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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO.2 TO
FORM 10-SB
GENERAL FORM OF REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS
UNDER SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
MOBILE P.E.T. SYSTEMS, INC.
(Name of Small Business Issuer in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
11-2787966
(I.R.S. Employer Identification No.)
2240 SHELTER ISLAND DRIVE #205
SAN DIEGO, CALIFORNIA 92106
(Address of principal executive offices) (Zip Code)
(619) 226-6738
(Issuer's telephone number)
Securities to be registered under Section 12(b) of the Act:
Title of each class to be Name of each exchange on which
so registered each class is to be registered
None None
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Securities to be registered under Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $0.0001
(Title of Class)
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DESCRIPTION OF BUSINESS
OVERVIEW
Mobile P.E.T. Systems, Inc. is a medical service provider operating
mobile Positron Emission Tomography ("PET") imaging systems in selected
marketplaces in the United States and Europe. PET imaging systems produce
images of the body that represent the metabolic characteristics of tissues
rather than anatomical information, providing for the earliest detection of
many abnormalities that are undetected with conventional x-ray, Computerized
Axial Tomography ("CT"), or Magnetic Resonance Imaging ("MRI") imaging
systems. PET effectively detects many cancers, cardiac and neurological
disorders at their earliest stages which influences patients' treatment
options and eliminates redundant testing, hospitalization or non-beneficial
treatment procedures.
We provide the PET imaging system housed in a mobile coach. We also
provide the technical personnel who operate the equipment and implement the
PET procedure under the direction of hospital physicians. Our contracted
services provide hospitals, which do not have high patient volumes to
purchase or support a dedicated PET system, access to this advanced
diagnostic imaging technology and the related patient benefits.
We are filing this registration statement on a voluntary basis. We
intend to provide an annual report to our security holders, and to make
quarterly reports available for inspection by our security holders. The
annual report will include audited financial statements.
We are subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") which requires us to file reports,
proxy statements and other information with the Securities and Exchange
Commission. Such reports, proxy statements and other information may be
inspected at public reference facilities of the SEC at Judiciary Plaza, 450
Fifth Street N.W., Washington D.C. 20549; Northwest Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661; 7 World Trade Center,
New York, New York, 10048; and 5670 Wilshire Boulevard, Los Angeles,
California 90036. Copies of such material can be obtained from the Public
Reference Section of the SEC at Judiciary Plaza, 450 Fifth Street N.W.,
Washington, D.C. 20549 at prescribed rates. Because we file documents
electronically with the SEC, you may also obtain this information by visiting
the SEC's Internet web site at http://www.sec.gov.
OUR CORPORATE HISTORY
Mobile P.E.T. Systems, Inc. was originally formed as a Nevada
corporation in December 1998 ("Mobile Nevada"). Soon after its formation,
Mobile Nevada's founders (who are now our majority shareholders) decided that
Mobile Nevada should be acquired by a publicly traded corporation in order to
achieve the following goals:
- To create an active trading market for its common stock and
provide increased liquidity for its shareholders;
- To begin filing periodic reports with the SEC and thereby achieve
greater recognition in the financial markets and the media; and
- To provide increased capital access in order to execute the
Company's business plan and sustain continued growth.
Mobile Nevada was acquired by Colony International Corporation
("Colony Delaware") in January 1999. Colony Delaware's predecessor, American
Coin & Stamp Ventures, Inc. ("American"), was formed as a Delaware
corporation in August 1985. American supplied various editorial and
advertising services to publishers. In 1986, American made an initial public
offering of its stock. Its shares were thereafter publicly traded under the
trading symbol "ACSV." In January 1997, American sold its business to its
existing management and conducted a reverse split of its stock on a 1:19.926
basis, leaving 491,311 shares of common stock outstanding.
American then acquired Colony International Incorporated, a
corporation formed in Nevada in April 1995 ("Colony Nevada"). Colony Nevada
was a development stage company which intended to manufacture and distribute
a technologically advanced solid waste management system. American acquired
Colony Nevada by exchanging 8,200,000 newly issued shares of American common
stock for the 901,986 shares of Colony Nevada common stock then outstanding.
American also issued 1,300,000 shares of its newly issued common stock to the
following consultants who assisted in the acquisition: Olympic Capital Group,
Inc., Suppes Securities, John B. Lowy, Bradley Berman, Anna Herbst, Alexander
Michie, Brian Hauff and Gary Newman. Once the acquisition was completed,
American officially changed its corporate name to Colony International
Incorporated ("Colony Delaware") and its trading symbol to "CIIA." After the
acquisition, American's former shareholders held approximately 5% of the
shares of Colony Delaware, and Colony Nevada's former shareholders (and the
consultants named above) held approximately 95% of the shares of Colony
Delaware.
In December 1998, Colony Delaware transferred its business to Brian
Hauff, its sole officer and director. Colony Delaware then reverse split its
shares on a 1:50 basis. Colony Delaware then acquired Mobile Nevada by
exchanging 7,000,000 newly issued shares of Colony Delaware common stock for
the 7,000,000 shares of Mobile Nevada common stock then outstanding. Once the
acquisition was completed, Colony Delaware changed its corporate name to
Mobile P.E.T. Systems, Inc. and its trading symbol to "MBPT," and officially
became the corporation we are now. After the acquisition, Colony Delaware's
former shareholders held approximately 37% of our shares, and Mobile Nevada's
former shareholders held 63% of our shares.
We still own all of the shares of Colony Nevada and Mobile Nevada. We
have begun the process of dissolving these two corporations, and intend to
complete the dissolutions within sixty days.
In December 1999, we formed two wholly-owned subsidiaries as limited
companies in the United Kingdom, under the names "Mobile P.E.T. Leasing Ltd."
and "London P.E.T. Centre Ltd."
ABOUT OUR INDUSTRY
The diagnostic imaging industry generates annual revenues in excess
of $50 billion in the United States, or approximately 5% to 6% of total
health care spending. There are at present approximately 160 PET systems in
the United States, including approximately 130 hospital-owned systems, 20
independent fixed site systems and 10 mobile units. By comparison, in 1998
there were approximately 4,000 MRI systems in the United States consisting of
approximately 2,400 hospital owned systems, 1,000 independent fixed site
systems and 600 mobile systems.
Recent studies by the Institute for Clinical PET (Positron Emission
Tomography, Biological Imaging for Medicine, A Proven Answer to Improve
Healthcare Quality and Lower Cost, May 1995, by Terry D. Douglass, PhD,
available by contacting the ICP at (703) 516-9255) concluded that PET is a
cost-effective diagnostic imaging procedure for a number of indications. In
cost-effectiveness studies conducted by the ICP, the use of PET in four
indications for the United States Medicare and non-Medicare populations
demonstrated significant cost savings. The four retrospective studies focused
on lung cancer, breast cancer, colorectal cancer recurrence, and myocardial
viability. In the studies of these four indications in the Medicare
population, ICP estimated the total Medicare savings from the use of PET
diagnostic imaging procedures would approximate $1.6 billion per year. In
addition, ICP estimated the number of invasive and other diagnostic
procedures would be reduced by 189,162 procedures. Finally, ICP estimated the
number of annual PET studies required for the four indications in the
Medicare population would be 388,951. ICP's cost effectiveness studies for
the non-Medicare population concluded the total cost savings from the use of
PET diagnostic imaging would approximate $4.1 billion annually. In this
population, ICP estimates the number of invasive and other diagnostic
procedures would be reduced by 182,520 procedures annually. In addition, ICP
indicated that the number of annual PET studies required in this population
would approximate 401,616 tests. It should be noted that ICP's calculations
examined only the savings related to the cost of the procedures avoided, and
did not include additional savings realized by avoiding the complications of
procedures rendered unnecessary by knowledge of PET results.
THE PET PROCEDURE
Commercial diagnostic PET imaging systems are comprised of high
speed computers, an examination table and a large imaging detector mechanism,
which are used to acquire and produce detailed PET images of the human body's
metabolic functions. Performing an actual PET procedure scan involves first
introducing a "radiotracer" into the patient's blood stream. A "radiotracer"
is a substance which when diffused into a patient's system allows the PET
scanner to create an image of the body's metabolic functions. After the
radiotracer is diffused into the patient's body (which takes approximately 45
minutes), the patient is placed on an examination table which is moved into
the center of the PET imaging mechanism, which is cylindrical and has an
opening (or "gantry") with a diameter of approximately 60 centimeters. The
wide gantry and relatively short length of the imaging mechanism help
minimize patient discomfort. The scanning process takes approximately one
hour to complete.
The PET imaging system detects signals emitted by the radiotracer as
it moves through the body. The radiotracer is attracted to any metabolic
activity. As an example, cancer cells (which are highly metabolic) are easily
detected by the PET imaging procedure. A high-speed computer reconstructs the
signals into three dimensional images that display normal or abnormal
metabolic function.
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The radiotracer used in the PET procedure dissipates within twenty-four hours
and the patient may go home the same day.
THE ADVANTAGES OF PET
PET offers fundamental advantages over other diagnostic imaging
techniques as it provides a direct measure of biochemistry and functional/
metabolic activity. In most cases, the precursors to all disease are
biochemical in nature and initially affect function, as opposed to structure.
PET, which has a unique ability to create a diagnostic image of early
metabolic changes, can significantly reduce the time to diagnosis, reduce
costs and improve patient outcomes for numerous indications for oncology,
cardiology and neurology.
PET offers the following substantial advantages over current diagnostic
imaging procedures:
-- replaces the need for multiple, costly medical testing with a
single imaging procedure;
-- displays a 3D image of all of the organ systems of the body with
one examination;
-- diagnoses and detects diseases, in most instances, before
detection by other tests;
-- monitors the path and progress of disease as well as how the body
responds to treatment;
-- reduces or eliminates ineffective or unnecessary surgical/
medical treatments and hospitalization; and
-- reduces redundant medical costs and avoids needless discomfort to
the patient.
As a result of the cost efficiency and clinical effectiveness of
PET, the Company believes that hospitals and other health care providers are
experiencing increased demand from their patients to provide PET technology
and related services. Increasingly, such health care providers are utilizing
third parties, like our company, to provide technology-driven patient
services.
Approximately 7.4 million Americans have a history of cancer, and
1.3 million new U.S. cancer cases will be diagnosed in 1999. PET is currently
recognized as the only metabolic medical tool powerful enough to accurately
image and measure with a single pass the metabolic function of cancer. It can
also provide information to determine whether a primary cancer has
metastasized to other parts of the body. PET has demonstrated its usefulness
in cost-effective, whole-body metastatic surveys; avoiding biopsies for
low-grade tumors; non-invasive differentiation of tumors from radiation
necrosis; early change in course of ineffective chemotherapy; and avoiding
unnecessary diagnostic and therapeutic surgeries.
In cardiology, a PET scan is one of the most accurate tests to
detect coronary artery disease. The PET images can display inadequate blood
flow to the heart during stress that is undetected by other non-invasive
cardiac tests. PET enables physicians to screen for coronary artery disease,
to assess flow rates and flow reserve, and to distinguish viable from
nonviable myocardium for bypass and transplant candidates. It is also fast
becoming an indispensable tool for cardiologists attempting to achieve
reversal of coronary artery disease through aggressive risk factor
modification such as the Ornish diet program, enabling both doctor and
patient to directly and non-invasively measure the progress of improvement in
coronary blood flow.
In neurology, PET can assist in the early detection and diagnosis of
such brain disorders as Alzheimer's and Parkinson's diseases. PET scans can
detect a consistent diagnostic pattern for Alzheimer's disease where certain
regions of the brain may show decreased metabolism early in the disease. This
pattern often can be recognized several years before a physician is able to
make the diagnosis clinically. In addition, PET scans can differentiate
Alzheimer's from other confounding types of dementia or depression. In a
similar fashion, PET scans can detect Parkinson's disease. A labeled acid is
used with PET to determine if the brain is deficient in dopamine synthesis.
If it is determined there is no deficiency and the patient is not suffering
from Parkinson's disease, then the course of tremor evaluation and treatment
will be different.
According to the ICP and the UCLA School of Medicine, PET diagnostic
imaging offers medical specialists a metabolic and clinical process to
pinpoint soft-tissue disorders. MRIs provide anatomical images of the body
that are not as effective as PET's 10-year history of early diagnosis of a
growing number of cancers, heart and brain disorders.
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According to two studies, Contribution of PET in the Diagnosis of
Recurrent Colorectal Cancer Comparison with Conventional Imaging, EUROPEAN
JOURNAL OF SURGICAL ONCOLOGY 1995, 21: 517-522; and Diagnostic Value of
Positron Emission Tomography for Detecting Breast Cancer, CT scanning is also
less effective than PET Scans as a tool for early detection and diagnosis.
WORLD JOURNAL OF SURGERY 1998, 22: 223-228. These studies indicate that PET
imaging has displayed the following detection rates compared to CT scanning
and mammography:
-- an 81% detection rate for lung cancer, compared to a 52%
detection rate with CT;
-- a 95% detection rate for colon cancer, compared to a 68%
detection rate with CT; and
-- an 85% detection rate for breast cancer, compared to a 67%
detection rate for mammography.
Considering only the 131,600 new incidences of colon cancer
diagnosed in 1998, PET imaging services would have detected, based on the 95%
detection rate, 125,020 incidences as compared to only 89,488 incidences from
CT scanning. This represents a 40% higher rate of detection.
OUR SERVICES
We provide convenient cost effective PET imaging services for
hospitals, medical centers and other health care providers that are unable to
financially justify the acquisition of this important technology.
All of our PET imaging systems are housed in mobile coaches or
trailers. The coach design combines convenience, patient comfort and safety,
and includes a powered patient lift, stairway, stabilizing system for
leveling, and transportation alarm to warn of equipment not properly stowed
for transport. The interior space of the coach is divided into three
sections: a patient imaging room, a technology control room, and the PET
imaging equipment section.
We provide hospitals with PET diagnostic imaging service time to
easily accommodate their patients on a daily basis. We anticipate physician
referrals will increase to a minimum of approximately nine exams per day of
service.
We offer a complete, comprehensive "Total Solutions" approach to our
clients which includes:
-- Medical Advisory Board to stage PET seminars that inform
referring physicians on the benefits of PET.
-- Physician training programs and expert overread services that
assist the hospitals' staff physicians to become qualified PET
exam interpreters.
-- Electronic data transmission and archiving of all PET exams by
use of our Internet site and software package.
-- Licensure assistance by our physicists.
-- PET Site Planning Guide and support to accommodate mobile PET
trailers to each of our clients' locations.
-- PET Strategic Marketing Plan complete with regional specialists
to evaluate and inform referring physicians.
-- Convenient access to radiotracers at negotiated discount rates.
We currently have five ECAT-Registered Trademark- EXACT-TM- PET
systems on order from CTI/Siemens Medical Systems, and we are ordering seven
Registered Trademark-ADVANCE-TM PET Imaging Systems from General Electric
Medical Systems. We have received four mobile Siemens PET systems to date,
three of which are in operation in the Southern California, Pennsylvania/New
York, and Kentucky/Ohio/Indiana markets. The fourth mobile Siemens PET System
is planned to be placed in operation in continental Europe in the second
quarter of calendar year 2000. We expect the balance of the Siemens PET
Systems to be in operation by calendar year end 2000. We expect to receive
the first GE RegisterdTrademark-ADVANCE-Tm PET Imaging System in March 2000.
The cost for a fully commissioned mobile PET imaging system can range from
$1.6 to $2.0 million.
The Siemens PET imaging scanner is a whole-body system that provides
2D and 3D volume measurements of metabolic and physiologic processes. The
system consists of the PET imaging scanner, an integrated workstation, a 3D
Advanced Computational Image Acquisition and Display System, and patient
couch, all integrated into a mobile trailer.
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OUR OPERATIONS
CUSTOMER BASE. We believe that many hospitals and other health care
providers will seek access to PET imaging services to remain competitive in
the health care marketplace.
Regulatory and licensing requirements in many states may also limit
general access to PET imaging services. In addition, many health care
providers lack sufficient patient volumes or financial resources to justify
the purchase of a dedicated in-house PET system. As a result, providers will
consider contracting for mobile services to gain access to PET technology,
build patient flows and provide comprehensive PET services to their
communities.
Many health care providers, regardless of whether their patient flow
levels and financial resources justify the purchase of a PET system, may
prefer to contract with us to (i) obtain the use of a PET system without
significant capital investment or financial risk; (ii) retain the ability to
switch system types and avoid technological risk; (iii) eliminate the need to
recruit, train and manage qualified technologists; or (iv) provide expanded
imaging services when patient demand exceeds their in-house capability.
MOBILE SERVICES AGREEMENTS. We provide our services to hospitals
and health care providers under a Positron Emission Tomography Mobile
Services Agreement that we enter into with these entities. These agreements
have standardized provisions which are subject to minor modifications based
on the needs of a particular customer. Under these agreements, we provide our
mobile PET System, along with a minimum of one trained operator, for a
specified number of days per week. Pricing is based on a per-patient basis,
and is subject to discounts based on the volume of patients examined per day.
A minimum of four PET exams per day is required. In some cases, we allow our
customers to pay us a flat fee per day for our services. We require our
customers to pay us for our services within thirty days after we bill them.
The agreements require our customers to perform various functions and supply
various items, such as power, medical supplies, physicians and patient
screening. The agreements have a five year term, which is subject to
automatic renewal for another five year term. The agreements may be
terminated for certain causes described in the agreements, including a
customer's lack of economic justification for our services, or a customer's
installation of a fixed site PET system (however, in certain agreements we
have a right of first refusal to participate in any joint venture created to
install such a system). The agreements also require that all PET services on
our customers' sites be performed exclusively by us. To date, we have entered
into agreements with the following hospitals and health care providers:
- Pomona Valley Hospital Medical Center
- Saint John's Health Center
- Spectrum Medical Management
- Community Hospital of Williams County
- Englewood Hospital and Medical Center
- Jewish Hospital Healthcare Services, Inc.
- Radiation Medicine Specialists of NEPA, PC
- Scripps Health dba Scripps Memorial Hospital- La Jolla
- St. Joseph Hospital of Orange
- St. Joseph's Regional Medical Center
- Torrance Memorial Medical Center
- University of Louisville Hospital
- University Nuclear Medicine, Inc.
- Lutheran Hospital of Indiana
- State University of New York at Buffalo
REIMBURSEMENT. Mobile diagnostic imaging service providers are
generally not reimbursed directly by health care payors such as Medicare,
Medicaid, insurance companies or managed care companies. Instead, mobile
diagnostic imaging service companies contract directly with and are paid by
the hospital, which then bills the health care payors. All of our revenues
will be paid directly by the hospital. As a result, we should realize a
higher level of accounts receivable turnover and a lower allowance for
uncollected debt. To date, all of our customers have paid us on time.
However, there can be no assurance that we will always be paid in a timely
manner.
Billing and reimbursement for diagnostic imaging services is divided
into a technical component and a professional component. Our business revenue
is based on providing the technical component, which includes the cost of the
equipment, labor and materials needed to perform the procedure by our company
and a hospital. The professional component is the cost of interpreting the
image by the nuclear medicine physician or radiologist.
We contract with a hospital to receive a negotiated rate for the
technical component of the imaging service. This wholesale rate pays us for
providing the technical component of the service and allows the hospital to
mark up the service to the healthcare payor. This markup reimburses the
hospital for its services rendered to the patient and the associated
physician costs. At the current time, the average insurance reimbursement to
a hospital for a particular PET procedure is $1,900 to $3,100.
Insurance companies currently reimburse approximately 70% of PET
procedures. In January 1998, the Health Care Financing Administration (HCFA)
approved Medicare reimbursement for the diagnostic evaluation of solitary
pulmonary nodules and for staging non-small cell lung cancer. In March 1999,
the HCFA announced approval to reimburse PET scans in the diagnosis and
management of certain cancers in Medicare beneficiaries. The March 1999
announcement approves the reimbursement for the detection and localization of
recurrent colorectal cancer with rising carcinoembryonic antigen known as
CEA; staging and characterization of both Hodgkins and non-Hodgkins lymphoma
in place of a gallium scan or lymphangiogram; and identification of
metastases in melanoma recurrence in place of gallium studies.
The implication of the foregoing HCFA approvals is an indication
that a promising technology has at last become commercially feasible. For
nearly 20 years PET imaging has shown tremendous promise in the investigation
of pharmacologic agents and the management of cancer patients, cardiac
patients and certain neurologic indications, but has not been reimbursable.
This has prevented the dissemination of this technology to community
hospitals and restricted its use to major medical centers. It appears that
small to medium hospitals can now avail themselves of a cutting edge
technology which promises to become a standard of health care.
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COMPETITION
We believe that the key competitive factors affecting our business
include providing quality, reliable service; attracting and retaining quality
technicians; price; and availability. At the present time, we believe that
there is one major company providing mobile PET services (Alliance Imaging,
Inc.) as well as several regional competitors. We believe that we currently
have the largest fleet of mobile PET systems in the U.S.
In addition to direct competition from other providers of mobile PET
services, we compete with free-standing CT, MRI and PET imaging centers,
health care providers that have their own diagnostic imaging systems, and
equipment manufacturers that sell or lease imaging systems to health care
providers for full-time installation. The risks that may occur if we fail to
compete successfully are discussed in the "Risk Factors" section of this
registration statement.
OUR COMPETITIVE STRATEGY
Our management team has developed and will implement a business
strategy designed to maximize return on invested capital and increase
revenues and cash flow. Our goal is to achieve a leadership position in our
industry as well as pursue significant growth opportunities based on the
following competitive strategies. However, there can be no assurance that we
will achieve a leadership position or experience significant growth as a
result of these strategies.
BECOME THE DOMINANT PROVIDER OF MOBILE PET SERVICES. We are
currently operating mobile PET systems in California, New York, Kentucky,
Ohio, Indiana and Pennsylvania. We intend to commence operations in Texas and
New Jersey in the second quarter of calendar year 2000. As we grow, we
believe we will benefit from (i) significant equipment purchasing savings;
(ii) attractive service and maintenance contracts from our primary equipment
suppliers; (iii) strong name recognition and a reputation for quality
service; (iv) substantial financial flexibility and access to lower-cost
capital; and (v) the ability to efficiently deploy systems in a manner which
maximizes fleet utilization while satisfying our customer requirements.
SUPERIOR CUSTOMER SERVICE AND STRONG CUSTOMER RELATIONSHIPS. We will
position ourselves as a service company rather than solely as a supplier of
equipment and will compete on the basis of value-added services in addition
to price. We will differentiate ourselves from potential competitors by
aggressively marketing our services to referring physicians, nuclear medicine
specialists, radiologists and hospital administrators by offering advance PET
imaging systems, trained technologists, as well as marketing and education
programs to accommodate the growing needs of our customers.
SECURE EXCLUSIVE, LONG-TERM CONTRACTS WITH KEY HOSPITALS IN
ATTRACTIVE MARKETS. We will generate all of our revenues from exclusive,
long-term contracts with hospitals and other health care providers, with the
price for our services determined on a fee for service basis. Our marketing
focus is currently directed, but not limited to, four key market segments in
the U.S. They include California, New York, Texas and Florida. We have
initially targeted 40 hospitals in each market which we believe require
access to PET services. These targeted hospitals need to remain competitive
in their respective health care markets or may lack sufficient patient
volumes to justify the purchase of a dedicated PET system. We have pursued
securing long-term contracts with several high profile university hospitals,
which offer the potential of establishing market presence and name
recognition for our company. We have also developed a "Total Solutions"
strategy which will utilize our senior executives and our Medical Advisory
Board members to help our customers during the start-up phases at their
facilities. Our "Total Solutions" approach includes physician education and a
focused marketing effort to build a physician referral base. Our "Total
Solutions" approach also enables us to provide consultation in the areas of
billing and third party contracts.
SUBSTANTIAL OPERATING LEVERAGE. Because of the significant amount of
fixed costs associated with operating a mobile PET system, we can benefit
from operating leverage, with increased utilization rates resulting in
significant increases in operating earnings and margins.
FAVORABLE PAYMENT TERMS. A majority of our billings will be direct
to hospitals. The hospitals, in turn, generally will pay us prior to
collecting from patients and third party payors. Accordingly, our exposure to
uncollectable patient receivables will be minimized.
EXPERIENCED MANAGEMENT TEAM. Our senior management team has
considerable industry experience. Our senior and operating managers have
successfully developed and implemented marketing, operating and financial
strategies with previous health care companies. The work experience of these
individuals is discussed in the "Management" section of this registration
statement.
INCREASE SCAN VOLUMES. We believe that the demand for PET procedures
will continue to grow as new applications are developed and PET continues to
gain increased acceptance resulting in replacing and/or supplementing other
imaging technologies. We have an opportunity to achieve a growing level of
patient procedures by both adding new customers and increasing the number of
patient procedures performed for these customers.
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MAXIMIZE RETURN ON INVESTED CAPITAL. We will actively manage the
utilization of our PET systems to maximize our return on capital (i.e., the
amount of cash flow generated by each system relative to the carrying value
of such system). We hope to maximize our return on captial through the
"operating leverage" which may be realized by billing our customers on a
per-patient basis, so that as patient flows increase our revenues also
increase, but without a significant corresponding increase in our operating
costs. However, this operating leverage does not exist when we allow our
customers to pay us a flat daily fee for our services. We estimate that, on
average, a system can be utilized for approximately eight years in a high
demand market when properly maintained and upgraded, after which time the
system can either be utilized in a market with less demand or traded in for a
new system.
IDENTIFY ATTRACTIVE STRATEGIC ACQUISITIONS. Although our
management's initial operational focus will be directed toward geographically
expanding our business through internal growth rather than by acquisitions,
we will attempt to identify attractive strategic acquisition opportunities
that may arise as well as our ability to (i) access additional and lower cost
financial resources; (ii) realize significant synergies, operating expense
reduction and overhead cost savings; and (iii) expand into new geographic
markets.
CUSTOMER SUPPORT
As part of our professional services, we provide several levels of
support to a hospital or health care provider, including (i) developing
commercial and clinical marketing materials; (ii) sponsoring clinical
lectures; and (iii) offering educational over-read services. In addition,
consulting services for billing, collections, and third-party contracts are
available on request. We believe that these services play a key role in our
ability to sign up routes over competitors, retain accounts and build patient
procedures.
SALES AND MARKETING
Our sales force consists of six regional vice presidents. These
regional vice presidents identify, qualify and contact candidates about our
services. Each regional vice president has overall management and revenue
responsibility for a specific region of the country.
Direct marketing to referring physicians plays a primary role in our
ability to increase patient procedures. Our regional marketing specialists
focus on developing increased scan volumes by introducing our PET services to
referring physicians and keeping such physicians apprised of our PET service
capabilities. In addition, certain of our executive officers spend a portion
of their time marketing our services. We have also assembled a Medical
Advisory Board comprised of leading physicians who will assist in educational
programs directed to the medical community which will enhance our ability to
attract and retain customers.
Our initial target market includes hospitals located in
metropolitan areas that have an on-site oncology department or have
affiliated oncology service relationships. We believe there are approximately
2,000 hospitals with 250 beds or more in the U.S. that meet this criteria.
Our initial sales and marketing focus has been directed at the four major
markets of California, New York, Texas and Florida. At any given time, our
regional vice presidents have targeted approximately 40 hospitals in each
market, 15 of which are at a mature negotiating stage for the potential
signing of contracts.
RISKS RELATED TO OUR BUSINESS
THERE ARE RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS MADE BY US AND ACTUAL
RESULTS MAY DIFFER.
Some of the information in this registration statement contains
forward-looking statements that involve substantial risks and uncertainties.
You can identify these statements by forward-looking words such as "may,"
"will," "expect," "anticipate," "believe," "estimate," and "continue" or
similar words. You should read statements that contain these words carefully
because they:
- discuss our future expectations;
- contain projections of our future results of operations or of our
financial condition; and
- state other "forward-looking" information.
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We believe it is important to communicate our expectations. However,
there may be events in the future that we are not able to accurately predict
or over which we have no control. The risk factors listed in this section, as
well as any cautionary language in this registration statement, provide
examples of risks, uncertainties and events that may cause our actual results
to differ materially from the expectations we describe in our forward-looking
statements. You should be aware that the occurrence of the events described
in these risk factors and elsewhere in this registration statement could have
an adverse effect on our business, results of operations and financial
condition.
WE HAVE INCURRED NET LOSSES SINCE INCEPTION AND EXPECT FUTURE LOSSES.
Since inception, we have incurred significant losses, and as of
September 30, 1999, had incurred cumulative net losses of $1,694,536. As of
September 30, 1999, we had an accumulated deficit of approximately
$2,521,372. We expect to continue to incur net losses until sales generate
sufficient revenues to fund our continuing operations. We may fail to achieve
significant revenues from sales or achieve or sustain profitability. There
can be no assurance of when, if ever, we will be profitable or be able to
maintain profitability.
IF WE DO NOT BECOME PROFITABLE WE MAY NOT BE ABLE TO SUSTAIN OUR OPERATIONS.
Our ability to achieve profitability in the future will depend in
part on our ability to continue to successfully market and sell PET services
on a wide scale. In turn, our future sales and profitability depend in part
on our ability to demonstrate to hospitals the potential cost and performance
advantages of the PET system over traditional diagnostic imaging systems. To
date, commercial sales of PET services have been limited. We do not know if
PET services or mobile PET service can be successfully commercialized on a
broad basis.
OUR PRODUCTS MAY NOT BE ACCEPTED BY THE MEDICAL COMMUNITY OR BY PATIENTS.
The acceptance of PET technology may be adversely affected by its
high cost, concerns by patients and physicians relating to its safety and
efficacy, and the substantial market acceptance of other diagnostic tools
such as MRIs and CT scans. We have a limited sales force and will need to
hire additional sales, technologists, and marketing personnel to increase the
general acceptance of PET services. Of all the factors impacting our
profitability, the failure of PET services to achieve broad market acceptance
would have the greatest negative impact on our business, financial condition
and results of operations and our profitability.
WE ARE DEPENDENT ON A SMALL NUMBER OF SUPPLIERS THE LOSS OF WHICH COULD
ADVERSELY AFFECT OUR BUSINESS.
We purchase the PET system from a limited group of qualified
suppliers. Siemens has approximately 75% of the market share for PET systems
worldwide. While we believe that alternative suppliers could be found for the
PET system, we cannot assure you that any supplier could be replaced in a
timely manner. Any interruption in the supply and/or delivery of the PET
system could materially harm our ability to conduct our business, our
financial condition and results of operations.
WE MAY BE UNABLE TO PROVIDE ADEQUATE SUPPORT TO OUR CUSTOMERS.
We have limited experience with widespread deployment of our
products and services to a diverse customer base, and there can be no
assurance that we will have adequate personnel to provide the level of
support that our customers may require during initial product deployment or
on an ongoing basis. An inability to provide sufficient support to our
customers could have an adverse impact on our reputation and relationship
with our customers, prevent us from gaining new customers, and adversely
affect our business, financial condition or results of operations.
OUR FOREIGN SALES ARE SUBJECT TO RISKS.
An increasing portion of our sales may be made in foreign markets.
The primary risks to which we are exposed due to our foreign sales are the
difficulty and expense of maintaining foreign sales distribution channels,
political and economic instability in foreign markets and governmental quotas
and other regulations.
7
<PAGE>
The regulation of medical devices worldwide also continues to develop,
and it is possible that new laws or regulations could be enacted which would
have an adverse effect on our business. In addition, we may experience
additional difficulties in providing prompt and cost effective service of PET
scans in foreign countries. We do not carry insurance against these risks. The
occurrence of any one or more of these events may individually or in the
aggregate have an adverse effect upon our business, financial condition and
results of operations.
THE PET SYSTEM MAY BECOME TECHNOLOGICALLY OBSOLETE AND OUR BUSINESS COULD BE
HARMED.
The markets in which our PET system competes are subject to rapid
technological change as well as the potential development of alternative
diagnostic imaging techniques or products. These changes could render the PET
system uncompetitive or obsolete. Although we believe that the PET system can be
upgraded to maintain its state-of-the-art character, the development of new
technologies or refinements of existing ones might make PET systems
technologically or economically obsolete, or cause a reduction in the value of,
or reduce the need for, PET systems. Although we are not aware of any
substantial technological change, should such change occur, there can be no
assurance that we will be able to acquire the new or improved systems which may
be required to service our customers.
We are also subject to the risk that customers will cease using our PET
services upon expiration of contracts and purchase or lease their own PET
systems.
OUR BUSINESS IS SUBJECT TO GOVERNMENTAL REGULATION.
We are required to adhere to a wide variety of other regulations
governing the operation of our business. Noncompliance with state, local,
federal or foreign requirements can result in serious penalties that could harm
our business. Although we believe that our operations comply with applicable
regulations, there can be no assurance that subsequent adoption of laws or
interpretations of existing laws will not regulate, restrict or otherwise
adversely affect our business.
Federal regulations commonly known as the "Stark Laws" impose civil
penalties and exclusion from participation in the Medicare program of
reimbursement for referrals for "designated health services" by physicians to
certain entities with which they have a financial relationship (if those
referrals do not fall within an exception to the prohibition). "Designated
health services" include, among other things, PET services. While implementing
regulations have been issued relating to referrals for clinical laboratory
services, no implementing regulations have been issued regarding the other
designated health services, including PET services. Further, under the proposed
implementing regulations interpreting the Stark Laws, it is likely that these
proposed rules will apply to mobile PET scanners, thereby restricting certain
physician referrals for such services by an investor-physician. In addition,
several states (including the State of California) in which we operate or plan
to operate have enacted or are considering legislation that restricts "physician
self-referral" arrangements in a manner similar to the Stark Laws and requires
physicians to disclose any financial interest they may have with a health care
provider to their patients to whom they recommend that provider. Possible
sanctions for violating these provisions include loss of licensure and civil and
criminal sanctions. Such state laws vary from state to state and seldom have
been interpreted by the courts or regulatory agencies. Nonetheless, strict
enforcement of these requirements is likely.
There are also numerous federal and state laws which govern financial
and other arrangements between health care providers. These include the federal
Medicare and Medicaid anti-kickback statutes which prohibit bribes, kickbacks,
rebates and any other direct or indirect remuneration in return for or to induce
the referral of an individual to a person for the furnishing, directing or
arranging of services, items or equipment for which payment may be made in whole
or in part under Medicare, Medicaid or other federal health care programs.
Violation of the anti-kickback statute may result in criminal penalties and
exclusion from the medicare and other federal health care programs. Many states
have enacted similar statutes which are not necessarily limited to items and
services paid for under Medicare or a federally funded health care program. We
believe we can market our services to health professionals and provide such
services without violating or encouraging the violation of these and related
laws dealing with the provision of health care services. However, our failure or
our customers' failure to comply with these laws and/or the Stark Laws could
result in an adverse effect on our business.
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<PAGE>
THE LOSS OF ANY OF OUR OTHER KEY PROFESSIONALS COULD ADVERSELY AFFECT OUR
BUSINESS, INCLUDING OUR ABILITY TO DEVELOP AND MARKET OUR PRODUCTS.
We depend to a considerable degree on a limited number of key
personnel, who are listed in the "Management" section of this registration
statement. During our limited operating history, many key responsibilities have
been assigned to a relatively small number of individuals. The loss of the
services of key members of our management could harm our business. Our success
will also depend, among other factors, on the successful recruitment and
retention of qualified technical and other personnel.
IF WE FAIL TO COMPETE SUCCESSFULLY, OUR REVENUES AND OPERATING RESULTS WILL BE
ADVERSELY AFFECTED.
We are, and will continue to be, subject to intense competition in our
targeted markets, principally from businesses providing other traditional
diagnostic imaging techniques, including existing and developing technologies,
and competitive products. Many of our competitors have substantially greater
financial, marketing and manufacturing resources and experience than us.
Furthermore, we expect that other companies will enter the mobile and stationary
PET market, particularly as PET systems gain increasing market acceptance.
Significant competitive factors which will affect future sales in the
marketplace include regulatory approvals, performance, pricing and general
market acceptance.
The diagnostic imaging market is also highly competitive. There are
many companies engaged in this market, some with significantly greater resources
than ours. Our competitors may be able to develop technologies, procedures or
products that are more effective or economical than ours, or that would render
the PET system obsolete or noncompetitive.
We compete with free-standing imaging centers and health care providers
that have their own diagnostic imaging systems and with equipment manufacturers
that sell or lease imaging systems to health care providers for full-time
installation. Some of our customers may be capable of providing the same
services to their patients directly.
A SUCCESSFUL LIABILITY CLAIM ASSERTED AGAINST US DUE TO A DEFECT IN THE PET
SYSTEM IN EXCESS OF OUR INSURANCE COVERAGE WOULD HARM OUR BUSINESS.
The provision of mobile PET shared services involves the inherent risk
of professional and product liability claims against us. We currently maintain
commercial general liability insurance coverage in the amount of $2 million per
incident and medical professional liability insurance in the amount of $2
million per incident, but this insurance is expensive, subject to various
coverage exclusions and may not be obtainable in the future on terms acceptable
to us. We do not know whether claims against us arising from our use of the PET
system will be successfully defended or that our insurance will be sufficient to
cover liabilities arising from these claims. A successful claim against us in
excess of our insurance coverage could materially harm our business.
THERE IS UNCERTAINTY RELATING TO THIRD PARTY REIMBURSEMENT WHICH IS CRITICAL TO
MARKET ACCEPTANCE OF OUR PRODUCTS.
PET services are generally purchased by hospitals which then bill
various third party payors, such as government programs and private insurance
plans, for the procedures conducted using the PET system. Third-party payors
carefully review and are increasingly challenging the prices charged for
medical products and services, and scrutinizing whether to cover new products
and evaluating the level of reimbursement for covered products. While we
believe that the hospitals using the PET system have generally been
reimbursed, payors may deny coverage and reimbursement for the PET system if
they determine that the device was not reasonable and necessary for the
purpose for which it was used, was investigational or not cost-effective. As
a result, we cannot assure you that reimbursement from third party payors for
use of the PET system will be available or if available, that reimbursement
will not be limited. If third party reimbursement of these procedures is not
available, it will be more difficult for us to offer our services on a
profitable basis. Moreover, we are unable to predict what legislation or
regulation, if any, relating to the health care industry or third-party
coverage and reimbursement may be enacted in the future, or what effect such
legislation or regulation may have on us.
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<PAGE>
WE ARE EXPOSED TO RISKS RELATING TO HEALTH CARE REFORM.
Several states and the United States government are investigating a
variety of alternatives to reform the health care delivery system and further
reduce and control health care spending. These reform efforts include proposals
to limit spending on health care items and services, limit coverage for new
technology and limit or control the price health care providers and drug and
device manufacturers may charge for their services and products. If adopted and
implemented, such reforms could have an adverse effect on our business,
financial condition and results of operations.
WE MAINTAIN CASH WITH VARIOUS BANKS IN EXCESS OF FEDERALLY INSURED LIMITS
The Federal Deposit Insurance Corporation (FDIC) insures deposits up
to $100,000 in virtually all United States banks and savings associations.
In the event an FDIC-insured bank fails and depositors lose their money, the
FDIC pays depositors up to $100,000 of the money lost. Although our funds are
deposited in accounts with FDIC-insured banks, the amounts of cash in these
accounts exceed federally insured limits. In the event of a failure of one of
our banks where our funds were lost, we could only recover from the FDIC up
to $100,000 of the funds lost. The loss of the excess funds could have a
material adverse effect on our business.
IF WE EXPERIENCE PROBLEMS WITH YEAR 2000 COMPLIANCE OUR OPERATIONS MAY BE
DISRUPTED.
Many existing computer programs use only two digits to identify the
year in the date field. These programs were designed and developed without
considering the impact of the upcoming change in the century. As a result, any
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the Year 2000. This could result in system
failure or miscalculations, causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices or
engage in similar normal business activities.
If our key suppliers or customers experience Year 2000 compliance
issues, then our business could be harmed. If there is a failure in Year 2000
compliance by us or one of our suppliers or customers, we could suffer major
disruptions in our ability to schedule PET services, obtain PET systems, or
receive payment for our sales. As of the date of filing of this registration
statement, we are not aware of any Year 2000 compliance problems adversely
affecting us or our suppliers or customers. However, there can be no
assurance that our business will not be negatively affected by Year 2000
problems experienced by us, our suppliers or customers.
IF WE ARE UNABLE TO OBTAIN ADDITIONAL FUNDING OUR BUSINESS OPERATIONS WILL BE
HARMED.
We believe that our available short-term assets and investment
income will be sufficient to meet our operating expenses and capital
expenditures through the current fiscal year. We do not know if additional
financing will be available when needed, or if it is available, if it will be
available on acceptable terms. Insufficient funds may prevent us from
implementing our business strategy or may require us to delay, scale back or
eliminate certain contracts for the provision of PET services.
OUR EMPLOYEES
We currently have 24 full-time employees. Our employees are
non-union and none are represented by an organized labor union. We believe
our relationship with our employees is very good and we have never
experienced an employee related work stoppage. We will need to hire and
retain highly-qualified experienced technical and select management personnel
in order to execute our business plan and maintain technical advantages over
competitors in the marketplace. No assurances can be given that we will be
able to locate and hire such personnel, or that, if hired, we will continue
to be able to pay the higher salaries necessary to retain such skilled
employees.
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 DISCUSSION CONTAINS FORWARD-LOOKING
STATEMENTS BASED UPON CURRENT EXPECTATIONS THAT INVOLVE RISKS AND
UNCERTAINTIES, SUCH AS OUR PLANS, OBJECTIVES, EXPECTATIONS AND INTENTIONS.
OUR ACTUAL RESULTS AND THE TIMING OF CERTAIN EVENTS COULD DIFFER MATERIALLY
FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF
CERTAIN FACTORS, INCLUDING THOSE SET FORTH UNDER "RISK FACTORS," "BUSINESS"
AND ELSEWHERE IN THIS PROSPECTUS. SEE "FORWARD-LOOKING STATEMENTS."
OVERVIEW
For the period from our inception through September 30, 1999, we had
no revenues and our operating activities related primarily to establishing
the management and operating infrastructure to provide PET systems and
services to hospitals and other health care providers on a mobile, shared
user basis. Since forming the Company, operating activities have been focused
on establishing a national sales force; creating and executing a sales and
marketing strategy directed
11
<PAGE>
to key potential hospital and health care providers; securing a $10 million
lease financing package; establishing key equipment vendor relationships;
promoting our service brand strategy; and building a management and
operations infrastructure to effectively and efficiently manage future
operating growth opportunities.
We plan to provide PET systems and services to hospitals and other
health care providers on a mobile, shared user basis. Our PET services will
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 will 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 personnel.
Our future revenues will principally be a function of the number of
mobile units in service, scan volumes and fees per scan. We will generate
substantially all of our revenues under exclusive five-year contracts with
hospitals and health care providers. Our contracts will 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 will include salaries
paid to technologists and drivers, annual system maintenance costs, insurance
and transportation costs. Because a majority of these expenses 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
September 30, 1999, had incurred cumulative net losses of $1,694,536. We
expect to experience operating losses and negative cash flow for the
foreseeable future. We anticipate our losses will increase significantly from
current levels as we expect to 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.
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 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
THREE MONTHS ENDED SEPTEMBER 30, 1999
REVENUES
Our revenues for the three months ended September 30, 1999 were
$79,995, reflecting the delivery and commencement of operation of our first
mobile PET system.
COST OF SERVICE REVENUES
The principal component of our cost of services includes salaries
paid to technologists and drivers, annual system maintenance costs,
insurance, transportation costs and the lease payment on our mobile PET
systems.
OPERATING EXPENSES
General and administrtive expenses for the quarter ended September
30, 1999 were $711,782, reflecting the hiring of five regional marketing vice
presidents and other employees as well as marketing, promotion and trade show
costs incurred.
NET LOSS
Our net loss for the three months ended September 30, 1999 was
$697,508.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations primarily through
cash provided by private placements of our common stock and the exercise of
previously granted options to purchase our common stock. As of September 30,
1999, we had approximately $170,089 in cash and cash equivalents.
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<PAGE>
Net cash used in operating activities for the three months ended
September 30, 1999 was approximately $875,864. The net cash used in operating
activities can be substantially attributed to the net loss incurred to date.
Net cash used in investing activities was approximately $935,437 in
the three month period ended September 30, 1999. The net cash used in
investing activities resulted primarily from the purchase of our second
mobile PET trailer and fifty percent cash payment on the second PET system.
Net cash provided by financing activities was approximately $197,000
in the three month period ended September 30, 1999. The net cash provided by
financing resulted from the remaining proceeds from our private placement in
June 1999, and our investment in the London PET Centre.
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 possible expenditures and
investments in businesses, 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
which we obtain 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 material adverse impact on our business,
operating results and financial condition.
DESCRIPTION OF PROPERTY
We lease approximately 3,500 square feet of space in an office
building in San Diego, California for our executive and principal
administrative office. We lease this property from Shelter Cove Marina, Ltd.,
who in turn leases the property from the San Diego Unified Port District. Our
lease with Shelter Cove Marina expires on December 31, 2000, but we have the
right to extend the term for three additional one-year periods. We currently
pay $2,396 per month in rent. Our principal place of business is located at
2240 Shelter Island Drive, Suite 205, San Diego, California 92106.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding
beneficial ownership of our Common Stock as of March 6, 2000, (a) by each
person who is known by us to own beneficially more than 5% of our Common
Stock, (b) by each of our directors, and (c) by all of our officers and
directors as a group. Each person's address is c/o Mobile P.E.T. Systems,
Inc., 2240 Shelter Island Drive, #205 San Diego, California 92106.
<TABLE>
<CAPTION>
Name and Address of Beneficial Amount and Nature of
Owner Beneficial Owner Percentage of Class(1)
- ------------------------------ -------------------- -------------------
<S> <C> <C>
Paul J. Crowe 5,100,000(2) 32.11%
Brent Nelson 1,800,000(2) 11.33%
Thomas G. Brown 450,000(3) 2.83%
Jim Corlett 200,000(2) 1.26%
Fleming & Associates 800,000 5.04%
All Executive Officers and
Directors (4 persons) 7,550,000(4) 47.53%
</TABLE>
- ----------------
(1) Based on a total of 15,885,280 outstanding shares of Common Stock,
including 1,331,500 shares issuable upon the exercise of options
exercisable on or within 60 days of March 6, 2000, and 644,122
shares issuable upon the conversion of Series A Convertible Preferred
Stock.
(2) Includes 100,000 shares issuable upon the exercise of outstanding stock
options.
(3) Includes 350,000 shares issuable upon the exercise of outstanding stock
options.
(4) Includes 650,000 shares issuable upon the exercise of outstanding stock
options.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following table sets forth certain information with respect to our
directors and executive officers.
<TABLE>
<CAPTION>
Name Age Position
- -------------------- --- ------------------------------------------------------------
<S> <C> <C>
Paul J. Crowe 49 Chairman of the Board, Chief Executive Officer and President
Thomas G. Brown 54 Chief Financial Officer and Director
Jim Corlett 56 Vice President - Mobile Operations
Brent Nelson 37 Director
</TABLE>
PAUL J. CROWE has served as our Chairman, Chief Executive Officer
and President since December 1998. Mr. Crowe has over 30 years of business
experience in sales, marketing, finance and management of high-tech medical
instrumentation and services for the health care industry. Mr. Crowe has
served in sales, marketing and senior management positions for Ritter/Sybron
Corporation, Philips Medical Systems, Rohe Ultrasound and Diasonics MRI. From
1987 to 1991, Mr. Crowe served as President and Chief Executive Officer of
Paul J. Crowe & Associates, Inc., a company which developed and operated
diagnostic MRI imaging facilities and mobile MRI routes. Mr. Crowe is
currently President and CEO of NeuroTechnologies International, Inc. and
President of Radiosurgical Centers Corporation, businesses involved in the
development and operation of Gamma Knife radiosurgery centers. In July 1995,
Mr. Crowe pled guilty to unlawful taking of property, adjudicated to be a
misdemeanor. In March 1998, he was convicted of domestic violence and illegal
possession of a firearm. These incidents occurred prior to Mr. Crowe's
election as a director and appointment as an executive officer and are not
related to our business.
THOMAS G. BROWN has served as our Chief Financial Officer since April
1999. Mr. Brown is currently managing director of Wyndham Capital Corporation,
an investment banking firm that sources capital for private and public companies
as it relates to the financing of internal and external growth opportunities.
Mr. Brown was a co-founder of Ablum, Brown & Company, a company that assisted
LBO firms in the procurement of senior and subordinated capital as well as
growth capital for private businesses. In addition, Mr. Brown has served as a
securities analyst and in the corporate finance department of several New York
Stock Exchange member firms. Mr. Brown is a Chartered Financial Analyst (CFA).
JIM CORLETT has served as our Vice President - Mobile Operations since
June 1999. He previously had served as our Vice President - Sales of the Company
since December 1998. Mr. Corlett has over 16 years of experience in the
application of mobile services to high technology. Mr. Corlett was one of the
pioneers in the development of mobile MRI Services in the U.S. market for
American Shared Hospital Services in the 1980s. While at American Shared
Hospital Services, Mr. Corlett developed and implemented a strategic marketing
and sales plan which contributed to approximately $40 million of revenues.
BRENT NELSON has served as a director since December 1998. Mr. Nelson
is the founder and managing director of Northwest Capital Partners L.L.C., a
Bellevue, Washington-based venture capital firm that provides capital to private
and public companies. Mr. Nelson has over 15 years of experience in corporate
and project financing.
All directors hold office until the next annual meeting of stockholders
and until their successors are elected. Officers are elected to serve, subject
to the discretion of the Board of Directors, until their successors are
appointed.
In January 2000, Robert C. Bush was nominated to serve as a
director, subject to election at our next annual meeting of stockholders.
Since 1991, Mr. Bush has served as a consultant to, and private investor in,
several medical and technology companies. From 1982 to 1990, Mr. Bush served
as President and CEO of Sonics Research Corporation.
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EXECUTIVE COMPENSATION
Executive compensation is designed to provide incentives for those
senior members of management who bear responsibility for our goals and
achievements. Our compensation philosophy is based on a base salary, with
opportunity for significant bonuses to reward outstanding performance, and a
stock option program.
EXECUTIVE OFFICER COMPENSATION
During the calendar year ended December 31, 1999, Paul J. Crowe
received a salary of $150,000 as compensation for his service as our Chief
Executive Officer. None of our other executive officers received compensation
in excess of $100,000 during the calendar year ended December 31, 1999.
EMPLOYMENT AND CONSULTING AGREEMENTS
On January 1, 1999, we entered into a five-year Employment Agreement
with Paul J. Crowe, our Chief Executive Officer. The Employment Agreement
provides that Mr. Crowe is to receive a salary of $150,000 per year, which
beginning in the calendar year 2000 is to be increased by 10% if the average
market price of our stock in December of the preceding year has increased by at
least 10% above the average market price of our stock in December of the second
preceding year. The Employment Agreement also provides that the Board of
Directors will review and evaluate Mr. Crowe's performance annually and consider
awarding him a discretionary bonus.
Thomas G. Brown is compensated for his service as our Chief Financial
Officer under a two-year non-exclusive Consulting Agreement dated April 1, 1999.
The Consulting Agreement requires that Mr. Brown devote as much time to our
company's affairs as is reasonably necessary, but he is not required to spend
more than two to three days per week on our premises. Under the Consulting
Agreement, Mr. Brown received a one-time grant of 100,000 shares of our Common
Stock and an option to purchase 250,000 additional shares of our Common Stock at
an exercise price equal to the market price for the shares. He also receives a
salary of $7,500 per month.
On January 6, 1999, we entered into an Employment Agreement with Jim
Corlett, our Vice President for Mobile Operations. Upon executing the
Employment Agreement, Mr. Corlett received a signing bonus consisting of
100,000 shares of our Common Stock. The Employment Agreement also provides
that Mr. Corlett is to receive a salary of $85,000 per year. In addition, Mr.
Corlett will receive an option to purchase 100,000 shares of our Common Stock
at the end of each of the first three years during the term of the Employment
Agreement. The exercise price of these options is $1.91 per share.
We entered into a Consulting Agreement dated January 29, 1999 with
Michael Baybak and Company, Inc., a California corporation ("Baybak"). The
Consulting Agreement provides that Baybak will provide major media consulting
services for us. The Consulting Agreement is for a period of fifteen (15) months
and provides for compensation in the form of an option to purchase 150,000
shares of our Common Stock at a exercise price of $2.50 per share. The options
expire on January 29, 2004.
We entered into a Consultancy Agreement with Dr. Piers Nicholas Plowman
dated September 9, 1999. The Consultancy Agreement provides that Dr. Plowman
will oversee our operations in London, England. The Consultancy Agreement ends
on December 31, 2000. Under the terms of the Consultancy Agreement, Dr. Plowman
may receive (i) 50,000 options to purchase our shares of Common Stock at an
exercise price of $3.00 per share; (ii) 25,000 options to purchase our shares of
Common Stock at an exercise price of $1.00 per share; (iii) the right to
subscribe for 10,000 shares of Common Stock at the trading price; (iv) the right
to subscribe for up to 130,000 shares of Common Stock at prices ranging from
$1.00 to $3.00 per share; and (v) a management fee equal to 5% of the net profit
of our operations in England.
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<PAGE>
DIRECTOR COMPENSATION
In April 1999, we granted each of our directors an option to purchase
100,000 shares of our Common Stock. In addition, our directors are reimbursed
for expenses actually incurred in connection with attending meetings of the
Board of Directors.
MEDICAL ADVISORY BOARD COMPENSATION
We compensate members of our Medical Advisory Board by granting them
options to acquire our Common Stock under our 1999 Stock Option Plan. Members
of the Medical Advisory Board typically receive 25,000 options to purchase
our Common Stock for their first year of service and 10,000 options to
purchase our Common Stock for each subsequent year of service. The exercise
prices for options issued to the Medical Advisory Board range between $2.76
to $3.50 per share.
1999 STOCK OPTION PLAN
Our 1999 Stock Option Plan (the "1999 Plan") authorizes us to grant
to our directors, employees, consultants and advisors both incentive and
non-qualified stock options to purchase shares of our Common Stock. As of
September 30, 1999, our Board of Directors reserved 3,000,000 shares for
issuance under the 1999 Plan, of which 2,344,000 shares were subject to
outstanding options and 656,000 shares remained available for future grants.
Our Board of Directors or a committee appointed by the Board (the "Plan
Administrator") administers the 1999 Plan. The Plan Administrator selects the
recipients to whom options are granted and determines the number of shares to
be awarded. Options granted under the 1999 Plan are exercisable at a price
determined by the Plan Administrator at the time of the grant, but in no
event will the option price for any incentive stock option be lower than the
fair market value for our Common Stock on the date of the grant. Options
become exercisable at such times and in such installments as the Plan
Administrator provides in the terms of each individual option agreement. In
general, the Plan Administrator is given broad discretion to issue options
and to accept a wide variety of consideration (including shares of Common
Stock of the Company and promissory notes) in payment for the exercise price
of options. The 1999 Plan was originally authorized by the Board of Directors
and shareholders of Mobile Nevada. Our Board of Directors adopted the 1999
Plan after the acquisition of Mobile Nevada by Colony Delaware.
16
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Brent Nelson, a director of our company, is the President of
Northwest Capital Partners, LLC. On December 15, 1998, we entered into a
Consulting Agreement under which Northwest agreed to advise us financially
and assist us in arranging financing for our business operations. The
Consulting Agreement has a three-year term, and Northwest has a right of
first refusal to consult with the Company regarding financings throughout the
duration of the Consulting Agreement. The Consulting Agreement provides for
payment of monthly consulting fees to Northwest in the amount of $5,000 per
month. Commencing in April of 1999, Northwest has waived payment of these
monthly fees. The fee provision is subject to extension for 36 months upon
the closing of certain financing transactions set forth in the Consulting
Agreement. Pursuant to the Consulting Agreement, in December 1998 Northwest
was granted 1,200,000 shares of our Common Stock in exchange for its services
in arranging interim financing for us. These shares were not assigned a
specific value upon issuance because they were considered a cost of raising
capital, and were reported as a deduction from the proceeds from the issuance
of stock, rather than as an asset or expense. In addition, Northwest will
receive an additional 1,000,000 shares of our common stock if our market
capitalization reaches $100,000,000 or more. These shares would be subject to
registration concurrently with our first public offering of stock after their
issuance. Northwest's obligations under the Consulting Agreement are subject
to certain conditions to be performed by us, including refraining from
modifying our capital structure without Northwest's prior written consent. In
addition, the Consulting Agreement provides that for three years after the
date that our common stock commences trading on the OTC Bulletin Board, if we
desire to issue new shares of stock or any of our officers or directors who
hold 5% or more of our common stock ("Principal Stockholders") desire to
transfer their shares of our stock to a third party, we and the Principal
Stockholders are required to first offer such shares to us (if applicable),
to Northwest, and then to the Principal Stockholders. The Consulting
Agreement also requires our officers and directors and the Principal
Stockholders to agree that for a period of twelve months after our common
stock commences trading on the OTC Bulletin Board, the Principal Stockholders
will not sell any of their shares of common stock without Northwest's prior
written consent, which will not be unreasonably withheld. Finally, the
Consulting Agreement provides that Northwest is entitled to nominate a
director for our board of directors for a period of five years.
In December of 1998, Northwest Capital Partners, LLC made a
non-interest bearing loan to us in the amount of $50,000. We repaid the loan
in January of 1999.
Paul J. Crowe, the CEO and a director of our company, is the
Chairman, a director and majority shareholder of the London Radiosurgical
Centre Ltd. Effective July 30, 1999, we loaned $137,319.09 to the London
Radiosurgical Centre pursuant to a Promissory Note dated September 1, 1999.
The Promissory Note provides that the unpaid principal balance on the loan
bears interest at the rate of 8% per year. The loan was due to be repaid on
October 28, 1999. We have extended the repayment date for the loan to March
31, 2000.
We have an 8% interest in a subordinated equity participation in
London Radiosurgical Centre Ltd. The subordinated equity participation is in
the amount of $200,000. The maximum investment of $2,500,000 will be returned
to investors from net income for distribution, after which investors will
receive 60% of net income for distribution. 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.
Thomas G. Brown, the CFO and a director of our Company, is currently
employed as an investment banker by Wyndham Capital Corporation, which
prepared a Confidential Information Memorandum for our company in March 1999
at a cost to us of $3,500. The purpose of the Confidential Information
Memorandum was to provide a broad range of information about our company and
our industry. It was not used in connection with the offer and sale of our
securities to investors.
In May 1999, we issued 200,000 shares of our common stock to
Northwest Capital Partners, LLC as a result of the exercise of stock options
granted to it by Colony Delaware in December 1998. See "Recent Sales of
Unregistered Securities."
In December 1999, we entered into an oral agreement for a bridge
loan in the amount of $50,000 from Northwest Capital Partners, LLC. The loan
is non-interest bearing and is payable not later than six months from the
date of the agreement, December 20, 1999.
DESCRIPTION OF SECURITIES
COMMON STOCK
We are authorized to issue 90,000,000 shares of Common Stock, $.0001
par value, of which 13,909,658 shares were outstanding at March 6, 2000.
Holders of Common Stock are entitled to dividends, pro rata, when, as and if
declared by the Board of Directors out of funds available therefor, subject
to the rights of holders of Preferred Stock. Holders of Common Stock are
entitled to cast one vote for each share held at all stockholder meetings for
all purposes, including the election of directors. The holders of more than
50% of the Common Stock issued and outstanding and entitled to vote, present
in person or by proxy, constitute a quorum at all meetings of stockholders.
The vote of the holders of a majority of Common Stock present at such a
meeting will decide any question brought before such meeting, except for
certain actions such as amendments to the Company's Certificate of
Incorporation, mergers or dissolutions which require the vote of the holders
of a majority of the outstanding Common Stock. Upon liquidation or
dissolution, the holder of each outstanding share of Common
17
<PAGE>
Stock will be entitled to share equally in the assets of the Company legally
available for distribution to such stockholder after payment of all
liabilities, subject to the rights of holders of Preferred Stock. Holders of
Common Stock are not granted any preemptive, subscription, redemption rights
or registration rights. All outstanding shares of Common Stock are fully paid
and nonassessable.
PREFERRED STOCK
We are authorized to issue 10,000,000 shares of Preferred Stock,
$.0001 par value, of which 60 shares were outstanding at March 6, 2000, all
of which shares are designated "Series A Convertible Preferred Stock".
SERIES A CONVERTIBLE PREFERRED STOCK. Holders of Series A
Convertible Preferred Stock are entitled to dividends, out of any assets
legally available therefor, and in preference to holders of Common Stock, at
a per share rate of $4,000 per annum. In the event of a liquidation,
dissolution or winding up of our company, holders of Series A Convertible
Preferred Stock are entitled to receive $50,000 per share plus 8% interest
per annum on that amount from the date of issuance of the Series A
Convertible Preferred Stock to the day before such liquidation, dissolution
or winding up. Holders of Series A Convertible Preferred Stock are not
entitled to voting rights except as required by law or provided in the
Certificate of Designation filed with respect to the Series A Convertible
Preferred Stock. Each share of Series A Convertible Preferred Stock may be
converted into that number of shares of Common Stock equal to $50,000 divided
by the lesser of (i) $5, or (ii) the average closing bid price for our Common
Stock on the five days before the conversion date. Shares of Series A
Convertible Preferred Stock outstanding on March 1, 2003 will automatically
be converted into Common Stock based on the foregoing formula. The
conversion ratio is subject to adjustment in the event of certain
reorganizations of our company or based on certain issuances of Common Stock
and options to purchase Common Stock by our company. Shares of Series A
Convertible Preferred Stock are redeemable by our company at any time at a
redemption price which varies based on factors set forth in the Certificate
of Designation.
BLANK CHECK PROVISION. Our Board of Directors is expressly
authorized to provide for the issuance of all or any of the remaining shares
of Preferred Stock in one or more series, and to fix the number remaining of
shares and to determine or alter for each such series, such voting powers,
full or limited, or no voting powers, and such designations, preferences and
relative, participating, optional, or other rights and such qualifications,
limitations or restrictions thereof, as shall be stated and expressed in the
resolution or resolutions adopted by our Board providing for the issuance of
such shares and as may be permitted by the General Corporation Law of the
State of Delaware. Our Board is also expressly authorized to increase or
decrease (but not below the number of shares of such series then outstanding)
the number of shares of any series of the Preferred Stock subsequent to the
issuance of shares of that series.
LEGAL PROCEEDINGS
We are not a party to any pending legal proceedings.
PART II
MARKET FOR COMMON EQUITY AND OTHER SHAREHOLDER MATTERS
Our Common Stock is currently traded on the National Quotation
Bureau, LLC "Pink Sheets", and was previously traded on the OTC Bulletin
Board, under the symbol "MBPT." The following table sets forth, for the
calendar period indicated, the high and low closing bid prices for our Common
Stock, and the Common Stock of our predecessor Colony International
Incorporated, as reported on the "Pink Sheets" and the OTC Bulletin Board.
The quotations for the Common Stock traded on the "Pink Sheets" and the OTC
Bulletin Board may reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
HIGH LOW
------ -------
<S> <C> <C>
COLONY INTERNATIONAL INCORPORATED(1)
- --------------------------------------------------------------------------------------
CALENDAR YEAR 1997
FIRST QUARTER 1.5 0.02
SECOND QUARTER 1.0625 0.02
THIRD QUARTER 0.5 0.02
FOURTH QUARTER(2) N/A N/A
CALENDAR YEAR 1998(2) N/A N/A
MOBILE P.E.T. SYSTEMS, INC.
- --------------------------------------------------------------------------------------
CALENDAR YEAR 1999
FIRST QUARTER 3.6875 0.99
SECOND QUARTER 5.4375 2.5
THIRD QUARTER 5.1875 2.3125
FOURTH QUARTER 3.0 1.5
</TABLE>
(1) Figures shown for Calendar Year 1997 and Calendar Year 1998 reflect bid
prices for our predecessor Colony International Incorporated (trading
symbol: "CIIA").
(2) No trading activity occurred in Calendar Year 1998 or the fourth quarter of
Calendar Year 1997 for our predecessor Colony International Incorporated.
As of March 6, 2000, our shares were held by 248 shareholders of
record, not including the holders that have their shares held in a depository
trust in "street name". The transfer agent of our common stock is OTC
Corporate Transfer Service Co., P.O. Box 591, Hicksville, NY 11802.
Pursuant to NASD Rule 6530, our common stock was delisted from the
OTC Bulletin Board on October 19, 1999 because on that date, we had not yet
satisfied the requirements to become an issuer required to make current
filings pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934. We intend to reapply to list our common stock for trading on the OTC
Bulletin Board at
18
<PAGE>
such time, if ever, as all SEC comments regarding this registration statement
have been cleared with the SEC and we otherwise meet the eligibility
requirements for listing on the OTC Bulletin Board.
DIVIDEND POLICY
We have never declared or paid cash dividends on our common stock.
We currently anticipate that we will retain all future earnings for use in
the operation and expansion of its business and does not anticipate paying
any cash dividends in the foreseeable future.
RECENT SALES OF UNREGISTERED SECURITIES
RECENT SALES OF UNREGISTERED SECURITIES
As of January 1997, American Coin had outstanding 9,788,700 shares
of common stock and 175,000 options to purchase common stock. That month,
these shares were reverse split on a 1:19.926 basis. This resulted in an
outstanding share total of 491,311, after adjustments for fractional shares.
In February 1997, American Coin issued 9,500,000 shares in
connection with its acquisition of Colony Nevada. 8,200,000 of these shares
were issued to Colony Nevada's former shareholders in reliance on Section
4(2) of the Securities Act of 1933, as amended (the "Act"). 1,300,000 of
these shares were issued in reliance on Rule 504 of Regulation D under the
Act ("Rule 504") to certain entities that acted as consultants for the
acquisition.
In June 1997, Colony Delaware issued a total of 331,224 shares of
common stock to five investors in reliance on Section 4(2) of the Act. The
proceeds from this offering were $131,612.
In June and July of 1997, Colony Delaware issued a total of 5,860
shares to a consultant in reliance on Section 4(2) of the Act.
In December 1998, Colony Delaware effected a reverse split of its
10,328,395 outstanding shares on a 1:50 basis. This resulted in an
outstanding share total of 206,759, after adjustments for fractional shares.
In December 1998, Colony Delaware completed a private placement for
3,937,899 shares of common stock to the following investors in reliance on
Rule 504 of Regulation D under the Act ("Rule 504"). The proceeds from this
offering were $98,447.48.
Quantum Securities Ltd. 250,000
Mulhouse Investments Ltd. 400,000
APL Securities Ltd. 400,000
Excellsior Management Ltd. 400,000
Jungfrau Investments Ltd. 400,000
Matrix Securities Pty. Ltd. 360,000
Pan American Securities Ltd. 337,899
Starward Securities Ltd. 215,000
Bonn Securities AG Ltd. 283,000
Marcia Fraser 25,000
John Fraser 5,000
Brad Aelicks 50,000
Comar Services Inc. 50,000
Peter Larlee 5,000
Steve Wollach 67,000
Monique Markham 5,000
Bernarda Vrbancic 5,000
Nenad Vrbancic 5,000
Jasna Frakes 300,000
Natasha Frakes 5,000
Alexander Frakes 5,000
Anthea Frakes 5,000
Katherine Nelson 260,000
Brittany Nelson 25,000
Anastasia Nelson 25,000
Sophia Nelson 25,000
Brian Nelson 5,000
Art Birzneck Sr. 20,000
In January 1999, Colony Delaware issued 7,000,000 shares to Paul J.
Crowe, Fleming & Associates and Northwest Capital Partners LLC, the former
shareholders of Mobile Nevada, in connection with Colony Delaware's
acquisition of that company, and in reliance on Section 4(2) of the Act.
In January 1999, we issued 900,000 shares of common stock as a
result of the exercise of stock options by Bonn Securities AG Ltd. and
Starward Securities AG Ltd., each of which was granted options in December
1998 by Colony Delaware pursuant to Rule 504. The exercise price for the
options was $1.00 per share, raising $900,000.
In January 1999, we issued 100,000 shares of common stock as a
signing bonus to Jim Corlett, our Vice President for Mobile Operations, in
reliance on Section 4(2) of the Act.
In May 1999, we issued 100,000 shares of common stock as a signing
bonus to Thomas G. Brown, our Chief Financial Officer, in reliance on Section
4(2) of the Act.
In May 1999, we issued 600,000 shares of common stock as a result of
the exercise of stock options by Matrix Securities Pty Ltd., Pan American
Securities Ltd. and Northwest Capital Partners LLC, each of which was granted
options in December 1998 by Colony Delaware pursuant to Section 4(2) of the
Act. The exercise price for the options was $1.50 per share, raising
$900,000.
19
<PAGE>
In July 1999, we completed a private placement for 515,000 shares
of common stock and 51,500 warrants to purchase common stock to Bank J.
Vontobel & Co. AG and Swiss American Securities, Inc., in reliance on Section
4(2) of the Act and Rule 506 of Regulation D under the Act. The proceeds from
this offering were $2,060,000. These investors represented to us that they
were accredited investors as defined in the Act, that they were capable of
evaluating the merits and risks of this investment, and could bear the
economic risk of this investment.
In January 2000, we completed a private placement for 550,000 shares
of common stock to Bank J. Vontobel & Co. AG and Swiss American Securities,
Inc. in reliance on Section 4(2) of the Act and Rule 506 of Regulation D
under the Act. These investors represented to us that they were accredited
investors as defined in the Act, that they were capable of evaluating the
merits and risks of this investment, and could bear the economic risk of this
investment.
In March 2000, we completed a private placement for 60 shares of
Series A Convertible Preferred Stock to York, LLC in reliance on Section 4(2)
of the Act and Rule 506 of Regulation D under the Act. The proceeds from this
offering were $3,000,000. York, LLC represented to us that it was an
accredited investor as defined in the Act and that it was able to protect its
own interests in connection with its investment.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under the Delaware General Corporation Law and our Certificate of
Incorporation, our directors will have no personal liability to us or our
stockholders for monetary damages incurred as the result of the breach or
alleged breach by a director of his "duty of care." This provision does not
apply to the directors' (i) acts or omissions that involve intentional
misconduct or a knowing and culpable violation of law, (ii) acts or omissions
that a director believes to be contrary to the best interests of the
corporation or its stockholders or that involve the absence of good faith on
the part of the director, (iii) approval of any transaction from which a
director derives an improper personal benefit, (iv) acts or omissions that
show a reckless disregard for the director's duty to the corporation or its
stockholders in circumstances in which the director was aware, or should have
been aware, in the ordinary course of performing a director's duties, of a
risk of serious injury to the corporation or its stockholders, (v) acts or
omissions that constituted an unexcused pattern of inattention that amounts
to an abdication of the director's duty to the corporation or its
shareholders, or (vi) approval of an unlawful dividend, distribution, stock
repurchase or redemption. This provision would generally absolve directors of
personal liability for negligence in the performance of duties, including
gross negligence.
The effect of this provision in our Certificate of Incorporation is
to eliminate the rights of our company and our stockholders (through
stockholder's derivative suits on behalf of our company) to recover monetary
damages against a director for breach of his fiduciary duty of care as a
director (including breaches resulting from negligent or grossly negligent
behavior) except in the situations described in clauses (i) through (vi)
above. This provision does not limit nor eliminate the rights of our company
or any stockholder to seek non-monetary relief such as an injunction or
rescission in the event of a breach of a director's duty of care. In
addition, our Certificate of Incorporation provide that if the Delaware
General Corporation Law is amended to authorize the future elimination or
limitation of the liability of a director, then the liability of the
directors will be eliminated or limited to the fullest extent permitted by
the law, as amended. The Delaware General Corporation Law grants corporations
the right to indemnify their directors, officers, employees and agents in
accordance with applicable law.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons controlling
our Company pursuant to the foregoing provisions, we have been informed that
in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
We have not had any disagreements with Peterson & Co., our
independent outside auditors, since inception. Peterson & Co. was the auditor
of Mobile Nevada prior to its acquisition by Colony Delaware, and has
continued as our auditor since the acquisition.
20
<PAGE>
PART F/S
MOBILE P.E.T. SYSTEMS, INC. AND SUBSIDIARIES
(FORMERLY COLONY INTERNATIONAL INCORPORATED)
FINANCIAL STATEMENTS
JUNE 30, 1999
<TABLE>
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-1
FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET F-2
CONSOLIDATED STATEMENT OF OPERATIONS F-3
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT) F-4
CONSOLIDATED STATEMENT OF CASH FLOWS F-5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-6
</TABLE>
21
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To The Board of Directors
Mobile P.E.T. Systems, Inc.
We have audited the accompanying consolidated balance sheet of Mobile P.E.T.
Systems, Inc., formerly Colony International Incorporated and subsidiaries (a
development stage company) as of June 30, 1999, and the related consolidated
statement of operations, shareholders' equity and cash flows for the period
December 1, 1998 (date of recommencement) to June 30, 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Mobile
P.E.T. Systems, Inc. and its subsidiaries (a development stage company) as of
June 30, 1999, and the results its operations and its cash flows for the
period December 1, 1998 (date of recommencement) to June 30, 1999, in
conformity with generally accepted accounting principles.
PETERSON & CO.
San Diego, California
October 8, 1999
F-1
<PAGE>
MOBILE P.E.T. SYSTEMS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1999
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS
Cash $ 1,784,390
Due from London Radiosurgical Center, Ltd. 29,971
Prepaid expenses 17,990
Deposits 551,292
-------------
Total current assets 2,383,643
PROPERTY AND EQUIPMENT, NET 58,822
OTHER ASSETS
Subordinated equity participation 200,000
Restricted cash 252,372
-------------
Total assets $ 2,894,837
-------------
-------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 81,868
Income taxes payable 800
Accrued liabilities 88,750
-------------
Total current liabilities 171,418
SHAREHOLDER'S EQUITY
Common stock; $0.0001 par value; 20,000,000 shares
authorized, 12,844,658 shares issued
and outstanding 1,285
Additional paid in capital 4,545,998
Accumulated deficit (1,823,864)
-------------
Total shareholders' equity 2,723,419
-------------
Total liabilities and shareholders' equity $ 2,894,837
-------------
-------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
MOBILE P.E.T. SYSTEMS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD DECEMBER 1, 1998 (DATE OF RECOMMENCEMENT) TO JUNE 30, 1999
<TABLE>
<CAPTION>
<S> <C>
Costs and expenses
General and administrative $ 991,865
-------------
Loss from operations (991,865)
Other income (expense)
Interest income 2,701
Other income 1,553
Interest expense (7,017)
-------------
Total other income (expense) (2,763)
-------------
Loss before provision for income taxes (994,628)
Provision for income taxes 2,400
-------------
Net loss $ (997,028)
-------------
-------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
MOBILE P.E.T. SYSTEMS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD DECEMBER 1, 1998 (DATE OF RECOMMENCEMENT) TO JUNE 30, 1999
<TABLE>
<CAPTION>
Common Stock
$.0001 Par Value Additional
------------------------------ Paid In Accumulated
Shares Amount Capital Deficit
-------------- --------- ------------ -------------
<S> <C> <C> <C> <C>
Balance -- November 30, 1998 10,328,395 $ 1,033 $ 825,803 $ (826,836)
Reverse stock split: 50 to 1 (10,121,636) (1,012) 1,012
Common stock issued 3,937,899 394 98,053
-------------- --------- ------------ -------------
Balance immediately prior to acquisition 4,144,658 415 924,868 (826,836)
Common stock issued in acquisition 7,000,000 700 (700)
Common stock issued through the
exercise of stock options 1,500,000 150 1,799,850
Common stock issued as compensation 200,000 20 249,980
Common stock subscribed, net of
offering costs 1,572,000
Net loss incurred during development stage
operations (997,028)
-------------- --------- ------------ -------------
Balance -- June 30, 1999 12,844,658 $ 1,285 $ 4,545,998 $ (1,823,864)
-------------- --------- ------------ -------------
-------------- --------- ------------ -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
MOBILE P.E.T. SYSTEMS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD DECEMBER 1, 1998 (DATE OF RECOMMENCEMENT) TO JUNE 30, 1999
<TABLE>
<CAPTION>
<S> <C>
Cash flows from operating activities
Net loss $ (997,028)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation 2,198
Common stock issued for compensation 250,000
Increase in note due from London Radiosurgical Center, Ltd. (29,971)
Increase in prepaid expenses (17,990)
Increase in deposits (551,292)
Increase in restricted cash (252,372)
Increase in accounts payable 81,868
Increase in income taxes payable 800
Increase in accrued liabilities 88,750
-------------
Net cash used in operating activities (1,425,037)
Cash flows from investing activities
Capital expenditures (61,020)
Subordinated equity participation (200,000)
-------------
Net cash used in investing activities (261,020)
Cash flows from financing activities
Proceeds from loan 50,000
Payments on loan (50,000)
Common stock issued 3,470,447
-------------
Net cash provided by financing activities 3,470,447
-------------
Net increase in cash 1,784,390
Cash -- beginning of period -
-------------
Cash -- end of period $ 1,784,390
-------------
-------------
Supplemental Disclosures
Interest paid $ 7,021
Income taxes paid $ 1,600
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
NOTE 1 - THE COMPANY
Mobile P.E.T. Systems, Inc. was incorporated in the State of Nevada
on December 1, 1998. On December 22, 1998, the Company's shareholders
exchanged all of their shares of common stock for shares of common stock in
Colony International Incorporated, prior to that named American Coin and
Stamp Ventures, Inc., incorporated in the State of Delaware on August 21,
1985, and its wholly owned subsidiary Colony International Incorporated,
incorporated in the State of Nevada on April 25, 1995. Mobile P.E.T. Systems,
Inc. was merged into Colony International Incorporated on December 22, 1998
and Colony International Incorporated changed its name to Mobile P.E.T.
Systems, Inc., the surviving corporation. 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 will
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 is in the development stage and its efforts through June
30, 1999 have been principally devoted to organizational activities, raising
capital, and marketing efforts. Management anticipates incurring substantial
additional losses as it pursues its development efforts.
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.
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 of SFAS
No. 123.
F-6
<PAGE>
NOTE 3 - ACQUISITIONS
On December 22, 1998 Colony International
Incorporated issued 7,000,000 shares of its common stock in exchange for all
7,000,000 shares of the outstanding common stock of Mobile P.E.T. Systems,
Inc. This exchange of shares has been accounted for as a reverse merger,
under the purchase method of accounting. Accordingly, the combination of
Mobile P.E.T. Systems, Inc. and Colony International Incorporated and
subidiary 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.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment at June 30, 1999 consist of the following:
<TABLE>
<S> <C>
Computer equipment $33,820
Office furniture and equipment 20,778
Other equipment 6,422
----------
61,020
Less accumulated depreciation (2,198)
----------
$58,822
----------
----------
</TABLE>
Depreciation expense for the period December 1, 1998 (date of
recommencement) to June 30, 1999 was $2,198.
NOTE 5 - CAPITALIZATION
COMMON STOCK
The Company has authorized the issuance of twenty million
(20,000,000) 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 shares of common stock in
cash transactions: 3,937,899 shares for cash in the amount of $98,447. On
December 22, 1998 the Company acquired Mobile P.E.T. Systems, Inc. in a
non-cash, stock for stock transaction as follows: 7,000,000 shares of the
Company in exchange for 7,000,000 shares of Mobile P.E.T. Systems, Inc.
common stock. The Company 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 1999 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. At June 30,
1999 there are 440,000 shares of common stock subscribed for cash in the
amount of $1,572,000.
STOCK OPTIONS
In December 1999, 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 June 30, 1999.
During the period from December 1,1998 (date of recommencement) to June 30,
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 3,000,000 shares of common stock may be
granted to employees, directors and consultants. Stock options expire on June
30, 2002, with
F-7
<PAGE>
some options extending to 2004 and vesting over service periods that range
from zero to four years. During the period from December 1,1998 (date of
recommencement) to June 30, 1999, the Company did not recognize any
compensation expense. As of June 30, 1999, the Company has granted options to
purchase 1,735,000 shares of common stock as follows:
<TABLE>
<CAPTION>
Exercise Price Number of Shares Vested Shares
-------------- ---------------- -------------
<S> <C> <C>
Outstanding, November 30, 1998 -- --
Granted $1.00 - $4.50 3,235,000 2,600,000
Fair Value
Exercised $1.00 - $1.50 (1,500,000) (1,500,000)
Canceled -- --
----------- -------------
Outstanding, June 30, 1999 1,735,000 1,100,000
----------- -------------
----------- -------------
</TABLE>
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 period from December 1, 1998 (date of
recommencement) to June 30, 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 reduced to the pro forma amounts indicated below. Additional stock
option awards are anticipated in future years.
<TABLE>
<S> <C>
Net loss
As reported $ (997,028)
Pro forma (2,210,836)
Loss per share
As reported (0.09)
Pro forma (0.19)
</TABLE>
WARRANTS
At June 30, 1999 a warrant was outstanding for 180,000 shares of
common stock at an exercise price of $2.50 per share or the average of the
last reported sale price of the common stock for the five trading days
preceding the issue date. This warrant expires in March 2004.
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 first for a distribution of cash to investors, if any, up to the
amount of their investment, after which distribution 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.
DUE FROM LONDON RADIOSURGICAL CENTRE LTD
During the period December 1, 1998 (date of recommencement) to June
30, 1999, the Company advanced without interest $29,971 to LRC. At June 30,
1999 the balance due from LRC was $29,971.
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
period December 1, 1998 (date of recommencement) to June 30, 1999 the Company
made cash payments of $66,000 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.
F-8
<PAGE>
NOTE 7 - 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.
One of the agreements, 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.
NOTE 8 - INCOME TAXES
At June 30, 1999 the Company has a net operating loss carryforward
for tax purposes of approximately $602,000 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 period
December 1, 1998 (date of recommencement) to June 30, 1999 are as follows:
<TABLE>
<S> <C>
Current
Federal $ --
State 2,400
-----------
2,400
Deferred
Federal --
State --
-----------
--
-----------
$2,400
-----------
-----------
</TABLE>
The components of the net deferred income tax asset were as follows:
<TABLE>
<S> <C>
Deferred tax asset
Start-up costs $ 155,949
Net operating loss carryforward 221,316
-----------
Deferred income tax asset 377,265
Less valuation allowance (377,265)
-----------
Net deferred income tax asset $ --
-----------
-----------
</TABLE>
NOTE 9 - COMMITMENTS
The Company leases PET equipment under a noncancellable operating
lease agreement that expires February 15, 2004. Under the terms of the lease,
the Company must maintain a restricted cash account equal to three months
rental payments. At June 30, 1999 the balance of restricted cash on deposit
is $252,372. Rental payments begin upon delivery of the equipment. The lease
is secured by all equipment, general intangibles, inventory, right to payment
of money, and fixtures of the Company.
The Company leases office space under a noncancellable operating
lease agreement that expires December 31, 2000.
F-9
<PAGE>
NOTE 9 - COMMITMENTS (CONTINUED)
The following is a schedule of future minimum rental payments
required under all leases:
<TABLE>
<S> <C>
1999 $84,376
2000 433,948
2001 433,435
2002 433,435
2003 433,435
Thereafter 288,957
------------
$2,107,586
------------
------------
</TABLE>
Rent expense under operating leases amounted to $17,686 for the
period December 1, 1998 (date of recommencement) to June 30, 1999.
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. The Company expects to take delivery of the units
in 1999 and 2000.
NOTE 10 - MOBILE SERVICES AGREEMENTS
In April 1999 the Company entered into a 5 year Mobile Services
Agreement with a health care provider. In May 1999 the Company entered into
two 5 year Mobile Services Agreements with health care providers.
NOTE 11 - CONCENTRATION OF CREDIT RISK
The Company maintains cash with various major financial institutions
in excess of the Federal Deposit Insurance Corporation limits.
NOTE 12 - SUBSEQUENT EVENTS
In July 1999 the Company issued 515,000 shares of common stock,
completing a private placement. The Company received cash in the amount of
$1,572,000, net of offering costs prior to July 1, 1999 and an additional
$300,000 in July 1999 for a total of $1,872,000. In connection with this
placement, the Company issued 51,500 warrants to purchase shares of common
stock at an exercise price of $4.00 per share. The warrants expire on June
30, 2002.
During the period July 1, 1999 to September 9, 1999, the Company
issued 609,000 options to purchase shares of common stock for the average
price per share in 1999 or between $1.00 to $4.00. Stock options expire on
June 30, 2002, with some options extending to 2005 and vesting over service
periods that range from zero to four years.
Note 13 - EARNINGS (LOSS) PER SHARE
The computations of basic and diluted earnings per share from
continuing operations for the period December 1, 1998 (date of
recommencement) to June 30, 1999 were as follows:
<TABLE>
<S> <C>
Loss per share - basic
Numerator:
Net loss - available to
Common shareholders $ (997,028)
Denominator:
Weighted-average shares 11,350,140
------------
Loss per share - basic $ (0.09)
------------
------------
Loss per share - diluted
Numerator:
Net loss - available to
Common shareholders $ (997,028)
Denominator:
Weighted-average shares 11,350,140
------------
Loss per share - diluted $ (0.09)
------------
------------
</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 period December 1, 1998 (date of recommencement) to June 30, 1999:
<TABLE>
<S> <C>
Common stock subscribed 440,000
Employee stock options 908,915
Warrants 71,321
</TABLE>
F-10
<PAGE>
MOBILE P.E.T. SYSTEMS, INC. AND SUBSIDIARIES
(FORMERLY COLONY INTERNATIONAL INCORPORATED)
INTERNALLY PREPARED FINANCIAL STATEMENTS
JUNE 30, 1999 AND SEPTEMBER 30, 1999
<TABLE>
<S> <C>
FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS F-12
CONSOLIDATED STATEMENTS OF OPERATIONS F-13
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) F-14
CONSOLIDATED STATEMENTS OF CASH FLOWS F-15
</TABLE>
F-11
<PAGE>
MOBILE P.E.T. SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1999 AND SEPTEMBER 30, 1999
ASSETS
<TABLE>
<S> <C>
June 30, 1999 September 30, 1999
Audited Unaudited
------------- ------------------
CURRENT ASSETS
Cash $ 1,784,390 $ 170,089
Due from London Radiosurgical Center, Ltd. 29,971 212,018
Accounts receivable - 138,115
Prepaid expenses 17,990 21,552
Deposits 551,292 586,202
------------- ------------------
Total current assets 2,383,643 1,127,976
PROPERTY AND EQUIPMENT, NET 58,822 1,593,713
OTHER ASSETS
Subordinated equity participation 200,000 200,000
Restricted cash 252,372 104,040
------------- ------------------
Total assets $ 2,894,837 $ 3,025,729
------------- ------------------
------------- ------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 81,868 $ 54,815
Income taxes payable 800 800
Accrued liabilities 88,750 109,703
Note payable - CTI - 637,500
------------- ------------------
Total current liabilities 171,418 802,818
SHAREHOLDER'S EQUITY
Common stock; $0.0001 par value; 20,000,000 shares
authorized, 12,844,658 shares issued
and outstanding June 30, 1999 and
13,359,658 shares issued and outstanding
September 30, 1999 1,285 1,336
Additional paid in capital 4,545,998 4,742,947
Accumulated deficit (1,823,864) (2,521,372)
------------- ------------------
Total shareholders' equity 2,723,419 2,222,911
------------- ------------------
Total liabilities and shareholders' equity $ 2,894,837 $ 3,025,729
------------- ------------------
------------- ------------------
</TABLE>
F-12
<PAGE>
MOBILE P.E.T. SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD DECEMBER 1, 1998 (DATE OF RECOMMENCEMENT) TO JUNE 30, 1999
AND FOR THE UNAUDITED QUARTER JULY 1, 1999 TO SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Quarter Ended
June 30, 1999 September 30, 1999
Audited Unaudited
------------- ------------------
<S> <C>
Service revenues $ - $ 79,995
Cost of service revenues - 57,049
------------- ------------------
Gross profit - 22,946
------------- ------------------
Costs and expenses
General and administrative 991,865 711,782
------------- ------------------
Loss from operations (991,865) (688,836)
Other income (expense)
Interest income 2,701 6,666
Other income 1,553 -
Interest expense (7,017) (14,538)
------------- ------------------
Total other income (expense) (2,763) (7,872)
------------- ------------------
Loss before provision for income taxes (994,628) (696,708)
Provision for income taxes 2,400 800
------------- ------------------
Net loss $ (997,028) $ (697,508)
------------- ------------------
------------- ------------------
</TABLE>
F-13
<PAGE>
MOBILE P.E.T. SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD DECEMBER 1, 1998 (DATE OF RECOMMENCEMENT) TO JUNE 30, 1999
AND FOR THE UNAUDITED QUARTER JULY 1, 1999 TO SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Common Stock
$.0001 Par Value Additional Total
------------------------------ Paid In Accumulated Shareholders
Shares Amount Capital Deficit Equity
-------------- --------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Balance -- November 30, 1998 10,328,395 $ 1,033 $ 825,803 $ (826,836) $ -
Reverse stock split: 50 to 1 (10,121,636) (1,012) 1,012 -
Common stock issued 3,937,899 394 98,053 98,447
-------------- --------- ------------ ------------- ------------
Balance immediately prior to acquisition 4,144,658 415 924,868 (826,836) 98,447
Common stock issued in acquisition 7,000,000 700 (700) -
Common stock issued through the
exercise of stock options 1,500,000 150 1,799,850 1,800,000
Common stock issued as compensation 200,000 20 249,980 250,000
Common stock subscribed, net of
offering costs 1,572,000 1,572,000
Net loss incurred during development stage
operations (997,028) (972,028)
-------------- --------- ------------ ------------- ------------
Balance -- June 30, 1999 12,844,658 1,285 4,545,998 (1,823,864) 2,723,419
-------------- --------- ------------ ------------- ------------
Common stock issued in private placement 515,000 51 196,949 197,000
Net loss incurred during development stage
operations for quarter ending September 30, 1999 (697,508) (697,508)
-------------- --------- ------------ ------------- ------------
Balance - September 30, 1999 13,359,658 $ 1,336 $ 4,742,947 $ (2,521,372) $2,222,911
-------------- --------- ------------ ------------- ------------
-------------- --------- ------------ ------------- ------------
</TABLE>
F-14
<PAGE>
MOBILE P.E.T. SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD DECEMBER 1, 1998 (DATE OF RECOMMENCEMENT) TO JUNE 30, 1999
AND FOR THE UNAUDITED QUARTER JULY 1, 1999 TO SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Quarter Ended
June 30, 1999 September 30, 1999
Audited Unaudited
------------- ------------------
<S> <C>
Cash flows from operating activities
Net loss $ (997,028) $ (697,508)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation 2,198 38,046
Common stock issued for compensation 250,000 -
Increase in note due from London Radiosurgical Center, Ltd. (29,971) (182,047)
Increase in accounts receivables - (138,115)
Increase in prepaid expenses (17,90) (3,562)
Increase in deposits (551,292) (34,910)
(Increase) decrease in restricted cash (252,372) 148,332
Increase in accounts payable 81,868 (27,053)
Increase in income taxes payable 800 -
Increase in accrued interest - 8,500
Increase in accrued liabilities 88,750 12,453
------------- ------------------
Net cash used in operating activities (1,425,037) (875,864)
Cash flows from investing activities
Capital expenditures (61,020) (935,437)
Subordinated equity participation (200,000) -
------------- ------------------
Net cash used in investing activities (261,020) (935,437)
Cash flows from financing activities
Proceeds from loan 50,000 -
Payments on loan (50,000) -
Common stock issued 3,470,447 197,000
------------- ------------------
Net cash provided by financing activities 3,470,447 197,000
------------- ------------------
Net increase in cash 1,784,390 (1,614,301)
Cash -- beginning of period - 1,784,390
------------- ------------------
Cash -- end of period $ 1,784,390 $ 170,089
------------- ------------------
------------- ------------------
Supplemental Disclosures
Interest paid $ 7,021 $ 6,039
Income taxes paid $ 1,600 $ -
</TABLE>
F-15
<PAGE>
PART III
INDEX TO EXHIBITS
<TABLE>
<S> <C>
2.1* Acquisition Agreement between Colony International, Inc. and Mobile
P.E.T. Systems, Inc.
2.2* Acquisition Agreement between American Coin and Stamp Ventures, Inc.
and Colony International, Inc.
3.1 Certificate of Incorporation, as amended
3.2* Amended and Restated Bylaws
10.1* Equipment Lease with Finova Capital Corporation
10.2* Security Agreement with Finova Capital Corporation
10.3* Common Stock Purchase Warrant with Finova Capital Corporation
10.4* Continuing Personal Guaranty between Paul J. Crowe and Finova Capital
Corporation
10.5* Collateral Assignment of Agreements by Mobile P.E.T. Systems, Inc.
10.6* Subordination Agreement with Finova Capital Corporation
10.7* Office Space Lease Agreement
10.8* Form of Positron Emission Tomography Mobile Services Agreement
10.9* Promissory Note with The London Radiosurgical Centre, Ltd.
10.10* Letter Agreement with The London Radiosurgical Centre, Ltd.
10.11* Employment Agreement with Mr. Crowe
10.12* Employment Agreement with Mr. Corlett, as amended
10.13* Consulting Agreement with Mr. Brown
10.14* Consulting Agreement with Northwest Capital Partners, LLC
10.15* Consulting Agreement with Michael Baybak and Company, Inc.
10.16* Consultancy Agreement with Dr. Piers Nicholas Plowman
10.17* 1999 Stock Option Plan
21. Subsidiaries of the Registrant
27.* Financial Data Schedule
</TABLE>
* Previously filed
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of
1934, the registrant caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized.
MOBILE P.E.T. SYSTEMS, INC.
Date: March 16, 2000 By: /s/ PAUL J. CROWE
--------------------------------------
Paul J. Crowe, President
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ PAUL J. CROWE
- ----------------------------------- Chief Executive Officer and March 16, 2000
Paul J. Crowe Director
/s/ THOMAS G. BROWN
- ----------------------------------- Chief Financial Officer and March 16, 2000
Thomas G. Brown Director
/s/ BRENT NELSON
- -----------------------------------
Brent Nelson Director March 16, 2000
</TABLE>
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
AMERICAN COIN & STAMP VENTURES, INC.
------------------------------------
I, THE UNDERSIGNED, in order to form a corporation for the purposes
hereinafter stated, under and pursuant to the provisions of the General
Corporation Law of the State of Delaware, do hereby certify as follows:
FIRST: The name of the corporation is
AMERICAN COIN & STAMP VENTURES, INC.
SECOND: Its registered office is to be located at 306 South State
Street, in the City of Dover, in the County of Kent, in the State of Delaware.
The name of its registered agent at that address is the United States
Corporation Company.
THIRD: The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
FOURTH: The total number of shares of stock which the corporation is
authorized to issue is seventy five million (75,000,000) shares, and the par
value of each of such share is ($.00001).
FIFTH: The name and address of the single incorporator are
Leif A. Tonnessen 70 Pine Street, New York, N.Y. 10270
<PAGE>
SIXTH: The By-Laws of the corporation may be made, altered, amended,
changed, added to or repealed by the Board of Directors without the assent or
vote of the stockholders. Elections of directors need not be by ballot unless
the By-Laws so provide.
SEVENTH: The corporation shall, to the full extent permitted by Section
145 of the Delaware General Corporation Law, as amended from time to time,
indemnify all persons whom it may indemnify pursuant thereto.
EIGHTH: The corporation reserves the right to amend, alter, change or
repeal any provision contained in this certificate in the manner now or
hereafter prescribed by law, and all rights and powers conferred herein on
stockholders, directors and officers are subject to this reserved power.
IN WITNESS WHEREOF, I have hereunto set my hand and seal, the 20th day
of August, 1985.
/s/ Leif A. Tonnessen (L.S.)
----------------------
Leif A. Tonnessen
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION OF
AMERICAN COIN & STAMP VENTURES, INC.
-----------------------------------------
Adopted in accordance with the
provisions of Section 242 of the
General Corporation Law of the
State of Delaware
-----------------------------------------
We, JOSEPH BROWN, President and HAROLD M. HERSHMAN, Secretary of
AMERICAN COIN & STAMP VENTURES, INC., a corporation existing under the laws of
the State of Delaware, do hereby certify as follows:
FIRST: That the Certificate of Incorporation of said Corporation has
been amended as follows:
By striking out the whole of Article FOURTH thereof as it now exists
and inserting in lieu and instead thereof a new Article FOURTH, reading as
follows:
"The total number of shares of stock which the corporation shall have
authority to issue is One Hundred Million (100,000,000) and the par
value of each of such shares is $.0001 Cents.
SECOND: That such amendment has been duly adopted in accordance with
the provisions of the General Corporation Law of the State of Delaware by the
affirmative vote of the holders of a majority of the stock entitled to vote at
a meeting of the
<PAGE>
stockholders duly held February 20, 1986.
THIRD: That the capital of said Corporation will not be reduced under
or by reason of said amendments.
IN WITNESS WHEREOF, said AMERICAN COIN & STAMP VENTURES, INC., has
caused this Certificate to be signed by JOSEPH BROWN, its President and attested
by HAROLD M. HERSHMAN, its Secretary, this 3rd day of March, 1986.
AMERICAN COIN & STAMP VENTURES, INC.
BY: /s/ Joseph Brown
----------------------------------
JOSEPH BROWN, President
ATTEST:
BY: /s/ Harold M. Hershman
-----------------------------------
HAROLD M. HERSHMAN, Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
JOSEPH BROWN, President and HAROLD M. HERSHMAN, Secretary,
respectively, of AMERICAN COIN & STAMP VENTURES, INC., a corporation organized
and existing under the laws of the State of Delaware, hereby certify:
FIRST: That a new Article NINTH of the Certificate of Incorporation of
American Coin & Stamp Ventures, Inc., be added as follows:
"NINTH: To the fullest extent permitted by the Delaware General
Corporation Law as the same exists or may hereafter be amended, a Director of
this Company shall not be liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a Director. No amendment to or repeal of
these provisions shall apply to or have any effect on the liability or alleged
liability of any Director of the Corporation for or with respect to any acts or
omissions of such Director occurring prior to such amendment."
SECOND: That the foregoing amendment has been duly adopted in
accordance with the provisions of Section 242 of the General Corporation Law of
the State of Delaware.
THIRD: That the capital of American Coin & Stamp
<PAGE>
Ventures, Inc., will not be reduced under or by reason of said amendment.
FOURTH: That the foregoing amendment shall become effective at the time
and on the day this certificate is filed in accordance with Section 103 of the
General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, this certificate has been made under the seal of
American Coin & Stamp Ventures, Inc., and has been signed by the undersigned,
President and Secretary, respectively, of American Coin & Stamp Ventures, Inc.,
this 28th day of March, 1988.
/s/ Joseph Brown
-------------------------
President
Attest:
/s/ Harold M. Hershman
- ---------------------------------
Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
AMERICAN COIN & STAMP VENTURES, INC.
STANLEY APPELBAUM, President and HAROLD M. HERSHMAN, Secretary,
respectively, of AMERICAN COIN & STAMP VENTURES, INC., a corporation organized
and existing under the laws of the State of Delaware, hereby certify:
FIRST: That a new Article NINTH of the Certificate of Incorporation of
American Coin & Stamp Ventures, Inc., be added as follows:
"NINTH: To the fullest extent permitted by the Delaware General
Corporation Law as the same exists or may hereafter be amended, a Director of
this Company shall not be liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a Director. No amendment to or repeal of
these provisions shall apply to or have any effect on the liability or alleged
liability of any Director of the Corporation for or with respect to any acts or
omissions of such Director occurring prior to such amendment."
SECOND: That the foregoing amendment has been duly adopted in
accordance with the provisions of Section 242 of the General Corporation Law of
the State of Delaware.
THIRD: That the capital of American Coin & Stamp
<PAGE>
Ventures, Inc., will not be reduced under or by reason of said amendment.
FOURTH: That the foregoing amendment shall become effective at the time
and on the day this certificate is filed in accordance with Section 103 of the
General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, this certificate has been made under the seal of
American Coin & Stamp Ventures, Inc., and has been signed by the undersigned,
President and Secretary, respectively, of American Coin & Stamp Ventures, Inc.,
this 17th day of August, 1988.
/s/ Stanley Appelbaum
----------------------------------
STANLEY APPELBAUM, President
Attest:
/s/ Harold M. Hershman
- -------------------------------
Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
AMERICAN COIN & STAMP VENTURES, INC.
Under Section 242 of the
CORPORATION LAW OF THE STATE OF DELAWARE
AMERICAN COIN & STAMP VENTURES, INC. (the "Corporation"), a corporation
organized and existing under and by virtue of the General Corporation Law of the
State of Delaware, DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of said corporation, by written
consent filed with the minutes of the Board, adopted the following resolutions
proposing and declaring advisable the following amendments to the Certificate of
Incorporation of said corporation:
"1. That Article FIRST of the Certificate of Incorporation be
further amended and, as further amended, read as follows:
'FIRST: The name of the Corporation is COLONY INTERNATIONAL
INCORPORATED.";
2. That Article FOURTH of the Certificate of Incorporation be
amended and, as amended, read as follows:
'FOURTH: The amount of the total authorized capital stock of this
Corporation is Twenty Million (20,000,000) shares of Common Stock, with a par
value of $.0001 per share."
3. The foregoing amendments are effective as of the opening of
business on January 27, 1997.
4. Effective as of the opening of business on January 27, 1997,
the Corporation's outstanding shares are reverse split on a one-for-19.927
basis, so that each 19.927 shares of Common Stock, $.0001 par value outstanding
prior to the reverse split shall become one share of Common Stock, $.0001 par
value after the reverse split.
SECOND: That the aforesaid amendments and reverse split were duly
adopted in accordance with the applicable provisions of Section 242 of the
General Corporation Law of the State of Delaware, at a meeting of stockholders
duly called and held for the above purposes.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by Joseph Brown, its President, and attested by Harold Hershman, its
Secretary, this 15th day of January, 1997.
AMERICAN COIN & STAMP VENTURES, INC.
By: /s/ Joseph Brown
------------------------------
Joseph Brown, President
ATTEST:
By: /s/ Harold Hershman
---------------------------
Harold Hershman, Secretary
<PAGE>
CERTIFICATE OF CHANGE OF LOCATION OF REGISTERED OFFICE
AND OF REGISTERED AGENT
It is hereby certified that:
1. The name of the corporation (hereinafter called the "corporation") is
COLONY INTERNATIONAL INCORPORATED
2. The registered office of the corporation within the State of Delaware is
hereby changed to 1313 N. Market Street, City of Wilmington 19801-1151, County
of New Castle.
3. The registered agent of the corporation within the State of Delaware is
hereby changed to The Company Corporation, the business office of which is
identical with the registered office of the corporation as hereby changed.
4. The corporation has authorized the changes hereinbefore set forth by
resolution of its Board of Directors.
Signed on July 7, 1997
/s/ S. Michie
------------------------------------------
Authorized Officer
President
------------------------------------------
Title
<PAGE>
CERTIFICATE OF AMENDMENT
OF CERTIFICATE OF INCORPORATION
OF
COLONY INTERNATIONAL INCORPORATED
It is hereby certified that:
1. The name of the corporation (hereinafter called the "corporation") is
Colony International Incorporated.
2. Article FIRST of the Certificate of Incorporation be amended to read
as follows:
FIRST: The name of the Corporation is Mobile PET Systems, Inc.
3. The amendment of the certificate of incorporation herein certified has
been duly adopted in accordance with the provisions of Sections 228
and 242 of the General Corporation Law of the State of Delaware.
Prompt written notice of the adoption of the amendment herein
certified will be given to those stockholders who have not consented
in writing thereto, as provided in Section 228 of the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by Brent Nelson, its President this 6th day of January, 1999.
/s/ Brent Nelson
----------------------
Brent Nelson, President
<PAGE>
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
MOBILE PET SYSTEMS, INC.
The undersigned, Paul J. Crowe and James Corlett, hereby certify that:
ONE. Mobile PET Systems, Inc., a Delaware corporation (the
"Corporation") was originally incorporated under the name American Coin & Stamp
Ventures, Inc. The date of filing of the original Certificate of Incorporation
of this Corporation with the Secretary of State of the State of Delaware is
August 21, 1985.
TWO: They are the duly elected and acting President and Vice President,
respectively, of the Corporation.
THREE: The Certificate of Incorporation of the Corporation shall be
amended and restated to read in full as follows:
1. The name of the Corporation is Mobile PET Systems, Inc.
2. The address of its registered office in the State of Delaware is 9
East Loockerman Street in the City of Dover, County of Kent. The name of its
Registered Agent at such address is National Corporate Research, Ltd.
3. The nature of the business or purposes to be conducted or promoted
is to engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
4. The total number of shares of all classes of capital stock which the
Corporation shall have authority to issue is One Hundred Million (100,000,000)
shares divided into two classes of shares, designated, respectively, "Preferred
Stock" and "Common Stock." The number of shares of Common Stock authorized to be
issued is Ninety Million (90,000,000) shares, with a par value of $.0001 per
share. The number of shares of Preferred Stock authorized to be issued is Ten
Million (10,000,000) shares, with a par value of $.0001 per share.
The Board of Directors of the Corporation (the "Board") is expressly
authorized to provide for the issuance of all or any of the shares of the
Preferred Stock in one or more series, and to fix the number of shares and to
determine or alter for each such series, such voting powers, full or limited, or
no voting powers, and such designations, preferences and relative,
participating, optional, or other rights and such qualifications, limitations,
ore restrictions thereof, as shall be stated and expressed in the resolution or
resolutions adopted by the Board providing for the issuance of such shares and
as may be permitted by the General Corporation Law of the State of Delaware. The
Board is also expressly authorized to increase or decrease (but not below the
number of shares of such series then
<PAGE>
outstanding) the number of shares of any series of the Preferred Stock
subsequent to the issuance of shares of that series. In case the number of
shares of any such series shall be so decreased, the shares constituting such
decrease shall resume the status that they had prior to the adoption of the
resolutions originally fixing the number of shares of such series.
5. The Board is authorized to make, alter or repeal the by-laws of the
corporation. Election of directors need not be by written ballot.
6. A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived any improper
personal benefit.
7. The Corporation shall indemnify its officers, directors, employees
and agents to the extent permitted by the General Corporation Law of Delaware.
FOUR: This Amended and Restated Certificate of Incorporation has been
duly approved by unanimous written consent of the Board.
FIVE: This Amended and Restated Certificate of Incorporation has been
duly adopted in accordance with the provisions of Sections 141(f), 228, 242 and
245 of the General Corporation Law of the State of Delaware by the Board of
Directors and the holders of Common Stock of this Corporation. The total number
of outstanding shares entitled to vote or act by written consent was 13,359,658
shares of Common Stock. There are no outstanding shares of Preferred Stock of
the Corporation. The number of shares of Common Stock voting in favor of this
Amended and Restated Certificate of Incorporation by written consent in
accordance with Section 228 of the General Corporation Law of the State of
Delaware equaled or exceeded the vote required, such vote being a majority of
the number of shares of Common Stock then outstanding.
2
<PAGE>
IN WITNESS WHEREOF, Mobile PET Systems, Inc. has caused this Amended
and Restated Certificate of Incorporation to be signed by its President and Vice
President this 28th day of January, 2000.
/s/ Paul J. Crowe
--------------------------------------
Paul J. Crowe, President
/s/ James Corlett
--------------------------------------
James Corlett, Vice President
3
<PAGE>
CERTIFICATE OF DESIGNATION
OF
SERIES A CONVERTIBLE PREFERRED STOCK
OF
MOBILE P.E.T. SYSTEMS, INC.
(Adopted pursuant to Section 242 of the Delaware General Corporation Law)
The undersigned hereby certifies that the Board of Directors of
MOBILE P.E.T. SYSTEMS, INC., a Delaware corporation (the "COMPANY"), duly
adopted the following resolutions effective as of March 1, 2000:
RESOLVED, a series of preferred stock of the Company is created and
the relative rights, preferences, and limitations of the shares of such
series are as follows:
I. DESIGNATION AND AMOUNT. The shares of such series of Preferred Stock shall
be designated as "Series A Convertible Preferred Stock" (the "SERIES A
PREFERRED STOCK") and the number of shares constituting the Series A
Preferred Stock shall be Sixty (60). The Series A Preferred Stock shall have
a liquidation value (the "LIQUIDATION VALUE") of $50,000 per share.
II. DIVIDENDS.
A. The holders of shares of Series A Preferred Stock shall be entitled
to receive dividends, out of any assets legally available therefor prior to,
and in preference to, any declaration or payment of any dividend on the
Common Stock of this Company, at a per share rate equal to eight percent (8%)
per annum of the amount of the Liquidation Value of the Series A Preferred
Stock, which is payable upon conversion (based upon a 365 calendar day year)
as set forth below. Dividends shall begin to accrue as of the Issuance Date
(as defined below). Any dividends payable pursuant to the provisions of this
paragraph shall, at the Company's option, be payable in cash, or unrestricted
shares of Common Stock of the Company within five Business Days (as defined
below) of when due. The number of shares of Common Stock to be issued by the
Company in lieu of a cash payment for dividends due as set forth herein shall
be equal to the number of shares of Common Stock resulting from dividing the
dollar amount of dividends owed by the Conversion Price (as defined below) on
such date as the dividends are payable (if such date is not a Trading Day,
then the next Trading Day (as defined below) immediately thereafter).
<PAGE>
B. Such dividends shall accrue on each share of Series A Preferred Stock
from the Issuance Date, and shall accrue from day to day whether or not
earned or declared. Such dividends shall be cumulative so that if such
dividends in respect of any previous or current annual dividend period, at
the annual rate specified above, shall not have been paid or declared and a
sum sufficient for the payment thereof set apart, for all Series A Preferred
Stock at the time outstanding, the deficiency shall first be fully paid
before any dividend or other distribution shall be paid on or declared or set
apart for the Series A Preferred Stock, Common Stock or other security of the
Company subordinate in liquidation to the Series A Preferred Stock. Dividends
on the Series A Preferred Stock shall be non-participating and the holders of
the Series A Preferred Stock shall not be entitled to participate in any
other dividends beyond the cumulative dividends specified herein.
III. LIQUIDATION, DISSOLUTION OR WINDING UP.
A. In the event of any liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary, and in preference to any
distribution of any assets of the Company to the holders of Common Stock ,
holders of each share of Series A Preferred Stock shall be entitled to
receive out of the assets available for distribution to shareholders the
Liquidation Value per share of Series A Preferred Stock plus eight percent
(8%) per annum thereon from the Issuance Date (as defined below) to the
Trading Day (as defined below) immediately prior to such liquidation,
dissolution or winding up of the Company (the "LIQUIDATION AMOUNT").
B. Upon the completion of any required distribution to the holders of
the Series A Stock and Series B Stock, if the assets of the Company available
for distribution to shareholders shall be insufficient to pay the holders of
shares of Series A Preferred Stock the full Liquidation Amount to which they
shall be entitled, then any such distribution of assets of the Company shall
be distributed ratably to the holders of shares of Series A Preferred Stock.
C. After the payment of the Liquidation Amount shall have been made in
full to the holders of the Series A Preferred Stock or funds necessary for
such payment shall have been set aside by the Company in trust for the
account of holders of the Series A Preferred Stock so as to be available for
such payments, the holders of the Series A Preferred Stock shall be entitled
to no further participation in the distribution of the assets of the Company,
and the remaining assets of the Company legally available for distribution to
shareholders shall be distributed among the holders of Common Stock and any
other classes or series of Preferred Stock of the Company in accordance with
their respective terms.
IV. VOTING. Holders of Series A Preferred Stock shall have no voting rights
except as expressly required by law or as expressly provided herein.
V. CONVERSION OF SERIES A PREFERRED STOCK. The holders of Series A Preferred
Stock
<PAGE>
shall have the right, at such holder's option, to convert the Series A
Preferred Stock into shares of Common Stock, on the following terms and
conditions:
A. Subject to the provisions of Section XI hereof, at any time or times
after the Issuance Date any holder of the Series A Preferred Stock shall be
entitled to convert any whole number of such holder's shares of Series A
Preferred Stock into that number of fully paid and nonassessable shares of
Common Stock, which is determined (per share of Series A Preferred Stock) by
dividing (x) $50,000, by (y) the Conversion Price (as defined below) (the
"CONVERSION RATE").
B. For purposes of this Certificate of Designation, the following terms
shall have the following meanings:
A "BUSINESS DAY" shall be any day other than a Saturday, Sunday,
national holiday or a day on which the New York Stock Exchange is closed.
The "CLOSING BID PRICE" shall mean, for any security as of any
date, the last closing bid price for such security on the Nasdaq Stock Market
as reported by Bloomberg L.P. ("BLOOMBERG"), or, if the Nasdaq Stock Market
is not the principal trading market for such security, the last closing bid
price of such security on the principal securities exchange or trading market
where such security is listed or traded as reported by Bloomberg, or if the
foregoing do not apply, the last closing bid price of such security in the
over-the-counter market on the NASD OTC Electronic Bulletin Board for such
security as reported by Bloomberg, or, the last closing trade price of such
security as reported by Bloomberg, or, if no last closing bid or trade price
is reported for such security by Bloomberg, the closing bid price shall be
determined by reference to the closing bid price as reported on the Principal
Market. If the Closing Bid Price cannot be calculated for such security on
such date on any of the foregoing bases, the Closing Bid Price of such
security on such date shall be the fair market value as mutually agreed by
the Company and the holders of two thirds of the outstanding shares of Series
A Preferred Stock.
The "CONVERSION PRICE" shall mean, as of any Conversion Date (as
defined below) the lesser of (i) $5.00 (the "Maximum Conversion Price") or
(ii) 75% of the average of the Closing Bid Prices of the Common Stock during
the Five (5) Trading Days (the "LOOKBACK PERIOD") immediately prior to the
Conversion Date.
"EFFECTIVE DATE" shall mean the date on which the Securities and
Exchange Commission (the "SEC") first declares effective a Registration
Statement registering the resale of 200% of the greater of (i) the number of
shares of Common Stock issuable upon conversion of all of the Series A
Preferred Stock outstanding on the Trading Day immediately preceding the day
such Registration Statement is filed (ii) the number of shares of Common
Stock issuable upon conversion of all of the Series A Preferred Stock
outstanding on the Trading Day immediately preceding the day any amendment to
such Registration Statement is filed.
<PAGE>
The "ISSUANCE DATE" shall mean, with respect to each share of
Series A Preferred Stock, the date of issuance of the applicable share of
Series A Preferred Stock.
A "TRADING DAY" shall mean a day on which the Principal Market is
open.
The "PRINCIPAL MARKET" shall mean the Nasdaq National Market, the
Nasdaq Small Cap Stock Market, the American Stock Exchange, the NASD OTC
Electronic Bulletin Board operated by the National Association of Securities
Dealers, Inc., or the New York Stock Exchange, whichever is at the time the
principal trading exchange or market for the Common Stock.
Holders of Series A Preferred Stock may exercise their right to
convert the Series A Preferred Stock by telecopying an executed and completed
notice of conversion in the agreed upon form (the "NOTICE OF CONVERSION") to
the Company and delivering to Company the original Notice of Conversion and
the certificate representing the Series A Preferred Stock being converted by
reputable overnight courier within three (3) business thereafter. Each
Business Day (between the hours of 6:30 a.m. and 5:00 p.m. Pacific Time) on
which a Notice of Conversion is telecopied to and received by the Company
shall be deemed a "CONVERSION DATE." The Company will deliver the
certificates representing shares of Common Stock issuable upon conversion of
any share of Series A Preferred Stock (together with the certificates
representing the share or shares of Series A Preferred Stock not so
converted) to the holder thereof via reputable overnight courier, by
electronic transfer or otherwise within three Business Days after the
Conversion Date, PROVIDED the Company has received the original Notice of
Conversion and Series A Preferred Stock certificate being so converted on or
before the close of business of the third Business Day after the Conversion
Date. In addition to any other remedies which may be available to the holders
of shares of Series A Preferred Stock, in the event that the Company fails to
deliver such shares of Common Stock within such three Business Day period,
the holder will be entitled to revoke the relevant Notice of Conversion by
delivering a notice (by similar method) to such effect to the Company
whereupon the Company and such holder shall each be restored to their
respective positions immediately prior to delivery of such Notice of
Conversion. The Notice of Conversion and Series A Preferred Stock
certificates representing the portion of the Series A Preferred Stock
converted shall be delivered as follows:
To the Company:
Mobile P.E.T. Systems, Inc.
2240 Shelter Island Drive
San Diego, CA 92106
ATTN: CEO
Telephone No.: (619) 226-6738
Telecopier No.: (619) ________
<PAGE>
with a copy to:
John Mann, Esq.
---------------------------
---------------------------
Houston, Texas ____________
Telephone: (713) 622-7114
Facsimile: (713) _________
The Company understands that a delay in the issuance of the shares
of Common Stock beyond the Delivery Date could result in economic loss to the
holder. As compensation to the holder for such loss, the Company agrees to
pay late payments to the holder in the event that Company's failure to issue
and deliver the shares on the Delivery Date in accordance with the following
schedule (where "No. Business Days Late" is defined as the number of business
days beyond three (3) business days after the Delivery Date):
<TABLE>
<CAPTION>
Late Payment For Each $10,000
of Preferred Stock Liquidation
No. Business Days Late Amount Being Converted
---------------------- ------------------------------
<S> <C>
1 $100
2 $200
3 $300
4 $400
5 $500
>5 $500 +$200 for each Business
Day Late beyond 5 days
from The Delivery Date
</TABLE>
The Company shall pay any payments incurred under this Section in
immediately available funds upon demand. Nothing herein shall limit the
holder's right to pursue actual damages or to cause the Company to redeem the
Preferred Shares as provided below for the Company's actions or inactions
resulting in the transfer agent's failure to issue and deliver the Common
Stock to the holder. Furthermore, in addition to any other remedies which may
be available to the holder, in the event that the Company fails to deliver
such shares of Common Stock within five (5) business days after the Delivery
Date, the Holder will be entitled to revoke the relevant Notice of Conversion
by delivering a notice to such effect to the Company whereupon the Company
and the holder shall each be restored to their respective positions
immediately prior to delivery of such Notice of Conversion. In the event the
Company's actions or inactions result in the transfer agent's failure to
issue and deliver the Common Stock to the holder within ten (10) days after
the Delivery Date, holder may, at its option, require the Company (without
limiting its other remedies hereunder) to immediately redeem all outstanding
Preferred Stock in accordance with Article XI hereof.
<PAGE>
If, by the relevant Delivery Date, the Company fails for any reason
to deliver the Shares to be issued upon conversion of the Preferred Stock and
after such Delivery Date, the holder of the Preferred Stock being converted
(a "Converting Holder") purchases, in an open market transaction or
otherwise, shares of Common Stock (the "Covering Shares") in order to make
delivery in satisfaction of a sale of Common Stock by the Converting Holder
made after a Conversion Date (the "Sold Shares"), which delivery such
Converting Holder anticipated to make using the Shares to be issued upon such
conversion (a "Buy-In"), the Company shall pay to the Converting Holder, in
addition to all other amounts contemplated in other provisions of this
Certificate of Designation and other agreements related hereto, and not in
lieu thereof, the Buy-In Adjustment Amount (as defined below). The "Buy-In
Adjustment Amount" is the amount equal to the excess, if any, of (x) the
Converting Holder's total purchase price (including brokerage commissions, if
any) for the Covering Shares over (y) the net proceeds (after brokerage
commissions, if any) received by the Converting Holder from the sale of the
Sold Shares. The Company shall pay the Buy-In Adjustment Amount to the Holder
in immediately available funds immediately upon demand by the Converting
Holder. By way of illustration and not in limitation of the foregoing, if the
Converting Holder purchases shares of Common Stock having a total purchase
price (including brokerage commissions) of $11,000 to cover a Buy-In with
respect to shares of Common Stock it sold for net proceeds of $10,000, the
Buy-In Adjustment Amount which Company will be required to pay to the
Converting Holder will be $1,000. The remedies set forth in this Paragraph
5.C. shall be cumulative.
D. If the Common Stock issuable upon the conversion of the Series A
Preferred Stock shall be changed into the same or different number of shares
of any class or classes of stock, whether by capital reorganization,
reclassification or otherwise, then and in each such event, the holders of
Series A Preferred Stock shall have the right thereafter to convert such
shares into the kind and amount of shares of stock and other securities and
property receivable upon such capital reorganization, reclassification or
other change which such holders would have received had their shares of
Series A Preferred Stock been converted immediately prior to such capital
reorganization, reclassification or other change.
E. If at any time or from time to time there shall be a capital
reorganization of the Common Stock (other than a subdivision, combination,
reclassification or exchange of shares provided for elsewhere in this
Section) or a merger or consolidation of the Company with or into another
corporation, or the sale of all or substantially all of the Company's
properties and assets to any other person (any of which events is herein
referred to as a "REORGANIZATION"), then as a part of such Reorganization,
provision shall be made so that the holders of the Series A Preferred Stock
shall thereafter be entitled to receive upon conversion of the Series A
Preferred Stock, the number of shares of stock or other securities or
property of the Company, or of the successor corporation resulting from such
Reorganization, to which such holder would have been entitled if such holder
had converted its shares of Series A Preferred Stock immediately prior to
such
<PAGE>
Reorganization. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section with respect to the rights of
the holders of the Series A Preferred Stock after the Reorganization, to the
end that the provisions of this Section (including adjustment of the number
of shares issuable upon conversion of the Series A Preferred Stock) shall be
applicable after that event in as nearly equivalent a manner as may be
practicable.
F. Upon the occurrence of each adjustment or readjustment of the
Conversion Price of Series A Preferred Stock as provided herein, the Company,
at its expense, shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and prepare and furnish to each holder of
such Series A Preferred Stock a certificate executed by the president and
chief financial officer (or in the absence of a person designated as the
chief financial officer, by the treasurer) setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment are based. The Company shall, upon written request at any time
of any holder of Series A Preferred Stock, furnish or cause to be furnished
to such holder a certificate setting forth (A) the Conversion Price at the
time in effect, and (B) the number or shares of Common Stock and the amount,
if any, of other property which at the time would be received upon the
conversion of a share of Series A Preferred Stock.
G. Upon receipt by the Company of evidence of the loss, theft,
destruction or mutilation of any Series A Preferred Stock certificate(s), and
(in the case of loss, theft or destruction) of indemnity or security
reasonably satisfactory to the Company, and upon the cancellation of the
Series A Preferred Stock certificate(s), if mutilated, the Company shall
execute and deliver new certificates for Series A Preferred Stock of like
tenure and date. However, the Company shall not be obligated to reissue such
lost or stolen certificates for shares of Series A Preferred Stock if the
holder contemporaneously requests the Company to convert such shares of
Series A Preferred Stock into Common Stock.
H. The Company shall not issue any fraction of a share of Common Stock
upon any conversion. The Company shall round such fraction of a share of
Common Stock up to the nearest whole share.
I. In the event some but not all of the shares of Series A Preferred
Stock represented by a certificate or certificates surrendered by a holder
are converted, the Company shall execute and deliver to or on the order of
the holder, at the expense of the Company, a new certificate representing the
number of shares of Series A Preferred Stock which were not converted.
J. Each share of Series A Preferred Stock outstanding on March 1, 2003
shall automatically be converted into Common Stock on such date at the
Conversion Price and such date shall be deemed the Conversion Date with
respect to such shares.
K. The Company shall pay any and all original issue and/or transfer
taxes which may be imposed upon it with respect to the issuance and delivery
of Common
<PAGE>
Stock upon conversion of the Series A Preferred Stock.
L. Subject to the provisions of this Section, if the Company at any time
shall issue any shares of Common Stock prior to the conversion of the entire
Liquidation Value of the Series A Preferred Stock and dividends on such
Series A Preferred Stock, otherwise than: (i) pursuant to options, warrants,
or other obligations to issue shares outstanding on the date hereof as
described in writing to the holders prior to the Issuance Date or in SEC
filings made by the Company prior to the Issuance Date, or (ii) all shares
reserved for issuance pursuant to the Company's existing stock option,
incentive, or other similar plan, which plan and which grant is approved by
the Board of Directors of the Company ((i) and (ii) collectively referred to
as the "EXISTING OBLIGATIONS"), for a consideration less than the fixed
Conversion Price set forth in (i) of the definition of Conversion Price in
Section V.B. above (as adjusted from the date hereof (the "FIXED CONVERSION
PRICE"), then, and thereafter successively upon each such issue, the fixed
Conversion Price shall, from such date forward, equal the resulting quotient
of the following formula: (y) the number of shares of Common Stock
outstanding immediately prior to such issue shall be multiplied by the Fixed
Conversion Price in effect at the time of such issue and the product shall be
added to the aggregate consideration, if any received by the Company upon
such issue of additional shares of Common Stock; and (z) the sum so obtained
shall be divided by the number of shares of Common Stock outstanding
immediately after such issue. Except for the Existing Obligations and options
that may be issued under any employee incentive stock option and/or any
qualified stock option plan adopted by the Company, for purposes of this
adjustment, the issuance of any security of the Company carrying the right to
convert such security into shares of Common Stock or of any warrant, right,
or option to purchase Common Stock shall result in an adjustment to the Fixed
Conversion Price upon the issuance of shares of Common Stock upon exercise of
such conversion or purchase rights.
M. In the event a holder shall elect to convert any share or shares of
Series A Preferred Stock as provided herein, the Company cannot refuse
conversion based on any claim that such holder or anyone associated or
affiliated with such holder has been engaged in any violation of law, unless
an injunction from a court, restraining and/or enjoining conversion of all or
part of said shares of Series A Preferred Stock shall have been issued and
the Company posts a surety bond for the benefit of such holder in the amount
of 143% of the Liquidation Value of the Series A Preferred Stock and
dividends sought to be converted, which is subject to the injunction, which
bond shall remain in effect until the completion of arbitration/litigation of
the dispute and the proceeds of which shall be payable to such holder in the
event it obtains a favorable judgment.
VI. NO REISSUANCE OF SERIES A PREFERRED STOCK. No share or shares of Series A
Preferred Stock acquired by the Company by reason of purchase, conversion or
otherwise shall be reissued, and all such shares shall be canceled, retired
and eliminated from the shares which the Company shall be authorized to
issue. The Company may from time to time take such appropriate corporate
action as may be necessary to reduce the authorized number of shares of the
Series A Preferred Stock accordingly.
<PAGE>
VII. RESERVATION OF SHARES. The Company shall, so long as any share or shares
of the Series A Preferred Stock are outstanding reserve and keep available
out of its authorized and unissued Common Stock, solely for the purpose of
effecting the conversion of the Series A Preferred Stock, such number of
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all of the Series A Preferred Stock then outstanding; provided
that the number of shares of Common Stock so reserved shall at no time be
less than 200% of the number of shares of Common Stock for which the Series A
Preferred Stock are at any time convertible and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to
maintain such number of shares of Common Stock, the Company shall immediately
take such corporate action as may be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be
sufficient for such purpose.
VIII. RESTRICTIONS AND LIMITATIONS.
A. Except as expressly provided herein or as required by law, so long as
any shares of Series A Preferred Stock remain outstanding, the Company shall
not, without the approval by vote or written consent by the holders of at
least two thirds of the then outstanding shares of Series A Preferred Stock,
voting as a separate class take any action that would adversely affect the
rights, preferences or privileges of the holders of Series A Preferred Stock.
B. Without limiting the generality of the preceding paragraph, the
Company shall not so long as any shares of Series A Preferred Stock remain
outstanding amend its Articles of Incorporation without the approval by the
holders of all of the then outstanding shares of Series A Preferred Stock if
such amendment would:
1. create any other class or series of capital stock entitled to
seniority as to the payment of dividends in relation to the holders of Series
A Preferred Stock;
2. reduce the amount payable to the holders of Series A Preferred
Stock upon the voluntary or involuntary liquidation, dissolution or winding
up of the Company, or change the relative seniority of the liquidation
preferences of the holders of Series A Preferred Stock to the rights upon
liquidation of the holders of other capital stock of the Company,
3. cancel or modify the conversion rights of the holders of Series
A Preferred Stock provided for in Section V herein; or
4. cancel or modify the rights of the holders of the Series A
Preferred Stock provided for in this Section.
IX. NO DILUTION OR IMPAIRMENT.
<PAGE>
A. The Company shall not, by amendment of its Articles of Incorporation
or through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid
or seek to avoid the observance or performance of any of the terms of this
Certificate of Designation set forth herein, but shall at all times in good
faith assist in the carrying out of all such terms and in the taking of all
such actions as may be necessary or appropriate in order to protect the
rights of the holders of the Series A Preferred Stock against dilution or
other impairment. Without limiting the generality of the foregoing, the
Company (a) shall not establish a par value of any shares of stock receivable
on the conversion of the Series A Preferred Stock above the amount payable
therefor on such conversion, (b) shall take all such action as may be
necessary or appropriate in order that the Company may validly and legally
issue fully paid and nonassessable shares of stock on the conversion of all
Series A Preferred Stock from time to time outstanding, and (c) shall not
consolidate with or merge into any other person or entity, or permit any such
person or entity to consolidate with or merge into the Company (if the
Company is not the surviving person), unless such other person or entity
shall expressly assume in writing and will be bound by all of the terms of
the Series A Preferred Stock set forth herein.
B. If the Company at any time after March 1, 2000 shall issue any shares
of Common Stock prior to the conversion of all shares of the Series A
Preferred and the dividends thereon, including without limitation, shares of
Common Stock issued (i) pursuant to options (including those options
delivered pursuant to any employee, officer or director stock option plan),
warrants, or other contractual obligations, (ii) upon any private placement
or secondary offering (iii) as a result of a stock dividend or split, then
upon each such issuance of Common Stock the Maximum Conversion Price shall be
reduced by: (y)(I) the number of shares of Common Stock outstanding
immediately prior to such issuance, multiplied by the Maximum Conversion
Price in effect at the time of such issuance, plus (II) the aggregate sum, if
any, received by the Company in consideration for such issuance; divided by
(z) the number of shares of Common Stock outstanding immediately after such
issuance.
X. NOTICES OF RECORD DATE. In the event of:
A. any taking by the Company of a record of the holders of any class of
securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class
or any other securities or property, or to receive any other right, or
B. any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company, any merger of the
Company, or any transfer of all or substantially all of the assets of the
Company to any other corporation, or any other entity or person, or
C. any voluntary or involuntary dissolution, liquidation or winding up
of the
<PAGE>
Company, then and in each such event the Company shall mail or cause to be
mailed to each holder of Series A Preferred Stock a notice specifying (i) the
date on which any such record is to be taken for the purpose of such
dividend, distribution or right and a description of such dividend,
distribution or right, (ii) the date on which any such reorganization,
reclassification, recapitalization, transfer, merger, dissolution,
liquidation or winding up is expected to become effective and (iii) the time,
if any, that is to be fixed, as to when the holders of record of Common Stock
(or other securities) shall be entitled to exchange their shares of Common
Stock (or other securities) for securities or other property deliverable upon
such reorganization, reclassification, recapitalization, transfer, merger,
dissolution, liquidation or winding up. Such notice shall be mailed at least
ten Business Days prior to the date specified in such notice on which such
action is to be taken.
XI. REDEMPTION.
A. For so long as the Company has not received a Notice of Conversion
for such shares, the Company may, at its option, repay, in whole or in part,
the Series A Preferred Stock shares at the Redemption Price (as defined
below). The Series A Preferred Stock is redeemable as a series, in whole or
in part, by the Company by providing written notice (the "REDEMPTION NOTICE")
to the holder of the Series A Preferred Stock via facsimile at his or her
address as the same shall appear on the books of the Company (the Business
Day between the hours of 6:30 a.m. and 4:00 p.m. Pacific Time the Redemption
Notice is received by the holders of the Series A Preferred Stock via
facsimile is defined to be the "REDEMPTION NOTICE DATE"). Within ten Trading
Days after the Redemption Notice Date the Company shall make payment of the
Redemption Price (as defined below) in immediately available funds to the
holder for the shares of Series A Preferred Stock which are the subject of
the Redemption Notice (such date of payment referred to as the "REDEMPTION
DATE"). Partial redemptions shall be in an aggregate principal amount of at
least $100,000. If fewer than all of the outstanding shares of Series A
Preferred Stock are to be redeemed, the Company will select those to be
redeemed pro-rata amongst the then holders of the Series A Preferred Stock
based on the number of shares of Series A Preferred Stock then outstanding.
B. In the event the Company serves a Redemption Notice, the Redemption
Price shall be equal to the greater of (i) 133 1/3% of the Liquidation Value
of the shares of Series A Preferred Stock which are subject to such
Redemption Notice, plus all accrued but unpaid dividends on such shares, or
(ii) the "Economic Benefit" of the shares of Series A Preferred Stock which
are the subject of such Redemption Notice. "ECONOMIC BENEFIT" shall mean the
dollar value derived if the shares of Series A Preferred Stock which were the
subject of the Redemption Notice were converted on the Redemption Notice Date
and sold on the Redemption Notice Date at the Closing Bid Price of the Common
Stock on the Redemption Notice Date. Notwithstanding anything to the contrary
in the foregoing, the Redemption Price shall be equal to 100% of the
Liquidation Value if the Company serves a Redemption Notice (i) on a date
when the closing bid price of the Common Stock is greater than Twelve Dollars
($12) per share and
<PAGE>
the closing bid price for the immediately preceding five consecutive trading
days was greater than twelve dollars ($12) per share, or (ii) on or after
March 1, 2002. If the Company delivers a Redemption Notice to redeem the
Series A Preferred Stock at the Liquidation Value, pursuant to the foregoing
sentence, the holders of the Series A Preferred Stock will retain their
conversion rights with respect to a maximum of one hundred percent (100%) of
the number of shares subject to the redemption (rather than the 50% percent
retention referred to in paragarph XI.C. below). If the holders of the Series
A Preferred Stock elect to so convert the Series A Preferred Stock after the
receipt of the Redemption Notice, the Company must receive notice of such
election within sixty (60) days from the time the Redemption Notice was
received by the holders of the Series A Preferred Stock. Except for the
sixty-(60) day time period set forth in the preceding sentence, the holders
shall exercise such conversion rights pursuant to the procedures set forth in
Paragraph XI.C. below.
C. The Notice of Redemption shall set forth (i) the Redemption Date and
the place fixed for redemption, (ii) the Redemption Price, (iii) a statement
that dividends on the shares of Series A Preferred Stock to be redeemed will
cease to accrue on such Redemption Date, (iv) a statement of or reference to
the conversion right set forth herein, and (v) confirmation that the Company
has the full Redemption Price reserved as set forth in F. below. If fewer
than all the shares of the Series A Preferred Stock owned by such holders are
then to be redeemed, the notice shall specify the number of shares thereof
that are to be redeemed and, if practicable, the numbers of the certificates
representing such shares. Within five Trading Days of the Redemption Notice
Date, the Company shall wire transfer the appropriate amount of funds to the
holders of the Series A Preferred Stock. If the Company fails to comply with
the redemption provisions set forth herein by the sixth Trading Day after the
Redemption Notice Date (or in the case of a public offering as contemplated
in F below, by the sixth Trading Day after the Redemption Notice Date)
relating to the Redemption Notice, the redemption will be declared null and
void and the Company shall not be permitted to serve another Redemption
Notice. For the first five Trading Days after the Redemption Notice Date, the
holders of the Series A Preferred Stock will retain their conversion rights
with respect to a maximum of fifty percent (50%) of the number of shares
subject to the redemption. If the holders of the Series A Preferred Stock
elect to so convert the Series A Preferred Stock after the receipt of the
Redemption Notice, the Company must receive notice of such election within
twenty-four (24) hours from the time the Redemption Notice was received by
the holders of the Series A Preferred Stock. In the event the Company has not
complied with the redemption provisions set forth herein the Company must
comply with the delivery requirements of any then outstanding Conversion
Notice as set forth herein. The holders shall send the shares of Series A
Preferred Stock being redeemed or converted to the Company within three (3)
Business Days after they have received good funds for the Redemption Price of
the redeemed shares.
D. Subject to the receipt by the holders of the Series A Preferred Stock
being redeemed of the wire transfer of the Redemption Price as described
above, each share of Series A Preferred Stock to be redeemed shall be
automatically canceled and converted
<PAGE>
into a right to receive the Redemption Price, and all rights of the Series A
Preferred Stock, including the right to conversion shall cease without
further action.
E. The Redemption Price shall be adjusted proportionally upon any
adjustment of the Conversion Price as provided herein and in the event of any
stock dividend, stock split, combination of shares or similar event.
F. The Company shall not be entitled to send any Redemption Notice and
begin the redemption procedure hereunder unless it has:
(a) the full amount of the Redemption Price in cash, available in
a demand or other immediately available account in a bank or similar
financial institution, specifically allotted for such redemption;
(b) immediately available credit facilities, in the full amount
of the Redemption Price with a bank or similar financial institution
specifically allotted for such redemption; or
(c) a combination of the items set forth in (i) and (ii) above,
aggregating the full amount of the Redemption Price.
Notwithstanding the foregoing, in the event the redemption is expected to be
made contemporaneously with the closing of a public offering of the Company's
securities for an amount in excess of the Redemption Price, the Company shall
not be required to have the full amount of the Redemption Price available to
it as set forth above.
XII. 4.99% LIMITATION. Notwithstanding the provisions hereof, in no
event shall each holder be entitled to convert any shares of the Series A
Preferred Stock to the extent that, after such conversion, the sum of (1) the
number of shares of Common Stock beneficially owned by such holder and its
affiliates (other than shares of Common Stock which may be deemed
beneficially owned through the ownership of the unconverted shares of the
Series A Preferred Stock), and (2) the number of shares of Common Stock
issuable upon the conversion of the shares of Series A Preferred Stock with
respect to which the determination of this proviso is being made, would
result in beneficial ownership by such holder and its affiliates of more than
4.99% of the outstanding shares of Common Stock. For purposes of the proviso
to the immediately preceding sentence, beneficial ownership shall be
determined in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended (the "1934 Act"). Any issuance by the Company to a holder in
excess of the limit contained in this Paragraph shall be null and void, AB
INITIO, and upon notice of such invalid issuance, the Company shall correct
its books and cause its transfer agent's books to be corrected forthwith to
reflect that the holder's ownership of Common Stock is within the limit set
forth herein. Holder shall immediately deliver any certificates for invalidly
issued Common Stock to the Company's transfer agent. The Company further
agrees to (i) immediately reissue certificates for Common Stock to the extent
that a portion of the Common Stock
<PAGE>
represented by said certificates have been validly issued and (ii)
immediately reissue all or a portion of those shares which were deemed
invalidly issued (at a price set forth in the original conversion notices
applicable to such shares) upon notice from the holder that the reissuance of
such shares would not cause such holder to have a beneficial ownership
interest in excess of 4.99%. The 4.99% limitation shall not apply to the
automatic conversion upon the Maturity Date as contained herein. The Company
hereby indemnifies and holds each holder free and harmless from and against
any and all liabilities, losses, costs and expenses, including, without
limitation, attorneys' fees and costs (collectively "Liabilities") arising
from or relating to claims made by any third parties with respect to any and
all purported violations by each holder under Sections 13(d) and/or 16
resulting from a conversion(s) of the Series A Preferred Stock, unless such
claim arises from such holder's default of its obligations hereunder, or
representations or warranties contained herein. The foregoing indemnity shall
exclude Liabilities incurred by any holder in connection with any violation
of Sections 13(d) and/or 16 to the extent arising from or are related to such
holder's beneficial ownership of shares of Common Stock (i) which are not
acquired by conversion of Series A Preferred Stock, or (ii) deemed
beneficially owned through the ownership of the unconverted shares of the
Series A Preferred Stock.
XIII "CAP REGULATIONS". The Company shall take all steps reasonably
necessary to be in a position to issue shares of Common Stock on conversion
of the Series A Preferred Stock without violating the "Cap Regulations"
promulgated by NASD to the extent applicable to the Company. If despite
taking such steps, the Company is limited in the number of shares of Common
Stock it may issue by the "Cap Regulations," to the extent that the Company
cannot issue such shares of Common Stock, due upon a Notice of Conversion,
without violating the Cap Regulations, the Company shall immediately notify
Buyer the number of shares of the Series A Preferred Stock which are not
convertible as a result of said Cap Regulations (the "Unconverted Preferred
Stock") and within five (5) business days of the applicable Notice of
Conversion redeem the Unconverted Preferred Stock for an amount in cash (the
"Redemption Amount") equal to the "Economic Benefit" of such Unconverted
Preferred Stock. "ECONOMIC BENEFIT" for purposes of this Article XIII shall
mean the dollar value derived if such Unconverted Preferred Stock were
converted into Common Stock as set forth in the Notice of Conversion and the
Common Stock was sold on the date of the Notice of Conversion at the Closing
Bid Price of the Common Stock on the date of the Notice of Conversion.
IN WITNESS WHEREOF, I have subscribed my name this ____ day of
March, 2000.
MOBILE P.E.T. SYSTEMS, INC.
By:
----------------------------
Name:
--------------------------
Title: Secretary
<PAGE>
ANNEX V
COMPANY DISCLOSURE
[TO BE SUPPLIED BY COMPANY]
<PAGE>
Exhibit 21
SUBSIDIARIES OF REGISTRANT
Mobile PET Systems, Inc., a Nevada Corporation Colony International
Incorporated, a Nevada corporation Mobile P.E.T. Leasing Ltd., a United
Kingdom limited company London P.E.T. Centre Ltd., a United Kingdom limited
company
