<PAGE>
As filed with the Securities and Exchange Commission on November 8, 2000
An Exhibit List can be found on page II-5.
Registration No. 333-48336
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
---------------------------
AMENDMENT NO. 1 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------------
MOBILE PET SYSTEMS, INC.
(Name of small business issuer in its charter)
DELAWARE 5047 11-2787966
(State or other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
2240 SHELTER ISLAND DRIVE #205
SAN DIEGO, CALIFORNIA 92106
(619) 226-6738
(Address and telephone number of principal executive offices and principal
place of business)
PAUL J. CROWE, PRESIDENT
MOBILE PET SYSTEMS, INC.
2240 SHELTER ISLAND DRIVE #205
SAN DIEGO, CALIFORNIA 92106
(619) 226-6738
(Name, address and telephone number of agent for service)
---------------------------------------
Copies to:
Dennis J. Doucette, Esq.
Luce, Forward, Hamilton & Scripps LLP
600 West Broadway, Suite 2600
San Diego, California 92101
(619) 699-2517
(619) 645-5322 (fax)
---------------------------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
From time to time after this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
------------------------------------------- ----------------- -------------------- --------------------- ---------------
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED SECURITY(1) PRICE FEE
-------------------------------------------------------------- -------------------- --------------------- --------------
<S> <C> <C> <C> <C>
Shares of Common Stock, $.0001 par value 35,000 $2.25 $ 78,750
Shares of Common Stock, $.0001 par value(2) 4,120,000 $5.00 20,600,000
Shares of Common Stock, $.0001 par value(3) 2,114,500 $3.00 6,343,500
Shares of Common Stock, $.0001 par value(4) 12,000,000 $2.25 27,000,000
Total(5) 18,269,500 $54,022,250 $14,261.87*
--------------------------------------------- ----------------- -------------------- --------------------- -------------
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(c) and Rule 457(g) under the Securities Act of
1933, using the average of the high and low price as reported on the
Over-the-Counter Bulletin Board on October 16, 2000, which was $2.25 per
share.
(2) Represents 4,000,000 shares of common stock issuable upon the conversion of
60 shares of Series A Convertible Preferred Stock (estimated) at a maximum
price of $5.00 per share and 120,000 shares of common stock issuable upon
the exercise of outstanding warrants to be issued under the Series A
Securities Purchase Agreement at an exercise price of $5.00 per share.
(3) Represents 2,000,000 shares of common stock issuable upon the conversion of
30 shares of Series B Convertible Preferred Stock (estimated) at a maximum
price of $3.00 per share; 50,000 shares of common stock issuable upon the
exercise of outstanding warrants issued under the Series B Securities
Purchase Agreement at an exercise price of $3.00 per share and 64,500
shares of common stock issuable upon the exercise of warrants (estimated)
to be issued under the Series B Securities Purchase Agreement at an
estimated exercise price of $3.00 per share.
(4) Represents shares of common stock which may be issued under the Series A
Securities Purchase Agreement (estimated).
(5) Pursuant to Rules 416 and 457 under the Securities Act of 1933, additional
shares as may be issuable pursuant to the anti-dilution provisions of the
preferred stock and warrants are also being registered.
* A portion of the total filing fee in the amount of $7,240.33 was
previously paid with our original filing on October 20, 2000.
----------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE>
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED NOVEMBER 8, 2000
The information in this prospectus is not complete and may be changed.
MOBILE PET SYSTEMS, INC.
18,269,500 SHARES
COMMON STOCK
We are registering the following shares:
-- 35,000 shares of common stock held by an unaffiliated third party;
-- 4,000,000 shares of common stock issuable upon conversion of Series
A Preferred Stock by an unaffiliated third party;
-- 2,000,000 shares of common stock issuable upon conversion of Series
B Preferred Stock by an unaffiliated third party;
-- 234,500 shares of common stock issuable upon exercise of warrants
held by an unaffiliated third party; and
-- 12,000,000 shares of common stock which may be issued to an
unaffiliated third party under the Securities Purchase Agreement dated March 3,
2000.
We will pay the expenses of registering these shares.
Our common stock is registered under Section 12(g) of the Securities
Exchange Act of 1934 and is listed on the Over-the-Counter Bulletin Board
("OTCBB") under the symbol "MBPT." The high bid and low asked prices of the
common stock in the over-the-counter market on October 16, 2000, as reported by
the OTCBB, were $2.3125 and $2.1875, respectively.
---------------------
INVESTING IN THESE SECURITIES INVOLVES SIGNIFICANT RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 2.
---------------------
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS
IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this prospectus is ____________, 2000.
<PAGE>
The information in this prospectus is not complete and may be changed. This
prospectus is included in the registration statement that was filed by Mobil
PET Systems, Inc., with the Securities and Exchange Commission. The selling
security holder may not sell these securities until the registration
statement becomes effective. This prospectus is not an offer to sell these
securities and is not soliciting an offer to buy these securities in any
state where the offer or sale is not permitted.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY HIGHLIGHTS SELECTED INFORMATION CONTAINED IN
THIS PROSPECTUS. THIS SUMMARY DOES NOT CONTAIN ALL THE INFORMATION YOU SHOULD
CONSIDER BEFORE INVESTING IN THE SECURITIES. BEFORE MAKING AN INVESTMENT
DECISION, YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, INCLUDING THE
"RISK FACTORS" SECTION, THE FINANCIAL STATEMENTS AND THE NOTES TO THE
FINANCIAL STATEMENTS. SOME OF THE STATEMENTS MADE IN THIS PROSPECTUS DISCUSS
FUTURE EVENTS AND DEVELOPMENTS, INCLUDING OUR FUTURE BUSINESS STRATEGY AND
OUR ABILITY TO GENERATE REVENUE, INCOME AND CASH FLOW. THESE FORWARD-LOOKING
STATEMENTS INVOLVE RISKS AND UNCERTAINTIES WHICH COULD CAUSE ACTUAL RESULTS
TO DIFFER MATERIALLY FROM THOSE CONTEMPLATED IN THESE FORWARD-LOOKING
STATEMENTS.
THE COMPANY
Mobile PET 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 or reduces redundant
testing, hospitalization or non-beneficial treatment procedures.
We provide the PET imaging system housed in a mobile coach or trailer
and dedicated facilities. 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. With
certain hospitals or medical groups, we develop and operate dedicated PET
facilities to provide hospitals with PET diagnostic imaging service time to
easily accommodate their patients on a daily basis.
We believe that many hospitals and other healthcare providers will seek
access to PET imaging services to remain competitive in the healthcare
marketplace. Regulatory and licensing requirements in many states may also limit
general access to PET imaging services. In addition, many healthcare providers
lack sufficient patient volumes or financial resources to justify the purchase
of a dedicated in-house PET system. Many healthcare 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 or
reduce the need to recruit, train and manage qualified technologists; or (iv)
provide expanded imaging services when patient demand exceeds their in-house
capability.
We provide convenient cost-effective PET imaging services for
hospitals, medical centers and other healthcare providers. We offer a complete,
comprehensive approach to our clients which includes informational seminars,
training programs, licensure assistance, electronic data transmission and
archiving of all PET exams through our Internet site and software package,
planning assistance and support to facilitate mobile PET coach/trailer use at
each of our clients' locations, marketing assistance and convenient access to
radiotracers at negotiated discount rates.
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Common Stock Offered for Resale: 18,269,500 shares
Use of Proceeds: Working capital and general corporate purposes*
Over-the-Counter Bulletin Board Symbol: MBPT
</TABLE>
* We will receive no proceeds from the sale of the stock by the selling security
holders or the issuance of shares of common stock upon the conversion of the
preferred stock. However, we may receive proceeds from the sale of up to
$10,000,000 of additional shares of common stock to York under the Series A
Securities Purchase Agreement and $500,000 from the proceeds of the second
tranche to occur under the Series B Securities Purchase Agreement. If exercised,
we will also receive proceeds from the sale of shares issuable upon the exercise
of warrants by York.
1
<PAGE>
RISK FACTORS
THIS INVESTMENT HAS A HIGH DEGREE OF RISK. BEFORE YOU INVEST YOU SHOULD
CAREFULLY CONSIDER THE RISKS AND UNCERTAINTIES DESCRIBED BELOW AND THE OTHER
INFORMATION IN THIS PROSPECTUS. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR,
OUR BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION COULD BE HARMED AND THE
VALUE OF OUR STOCK COULD GO DOWN. THIS MEANS YOU COULD LOSE ALL OR A PART OF
YOUR INVESTMENT.
There are risks associated with forward-looking statements made by us and actual
results may differ.
Some of the information in this Form SB-2 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.
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 Form SB-2, 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 could
have an adverse effect on our business, results of operations and financial
condition.
We have lost money since inception. We expect future losses and we may never
become profitable.
Since inception, we have incurred significant losses. For the year
ended June 30, 2000, we had a net loss of $6,591,900 and as of June 30, 2000, an
accumulated deficit of $8,415,800. We expect to continue to incur net losses
until services generate sufficient revenues to fund our continuing operations.
We may fail to achieve significant revenues from services or achieve or sustain
profitability. There can be no assurance of when, if ever, we will be profitable
or be able to maintain profitability.
Our products may not be accepted by the medical community or by patients which
may prevent us from ever becoming profitable.
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.
If we do not become profitable we may not be able to continue our operations.
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
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.
2
<PAGE>
We depend 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. In
2000, GE Medical Systems introduced its first PET Scanner that can be operated
on a mobile configuration. 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 and this may
adversely affect our relationship with them.
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 which could negatively impact our sales
and business.
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. There is also a risk due to the effect of exchange rate
fluctuations on the foreign currency we receive.
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 or develop 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.
We are subject to governmental regulation which could adversely affect our
business.
We are required to adhere to a wide variety of 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 and state laws severely restrict the ability of physicians to
refer patients to entities with whom they have a financial or ownership
interest, commonly referred to as the physician self-referral laws.
Additionally, federal and state laws prohibit the payment or receipt of bribes,
kickbacks, rebates and any other direct or indirect remuneration in return for
or to induce the referral of an individual to a person for the furnishing,
directing or arranging of services, items or equipment, commonly referred to as
anti-kickback laws. Penalties for violations of these state and federal laws
include
3
<PAGE>
administrative, civil and criminal penalties, loss of state licensure and
exclusion from federal reimbursement programs such as Medicare, if
beneficiaries of federal reimbursement programs are involved.
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 healthcare services. However, our
failure or our customers' failure to comply with the anti-kickback laws or
physician self-referral laws or the application of new laws or new
interpretation of existing laws could result in an adverse effect on our
business.
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.
The loss of any of our key managers 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. 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.
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. 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. Some of our customers may be capable of providing the same
services to their patients directly by purchasing or leasing their own imaging
systems.
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 $5 million per
incident and medical professional liability insurance in the amount of $5
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 was 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
healthcare
4
<PAGE>
industry or third-party coverage and reimbursement may be enacted in the
future, or what effect such legislation or regulation may have on us.
Healthcare reform could have a significant adverse impact on our business.
Several states and the United States government are investigating a
variety of alternatives to reform the healthcare delivery system and further
reduce and control healthcare spending. These reform efforts include proposals
to limit spending on healthcare items and services, limit coverage for new
technology and limit or control the price healthcare 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.
5
<PAGE>
USE OF PROCEEDS
We expect to sell York, LLC $10,000,000 of additional common stock at
our discretion under the Series A Securities Purchase Agreement described below.
Additional amounts of up to $825,143 may be received if York exercises its
warrants to purchase common stock, calculated as follows: (i) $600,000 from
warrants issued under the Series A Securities Purchase Agreement; (ii) $150,000
from warrants issued under the Series B Securities Purchase Agreement; and (iii)
$96,750, the amount estimated to be receivable from the warrants to be issued in
the second tranche under the Series B Securities Purchase Agreement. Net
proceeds are determined after deducting all expenses of the offering (estimated
to be $60,262).
We intend to use the net proceeds from this offering, if any, for
working capital and general corporate purposes.
The amount and timing of working capital expenditures may vary
significantly depending upon numerous factors, such as:
-- Revenues generated from existing and anticipated service contracts;
-- The development of marketing and sales resources;
-- Administrative and legal expenses; and
-- Other requirements not now known or estimable.
6
<PAGE>
MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Our common stock is currently traded on the Over-the-Counter Bulletin
Board, under the symbol "MBPT." From October 1999 until August 2000, our common
stock was traded on the National Quotation Bureau, LLC "Pink Sheets." The
following table sets forth, for the two most recent fiscal years 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 OTC
Bulletin Board and the "Pink Sheets." The quotation for the common stock traded
on the OTC Bulletin Board and the "Pink Sheets" 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 PET 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
CALENDAR YEAR 2000
First Quarter 6.50 1.625
Second Quarter 4.375 2.125
</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 the fourth quarter of Calendar Year
1997 or in Calendar Year 1998 for our predecessor Colony International
Incorporated.
As of June 30, 2000, our shares were held by 268 shareholders of
record, not including 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, New York 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 were relisted on the OTC Bulletin Board in August 2000 when we met
these requirements.
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 our business and do not anticipate paying any cash
dividends in the foreseeable future.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
PLAN OF OPERATION
THE FOLLOWING DISCUSSION AND ANALYSIS OF OUR PLAN OF OPERATION
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 "RISK FACTORS."
OVERVIEW
Mobile PET Systems, Inc. and its subsidiaries (referred to as either
"Mobile PET" or the "Company") is a medical service provider operating mobile
Positron Emission Tomography ("PET") imaging systems for hospitals and other
healthcare providers on a mobile, shared-user basis in selected marketplaces in
the United States and Europe. We provide the PET imaging system housed in a
mobile coach or trailer or in a dedicated facility. We also provide the
technical personnel who operate the equipment and implement the PET procedure
under the direction of hospital physicians. Our PET services include the
management of day-to-day operations and educational and marketing support. Our
services enable hospitals to gain access to advanced diagnostic imaging
technology and related value-added services without making a substantial
investment in equipment and personnel.
We have operations in the United States and the United Kingdom. We
believe there are opportunities for shared mobile PET services in the United
Kingdom and certain European markets. On December 10, 1999, we incorporated a
wholly-owned subsidiary, The London PET Centre Limited, a United Kingdom private
limited company. On December 17, 1999 we incorporated two wholly-owned
subsidiaries, Mobile PET Leasing Limited, a United Kingdom private limited
company, and Mobile PET Systems (UK) Limited, a United Kingdom private limited
company.
The financial position and results of operations of our United Kingdom
subsidiaries are measured using local currency as the functional currency.
Assets and liabilities have been translated into U.S. dollars at the rates of
exchange at the balance sheet date. Statements of operations items are
translated using the average exchange rates prevailing throughout the reporting
period. Translation gains or losses resulting from the changes in the exchange
rates from quarter to quarter are accumulated in a separate component of
shareholders' equity. Transaction gains and losses are reflected in the cash
flow as the effect of exchange rate changes on cash.
For the period from our inception through our fiscal year end, June 30,
1999, we had no revenues and our operating activities related primarily to
establishing the management and operating infrastructure to provide PET systems
and services to hospitals and other healthcare providers on a mobile,
shared-user basis. The London PET Centre Limited, our wholly-owned United
Kingdom subsidiary, emerged from the development stage late in the fourth
quarter ended June 30, 2000 and during the year our efforts for that location
were principally devoted to organizational activities, marketing efforts and
placing the first fixed-site PET system into service in London.
We have emerged from our development stage period described above with
the generation of revenues from our mobile PET systems in our first complete
fiscal year of operations ended June 30, 2000. We continue our development and
expansion efforts of organizational activities, infrastructure, capital,
marketing and the placement of additional mobile and fixed-site PET systems.
Management anticipates incurring additional losses as it pursues its development
efforts into the first half of the next fiscal year at which time it is expected
that cash flow from revenues will become sufficient to cover the cost of
services on a monthly basis going forward.
Our future revenues will principally be a function of the number of
mobile units in service, scan volumes and fees per scan. We generate
substantially all of our revenues from exclusive five-year contracts with
hospitals and healthcare providers. While we have not written off an account to
date, there can be no assurance that this trend will continue and accordingly,
we have established a conservative allowance for uncollectible accounts
receivable.
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The principal component of our operating costs includes salaries and
benefits paid to technologists and drivers, and marketing, equipment leasing,
system maintenance, insurance and transportation costs. Because a majority of
these costs 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 for the year
ended June 30, 2000, we have incurred a net loss approximating $6,591,900 and as
of June 30, 2000, an accumulated deficit of $8,415,800. We expect to experience
operating losses and negative cash flow from operations through the end of this
calendar year. We anticipate reaching and exceeding our break-even point on a
monthly basis thereafter. We anticipate our losses during the first two quarters
of fiscal 2001 may increase from current levels as we incur costs and expenses
related to infrastructure development and staffing, marketing and sales
activities, and other capital expenditures. As a result, we will need to
generate significant revenues to achieve and maintain profitability.
We raised approximately $9 million of new equity capital, net of
issuance costs, through the issuance of common and preferred stock in domestic
and international private placements through our fiscal year ending June 30,
2000. We increased our authorized shares of stock, with a par value of $0.0001
per share, to 100,000,000 with 10,000,000 authorized for preferred stock and
90,000,000 authorized for common stock.
During the third quarter ended March 31, 2000, we designated and issued
sixty shares of Series A Convertible Preferred Stock for $3,000,000 and 120,000
warrants to purchase shares of common stock at an exercise price of $5 per
share. The purchaser of the Series A Convertible Preferred Stock also agreed,
subject to certain conditions, to purchase shares of our common stock in
tranches with an aggregate purchase price of up to $10,000,000 and a price per
share established for the purchase amount on the tranche date which is 85% of
the average closing bid price for the five days prior to that tranche date.
On September 21, 2000, we designated thirty shares of Series B
Convertible Preferred Stock, of which 20 shares have been issued for $1,000,000
($985,000 was received after acquisition costs) and 10 shares will be issued in
a second tranche for $500,000, with an aggregate purchase price for the two
tranches of $1,500,000. Under the agreement covering the Series B issuance, we
also issued 50,000 warrants to purchase shares of common stock at an exercise
price of $3 per share which expire on September 30, 2005, and in the second
tranche we will issue warrants to purchase such number of common shares as
calculated under the terms of the Series B agreement.
The shares of the Series A and B Convertible Preferred Stock have no
voting rights, have a liquidation value of $50,000 per share, and accrue
dividends at a rate of 8% per year per share on the liquidation value payable
upon conversion. The common stock underlying the preferred stock and warrants is
being registered in this registration statement, pursuant to the registration
rights of the purchaser under the securities purchase agreements.
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
Any comparison of the results of our operations to any previous period
is not necessarily relevant nor meaningful, as we recommenced and started our
current mobile PET operations as of December 1, 1998. Comparisons to prior year
financial information are for the year ended June 30, 2000 and for the
seven-month period December 1, 1998 through June 30, 1999.
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FOR THE YEAR ENDED JUNE 30, 2000
Our net loss from operations was $6,591,900 and our net loss available
to common shareholders after the preferred stock dividend was $7,797,600 or
$0.56 per share for the year ended June 30, 2000, compared to our net loss
approximating $997,000 or $0.09 per share for the seven months ended June 30,
1999.
Our revenues were $1,123,000 for the year ended June 30, 2000. There
were no comparable revenues for the seven-month period ended June 30, 1999. The
majority of our service revenues were generated in the last half of the year
reflecting the initial operation of three mobile PET systems. We took delivery
on our first PET unit in July 1999 and began accruing revenues in August 1999.
Our second unit was placed in operation in December 1999 and our third unit
began accruing revenues in February 2000. As a result of these activities,
accounts receivables increased to $472,700, net of allowances for doubtful
accounts, as of June 30, 2000. There were no comparable accounts receivables for
the prior period ended June 30, 1999.
Our cost of service revenues for the year ended June 30, 2000 was
$675,700 or 60% of total service revenues. The costs of service revenues
represent salaries paid to technologists and drivers, system maintenance,
transportation and insurance on our mobile PET systems. There was no comparable
cost of service revenues for the seven months ended June 30, 1999.
General and administrative expenses for the year ended June 30, 2000
were $6,742,300, as compared to $991,900 for the seven months ended June 30,
1999. We incurred increased general and administrative expenses due primarily to
the growth in staff and related expenses incurred in building our
infrastructure, and increased advertising and marketing costs related to the
introduction of our mobile PET services. In addition, during the year ended June
30, 2000, general and administrative expenses were impacted as we recognized
stock-based compensation expense of $1,276,400 related to employee and
consulting services. We had no recognizable compensation expense during the
prior period December 1, 1998 to June 30, 1999.
Interest income was $89,800 for the year ended June 30, 2000 and $2,700
for the period ended June 30, 1999. The interest income was the result of
year-to-date accrued interest of $43,000 on the $200,000 8% Subordinated Equity
Participation Agreement with The London Radiosurgical Centre Ltd. and the
invested funds received from the preferred stock private placement on March 1,
2000.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2000, our total assets were $10,001,900, compared to
$2,894,800 at June 30, 1999. Current assets at June 30, 2000 totaled $3,295,800
and current liabilities were $2,141,500, as compared to June 30, 1999 statements
which reflected current assets of $2,383,600 and current liabilities of
$171,400. Shareholders' equity at June 30, 2000 increased to $3,123,700 from
$2,723,400, due primarily to the issuance of 2,065,000 additional shares of
common stock in the year approximating $2,949,300; the private placement and
issuance of 60 shares of Series A Convertible Preferred Stock in the amount of
$2,700,000, net of issuance costs; and a net loss of $6,591,900 incurred in the
year ended June 30, 2000.
The foreign currency translation adjustment in shareholders' equity
amounted to $(42,900) at June 30, 2000 and there was no comparable adjustment at
June 30, 1999. Transaction gains and losses are reflected in the cash flow as
the effect of exchange rate changes on cash of $(46,000) for the year ended June
30, 2000.
Net cash used in investing activities for the year ended June 30, 2000
was $612,500 compared to $261,000 in the prior period ended June 30, 1999. In
July 1999, we purchased a coach to transport the PET imaging system for $273,400
and made a deposit of $637,500 for our second mobile PET system which would
utilize a non-motorized trailer instead of a motorized coach. We sold the coach
to a leasing company in late December 1999, as part of a five-year lease
agreement, resulting in a financing lease for the coach and a capital lease for
the imaging system. In March 2000, we entered into a similar arrangement as part
of the five-year lease agreement with the same leasing company for our second
mobile PET system. We purchased the trailer for $273,100 and sold it to the
leasing company, resulting in a financing lease for the trailer and a capital
lease for the imaging system. We invested approximately $370,100 in computers
and
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office furniture and fixtures in the U.S. In our U.K. development, we
invested approximately $210,000 in building improvements and $32,400 in
furniture and fixtures.
Net cash provided by financing activities for the year ended June 30,
2000 was $5,486,400, due to the issuance of 2,065,000 additional shares of
common stock in the year for $2,949,300; the private placement and issuance of
60 shares of Series A Convertible Preferred Stock, net proceeds in the amount of
$2,700,000; and the proceeds from a $50,000 bridge financing which was repaid
during the year. This compares to the prior period ended June 30, 1999 when
1,700,000 shares of common stock were subscribed and issued, totaling
$3,470,400.
We have experienced a substantial increase in our capital expenditures
since our inception, consistent with our growth in operations and staffing, and
we anticipate that this will continue for the foreseeable future. Additionally,
we continue to evaluate business investments, geographic service expansion and
service offerings. We cannot be certain that the underlying assumed levels of
revenues and expenses will prove to be accurate. While we do not have any
binding commitments for any additional funding, we may seek to obtain additional
funding through public or private financings or other arrangements. If we are
unable to obtain such funding or any such funding is insufficient, we may be
unable to develop or enhance our services, take advantage of business
opportunities or respond to competitive pressures, any of which could have a
materially adverse impact on our business, operating results and financial
condition.
RECENT EVENT
On September 21, 2000, we entered into a Securities Purchase Agreement.
As part of the agreement, we will issue 30 shares of Series B Preferred Stock
for cash in two tranches for an aggregate purchase price of $1,500,000 and
50,000 warrants to purchase shares of common stock at an exercise price of $3
per share, which expire on September 30, 2005. The shares of Series B Preferred
Stock have no voting rights, have a liquidation value of $50,000 per share and
accrue dividends at a rate of 8% per year per share on the liquidation value
payable upon conversion. During September 2000, the Company received the first
tranche in the amount of $985,000, net of acquisition fees.
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BUSINESS
GENERAL
We are a medical service provider operating mobile 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, CT or MRI
imaging systems. PET effectively detects many cancers, cardiac and neurological
disorders at their earliest stages which influences patients' treatment options
and eliminates or reduces redundant testing, hospitalization or non-beneficial
treatment procedures.
We provide the PET imaging system housed in a mobile coach or trailer
and dedicated facilities. 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.
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 healthcare
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.
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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. 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 significant 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 the 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 reduces discomfort to the
patient.
As a result of the cost efficiency and clinical effectiveness of PET,
we believe that hospitals and other healthcare providers are experiencing
increased demand from their patients to provide PET technology and related
services. Increasingly, such healthcare 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 were diagnosed in 1999. PET is currently
recognized as one of the only metabolic medical tools 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 important 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 (WORLD JOURNAL OF
SURGERY 1998, 22: 223-228), CT scanning is also less effective than PET scans as
a tool for early detection and diagnosis. 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 mobile imaging services for
hospitals, medical centers and other healthcare providers that are unable to
financially justify the acquisition of a dedicated PET facility.
All of our mobile PET imaging systems are housed in mobile
coaches/trailers designed for convenience, patient comfort and safety, and
include 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 or trailer is divided into three sections: a patient
staging room, a technology control room, and the PET imaging section.
With certain hospitals or medical groups, we develop and operate
dedicated PET facilities. 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 physicians
on the benefits of PET.
-- Physician training programs and expert over-read 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
coaches/trailers to each of our clients' locations.
-- PET Strategic Marketing Plan complete with regional specialists to
evaluate and inform physicians.
-- Convenient access to radiotracers at negotiated discount rates.
We currently have six ECAT(TM) - EXACT(TM) PET systems on order from
CTI/Siemens Medical Systems, and we are ordering seven 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. We
expect the balance of the Siemens PET systems to be in operation by calendar
year end 2000. We received the first mobile GE(TM) ADVANCE(TM) PET Imaging
System in MARCH 2000, and it was accepted by us in late August 2000. We
received the first dedicated non-mobile GE(TM) system IN August 2000. The
cost for a fully-commissioned PET imaging system can range from $1.6 to $2.0
million inclusive of mobile coach/trailer or leasehold improvements.
The 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, integrated workstations, a 3D Advanced Computational
Image Acquisition and Display System and patient couch, all integrated into a
mobile coach/trailer or dedicated facility.
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OUR OPERATIONS
CUSTOMER BASE. We believe that many hospitals and other healthcare
providers will seek access to PET imaging services to remain competitive in the
healthcare marketplace.
Regulatory and licensing requirements in many states may also limit
general access to PET imaging services. In addition, many healthcare providers
lack sufficient patient volumes or financial resources to justify the purchase
of a dedicated in-house PET system. As a result, providers may consider
contracting for mobile services to gain access to PET technology, build patient
flows and provide comprehensive PET services to their communities.
Many healthcare 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 or reduce 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
healthcare 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 healthcare providers:
-- Pomona Valley Hospital Medical Center, California
-- Saint John's Health Center, California
-- Community Hospital of Williams County, Ohio
-- Jewish Hospital Healthcare Services, Inc., Kentucky
-- Scripps Health dba Scripps Memorial Hospital - La Jolla, California
-- St. Joseph Hospital of Orange, California
-- St. Joseph's Regional Medical Center, Indiana
-- Torrance Memorial Medical Center, California
-- University of Louisville Hospital, Kentucky
-- University Nuclear Medicine, Inc., New York
-- Lutheran Hospital of Indiana, Indiana
-- State University of New York at Buffalo, New York
-- Desert PET, Palm Springs, California
-- Tuality Health Care, Hillsborough, Oregon
-- Salem Hospital, Oregon
-- St. Agnes, Fresno, California
-- Modesto Imaging, California
-- Sutter Lakeside, Lakeport, California
-- Adventist Medical Center, Portland, Oregon
-- Providence Health Care System, Portland, Oregon
-- Legacy Health Care System, Portland, Oregon
-- Hillcrest Baptist, Waco, Texas
-- Pottsville Medical Center, Pennsylvania
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-- St. Luke's Medical Center, Houston, Texas
-- Redwood Radiology, Santa Rosa, California
-- Oregon Hospital Services University, Portland, Oregon
-- Trover Foundation, Kentucky
-- Ohio Health Services University, Columbus, Ohio
-- OPUS Imaging, Chicago, Illinois
-- RDI Owensborough, Kentucky
-- Clark Memorial Hospital, Indiana
-- Lima Memorial Hospital, Lima, Ohio
-- Mercy Medical Center, Cedar Rapids, Iowa
-- Covenant Medical Center, Waterloo, Iowa
-- Iowa Methodist, Iowa
-- Silver Cross Medical Center, Illinois
-- Cox Medical Center, Springfield, Missouri
-- St. John's Regional Medical Center, Springfield, Missouri
-- Austin Radiological, Austin, Texas
-- Regional Medical Center, Madisonville, Kentucky
DEDICATED FACILITIES. We develop dedicated PET service facilities with
hospitals or medical groups who have sufficient patient volumes to support a
full-time dedicated facility. These projects are structured as either wholly
owned or joint ventures with a healthcare institution.
REIMBURSEMENT. Mobile diagnostic imaging service providers are
generally not reimbursed directly by healthcare 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 healthcare 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 to the extent permissible under state or
federal law. 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 HCFA has developed the hospital outpatient prospective payment
system (HOPPS) for Medicare hospital outpatients, called ambulatory pricing
categories or "APC's." This new system affects the payments for outpatient
procedures performed in hospitals or hospital-owned imaging centers. A variety
of nuclear medicine and PET procedures have been categorized into nine
groupings, one of which is allocated to PET scanning. Effective August 1, 2000
reimbursement for the APC 981 for FDG-PET oncology studies is set at $2,249.50,
and includes payment for the radiopharmaceutical Fluorodeoxyglucose (FDG) which
is used in PET procedures. Another APC 285 will be used to
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pay for Rb-82 cardiac perfusion imaging studies and has been given a national
rate of $730.22 plus the radiopharmaceutical costs.
Medicare outpatient procedures at freestanding imaging centers are
billed and reimbursed by PET G-Codes. The payment levels for these G-Codes vary
around the country by Medicare region. Estimates on the average reimbursement
for G-Codes G0030 to G0047 range from $1,600-$2,000 for a combined cardiac
rest/stress study inclusive of isotope. For G-Codes G0125 to G0126 and G0163 to
G0165 for FDG-PET oncology studies, reimbursement averages $1,980 for the
technical component, including the FDG.
The implication of the foregoing HCFA approvals is an indication that a
promising technology may 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 hospitals can now
avail themselves of a cutting edge technology which may become a standard of
health care.
GOVERNMENT REGULATION
Insurance payments for PET scans are categorized into Medicare
reimbursement and private insurance reimbursement. Private insurance carriers
are unaffected by the new Medicare coding and reimbursement system described
above, and continue to reimburse according to their internal policies.
We are required to adhere to a wide variety of other regulations
governing the operation of our business. For example, federal regulations
commonly known as the "Stark Laws" impose civil penalties and exclusion from
participation in the Medicare program of reimbursement for referrals 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 final implementing regulations
have been issued regarding the other designated health services, including PET
services. However, 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 or a physician who has a compensation arrangement with us.
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 referral arrangements in a manner similar to the Stark
Laws and requires physicians to disclose any financial interest they may have
with a healthcare provider to their patients to whom they recommend that
provider. Possible sanctions for violating these provisions include loss of
medical licensure and civil and criminal sanctions. 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.
Additional state and federal laws prohibit the payment or receipt of
bribes, kickbacks, rebates and any other direct or indirect remuneration in
return for or to induce the referral of an individual to a person for the
furnishing, directing or arranging of services, items or equipment, commonly
referred to as anti-kickback laws. Violation of the anti-kickback laws may also
result in civil and criminal penalties, loss of medical licensure and exclusion
from the Medicare and other federal healthcare programs, to the extent such
federal reimbursement program beneficiaries are involved.
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 other 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 operating mobile PET systems in the U.S.
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,
17
<PAGE>
and competitive products. 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.
In addition to direct competition from other providers of mobile PET
services, we compete with free-standing CT, MRI and PET imaging centers,
healthcare providers that have their own diagnostic imaging systems and
equipment manufacturers that sell or lease imaging systems to healthcare
providers for mobile or full-time use. The risks that may occur if we fail to
compete successfully are discussed in the "Risk Factors" section of this Form
SB-2.
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.
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 intend to differentiate ourselves from potential competitors by
aggressively marketing our services to those providers who may determine such
services are medically necessary for their patients, such as physicians, nuclear
medicine specialists, radiologists and hospital administrators, by offering
advance PET imaging technology services and trained PET technologists, as well
as marketing, logistical and education programs to accommodate the growing needs
of our customers.
BECOME THE DOMINANT PROVIDER OF MOBILE PET SERVICES. We are currently
operating mobile PET systems in California, Kentucky, Ohio and Indiana. We
intend to commence operations in Texas, Oregon, Iowa, New York, Oklahoma,
Missouri, Florida, Pennsylvania, New Jersey and Nevada in the fourth 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) 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.
SECURE EXCLUSIVE, LONG-TERM CONTRACTS WITH KEY HOSPITALS IN ATTRACTIVE
MARKETS. We generate significantly all of our revenues from exclusive, long-term
contracts with hospitals and other healthcare 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 healthcare 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 increase our usefulness to physicians and healthcare
entities. 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 PET system, we can benefit from
operating leverage, with increased utilization rates resulting in increases in
operating earnings and margins.
FAVORABLE PAYMENT TERMS. A majority of our billings are direct to
hospitals. The hospitals, in turn, generally pay us prior to collecting from
patients and third-party payors. Accordingly, our exposure to uncollectable
patient receivables is minimized.
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<PAGE>
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 healthcare companies.
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.
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 capital 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 is directed toward geographically
expanding our business through internal growth rather than by acquisitions,
we may 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 healthcare 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 eight 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 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
physicians and keeping such physicians apprised of our PET service
capabilities. In addition, certain key members 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 assist in
educational programs directed to the medical community which 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 eight major markets of Southern
California, New York, Texas, Northern California, Eastern Pennsylvania,
Chicago, Boston 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.
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<PAGE>
YEAR 2000 COMPLIANCE
To our knowledge, as of the date of filing of this Form SB-2, 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 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.
EMPLOYEES
At June 30, 2000, we employed 43 people on a full-time basis and a
total of 46 employees. None of these employees is subject to a collective
bargaining agreement and there is no union representation within our company.
We maintain various employee benefit plans and believes our employee
relations are good.
FACILITIES
Our corporate offices are located at 2240 Shelter Island Drive,
Suite 205, San Diego, California, where we lease 3,500 square feet for $3,075
per month. This lease runs through December 31, 2000, but we have the right
to extend the term for three additional one-year periods.
In addition, our sales and marketing office is located at 2540
Shelter Island Drive, Suite P, San Diego, California, where we lease 1,075
square feet for $3,090 per month the first year, $3,335 per month the second
year, $3,600 per month the third year, $3,885 per month the fourth year and
$4,195 per month the fifth year. This five-year lease commenced on June 1,
2000 and runs through May 31, 2005.
LEGAL PROCEEDINGS
We are not a party to any pending legal proceedings.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
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 50 Chairman of the Board, Chief Executive
Officer and President
Thomas G. Brown 55 Chief Financial Officer and Director
Jim Corlett 57 Vice President - Mobile Operations
Brent Nelson 37 Director
Robert C. Bush 72 Director
K. Ivan F. Gothner 41 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 healthcare 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., a
company he has been developing since 1995, and President of Radiosurgical
Centers Corporation, businesses involved in the development and operation of
Gamma Knife radiosurgery centers. In March 1998, Mr. Crowe was convicted of
domestic violence (a misdemeanor) and illegal possession of a firearm. This
incident occurred prior to Mr. Crowe's election as a director and appointment
as an executive officer and is not related to our business.
THOMAS G. BROWN has served as our Chief Financial Officer and a
director 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, where he has been since 1996. Mr. Brown
co-founded 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 1993. 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 and through 1998. 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 managing director of Northwest Capital Partners L.L.C., a Bellevue,
Washington-based venture capital firm that provides capital to private and
public companies, which he founded in June 1995. Mr. Nelson has over 15 years
of experience in corporate and project financing.
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<PAGE>
ROBERT C. BUSH was appointed to serve as a director in March 2000.
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.
K. IVAN F. GOTHNER was appointed to serve as a director in May 2000.
Mr. Gothner is Managing Director of Adirondack Capital, LLC, a private
merchant banking firm which focuses on serving small- and mid-size growth
companies, which he founded in April 1997. Mr. Gothner also served as
managing Director of First United Equities Corporation from 1995 to 1997.
From 1994 to 1995, Mr. Gothner served as the Executive Vice President and
interim Chief Operating Officer of Breasy Medical Equipment (USA) Inc. Mr.
Gothner is also a director of Laminaire Corporation, a publicly-traded
company, Ashton Technology Group Inc. and Gomez Advances.
All directors hold office until the next annual meeting of
shareholders 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.
EXECUTIVE OFFICER 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.
The following table sets forth compensation information for services
rendered to us by certain executive officers and others in all capacities
during each of the prior two years. Other then as set forth below, no
executive officer's or other employee's salary and bonus exceeded $100,000 in
any of the applicable years. The following information includes the dollar
value of base salaries, draws, bonus awards, the number of stock options
granted and certain other compensation, if any, whether paid or deferred.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation LongTerm Compensation
------------------------------------------- ----------------------------
Other Restricted Securities
Annual Stock Underlying All Other
Name and Position Year(1) Salary Bonus Compensation(2) Awards Options/SARs Compensation
--------------------- -------- ---------- --------- ---------------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Paul J. Crowe, 6/30/00 $179,167 $25,000 $7,200 500,000
CEO 6/30/99 100,000 -- 1,800
Thomas G. Brown, 6/30/00 110,000 -- -- 650,000
CFO 6/30/99 15,000 -- --
Jim Gleeson, 6/30/00 77,404 -- 32,160 50,000
Vice President
</TABLE>
(1) We commenced operations on December 1, 1998.
(2) Other Annual Compensation includes auto allowance for Paul Crowe and Jim
Gleeson ($7,200) and advance draws of commissions.
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<PAGE>
The following table sets forth the options granted, if any, to the
persons named in the "Summary Compensation Table" during our fiscal year ended
June 30, 2000.
<TABLE>
<CAPTION>
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
Number of Percent of Total Potential Realizable Value at
Securities Options/SARs Assumed Annual Rates of Stock
Underlying Granted to Exercise or Price Appreciate for Option Term
Options/SARs Employees in Base Price Expiration --------------------------------
Name Granted (#) Fiscal Year (%) ($/Share) Date 5% ($) * 10% ($) *
----------------------- ---------------- ---------------- ----------- ------------ ------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Paul J. Crowe, 100,000 0.02 2.500 3/31/02 117,664 149,094
CEO 400,000 0.07 2.500 6/21/03 562,794 796,850
Thomas G. Brown, 100,000 0.02 2.500 3/31/02 117,664 149,094
CFO 250,000 0.04 2.500 3/31/02 294,160 372,734
300,000 0.05 2.500 2/14/03 408,142 567,009
Jim Gleeson, 50,000 0.01 2.600 6/21/02 56,047 74,188
Vice President
</TABLE>
* Based on the medium market value of our common stock at $3.375 on June 30,
2000 appreciating by 5% and 10%, respectively, compounded over the remaining
3 years of the option term, less the cost of exercise.
The above options were granted on the dates as follows: Paul J.
Crowe on 4/1/99 and 6/21/00; Thomas G. Brown on 4/1/99, 4/1/99 and 2/15/00;
and Jim Gleeson on 6/22/99. All options are fully vested.
The following table sets forth information concerning the exercise
of stock options by each person named in the "Summary Compensation Table"
during our fiscal year ended June 30, 2000 and the value of all exercisable
and unexercisable options at June 30, 2000.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised
Unexercised Options at In-The-Money Options
Shares Fiscal Year End (#) At Fiscal Year End ($)*
Acquired Value ------------------------------- -------------------------------
Name On Exercise ($) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
-------------------- ---------------- ----------- ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Paul J. Crowe, 100,000 -- 14,960 --
CEO 400,000 -- 59,840 --
Thomas G. Brown, 100,000 -- 14,960 --
CFO 250,000 -- 37,400 --
300,000 -- 44,880 --
Jim Gleeson, 50,000 -- 2.480 --
Vice President
</TABLE>
* Based on the closing price for our common stock at the close of market of June
30, 2000. On June 30, 2000, the closing price of our common stock was $3.312. We
discounted this closing price to 80% in calculating the "In-The-Money" values.
23
<PAGE>
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 in 1999 and
$200,000 per year effective beginning in the calendar year 2000. His salary
is increased by 10% annually 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 $2.50 per share. He also
receives a salary of $10,000 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 exercise price of these options is
$1.91 per share. The Employment Agreement also provided for a salary to Mr.
Corlett of $85,000 per year, which has since been increased to $130,000 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.
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 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.
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.
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.
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<PAGE>
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
October 16, 2000, our Board of Directors reserved 6,000,000 shares for
issuance under the 1999 Plan, of which 5,987,986 shares were subject to
outstanding options and 12,014 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 our common
stock 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.
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 us 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 if any of our officers or directors
who hold 5% or more of our common stock ("Principal Shareholders") desire to
transfer their shares of our stock to a third party, we and the Principal
Shareholders are required to first offer such shares to us (if applicable),
to Northwest, and then to the other Principal Shareholders. The Consulting
Agreement also requires our officers and directors and the Principal
Shareholders to agree that for a period of twelve months after our common
stock commences trading on the OTC Bulletin Board, the Principal Shareholders
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. (LRC). Effective June 30, 2000, we have advanced, without
interest, $435,100 to LRC for working capital during LRC's startup period.
The advances are covered by continuing corporate and personal guarantees.
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
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<PAGE>
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. The exercise price for the
options was $1.50 per share.
In November 1999, we entered into an agreement with Adirondack
Capital, LLC in connection with its role as a financial advisor to us. One of
our directors, K. Ivan. F. Gothner, is Managing Director and a founder of
Adirondack. As compensation for services to be rendered by Adirondack, we
agreed to pay Adirondack a monthly cash retainer of $3,000. In addition, we
will issue to Adirondack or its designee a warrant to purchase 50,000 shares
of our common stock. The warrant will expire on December 31, 2006 and will
have an exercise price of $2.00 per share.
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
was non-interest bearing and payable not later than six months from the date
of the agreement, December 20, 1999. We repaid the loan in April 2000.
In March 2000, Adirondack was paid $300,000 as a fee relating to the
placement of the Series A Convertible Preferred Stock. In addition,
Adirondack or its designee will be issued a warrant to purchase 300,000
shares of our common stock at a price of $3.00 per share which will expire on
December 31, 2006.
In August 2000, Robert Bush provided us a bridge loan of $200,000
represented by an 8% subordinated note due October 6, 2000. In addition, Mr.
Bush was issued a warrant to purchase 35,000 shares of our common stock at a
price of $2.50 per share which expires on August 31, 2003. The repayment date
has been extended for 60 days.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding
beneficial ownership of our common stock as of October 16, 2000 (i) by each
person who is known by us to own beneficially more than 5% of our common
stock; (ii) by each of our directors; and (iii) by all of our officers and
directors as a group. Each person's address is c/o Mobile PET Systems, Inc.,
2240 Shelter Island Drive, #205, San Diego, California 92106.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of
Beneficial Owner Beneficial Owner Percentage of Class(1)
------------------------------------------ ----------------------------- -------------------------
<S> <C> <C>
Paul J. Crowe 5,900,000(2) 38.14
Brent Nelson 1,825,000(3) 12.11
Thomas G. Brown 752,000(4) 4.82
K. Ivan F. Gothner 396,000(5) 2.58
Jim Corlett 200,000(3) 1.33
Robert C. Bush 102,000(3) .68
All Executive Officers and Directors 9,175,000(6) 54.69
(6 persons)
</TABLE>
(1) Based on a total of 14,969,458 shares of common stock outstanding on
October 16, 2000, and the shares issuable upon the exercise of options and
warrants exercisable on or within 60 days of October 16, 2000, as described
below.
(2) Includes 500,000 shares issuable upon the exercise of outstanding stock
options.
(3) Includes 100,000 shares issuable upon the exercise of outstanding stock
options.
(4) Includes 650,000 shares issuable upon the exercise of outstanding stock
options.
(5) Includes 356,000 shares issuable upon the conversion of outstanding
warrants.
(6) Includes 1,806,000 shares issuable upon the exercise of outstanding stock
options and the conversion of outstanding warrants.
DESCRIPTION OF SECURITIES
The following description of our capital stock is a summary and is
qualified in its entirety by the provisions of the Certificate of
Incorporation, with amendments, all of which have been filed as exhibits to
our registration statement of which this prospectus is a part.
COMMON STOCK
We are authorized to issue 90,000,000 shares of common stock, $.0001
par value, of which 14,969,458 shares were outstanding at October 16, 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 shareholder 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 shareholders.
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 our 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 stock will be entitled to share equally
in the assets of the Company legally available for distribution to such
shareholder 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.
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<PAGE>
PREFERRED STOCK
We are authorized to issue 10,000,000 shares of preferred stock, $.0001
per value, of which 80 shares were outstanding at October 16, 2000. Of the
outstanding shares, 60 shares are designated "Series A Convertible Preferred
Stock" and 20 shares are designated as "Series B 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 year. 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 year 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, pari passu with holders of the Series B
Convertible Preferred Stock described below. 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.
SERIES B CONVERTIBLE PREFERRED STOCK. Holders of Series B 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 year. In the event of a liquidation, dissolution or winding up of our
company, holders of Series B Convertible Preferred Stock are entitled to receive
$50,000 per share plus 8% interest per year on that amount from the date of
issuance of the Series B Convertible Preferred Stock to the day before such
liquidation, dissolution or winding up, pari passu with holders of the Series A
Convertible Preferred Stock described above. Holders of Series B 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 B
Convertible Preferred Stock. Each share of Series B Convertible Preferred Stock
may be converted into that number of shares of common stock equal to $50,000
divided by the lesser of (i) $3, or (ii) 75% of the average closing bid price
for our common stock on the five days before the conversion date. Shares of
Series B Convertible Preferred Stock outstanding on September 30, 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 B 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 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 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.
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Under the Delaware General Corporation Law and our Certificate of
Incorporation, our directors will have no personal liability to us or our
shareholders 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 each director's (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 shareholders 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
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<PAGE>
omissions that show a reckless disregard for the director's duty to the
corporation or its shareholders 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
shareholders; (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 shareholders (through shareholder'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 shareholder 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 of 1933 (the "Act" or "Securities Act") may be permitted to directors,
officers or persons controlling our company pursuant to the foregoing
provisions, or otherwise, we have been advised 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.
PENNY STOCK
The Securities and Exchange Commission has adopted Rule 15g-9 which
established the definition of a "penny stock," for the purposes relevant to us,
as any equity security that has a market price of less than $5.00 per share or
with an exercise price of less than $5.00 per share, subject to certain
exceptions. For any transaction involving a penny stock, unless exempt, the
rules require: (i) that a broker or dealer approve a person's account for
transactions in penny stocks; and (ii) the broker or dealer receive from the
investor a written agreement to the transaction, setting forth the identity and
quantity of the penny stock to be purchased. In order to approve a person's
account for transactions in penny stocks, the broker or dealer must (i) obtain
financial information and investment experience objectives of the person; and
(ii) make a reasonable determination that the transactions in penny stocks are
suitable for that person and the person has sufficient knowledge and experience
in financial matters to be capable of evaluating the risks of transactions in
penny stocks. The broker or dealer must also deliver, prior to any transaction
in a penny stock, a disclosure schedule prepared by the Commission relating to
the penny stock market, which, in highlight form, (i) sets forth the basis on
which the broker or dealer made the suitability determination; and (ii) that the
broker or dealer received a signed, written agreement from the investor prior to
the transaction. Disclosure also has to be made about the risks of investing in
penny stocks in both public offerings and in secondary trading and about the
commissions payable to both the broker-dealer and the registered representative,
current quotations for the securities and the rights and remedies available to
an investor in cases of fraud in penny stock transactions. Finally, monthly
statements have to be sent disclosing recent price information for the penny
stock held in the account and information on the limited market in penny stocks.
29
<PAGE>
PLAN OF DISTRIBUTION
The selling security holders are free to offer and sell their common
stock at such times, in such manner and at such prices as they may determine.
The types of transactions in which the common stock is sold may include
transactions in the over-the-counter market (including block transactions),
negotiated transactions, the settlement of short sales of common stock, or a
combination of such methods of sale. The sales will be at market prices
prevailing at the time of sale or at negotiated prices. Such transactions may or
may not involve brokers or dealers. The selling security holders have advised us
that they have not entered into any agreements, understandings or arrangements
with any underwriters or broker-dealers regarding the sale of their securities.
The selling security holders do not have underwriters or coordinating brokers
acting in connection with the proposed sale of the common stock.
The selling security holders may effect such transactions by selling
common stock directly to purchasers or to or through broker-dealers, which may
act as agents or principals. Such broker-dealers may receive compensation in the
form of discounts, concessions, or commission from the selling security holders.
They may also receive compensation from the purchasers of common stock for whom
such broker-dealers may act as agents or to whom they sell as principal, or both
(which compensation as to a particular broker-dealer might be in excess of
customary commissions).
Each selling security holder is, and any broker-dealer that acts in
connection with the sale of common stock may be deemed to be, an "underwriter"
within the meaning of Section 2(11) of the Securities Act. Any commissions
received by such broker-dealers and any profit on the resale of the common stock
sold by them while acting as principals might be deemed to be underwriting
discounts or commissions.
When used in this prospectus, "selling security holders" includes
donees and pledgees selling shares received from the named selling security
holders after the date of this prospectus.
The common stock may be sold in:
-- a block trade, where a broker or dealer will try to sell the
common stock as agent but may position and resell a portion of
the block as principal to facilitate the transaction;
-- transactions where a broker or dealer acts as principal and
resells the common stock for its account pursuant to this
prospectus;
-- an exchange distribution in accordance with the rules of such
exchange; and
-- ordinary brokerage transactions and transactions in which the
broker solicits purchases.
The common stock may also be sold through short sales of shares, put or
call option transactions, loans or pledges of the shares, hedging or similar
transactions, or a combination of such methods. The selling security holders may
or may not involve brokers or dealers in any of these transactions. In effecting
sales, brokers or dealers engaged by the selling security holders may arrange
for other brokers or dealers to participate. The selling security holders may,
from time to time, authorize underwriters acting as their agent to offer and
sell the common stock upon such terms and conditions as shall be set forth in a
prospectus supplement. Underwriters, brokers or dealers will receive commissions
or discounts from the selling security holders in amounts to be negotiated
immediately prior to sale. Offers and sales may also be made directly by the
selling security holders, or other bona fide owners of the common stock, so long
as an applicable exemption from state broker-dealer registration requirements is
available in the jurisdiction of sale. The selling security holders,
underwriters, brokers or dealers and any other participating brokers or dealers
may be deemed to be "underwriters" within the meaning of the Securities Act in
connection with these sales, and any discounts and commissions received by them
and any profit realized by them on the resale of the common stock may be deemed
to be underwriting discounts and commissions under the Securities Act.
All or any portion of the shares of common stock covered by this
prospectus that qualify for sale under Rule 144 under the Securities Act may be
sold under Rule 144 rather than pursuant to this prospectus.
There is no assurance that the selling security holders will offer for
sale or sell any or all of the shares of common stock covered by this
prospectus.
30
<PAGE>
Because the selling security holders are "underwriters" within the
meaning of Section 2(11) of the Securities Act, they will be subject to
prospectus delivery requirements.
We have informed the selling security holders that the
anti-manipulation rules of the SEC, including Regulation M promulgated under the
Securities and Exchange Act, may apply to their sales in the market and have
provided the selling security holders with a copy of such rules and regulations.
The selling security holders also may resell all or a portion of the
common stock in open market transactions in reliance upon Rule 144 under the
Securities and Exchange Act, provided they meet the criteria and conform to the
requirements of such Rule.
SELLING SECURITY HOLDERS
The following table sets forth certain information with respect to the
selling security holders as of October 16, 2000. The selling security holders
are not currently affiliates of us, and have not had a material relationship
with us during the past three years, other than as a holder of securities of our
and the negotiation of agreements with us. The selling security holders are not
and have not been affiliated with a registered broker-dealer.
<TABLE>
<CAPTION>
Amount and Percentage
of Common Stock
Beneficial Ownership of Maximum Number of After the Sale
Common Stock as of Shares of Common Stock --------------------------
Name October 16, 2000 Offered for Sale Number %
----------------------------------- ------------------------- ------------------------- -------------- -----------
<S> <C> <C> <C> <C>
York, LLC 2,836,666* 9,202,250 0 0
c/o Thomson Kernaghan & Co.
365 Bay Street, Suite 1000
10th Floor
Toronto, Ontario M5H 2V2
Continental Capital & Equity 35,000 35,000 0 0
195 Wekiva Springs Road, Suite 200
Longwood, Florida 32779
</TABLE>
* Under the terms of the Series A and Series B Securities Purchase
Agreements, York, LLC and/or its affiliates may not hold more than 4.99% of
the outstanding shares of the Company's common stock at any time.
SERIES A SECURITIES PURCHASE AGREEMENT
On March 3, 2000, we completed a private placement of 60 shares of
Series A Convertible Preferred Stock and warrants to purchase 120,000 shares of
common stock exercisable at $5 per share to York, LLC ("York"), which raised
proceeds of $3,000,000. Concurrently with this private placement, we filed a
Certificate of Designation to our Certificate of Incorporation setting forth the
rights, privileges, preferences and other terms of the Series A Convertible
Preferred Stock. York was granted one demand registration right with respect to
the common stock underlying the Series A Convertible Preferred Stock and the
warrants, and this prospectus and registration statement is being filed pursuant
to that registration right.
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) 75% of 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.
The Securities Purchase Agreement under the private placement also
entitles us to issue and sell additional common shares (the "Tranche Shares") to
York for up to an aggregate of $10,000,000 from time to time during a 36-month
period starting after the last day of the month in which this registration
statement, of which this prospectus is a
31
<PAGE>
part, becomes effective, subject to certain conditions outlined in the Series
A Securities Purchase Agreement. These additional purchases of our common
stock by York are referred to in the Series A Securities Purchase Agreement
as "Additional Tranches."
Three business days after we have an effective registration statement
for the shares underlying the Series A Convertible Preferred Stock and the
120,000 warrants and the Tranche Shares, we may sell between $50,000 and
$2,000,000 worth of common stock to York by providing York with notice ("Tranche
Notice") of our intended sale date to York. The intended sale date provided in
the Tranche Notice must be the later of (i) 30 days after any immediately
preceding the sale of Tranche Shares or (ii) ten business days after the date of
the Tranche Notice. The price per share under each Additional Tranche will be
equal to 85% of the average closing bid price as reported by Bloomberg LP for
the five consecutive days immediately prior to the sale date. The amount of each
Additional Tranche will also be subject to maximum dollar limitations which are
based on the price per share and the average daily trading volume of our common
stock for the thirty trading days prior to the intended sale date.
Certain conditions apply to our right to issue a Tranche Notice and
York's obligation to purchase on the sale date provided in any Tranche Notice:
(i) the registration statement for the common shares underlying the preferred
stock and warrants must remain effective; (ii) the representations, warranties
and covenants made by us and York in the Series A Securities Purchase Agreement
must remain true; and (iii) there must be no materially adverse changes in our
business.
York's obligation to purchase will terminate 36 months after the last
day of the month in which this registration statement is declared effective, if
it is not terminated earlier due to the occurrence of certain conditions
outlined in the Series A Securities Purchase Agreement. York's obligation to
purchase would have been subject to the early termination provision four months
after the date of the agreement, as we were unable to file this registration
statement before that time. However, we have received a waiver from York which
extends the early termination provision deadline to December 1, 2000, although
the waiver is contingent and would terminate if this registration statement was
not filed by October 28, 2000.
York has a right of first refusal if we offer to enter into any
transaction for the sale of securities convertible into our common stock or
issue common shares with a "reset" provision whereby we will issue additional
common shares depending on the future share price of the common stock. This
right of first refusal expires 120 days after this registration statement is
declared effective.
Under the terms of the Series A Securities Purchase Agreement, we may
be responsible for reimbursing York for expenses incurred by York due to an
action or investigation by the SEC regarding us or the transactions covered by
the Series A Securities Purchase Agreement. We must also obtain the prior
written consent of York before entering into any subsequent or further offer or
sale of common stock or securities convertible into common stock with any third
party until 180 days after the effective date of this registration statement.
SERIES B SECURITIES PURCHASE AGREEMENT
On September 21, 2000, we entered into a transaction for the private
placement of 30 shares of Series B Convertible Preferred Stock in two tranches
and warrants to purchase 50,000 shares of common stock exercisable at $3 per
share and additional warrants, if and when a second tranche occurs, with York,
which will raise gross proceeds of $1,500,000. Concurrently with this private
placement, we filed a Certificate of Designation to our Certificate of
Incorporation setting forth the rights, privileges, preferences and other terms
of the Series B Convertible Preferred Stock. York was granted one demand
registration right with respect to the common stock underlying the Series B
Convertible Preferred Stock and the warrants, and this prospectus and
registration statement is being filed pursuant to that registration right.
Each share of Series B Convertible Preferred Stock may be converted
into that number of shares of common stock equal to $50,000 divided by the
lesser of (i) $3 or (ii) 75% of the average closing bid price for our common
stock on the five days before the conversion date. Shares of Series B
Convertible Preferred Stock outstanding on September 30, 2003 will automatically
be converted into common stock based on the foregoing formula. The conversion
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<PAGE>
ratio is subject to adjustment in the event of certain reorganizations of the
Company or based on certain issuances of common stock and options to purchase
common stock by the Company.
Under the Securities Purchase Agreement for the private placement, the
30 shares of Series B Convertible Preferred Stock are being issued in two
tranches, the first for 20 shares of Series B Convertible Preferred Stock for
$1,000,000,which has been completed, and the second to occur at a future date
for 10 shares of Series B Convertible Preferred Stock for $500,000. Three
business days after this registration statement becomes effective, we must
notify York that the second tranche will occur five business days after the date
of our notice.
At the closing of the second tranche, additional warrants must be
issued to York for that number of common shares determined by (i) dividing
500,000 by 120% of the closing bid price of our common stock on the closing date
of the second tranche and rounding, if necessary, to the nearest whole number,
and (ii) multiplying the result by 0.15. The warrants will have an exercise
price which is 120% of the closing bid price of our common stock on the closing
date for this tranche.
York's obligation to purchase the second tranche will terminate if the
tranche notice is not delivered by us by March 20, 2001. York's obligation to
purchase the second tranche is also limited by the occurrence of certain
conditions outlined in the Series B Securities Purchase Agreement.
York has a right of first refusal if we offer to enter into any
transaction for the sale of securities convertible into our common stock or
issues common shares with a "reset" provision where we will issue additional
common shares depending on the future share price of the common stock. This
right of first refusal expires 120 days after this registration statement is
declared effective. We must also obtain the prior written consent of York before
entering into any subsequent or further offer or sale of common stock or
securities convertible into common stock with any third party until 180 days
after the effective date of this registration statement.
Under the terms of the Series B Securities Purchase Agreement, we may
be responsible for reimbursing York for expenses incurred by York due to an
action or investigation by the SEC regarding us or the transactions covered by
the Series B Securities Purchase Agreement.
CLIENT SERVICES AGREEMENT
On May 12, 2000, we entered into a six-month Client Services Agreement
with Continental Capital & Equity Corporation ("Continental") to publicize us in
the financial community. As part of the agreement, we issued them 35,000 shares
of our common stock. At the end of the agreement period, we must pay them
$50,000 and issue them an option or warrant for a total of 100,000 shares
expiring on May 12, 2004, 50,000 shares at an exercise price of $6.00 and 50,000
shares at an exercise price of $7.00. Continental received piggyback
registration rights for the 35,000 shares of common stock which are being
registered in this registration statement. They will also have piggyback
registration rights for the common stock underlying the option or warrant to be
issued.
LEGAL MATTERS
The validity of the shares of common stock being offered hereby will be
passed upon for us by Luce, Forward, Hamilton and Scripps LLP, San Diego,
California.
EXPERTS
The financial statements of the Company at June 30, 2000 appearing in
this prospectus and registration statement have been audited by Peterson and
Co., independent auditors, as set forth on their report thereon appearing
elsewhere in this prospectus, and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
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<PAGE>
AVAILABLE INFORMATION
We have filed a registration statement on Form SB-2 under the
Securities Act of 1933, as amended, relating to the shares of common stock being
offered by this prospectus, and reference is made to such registration
statement. This prospectus constitutes the prospectus of Mobile PET Systems,
Inc., filed as part of the registration statement, and it does not contain all
information in the registration statement, as certain portions have been omitted
in accordance with the rules and regulations of the SEC.
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.
We intend to furnish our shareholders with annual reports containing
audited financial statements.
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<PAGE>
INDEX TO FINANCIAL STATEMENTS
MOBILE PET SYSTEMS, INC. AND SUBSIDIARIES
(FORMERLY COLONY INTERNATIONAL INCORPORATED)
FINANCIAL STATEMENTS
JUNE 30, 2000
<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 SHAREHOLDER'S EQUITY (DEFICIT) F-4
CONSOLIDATED STATEMENT OF CASH FLOWS F-5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-6
</TABLE>
35
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Mobile P.E.T. Systems, Inc.
We have audited the accompanying consolidated balance sheets of Mobile P.E.T.
Systems, Inc., formerly Colony International Incorporated and subsidiaries as of
June 30, 2000 and 1999, and the related consolidated statements of operations,
shareholders' equity and cash flows for the year ended June 30, 2000 and 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 did not audit the financial statements of The
London P.E.T. Centre Limited, Mobile P.E.T. Leasing Limited, and Mobile P.E.T.
Systems (UK) Limited, United Kingdom private limited companies, which statements
reflect total assets of $2,212,989 as of June 30, 2000 and total revenues of
$8,349 for the periods December 10, 1999 and December 17, 1999 to June 30, 2000.
Those statements were audited by other auditors whose reports have been
furnished to us, and our opinion, insofar as it relates to the amounts included
for The London P.E.T. Centre Limited, Mobile P.E.T. Leasing Limited, and Mobile
P.E.T. Systems (UK) Limited, is based solely on the report of the other
auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, 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 as of June 30, 2000 and 1999, and the results of its operations and
its cash flows for the year ended June 30, 2000 and for the period December 1,
1998 (date of recommencement) to June 30, 1999, in conformity with generally
accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the
consolidated financial statements taken as a whole. The consolidating balance
sheets and statements of operations shown on pages F-19 and F-20 are presented
for the purpose of additional information and are not a required part of the
consolidated financial statements. Such information has been subjected to the
auditing procedures in the audits of the consolidated financial statements.
In our opinion, which insofar as it relates to The London P.E.T. Centre
Limited, Mobile P.E.T. Leasing Limited, and Mobile P.E.T. Systems (UK)
Limited, is based on the report of other auditors, such information is fairly
stated in all material respects in relation to the consolidated financial
statements taken as a whole.
/s/ PETERSON & CO.
------------------
PETERSON & CO.
San Diego, California
September 17, 2000
(Except for Note 14, as to
which the date is
September 21, 2000)
F-1
<PAGE>
MOBILE P.E.T. SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
------------------- -------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 521,033 $ 1,784,390
Accounts receivable, net of allowance for doubtful accounts
of $116,000 and $0 at June 30, 2000 and 1999, respectively 472,733 -
Due from London Radiosurgical Centre, Ltd 435,100 29,971
Other receivables 308,163 -
Prepaid expenses 241,762 17,990
Deposits and other assets 1,316,964 551,292
------------------- -------------------
Total current assets 3,295,755 2,383,643
PROPERTY AND EQUIPMENT, NET 6,133,711 58,822
OTHER ASSETS
Accrued interest receivable 42,957 -
Subordinated equity participation 200,000 200,000
Restricted cash 329,480 252,372
------------------- -------------------
Total assets $ 10,001,903 $ 2,894,837
=================== ===================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 638,500 $ 81,868
Income taxes payable 800 800
Accrued liabilities 179,894 88,750
Other liabilities 295,959 -
Obligations under capital lease - current 1,026,310 -
------------------- -------------------
Total current liabilities 2,141,463 171,418
NONCURRENT LIABILITIES
Obligations under capital lease 4,724,052 -
Deferred revenue 12,714 -
------------------- -------------------
Total liabilities 6,878,229 171,418
SHAREHOLDERS' EQUITY
Preferred stock; $0.0001 par value; 10,000,000 shares authorized;
60 and 0 shares issued and outstanding at June 30, 2000 and 1999,
respectively 3,000,000 -
Common stock; $0.0001 par value; 90,000,000 shares
authorized; 14,944,658 and 12,844,658 shares issued
and outstanding at June 30, 2000 and 1999, respectively 1,495 1,285
Additional paid in capital 8,580,888 4,545,998
Accumulated deficit (8,415,771) (1,823,864)
Foreign currency translation adjustment (42,938) -
------------------- -------------------
Total shareholders' equity 3,123,674 2,723,419
------------------- -------------------
Total liabilities and shareholders' equity $ 10,001,903 $ 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
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 2000
AND THE PERIOD DECEMBER 1, 1998 (DATE OF RECOMMENCEMENT) TO JUNE 30, 1999
<TABLE>
<CAPTION>
2000 1999
------------------ -------------------
<S> <C> <C>
SERVICE REVENUES $ 1,122,969 $ -
COST OF SERVICE REVENUES 675,697 -
------------------ -------------------
Gross profit 447,272 -
EXPENSES
General and administrative 6,742,283 991,865
------------------ -------------------
Total expenses 6,742,283 991,865
------------------ -------------------
Loss from operations (6,295,012) (991,865)
OTHER INCOME (EXPENSE)
Interest income 89,838 2,701
Other income 4,163 1,553
Interest expense (389,297) (7,017)
------------------ -------------------
Total other income (expense) (295,296) (2,763)
------------------ -------------------
Loss before provision for income taxes (6,590,307) (994,628)
Provision for income taxes 1,600 2,400
------------------ -------------------
NET LOSS (6,591,907) (997,028)
Preferred stock dividend (1,205,647) -
------------------ -------------------
NET LOSS - AVAILABLE TO COMMON SHAREHOLDERS $ (7,797,554) $ (997,028)
================== ===================
Loss per share - basic $ (0.56) $ (0.09)
================== ===================
Loss per share - diluted $ (0.56) $ (0.09)
================== ===================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
MOBILE P.E.T. SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED JUNE 30, 2000
AND THE PERIOD DECEMBER 1, 1998 (DATE OF RECOMMENCEMENT) TO JUNE 30, 1999
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
------------------------------- ---------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Balance - December 1, 1998 - $ - 10,328,395 $ 1,033
Reverse stock split: 50 - 1 (10,121,636) (1,012)
Common stock issued 3,937,899 394
--------------- --------------- ---------------- ----------------
Balance immediately prior to acquisition 4,144,658 415
Common stock issued in acquisition 7,000,000 700
Common stock issued through the
exercise of stock options 1,500,000 150
Common stock issued as compensation 200,000 20
Common stock subscribed through the exercise of options
Common stock subscribed, net of offering costs
Net loss
--------------- --------------- ---------------- ----------------
Balance - June 30, 1999 - - 12,844,658 1,285
Common stock issued from subscriptions
paid, net of offering costs 515,000 51
Common stock issued in private placement,
net of offering costs 1,550,000 155
Common stock issued for services 35,000 4
Preferred stock issued in private placement,
net of offering costs 60 3,000,000
Options issued as compensation
Net loss
Foreign currency translation adjustment
--------------- --------------- ---------------- ----------------
Balance - June 30, 2000 60 $ 3,000,000 14,944,658 $ 1,495
=============== =============== ================ ================
</TABLE>
<TABLE>
<CAPTION>
FOREIGN
ADDITIONAL CURRENCY TOTAL
PAID IN ACCUMULATED TRANSLATION SHAREHOLDERS'
CAPITAL DEFICIT ADJUSTMENT EQUITY
----------------- ------------------ ---------------- --------------
<S> <C> <C> <C> <C>
Balance - December 1, 1998 $ 825,803 $ (826,836) $ - $ -
Reverse stock split: 50 - 1 1,012 -
Common stock issued 98,053 98,447
----------------- ------------------ ---------------- ---------------
Balance immediately prior to acquisition 924,868 (826,836) - 98,447
Common stock issued in acquisition (700) -
Common stock issued through the
exercise of stock options 1,449,850 1,450,000
Common stock issued as compensation 249,980 250,000
Common stock subscribed through the exercise of options 350,000 350,000
Common stock subscribed, net of offering costs 1,572,000 1,572,000
Net loss (997,028) - (997,028)
----------------- ------------------ ---------------- ---------------
Balance - June 30, 1999 4,545,998 (1,823,864) - 2,723,419
Common stock issued from subscriptions
paid, net of offering costs 284,949 285,000
Common stock issued in private placement,
net of offering costs 2,664,128 2,664,283
Common stock issued for services 109,371 109,375
Preferred stock issued in private placement,
net of offering costs (300,000) 2,700,000
Options issued as compensation 1,276,442 1,276,442
Net loss (6,591,907) (6,591,907)
Foreign currency translation adjustment (42,938) (42,938)
----------------- ------------------ ---------------- ---------------
Balance - June 30, 2000 $ 8,580,888 $ (8,415,771) $ (42,938) $ 3,123,674
================= ================== ================ ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
MOBILE P.E.T. SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 2000
AND THE PERIOD DECEMBER 1, 1998 (DATE OF RECOMMENCEMENT) TO JUNE 30, 1999
<TABLE>
<CAPTION>
2000 1999
------------------- -------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (6,591,907) $ (997,028)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 490,215 2,198
Gain on sale of asset (14,127) -
Common stock issued for compensation - 250,000
Compensation for options to purchase common stock 1,276,442 -
Common stock issued for services 109,375 -
(Increase) decrease in operating assets
Accounts receivable (472,787) -
Due from London Radiosurgical Centre, Ltd. (428,261) (29,971)
Prepaid expenses (223,772) (17,990)
Deposits and other assets (777,798) (551,292)
Restricted cash (77,108) (252,372)
Accrued interest receivable (42,957) -
Increase (decrease) in operating liabilities
Accounts payable 557,512 81,868
Income taxes payable - 800
Accrued liabilities 91,219 88,750
Deferred revenue 12,714 -
------------------- -------------------
Net cash used in operating activities (6,091,240) (1,425,037)
------------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (1,165,051) (61,020)
Proceeds from sale of equipment 552,539 -
Subordinated equity participation - (200,000)
------------------- -------------------
Net cash used in investing activities (612,512) (261,020)
------------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from loan 50,000 50,000
Repayment of loan (50,000) (50,000)
Payments on obligations under capital lease (162,891)
Preferred stock issued 2,700,000 -
Common stock issued 2,949,283 3,470,447
------------------- -------------------
Net cash provided by financing activities 5,486,392 3,470,447
------------------- -------------------
Net (decrease) increase in cash (1,217,360) 1,784,390
Effect of exchange rate changes on cash (45,997) -
Cash - beginning of period 1,784,390 -
------------------- -------------------
Cash - end of period $ 521,033 $ 1,784,390
=================== ===================
SUPPLEMENTAL DISCLOSURES
Interest paid $ 391,664 $ 7,017
Income taxes paid $ 1,600 $ 1,600
Income taxes refunded $ 2,750 $ -
NON CASH INVESTING ACTIVITIES
Equipment under capital lease $ 5,946,810 $ -
NON CASH FINANCING ACTIVITIES
Preferred stock dividend - beneficial conversion feature $ 1,205,647 $ -
Obligations under capital lease $ 5,946,810 $ -
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
MOBILE P.E.T. SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - THE COMPANY
Mobile P.E.T. Systems, Inc. (the "Company") and subsidiaries were organized
to provide Positron Emission Tomography (PET) systems and services to
hospitals and other health care providers on a mobile, shared user basis.
The Company's PET services include the provision of high technology imaging
systems, technologists to operate the imaging systems, the management of
day-to-day operations and educational and marketing support. The Company
has operations in the United States and the United Kingdom.
The Company had been in the development stage during the period December 1,
1998 (date of recommencement) to June 30, 1999.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany
transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash and cash equivalents.
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property and equipment are recorded at cost less depreciation and
amortization. Depreciation and amortization are accounted for on the
straight-line method based on estimated useful lives. The amortization of
leasehold improvements is based on the shorter of the lease term or the
life of the improvement. Betterments and large renewals, which extend the
life of an asset, are capitalized; whereas, maintenance and repairs and
small renewals are expensed as incurred.
FOREIGN CURRENCY TRANSLATION
The financial statements of all foreign subsidiaries were prepared in their
respective local currencies and translated into U.S. dollars based on the
current exchange rate at the end of the period for the balance sheet and a
weighted-average rate for the period on the statement of operations.
Translation adjustments are reflected as foreign currency translation
adjustments in shareholders' equity and accordingly have no effect on net
loss.
F-6
<PAGE>
MOBILE P.E.T. SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
ADVERTISING
Advertising costs incurred for major new campaigns are expensed in the year
in which the advertising takes place. Other advertising costs are expensed
when incurred.
INCOME TAXES
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." This statement
requires an asset and liability approach to account for income taxes. The
Company provides deferred income taxes for temporary differences that will
result in taxable or deductible amounts in future years based on the
reporting of certain costs in different periods for financial and income
tax purposes.
STOCK OPTION PLANS
The Company has adopted SFAS No. 123 "Accounting for Stock-Based
Compensation," which permits entities to recognize as expense over the
vesting period the fair value of all stock-based awards on the date of
grant. Alternatively, SFAS No. 123 also allows entities to continue to
apply the provisions of APB Opinion No. 25 "Accounting for Stock Issued to
Employees," and provide pro forma net income and pro forma earnings per
share disclosures for employee stock option grants as if the
fair-value-based method defined in SFAS No. 123 has been applied. The
Company has elected to apply the provisions of APB Opinion No. 25 and
provide the pro forma disclosure provisions of SFAS No. 123.
NOTE 3 - ACQUISITIONS
Mobile P.E.T. Systems, Inc. was incorporated in the State of Nevada on
December 1, 1998. On December 22, 1998, Mobile P.E.T Systems, Inc.'s
shareholders exchanged all of the 7,000,000 shares of outstanding common
stock for 7,000,000 shares of common stock in Colony International
Incorporated, prior to that named American Coin and Stamp, Inc.,
incorporated in the State of Delaware on August 21, 1995 and its wholly
owned subsidiary Colony International Incorporated, incorporated in the
State of Nevada on April 25, 1995. This exchange of shares has been
accounted for as a reverse merger, under the purchase method of accounting.
Accordingly, the combination of the Mobile P.E.T. Systems, Inc. and Colony
International Incorporated and subsidiary is recorded as a recapitalization
of the shareholders' equity of Mobile P.E.T. Systems, Inc., the surviving
corporation and for
F-7
<PAGE>
MOBILE P.E.T. SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - ACQUISITIONS (Continued)
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.
On December 10, 1999, the Company incorporated a wholly owned subsidiary,
The London P.E.T. Centre Limited, a United Kingdom private limited company.
On December 17, 1999 the Company incorporated two wholly owned
subsidiaries, Mobile P.E.T. Leasing Limited, a United Kingdom private
limited company and Mobile P.E.T.
Systems (UK) Limited, a United Kingdom private limited company.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment at June 30, 2000 and 1999 consist of the following:
<TABLE>
<CAPTION>
June 30,
--------------------------------
2000 1999
-------------- -------------
<S> <C> <C>
Computer equipment $ 597,907 $ 33,820
Office furniture and fixtures 56,581 20,778
Office equipment 7,092 6,422
Equipment 5,946,810 --
-------------- -------------
6,608,390 61,020
Less accumulated depreciation (474,679) (2,198)
-------------- -------------
$ 6,133,711 $ 58,822
============== =============
</TABLE>
Depreciation expense for the year ended June 30, 2000 and the period
December 1, 1998 (date of recommencement) to June 30, 1999 was $490,215 and
$2,198, respectively.
NOTE 5 - CAPITALIZATION
PREFERRED STOCK
On January 20, 2000, the Company authorized the issuance of ten million
(10,000,000) shares of preferred stock having one hundredth of a cent
($0.0001) par value per share. On March 1, 2000 the Company designated and
issued sixty (60) shares 8% Cumulative Convertible Redeemable Preferred,
Series A Stock for cash in the amount of $2,700,000, net of acquisition
fees. These shares of 8% Cumulative Convertible Redeemable Preferred,
Series A Stock have no voting rights, have a liquidation value of $50,000
per share, and accrue dividends at a rate of eight percent (8%) per annum
per share on the liquidation value payable upon conversion. The total
liquidation value of the shares outstanding at June 30, 2000 in the amount
of $3,000,000 is classified on the Company's balance sheet as preferred
stock. Cumulative preferred dividends are payable upon conversion and at
June 30, 2000 there are cumulative preferred dividends in arrears in the
amount of $78,904 or $1,315 per
F-8
<PAGE>
MOBILE P.E.T. SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - CAPITALIZATION (Continued)
share. In the event of any liquidation, dissolution or winding up of the
affairs of the Company, holders of the 8% Cumulative Convertible Redeemable
Preferred, Series A Stock shall be paid the liquidation value plus all
accrued dividends at the date of liquidation, dissolution or winding up of
the affairs before any payment to other shareholders. At the option of the
holders, the 8% Cumulative Convertible Redeemable Preferred, Series A Stock
are convertible into shares of common stock determined by dividing $50,000
by the conversion price of the lesser of $5 or 75% of the average of the
closing bid price of common stock during the five (5) trading days
immediately prior to the conversion date. The Preferred Stock has an
intrinsic value of beneficial conversion feature of approximately
$1,206,000. At the option of the Company, the 8% Cumulative Convertible
Redeemable Preferred, Series A Stock is redeemable at a redemption price
equal to the greater of 133 1/3% of the liquidation value or an amount
equal to a value as if the Preferred, Series A Stock is converted into
shares of common stock and sold at the closing bid price. However, under
certain conditions or on March 1, 2002, the redemption price will be equal
to 100% of the liquidation value.
COMMON STOCK
The Company has authorized the issuance of ninety million (90,000,000)
shares of common stock, having one hundredth of a cent ($0.0001) par value
per share. On December 1, 1998 (date of recommencement) the Company had
10,328,395 shares of common stock issued and outstanding. Prior to December
22, 1998 the Company authorized a 50 to 1 reverse stock split, leaving
206,759 shares (after adjustment for fractional shares). Immediately after
the reverse stock split the Company issued 3,937,899 shares for cash in the
amount of $98,447. On December 22, 1998 the Company acquired Mobile P.E.T.
Systems, Inc. in a non-cash, stock for stock transaction by issuing:
7,000,000 shares of the Company's stock in exchange for 7,000,000 shares of
Mobile P.E.T. Systems, Inc. common stock and subsequently changing its name
to Mobile P.E.T. Systems, Inc. On February 5, 1999 and May 12, 1999 the
Company issued common stock in non-cash transactions as follows: 200,000
shares in connection with employment valued at $250,000. During the period
January 21, 1999 to June 30, 2000 the Company issued additional shares of
common stock in cash transactions: 1,500,000 shares from the exercise of
stock options for cash in the amount of $1,800,000, and 2,065,000 shares
for cash in the amount of $4,521,283. On May 12, 2000 the Company issued
35,000 shares of common stock in a non-cash transaction in connection with
services valued at $109,375.
STOCK OPTIONS
In December 1998 the Board of Directors authorized the issuance of stock
options to purchase 1,500,000 shares of common stock at a price from $1.00
to $1.50 per share. The options were exercised prior to June 30, 2000.
F-9
<PAGE>
MOBILE P.E.T. SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - CAPITALIZATION (Continued)
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 6,000,000 shares of common stock may be granted
to employees, directors and consultants. Stock options expire on June 30,
2002, with some options extending to 2005 and vesting over service periods
that range from zero to four years. During the year ended June 30, 2000,
the Company recognized compensation expense of $1,276,442. The Company did
not recognize any compensation expense during the period December 1, 1998
(date of recommencement) to June 30, 1999.
As of June 30, 2000, the Company has granted options to purchase 5,987,986
shares of common stock as follows:
<TABLE>
<CAPTION>
Number of Vested
Exercise Price Shares Shares
-------------- -------------- --------------
<S> <C> <C> <C>
Outstanding, November 30, 1998 -- --
Granted $1.00 - $4.50 3,235,000 2,475,000
Fair Value
Exercised $1.00 (1,500,000) (1,500,000)
Cancelled -- --
-------------- --------------
1,735,000 975,000
Outstanding, June 30, 1999
Granted $1.00 - $4.50 4,252,986 2,619,000
Fair Value
Exercised $1.00 -- --
Cancelled -- --
-------------- --------------
Outstanding, June 30, 2000 5,987,986 3,594,000
============== ==============
</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.
F-10
<PAGE>
MOBILE P.E.T. SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - CAPITALIZATION (Continued)
Had compensation expense for the Company's 1999 Stock Option Plan been
determined based upon fair values at the grant dates for awards under the
plan in accordance with SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company's net loss and loss per share would have been
increased to the pro forma amounts indicated below. Additional stock option
awards are anticipated in future years.
<TABLE>
<CAPTION>
June 30,
---------------------------------
2000 1999
---------------- ---------------
<S> <C> <C>
Net loss
As reported $ (6,591,907) $ (997,028)
Pro forma (8,134,981) (2,210,836)
Net loss - available to common shareholders
As reported $ (7,797,554) $ (997,028)
Pro forma (9,340,628) (2,210,836)
Loss per share
As reported $ (0.56) $ (0.09)
Pro forma $ (0.67) $ (0.19)
</TABLE>
WARRANTS
At June 30, 2000 and 1999 warrants were outstanding for 1,051,500 and
180,000 shares of common stock at exercise prices between $1.75 to $5.00
per share and the average of the last reported sale price of the common
stock for the five trading days preceding the issue date. These warrants
expire between January 2001 and March 2004.
NOTE 6 - RELATED PARTY TRANSACTIONS
SUBORDINATED EQUITY PARTICIPATION
The Company carries an 8% interest in a subordinated equity participation
in London Radiosurgical Centre Ltd (LRC), a foreign corporation with a
common shareholder, officer and director. The subordinated equity
participation is recorded at cost in the amount of $200,000. The agreement
provides distributions of cash, if any, including interest at a rate of 15%
per annum, up to the amount of the investment plus accrued interest, after
which the Company is to receive distributions of 60% of net income.
According to the terms of the participation agreement, net income for
distribution is equal to net income less equipment financing payments,
operating expenses, reserve capital and taxes. Accrued interest on the
investment was $42,957 and $0 at June 30, 2000 and June 30, 1999,
respectively.
F-11
<PAGE>
MOBILE P.E.T. SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - RELATED PARTY TRANSACTIONS (Continued)
DUE FROM LONDON RADIOSURGICAL CENTRE, LTD
During the year ended June 30, 2000 and the period December 1, 1998 (date
of recommencement) to June 30, 1999, the Company advanced without interest
$405,129 and $29,971, respectively to LRC for working capital during LRC's
start up period. At June 30, 2000, and 1999 the balance due from London
Radiosurgical Centre, Ltd was $435,100 and $29,771, respectively. The
advances are covered by a continuing corporate and personal guaranty.
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 year
ended June 30, 2000 and the period December 1, 1998 (date of
recommencement) to June 30, 1999, the Company made cash payments of $0 and
$66,000, respectively for such services.
LOAN
In December 1998, the Company received a non-interest bearing bridge loan
from a shareholder in the amount of $50,000. The balance was repaid in
January 1999.
In December 1999, the Company received a non-interest bearing bridge loan
from a shareholder in the amount of $50,000. The balance was repaid in
April 2000.
NOTE 7 - SECURITIES PURCHASE AGREEMENT
On March 1, 2000, the Company entered into a Securities Purchase Agreement.
As part of the Agreement, the Company issued 60 shares of 8% Cumulative
Convertible Redeemable Preferred, Series A Stock for cash in the amount of
$2,700,000, net of acquisition fees and 120,000 warrants to purchase shares
of common stock at an exercise price of $5.00 per share, which expire in
March 2003. The buyer of the preferred stock unconditionally and
irrevocably agreed to purchase shares of common stock of the Company in
tranches, for an aggregate purchase price of up to $10,000,000, at a price
equal to eighty five percent (85%) of the average closing bid price five
(5) consecutive days immediately prior to the Company providing a tranche
notice to the buyer. The Company may begin the tranche notices three (3)
business days after the registration of both the 8% Cumulative Convertible
Redeemable Preferred, Series A Stock and warrants, and the common stock
described in this Agreement. The buyer's obligations under this Agreement
to purchase shares of common stock of the Company terminates in the event
the required registration is not completed within four (4) months from the
date of this agreement or under certain other conditions, including the
sale of common stock or securities convertible into shares of common stock
by the Company within one hundred eighty (180) days of the date of
registration. The Company received a waiver from the buyer, extending to
December 1, 2000 the buyer's obligations to purchase shares of common
stock. The waiver is contingent and terminates in the event the required
registration is not filed by October 28, 2000.
F-12
<PAGE>
MOBILE P.E.T. SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - EMPLOYMENT AGREEMENTS
The Company has employment and compensation agreements with key officers
and employees of the Company. The agreements vary in terms providing annual
salaries and options to purchase shares of common stock, which may or may
not be contingent upon individual or Company stock performance.
NOTE 9 - INCOME TAXES
At June 30, 2000 the Company has a net operating loss carryforward for tax
purposes of approximately $7,510,000 which expires through the year 2020.
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 year ended June
30, 2000 and the period December 1, 1998 (date of recommencement) to June
30, 1999 are as follows:
<TABLE>
<CAPTION>
June 30,
-------------------------------------
2000 1999
----------------- ------------------
<S> <C> <C>
Current
Foreign $ -- $ --
Federal -- --
State 1,600 2,400
----------------- ------------------
1,600 2,400
Deferred
Foreign -- --
Federal -- --
State -- --
----------------- ------------------
-- --
----------------- ------------------
Provision for income taxes $ 1,600 $ 2,400
================= ==================
</TABLE>
The components of the net deferred tax assets were as follows:
<TABLE>
<CAPTION>
June 30,
-------------------------------------
2000 1999
----------------- ------------------
<S> <C> <C>
Deferred tax assets
Start-up costs $ 155,949 $ 155,949
Net operating loss carryforward 2,761,867 221,316
----------------- ------------------
2,917,816 377,265
Deferred tax liabilities
Depreciation 44,688 --
----------------- ------------------
2,873,128 377,265
Less valuation allowance (2,873,128) (377,265)
----------------- ------------------
Net deferred tax assets $ -- $ --
================= ==================
</TABLE>
F-13
<PAGE>
MOBILE P.E.T. SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - COMMITMENTS
In July 1999, the Company purchased a mobile coach for cash in the amount
of $279,390. In December 1999, the Company sold the mobile coach to a
leasing company for cash in the amount of $279,390 and entered into a
five-year capital lease agreement.
In February 2000, the Company purchased a mobile coach for cash in the
amount of $273,149. In March 2000, the Company sold the mobile coach to a
leasing company for cash in the amount of $273,149 and entered into a
five-year capital lease agreement.
Equipment under capital lease is included in property and equipment as
follows:
<TABLE>
<CAPTION>
June 30,
-------------------------------------
2000 1999
----------------- ------------------
<S> <C> <C>
Equipment $ 5,946,810 $ --
Less accumulated amortization (449,428) --
----------------- ------------------
Net capital lease assets $ 5,497,382 $ --
================= ==================
</TABLE>
The Company leases office space under non-cancelable operating leases. The
office leases expire in December 2000 and May 2005. The Company leases
certain other PET equipment under capital leases. The equipment leases
expire through February 2006.
Rent expense for the year ended June 30, 2000 and the period December 1,
1998 (date of recommencement) to June 30, 1999 was $47,217 and $17,686,
respectively.
The following is a schedule by year of the future minimum lease payments at
June 30, 2000:
<TABLE>
<CAPTION>
Capital Operating
June 30, Lease Leases
-------- ------------------ ---------------
<S> <C> <C>
2001 $ 1,509,043 $ 55,627
2002 1,537,582 40,285
2003 1,537,582 43,485
2004 1,537,582 46,930
2005 1,206,311 46,145
2006 372,860 --
------------------ ---------------
7,700,960 $ 232,472
===============
Less amount representing
interest at 12.07% (1,950,598)
------------------
Present value of minimum lease
payments (including current
portion of $1,026,310) $ 5,750,362
==================
</TABLE>
F-14
<PAGE>
MOBILE P.E.T. SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - COMMITMENTS (Continued)
In December 1998, the Company made a purchase commitment for five mobile
PET scanners at a cost of between $1,515,000 to $1,615,000 each for a total
amount of $7,725,000. At June 30, 2000, the Company satisfied their
commitment on 3 of 5 units through lease agreements and the Company expects
to satisfy their commitment on the remaining 2 units in 2000.
In March 2000, the Company entered into two capital lease agreements with a
leasing company for mobile imaging systems having a cost of approximately
$3,736,000. At June 30, 2000, the mobile imaging systems were not yet
accepted. The Company accepted both mobile imaging systems in August 2000.
NOTE 11 - CONCENTRATION OF CREDIT RISK
The Company maintains cash with various major financial institutions in
excess of the Federal Deposit Insurance Corporation limits.
NOTE 12 - EARNINGS (LOSS) PER SHARE
The computations of basic and diluted earnings per share from continuing
operations for the year ended June 30, 2000 and the period December 1, 1998
(date of recommencement) to June 30, 1999 were as follows:
<TABLE>
<CAPTION>
June 30,
------------------------------------
2000 1999
---------------- -----------------
<S> <C> <C>
Loss per share - basic
Numerator:
Net loss - available to
Common shareholders $ (7,797,554) $ (997,028)
Denominator:
Weighted-average shares 13,906,885 11,350,140
---------------- -----------------
Loss per share - basic $ (.56) $ (0.09)
================ =================
Loss per share - diluted
Numerator:
Net loss - available to
Common shareholders $ (7,797,554) $ (997,028)
Denominator:
Weighted-average shares 13,906,885 11,350,140
---------------- -----------------
Loss per share - diluted $ (.56) $ (0.09)
================ =================
</TABLE>
F-15
<PAGE>
MOBILE P.E.T. SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - EARNINGS (LOSS) PER SHARE (Continued)
The weighted 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 year ended June 30, 2000 and the period December 1,
1998 (date of recommencement) to June 30, 1999:
<TABLE>
<CAPTION>
June 30,
----------------------------
2000 1999
--------- --------
<S> <C> <C>
Cumulative convertible
redeemable preferred stock
common stock equivalent 674,252 440,000
Employee stock options 2,769,790 908,915
Warrants 543,062 71,321
</TABLE>
NOTE 13 - DEPOSITS AND OTHER ASSETS
Deposits and other assets consist of the following at June 30, 2000 and
1999:
<TABLE>
<CAPTION>
2000 1999
----------------- ------------------
<S> <C> <C>
Equipment deposits -
Mobile P.E.T. Units $ 1,057,875 $ 495,000
Equipment rental deposits -
other 49,000 --
Lease deposits 174,089 --
Other 36,000 56,292
----------------- ------------------
$ 1,316,964 $ 551,292
================= ==================
</TABLE>
Equipment deposits - Mobile P.E.T. Units are refundable upon the Company
securing lease financing or may be applied to subsequent equipment orders.
NOTE 14 - SUBSEQUENT EVENTS
NOTE PAYABLE TO RELATED PARTY
On August 23, 2000 the Company entered into a note payable with a
shareholder of the Company in the amount of $200,000, with 8% interest per
annum, due on October 6, 2000.
WARRANTS
On August 23, 2000 warrants were issued to a shareholder of the Company for
35,000 shares of common stock at an exercise price of $2.50 per share.
These warrants expire on August 31, 2003.
F-16
<PAGE>
SECURITIES PURCHASE AGREEMENT
On September 21, 2000, the Company entered into a Securities Purchase
Agreement. As part of the Agreement, the Company will issue thirty (30)
shares 8% Cumulative Convertible Redeemable Preferred, Series B Stock for
cash in two tranches for an aggregate purchase price of $1,500,000 and
50,000 warrants to purchase shares of common stock at an exercise price of
$3 per share, which expire on September 30, 2005. The shares of 8%
Cumulative Convertible Redeemable Preferred, Series B Stock have no voting
rights, have a liquidation value of $50,000 per share, and accrue dividends
at a rate of eight percent (8%) per annum per share on the liquidation
value payable upon conversion. In the event of any liquidation, dissolution
or winding up of the affairs of the Company, holders of the 8% Cumulative
Convertible Redeemable Preferred, Series B Stock shall be paid, pari passu
with holders of the 8% Cumulative Convertible Redeemable Preferred, Series
A Stock, the liquidation value plus all accrued dividends at the date of
liquidation, dissolution or winding up of the affairs before any payment to
other shareholders. At the option of the holders, the 8% Cumulative
Convertible Redeemable Preferred, Series B Stock are convertible into
shares of common stock determined by dividing $50,000 by the conversion
price of the lesser of $3 or 75% of the average of the closing bid price of
common stock during the five (5) trading days immediately prior to the
conversion date. The Preferred Stock has an intrinsic value of beneficial
conversion feature of approximately $415,000. At the option of the Company,
the 8% Cumulative Convertible Redeemable Preferred, Series B Stock is
redeemable at a redemption price equal to the greater of 133 1/3% of the
liquidation value or an amount equal to a value as if the Preferred, Series
B Stock is converted into shares of common stock and sold at the closing
bid price. However, under certain conditions or on March 1, 2002, the
redemption price will be equal to 100% of the liquidation value. During
September 2000, the Company received the first tranche in the amount of
$985,000, net of acquisition fees.
The Company is in the process of filing a Certificate of Designation,
effective September 21, 2000 for the issuance of the thirty (30) shares
of 8% Cumulative Convertible Redeemable Preferred, Series B Stock.
F-17
<PAGE>
SUPPLEMENTAL SCHEDULES
F-18
<PAGE>
MOBILE P.E.T. SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEETS
JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
2000
-----------------------------------------------------------
MOBILE PET LONDON PET MOBILE PET MOBILE PET
SYSTEMS, INC. CENTRE LEASING SYSTEMS (UK)
-------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 485,793 $ 35,240 $ - $ -
Accounts receivable, net of allowance for doubtful
accounts of $116,000 and $0 at June 30, 2000 and
1999, respectively 467,305 5,428 - -
Due from London Radiosurgical Centre, Ltd 421,783 13,317 - -
Due from London PET Centre, Ltd 857,753 - 440,641 -
Due from Mobile PET Leasing, Ltd 95,694 - -
Due from Mobile PET Systems (UK), Ltd - - - -
Due from Mobile PET Systems, Inc. - 1,518 1,518 1,518
Other receivables 35,126 - 273,037 -
Prepaid expenses 241,762 - - -
Deposits and other assets 1,316,964 - - -
-------------- ------------- ------------ ---------- -
Total current assets 3,826,486 151,197 715,196 1,518
PROPERTY AND EQUIPMENT, NET 4,247,744 1,885,967 - -
OTHER ASSETS
Accrued interest receivable 42,957 - - -
Due from London PET Centre, Ltd - - 1,315,373 -
Subordinated equity participation 200,000 - - -
Restricted cash 329,480 - - -
-------------- ------------- ------------ ---------- -
Total assets $ 8,646,667 $ 2,037,164 $ 2,030,569 $ 1,518
============== ============= ============ ========== =
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 549,386 $ 84,234 $ 4,880 $ -
Income taxes payable 800 - - -
Accrued liabilities 172,302 4,555 3,037 -
Due to London PET Centre, Ltd. - - 95,694 -
Due to Mobile PET Leasing, Ltd - 158,776 - -
Other liabilities - - 295,959 -
Obligations under capital lease - current 712,549 281,865 313,761 -
-------------- ------------- ------------ ---------- -
Total current liabilities 1,435,037 529,430 713,331 -
NONCURRENT LIABILITIES
Obligations under capital lease 3,408,679 1,315,373 1,315,373 -
Due to London PET Centre, Ltd. - - - -
Due to Mobile PET Systems, Inc. - 808,715 - -
Deferred revenue 12,714 - - -
-------------- ------------- ------------ ---------- -
Total liabilities 4,856,430 2,653,518 2,028,704 -
SHAREHOLDERS' EQUITY
Preferred stock; $0.0001 par value; 10,000,000 shares
authorized; 60 and 0 shares issued and outstanding
at June 30, 2000 and 1999, respectively 3,000,000 - - -
Common stock; $0.0001 par value; 90,000,000 shares
authorized; 14,944,658 and 12,844,658 shares issued
and outstanding at June 30, 2000 and 1999, respectively 1,495 - - -
Ordinary shares; 1,000 shares issued and outstanding 1,617 - -
Ordinary shares; 1,000 shares issued and outstanding - 1,612 -
Ordinary shares; 1,000 shares issued and outstanding - - 1,612
Additional paid in capital 8,580,888 - - -
Accumulated deficit (7,792,146) (623,976) 351 -
Foreign currency translation adjustment 6,005 (98) (94)
-------------- ------------- ------------ ---------- -
Total shareholders' equity 3,790,237 (616,354) 1,865 1,518
-------------- ------------- ------------ ----------
Total liabilities and shareholders' equity $ 8,646,667 $ 2,037,164 $ 2,030,569 $ 1,518
============== ============= ============ ==========
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------
ELIMINATION CONSOLIDATED
TOTAL ENTRIES TOTAL 1999
--------------- --------------- ----------------- ---------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 521,033 $ 521,033 $ 1,784,390
Accounts receivable, net of allowance for doubtful
accounts of $116,000 and $0 at June 30, 2000 and
1999, respectively 472,733 472,733 -
Due from London Radiosurgical Centre, Ltd 435,100 435,100 29,971
Due from London PET Centre, Ltd 1,298,394 (1,298,394) - -
Due from Mobile PET Leasing, Ltd 95,694 (95,694) - -
Due from Mobile PET Systems (UK), Ltd - - -
Due from Mobile PET Systems, Inc. 4,554 (4,554) - -
Other receivables 308,163 308,163 -
Prepaid expenses 241,762 241,762 17,990
Deposits and other assets 1,316,964 1,316,964 551,292
-------------- ---------------- --------------
Total current assets 4,694,397 3,295,755 2,383,643
PROPERTY AND EQUIPMENT, NET 6,133,711 6,133,711 58,822
OTHER ASSETS
Accrued interest receivable 42,957 42,957 -
Due from London PET Centre, Ltd 1,315,373 (1,315,373) - -
Subordinated equity participation 200,000 200,000 200,000
Restricted cash 329,480 329,480 252,372
-------------- ---------------- --------------
Total assets $ 12,715,918 $ 10,001,903 $ 2,894,837
============== ================ ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 638,500 $ 638,500 $ 81,868
Income taxes payable 800 800 800
Accrued liabilities 179,894 179,894 88,750
Due to London PET Centre, Ltd. 95,694 (95,694) - -
Due to Mobile PET Leasing, Ltd 158,776 (158,776) - -
Other liabilities 295,959 295,959 -
Obligations under capital lease - current 1,308,175 (281,865) 1,026,310 -
-------------- ---------------- --------------
Total current liabilities 2,677,798 2,141,463 171,418
NONCURRENT LIABILITIES
Obligations under capital lease 6,039,425 (1,315,373) 4,724,052 -
Due to London PET Centre, Ltd. - - -
Due to Mobile PET Systems, Inc. 808,715 (808,715) - -
Deferred revenue 12,714 12,714 -
-------------- ---------------- --------------
Total liabilities 9,538,652 6,878,229 171,418
SHAREHOLDERS' EQUITY
Preferred stock; $0.0001 par value; 10,000,000 shares
authorized; 60 and 0 shares issued and outstanding
at June 30, 2000 and 1999, respectively 3,000,000 3,000,000 -
Common stock; $0.0001 par value; 90,000,000 shares
authorized; 14,944,658 and 12,844,658 shares issued
and outstanding at June 30, 2000 and 1999, respectively 1,495 1,495 1,285
Ordinary shares; 1,000 shares issued and outstanding 1,617 (1,617) - -
Ordinary shares; 1,000 shares issued and outstanding 1,612 (1,612) - -
Ordinary shares; 1,000 shares issued and outstanding 1,612 (1,612) - -
Additional paid in capital 8,580,888 8,580,888 4,545,998
Accumulated deficit (8,415,771) (8,415,771) (1,823,864)
Foreign currency translation adjustment 5,813 (48,751) (42,938)
-------------- ---------------- --------------
Total shareholders' equity 3,177,266 3,123,674 2,723,419
-------------- ---------------- --------------
Total liabilities and shareholders' equity $ 12,715,918 $ 10,001,903 $ 2,894,837
============== ================ ==============
</TABLE>
F-19
<PAGE>
MOBILE P.E.T. SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 2000
AND THE PERIOD DECEMBER 1, 1998 (DATE OF RECOMMENCEMENT) TO JUNE 30, 1999
<TABLE>
<CAPTION>
2000
-----------------------------------
MOBILE PET LONDON PET
SYSTEMS, INC. CENTRE
------------------- --------------
<S> <C> <C>
SERVICE REVENUES $ 1,114,620 $ 8,349
COST OF SERVICE REVENUES 665,867 9,830
------------------- --------------
Gross profit 448,753 (1,481)
EXPENSES
General and administrative 6,178,006 557,017
------------------- --------------
Total expenses 6,178,006 557,017
------------------- --------------
Loss from operations (5,729,253) (558,498)
OTHER INCOME (EXPENSE)
Interest income 89,838 -
Other income 4,163 -
Interest expense (331,430) (65,478)
------------------- --------------
Total other income (expense) (237,429) (65,478)
------------------- --------------
Loss before provision for income taxes (5,966,682) (623,976)
Provision for income taxes 1,600 -
------------------- --------------
NET LOSS (5,968,282) (623,976)
Preferred stock dividend (1,205,647) -
------------------- --------------
NET LOSS - AVAILABLE TO COMMON SHAREHOLDERS $(7,173,929) $ (623,976)
=================== ==============
</TABLE>
<TABLE>
<CAPTION>
2000
---------------------------------------------------------------------
MOBILE PET MOBILE PET ELIMINATION CONSOLIDATED
LEASING SYSTEMS (UK) TOTAL ENTRIES TOTAL 1999
----------- ------------ ----------- ----------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
SERVICE REVENUES $ 41,580 $ - $ 1,164,549 $ (41,580) $ 1,122,969 $ -
COST OF SERVICE REVENUES - - 675,697 675,697 -
----------- ------------ ----------- -------------- ------------
Gross profit 41,580 - 488,852 447,272 -
EXPENSES
General and administrative 7,260 - 6,742,283 6,742,283 991,865
----------- ------------ ----------- -------------- ------------
Total expenses 7,260 - 6,742,283 6,742,283 991,865
----------- ------------ ----------- -------------- ------------
Loss from operations 34,320 - (6,253,432) (6,295,012) (991,865)
OTHER INCOME (EXPENSE)
Interest income - - 89,838 89,838 2,701
Other income - - 4,163 4,163 1,553
Interest expense (33,969) - (430,877) 41,580 (389,297) (7,017)
----------- ------------ ----------- -------------- ------------
Total other income (expense) (33,969) - (336,876) (295,296) (2,763)
----------- ------------ ----------- -------------- ------------
Loss before provision for income taxes 351 - (6,590,307) (6,590,307) (994,628)
Provision for income taxes - - 1,600 1,600 2,400
----------- ------------ ----------- -------------- ------------
NET LOSS 351 - (6,591,907) (6,591,907) (997,028)
Preferred stock dividend - - (1,205,647) (1,205,647) -
----------- ------------ ----------- -------------- ------------
NET LOSS - AVAILABLE TO COMMON SHAREHOLDERS $ 351 $ - $(7,797,554) $ (7,797,554) $ (997,028)
=========== ============ =========== ============== =============
</TABLE>
F-20
<PAGE>
-------------------------------------------------------------------------------
You should rely on the information contained in this prospectus. We have not
authorized anyone to provide you with information different from the
information contained in this prospectus. This document may only be used
where it is legal to sell the securities. The information in this document
may only be accurate on the date of this document.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
----
<S> <C>
Prospectus Summary 1
Risk Factors 2
Use Of Proceeds 6
Market For Common Equity And Related Shareholder Matters 7
Management's Discussion And Analysis Or Plan Of Operation 8
Business 12
Management 21
Certain Relationships And Related Transactions 25
Security Ownership Of Certain Beneficial Owners And Management 27
Description Of Securities 27
Common Stock 27
Preferred Stock 28
Plan Of Distribution 30
Selling Security Holders 31
Series A Securities Purchase Agreement 31
Series B Securities Purchase Agreement 32
Client Services Agreement 33
Legal Matters 33
Experts 34
Available Information 34
Index To Financial Statements 35
</TABLE>
18,269,500 SHARES
OF COMMON STOCK
MOBILE PET
SYSTEMS, INC.
2240 Shelter Island Drive #205
San Diego, California 92106
(619) 226-6738
________________
PROSPECTUS
________________
____________, 2000
-------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. 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
shareholders 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 each director's (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 shareholders 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 shareholders 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 shareholders; (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 shareholders (through shareholder'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 shareholder 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.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth an itemization of all estimated
expenses, all of which we will pay, in connection with the issuance and
distribution of the securities being registered:
<TABLE>
<CAPTION>
NATURE OF EXPENSE AMOUNT
----------------- --------------
<S> <C>
SEC Registration fee $14,262
Accounting fees and expenses 5,000*
Legal fees and expenses 30,000*
Printing and related expenses 10,000*
Blue sky legal fees and expenses 1,000*
TOTAL $60,262*
* Estimated.
</TABLE>
II-1
<PAGE>
ITEM 26. 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. The proceeds
from this offering were $98,447.48.
<TABLE>
<S> <C>
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
</TABLE>
II-2
<PAGE>
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 April 1999, we issued to Finova Capital Corporation a warrant to
purchase 180,000 shares of our common stock at an exercise price of $2.50 which
expires in March 2004 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.
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 ("Rule 506"). 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. 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. 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.
The shares underlying this private placement are being registered in this
registration statement.
In March 2000, we completed a private placement of 1,000,000 shares of
common stock and 200,000 warrants exercisable at $1.75 per share to purchase
common stock to accredited investors, raising proceeds of $1,750,000. The
warrants expire one year from the closing date. The investors in this private
placement were granted registration rights with respect to the common stock
purchased and the common stock underlying the warrants, on any SB-2, S-1 or S-3
registration statement filed by the Company, subject to any limitations imposed
by underwriters. These registration rights were granted pursuant to the term
sheet for the private placement, and we do not anticipate entering into a formal
registration rights agreement with respect to these registration rights. The
holders of these registration rights have agreed that their common stock and
warrants will not be registered in this registration statement.
II-3
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK WARRANTS
<S> <C> <C>
Michael and Michelle Wiesmann 100,000 20,000
Herbert Farber and Linda Ducey 30,000 6,000
KGF Holdings, LLC 60,000 12,000
Neil and Gina Schober 30,000 6,000
Ronald and Anna Rosella 100,000 20,000
Michael and Maygualida Fortun 60,000 12,000
Gregory Anderson 30,000 6,000
Hester Investments 100,000 20,000
Robert and Dianna Murray 60,000 12,000
Joseph Fiore 100,000 20,000
John and Cheryl Naylor 50,000 10,000
Craig and Elizabeth Suhrbier 30,000 6,000
Robin John Driscoll 100,000 20,000
Tom and Donna Hudson 50,000 10,000
Steve Fortun 30,000 6,000
J. Douglas Newman 40,000 8,000
K. Ivan F. Gothner, a Director 30,000 6,000
</TABLE>
In May 2000, we issued 35,000 shares of common stock to Continental
Capital & Equity Corporation as part of a Client Services Agreement we signed
with them, in reliance on Section 4(2) of the Act.
In September 2000, we entered into a private placement for 30 shares of
Series B Convertible Preferred Stock to York, LLC in reliance on Section 4(2) of
the Act and Rule 506. The proceeds from this offering will be $1,500,000. York
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.
The shares underlying this private placement are being registered in this
registration statement.
Except as expressly set forth above, the individuals and entities to
whom we issued securities as indicated in this section of the registration
statement are unaffiliated with the Company.
II-4
<PAGE>
ITEM 27. EXHIBITS.
The following exhibits are included as part of this Form SB-2.
References to "the Company" in this Exhibit List mean Mobile PET Systems, Inc.,
a Delaware corporation.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
PLANS OF ACQUISITION
2.1 Acquisition Agreement with Colony International, Inc. (incorporated by reference to Exhibit 2.1 to our
Form 10-SB, filed October 19, 1999).
2.2 Acquisition Agreement between American Coin and Stamp Ventures, Inc. and Colony International Incorporated
(incorporated by reference to Exhibit 2.2 to our Form 10-SB, filed October 19, 1999).
ARTICLES OF INCORPORATION AND BYLAWS
3.1 Certificate of Incorporation, as amended (incorporated by reference to Exhibit 3.1 to our Form 10-SB,
Amendment No. 2, filed March 16, 2000).
3.2 Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 of our Form 10-SB, filed October 19,
1999).
3.3 Certificate of Designation of Series A Convertible Preferred Stock (incorporated by reference to Exhibit
3.1 to our Form 10-SB, Amendment No. 2, filed March 16, 2000).
3.4 Certificate of Designation of Series B Convertible Preferred.*
INSTRUMENTS DEFINING RIGHTS OF SECURITY HOLDERS
4.1 Common Stock Purchase Warrant with Finova Capital Corporation dated April 8, 1999 (incorporated by
reference to Exhibit 10.3 to our Form 10-SB, filed October 19, 1999).
4.2 Securities Purchase Agreement with York, LLC dated March 3, 2000 (incorporated by reference to Exhibit 10
to our Form 10-QSB for the period ending December 31, 1999, Amendment No. 1, filed March 16, 2000).
4.3 Common Stock Purchase Warrant with York, LLC dated March 3, 2000.*
4.4 Securities Purchase Agreement with York, LLC dated September 21, 2000 (incorporated by reference to Exhibit
10.30 to our Form 10-KSB, filed October 11, 2000).
4.5 Common Stock Purchase Warrant with York, LLC dated September 21, 2000 (incorporated by reference to
Exhibit 10.31 to our Form 10-KSB, filed October 11, 2000). This is also the form of the warrant to be
issued in the second tranche of the Series B Securities Purchase Agreement.
OPINION REGARDING LEGALITY
5 Luce, Forward, Hamilton & Scripps LLP Opinion and Consent.*
MATERIAL CONTRACTS
10.1 Equipment Lease No. 4125 with Finova Capital Corporation; Addendum I to Equipment Lease No. 4125
(incorporated by reference to Exhibit 10.1 to our Form 10-SB, filed October 19, 1999).
10.2 Security Agreement with Finova Capital Corporation (incorporated by reference to Exhibit 10.2 to our
Form 10-SB, filed October 19, 1999).
10.3 Continuing Personal Guaranty between Paul J. Crowe and Finova Capital Corporation (incorporated by
reference to Exhibit 10.4 to our Form 10-SB, filed October 19, 1999).
</TABLE>
-------------------
* Previously filed.
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
10.4 Collateral Assignment of Agreements by the Company to Finova Capital Corporation (incorporated by
reference to Exhibit 10.5 to our Form 10-SB, filed October 19, 1999).
10.5 Subordination Agreement with Finova Capital Corporation (incorporated by reference to Exhibit 10.6
to our Form 10-SB, filed October 19, 1999).
10.6 Sale/Leaseback Agreements with Finova Capital Corporation -- Lease Schedule No. 4125.01; Addendum Nos.
One and Two to Lease Schedule No. 4125.01 (incorporated by reference to Exhibit 10 to our Form
10-QSB for the period ending December 31, 1999, Amendment No. 3, filed May 31, 2000).
10.7 Sale/Leaseback Agreements with Finova Capital Corporation -- Lease Schedule No. 4125.02; Addendum No.
One to Lease Schedule No. 4125.02; Bill of Sale for one Calumet Coach (incorporated by reference to
Exhibit 10 to our Form 10-QSB for the period ending December 31, 1999, Amendment No. 1, filed March 16,
2000).
10.8 Sale/Leaseback Agreements with Finova Capital Corporation -- Lease Schedule No. 4125.02A; Lease Schedule
No. 4125.02B; Addendum No. One to Lease Schedule No. 4125.02B (incorporated by reference to Exhibit 10.3
to our Form 10-QSB for the period ending December 31, 1999, Amendment No. 3, filed May 31, 2000).
10.9 Sale/Leaseback Agreements with Finova Capital Corporation -- Lease Schedule No. 4125.03A; Amendment No.
One to Lease Schedule No. 4125.03A; Lease Schedule No. 4125.03B; Amendment No. One to Lease Schedule No.
4125.03B; Addendum No. One to Lease Schedule No. 4125.03B (incorporated by reference to Exhibit 10 to our
Form 10-QSB for the period ending March 31, 2000, Amendment No. 1, filed May 31, 2000).
10.10 Master Hire Purchase Agreement with IGE Medical Services Limited (incorporated by reference to Exhibit
10.2 to our Form 10-QSB for the period ending March 31, 2000, Amendment No. 1, filed May 31, 2000).
10.11 Schedule to Master Hire Purchase Agreement with IGE (incorporated by reference to Exhibit 10.2 to our
Form 10-QSB for the period ending December 31, 1999, Amendment No. 3, filed May 31, 2000).
10.12 Agreements with GE Healthcare Financial Services -- Master Masterline (coach); Master Leaseline (scanner)
(incorporated by reference to Exhibit 10.27 to our Form 10-KSB, filed October 11, 2000).
10.13 Promissory Note with The London Radiosurgical Centre, Ltd. (incorporated by reference to Exhibit 10.9 to
our Form 10-SB, filed October 19, 1999).
10.14 Letter Agreement with The London Radiosurgical Centre, Ltd. (incorporated by reference to Exhibit 10.10
to our Form 10-SB, filed October 19, 1999).
10.15 Form of Corporate and Personal Guaranty of NeuroTechnologies International, Inc. and Paul Crowe,
respectively, for the debt of London Radiosurgical Centres, Ltd. to the Company dated July1, 2000
(incorporated by reference to Exhibit 10.32 to our Form 10-KSB, filed October 11, 2000).
10.16 Employment Agreement with Mr. Crowe (incorporated by reference to Exhibit 10.11 to our Form 10-SB, filed
October 19, 1999).
10.17 Employment Agreement with Mr. Corlett, as amended (incorporated by reference to Exhibit 10.12 to our Form
10-SB, filed October 19, 1999).
10.18 Consulting Agreement with Mr. Brown (incorporated by reference to Exhibit 10.13 to our Form 10-SB, filed
October 19, 1999).
</TABLE>
-------------------
* Previously filed.
II-6
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
10.19 Consulting Agreement with Northwest Capital Partners, LLC (incorporated by reference to Exhibit 10.14
to our Form 10-SB, filed October 19, 1999).
10.20 Consulting Agreement with Michael Baybak and Company, Inc. (incorporated by reference to Exhibit 10.15
to our Form 10-SB, filed October 19, 1999).
10.21 Consultancy Agreement with Dr. Piers Nicholas Plowman (incorporated by reference to Exhibit 10.16 to our
Form 10-SB, filed October 19, 1999).
10.22 1999 Stock Option Plan (incorporated by reference to Exhibit 10.17 to our Form 10-SB, filed October 19,
1999).
10.23 Form of Positron Emission Tomography Mobile Services Agreement (incorporated by reference to Exhibit 10.8
to our Form 10-SB, Amendment No. 1, filed February 9, 2000).
10.24 Form of Positron Emission Tomography Mobile Services Agreement with Portland-area hospitals and First and
Second Amendments (incorporated by reference to Exhibit 10.28 to our Form 10-KSB, filed October 11, 2000).
10.25 PET Imaging Services Agreement with Redwood Regional Medical Group and Amendment (incorporated by reference
to Exhibit 10.29 to our Form 10-KSB, filed October 11, 2000).
10.26 Office Space Lease Agreement with Shelter Cove Marina, Ltd./San Diego Unified Port District (incorporated
by reference to Exhibit 10.3 to our Form 10-QSB for the period ending March 31, 2000, Amendment No. 1,
filed May 31, 2000).
10.27 Sales Office Sublease with Twenty-Five-Forty, LLC (incorporated by reference to Exhibit 10.26 to our Form
10-KSB, filed October 11, 2000).
10.28 Financial Advisor Agreement with Adirondack Capital.*
10.29 Client Service Agreement with Continental Capital & Equity Corporation.*
21 SUBSIDIARIES OF THE REGISTRANT (incorporated by reference to Exhibit 21 to our Form 10-SB, Amendment No. 2,
filed March 16, 2000).
CONSENTS OF EXPERTS AND COUNSEL
23.1 Consent of independent auditors.*
23.2 Consent of legal counsel (see Exhibit 5).
27 FINANCIAL DATA SCHEDULE*
</TABLE>
-------------------
* Previously filed.
II-7
<PAGE>
ITEM 28. UNDERTAKINGS.
The undersigned registrant hereby undertakes to:
(1) File, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933, as amended (the "Securities Act");
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information in
the registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of the
securities offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to Rule
424(b) under the Securities Act if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the effective
registration statement, and
(iii) Include any additional or changed material information
on the plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
(4) For purposes of determining any liability under the Securities Act,
treat the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act as part of this registration statement as of the time
it was declared effective.
(5) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
II-8
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorizes this registration
statement to be signed on its behalf by the undersigned, in the City of San
Diego, State of California, on November 8, 2000.
MOBILE PET SYSTEMS, INC.
Date: November 8, 2000 By: /s/ PAUL J. CROWE
----------- ----------------------------------
Paul J. Crowe, President
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ PAUL J. CROWE Chief Executive Officer and Director November 8, 2000
--------------------------------------------
Paul J. Crowe
/s/ THOMAS G. BROWN Chief Financial Officer and Director November 8, 2000
--------------------------------------------
Thomas G. Brown
/s/ BRENT NELSON Director November 8, 2000
--------------------------------------------
Brent Nelson
/s/ ROBERT C. BUSH Director November 8, 2000
--------------------------------------------
Robert C. Bush
/s/ K. IVAN F. GOTHNER Director November 8, 2000
--------------------------------------------
K. Ivan F. Gothner
</TABLE>
II-9
