<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Amendment No. 2 to
FORM 10-QSB
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2000
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 1097181
---------
MOBILE P.E.T. SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 11-2787966
(State or other jurisdiction (I.R.S. Employer
of organization) Identification No.)
2240 SHELTER ISLAND DRIVE #205
SAN DIEGO, CA 92106
(Address of principal executive offices)
(619) 226-6738
(Issuer's telephone number, including area code)
NOT APPLICABLE
(Former name, address and fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 / /
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 14,909,658
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
The following financial statements are furnished:
Consolidated Balance sheet as of March 31, 2000
Consolidated Statements of Operations for the three months and nine months
ended March 31, 2000
Consolidated Statement of Cash Flows for the three months and nine months
ended March 31, 2000
Consolidated Statement of Shareholders' Equity (Deficit) as of March 31,
2000
Notes to Unaudited Consolidated Financial Statements
2
<PAGE>
MOBILE P.E.T. SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 2,854,795 $ 311,303
Accounts receivable, net of allowance for doubtful accounts
of $54,400 and $0 at March 31, 2000 and 1999, respectively 386,725 -
Due from London Radiosurgical Centre, Ltd 328,654 24,699
Prepaid expenses 84,420 1,992
Deposits and other assets 1,354,274 395,000
----------- -----------
Total current assets 5,008,868 732,994
PROPERTY AND EQUIPMENT, NET 4,438,397 31,631
OTHER ASSETS
Accrued interest receivable 35,559 -
Subordinated equity participation 200,000 200,000
Restricted cash 217,860 250,051
----------- -----------
Total assets $ 9,900,684 $ 1,214,676
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 314,901 $ -
Income taxes payable 800 -
Accrued liabilities 34,298 52,331
Loan payable 50,000 -
Obligations under capital lease - current 625,166 -
----------- -----------
Total current liabilities 1,025,165 52,331
NONCURRENT LIABILITIES
Obligations under capital lease 3,548,390 -
Deferred revenue 13,420 -
----------- -----------
Total liabilities 4,586,975 52,331
SHAREHOLDERS' EQUITY
Preferred stock; 10,000,000 shares authorized; 60 and 0 shares
issued and outstanding at March 31, 2000 and 1999, repectively 3,000,000 -
Common stock; $0.0001 par value; 90,000,000 shares
authorized; 14,909,658 and 12,144,658 shares issued
and outstanding at March 31, 2000 and 1999, respectively 1,491 1,214
Additional paid in capital 7,195,075 2,274,068
Accumulated deficit (4,885,213) (1,112,937)
Foreign currency translation adjustment 2,356 -
----------- -----------
Total shareholders' equity 5,313,709 1,162,345
----------- -----------
Total liabilities and shareholders' equity $ 9,900,684 $ 1,214,676
=========== ===========
</TABLE>
See accompanying notes and accountants' review report
3
<PAGE>
MOBILE P.E.T. SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND THE NINE MONTHS ENDED MARCH 31, 2000
AND THE THREE MONTHS ENDED MARCH 31, 1999
AND THE PERIOD DECEMBER 1, 1998 (DATE OF RECOMMENCEMENT) TO MARCH 31, 1999
<TABLE>
<CAPTION>
Three Months Ended Nine Months December 1,
-------------------------------- Ended 1998 to
March 31, March 31, March 31, March 31,
2000 1999 2000 1999
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
----------- ---------- ----------- ----------
SERVICE REVENUES $ 326,850 $ - $ 623,770 $ -
COST OF SERVICE REVENUES 351,765 - 584,337 -
----------- ---------- ----------- ----------
Gross profit (24,915) - 39,433 -
EXPENSES
General and administrative 1,456,506 250,926 2,892,569 285,352
----------- ---------- ----------- ----------
Total expenses 1,456,506 250,926 2,892,569 285,352
----------- ---------- ----------- ----------
Loss from operations (1,481,421) (250,926) (2,853,136) (285,352)
OTHER INCOME (EXPENSE)
Interest income 46,165 51 55,493 51
Interest expense (138,951) - (262,106) -
----------- ---------- ----------- ----------
Total other income (expense) (92,786) 51 (206,613) 51
----------- ---------- ----------- ----------
Loss before provision for income taxes (1,574,207) (250,875) (3,059,749) (285,301)
Provision for income taxes - 800 1,600 800
----------- ---------- ----------- ----------
NET LOSS (1,574,207) (251,675) (3,061,349) (286,101)
Preferred stock dividend 1,205,647 - 1,205,647 -
----------- ---------- ----------- ----------
NET LOSS - AVAILABLE TO COMMON SHAREHOLDERS $(2,779,854) $ (251,675) $(4,266,996) $ (286,101)
=========== ========== =========== ==========
Loss per share - basic $ (0.20) $ (0.02) $ (0.31) $ (0.03)
Loss per share - diluted $ (0.20) $ (0.02) $ (0.31) $ (0.03)
</TABLE>
See accompanying notes and accountants' review report
4
<PAGE>
MOBILE P.E.T. SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE THREE AND THE NINE MONTHS ENDED MARCH 31, 2000
AND THE THREE MONTHS ENDED MARCH 31, 1999
AND THE PERIOD DECEMBER 1, 1998 (DATE OF RECOMMENCEMENT) TO MARCH 31, 1999
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
SHARES AMOUNT SHARES AMOUNT
------ ----------- ----------- --------
<S> <C> <C> <C>
Balance - December 1, 1998 - $ - 10,328,395 $ 1,033
Reverse stock split: 50 - 1 (10,121,636) (1,012)
Common stock issued 3,937,899 393
------ ----------- ----------- --------
Balance immediately prior to acquisition 4,144,658 414
Common stock issued in acquisition 7,000,000 700
Net loss - December 1, 1998 to December 31, 1998
------ ----------- ----------- --------
Balance - December 31, 1998 11,144,658 1,114
Common stock issued through the
exercise of stock options 900,000 90
Common stock issued as compensation 100,000 10
Common stock subscribed through the exercise of options
Net loss - January 1, 1999 to March 31, 1999
------ ----------- ----------- --------
Balance - March 31, 1999 - - 12,144,658 1,214
Common stock issued through the
exercise of stock options 600,000 60
Common stock issued as compensation 100,000 11
Common stock subscribed, net of offering costs
Net loss - April 1, 1999 to June 30, 1999
------ ----------- ----------- --------
Balance - June 30, 1999 - - 12,844,658 1,285
Common stock issued from subscriptions
paid, net of offering costs 515,000 51
Net loss - July 1, 1999 to December 31, 1999
Foreign currency translation adjustment
------ ----------- ----------- --------
Balance - December 31, 1999 - - 13,359,658 1,336
Prior period adjustment - net effect of
the reclassification of certain leases
from operating leases to capital leases
------ ----------- ----------- --------
Balance - December 31, 1999, as adjusted - - 13,359,658 1,336
Common stock issued in private placement,
net of offering costs 1,550,000 155
Preferred stock issued in private placement,
net of offering costs 60 3,000,000
Net loss - January 1, 2000 to March 31, 2000
Foreign currency translation adjustment
------ ----------- ----------- --------
Balance - March 31, 2000 60 $ 3,000,000 14,909,658 $ 1,491
====== =========== =========== ========
<CAPTION>
ADDITIONAL
PAID IN ACCUMULATED TRANSLATION SHAREHOLDERS'
CAPITAL DEFICIT ADJUSTMENT EQUITY
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Balance - December 1, 1998 $ 825,803 $ (826,836) $ - $ -
Reverse stock split: 50 - 1 1,012 -
Common stock issued 98,053 98,446
----------- ------------ ------- -----------
Balance immediately prior to acquisition 924,868 (826,836) - 98,446
Common stock issued in acquisition (700) -
Net loss - December 1, 1998 to December 31, 1998 (34,426) (34,426)
----------- ------------ ------- -----------
Balance - December 31, 1998 924,168 (861,262) - 64,020
Common stock issued through the
exercise of stock options 899,910 900,000
Common stock issued as compensation 99,990 100,000
Common stock subscribed through the exercise of options 350,000 350,000
Net loss - January 1, 1999 to March 31, 1999 (251,675) - (251,675)
----------- ------------ ------- -----------
Balance - March 31, 1999 2,274,068 (1,112,937) - 1,162,345
Common stock issued through the
exercise of stock options 549,940 550,000
Common stock issued as compensation 149,989 150,000
Common stock subscribed, net of offering costs 1,572,001 1,572,001
Net loss - April 1, 1999 to June 30, 1999 (710,927) (710,927)
----------- ------------ ------- -----------
Balance - June 30, 1999 4,545,998 (1,823,864) - 2,723,419
Common stock issued from subscriptions
paid, net of offering costs 284,949 285,000
Net loss - July 1, 1999 to December 31, 1999 (1,411,936) - (1,411,936)
Foreign currency translation adjustment (3,450) (3,450)
----------- ------------ ------- -----------
Balance - December 31, 1999 4,830,947 (3,235,800) (3,450) 1,593,033
Prior period adjustment - net effect of
the reclassification of certain leases
from operating leases to capital leases (75,206) (75,206)
----------- ------------ ------- -----------
Balance - December 31, 1999, as adjusted 4,830,947 (3,311,006) (3,450) 1,517,827
Common stock issued in private placement,
net of offering costs 2,664,128 2,664,283
Preferred stock issued in private placement,
net of offering costs (300,000) 2,700,000
Net loss - January 1, 2000 to March 31, 2000 (1,574,207) - (1,547,207)
Foreign currency translation adjustment 5,806 5,806
----------- ------------ ------- -----------
Balance - March 31, 2000 $ 7,195,075 $ (4,885,213) $ 2,356 $ 5,313,709
=========== ============ ======= ===========
</TABLE>
See accompanying notes and accountants' review report
5
<PAGE>
MOBILE P.E.T. SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE THREE AND THE NINE MONTHS ENDED MARCH 31, 2000
AND THE THREE MONTHS ENDED MARCH 31, 1999
AND THE PERIOD DECEMBER 1, 1998 (DATE OF RECOMMENCEMENT) TO MARCH 31, 1999
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS DECEMBER 1,
--------------------------- ENDED 1998 TO
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
2000 1999 2000 1999
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(1,574,207) $ (251,675) $(3,061,349) $ (286,101)
Adjustments to reconcile net loss to net cash
used in operating activities
Prior period adjustment (40,311) - - -
Depreciation 72,043 841 230,487 841
(Increase) decrease in operating assets
Accounts receivables (140,500) - (386,725) -
Due from London Radiosurgical Centre, Ltd. (72,630) (24,699) (298,683) (24,699)
Prepaid expenses 13,330 (482) (66,430) (1,992)
Deposits and other assets (917,843) (245,000) (802,982) (395,000)
Restricted cash (112,634) (250,051) 34,512 (250,051)
Accrued interest receivable (35,559) - (35,559) -
Increase (decrease) in operating liabilities
Accounts payable 89,570 (17,420) 233,033 (5,744)
Accrued liabilities (49,353) 6,521 (54,452) 6,521
Deferred revenue (707) - 13,420 -
----------- ---------- ----------- ----------
Net cash used in operating activities (2,768,801) (781,965) (4,194,728) (956,225)
----------- ---------- ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (229,573) (32,472) (897,924) (32,472)
Proceeds from sale of equipment 273,148 - 552,539 -
Subordinated equity participation - (200,000) - (200,000)
----------- ---------- ----------- ----------
Net cash used in investing activities (43,575) (232,472) (345,385) (232,472)
----------- ---------- ----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from (repayment on) loan (56,834) (50,000) 50,000 -
Payments on obligations under capital lease (71,213) (83,078)
Preferred stock issued 2,700,000 - 2,700,000 -
Common stock issued 2,664,283 1,350,000 2,949,283 1,500,000
----------- ---------- ----------- ----------
Net cash provided by financing activities (5,236,236) 1,300,000 5,616,205 1,500,000
----------- ---------- ----------- ----------
Net increase in cash 2,511,010 285,563 1,076,092 311,303
Effect of exchange rate changes on cash 5,691 - (5,687) -
Cash - beginning of period 338,094 25,740 1,784,390 -
----------- ---------- ----------- ----------
Cash - end of period $ 2,854,795 $ 311,303 $ 2,854,795 $ 311,303
=========== ========== =========== ==========
SUPPLEMENTAL DISCLOSURES
Interest paid $ 84,344 $ - $ 211,302 $ -
Income taxes paid $ - $ 800 $ 1,600 $ 800
NON CASH INVESTING ACTIVITIES
Equipment under capital leases $ 3,206,539 $ - $ 4,835,929 $ -
NON CASH FINANCING ACTIVITIES
Obligations under capital lease $ 3,206,539 $ - $ 4,835,929 $ -
Preferred stock dividend - beneficial conversion feature $ 1,205,647 $ - $ 1,205,647 $ -
</TABLE>
See accompanying notes and accountants' review report
6
<PAGE>
MOBILE P.E.T. SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - THE COMPANY
Mobile P.E.T. Systems, Inc. (the "Company") and subsidiaries were organized
to provide Positron Emission Tomography (PET) systems and services to
hospitals and other health care providers on a mobile, shared user basis.
The Company's PET services include the provision of high technology imaging
systems, technologists to operate the imaging systems, the management of
day-to-day operations and educational and marketing support. The Company
has operations in the United States and the United Kingdom.
The Company had been in the development stage during the period December 1,
1998 (date of recommencement) to June 30, 1999.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany
transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash and cash equivalents.
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property and equipment are recorded at cost less depreciation and
amortization. Depreciation and amortization are accounted for on the
straight-line method based on estimated useful lives. The amortization of
leasehold improvements is based on the shorter of the lease term or the
life of the improvement. Betterments and large renewals, which extend the
life of an asset, are capitalized; whereas, maintenance and repairs and
small renewals are expensed as incurred.
FOREIGN CURRENCY TRANSLATION
The financial statements of all foreign subsidiaries were prepared in their
respective local currencies and translated into U.S. dollars based on the
current exchange rate at the end of the period for the balance sheet and a
weighted-average rate for the period on the statement of operations.
Translation adjustments are reflected as foreign currency translation
adjustments in shareholders' equity and accordingly have no effect on net
loss. Transaction adjustments for all foreign subsidiaries are included in
the statements of operation.
7
<PAGE>
MOBILE P.E.T. SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
INCOME TAXES
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." This statement
requires an asset and liability approach to account for income taxes. The
Company provides deferred income taxes for temporary differences that will
result in taxable or deductible amounts in future years based on the
reporting of certain costs in different periods for financial and income
tax purposes.
STOCK OPTION PLANS
The Company has adopted SFAS No. 123 "Accounting for Stock-Based
Compensation," which permits entities to recognize as expense over the
vesting period the fair value of all stock-based awards on the date of
grant. Alternatively, SFAS No. 123 also allows entities to continue to
apply the provisions of APB Opinion No. 25 "Accounting for Stock Issued to
Employees," and provide pro forma net income and pro forma earnings per
share disclosures for employee stock option grants as if the
fair-value-based method defined in SFAS No. 123 has been applied. The
Company has elected to apply the provisions of APB Opinion No. 25 and
provide the pro forma disclosure provisions of SFAS No. 123.
NOTE 3 - ACQUISITIONS
Mobile P.E.T. Systems, Inc. was incorporated in the State of Nevada on
December 1, 1998. On December 22, 1998, Mobile P.E.T Systems, Inc.'s
shareholders exchanged all of the 7,000,000 shares of outstanding common
stock for 7,000,000 shares of common stock in Colony International
Incorporated, prior to that named American Coin and Stamp, Inc.,
incorporated in the State of Delaware on August 21, 1995 and its wholly
owned subsidiary Colony International Incorporated, incorporated in the
State of Nevada on April 25, 1995. This exchange of shares has been
accounted for as a reverse merger, under the purchase method of accounting.
Accordingly, the combination of the Mobile P.E.T. Systems, Inc. and Colony
International Incorporated and subsidiary is recorded as a recapitalization
of the shareholders' equity of Mobile P.E.T. Systems, Inc., the surviving
corporation and for accounting purposes the financial statements presented
are those of Mobile P.E.T. Systems, Inc. Accordingly, pro-forma information
has not been presented. Mobile P.E.T Systems, Inc. reported no sales and a
net loss of $15,200 prior to the acquisition. The other individual
companies reported no net sales and no net income or loss prior to the
acquisition.
8
<PAGE>
MOBILE P.E.T. SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - ACQUISITIONS (Continued)
On December 10, 1999, the Company incorporated a wholly owned subsidiary,
The London P.E.T. Centre Limited, a United Kingdom private limited company.
On December 17, 1999 the Company incorporated two wholly owned
subsidiaries, Mobile P.E.T. Leasing Limited, a United Kingdom private
limited company and Mobile P.E.T. Systems (UK) Limited, a United Kingdom
private limited company.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment at March 31, 2000 and 1999 consist of the following:
<TABLE>
<CAPTION>
MARCH 31,
-------------------------------
2000 1999
-------------- ---------------
<S> <C> <C>
Leasehold improvements $ 212,743 $ --
Automobile 8,026 --
Computer equipment 152,885 11,694
Office furniture and fixtures 18,092 16,764
Office equipment 7,092 4,014
Equipment 4,255,617 --
-------------- ---------------
4,654,455 32,472
Less accumulated depreciation (216,058) (841)
-------------- ---------------
$ 4,438,397 $ 31,631
============== ===============
</TABLE>
Depreciation expense for the nine months ended March 31, 2000 and the
period December 1, 1998 (date of recommencement) to March 31, 1999 was
$230,487 and $841, respectively.
NOTE 5 - CAPITALIZATION
PREFERRED STOCK
On January 20, 2000, the Company authorized the issuance of ten million
(10,000,000) shares of preferred stock having one hundredth of a cent
($0.0001) par value per share. On March 1, 2000 the Company designated and
issued sixty (60) shares 8% Cumulative Convertible Redeemable Preferred,
Series A Stock for cash in the amount of $2,700,000, net of acquisition
fees. These shares of 8% Cumulative Convertible Redeemable Preferred,
Series A Stock have no voting rights, have a liquidation value of $50,000
per share, and accrue dividends at a rate of eight percent (8%) per annum
per share on the liquidation value payable upon conversion. The total
liquidation value of the shares outstanding at March 31, 2000 in the amount
of $3,000,000 is classified on the Company's balance sheet as preferred
stock. Cumulative preferred dividends are payable upon conversion and at
March 31, 2000 there are cumulative preferred dividends in arrears in the
amount of $20,000 or $333 per share. In the event of any liquidation,
dissolution or winding up of the affairs of the Company,
9
<PAGE>
MOBILE P.E.T. SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - CAPITALIZATION (Continued)
holders of the 8% Cumulative Convertible Redeemable Preferred, Series A
Stock shall be paid the liquidation value plus all accrued dividends at the
date of liquidation, dissolution or winding up of the affairs before any
payment to other shareholders. At the option of the holders, the 8%
Cumulative Convertible Redeemable Preferred, Series A Stock are convertible
into shares of common stock determined by dividing $50,000 by the
conversion price of the lesser of $5 or 75% of the average of the closing
bid price of common stock during the five (5) trading days immediately
prior to the conversion date. The Preferred Stock has an intrinsic value of
beneficial conversion feature of approximately $1,206,000.
COMMON STOCK
The Company has authorized the issuance of ninety million (90,000,000)
shares of common stock, having one hundredth of a cent ($0.0001) par value
per share. On December 1, 1998 (date of recommencement) the Company had
10,328,395 shares of common stock issued and outstanding. Prior to December
22, 1998 the Company authorized a 50 to 1 reverse stock split, leaving
206,759 shares (after adjustment for fractional shares). Immediately after
the reverse stock split the Company issued 3,937,899 shares for cash in the
amount of $98,446. On December 22, 1998 the Company acquired Mobile P.E.T.
Systems, Inc. in a non-cash, stock for stock transaction by issuing:
7,000,000 shares of the Company's stock in exchange for 7,000,000 shares of
Mobile P.E.T. Systems, Inc. common stock and subsequently changed its name
to Mobile P.E.T. Systems, Inc. On February 5, 1999 and May 12, 1999 the
Company issued common stock in non-cash transactions as follows: 200,000
shares in connection with employment valued at $250,000. During the period
January 21, 1999 to March 31, 2000 the Company issued additional shares of
common stock in cash transactions: 1,500,000 shares from the exercise of
stock options for cash in the amount of $1,800,000, and 2,065,000 shares
for cash in the amount of $4,521,284.
STOCK OPTIONS
In December 1998 the Board of Directors authorized the issuance of stock
options to purchase 1,500,000 shares of common stock at a price from $1.00
to $1.50 per share. The options were exercised prior to March 31, 2000.
During the nine month period ended March 31, 2000 and the period December
1, 1998 (date of recommencement) to March 31, 1999, the Company did not
recognize any compensation expense.
The Company and subsidiaries' Board of Directors adopted the 1999 Stock
Option Plan pursuant to which incentive stock options or nonstatutory stock
options to purchase up to 4,000,000 shares of common stock may be granted
to employees, directors and consultants. Stock options expire on June 30,
2002, with some options extending to 2004 and vesting over service periods
that range from zero to four years. During the nine month period ended
March 31, 2000 and the period December 1, 1998 (date of recommencement) to
March 31, 1999, the Company did not recognize any compensation expense.
10
<PAGE>
MOBILE P.E.T. SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - CAPITALIZATION (Continued)
As of March 31, 2000, the Company has granted options to purchase 3,668,500
shares of common stock as follows:
<TABLE>
<CAPTION>
Number of Vested
Exercise Price Shares Shares
-------------- ----------------- -----------------
<S> <C> <C> <C>
Outstanding, November 30, 1998 -- --
Granted $1.00 - $4.50 1,820,000 1,325,000
Fair Value
Exercised $1.00 (900,000) (900,000)
Cancelled -- --
------------------ -----------------
Outstanding, March 31, 1999 920,000 425,000
Granted $1.00 - $2.50 1,415,000 1,150,000
Fair Value
Exercised $1.50 (600,000) (600,000)
Cancelled -- --
------------------ -----------------
Outstanding, June 30, 1999 1,735,000 975,000
Granted $1.00 - $5.12 284,000 175,000
Fair Value
Exercised -- --
Cancelled (200,000) --
------------------ -----------------
Outstanding, September 30, 1999 1,819,000 1,150,000
Granted $1.90 - $2.00 115,000 334,000
Fair Value
Exercised -- --
Cancelled -- --
------------------ -----------------
Outstanding, December 31, 1999 1,934,000 1,484,000
Granted $1.62 - $6.00 1,734,500 115,000
Fair Value
Exercised -- --
Cancelled -- --
------------------ -----------------
Outstanding, March 31, 2000 3,668,500 1,599,000
================== =================
</TABLE>
11
<PAGE>
MOBILE P.E.T. SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - CAPITALIZATION (Continued)
The Company accounts for stock-based compensation using the intrinsic value
method prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," under which no compensation
cost for stock options is recognized for the stock option awards granted at
or above fair market value. During the nine month period ended March 31,
2000 and the period December 1, 1998 (date of recommencement) to March 31,
1999, the Company did not recognize any compensation expense. Had
compensation expense for the Company's 1999 Stock Option Plan been
determined based upon fair values at the grant dates for awards under the
plan in accordance with SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company's net loss and loss per share would have been
increased to the pro forma amounts indicated below. Additional stock option
awards are anticipated in future years.
<TABLE>
<CAPTION>
MARCH 31,
-------------------------------
2000 1999
--------------- -------------
<S> <C> <C>
Net loss
As reported $ (3,061,349) $ (286,101)
Pro forma (4,867,277) (1,010,706)
Net loss - available to common shareholders
As reported $ (4,266,996) $ (286,101)
Pro forma (6,072,924) (1,010,706)
Loss per share
As reported (0.31) (0.03)
Pro forma (0.45) (0.10)
</TABLE>
WARRANTS
At March 31, 2000 and 1999 warrants were outstanding for 606,500 and
180,000 shares of common stock at exercise prices between $1.75 and
$5.00 per share and the average of the last reported sale price of the
common stock for the five trading days preceding the issue date. These
warrants expire between January 2001 and March 2004.
12
<PAGE>
MOBILE P.E.T. SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - RELATED PARTY TRANSACTIONS
SUBORDINATED EQUITY PARTICIPATION
The Company carries an 8% interest in a subordinated equity participation
in London Radiosurgical Centre Ltd (LRC), a foreign corporation with a
common shareholder, officer and director. The subordinated equity
participation is recorded at cost in the amount of $200,000. The agreement
provides distributions of cash, if any, including interest at a rate of 15%
per annum, up to the amount of the investment plus accrued interest, after
which the Company is to receive distributions of 60% of net income.
According to the terms of the participation agreement, net income for
distribution is equal to net income less equipment financing payments,
operating expenses, reserve capital and taxes. Accrued interest on the
investment was $35,559 and $0 at March 31, 2000 and March 31, 1999,
respectively
DUE FROM LONDON RADIOSURGICAL CENTRE LTD
During the nine month period ended March 31, 2000 and the period December
1, 1998 (date of recommencement) to March 31, 1999, the Company advanced
without interest $298,683 and $24,699, respectively to LRC for working
capital during LRC's start up period. At March 31, 2000, and 1999 the
balance due from London Radiosurgical Centre Ltd was $328,654 and $24,699,
respectively.
CONSULTING AGREEMENTS
The Company has several consulting agreements for management services. In
addition to cash payments, several agreements provide for the Company to
issue common stock and options to purchase common stock in non-cash
transactions for current and future consulting services. During the nine
month period ended March 31, 2000 and the period December 1, 1998 (date of
recommencement) to March 31, 1999, the Company made cash payments of $0 and
$66,000, respectively for such services.
LOAN
In December 1998, the Company received a non-interest bearing bridge loan
from a shareholder in the amount of $50,000. The balance was repaid in
January 1999.
In December 1999, the Company received a non-interest bearing bridge loan
from a shareholder in the amount of $50,000. The balance was repaid in
April 2000.
13
<PAGE>
MOBILE P.E.T. SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - SECURITIES PURCHASE AGREEMENT
On March 1, 2000, the Company entered into a Securities Purchase Agreement.
As part of the Agreement, the Company issued 60 shares of 8% Cumulative
Convertible Redeemable Preferred, Series A Stock for cash in the amount of
$2,700,000, net of acquisition fees and 120,000 warrants to purchase shares
of common stock at an exercise price of $5.00 per share, which expire in
March 2003. The buyer of the preferred stock unconditionally and
irrevocably agreed to purchase shares of common stock of the Company in
tranches, for an aggregate purchase price of up to $10,000,000, at a price
equal to eighty five percent (85%) of the average closing bid price five
(5) consecutive days immediately prior to the Company providing a tranche
notice to the buyer. The Company may begin the tranche notices three (3)
business days after the registration of both the 8% Cumulative Convertible
Redeemable Preferred, Series A Stock and warrants, and the common stock
described in this Agreement. The buyers obligations under this Agreement to
purchase shares of common stock of the Company terminates in the event the
required registration is not completed within four (4) months from the date
of this agreement or under certain other conditions, including the sale of
common stock or securities convertible into shares of common stock by the
Company within one hundred eighty (180) days of the date of registration.
NOTE 8 - EMPLOYMENT AGREEMENTS
The Company has employment and compensation agreements with key officers
and employees of the Company. The agreements provide options to purchase
shares of the Company's common stock.
An agreement, beginning January 1, 1999 and ending December 31, 2004
provides an annual salary, with adjustments contingent on the Company's
stock performance, payable over the five year term of the agreement, which
in the event of termination may result in a lump sum payment of the net
present value of the remaining salary then due under the agreement. In
addition, beginning in calendar year 2000 the agreement provides for the
issuance of options for the purchase of up to 500,000 shares of common
stock, contingent on the Company's stock performance.
An agreement, beginning September 1999 and ending September 2000 provides
an annual salary. In addition, the agreement provides for the issuance of
an option for the purchase of up to 15,000 shares of common stock,
contingent on performance.
Two agreements, beginning September 1999 and ending September 2000 provide
an annual salary, plus commission. In addition, the agreements provide for
the issuance of an option for the purchase of up to 50,000 shares of common
stock, and for the issuance of additional options for the purchase of up to
50,000 shares of common stock annually, contingent on performance.
An agreement, beginning September 1999 and ending September 2000 provides
an annual salary, plus commission. In addition, the agreement provides for
the issuance of an option for the purchase of up to 50,000 shares of common
stock, and for the issuance of additional
14
<PAGE>
MOBILE P.E.T. SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - EMPLOYMENT AGREEMENTS (Continued)
options for the purchase of up to 50,000 shares of common stock annually
for three years, contingent on performance.
An agreement, beginning September 1999 and ending September 2000 provides
an annual salary, plus commission. In addition, the agreement provides for
the issuance of an option for the purchase of up to 100,000 shares of
common stock, and for the issuance of additional options for the purchase
of up to 75,000 shares of common stock, contingent on performance.
An agreement, beginning September 1999 and ending September 2000 provides
an annual salary, plus commission. In addition, the agreement provides for
the issuance of an option for the purchase of up to 50,000 shares of common
stock, contingent on performance.
NOTE 9 - INCOME TAXES
At March 31, 2000 the Company has a net operating loss carryforward for tax
purposes of approximately $2,601,000 which expires through the year 2019.
The Internal Revenue Code contains provisions, which may limit the loss
carryforward available if significant changes in shareholder ownership of
the Company occur.
The components of the provision for income taxes for the nine months ended
March 31, 2000 and the period December 1, 1998 (date of recommencement) to
March 31, 1999 are as follows:
<TABLE>
<CAPTION>
MARCH 31,
--------------------------
2000 1999
---------- ----------
<S> <C> <C>
Current
Foreign $ -- $ --
Federal -- --
State 1,600 800
---------- ----------
1,600 800
Deferred
Foreign -- --
Federal -- --
State -- --
---------- ----------
-- --
---------- ----------
Provision for income taxes $ 1,600 $ 800
========== ==========
</TABLE>
15
<PAGE>
MOBILE P.E.T. SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - INCOME TAXES (Continued)
The components of the net deferred tax assets were as follows:
<TABLE>
<CAPTION>
MARCH 31,
----------------------------------
2000 1999
-------------- --------------
<S> <C> <C>
Deferred tax assets
Start-up costs $ 155,949 $ 113,136
Net operating loss carryforward 978,985 --
-------------- --------------
1,134,934 113,136
Less valuation allowance (1,134,934) (113,136)
-------------- --------------
Net deferred tax assets $ -- $ --
============== ==============
</TABLE>
NOTE 10 - COMMITMENTS
In July 1999, the Company purchased a mobile coach for cash in the amount
of $279,390. In December 1999, the Company sold the mobile coach to a
leasing company for cash in the amount of $279,390 and entered into a
five-year capital lease.
In February 2000, the Company purchased a mobile coach for cash in the
amount of $273,149. In March 2000, the Company sold the mobile coach to a
leasing company for cash in the amount of $273,149 and entered into a
five-year capital lease.
Equipment under capital lease is included in property and equipment as
follows:
<TABLE>
<CAPTION>
MARCH 31,
-------------------------------------
2000 1999
----------------- ------------------
<S> <C> <C>
Equipment $ 4,255,617 $ --
Less accumulated amortization (199,859) --
----------------- ------------------
Net capital lease assets $ 4,055,758 $ --
================= ==================
</TABLE>
In December 1999 the Company entered into a capital lease with a leasing
company for an imaging system having a cost of approximately $2,094,000.
As of May 8, 2000 the Company has not accepted delivery of the imaging
system.
The Company leases office space under a non-cancelable operating lease. The
office lease expires in December 2000. The Company leases certain other PET
equipment under operating leases. The equipment leases expire through
December 2004.
Rent expense for the nine months ended March 31, 2000 and the period
December 1, 1998 (date of recommencement) to March 31, 1999 was $30,998
and $12,580, respectively.
16
<PAGE>
MOBILE P.E.T. SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - COMMITMENTS (Continued)
The following is a schedule by year (ending December 31) of the future
minimum lease payments at March 31, 2000:
Capital Operating
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR LEASE LEASES
---- ------------------ ---------------
<S> <C> <C>
2000 $ 746,966 $ 21,564
2001 1,285,474 --
2002 1,285,474 --
2003 1,285,474 --
2004 1,104,876 --
2005 110,010 --
------------------ ---------------
5,818,274 $ 21,564
===============
Less amount representing
interest at 12.07% (1,644,718)
------------------
Present value of minimum lease
payments (including current
portion of $625,166) $ 4,173,556
==================
</TABLE>
In December 1998, the Company made a purchase commitment for five mobile
PET scanners at a cost of between $1,515,000 to $1,615,000 each for a total
amount of $7,725,000. At March 31, 2000, the Company satisfied their
commitment on 3 of 5 units through lease agreements and the Company expects
to satisfy their commitment on the remaining 2 units in 2000.
NOTE 11 - CONCENTRATION OF CREDIT RISK
The Company maintains cash with various major financial institutions in
excess of the Federal Deposit Insurance Corporation limits.
17
<PAGE>
MOBILE P.E.T. SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - EARNINGS (LOSS) PER SHARE
The computations of basic and diluted earnings per share from continuing
operations for the nine months ended March 31, 2000 and the period December
1, 1998 (date of recommencement) to March 31, 1999 were as follows:
<TABLE>
<CAPTION>
MARCH 31,
-------------------------------------
2000 1999
----------------- ------------------
<S> <C> <C>
Loss per share - basic
Numerator:
Net loss - available to
Common shareholders $ (4,266,996) $ (286,101)
Denominator:
Weighted-average shares 13,568,694 10,463,353
----------------- ------------------
Loss per share - basic $ (.31) $ (0.03)
================ =================
Loss per share - diluted
Numerator:
Net loss - available to
Common shareholders $ (4,266,996) $ (286,101)
Denominator:
Weighted-average shares 13,568,694 10,463,353
----------------- ------------------
Loss per share - diluted $ (.31) $ (0.03)
================ =================
</TABLE>
The average shares listed below were not included in the computation of
diluted loss per share because to do so would have been antidilutive for
the nine months ended March 31, 2000 and the period December 1, 1998 (date
of recommencement) to March 31, 1999:
<TABLE>
<CAPTION>
MARCH 31,
-------------------------------------
2000 1999
----------------- ------------------
<S> <C> <C>
Cumulative convertible
redeemable preferred stock
common stock equivalent 76,007 --
Employee stock options 2,157,791 516,923
Warrants 97,038 --
</TABLE>
NOTE 13 - DEPOSITS AND OTHER ASSETS
Deposits and other assets consist of the following at March 31, 2000 and
1999:
<TABLE>
<CAPTION>
2000 1999
----------------- ------------------
<S> <C> <C>
Equipment deposits -
Mobile P.E.T. Units $ 1,073,875 $ 395,000
Equipment rental deposits -
other 49,000 --
Lease deposits 179,249 --
Advance - Neuromed
Medical Systems and
Support, GmB 25,000 --
Advances - other 27,150 --
----------------- ------------------
$ 1,354,274 $ 395,000
================= ==================
</TABLE>
NOTE 14 - PRIOR QUARTER ADJUSTMENTS
The March 31, 2000 financial statements have been restated to correct an
error in the application of generally accepted accounting principles. Certain
leases previously reported as operating leases have been recorded as capital
leases in accordance with Financial Accounting Standards Board Statement No.
13 - ACCOUNTING FOR LEASES. The effect of the restatement is as follows:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED MARCH 31, 2000 AS PREVIOUSLY REPORTED AS RESTATED
--------------------------------------------------------------------------------------------
<S> <C> <C>
Property and equipment, net $ 925,200 $ 4,438,397
Obligations under capital lease 552,309 4,173,556
Accumulated deficit 4,777,163 4,885,213
Net loss (2,953,299) (3,061,349)
Net loss-available to
common shareholders' (4,158,946) (4,266,996)
Loss per share - basic (.31) (.31)
Loss per share - diluted (.31) (.31)
</TABLE>
18
<PAGE>
MOBILE P.E.T. SYSTEMS, INC. AND SUBSIDIARIES
For the quarter and nine months ended March 31, 2000
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS OF OUR FINANCIAL CONDITION AND RESULTS OF
OPERATIONS SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS AND THE
RELATED NOTES. THIS QUARTERLY REPORT OF FORM 10-QSB CONTAINS FORWARD-LOOKING
STATEMENTS BASED UPON CURRENT EXPECTATIONS THAT INVOLVE RISKS AND UNCERTAINTIES,
SUCH AS OUR PLANS, OBJECTIVES, EXPECTATIONS AND INTENTIONS. FOR THIS PURPOSE,
ANY STATEMENTS CONTAINED IN IT THAT ARE NOT STATEMENTS OF HISTORICAL FACT SHOULD
BE REGARDED AS FORWARD-LOOKING STATEMENTS. FOR EXAMPLE, THE WORDS "BELIEVES,"
"ANTICIPATES," "PLANS," AND "EXPECTS" ARE INTENDED TO IDENTIFY FORWARD-LOOKING
STATEMENTS. THESE FACTORS INCLUDE THOSE SHOWN IN THE COMPANY'S 1999 AMENDMENT
NO. 3 TO FORM 10-SB.
OVERVIEW
Mobile P.E.T. Systems, Inc. and Subsidiaries (referred to as either "Mobile PET"
or the "Company") is a provider of Positron Emission Tomography (PET) systems
and services to hospitals and other health care providers on a mobile, shared
user basis. The Company's PET services include the provision of high technology
imaging systems, technologists to operate the imaging systems, the management of
day-to-day operations and educational and marketing support. Our services enable
leading as well as small to mid-size hospitals to gain access to advanced
diagnostic imaging technology and related value-added services without making a
substantial investment in equipment and personal.
The Company has operations in the United States and the United Kingdom. On
December 10, 1999, the Company incorporated a wholly owned subsidiary, The
London P.E.T. Centre Limited, a United Kingdom private limited company. On
December 17, 1999 the Company incorporated two wholly owned subsidiaries, Mobile
P.E.T. Leasing Limited, a United Kingdom private limited company and Mobile
P.E.T. Systems (UK) Limited, a United Kingdom private limited company. The
Company believes there are opportunities for shared mobile PET services in the
United Kingdom and certain European markets.
The financial position and results of operations of the Company's United Kingdom
subsidiaries are measured using local currency as the functional currency.
Assets and liabilities have been translated into U.S. dollars at the rates of
exchange at the balance sheet date. Statements of operations items are
translated using the average exchange rates prevailing throughout the reporting
period. Translation gains or losses resulting from the changes in the exchange
rates from quarter-to-quarter are accumulated in a separate component of
shareholders' equity. Transaction gains and losses are reflected in the cash
flow as the effect of exchange rate changes on cash.
The Company has emerged from its development stage period with the generation
of revenues from its mobile PET systems in the nine months ended March 31,
2000. The Company continues its efforts in the development of its
organizational activities, infrastructure development, raising capital,
marketing efforts, and placing additional mobile PET systems into service.
For the period from our inception through our fiscal year end, June 30,1999,
we had no revenues and our operating activities related primarily to
establishing the management and operating infrastructure
19
<PAGE>
to provide PET systems and services to hospitals and other health care providers
on a mobile, shared user basis. The London P.E.T. Centre Limited, the Company's
wholly owned United Kingdom subsidiary, is in the development stage and its
efforts through the third quarter ended March 31, 2000 has been principally
devoted to organizational activities, marketing efforts and placing the first
fixed site PET system into service in London.
Management anticipates incurring substantial additional losses as it pursues its
development efforts. The majority of our service revenues were generated in the
nine-month period reflecting the initial operation of three mobile PET systems.
We took delivery and placed our first mobile PET unit into service in July 1999
and began accruing revenues in August 1999. While we took delivery of the second
PET unit in the second quarter, we used it for promotional activities and placed
it into service in late December. During the third quarter ended March 31, 2000,
we placed our third unit into service and began accruing revenues on this unit
in late February 2000.
Our future revenues will principally be a function of the number of mobile units
in service, scan volumes and fees per scan. We generate substantially all of our
revenues from exclusive five-year contracts with hospitals and health care
providers. Our contracts offer tiered pricing which may include lower fees per
scan on incremental scans, allowing hospitals and other health care customers to
benefit from increased scan volumes and provide us with the opportunity to
benefit from operating leverage that may be associated with increased scan
volumes.
The principal component of our operating costs includes salaries paid to
technologists and drivers, annual system maintenance costs, insurance and
transportation costs. Because a majority of these are fixed, increased revenues
as a result of higher scan volumes may significantly improve our future
profitability potential while lower scan volumes may result in lower
profitability.
Since inception, we have incurred significant losses and, as of March 31,
2000, we have incurred cumulative net losses of $4,885,213. We expect to
experience operating losses and negative cash flow from operations for the
foreseeable future. We anticipate our losses may increase significantly from
current levels as we incur additional costs and expenses related to staffing,
infrastructure development, marketing and sales activities and other capital
expenditures. As a result, we will need to generate significant revenues to
achieve and maintain profitability.
In the third quarter, ended March 31, 2000, the Company raised approximately
$5.5 million dollars, net of issuance costs, of new equity capital through the
issuance of common and preferred stock in domestic and international private
placements. The Company increased its authorized shares of stock, with a par
value of $0.0001 per share, to 100,000,000 with 10,000,000 authorized for
Preferred Stock and 90,000,000 authorized for Common Stock. During the quarter
ended March 31, 2000, the Company designated and issued sixty shares of
cumulative convertible redeemable preferred stock for $3,000,000 and 120,000
warrants to purchase shares of common stock at an exercise price of $5 per
share. These shares have no voting rights, have a liquidation value of $50,000
per share, and accrue dividends at a rate of 8% on the liquidation value payable
upon conversion. The investor of the preferred stock agreed to purchase shares
of common stock of the Company in tranches, for an aggregate purchase price up
to $10,000,000, approximating eighty five percent of the average closing bid
price of the five prior days.
We have a limited operating history on which to base an evaluation of our
business and prospects. You must consider our prospects in light of the risks,
expenses and difficulties frequently encountered by companies in their early
stage of development. To address these risks, we must establish, maintain and
expand our customer base, implement and successfully execute our
20
<PAGE>
business and marketing strategy, provide superior customer service, anticipate
and respond to competitive developments and attract, retain and motivate
qualified personnel. We cannot assure you that we will be successful in
addressing these risks, and our failure to do so could have a negative impact on
our business, operating results and financial condition.
RESULTS OF OPERATIONS
Any comparison of the results of our operations to any previous period is not
necessarily relevant nor meaningful, as we recommenced the Company and started
our current mobile PET operations as of December 1, 1998. Our fiscal reporting
year-end is June 30. Comparisons to prior year financial information are for the
quarter ended March 31, 1999 and for the four-month period December 1, 1998
through March 31, 1999.
FOR THE THREE MONTHS ENDED MARCH 31, 2000
The net loss from operations was $1,541,400 and the net loss available to
common shareholders, after preferred stock dividend, was $2,779,900 or $.20
per share for the three months ended March 31, 2000, compared to the net loss
of $251,700 or $.02 per share for the three months ended March 31, 1999.
The revenues were $326,900 for the three months ended March 31, 2000.
There were no comparable revenues for the quarter ended March 31, 1999. We
took delivery and placed our first PET unit into service in July 1999 but did
not begin accruing revenues until August 1999. Our second unit was placed in
operation in late December and our third unit was placed into service in late
February 2000. As a result of these activities, accounts receivables
increased to $386,700, net of allowances for doubtful accounts, as of March
31, 2000. There were no comparable receivables for the prior period ended
March 31, 1999.
The costs of service revenues include payroll expenses of technologists,
drivers and a safety officer, system maintenance costs, vehicle insurance,
transportation costs, and the lease payments on our mobile PET system. In the
three months ended March 31, 2000, cost of service revenues approximated
$351,800, exceeding our revenues by 8% as we hired additional technologists
and drivers to staff our current units as well as in anticipation of future
mobile PET route growth. There was no comparable cost of service revenues for
the quarter ended March 31, 1999.
General and administrative expenses for the three months ended March 31, 2000
were $1,456,500 as compared to $250,900 for the three months ended March
31, 1999. This represents expenditures for our continued efforts in establishing
a national sales force, creating and executing a sales and marketing strategy
directed to potential hospital and health care providers, and building our
management and operations infrastructure to manage future growth opportunities.
Interest income was $46,200 for the quarter ended March 31, 2000 and there
was no material comparable interest income for the quarter ended March 31,
1999. The interest income was principally the result of accumulated year to
date accrued interest of $35,600 on the $200,000 8% Subordinated Equity
Participation Agreement and with the balance from the invested funds received
from the Preferred Stock private placement on March 1, 2000.
21
<PAGE>
FOR THE NINE MONTHS ENDED MARCH 31, 2000
The net loss from operations was $2,853,100 and the net loss available
to common shareholders, after preferred stock dividend, was $4,267,000
or $.31 per share for the nine months ended March 31, 2000, compared to the net
loss of $286,100 or $.03 per share for the four months ended March
31, 1999.
The revenues were $623,800 for the nine months ended March 31, 2000.
There were no comparable revenues for the four-month period ended March 31,
1999. The majority of our service revenues were generated in the nine-month
period reflecting the initial operation of three mobile PET systems. We took
delivery and placed our first PET unit into service in July 1999 and began
accruing revenues in August 1999. Our second unit was placed in operation in
late December 1999 and our third unit was placed into service in late February
2000. As a result of these activities, accounts receivables increased to
$386,700, net of allowances for doubtful accounts, as of March 31, 2000.
There were no comparable receivables for the prior period ended March 31,
1999.
Our cost of service revenues for the nine months ended March 31, 2000 was
approximately $584,300 or 94% of total service revenues. The costs of service
revenues represent salaries paid to technologists and drivers, annual system
maintenance costs, insurance, transportation costs and the lease payments on
our mobile PET system. There was no comparable cost of service revenues for
the four months ended March 31, 1999.
General and administrative expenses for the nine months ended March 31, 2000
were $2,892,600 as compared to $285,400 for the four months ended March
31, 1999. We incurred increased general and administrative expenses due
primarily to the growth in staff and related expenses incurred in building our
infrastructure, and increase advertising and marketing costs related to the
introduction of our mobile PET services.
Interest income was $55,500 for the nine months ended March 31, 2000 and
there was no material comparable interest income for the period ended March
31, 1999. The interest income was the result of year to date accrued interest
of $35,600 on the $200,000, 8% Subordinated Equity Participation Agreement
and with the balance from the invested funds received from the Preferred
Stock private placement on March 1, 2000.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2000, our total assets were $9,900,700 , compared to $1,214,700
at March 31, 1999. Current assets at March 31, 2000 totaled $5,008,900 and
current liabilities were $1,025,200, as compared to March 31, 1999 statements
which reflected current assets of $733,000 and current liabilities of
$52,300. Shareholders' equity at March 31, 2000 increased to $5,313,700 from
$1,162,300, due primarily to the issuance of 2,065,000 additional shares of
common stock in the nine month period of $2,949,300; the private placement
and issuance of 60 shares of Series A Convertible Preferred Stock in the
amount of $2,700,000, net of issuance costs; and a net loss of $2,953,300
incurred in the nine-month period ended March 31, 2000.
The foreign currency translation adjustment in Shareholders' equity amounted
to $2,400 at March 31, 2000 and there was no comparable adjustment at March
31, 1999. Transaction gains and losses are reflected in the cash flow as the
effect of exchange rate changes on cash and was $5,700 for the quarter ended
March 31, 2000.
22
<PAGE>
Net cash used in investing activities for the nine months ended March 31,
2000 was $332,500 compared to $232,500 in the prior period ended March 31,
1999. In July 1999, we purchased a coach, for $273,400 and made a deposit of
$637,500 for our second mobile PET system. We sold it to a leasing company in
late December 1999, as part of a five year lease agreement, resulting in a
financing lease. In March 2000, we entered into a similar arrangement as part
of the five-year lease agreement with the same leasing company for our third
mobile PET system, we purchased the trailer for $273,100 and sold it to the
leasing company, resulting in a financing lease. In the nine months ended
March 31, 1999, our net cash used in investing activities, $232,500 , was
principally our investment in a $200,000, 8% Subordinated Equity
Participation Agreement in London Radiosurgical Center, Ltd., of which we
have accrued $35,600 of interest income recognized in the quarter ended March
31, 2000.
Net cash provided by financing activities for the nine months ended March 31,
2000 was $5,616,200, due to the issuance of 2,065,000 additional shares of
common stock in the nine month period of $2,979,300; the private placement
and issuance of 60 shares of Series A Convertible Preferred Stock in the
amount of $3,000,000; and the proceeds from a $50,000 bridge financing. This
compares to the prior period ended March 31, 1999 when 1,350,000 shares of
common stock was subscribed and 1,000,000 shares issued, totaling $1,350,000.
We have experienced a substantial increase in our capital expenditures since our
inception, consistent with our growth in operations and staffing, and we
anticipate that this will continue for the foreseeable future. Additionally, we
continue to evaluate business investments, geographic service expansion and
service offerings. We cannot be certain that the underlying assumed levels of
revenues and expenses will prove to be accurate. While we do not have any
binding commitments for any additional funding, we may seek to obtain additional
funding through public or private financings or other arrangements. If we are
unable to obtain such funding or any such funding is insufficient, we may be
unable to develop or enhance our services, take advantage of business
opportunities or respond to competitive pressures, any of which could have a
materially adverse impact on our business, operating results and financial
condition.
23
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 10.1, Lease between the Company and Finova Capital
Corporation dated March 17, 2000 *
10.2, Master Hire Purchase Agreement dated December 16, 1999 *
10.3, Office Space Lease Agreement dated January 1, 1999 *
Exhibit 15, Letter of Peterson & Co. regarding unaudited interim
financial information *
Exhibit 27, Financial Data Schedule
(b) Reports on Form 8-K
None
-------------
* Previously Filed
24
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MOBILE P.E.T. SYSTEMS, INC.
Date: August 23, 2000 By: /s/ Thomas G. Brown
---------------------------------------
Thomas G. Brown, Chief Financial Officer
25