b) Enter into the Annexes hereto and any other contracts contemplated herein to which it is a party;

(c) Handle export license and other procedures for the Company necessary for the export of technology from United States of America pursuant to the Technologies Contribution Agreement and Software Sub -License Agreement;

(d) Assist the Company to obtain the necessary approval from the relevant authorities for the import of technology and the technology contribution of POSITRON into the Company, including but not limited to providing the list of such technologies and relevant documents to the Company and relevant authorities;

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(e) (e) Assist the Company with the smooth transfer of one hardware engineer to the Company, and such engineer shall work full-time at the Company for at least one year;

(f) Assist the Company in obtaining the Business License providing for a term of validity and scope of business acceptable to both Parties;

(g) Make great efforts to assist the Company to recruit competent employees from United States of America to work at the Company;

(h) Provide certain training to selected employees of the Company, the expenses for which shall be borne by the Company; and

(i) Handle other matters entrusted to it by the Company and agreed from time to time by POSITRON.

9. LEASE OF THE SITES AND BUILDING

9.1 The sites to be determined.

10. OWNERSHIP AND LICENSING OF IPR

10.1 Licensing of Trademark

Each Party shall itself, or cause its relevant Affiliate to, license to the Company on a royalty- free basis certain trademarks pursuant to the terms and conditions set forth in the Trademark License Agreement.

10.2 Ownership of Patents, Patent Rights and Proprietary Information

10.2.1 Ownership of Inversion of the Company during the term of this Contract

Any Invention of the Company shall be individually owned by the Company. Subjection to the provisions of Section 10.2.3 below, the Company shall have the full right to make, have made, use, sell or otherwise dispose of products, methods and processes incorporating any and all such Invention of the Company, and to grant licenses or sublicenses under such Invention of the Company, without the consent of and without any obligation to account to either Party. The Company shall provide to the Parties full and complete information relating to each Invention of the Company not less frequently than semi-annually and upon Dissolution of the Company.

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10.2.2 Ownership of Invention of the Company after Dissolution of the Company.

After the Dissolution of the Company, all Inventions of the Company shall be jointly owned by POSITRON and NMS and each co-owner shall have an equal undivided right in and to such Invention of the Company and in and to any patents based on such Invention of the Company and each joint owner of such Invention of the Company shall have the nontransferable right to make, have made, use, sell or otherwise dispose of products, methods and processes under any and all such Invention of the Company and to grant nonexclusive licenses or sublicenses under such Invention of the Company, without the consent of and without any obligation to account to the other Party.

10.2.3 Ownership of the Original Technologies after the Dissolution of the Company

If the Dissolution of the Company shall take place within three (3) years from the Establishment Date, then the Company shall assign back to POSITRON all the Original Technologies contributed by POSITRON pursuant to the Technologies Contribution Agreement subject to the then effective and applicable laws and regulations of PRC.

If the Dissolution of the Company shall take place after three (3) years from the Establishment Date, all the Original Technologies contributed by POSITRON pursuant to the Technologies Contribution Agreement shall be jointly owned by NMS and POSITRON and each of the joint owners shall have an equal, undivided ownership and interest in and to such Original Technologies; provided however, that NMS shall have entered into an agreement with POSITRON to supply CT equipment for a period of not less than five years at not more than the price at which such equipment is sold to the Company prior to dissolution. In this case, both NMS and POSITRON shall have the right to conduct R&D and production business relating to PET products.

11. PURCHASE OF MATERIALS

The Company will purchase components, machinery and equipment from suppliers on a best value basis, acting always in accordance with market-oriented principles.

12. SALES OF PRODUCTS

12.1 General principle

Subject to Clause 12.1 (a), the Company will sell Products manufactured by the Company to both Parties for further resale in the PRC market and international market. After the ramp-up period of the Company, each Party shall have rights to and risk obligations for its capacity of Products required from the Company. The Parties intend that the manufacturing capacity of the Company shall be shared on an equivalent basis to each Party's contribution to the registered capital of the Company, as measured by the manufacturing work and resources needed by the Company for the resulting Products. With due regard to the Product mix requirements as specified in the Business Plans, the Business Plans shall contain in detail the total capacity equivalent of the Company and the resulting equivalent capacity for each Party as based on the manufacturing work and resources needed. The Parties will each provide an industry common rolling forecast for Products needed to the Company, in accordance with the purchase and sale agreements to be entered into between the Company and the Parties.

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Notwithstanding the above, both Parties agree that (1) POSITRON shall have exclusive right to sell PET system of the Products in Canada and such products shall be sold under its registered trademarks, (2) POSITRON shall have exclusive right to sell PET/CT product of the Products in Canada and such products shall be sold under the trademark of "Neusoft POSITRON", (3) POSITRON shall have exclusive right to sell PET system of the Products in the US and Mexico and such products shall be sold under its registered trademarks, (4) POSITRON and NMS shall have equal right to sell PET/CT product of the Products in US and Mexico and such products shall be sold under the trademark of "Neusoft Positron", (5) NMS shall have the exclusive right to sell the Products in China and the Products shall be sold under its registered trademarks, and (6) NMS shall have the right to sell the Products in the countries and regions worldwide except for China, Canada, US and Mexico, and the Products shall be sold through its sales channels under its registered trademarks. Priorities for production shall be based on cash down payments received from customers by the Parties. This Contract does not commit either party to purchase any specific number of Products.

12.2 The Products shall be sold to the Parties for further resale, and the transfer price of the Products shall be calculated as follows:

The profit and transfer price for the Company's sale of the Products shall be calculated according to the following formulas:

Profit = (A+B)x 8%

Transfer price=A+B+Profit

(a) "A" means the cost of the raw materials;

(b) "B" means other expenses, including but not limited to labour cost, cost related to R&D, rental fee, depreciation and amortization, training fee, travelling fee, public utility fee, custom duty and VAT, administrative expenditures, financial cost, and other fees agreed by the Parties from time to time, with the exception of income tax.

12.3 NMS's Undertakings

NMS undertakes that it will take the responsibility to sell one set of Product within 6 six month after the Company's prototype machine obtains the certification from the PRC State Food and Drug Administration (SFDA), and 5 sets of Product during the next year following the foregoing 6-month period.

13. BOARD OF DIRECTORS

13.1 Establishment

The Board of Directors of the Company shall be established by the Parties and shall hold its first meeting within ninety (90) days of the Establishment Date.

13.2 Composition and Term

The Board of Directors shall be composed of five (5) Directors, of whom three (3) shall be appointed by NMS and two (2) by POSITRON. Unless the Parties otherwise agree in writing, the Chairman shall be appointed by NMS and POSITRON shall appoint a Vice Chairman. Each individual serving in the capacity of Director, Chairman or Vice Chairman shall be appointed for a term of four (4) years, and each shall be eligible for consecutive terms of office upon reappointment by the original appointing Party. Any vacancy created in the Board of Directors shall be filled by the Party which originally appointed the absent Director causing the vacancy. Any Party may at any time remove for any reason any or all of the individuals appointed by such Party as a Director and appoint in lieu thereof another individual or individuals to serve the remainder of the relevant term(s).

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13.3 Legal Representative

The Chairman of the Board shall be the legal representative of the Company and shall act only in accordance with the specific decisions, resolutions and instructions of the Board of Directors. Whenever the Chairman is unable to discharge his duties, the Vice Chairman is authorized to represent the Company. Each Director, in his capacity as a Director, shall serve in a non executive role.

13.4 Authority

The Board of Directors shall be the highest authority of the Company and shall make decisions on all major and important matters of the Company. The rules of procedure governing the Board of Directors and its powers and responsibilities are as set forth in this Contract and the Articles of Association. Notwithstanding the foregoing, all transactions between the Company and a Party and/or its Affiliates shall be on an arm's length basis.

13.5 Personal Liability of Directors

A Director, including the Chairman and Vice Chairmen, shall not have personal liability for action he undertakes on behalf of the Company within the scope of authority of this Contract, the Articles of Association or the Board resolutions unless his or her action:

(a) is outside the scope of the approval or authorization given to him by this Contract or the Board of Directors' resolution ; or

(b) is in breach of Articles 59 to 63 of the Company Law of PRC.

Any Director, including the Chairman and Vice Chairmen, acting in violation of this Contract or Board of Director's resolutions shall indemnify and hold harmless the Company against all losses caused to or liabilities and expenses incurred by the Company. The Company shall, to the extent permitted by law, indemnify any Director for damages or losses incurred in good faith by such Director in the performance of his or her obligations.

13.6 Unanimous Approval

Resolutions of the Board of Directors involving the following matters shall be adopted only upon the unanimous affirmative vote of all five (5) Directors (whether present in person, by conference phone or by proxy) at a duly convened meeting:

(a) Amendment of the Articles of Association;

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(b) Increase, reduction or assignment of registered capital and the adjustment of each Party's share of interest in the registered capital of the Company;

(c) Merger or consolidation of the Company with any other economic organization or reorganization of the Company; and

(d) Extension, termination, Liquidation or dissolution of the Company.

In the event not all five (5) Directors are present (whether in person, by conference phone or by proxy) in a meeting where any of the foregoing matters is on the agenda, such matter(s) will be discussed at the same location and time fourteen (14) days later. If, at the reconvened Board meeting, still not all five (5) Directors are present (whether present in person, by conference phone or by proxy), then any resolution on the foregoing matters that is agreed upon by all of the Directors present shall be circulated in writing to the Directors that were not present. Failure to react in writing by such Director(s) within thirty (30) days after receipt of such resolution shall be deemed to constitute agreement to such resolution by such Director.

13.7 Other Decisions of the Board

Except for those matters set forth in Article 13.6, resolutions of the Board of Directors shall be adopted by the affirmative vote of not less than three (3) Directors for all other matters of the Company.

13.8 Deadlock

If no five (5) Directors are able to collectively agree to vote in favour or against a resolution on any matters set forth in Article 13.6, the Board of Directors will be deemed to be in deadlock ("Deadlock") and the Chairman shall not have a casting vote. Upon the occurrence of Deadlock, the General Manager shall prepare and deliver a full report regarding the unsuccessfully resolved matter to the Chairman of NMS and the Chairman of POSITRON, or such other person each Party may nominate in writing, within thirty (30) days of the date of Deadlock. The representatives of the Parties shall have an additional thirty (30) days from the date of receipt of such report or such longer period as they may agree to successfully conciliate such matter. If the representatives of the Parties do not successfully resolve such matter during such relevant period, then:

(a) if neither Party wishes to continue the business of the Company as a going concern, the provisions of Article 22.1(e) shall apply; or

(b) if only one (1) Party desires to carry on the business of the Company as a going concern, the other Party may sell its Interest to the Party desiring to carry on the business of the Company in accordance with Article 7.4; or

(c) if both Parties wish to continue the business of the Company as a going concern, the provisions of Article 22.2(b) shall apply; or

(d) failing all of the foregoing, the matter shall be submitted for resolution in accordance with Article 28 of this Contract.

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Both Parties shall continue to perform their obligations under this Contract during the period of Deadlock.

13.9 Board Meetings

The regular meeting of the Board of Directors shall in principle be held twice a year. Meetings of the Board of Directors shall normally be held at the registered address of the Company, but may be held at any other place as may be jointly selected by the Chairman and the Vice Chairman.

13.10 Interim Board Meeting

Within three (3) days after the receipt of a proposal by at least two- fifths (2/5) of the Directors requesting that an interim Board meeting be held, either the Chairman, or in his absence or failure to act, the Vice Chairman, of the Board shall send written notice calling an interim Board meeting, which meeting must be held no later than thirty (30) days after receipt of such proposal.

13.11 Notice of Meetings

The Chairman, or in his absence or failure to act, the Vice Chairman, shall send written notice at least thirty (30) days prior to any Board meeting stating the specific agenda, time and place of the meeting. Such notice may be waived by the unanimous consent of all Directors attending the meeting in person or by proxy. A Board meeting shall be convened not less than thirty (30) days or more than sixty (60) days from the date of the notice.

13.12 Attendance

A Director may attend a Board meeting in person, by conference telephone or designate another person by proxy and vote in his place. Such designation shall be in writing, shall be signed by the Director, and shall identify the meeting or meetings at which the person may act as a proxy and any instructions that may be applicable to the proxy. A Director may appoint another Director as his proxy. A person acting as a proxy may do so for more than one Director.

13.13 Quorum for Meetings

The quorum for a Board meeting shall consist of four-fifths (4/5) of the Directors (i.e. four (4) Directors) present in person or by conference telephone or by proxy. However, if proper notice to convene a Board meeting has been given and if the Directors appointed by a Party fail to attend the meeting by themselves or by proxy or by conference telephone, and therefore a quorum is not present in accordance with the preceding sentence, such Board meeting shall be adjourned and reconvened at the same location and time fourteen (14) days later. If, at the reconvened Board meeting, these Directors still fail to attend the Board meeting by themselves or by proxy or by conference telephone, then the person presiding over the reconvened Board meeting shall be deemed to be appointed by these Directors as their representatives to attend the Board meeting and vote in respect of resolutions (the proposal of which shall have already been set out in the enclosures of the notice of the Board meeting). Resolutions passed in such manner shall also have full legal effect.

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13.14 Voting

The Directors may vote on any matters either by attending meetings in person, by telephonic conference or by proxy. Each Director shall have one vote. Matters not requiring a unanimous vote by the Board of Directors shall be decided by a simple majority vote of the Directors at a meeting at which a quorum is present. No Director shall have a casting vote.

13.15 Written Consent

The Board of Directors may conduct any business and make decisions and take actions that could have been otherwise duly taken pursuant to a Board meeting by means of a unanimous written consent in lieu of a meeting.

13.16 Compensation and Expenses

The Company shall not pay any fee, remuneration or subsidy to any Director for attendance at a Board meeting. The expenses incurred by the Directors shall be for the account of the respective appointing Party.

13.17 Minutes

Minutes shall be kept for each Board meeting and signed by all Directors present at the Board meeting in person or by proxy. In order to facilitate the smooth conduct of Board meetings, the Chairman shall appoint a Company Secretary for the purpose of the Board meeting. The duties of such Company Secretary shall be to take detailed minutes of the Board meeting, procure the proper signatures for the adoption of such minutes, translate or arrange for the translation of documents and dispatch documents relating to the Board meeting to the Directors. Minutes of the Board meeting shall be maintained in both Chinese and English. Copies of the minutes in both Chinese and English languages shall be sent to NMS and POSITRON at the addresses set forth in Article 29.5.

13.18 Further Policies and Procedures

The Company shall abide by any other policies and procedures adopted by the Board. The Parties shall take all appropriate action to cause the Board of Directors to adopt standards of conduct and business practices in conformity with the laws and regulations of the PRC.

14. MANAGEMENT ORGANIZATION

14.1 Establishment

(a) The Board of Directors of the Company shall establish a management organization comprised of Management Personnel who shall be in charge of the day-to-day operations and management of the Company. The management organization shall be headed by one (1) General Manager. The General Manager shall be nominated by NMS. The Company shall initially have the following managerial departments: R&D and Manufacturing (including Sourcing and Logistics); Finance and Accounting; Administration (including Human Resources and Government Relations, etc.). The Company's initial Management Personnel shall be as follows: one (1) Administration Manager, one (1) Finance and Accounting Manager and one (1) R&D and Manufacturing Manager as nominated by NMS; as well as one (1) Deputy R&D and Manufacturing Manager, one (1) Deputy Finance and Accounting Manager as nominated by POSITRON. The above management personnel shall be nominated by the Parties, but shall only be appointed or removed by the Board. Without prejudice to the foregoing, the actual management organization of the Company may deviate from time to time from the positions set out above, based on mutual consent of the Parties.

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(b) Each Party agrees to cause the Directors appointed by it to approve all persons nominated to Management Personnel positions; provided, however, that each Party may veto the nomination of any candidate for a Management Personnel position if such candidate fails to meet the criteria ascribed to the position for which the candidate is nominated as may be provided in the Articles of Association or otherwise determined by the General Manager and the vetoing Party provides reasonable evidence of such failure. Each individual serving in the capacity of Management Personnel shall be appointed for a term of two (2) years, and each shall be eligible for consecutive terms of office if re-nominated by the original nominating Party. If it becomes necessary, due to dismissal or resignation, to replace the individual serving in the capacity of Management Personnel, the Party that originally nominated such individual shall nominate a replacement to serve the remainder of the relevant term.

(c) The duties of the General Manager shall consist of carrying out the decisions of the Board of Directors and organizing and directing the day-to-day operations and management of the Company.

(d) Any Management Personnel are forbidden from concurrently serving or working in any other company, unit, entity or organization whatsoever unless expressly approved by the Board.

14.2 Employment

Each Management Personnel shall execute a Labour Contract with the Company. The specific powers and responsibilities of Management Personnel shall be prescribed in the relevant provisions of the Articles of Association of the Company. No Management Personnel shall have any personal liability for any acts performed in good faith, in the normal course of their employment and within the scope of activities permitted to be engaged in by such Management Personnel as set forth in this Contract and the Articles of Association.

Each Management Personnel (other than the General Manager) shall receive his assignment from and shall report to the General Manager and shall be subject to removal at any time by the Board. In the event a manager is removed, the Party that originally nominated such manager shall nominate another individual for such position. The General Manager shall have the right to appoint an interim manager if such Party fails to nominate another individual within thirty (30) days of such individual's removal.

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14.3 Compensation

Matters such as salaries, wages, subsidies, benefits, insurance, allowances, rewards and other compensation matters of Management Personnel shall be stipulated in the Labour Contract between the Company and such Management Personnel. The Parties acknowledge that Management Personnel (including the expatriate Seconded Personnel) shall be compensated based on standards of the territory where the Company is located.

14.4 Confidentiality

Each Management Personnel shall, as a condition to employment by the Company, execute an agreement in form and substance acceptable to the General Manager which shall contain provisions prohibiting the disclosure of confidential information obtained during the course of employment with the Company and restricting the ability of such Management Personnel to compete with the business of the Company.

15. LABOUR MANAGEMENT

15.1 Enterprise Autonomy

The Company shall have all possible autonomy under the laws and regulations of the PRC concerning the recruitment, employment, compensation, designation of welfare benefits, procurement of labour insurance, promotion, discipline and dismissal of Working Personnel. The labour policies of the Company shall be determined in accordance with applicable PRC labour laws and regulations and the relevant regulations of Liaoning Province and Shenyang Municipality on labour management in foreign investment enterprises, and shall further be guided by the NMS HR principles in place before the Effective Date of this Contract. Labour union matters shall be handled in accordance with the applicable labour union law at such time.

15.2 Employment

The qualification and number of Working Personnel shall be determined in accordance with the operating needs of the Company as determined by the General Manager, subject to the guidance and instructions from the Board of Directors. Each Working Personnel shall, as a condition to employment by the Company, execute a Labour Contract with the Company, which shall contain provisions prohibiting the disclosure of confidential information obtained during the course of employment with the Company and restricting the ability of such Working Personnel to compete with the Company. Working Personnel shall observe the various rules and regulations of the business of the Company in fulfilling their respective tasks. The General Manager may, subject to the guidance of the HR Manager, subject further to the General Business Principles of POSITRON, and according to the degree of seriousness of the case, give warnings, record demerits, deduct wages, dismiss, or otherwise remove any Working Personnel who has violated the terms of his or her Labour Contract or the rules, regulations or labour discipline of the Company. The HR Manager shall serve as compliance officer of the Company under the General Business Principles.

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15.3 Compensation

Matters such as compensation, wages, subsidies, benefits, insurance, allowances, rewards, and other compensation matters of Working Personnel shall be stipulated in the Labour Contract between the Company and each Working Personnel, in addition to provisions prohibiting each Working Personnel to disclose information obtained during the course of employment with the Company, which shall also be included in each such Labour Contract.

16. ANNUAL OPERATING PLANS AND BUDGETS

16.1 Preparation

The General Manager shall be responsible for the preparation of the annual operating plans and budgets of the Company. The operating plan and budget for the next fiscal year shall be submitted to the Board of Directors after sign-off of the General Manager for examination and approval prior to November 1 of each year and shall include detailed plans and projections regarding:

(a) procurement of materials, machinery, equipment and other capital expenditures of the Company;

(b) plans and policies with respect to the manufacture of the Products;

(c) estimated revenues, expenditures and profits of the Company;

(d) staffing levels and plans for training personnel of the Company;

(e) R&D, Product roadmap, projects and investment plans;

(f) annual production and sales plan agreements with the different local and international sales organizations.

16.2 Examination and Implementation

The Board of Directors shall complete its examination and approval of each annual operating plan and budget for the next fiscal year prior to the end of December 31 of each year. The General Manager shall be responsible for the implementation of the annual operating plan and budget as approved by the Board.

16.3 R&D Budget

The Board of Directors shall ensure that an adequate amount of R&D funding shall be made available as set out in, and in order to fulfill, the Business Plan, ensuring sustainable growth, efficiency improvement as well as an appropriate quality level of the Products.

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17. TAXATION, THREE FUNDS AND PROFIT DISTRIBUTION

17.1 Tax Treatment

The Company shall pay taxes in accordance with relevant Chinese laws and regulations and shall enjoy all preferential tax and customs treatment available to it under the PRC law.

17.2 Three Funds

After fully making up accumulated losses of previous years, if any, and payment of taxes in accordance with the relevant laws and regulations of the PRC, the Company shall allocate a percentage of its annual after-tax profit for contribution towards the Three Funds. The amount to be allocated to the Three Funds shall be decided by the Board of Directors on a yearly basis in accordance with the financial performance of the Company, in light of the relevant laws and regulations of the PRC.

17.3 Profit Distribution

(a) After paying taxes in accordance with the law and making contributions to the Three Funds, the remaining earnings of the Company shall be available for dividend distribution to the Parties. The General Manager shall recommend a dividend distribution plan to the Board of Directors within the first three (3) months following the end of each fiscal year of the Company for the Board's consideration and approval or modification. In his or her recommendation, the General Manager shall consider that the Company has sufficient funds on hand to pay the dividends and meet its approved capital expenditure budget and working capital requirement for the current budget year. The Company shall not distribute dividends unless the losses of previous fiscal year(s) have been fully made up. Remaining undistributed dividend from previous years may be distributed together with that of the current year and the Board of Directors may authorise the payment of dividends from undistributed dividends from previous years at any time.

(b) Dividends shall be distributed to the Parties in proportion to each Party's holding of the registered capital of the Company at the time of the distribution. Payment of dividend distributions to POSITRON shall be in United States Dollars and POSITRONS right to receive previous declared dividends shall not lapse due to unavailability of Foreign Exchange. The rate of exchange for all Renminbi amounts that are required to be converted to United States Dollars for payment of such dividends shall be the rate announced by the People's Bank of China for the conversion from Renminbi to United States Dollars on the date that dividends are declared.

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18. FINANCIAL AFFAIRS AND ACCOUNTING

18.1 Accounting System

(a) The Company shall maintain its accounts in accordance with officially promulgated PRC laws and regulations and the provisions of this Contract and the Articles of Association and in a manner sufficient to satisfy the generally accepted accounting principles and the financial and tax reporting requirements of both Parties. The Finance and Accounting Manager, under the supervision of the General Manager, shall establish the accounting system and procedures for the Company.

(b) The fiscal year of the Company shall start on January 1 of the year and end on December 31 of the same year. The first fiscal year of the Company shall commence on the Establishment Date and end on December 31 of the same year. The last fiscal year of the Company shall start on January 1 of the year of termination and end on the date of termination.

18.2 Books and Records

The Company shall keep true and correct records and accounts in accordance with applicable PRC accounting laws and regulations.

18.3 Inspection of Books and Records

Each Party shall have the right to examine and copy all books of account, records, vouchers, contracts and documents of any kind that are necessary or appropriate for monitoring the financial performance of the Company. Each Party may make such examination and copies during the Company's normal business hours, provided that such examination and copying does not unreasonably interfere with the business operations of the Company. Each Party may exercise such rights through its agent or employee or by an independent accounting firm designated by the Party at the cost and expense of such Party.

18.4 Accounting Unit

The currency of accounts of the Company shall be determined by the Board of Directors of the Company. When foreign currency transactions take place, the foreign currency amount will be translated into the reporting currency for recording purposes. Any increase or decrease in the balance of accounts relating to foreign currency transactions shall be translated into the currency of account in accordance with the official Foreign Exchange rate announced by the People's Bank of China on the transaction date or on the first day of the month when the transaction takes place.

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18.5 Reports

The Company shall prepare and provide to the Parties:

(a) Within ninety (90) days after the last day of each fiscal year, the balance sheet of the Company as of the end of such fiscal year and the related profit and loss statement and statement of cash flows for the fiscal year then ended, in each case audited as provided below.

(b) Within thirty (30) days after the last day of each financial quarter, the unaudited balance sheet of the Company as of the end of such quarter and the related profit and loss statement (for such quarter and for the year-to-date).

(c) Within thirty (30) days after the last day of each month, (i) a profit and loss statement for such month; and (ii) a forecast/outlook for the remainder of the current fiscal quarter as well as the next fiscal quarter, which shall include without limitation the number of personnel, revenue, cash balance and expenses.

18.6 Audit

An independent and reputable international accounting firm licensed in China and approved by the Board shall be engaged by the Company as its auditor to examine and verify the annual financial statements of the Company and shall submit the audit report to the Board and the General Manager. Either Party shall also have the right not more than once in each fiscal year, to appoint either its own internal audit department or an accountant registered in China or abroad to audit the accounts of the Company. If the results of any such audit are significantly different from that conducted by the Company's auditors and are accepted by the Board, the expense of the audit shall be borne by the Company, and re-audits may take place by either Party more frequently than once per fiscal year until there is no significant difference anymore. The Company will permit such accountant to have access to the Company's books and records and Management Personnel and will provide such accountant with office space and all other reasonable facilities to enable the accountant to carry out the audit.

18.7 Provision of Returns

The Company shall provide, without charge, to any Party that may so request a copy of each tax return and report that it is required to file with any governmental entity in sufficient time prior to such filing to permit its review by such Party prior to filing.

19. BANK ACCOUNTS AND FOREIGN EXCHANGE

19.1 Bank Accounts

The Company shall open RMB deposit accounts and Foreign Exchange deposit accounts with authorized banks in China. The Company may also open Foreign Exchange deposit accounts with foreign banks outside China as designated by the Board of Directors subject to approval by the relevant government authorities.

19.2 Foreign Exchange Requirements of the Company

All of the Company's Foreign Exchange receipts shall be deposited in its Foreign Exchange accounts and all the payments in Foreign Exchange shall be made from its Foreign Exchange deposit accounts. In addition to payment of dividend distributions to POSITRON, other payments to be made by the Company to POSITRON and/or to any expatriate employees of the Company shall be made in United States Dollars. The Company shall, according to applicable laws and regulations of PRC, remit all the money to be paid by the Company to POSITRON, including the money to be paid upon the dissolution of the Company, to the account designated by POSITRON.

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20. CONFIDENTIALITY AND NON-COMPETITION

20.1 Confidentiality

(a) Each of the Parties acknowledges and agrees that the discharge of its obligations under this Contract and the contracts and documents referred to herein to which it is a party will involve the disclosure of Confidential Information.

(b) The Parties and their Affiliates shall use the Confidential Information only for the purposes specified in this Contract, the Annexes and the other contracts and documents contemplated, herein and therein to which it is a party, and shall not disclose any Confidential Information to third parties without the prior written consent of the Party providing such Confidential Information; provided, however, (i) that a Party may be permitted to disc lose Confidential Information received by it to its Affiliate(s) when such disclosure is necessary for such Party to carry out its obligations under this Contract, the Articles of Association or the other contracts referred to herein upon the execution of a non-disclosure agreement between such Affiliate(s) and the Party providing the Confidential Information, and (ii) that either Party may disclose certain required Confidential Information to the relevant stock exchange authorities in the event this is required under applicable regulations, provided, however, that such Party shall always provide timely and detailed written notice to the other Party in such event. Each Party warrants the full adherence of its Affiliates to these confidentiality obligations, and hereby fully and unconditionally guarantees such adherence by its Affiliates.

(c) The Company, the Parties and their respective Affiliates that receive Confidential Information shall make such Confidential Information available only to those of their directors, managers and personnel whose duties necessitate familiarity with such Confidential Information and shall cause such directors, managers and personnel also to comply with the confidentiality obligations set forth in Article 20.1(b).

(d) The confidentiality obligations set forth in this Article 20.1 shall be maintained during the Joint Venture Term and for an additional period of five (5) years after the termination of this Contract; subject to the rights of the Parties following Dissolution or termination as provided in this Contract.

20.2 Non-Competition

For a period of 5 years from the Effective Date of this Contract, neither Party hereto, nor any of their Affiliates, will have another joint venture or other form of cooperation with a third party with respect to the development, manufacturing or procurement of finished products which are the same or similar to the Products; provided, however, in the event that either Party shall determine in reasonable good faith that the Company has failed its purpose of supplying the Parties with the Products in accordance with the Business Plan, then such Party, by notice to the other, may terminate this provision; provided further, that this provision shall terminate upon termination of this Contract pursuant to Article 22 or Article 23.

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21. DURATION OF THE COMPANY

The Joint Venture Term shall commence on the Establishment Date and shall continue for an initial period of ten (10) years or until terminated pursuant to Article 22 hereof. Not less than two (2) years prior to the expiration of the initial period of ten (10) years or any subsequent extended period, the Parties or their approved successors shall commence discussions on the extension of the period of this Contract. However, if a written agreement for the extension of the Joint Venture Term is not signed between the parties twenty-four (24) months prior to the expiration of the then current period of existence (or by such later date as the parties may agree and applicable PRC law then permits), this Contract shall end upon expiry of such current period of existence.

22. EARLY TERMINATION

22.1 Triggering Events

This Contract may be terminated in the event that any of the conditions or events set forth below occurs:

(a) Either Party fails to make its contributions to the registered capital of the Company on the Contribution Date and such failure continues for a period of more than ninety (90) days and is not waived by the other Party. In such case, either Party may give notice of termination.

(b) There occurs a material breach of this Contract and such breach is not cured by the breaching Party within sixty (60) days after receipt of written notice of the breach from the non-breaching Party. In such case, the non-breaching Party may give notice of termination.

(c) Any Party or its relevant Affiliate fails to perform any of its material obligations under the Annexes or any other contract referred to herein if, in the reasonable opinion of the non-breaching Party, such non-performance creates a material risk of loss to such non-breaching Party or the Company and such risk is not cured by the breaching party within sixty (60) days after receipt of notice from the non breaching Party. In such case, the non-breaching Party may give notice of termination.

(d) The Company sustains serious losses for three (3) consecutive years or the Company is unable to attain its business goals and, after consultation, the Parties are unable to agree on a Business Plan to improve the economic situation of the Company. In such case, either Party may give notice of termination.

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(e) Deadlock occurs and neither Party wishes to continue the business of the Company as a going concern. In such case, either Party may give notice of termination.

(f) Total or partial performance of this Contract is prevented by an Event of Force Majeure lasting for more than one hundred and twenty (120) consecutive days and, after consultation, the Parties are unable to agree on a method to perform this Contract. In such case, either Party may give notice of termination, provided, however, that in the case of partial performance being prevented, such partial performance is material to the Company.

(g) The Parties mutually agree to terminate this Contract and agree on the terms for the dissolution of the Company. In such case, the Company and its assets shall be dealt with in accordance with such agreement and applicable law.

22.2 Purchase of the Company as a Going Concern

(a) In the event that (1) one (1) Party is the subject of proceedings for Liquidation or dissolution or ceases to carry on business, or (2) notice of termination is given by a Party pursuant to Article 22.1(b) or (c), the remaining or non-breaching Party may elect to purchase the Company as a going concern in accordance with the procedures set forth below:

(b) Each Party shall, at its own cost, engage a reputable, independent and qualified appraiser to appraise the Company as a going concern with the same instruction going to the two appraisers. The average of the two appraisals shall be considered the fair market value ("Fair Market Value") of the Company, provided that, if only one Party engages such an appraiser, the purchase price shall be based on that one appraiser's valuation. In the event the appraisals (or, in the case of ranges of values, the averages of the two ranges) deviate more than 100% (e.g. 200-420) then the following applies: A third appraiser, being a top 5 internationally reputed investment bank, will be appointed by the Parties at the cost of the Company, which investment bank must choose within thirty (30) days between one and the other appraisal, and such choice will constitute the binding Fair Market Value.

(i) The purchasing Party shall purchase the Interest of the selling Party in the Company for a purchase price equal to the percentage interest that such selling Party then currently holds in the registered capital of the Company multiplied by the Fair Market Value of the Company; provided however, that the purchase price paid to POSITRON in the event NMS is the purchasing Party shall be not less than USD $20,000,000.

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(c) After determination of the purchase price, the Parties shall execute a purchase and sale agreement and shall use their best efforts to secure, within thirty (30) days of the execution of such purchase and sale agreement, all necessary governmental approvals required to give effect to such purchase and sale agreement. The closing of such purchase and sale shall occur within fifteen (15) days following approval of the purchase and sale agreement; provided, however, that the selling Party shall not be required to complete any sale pursuant to this Article 22.2 unless the entire purchase price is paid in the lawful currency of, or a currency which may be freely converted and remitted to, the jurisdiction of organization of the selling Party.

(i) After approval of the purchase and sale agreement has been obtained and the purchase price has been paid in accordance with (iii) above, the Parties shall terminate this Contract, the Annexes and all of the contracts contemplated herein by a writing executed by the duly authorized representative of each of the Parties.

(d) In the event that Deadlock occurs and both Parties wish to continue the business of the Company as a going concern, the Fair Market Value shall be determined pursuant to Article 22.2(a) (i) and an auction shall be conducted by the Company's auditor to determine which Party shall sell its Interest to the other Party. During such auction, each Party shall bid openly for the purchase of the other Party's Interest, and each Party may repeatedly place a higher bid than the other Party until the highest bid has been made. No bid shall be lower than the applicable percentage held by the selling Party in the registered capital of the Company multiplied by the Fair Market Value of the Company. The Party making the highest bid (per percentage interest) shall be entitled to purchase the Interest of the other Party. After determination of the final purchase price, the procedures set forth in Articles 22.2(a) (iii) and (iv) shall apply. Notwithstanding the foregoing, any purchase price paid to POSITRON in the event NMS is the purchasing Party shall be not less than USD $20,000,000.

(e) Both Parties shall continue to perform their obligations under this Contract prior to completion of Article 22.2(a)(iv) above.

23. LIQUIDATION AND DISSOLUTION

23.1 Liquidation

Upon the adoption of a unanimous Board resolution to terminate this Contract pursuant to Articles 22.1(a), (d), (e), (f) or (g) and approval by the Examination and Approval Authority to dissolve the Company, the Parties shall cause the Directors appointed by them to adopt a resolution to liquidate the Company and establish a Liquidation Committee. The composition, powers and functions of the Liquidation Committee, formulation of Liquidation procedures, and payment of Liquidation proceeds shall be as set forth in the Articles of Association.

23.2 Effect of Dissolution or Sale as a Going Concern

The dissolution of the Company or sale of the Company as a going concern, shall not release a Party from its liability to pay any sums of money accrued, due and payable to the other Party, or to discharge its then-accrued and unfulfilled obligations including any liability to the Company or the other Party in respect of any breach of this Contract pursuant to Article 24 hereof.

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23.3 Termination

After the Liquidation of the Company is completed and the Company has been effectively dissolved, the Parties shall terminate this Contract, the Articles of Association and all of the contracts contemplated herein by a writing executed by the duly authorized representative of each of the Parties.

24. LIABILITY FOR BREACH OF CONTRACT

24.1 Breach of Contract

If a Party fails to perform any of its material obligations under this Contract, or if a representation or warranty made by a Party under this Contract is untrue or materially inaccurate, the Party shall be deemed to have breached this Contract.

24.2 Failure to Pay Capital Contributions

Provided that each of the conditions in Article 6.4(a) has either been expressly fulfilled or waived by the Parties, should one of the Parties fail to pay any portion of its contribution to the registered capital of the Company at the time and in the amounts stipulated in Article 6 of this Contract, such Party shall be deemed to be in breach of the Contract and, in addition to any liability it may incur for such breach, such Party shall pay to the Company a late contribution penalty at a monthly rate equal to the then applicable shortest-term lending rate published by the People's Bank of China for United States Dollar loans on the amount of the contribution due and unpaid for as long as such contribution is due and unpaid plus three percent (3%).

24.3 Continued Implementation of Contract

During the period of breach, the Parties shall in all other respects continue their implementation of this Contract.

25. INSURANCE

The Company shall, at its own cost and expense and at all times during the operation of the Company, procure and maintain full and adequate insurance coverage in a manner prudent and advisable for the Company. The relevant insurance policies may be obtained from any insurance company authorized to provide such policies in the PRC. The types of insurance (which shall include product liability insurance) and the value, duration and denomination of the currency of the premiums and insurance proceeds shall be determined by the Board of Directors based upon the recommendation of the General Manager based on the practices of similar business in other countries and the actual circumstances in the PRC.

26. FORCE MAJEURE

26.1 Performance of Obligations

If any Party is prevented from performing any of its obligations excluding the payment of monies due hereunder which payment obligations are hereby specifically stipulated to be outside the scope of the definition of Event of Force Majeure under this Contract due to an Event of Force Majeure, the time for performance of the obligations under this Contract specifically prevented from performance by such Event of Force Majeure shall be extended by a period equal to the period of delay caused by such Event of Force Majeure. A Party claiming inability to perform due to an Event of Force Majeure shall take appropriate means to minimize or remove the effects of the Event of Force Majeure and, within the shortest possible time, attempt to resume performance of the obligation(s) affected by the Event of Force Majeure. If an Event of Force Majeure occurs, no Party shall be responsible for any damage, increased costs or loss which the other Parties may sustain by reason of such a failure or delay of performance, and such failure or delay shall not be deemed a breach of this Contract. All other obligations under this Contract and the time for performance thereof shall remain unaffected.

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26.2 Notice

The affected Party shall immediately notify the other Party of the occurrence of any Event of Force Majeure in accordance with Article 29.5 and shall provide available evidence thereof. Should the delay caused by any Event of Force Majeure continue for more than ninety (90) consecutive days, the Parties shall settle the issue of further performance of this Contract through friendly negotiations or in accordance with Article 22.1(f).

26.3 Continued Implementation of Contract

During the period of an Event of Force Majeure, the Parties shall in all other respects continue their implementation of this Contract.

27. APPLICABLE LAW

27.1 Governing Law

The laws or regulations of the PRC which are officially published and publicly available shall apply to and govern the formation, validity, interpretation and implementation of this Contract.

28. DISPUTE RESOLUTION

28.1 Arbitration

(a) Any dispute arising from, out of or in connection with this Contract shall be settled through friendly consultations between the Parties. Such consultations shall begin immediately after a Party has delivered to the other Party a written request for such consultation. If within forty-five (45) days following the date on which such notice is given, the dispute cannot be settled through consultations, the dispute shall, upon the request of any Party with notice to the other Party, be submitted to arbitration at Singapore International Arbitration Center in Singapore.

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(b) There shall be three (3) arbitrators, who shall be appointed in accordance with the Rules of Arbitration of the United Nations Commission on International Trade Law ("UNCITRAL") which are effective at that time.

(c) The arbitration proceedings shall be conducted in Chinese. The arbitration tribunal shall apply the Rules of UNCITRAL which are effective at that time.

(d) Each Party shall cooperate with the other Party in making full disclosure of and providing complete access to all information and documents requested by the other Party in connection with such proceedings, subject only to any confidentiality obligations binding on such Party.

(e) The arbitral award shall be final and binding upon all Parties, not subject to any appeal, and shall deal with the question of costs of arbitration and all matters related thereto.

(f) Judgment upon the award rendered by the arbitration may be entered into any court having jurisdiction, or application may be made to such court for a judicial recognition of the award or any order of enforcement thereof.

28.2 Continued Implementation of Contract

During the period when a dispute is being resolved, the Parties shall in all other respects continue their implementation of this Contract.

29. MISCELLANEOUS

29.1 Language

This Contract is executed in English and Chinese in eight (8) original counterparts in each language. Both language versions shall have equal validity. In case of any disparity, the Chinese version shall govern.

29.2 Entire Agreement

This Contract and the other contracts contemplated herein constitute the entire agreement among NMS and POSITRON with respect to the subject matters set forth herein and therein and supersede all prior discussions, notes, memoranda, negotiations, understandings and all the documents and agreements between them relating to the same. All documents, agreements, understandings and correspondence between the Parties prior to the execution of this Contract shall, with the exception of any non-disclosure/confidentiality undertakings, become null and void automatically when this Contract enters into effect.

29.3 Amendment

Amendments to this Contract and the other contracts contemplated herein may be made only by a written agreement in English and Chinese signed by duly authorized representatives of each of the Parties. This Contract and its annexes shall become effective upon approval from the Ministry of Commerce of the PRC or its authorized department.

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29.4 Conflict or Inconsistency

The rights and obligations of the Parties established by and under this Contract shall continue to exist throughout the Joint Venture Term and shall not be prejudiced by the establishment of the Company, the adoption of the Articles of Association or the execution of any of the contracts contemplated herein. In the event of any conflict or inconsistency between this Contract on the one hand and the Annexes on the other, this Contract shall prevail over the Annexes.

29.5 Notices

Notices or other communications required to be given by any Party or the Company pursuant b this Contract shall be written in English and may be delivered personally, sent by registered airmail (postage prepaid) by a recognized courier service, or sent by facsimile transmission to the address of the other Party set forth below or such other address notified in lieu thereof. The dates on which notices shall be deemed to have been effectively given shall be determined as follows:

(a) Notices given by personal delivery shall be deemed effectively given on the date of personal delivery.

(b) Notices given by registered airmail (postage prepaid) shall be deemed effectively given on the seventh (7th) day after the date on which they were mailed (as indicated by the postmark).

(c) Notices given by air courier shall be deemed effectively given on the date of delivery (as indicated by the airway bill).

(d) Notices given by facsimile transmission shall be deemed effectively given on the first (1st) business day following the date of transmission.

For the purpose of notices, the addresses of the Parties are as follows:

NMS:	Neusoft Park, Hun Nan New District
	Shenyang 110179, Liaoning Province
	People's Republic of China
Attention:	Quanlu Zheng, President
Telephone No.:	(86 )24 2378 2784
Facsimile No.:	(86 )24 8378 0480
POSITRON:	Positron Corporation
	1304 Langham Creek Drive, Suite 300
	Houston, TX 77084
Attention:	Gary H. Brooks, CEO and President
Telephone No:	(011) 281 492-7100
Facsimile No:	(011) 281 492-2961

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Any Party may at any time change its address for service of notice or communication in writing delivered to the other Party in accordance with the terms hereof.

29.6 Waiver

Unless otherwise provided for, failure or delay on the part of any Party to exercise any right or privilege under this Contract shall not operate as a waiver of such right or privilege nor shall any partial exercise of any right or privilege preclude any further exercise thereof. Any waiver by a Party of a breach of any term or provision of this Contract shall not be construed as a waiver by such Party of any subsequent breach, its rights under such term or provision, or any of its other rights hereunder.

29.7 Survival

The following Articles shall survive the termination or expiration of this Contract: 1, 2, 3, 6, 7, 10.2, 20, 23, 27, 28.1 and 29.

29.8 Headings

The headings contained in this Contract are for reference only and shall not be deemed to be a part of this Contract or to affect the meaning or interpretation hereof.

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IN WITNESS WHEREOF, the Parties hereto have caused this Contract to be executed as of the date first above written by their duly authorized representatives.

NEUSOFT MEDICAL SYSTEMS CO., LTD.
By:
Name:	Liu Jiren
Title:	Chairman
POSITRON CORPORATION
By:
Name:	Gary H. Brooks
Title:	President and Chief Executive Officer
By:
Name:	Patrick G. Rooney
Title:	Chairman of the Board

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EX-10.2

TECHNOLOGIES CONTRIBUTION AGREEMENT

This Technologies Contribution Agreement (this "Agreement") is entered into this July 30, 2005 by and between:

NEUSOFT MEDICAL SYSTEMS CO., LTD, a limited liability company incorporated under the laws of the P.R.C., with registered offices at 11 Lane 3, Wenhua Road, Heping District, Shenyang 110004, P.R.C. (hereinafter referred to as "NMS");

AND

POSITRON CORPORATION, a limited liability company incorporated under the laws of Texas of the United States of America, with its registered office at 1304 Langham Creek Drive, Suite 300, Houston, TX 77084 USA (hereinafter referred to as "Positron").

NMS and Positron may hereinafter be referred to individually as a "Party" or collectively as the "Parties".

WHEREAS, each of Positron and NMS is active in researching, developing, manufacturing, marketing and/or selling of PET;

WHEREAS, the Parties seek to mutually benefit from each other's strengths, and intend to cooperate in the research, development and manufacturing of PET;

WHEREAS, the Parties intend to form an equity joint venture company ("JV") to be called ________________ in Chinese and "Neusoft Positron Medical Systems Co., Ltd." in English, and entered into the Joint Venture Contract ("Joint Venture Contract");

WHEREAS, the parties agree that Positron will evaluate the technologies owned by it and listed in Appendix A ("Technologies") and will contribute such technologies to the JV as registered capital;

WHEREAS, defined terms used herein shall have the same meanings as in the Joint Venture Contract.

NOW, THEREFORE, the Parties express their intentions as follows:

Article 1 Positron hereby represents and warrants that, the Technologies are owned by it and free from any mortgage, pledge or other third party rights. Positron hereby warrants that it has all legitimate and full title to such Technologies, and has the right to contribute the Technologies to the JV as registered capital pursuant to the terms and conditions under the Joint Venture Contract entered into by the Parties. Positron has effectively used the Technologies at the production facilities of its own or of its affiliates. Positron warrants that the technical documentation relating to the Technologies is complete and effective.

Article 2 Positron shall contribute a 451100 undivided interest in the Technologies to the JV as the registered capital of the JV. Pursuant to the transfer the JV shall have the right to make, have made. use, sell or otherwise dispose of products, methods and processes under any and all such Technology, without the consent dud without any obligation to account to Positron. The Parties agree that the preliminary price of the Technologies is US$400,000 (the actual price will be based on the evaluation of the Technologies by a qualified Chinese appraiser jointly retained by NMS and Positron.

Article 3 The Parties agree that Positron shall transfer the Technologies (including any relevant technical documentation) to the JV within 10 days after the Establishment Date, and complete all the relevant procedures for transfer and assignment. The transfer shall be consistent with the terms of this Agreement and with the Joint Venture Contract.

Article 4 For the avoidance of doubt, the Parties hereby acknowledge that the JVs and Positron's joint ownership of the Technologies shall not give Positron the right to share the JV's profits arising from its use of the Technologies. However, Positron may, as a shareholder of the JV, demand dividend distribution from the JV according to Clause 17.3 (Profit Distribution) of the Joint Venture Contract.

Article 5 As joint owners of the Technologies, neither JV nor Positron shall transfer its ownership to the Technologies to any third party without the prior written consent of the other Party, unless such consent requirement is waived by the other Party.

Article 6 This Agreement shall become effective upon signing and shall terminate after the Technologies transfer procedures are finished. All other issues relating to the Agreement shall be handled according to the relevant provision of the Joint Venture Contract between the Parties.

IN WITNESS WHEREOF, Positron and NMS have caused this Agreement to be duly executed on their behalf in the manner legally binding upon them.

POSITRON CORPORATION	NEUSOFT MEDICAL SYSTEMS CO., LTD.
Authorized Signature	Authorized Signature
Name:	Name:
Title:	Title:

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Appendix A

The Technologies to be used as contribution by Positron:

1. United States Patent No. 5,210,420 Issued May 11, 1993.

Entitled: POSITRON EMISSION TOMOGRAPHY SCANNER

Inventor: Ross K. Hartz, et al.

Assigned to Positron Corporation by Assignment recorded December 19, 1991

2. All Trade Secrets related to the design and manufacture of Positron's positron emission tomography scanner. "Trade Secrets" means any trade secrets, know-how, engineering, production and other designs, all source code of the software, API, inventions, discoveries, concepts, ideas, methods, processes (including design and manufacturing processes), drawings, specifications, formulae, data bases and documentation thereof, technological models, algorithms, behavioral models, logic diagrams, schematics, test vectors, technical information, documentation, SOPs (including standard testing and operating procedures), data and other commercial or technical information that derives economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use and is the subject of efforts that are reasonable under the circumstances to maintain its secrecy and any other information that is proprietary or confidential, in each case excluding any rights in respect of any of the foregoing that comprise or are protected by copyrights or patents. The Trade Secrets shall include, but are not limited to the following:

Hardware Bill of Materials

Software Programs

FDA Documents

Quality Assurance

Instructions to Users

Drawings & Diagrams for Manufacturer

Testing Standards

Training Materials

Manuals

and the details of which include, but are not limited to, the items set forth on the schedules attached hereto.

Appendix A

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EX-10.3

September 6, 2005

POSITRON CORPORATION

and

NEUSOFT POSITRON MEDICAL SYSTEMS CO., LTD.

SOFTWARE SUB-LICENSE AGREEMENT

This Software Sub-License Agreement (the "Agreement") is entered into on September 6, 2005 ("Effective Date") by and between

POSITRON CORPORATION, a corporation organized under the laws of Texas, USA and having its principal office at 1304 Langham Creek Drive Suite 300, Houston, TX 77084, USA("Licensor")

And

NEUSOFT POSITRON MEDICAL SYSTEMS CO., LTD., a Chinese-foreign equity joint venture organized under the laws of the People's Republic of China ("PRC'), having its principal office at No.2 Xinxiu Street, Hun Nan New District, Shenyang 110179, PRC ("Licensee")

Licensor and Licensee are hereinafter also referred to individually as "Party" or jointly as "Parties".

RECITALS:

WHEREAS, Licensor received a worldwide, perpetual, irrevocable, non-exclusive, royalty-free, transferable, sub-licensable and fully paid-up license from GE Medical Systems Business ("GEMS") to use, reproduce, make derivative works of, distribute and otherwise commercially exploit certain Cardiac PET software in perpetuity under the terms of the Software License Agreement between the Licensor and GEMS dated June 29, 2003 ("Original License Agreement");

WHEREAS, Neusoft Medical Systems Co., Ltd. ("NMS") and licensor entered into a Joint Venture Contract ("Joint Venture Contract") for the establishment of Licensee, and agreed hereunder to have Licensor and Licensee enter into this Agreement; and

WHEREAS, Licensee desires to obtain, and Licensor has agreed to grant, certain license rights concerning the above Cardiac PET software according to the terms of this Agreement.

IT IS AGREED AS FOLLOWS

ARTICLE 1

DEFINITIONS

Section 1.1. Unless otherwise provided herein, the capitalized words herein shall have the same meaning as those of the Joint Venture Contract.

Section 1.2. For purposes of this Agreement, the following terms have the meanings specified or referred to in this Section 1.2.

"Documentation" means the documentation reasonably necessary to utilize the Software effectively in accordance with the terms and conditions of this Agreement. Documentation shall include, without limitation, such documents and manuals that collectively contain a complete description and definition of all Software operations and all user guides necessary for the operation and management of the Software in the appropriate language(s) and formats, including design documents and test plans.

"End Uses" means any Licensee's customer who is permitted to use the Software under asoftware license agreement.

"Executable Code" means the fully compiled version of a software program that can be executed by a computer and used by an end user without further compilation.

"Improvements" shall mean any modification, adaptation, invention, or other improvement relating to any item of the Software or component or part thereof, made during the term of this Agreement.

"Software" shall have the same meaning as the word defined in the Original License Agreement.

"Source Code" means the human-readable version of a software program that can be compiled into Executable Code.

"Territory" means the People's Republic of China.

ARTICLE 2

LICENSE

Section 2.1. Software License. Subject to the provisions of Section 5.2, Licensor hereby agrees to grant Licensee a worldwide, irrevocable, exclusive in the Territory (non-exclusive outside the Territory) license to use, reproduce, make derivative works of, distribute and otherwise commercially expbit the Software. Except for the methods or purposes set out above, Licensee may not use the Software in any other method or for any other purpose. Licensor hereby agrees not grant the same or similar license to anyone else covering the Territory.

ARTICLE 3

ROYALTY AND PAYMENT TERMS

Section 3.1. Royalty. Licensee shall pay US$250,000 as royalty to Licensor within 60 days after the Establishment of the Joint Venture (obtaining business license). The foregoing payment as royalty shall be the full and complete consideration under this Agreement. Except for such royalty, Licensee shall have no obligation to make any other payment to Licensor.

Section 3.2. Taxes and Duties. Licensor and Licensee shall be separately responsible for and shall pay all taxes, duties, import deposits, assessments and other governmental charges designed to them, which are now or hereafter imposed under or by any governmental authority or agency, that are (a) associated with the performance of its obligations hereunder, or (b) associated with the payment of any amount by Licensee to Licensor pursuant to this Agreement; provided, however, that Licensor shall be responsible for all withholding taxes on the payment of this royalty under Section 3.1 above. For the avoidance of doubt, the Parties hereby agree that Licensee shall not be responsible for any taxes, duties, assessments or fees of whatever kind or nature levied upon Licensor outside the Territory.

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ARTICLE 4

INTELLECTUAL PROPERTY ENFORCEMENT

Section 4.1. Enforcement of Intellectual Property Rights. If Licensee believes that any of the intellectual property rights in the Software are being infringed or misused by a third party in the Territory, Licensee shall promptly notify Licensor of such infringement or misuse. Licensor and Licensee shall have the right to bring action regarding such infringement or misuse. If one Party brings such action, the other Party shall provide such assistance as the Party bringing the action shall request. Further, unless the Parties otherwise agree in writing, all damages, profits, awards and royalties obtained in connection with such action shall be for the benefit of Licensor and Licensee, provided that the Licensor shall reimburse the costs and expenses incurred to Licensee in the provision of above assistance.

Section 4.2. Maintenance of Intellectual Property. Licensor shall make and maintain filings (if any) for the protection and maintenance of the Software.

ARTICLE 5

TERM AND TERMINATION

Section 5.1. Term. This Agreement shall take effect from the Effective Date. The term of this Agreement shall be ten (10) years and can be automatically extended by another ten (10) years without limitation on the time of such extension.

Section 5.2. No Termination. This Agreement shall be irrevocable upon execution. In no event will either Party have the right to terminate this Agreement or the licenses granted herein. Licensor expressly covenants and agrees that it shall not take any action, and shall not attempt in any way, to revoke, cancel, terminate or otherwise refute the license to Licensee under this Agreement. Notwithstanding the foregoing, in the event the Joint Venture Contract is terminated or Licensee is dissolved, the license granted to Licensee under this Agreement shall terminate and shall be assigned to NMS at which time such license shall become non-exclusive in the Territory and outside the Territory.

ARTICLE 6

CONFIDENTIALITY

Section 6.1. Nondisclosure. Licensee acknowledges that both the Source Code of the Software and any non-public information regarding the structure or organization of the Software constitute valuable trade secrets of Licensor. Accordingly, except for the terms and conditions as set forth in Section 9.3, Licensee agrees to keep secure and not to disclose, disseminate or otherwise make available to any third party other than under a confidentiality agreement with restrictions at least as strict as those set forth in this Agreement (a) the Source Code of the Software, (b) any non-public information regarding the structure or organization of the Software. For the avoidance of doubt, the Parties understand and agree that violations of any of these restrictions shall not give rise to any right to terminate, cancel or revoke any of the license rights granted in Section 2.1.

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ARTICLE 7

INDEMNIFICATION AND LIABILITY

Section 7.1. Indemnification by Licensee. Licensee agrees to indemnify, defend and hold Licensor, its officers, directors, agents, and employees harmless from and against any and all liabilities, damages, losses, expenses, claims, demands, suits, fines or judgments, including reasonable attorneys' fees and costs and expenses incidental thereto, which may be suffered by, accrued against, charged to or recoverable from Licensor, its officers, directors, agents, or employees arising out of or in connection with Licensee's operations, including, without limitation the use of the Software or any act, error or omission of Licensee, its officers, directors, agents, employees and subcontractors, during the performance of this Agreement.

Section 7.2. Indemnification by Licensor. Licensor agrees to indemnify, defend and hold Licensee, its officers, directors, agents, and employees harmless from and against any and all liabilities, damages, losses, expenses, claims, demands, suits, fines or judgments, including reasonable attorneys' fees and costs and expenses incidental thereto, which may be suffered by, accrued against, charged to or recoverable from Licensee, its officers, directors, agents, or employees arising out of or in connection with the nature or content of the Software or Documentation, or any act, error or omission of Licensoi its officers, directors, agents, employees and subcontractors, during the performance of this Agreement.

ARTICLE 8

PROPRIETARY RIGHTS

Section 8.1. Proprietary Rights of Licensor. All rights, title and interest in and to any modification or other derivative work of the Software developed or otherwise created by or on behalf of Licensor, and all worldwide intellectual property rights therein, will be the exclusive property of Licensor. Licensor shall promptly grant Licensee a license non-exclusive and royalty free license to use such Improvements anywhere in the world .

Section 8.2. Proprietary Rights of Licensee. All rights, title and interest in and to any modification or other derivative work of the Software developed or otherwise created by or on behalf of Licensee after the Effective Date, and all worldwide intellectual property rights therein, will be the exclusive property of Licensee.

ARTICLE 9

MISCELLANEOUS

Section 9.1. Amendment and Modification. This Agreement may be amended, modified, or supplemented only by written agreement signed by both of the Parties.

Section 9.2. Waiver of Compliance; Consents. Any failure of a Party to comply with any obligation, covenant, agreement, or condition herein may be waived by the other Party; provided, however, that any such waiver may be made only by a writing signed by the Party granting such waiver, but such waiver or failure to insist upon strict compliance with such obligation, covenant, agreement, or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure.

-4-

Section 9.3. Assignment. This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the Parties hereto and their respective successors and permitted assigns. Licensee may not assign any of its rights or obligations hereunder without the prior written consent of Licensor, except for assignment to NMS or its Affiliates.

Section 9.4. Governing Law. The laws or regulations of the PRC which are officially published and publicly available shall apply to and govern the formation, validity, interpretation and implementation of this Agreement.

Section 9.5. Dispute Resolution. Any dispute arising from, out of or in connection with this Agreement shall be settled through friendly consultations between the Parties. Such consultations shall begin immediately after a Party has delivered to the other Party a written request for such consultation. If within forty-five (45) days following the date on which such notice is given, the dispute cannot be settled through consultations, the dispute shall, upon the request of any Party with notice to the other Party, be submitted to arbitration at the China International Economic and Trade Arbitration Commission at Beijing, PRC. The arbitration proceedings shall be conducted in Chinese. The arbitration tribunal shall apply the rules of the China International Economic and Trade Arbitration Commission in effect on the date of the dispute be submitted. The arbitral award shall be final and binding upon all Parties, not subject to any appeal, and shall deal with the question of costs of arbitration and all matters related thereto.

Section 9.6. Counterparts. This Agreement may be executed in four (4) counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument

Section 9.7. Notices. Unless otherwise specified, whenever this Agreement requires or permits any consent, approval, notice, request, or demand from one Party to another, that communication must be in writing to be effective and is deemed to have been given if by certified or registered mail, on the third business day after it is enclosed in an envelope and properly addressed, stamped, sealed, and deposited in the appropriate official postal service with a return receipt requested. Until changed by notice pursuant to this Agreement, the addresses for the Parties are set forth above in the introductory paragraph.

Section 9.8. Headings. The article and section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

Section 9.9. Entire Agreement. This Agreement embodies the entire agreement and understanding of the Parties hereto in respect of the subject matter contained herein. This Agreement supersedes all prior agreements and understandings between the Parties with respect to the subject matter contained herein.

Section 9.10.         Severability. If any one or more provisions contained in this Agreement shall, for any reason, be held to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provision of this Agreement, but this Agreement shall be construed as if such invalid, illegal, or unenforceable provision had never been contained herein.

-5-

Section 9.11.         Language. This Agreement is executed in English and Chinese and both language versions shall have equal validity.

Section 9.12.         Government Filing. Licensee shall handle the filing procedures in connection with importation of technology and the exclusive license of the Software (if any), and Licensor shall provide all reasonable assistance.

Section 9.13.         Force Majeure. In the event of earthquake, typhoon, flood, fire, war, computer virus, loophole in the design of tooling software, internet encountering a hacker, change of policies of laws, and other unforeseeable or unpreventable or unavoidable event of force majeure, which directly prevents a Party from performing this Agreement or performing the same on the agreed condition, the Party encountering such as force majeure event shall forthwith issue a notice by a facsimile and, within thirty (30) days, present the documents proving the details of such force majeure event and the reasons for which this Agreement is unable to be performed or is required to be postponed in its performance, and such proving documents shall be issued by the notarial office of the area where such force majeure event takes place. The Parties shall consult each other and decide whether this Agreement shall be waived in part or postponed in its performance with regard to the extent of impact of such force majeure event on the performance of this Agreement.

IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed as of the date above written.

-6-

Signature Page

POSITRON CORPORATION
By:
	Name:
	Title:
NEUSOFT POSITRON MEDICAL SYSTEMS CO., LTD.
By:
	Name:
	Title:

-7-

EX-10.4

TRADE MARK LICENSE AGREEMENT

This Agreement is entered into this July 30, 2005 by and between

POSITRON CORPORATION, with its registered office at 1304 Langham Creek Drive Suite 300, Houston, TX 77084, USA (hereinafter referred to as "Positron")

of the one part

and

NEUSOFT POSITRON MEDICAL SYSTEMS CO., LTD., with its registered office at No. 2 Xinxiu Street, Hun Nan New District, Shenyang, PRC (hereinafter referred to as the "Company")

of the other part.

WHEREAS, Positron is the registered proprietor of the trademarks as specified in Annex A hereto (hereinafter referred to as the "Trade Marks") globally (hereinafter referred to as the "Territory");

WHEREAS, the Company is a joint venture between Positron as one party and Neusoft Medical System Co., Ltd. of the People’s Republic of China as another party, established pursuant to a joint venture contract concluded on the 30th day of July, 2005 (the “J.V. Contract”).

WHEREAS, the Company desires to use the Trade Marks in the Territory upon or in relation to Product(s) as specified in the J. V Contract (hereinafter referred to as “the Products”) for which the Trade Marks have been registered, respectively in relation to the services to be rendered with respect to the Products (hereinafter referred to as the "Services"), and

WHEREAS, the Company shall observe the standards of quality set by Positron in regard to the products manufactured and/or sold by them as well as the services rendered by them; and

WHEREAS, Positron is prepared to grant the Company the right to use the Trade Marks upon the terms and conditions hereinafter set forth.

NOW THEREFORE IT IS HEREBY AGREED AS FOLLOWS:

Clause 1

Positron herewith grants to the Company a non-exclusive and indivisible right not capable of being transferred, sublicensed or encumbered, either voluntarily or by law, to use the Trade Marks in the Territory in connection with and in support of its business in relation to the Products respectively Services.

1

TRADE MARK LICENSE AGREEMENT

It is expressly understood that the Company's right to use the Trade Marks shall be royalty-free other than as provided for in the J.V. Contract and shall not be extended to products other than the Products.

Clause 2

Positron will take the necessary steps to have this Agreement registered with the Trademark Office and the Company shall render all necessary assistance.

Clause 3

The Company shall always strictly comply with the instructions, directions and specifications which Positron or its representatives may give from time to time with regard to the quality, manufacture, packing, advertising and promotion of the Products which the Company shall put on the market or supply under the Trade Marks and with regard to the quality and advertising of the Services which the Company shall render, as well as with respect to the appearance and way of use of the Trade Marks on the Products and the packaging material thereof. Unless expressly approved by Positron, the Company shall refrain from using the Trade Marks in combination and/or simultaneously with any other trade mark(s) whatsoever.

The Company shall allow Positron or its representatives to enter its premises at all reasonable times in order to check the observance of the stipulations of this Agreement and upon Positron' request the Company agrees to supply free of charge samples of the Products to be delivered under the Trade Marks and of packaging material, advertising and promotional material, and stationery.

The Company shall also enable Positron or its representatives to check whether the Services rendered by it are in conformity with the stipulations of this Agreement.

Clause 4

If the Company does not strictly adhere to the instructions, directions and specifications mentioned in Clause 3, or if any other circumstances whatsoever should occur under which the rights granted under this Agreement could in any way endanger Positron's rights to the Trade Marks, then Positron shall be entitled at its option to forthwith revoke or suspend by notice in writing the Company's rights, in whole or in part, to use the Trade Marks, without prejudice to Positron's right to claim complete indemnification.

Under no circumstances shall the Company be entitled to claim any indemnification as a result of the suspension or revocation of this Agreement pursuant to this Clause 4.

Clause 5

The Company hereby undertakes both during the period of this Agreement and thereafter at the request of Positron to render to Positron all assistance which Positron may require from time to time in respect of the defence of its rights in the Trade Marks, including registration and/or maintenance thereof, and especially in the event of Positron proceedings against third parties infringing or having infringed the rights and titles of Positron in respect of the Trade Marks.

2

TRADE MARK LICENSE AGREEMENT

The Company shall report to Positron promptly any infringement of Positron's rights in the Trade Marks of which it gets knowledge. Positron shall in its entire discretion decide whether or not proceedings shall be conducted against the infringing party and shall assume responsibility therefor and control all handling, defence or settlement thereof.

In the event of any claim or litigation by a third party against the Company alleging that the use of the Trade Marks infringes any right of such third party, the Company shall promptly give notice of such claim or litigation to Positron, and Positron shall assume responsibility therefor and control all handling, defence or settlement thereof.

Clause 6

The Company shall not during the period of this Agreement or thereafter become entitled, whether by implication or otherwise, to the Trade Marks nor claim to be the owner thereof, nor by way of use or registration establish title to similar trade marks.

Clause 7

This Agreement shall become effective as from the date Parties complete the signing of the Agreement and shall continue as long as the J.V. Contract will remain in force, provided always that either party shall be entitled to cancel and revoke this Agreement giving three months notice in writing.

Notwithstanding what has been provided for in the first para-graph of this Clause 7, this Agreement may at any time be forthwith terminated by Positron, in the event of the control, management, or owners-hip of the Company or its business pas-sing into hands other than those now exerci-sing or entitled to the same, either voluntarily or by law.

Under no circumstances shall the Company be entit-led to claim any indemnification as a result of the termination of this Agreement pursuant to this Clause 7.

All disputes arising out of or in connection with this Agreement shall be submitted to the competent courts in the People’s Republic of China. This Agreement shall be construed and have effect as an Agreement made in the People’s Republic of China and according to the Laws of the People’s Republic of China.

Clause 8

Upon termination of this Agreement Positron shall be entitled to procure immediate cancellation of any registration of the rights granted to the Company under this Agreement and the Company shall render all necessary assistance thereto.

3

TRADE MARK LICENSE AGREEMENT

Clause 9

Non-Assignment. The Company acknowledges and agrees that the rights granted to the Company and obtained by the Company as a result of or in connection with this Agreement are license rights only, and nothing contained in this Agreement constitutes or shall be construed to be an assignment of any or all of Licensor’s rights in the Trademark.

IN WITNESS WHEREOF, Positron and the Company have caused this Agreement to be duly executed on their behalf in the manner legally binding upon them.

POSITRON CORPORATION	NEUSOFT POSITRON MEDICAL SYSTEMS CO., LTD.
Authorized Signature	Legal Representative
Name:	Name:
Title:	Title:

4

TRADE MARK LICENSE AGREEMENT

ANNEX A

to the Trade Mark Licence Agreement made as of this 30th day of July, 2005 between POSITRON CORPORATION and NEUSOFT POSITRON MEDICAL SYSTEMS CO., LTD.;

By "Trade Marks" will be understood under said Trade Mark Licence Agreement the following trade marks, registered in the name of POSITRON CORPORATION:

Trade Mark Registration No. Status

POSITRON CORPORATION	NEUSOFT POSITRON MEDICAL SYSTEMS CO., LTD.
Authorized Signature	Legal Representative
Name:	Name:
Title:	Title:

5

EX-10.5

CORPORATE NAME LICENSE AGREEMENT

This Agreement is entered into this July 30, 2005 by and between POSITRON CORPORATION, with its registered office at 1304 Langham Creek Drive Suite 300, Houston, TX 77084, USA (hereinafter referred to as "Positron") of the one part and

NEUSOFT POSITRON MEDICAL SYSTEMS CO., LTD., with its registered office at No. 2 Xinxiu Street, Hun Nan New District, Shenyang, PRC (hereinafter referred to as the "Company") of the other part.

WHEREAS Positron is the owner of the trademark POSITRON in English and Chinese (hereinafter referred to as the "POSITRON") for a wide variety of products globally (hereinafter referred to as the "Territory"); and

WHEREAS Positron holds directly thirty-two point five percent (32.5%) of the registered capital of the Company; and

WHEREAS the Company desires to use the word POSITRON as part of its corporate name; and

WHEREAS Positron is prepared to grant the Company the right to use the word POSITRON as part of its corporate name upon the terms and conditions hereinafter set forth.

NOW, IT IS HEREBY AGREED AS FOLLOWS:

Clause 1

Positron herewith grants to the Company the non-exclusive royalty-free right and license to use the word POSITRON as part of its corporate name.

Clause 2

The Company shall strictly comply with the instructions, directions and specifications which Positron may give to the Company from time to time with respect to the appearance and use of the word POSITRON as part of the Company's corporate name.

Clause 3

Positron may in its sole discretion grant to third parties in and outside the People’s Republic of China, the right and license to use the word POSITRON in their corporate name. If Positron should so request, the Company shall give all required assistance to the effect that such third parties can use the word POSITRON in their corporate name and in particular the Company shall in such case(s) forthwith inform the Registrar of Companies and/or such other authorities and other third parties as Positron may direct of its (Company's) approval and agreement to the use by such third party or parties of the word POSITRON in the corporate name of such third party.

1

CORPORATE NAME LICENSE AGREEMENT

Clause 4

The Company undertakes to render to Positron all assistance which Positron may request from time to time in respect of the protection, registration and defense of Positron's right in the word POSITRON as part of a corporate name, a tradename and/or the trademark POSITRON and other trademarks containing as an element the word POSITRON in particular in connection with legal proceedings against third parties infringing or having infringed Positron's rights in respect thereof.

The Company shall inform Positron of each and every infringement of Positron's right in the word POSITRON as part of a corporate name, a trade name and/or in the trademarks referred to in the first sentence of this Clause which comes to the Company's knowledge. Positron shall in its entire discretion decide whether or not legal proceedings shall be initiated against third parties infringing Positron's abovementioned rights.

Clause 5

The Company shall not become entitled whether by implication, use, registration or otherwise to any title to the word POSITRON as part of a corporate name, a trade name and/or as trademark or claim to be the owner of such corporate name, trade name or trademark nor by way of use or registration establish title to similar or related corporate name, tradenames or trademarks.

Clause 6

The Company is obligated to change its corporate name by deleting therefrom the word POSITRON at the first request of Positron and shall not replace same by a word similar to the word POSITRON and shall see to it that an appropriate decision by the Policy Board of the Company shall be made and confirmed in writing as soon as required by such request.

Clause 7

The Company shall not without Positron's previous consent in writing modify its corporate name and/or its objectives and/or field of activity, as long as the word POSITRON is part of the corporate name of the Company. In the event the right and license granted under this Agreement is revoked or terminated for whatever reason, the Company shall immediately thereupon change its corporate name in such a manner that it no longer, wholly or partially, contains the word POSITRON or similar words alone, or as part of another word and furthermore the Company shall forthwith upon such revocation or termination cease and discontinue the use of the word POSITRON or a name similar thereto in any manner and in particular the Company shall in such event forthwith cease and discontinue the use of stationery, advertising material, publications, name plates, vans etc. bearing the word POSITRON or a word similar thereto.

2

CORPORATE NAME LICENSE AGREEMENT

Clause 8

The right and license granted under this Agreement may be terminated with immediate effect by written or telegraphic notice from Positron to the Company in any of the following events: if Positron ceases to own directly or indirectly or ceases to have the right or power to exercise effectively all its rights of ownership in at least 51% of the issued share capital of the Company or if any of such circumstances becomes imminent in the sole judgment of Positron.

Clause 9

In the event the Company does not comply with any and all of the provisions of this Agreement Positron shall give the Company written notice of such non-compliance and the Company shall have 30 days from the receipt of such notice to remedy the breach. If the breach is not remedied within said 30 days, Positron shall be entitled to revoke the right and license granted under this Agreement at any time thereafter by giving the Company written notice of such revocation, notwithstanding Positron's right to claim damages and/or to cause the Company to comply with such provisions of the Agreement.

Clause 10

The right and licence granted under this Agreement is granted for an unlimited period of time and, unless previously revoked in accordance with the provisions of Clause 8 or 9, shall continue unless and until revoked by either party giving three months' notice by telegram or notice in writing. In no event the Company can claim any indemnification for the termination of this Agreement.

Clause 11

Neither this Agreement nor any rights hereunder may be assigned or otherwise transferred by the Company nor shall they inure to the benefit of any liquidator, receiver or successor of the Company, whether by operation of law or otherwise without the written consent of Positron and any assignment or transfer without such consent shall be null and void.

Clause 12

This Agreement shall be construed and have effect as an Agreement made in the People’s Republic of China and according to the Laws of the People’s Republic of China.

3

CORPORATE NAME LICENSE AGREEMENT

Clause 13

All disputes arising out of or in connection with this Agreement shall be submitted to the competent court in the People’s Republic of China.

IN WITNESS WHEREOF these presents have been signed by the parties hereto in a manner legally binding upon them on the date first above written.

POSITRON CORPORATION	NEUSOFT POSITRON MEDICAL SYSTEMS CO., LTD.
Authorized Signature	Legal Representative
Name:	Name:
Title:	Title:

4

EX-31.1

Exhibit 31.1

I, Patrick G. Rooney, certify that:

1. I have reviewed this quarterly report on Form 10-QSB of Positron Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated:	November 14, 2005	/s/ Patrick G. Rooney
		Patrick G. Rooney
		Chairman of the Board

EX-32.1

Exhibit 32.1

Certification Pursuant to 18 U.S.C. Section 1350,

As Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of Positron Corporation (the “Company”) on Form 10-QSB for the fiscal quarter ended September 30, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Patrick G. Rooney, as Chairman of the Board hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that:

(1)   The Report fully complies with the requirements of section 13 (a) or 15 (d), as applicable of the Securities Exchange Act of 1934; and

(2)   The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated:	November 14, 2005	/s/ Patrick G. Rooney
		Patrick G. Rooney
		Chairman of the Board

A signed original of this written statement required by Section 906 has been provided to Positron Corporation and will be retained by Positron Corporation and furnished to the Securities and Exchange Commission or its staff upon request.