<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(MARK ONE)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the quarterly period ended September 30, 2000
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the transition period from ___________ to __________.
COMMISSION FILE NUMBER: 1097181
MOBILE P.E.T. SYSTEMS, INC.
(Exact name of Small Business Issuer as Specified in its Charter)
Delaware 11-2787966
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
2240 SHELTER ISLAND DRIVE, #205
SAN DIEGO, CALIFORNIA 92106
(Address of principal executive offices)
(619) 226-6738
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past
90 days. Yes [X] No [ ]
On October 31, 2000, there were 14,969,658 shares outstanding of the
issuer's common stock, par value $.0001 per share.
Transitional Small Business Disclosure Format (check one)
Yes [ ] No [X]
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MOBILE P.E.T. SYSTEMS, INC. AND SUBSIDIARIES
For the quarter ended September 30, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED).............................................. 1
Consolidated Balance Sheets as of September 30, 2000 and 1999................. 3
Consolidated Statements of Operations for the three months ended
September 30, 2000 and 1999................................................. 4
Consolidated Statement of Cash Flows for the three months ended
September 30, 2000 and 1999................................................. 5
Consolidated Statement of Shareholders' Equity (Deficit) as of
September 30, 2000.......................................................... 6
Notes to Unaudited Consolidated Financial Statements.......................... 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION...................................................... 19
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES......................................................... 23
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.............................................. 23
</TABLE>
i
<PAGE> 3
MOBILE P.E.T. SYSTEMS, INC. AND SUBSIDIARIES
For the quarter ended September 30, 2000
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
The following financial statements are furnished:
Consolidated Balance Sheets as of September 30, 2000 and 1999
Consolidated Statements of Operations for the three months ended
September 30, 2000 and 1999
Consolidated Statement of Cash Flows for the three months ended
September 30, 2000 and 1999
Consolidated Statement of Shareholders' Equity (Deficit) as of
September 30, 2000
Notes to Unaudited Consolidated Financial Statements
1
<PAGE> 4
ACCOUNTANTS' REVIEW REPORT
TO THE BOARD OF DIRECTORS
Mobile P.E.T. Systems, Inc.
We have reviewed the accompanying consolidated balance sheets of Mobile P.E.T.
Systems, Inc. and subsidiaries as of September 30, 2000 and 1999, and the
related consolidated statements of operations and cash flows for the three
months then ended, in accordance with Statements on Standards for Accounting and
Review Services issued by the American Institute of Certified Public
Accountants. All information included in these consolidated financial statements
is the representation of the management of Mobile P.E.T. Systems, Inc. and
subsidiaries.
A review consists principally of inquiries of Company personnel and analytical
procedures applied to financial data. It is substantially less in scope than an
audit in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the consolidated financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying consolidated financial statements in order for them
to be in conformity with generally accepted accounting principles.
/s/ PETERSON & CO.
------------------------------
PETERSON & CO.
San Diego, California
November 8, 2000
2
<PAGE> 5
MOBILE P.E.T. SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
------------ -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 178,028 $ 170,089
Accounts receivable, net of allowance for doubtful accounts
of $129,320 and $0 at September 30, 2000 and 1999, respectively 567,535 135,615
Stock subscriptions receivable 547,500 --
Other receivables 34,876 --
Prepaid expenses 136,393 21,552
Deposits and other assets 1,344,678 1,223,702
------------ -----------
Total current assets 2,809,010 1,550,958
PROPERTY AND EQUIPMENT, NET 8,895,925 1,748,584
OTHER ASSETS
Accrued interest receivable 50,520 --
Due from London Radiosurgical Centre, Ltd 421,783 212,018
Subordinated equity participation 200,000 200,000
Restricted cash 333,576 104,040
------------ -----------
Total assets $ 12,710,814 $ 3,815,600
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,081,469 $ 54,815
Income taxes payable 800 800
Accrued liabilities 190,846 21,703
Notes payable 200,000 --
VAT due to IGE 292,190 --
Obligations under capital lease - current 1,434,077 --
------------ -----------
Total current liabilities 3,199,382 77,318
NONCURRENT LIABILITIES
Obligations under capital lease 7,040,803 1,434,618
Deferred revenue 12,008 --
------------ -----------
Total liabilities 10,252,193 1,511,936
SHAREHOLDERS' EQUITY
Preferred stock; 10,000,000 shares authorized:
Series A preferred stock; 60 and 0 shares issued and
outstanding at September 30, 2000 and 1999, respectively 3,000,000 --
Series B preferred stock; 20 and 0 shares issued and
outstanding at September 30, 2000 and 1999, respectively 1,000,000 --
Common stock; $0.0001 par value; 90,000,000 shares
authorized; 14,944,658 and 13,359,658 shares issued
and outstanding at September 30, 2000 and 1999,
respectively 1,495 1,336
Additional paid in capital 9,105,719 4,830,947
Accumulated deficit (10,678,798) (2,528,619)
Foreign currency translation adjustment 30,205 --
------------ -----------
Total shareholders' equity 2,458,621 2,303,664
------------ -----------
Total liabilities and shareholders' equity $ 12,710,814 $ 3,815,600
============ ===========
</TABLE>
See accompanying notes and accountants' review report.
3
<PAGE> 6
MOBILE P.E.T. SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
SERVICE REVENUES $ 840,981 $ 79,995
COST OF SERVICE REVENUES 612,753 43,529
----------- ---------
Gross profit 228,228 36,466
EXPENSES
General and administrative 2,252,722 700,048
----------- ---------
Total expenses 2,252,722 700,048
----------- ---------
Loss from operations (2,024,494) (663,582)
OTHER INCOME (EXPENSE)
Interest income 13,277 6,666
Other income (expense) (7,252) --
Interest expense (244,558) (47,039)
----------- ---------
Total other income (expense) (238,533) (40,373)
----------- ---------
Loss before provision for income taxes (2,263,027) (703,955)
Provision for income taxes -- 800
----------- ---------
NET LOSS (2,263,027) (704,755)
Preferred stock dividend 276,387 --
----------- ---------
NET LOSS - AVAILABLE TO COMMON SHAREHOLDERS $(2,539,414) $(704,755)
=========== =========
Loss per share - basic $ (0.18) $ (0.05)
=========== =========
Loss per share - diluted $ (0.18) $ (0.05)
=========== =========
</TABLE>
See accompanying notes and accountants' review report.
4
<PAGE> 7
MOBILE P.E.T. SYSTEMS, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(2,263,027) $ (704,755)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation 279,098 44,538
Common stock issued for compensation 92,331 --
(Increase) decrease in operating assets
Due from London Radiosurgical Center, LTD 13,317 (182,047)
Accounts receivable (94,802) (135,615)
Other receivable 265,724 --
Prepaid expenses 105,369 (3,562)
Deposits and other assets (27,714) (672,410)
Restricted cash (4,096) 148,332
Deferred assets (706) --
Increase (decrease) in operating liabilities
Accounts payable 439,200 (27,053)
Accrued liabilities 10,952 (66,292)
----------- ----------
Net cash used in operating activities (1,184,354) (1,598,864)
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (100,576) (300,437)
----------- ----------
Net cash used in investing activities (100,576) (300,437)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from loan 200,000 --
Payments on obligations under capital lease (216,218) --
Preferred stock issued 885,000 285,000
----------- ----------
Net cash provided by financing activities 868,782 285,000
----------- ----------
Effect of exchange rate changes in cash 73,143 --
Net decrease in cash (343,005) (1,614,301)
Cash - beginning of period 521,033 1,784,390
----------- ----------
Cash - end of period $ 178,028 $ 170,089
=========== ==========
SUPPLEMENTAL DISCLOSURES
Interest paid $ 202,619 $ 46,539
=========== ==========
Income taxes paid $ -- $ --
=========== ==========
NONCASH INVESTING ACTIFITIES
Equipment under capital lease $ 2,992,758 $1,433,863
=========== ==========
NONCASH FINANCING ACTIVITIES
Preferred stock dividend - beneficial conversion feature $ 276,387 $ --
=========== ==========
Obligations under capital lease $ 2,992,758 $1,434,618
=========== ==========
</TABLE>
See accompanying footnotes and accountants' review report.
5
<PAGE> 8
MOBILE P.E.T. SYSTEMS, INC. AND SUBSIDIARIES
STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
---------------- ---------------------- Paid In
Shares Amount Shares Amount Capital
------ ------ ----------- ------- ----------
<S> <C> <C> <C> <C> <C>
Balance - December 1, 1998 -- $ -- 10,328,395 $ 1,033 $ 825,803
Reverse stock split: 50 - 1 (10,121,636) (1,012) 1,012
Common stock issued 3,937,899 394 98,053
---- ---------- ----------- ------- ----------
Balance immediately prior to
acquisition 4,144,658 415 924,868
Common stock issued in acquisition 7,000,000 700 (700)
Net loss - December 1, 1998 to
December 31, 1998 (34,426) (34,426)
---- ---------- ----------- ------- ----------
Balance - December 31, 1998 11,144,658 1,115 924,168
Common stock issued through the exercise of
stock options 900,000 90 899,910
Common stock issued as compensation 100,000 10 99,990
Common stock subscribed through the exercise
of options 350,000
Net loss - January 1, 1999 to March 31, 1999
---- ---------- ----------- ------- ----------
Balance - March 31, 1999 -- -- 12,144,658 1,215 2,274,068
Common stock issued through the exercise
of stock options 600,000 60 549,940
Common stock issued as compensation 100,000 10 149,989
Common stock subscribed, net of offering costs 1,572,001
Net loss - April 1, 1999 to June 30, 1999
---- ---------- ----------- ------- ----------
Balance - June 30, 1999 -- -- 12,844,658 1,285 4,545,998
Common stock issued from subscriptions paid,
net of offering costs 515,000 51 284,949
Net loss - July 1, 1999 to September 30, 1999
---- ---------- ----------- ------- ----------
Balance - September 30, 1999 -- -- 13,359,658 1,336 4,830,947
Prior period adjustment - net effect of the
reclassification of certain leases
from operating leases to capital leases (34,895)
---- ---------- ----------- ------- ----------
Balance - September 30, 1999, as adjusted -- -- 13,359,658 1,336 4,830,947
Net loss - October 1, 1999 to December 31, 1999
Foreign currency translation adjustment
---- ---------- ----------- ------- ----------
Balance - December 31, 1999 -- -- 13,359,658 1,336 4,830,947
Common stock issued in private placement,
net of offering costs 1,550,000 155 2,664,128
Preferred stock issued in private placement,
net of offering costs 60 3,000,000 (300,000)
Net loss - January 1, 2000 to March 31, 2000
Foreign currency translation adjustment
---- ---------- ----------- ------- ----------
Balance - March 31, 2000 60 3,000,000 14,909,658 1,491 7,195,075
Common stock issued for services 35,000 4 109,371
Options issued as compensation 1,276,442
Net loss - April 1, 2000 to June 30, 2000
Foreign currency translation adjustment
---- ---------- ----------- ------- ----------
Balance - June 30, 2000 60 3,000,000 14,944,658 1,495 8,580,888
Preferred stock issued in private placement,
net of offering costs 20 1,000,000 (115,000)
Stock subscribed, net of offering costs 547,500
Options issued as compensation 92,331
Net loss - July 1, 2000 to September 30, 2000
Foreign currency translation adjustment
---- ---------- ----------- ------- ----------
Balance - September 30, 2000 80 4,000,000 14,944,658 1,495 9,105,719
==== ========== =========== ======= ==========
</TABLE>
<TABLE>
<CAPTION>
Foreign
Currency Total
Accumulated Translation Shareholders'
Deficit Adjustment Equity
----------- ----------- -------------
<S> <C> <C> <C>
Balance - December 1, 1998 $ (826,836) $ -- $ --
Reverse stock split: 50 - 1 --
Common stock issued 98,447
------------ ------- --------
Balance immediately prior to
acquisition (826,836) -- 98,447
Common stock issued in acquisition --
Net loss - December 1, 1998 to
December 31, 1998
------------ ------- --------
Balance - December 31, 1998 (861,262) -- 64,021
Common stock issued through the exercise of
stock options 900,000
Common stock issued as compensation 100,000
Common stock subscribed through the exercise
of options 350,000
Net loss - January 1, 1999 to March 31, 1999 (251,675) -- (251,675)
------------ ------- --------
Balance - March 31, 1999 (1,112,937) -- 1,162,346
Common stock issued through the exercise
of stock options 550,000
Common stock issued as compensation 149,999
Common stock subscribed, net of offering costs 1,572,001
Net loss - April 1, 1999 to June 30, 1999 (710,927) (710,927)
------------ ------- --------
Balance - June 30, 1999 (1,823,864) -- 2,723,419
Common stock issued from subscriptions paid,
net of offering costs 285,000
Net loss - July 1, 1999 to September 30, 1999 (669,860) -- (669,860)
------------ ------- --------
Balance - September 30, 1999 (2,493,724) -- 2,338,559
Prior period adjustment - net effect of the
reclassification of certain leases
from operating leases to capital leases (34,895)
------------ ------- --------
Balance - September 30, 1999, as adjusted (2,528,619) -- 2,303,664
Net loss - October 1, 1999 to December 31, 1999 (782,387) (782,387)
Foreign currency translation adjustment (3,450) (3,450)
------------ ------- --------
Balance - December 31, 1999 (3,311,006) (3,450) 1,517,827
Common stock issued in private placement,
net of offering costs 2,664,283
Preferred stock issued in private placement,
net of offering costs 2,700,000
Net loss - January 1, 2000 to March 31, 2000 (1,574,207) -- (1,574,207)
Foreign currency translation adjustment 5,806 5,806
------------ ------- --------
Balance - March 31, 2000 (4,885,213) 2,356 5,313,709
Common stock issued for services 109,375
Options issued as compensation 1,276,442
Net loss - April 1, 2000 to June 30, 2000 (3,530,558) (3,530,558)
Foreign currency translation adjustment (44,754) (44,754)
------------ ------- --------
Balance - June 30, 2000 (8,415,771) (42,398) 3,124,214
Preferred stock issued in private placement,
net of offering costs 885,000
Stock subscribed, net of offering costs 547,500
Options issued as compensation 92,331
Net loss - July 1, 2000 to September 30, 2000 (2,263,027) -- (2,263,027)
Foreign currency translation adjustment 72,603 72,603
------------ ------- --------
Balance - September 30, 2000 (10,678,798) 30,205 2,458,621
============ ======= =========
</TABLE>
See accompanying footnotes and accountants' review report.
6
<PAGE> 9
MOBILE P.E.T. SYSTEMS, INC. AND SUBSIDIARIES
For the quarter ended September 30, 2000
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.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany
transactions have been eliminated in consolidation.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash and cash equivalents.
Property, Equipment and Leasehold Improvements
Property and equipment are recorded at cost less depreciation and
amortization. Depreciation and amortization are accounted for on the
straight-line method based on estimated useful lives. The amortization of
leasehold improvements is based on the shorter of the lease term or the
life of the improvement. Betterments and large renewals, which extend the
life of an asset, are capitalized; whereas, maintenance and repairs and
small renewals are expensed as incurred.
Foreign Currency Translation
The financial statements of all foreign subsidiaries were prepared in their
respective local currencies and translated into U.S. dollars based on the
current exchange rate at the end of the period for the balance sheet and a
weighted-average rate for the period on the statement of operations.
Translation adjustments are reflected as foreign currency translation
adjustments in shareholders' equity and accordingly have no effect on net
loss. Transaction adjustments for all foreign subsidiaries are included in
the statements of operation.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
Income Taxes
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." This statement
requires an asset and liability approach to account for
7
<PAGE> 10
income taxes. The Company provides deferred income taxes for temporary
differences that will result in taxable or deductible amounts in future
years based on the reporting of certain costs in different periods for
financial and income tax purposes.
Stock Option Plans
The Company has adopted SFAS No. 123 "Accounting for Stock-Based
Compensation," which permits entities to recognize as expense over the
vesting period the fair value of all stock-based awards on the date of
grant. Alternatively, SFAS No. 123 also allows entities to continue to
apply the provisions of APB Opinion No. 25 "Accounting for Stock Issued to
Employees," and provide pro forma net income and pro forma earnings per
share disclosures for employee stock option grants as if the
fair-value-based method defined in SFAS No. 123 has been applied. The
Company has elected to apply the provisions of APB Opinion No. 25 and
provide the pro forma disclosure provisions of SFAS No. 123.
NOTE 3 - ACQUISITIONS
Mobile P.E.T. Systems, Inc. was incorporated in the State of Nevada on
December 1, 1998. On December 22, 1998, Mobile P.E.T Systems, Inc.'s
shareholders exchanged all of the 7,000,000 shares of outstanding common
stock for 7,000,000 shares of common stock in Colony International
Incorporated, prior to that named American Coin and Stamp, Inc.,
incorporated in the State of Delaware on August 21, 1995 and its wholly
owned subsidiary Colony International Incorporated, incorporated in the
State of Nevada on April 25, 1995. This exchange of shares has been
accounted for as a reverse merger, under the purchase method of accounting.
Accordingly, the combination of the Mobile P.E.T. Systems, Inc. and Colony
International Incorporated and subsidiary is recorded as a recapitalization
of the shareholders' equity of Mobile P.E.T. Systems, Inc., the surviving
corporation and for accounting purposes the financial statements presented
are those of Mobile P.E.T. Systems, Inc. Accordingly, pro-forma information
has not been presented. Mobile P.E.T Systems, Inc. reported no sales and a
net loss of $15,200 prior to the acquisition. The other individual
companies reported no net sales and no net income or loss prior to the
acquisition.
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.
8
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NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment at September 30, 2000 and 1999 consist of the
following:
<TABLE>
<CAPTION>
September 30,
----------------------------------
2000 1999
----------- -----------
<S> <C> <C>
Leasehold improvements $ 30,389 $ --
Automobile -- 8,026
Computer equipment 433,311 50,356
Office furniture and fixtures 28,298 18,093
Office equipment 7,092 7,092
Equipment 9,145,748 1,713,253
----------- -----------
9,644,838 1,796,820
Less accumulated depreciation (748,913) (48,236)
----------- -----------
$ 8,895,925 $ 1,748,584
=========== ===========
</TABLE>
Depreciation expense for the three months ended September 30, 2000 and 1999
was $279,098 and $44,538, 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 September 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 September 30, 2000 there are cumulative preferred dividends in
arrears in the amount of $140,055 or $2,334 per 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 and the
cumulative preferred dividends in arrears 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.
On September 21, 2000, the Company designated thirty (30) shares 8%
Cumulative Convertible Redeemable Preferred, Series B Stock and issued
twenty (20) shares for cash in the amount of $885,000, net of acquisition
fees. As part of a September 21, 2000 Security Purchase Agreement, the
Company will issue an additional ten (10) shares 8% Cumulative Convertible
Redeemable Preferred, Series B Stock for cash in the amount of $500,000.
The Security Purchase Agreement calls for the issuance of a total thirty
(30) shares of 8% Cumulative Convertible Redeemable Preferred, Series B
Stock 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 on the first tranche and 29,851 warrants to purchase shares of
common stock at an exercise price of $2.5125 per share on the second
tranche. The warrants issued in connection with the first tranche expire on
September 30, 2005, while the warrants issued in connection with the second
tranche expire on November 9, 2005. The
9
<PAGE> 12
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. The total liquidation value of
the shares outstanding at September 30, 2000 in the amount of $1,000,000 is
classified on the Company's balance sheet as preferred stock. Cumulative
preferred dividends are payable upon conversion and at September 30, 2000
there are cumulative preferred dividends in arrears in the amount of $1,973
or $99 per 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 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 and the cumulative preferred dividends
in arrears 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 twenty (20)
shares of Preferred Stock issued has an intrinsic value of beneficial
conversion feature of approximately $276,400.
Common Stock
The Company has authorized the issuance of ninety million (90,000,000)
shares of common stock, having one hundredth of a cent ($0.0001) par value
per share. On December 1, 1998 (date of recommencement) the Company had
10,328,395 shares of common stock issued and outstanding. Prior to December
22, 1998 the Company authorized a 50 to 1 reverse stock split, leaving
206,759 shares (after adjustment for fractional shares). Immediately after
the reverse stock split the Company issued 3,937,899 shares for cash in the
amount of $98,446. On December 22, 1998 the Company acquired Mobile P.E.T.
Systems, Inc. in a non-cash, stock for stock transaction by issuing:
7,000,000 shares of the Company's stock in exchange for 7,000,000 shares of
Mobile P.E.T. Systems, Inc. common stock and subsequently changed its name
to Mobile P.E.T. Systems, Inc. The Company issued common stock in non-cash
transactions as follows: 200,000 shares in connection with employment
valued at $250,000 and 35,000 shares in connection with services valued at
$109,375. The Company issued additional shares of common stock in cash
transactions: 1,500,000 shares from the exercise of stock options for cash
in the amount of $1,800,000, and 2,065,000 shares for cash in the amount of
$4,521,284.
Stock Options
In December 1998 the Board of Directors authorized the issuance of stock
options to purchase 1,500,000 shares of common stock at a price from $1.00
to $1.50 per share. The options were exercised prior to September 30, 2000.
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 2004 and vesting over service periods
that range from zero to four years. During the three month period ended
September 30, 2000, the Company recognized compensation expense of $92,331.
The Company did not recognize any compensation expense during the three
month period ended September 30, 1999.
10
<PAGE> 13
As of September 30, 2000, the Company has granted options to purchase
4,858,000 shares of common stock as follows:
<TABLE>
<CAPTION>
Number of Vested
Exercise Price Shares Shares
--------------- ----------- ----------
<S> <C> <C> <C>
Outstanding, November 30, 1998 -- --
Granted $1.00 - $4.50 1,500,000 1,500,000
Fair Value
Exercised $1.00 (900,000) (900,000)
Cancelled -- --
----------- ----------
Outstanding, December 31, 1999 600,000 600,000
Granted $1.91 - $3.00 1,235,000 --
Fair Value
Exercised -- --
Cancelled -- --
----------- ----------
Outstanding, March 31, 1999 1,835,000 600,000
Granted $2.50 - $4.46 500,000 975,000
Fair Value
Exercised $1.50 (600,000) (600,000)
Cancelled -- --
----------- ----------
Outstanding, June 30, 1999 1,735,000 975,000
Granted $1.00 - $4.63 284,000 175,000
Fair Value
Exercised -- --
Cancelled (200,000) --
----------- ----------
Outstanding, September 30, 1999 1,819,000 1,150,000
Granted $1.50 - $2.50 115,000 334,000
Fair Value
Exercised -- --
Cancelled -- --
----------- ----------
Outstanding, December 31, 1999 1,934,000 1,484,000
Granted $1.63 - $5.31 1,734,500 115,000
Fair Value
Exercised -- --
Cancelled -- --
----------- ----------
Outstanding, March 31, 2000 3,668,500 1,599,000
Granted $2.00 - $3.31 2,319,500 1,048,000
Fair Value
Exercised -- --
Cancelled -- --
----------- ----------
Outstanding, June 30, 2000 5,988,000 2,647,000
Granted $2.50 - $3.25 400,000 7,500
Fair Value
Exercised -- --
Cancelled $1.00 - $5.31 (1,530,000) (55,000)
----------- ----------
Outstanding, September 30, 2000 4,858,000 2,599,500
=========== ==========
</TABLE>
11
<PAGE> 14
The Company accounts for stock-based compensation using the intrinsic value
method prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," under which no compensation
cost for stock options is recognized for the stock option awards granted at
or above fair market value. During the three month period ended September
30, 2000, the Company recognized compensation expense of $92,331. During
the three month period ended September 30, 1999, the Company did not
recognize any compensation expense.
Had compensation expense for the Company's 1999 Stock Option Plan been
determined based upon fair values at the grant dates for awards under the
plan in accordance with SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company's net loss and loss per share would have been
increased to the pro forma amounts indicated below. Additional stock option
awards are anticipated in future years.
<TABLE>
<CAPTION>
September 30,
----------------------------
2000 1999
------------- ----------
<S> <C> <C>
Net loss
As reported $ (2,263,027) $ (704,755)
Pro forma (2,886,517) (1,134,923)
Net loss - available to common shareholders
As reported $ (2,539,414) $ (704,755)
Pro forma (3,162,904) (1,134,923)
Loss per share
As reported $ (0.18) $ (0.05)
Pro forma (0.22) (0.19)
</TABLE>
Warrants
At September 30, 2000 and 1999 warrants were outstanding for 1,101,000 and
231,500 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 September 2005.
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 $50,520 and $0 at September 30, 2000 and September 30, 1999,
respectively.
Due from London Radiosurgical Centre Ltd
During the three month period ended September 30, 2000 and 1999, the
Company advanced without interest $0 and $182,047, respectively to LRC for
working capital during LRC's start up period. At September 30, 2000, and
1999 the balance due from London Radiosurgical Centre Ltd was $421,783 and
$212,018, respectively.
12
<PAGE> 15
Loan
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.
NOTE 7 - SECURITIES PURCHASE AGREEMENTS
On March 1, 2000, the Company entered into a Securities Purchase Agreement.
As part of the Agreement, the Company issued 60 shares of 8% Cumulative
Convertible Redeemable Preferred, Series A Stock for cash in the amount of
$2,700,000, net of acquisition fees and 120,000 warrants to purchase shares
of common stock at an exercise price of $5.00 per share, which expire in
March 2003. The buyer of the preferred stock unconditionally and
irrevocably agreed to purchase shares of common stock of the Company in
tranches, for an aggregate purchase price of up to $10,000,000, at a price
equal to eighty five percent (85%) of the average closing bid price five
(5) consecutive days immediately prior to the Company providing a tranche
notice to the buyer. The Company may begin the tranche notices three (3)
business days after the registration of both the 8% Cumulative Convertible
Redeemable Preferred, Series A Stock and warrants, and the common stock
described in this Agreement. The buyers obligations under this Agreement to
purchase shares of common stock of the Company terminates in the event the
required registration is not completed within four (4) months from the date
of this agreement or under certain other conditions, including the sale of
common stock or securities convertible into shares of common stock by the
Company within one hundred eighty (180) days of the date of registration.
The Company received a waiver from the buyer, extending to December 1, 2000
the buyers obligations to purchase shares of common stock.
On September 21, 2000, the Company entered into a Securities Purchase
Agreement. The Security Purchase Agreement calls for the issuance of a
total thirty (30) shares of 8% Cumulative Convertible Redeemable Preferred,
Series B Stock 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 on the first tranche and 29,851 warrants to
purchase shares of common stock at an exercise price of $2.5125 per share
on the second tranche. The warrants issued in connection with the first
tranche expire on September 30, 2005, while the warrants issued in
connection with the second tranche expire on November 9, 2005.
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 September 30, 2000 the Company has a net operating loss carryforward for
tax purposes of approximately $10,200,000 which expires through the year
2019. The Internal Revenue Code contains provisions, which may limit the
loss carryforward available if significant changes in shareholder ownership
of the Company occur.
13
<PAGE> 16
The components of the provision for income taxes for the three months ended
September 30, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
September 30,
------------------------------
2000 1999
--------- ----------
<S> <C> <C>
Current
Foreign $ -- $ --
Federal -- --
State -- 800
--------- ----------
800
Deferred
Foreign -- --
Federal -- --
State -- --
--------- ---------
-- --
--------- ---------
Provision for income taxes $ $ 800
========= =========
</TABLE>
The components of the net deferred tax assets were as follows:
<TABLE>
<CAPTION>
September 30,
------------------------------
2000 1999
----------- ----------
<S> <C> <C>
Deferred tax assets
Start-up costs $ 155,950 $ 155,950
Net operating loss carryforward 3,747,800 784,800
----------- ---------
3,903,750 940,750
LESS VALUATION ALLOWANCE (3,903,750) (940,750)
----------- ----------
Net deferred tax assets $ -- $ --
=========== ==========
</TABLE>
NOTE 10 - COMMITMENTS
Equipment under capital lease is included in property and equipment as
follows:
<TABLE>
<CAPTION>
September 30,
-------------------------------
2000 1999
----------- -----------
<S> <C> <C>
Equipment $ 7,248,375 $ 1,433,863
Less accumulated amortization (525,012) (35,640)
----------- -----------
Net capital lease assets $ 6,723,363 $ 1,398,223
=========== ===========
</TABLE>
The Company leases office space under a non-cancelable operating lease. The
office lease expires in December 2000. The Company leases certain other PET
equipment under capital leases. The equipment leases expire through
December 2004.
Rent expense for the three months ended September 30, 2000 and 1999 was
$19,295 and $8,996, respectively.
14
<PAGE> 17
The following is a schedule by year of the future minimum lease payments at
September 30, 2000:
Capital Operating
September 30 Lease Leases
------------ ----------- -----------
2001 $ 2,424,700 $ 47,210
2002 2,568,263 41,080
2003 2,568,263 44,340
2004 2,496,024 47,860
2005 1,529,665 33,560
2006 184,530 --
----------- -----------
11,771,445 $ 214,050
-----------
Less amount representing
interest at 12.07% (3,296,565)
-----------
Present value of minimum lease
payments (including current
portion of $1,434,007) $ 8,474,880
===========
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 September 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. The Company
has entered into capital lease agreements with a leasing company for mobile
systems. As of November 8, 2000 the Company has not accepted delivery.
The Company has entered into capital leases with another leasing company
for two mobile imaging system having a cost of approximately $3,621,000. As
of November 8, 2000 the Company has not accepted delivery of the imaging
systems.
NOTE 11 - CONCENTRATION OF CREDIT RISK
The Company maintains cash with various major financial institutions in
excess of the Federal Deposit Insurance Corporation limits.
15
<PAGE> 18
NOTE 12 - EARNINGS (LOSS) PER SHARE
The computations of basic and diluted earnings per share from continuing
operations for the three months ended September 30, 2000 and the period
December 1, 1998 (date of recommencement) to September 30, 1999 were as
follows:
<TABLE>
<CAPTION>
September 30,
------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Loss per share - basic
Numerator:
Net loss - available to
Common shareholders $ (2,539,414) $ (704,755)
Denominator:
Weighted-average shares 14,115,346 13,320,473
------------ ------------
Loss per share - basic $ (0.18) $ (0.05)
============ ============
Loss per share - diluted
Numerator:
Net loss - available to
Common shareholders $ (2,539,414) $ (704,755)
Denominator:
Weighted-average shares 14,115,346 13,320,473
------------ ------------
Loss per share - diluted $ (0.18) $ (0.05)
============ ============
</TABLE>
The average shares listed below were not included in the computation of
diluted loss per share because to do so would have been antidilutive for
the three months ended September 30, 2000 and the period December 1, 1998
(date of recommencement) to September 30, 1999:
<TABLE>
<CAPTION>
September 30,
------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Cumulative convertible
redeemable preferred stock
common stock equivalent 356,712 --
Employee stock options 3,530,880 908,915
Warrants 779,289 71,321
</TABLE>
16
<PAGE> 19
NOTE 13 - DEPOSITS AND OTHER ASSETS
Deposits and other assets consist of the following at September 30, 2000
and 1999:
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Equipment deposits -
Mobile P.E.T. Units $ 1,091,375 $ 1,036,000
Equipment rental deposits -
other 68,980 --
Lease deposits 159,073 172,702
Other 25,250 15,000
------------ ------------
$ 1,344,678 $ 1,223,702
============ ============
</TABLE>
Equipment deposits - Mobile P.E.T. Units are refundable upon the Company
securing lease financing or carried forward to subsequent equipment orders.
NOTE 14 - PRIOR QUARTER ADJUSTMENTS
The September 30, 2000 financial statements have been restated to correct
an error in the application of generally accepted accounting principles.
Certain leases previously reported as operating leases have been recorded
as capital leases in accordance with Financial Accounting Standards Board
Statement No. 13 - Accounting for Leases. The effect of the restatement is
as follows:
<TABLE>
<CAPTION>
For the three months
ended September 30, 1999 As previously reported As restated
---------------------------------------------------------------------------------------
<S> <C> <C>
Property and equipment, net $ 348,861 $1,748,584
Obligations under capital lease -- 1,434,618
Accumulated deficit 2,338,559 2,303,664
Net loss 669,860 700,048
Loss per share - basic (.05) (.05)
Loss per share - diluted (.05) (.05)
</TABLE>
NOTE 15 - SUBSEQUENT EVENTS
Loan
The Company renegotiated an August 23, 2000, eight percent (8%) bridge loan
from a shareholder in the amount of $200,000. The new loan dated October
11, 2000 is an eight percent (8%) bridge loan in the amount of $200,000 and
is due on or before December 11, 2000.
On October 24 2000, the Company received an eight percent (8%) bridge loan
from an officer and shareholder in the amount of $100,000, which is due on
or before November 30, 2000.
17
<PAGE> 20
Warrants
On October 24, 2000, warrants were issued to purchase twenty five thousand
(25,000) shares of common stock at an exercise price of $2.50 per share.
These warrants expire in August 2003.
Notice of Conversion
On October 30, 2000 the Company received a Notice of Conversion to convert
$350,000 of 8% Cumulative Convertible Redeemable Preferred, Series A Stock
plus $20,099 of cumulative preferred dividends in arrears into 197,881
shares of common stock.
18
<PAGE> 21
MOBILE P.E.T. SYSTEMS, INC. AND SUBSIDIARIES
For the quarter ended September 30, 2000
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with the financial statements and the
related notes. This quarterly report of Form 10-QSB contains forward-looking
statements based upon current expectations that involve risks and uncertainties,
such as our plans, objectives, expectations and intentions. For this purpose,
any statements contained in it that are not statements of historical fact should
be regarded as forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. For example, the words "believes," "anticipates," "plans," "intends,"
"will," "may" and "expects," or any variation of these words including the
negative of these words, are intended to identify forward-looking statements.
For a more detailed description of these risk factors, please see Item 1
"Business - Risk Factors" of our annual report on Form 10-KSB filed with the
Securities and Exchange Commission on October 11, 2000.
OVERVIEW
Our company and our subsidiaries are a medical service provider operating mobile
Positron Emission Tomography, or PET, molecular imaging systems for hospitals
and other health care providers on a mobile, shared user basis in selected
marketplaces in the United States. We provide the PET imaging system housed in a
mobile coach 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 leading as
well as small to mid-size hospitals to gain access to advanced diagnostic
imaging technology and related value-added services without making a substantial
investment in equipment and personal.
We have operations in the United States and a dedicated PET facility in the
United Kingdom. We believe there may be 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 P.E.T. Centre
Limited, a United Kingdom private limited company. On December 17, 1999, we
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.
We have measured the financial position and results of operations of our United
Kingdom subsidiaries using local currency as the functional currency. We have
translated our assets and liabilities into U.S. dollars at the rates of exchange
at the balance sheet date. We have translated our statements of operations items
using the average exchange rates prevailing throughout the reporting period. We
have accumulated the translation gains or losses resulting from the changes in
the exchange rates from quarter-to-quarter in a separate component of
shareholders' equity. We have reflected the transaction gains and losses in the
cash flow as the effect of exchange rate changes on cash.
Our consolidated revenues for our first quarter ending September 30, 2000
approximated $841,000 compared to our first quarter of operations ended
September 30, 1999, in which we had revenues of $80,000 as we emerged from our
development stage period in the United States establishing the management and
operating infrastructure to provide PET systems and services to hospitals and
other health care providers on a mobile, shared user basis. The London P.E.T.
Centre Limited, our wholly owned United Kingdom subsidiary, emerged from the
development stage late in the fourth quarter ended June 30, 2000 and prior to
that our efforts were principally devoted to organizational activities,
marketing efforts and placing the first fixed site PET system into service in
London.
19
<PAGE> 22
We continue our development and expansion efforts of organizational activities,
infrastructure, capital, marketing, and the placement of additional mobile and
fixed site PET systems. We anticipate we will incur additional losses as we
pursue our development efforts into the first half of this fiscal year at which
time we expect that cash flow from revenues will become sufficient to cover our
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 health care
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 uncollectable accounts receivable.
The principal component of our operating costs includes salaries and benefits
paid to technologists and drivers, marketing, equipment leasing, system
maintenance, insurance and transportation costs. Because a majority of these are
fixed, increased revenues as a result of higher scan volumes may significantly
improve our future profitability potential, while lower scan volumes may result
in lower profitability.
Since our inception, we have incurred significant losses and through September
30, 2000, we have incurred a consolidated net loss approximating $10,678,800.
For the quarter ended September 30, 2000, we experienced a consolidated net loss
from operations of $2,263,000. We expect to experience operating losses and
negative cash flow from operations until later this fiscal year 2001, when we
anticipate reaching and exceeding break even on a monthly basis. We anticipate
our losses during this next quarter 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, in order to
achieve and maintain profitability, we will need to continue to generate
significant revenues.
We raised approximately $1.5 million dollars of new equity capital through the
issuance of preferred stock in a domestic and international private placement in
two tranches. During the first quarter ended September 30, 2000, we designated
thirty shares and issued twenty shares of cumulative convertible redeemable
Series B preferred stock, along with 50,000 warrants to purchase shares of
common stock at an exercise price of $3 per share, for $885,000, net of issuing
costs, as the first tranche of the financing. During November 2000, we issued an
additional ten shares of cumulative convertible redeemable Series B preferred
stock, along with 29,851 warrants to purchase shares of common stock at an
exercise price of $2.5125 per share for $500,000, as the second tranche of the
financing. During the prior year ended June 30, 2000, we designated and issued
sixty shares of cumulative convertible redeemable Series A preferred stock for
$2,700,000 net of issuance costs and 120,000 warrants to purchase shares of
common stock at an exercise price of $5 per share. Both Series A and Series B
preferred shares have no voting rights, have a liquidation value of $50,000 per
share, and accrue dividends at a rate of 8% on the liquidation value payable
upon conversion. The investor of the Series A preferred stock also agreed to
purchase shares of common stock of the Company with a value of up to $10,000,000
in tranches for a purchase price of approximately eighty five percent of the
average closing bid price of the five prior days per share. In October 2000, we
issued 25,000 shares of common stock for $1.90 per share, pursuant to the
exercise of an outstanding option.
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.
20
<PAGE> 23
RESULTS OF OPERATIONS
The prior quarter ended September 30, 1999 was our first quarter of operations.
During the quarter ended September 30, 1999, we placed our first mobile unit
into operation, which generated revenues and incurred operating costs in
addition to those related to establishing the management and operating
infrastructure to provide PET systems and services to health care providers on a
mobile, shared user basis. These factors make it difficult to draw informative
conclusions by comparing the quarter ended September 30, 1999 and the quarter
ended September 30, 2000.
For the quarter ended September 30, 2000
Our net loss from operations was $2,263,000 and our net loss available to common
shareholders, after preferred stock dividend, was $2,539,400 or $0.18 per share
for the quarter ended September 30, 2000, compared to the net loss approximating
$704,800 or $0.05 per share for the quarter ended September 30, 1999.
We took delivery on our first PET unit in July 1999 and began accruing revenues
in August 1999. For the quarter ended September 30, 2000, we had five units
accepted and placed into service, generating revenues of $841,000 and incurring
cost of services of $612,800, or 73%, compared to $80,000 in revenues and
$43,500, or 54%, in cost of services for the quarter ended September 30, 1999.
As a result of these activities, accounts receivables increased to $567,500, net
of allowances for doubtful accounts, as of September 30, 2000, as compared to
accounts receivables of $135,600 for the prior quarter ended September 30, 1999.
The costs of service revenues represent salaries paid to technologists and
drivers, depreciation on capital leases, system maintenance, transportation and
insurance on our mobile PET systems.
General and administrative expenses for the quarter ended September 30, 2000
were $2,252,700, as compared to $700,000 for the quarter ended September 30,
1999. We incurred increased general and administrative expenses due primarily to
the growth in staff and related expenses incurred in operating our five Mobile
PET units compared to our one unit in the quarter ended September 30, 1999. In
addition, we continue to incur costs in building our infrastructure and incur
costs incurred in advertising and marketing our mobile PET services.
Our interest income was $13,300 for the quarter ended September 30, 2000, as
compared to $6,700 for the quarter ended September 30, 1999. Our $6,600 increase
in interest income for the quarter ended September 30, 2000 was the result of
quarterly accrued interest on the $200,000, 15% Subordinated Equity
Participation Agreement and money market funds. Our $6,700 interest income for
the quarter ended September 30, 1999 was the result of invested funds. Our
increased interest expense of $244,600 for the quarter ended September 30, 2000,
as compared to the interest expense of $47,000 for the quarter ended September
30, 1999, was principally due to the capitalization of our equipment leases of
image scanners, coaches and computer equipment.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, our total assets were $12,710,800, compared to $3,815,600
at September 30, 1999. Our current assets at September 30, 2000 totaled
$2,809,000 and our current liabilities were $3,199,400, as compared to September
30, 1999 that reflected current assets of $1,551,000 and current liabilities of
$77,300. Shareholders' equity at September 30, 2000 increased to $2,458,600 from
$2,303,700, due primarily to the issuance of 20 shares of Series B Convertible
Preferred Stock in the amount of $885,000, net of issuance costs, stock
subscriptions of $547,500 and a net loss of $2,263,000 incurred in the quarter
ended September 30, 2000. In the comparable quarter ended September 30, 1999,
shareholders' equity was primarily the result of 51 shares of common stock
issued from subscriptions paid in the amount of $285,000, net of offering costs
and a quarterly net loss of $704,800.
21
<PAGE> 24
Our foreign currency translation adjustment in shareholders' equity amounted to
$30,200 at September 30, 2000 and there was no comparable adjustment at
September 30, 1999. We have reflected the transaction gains and losses in the
cash flow as the effect of exchange rate changes on cash of $73,100 for the
quarter ended September 30, 2000, with no comparable cash flow effect at
September 30, 1999.
Our net cash used in investing activities for the quarter ended September 30,
2000 was $100,600, as compared to $300,400 in the prior quarter ended September
30, 1999. This difference is primarily a result of the $111,400 we invested in
computers and related equipment for our business and personnel growth. In July
1999, we purchased a coach for $273,400 and made a deposit of $637,500 for our
second mobile PET system. We sold them 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 the imaging system, consistent with the capitalization of our
mobile system equipment leases. In August 2000, we accepted and entered into two
financing leases, approximating $3 million for the coach and the imaging system,
as part of a five-year lease agreement with a leasing company for our fourth and
fifth mobile PET systems.
The net cash provided by our financing activities for the quarter ended
September 30, 2000 was $868,800, a result of the private placement and issuance
of 20 shares of Series B Convertible Preferred Stock in the amount of $885,000;
the proceeds from a $200,000 bridge financing and payments of $216,200 on
obligations under capital leases, as compared to $285,000 for the quarter ended
September 30, 1999, a result of the issuance of 515,000 shares of common stock,
net of issuing costs.
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 if 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.
22
<PAGE> 25
MOBILE P.E.T. SYSTEMS, INC. AND SUBSIDIARIES
For the quarter ended September 30, 2000
PART II
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
On September 21, 2000, we entered into a Securities Purchase Agreement. As part
of the Agreement, we issued thirty shares of 8% Cumulative Convertible
Redeemable Preferred, Series B Stock for cash in two tranches for an aggregate
purchase price of (i) $1,500,000, (ii) warrants to purchase 50,000 shares of
common stock at an exercise price of $3 per share, which expire on September 30,
2005, and (iii) warrants to purchase 29,851 shares of common stock at an
exercise price of $2.5125, which expire on November 9, 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. During September 2000, we received the first tranche in the
amount of $985,000, net of acquisition fees. During November 2000, we received
the second tranche in the amount of $500,000. This sale was exempt from
registration under Section 4(2) of the Securities Act of 1933, no public
offering being involved.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K.
None
23
<PAGE> 26
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MOBILE P.E.T. SYSTEMS, INC.
By: /s/ Thomas G. Brown
----------------------------------------
Thomas G. Brown, Chief Financial Officer
Date: November 14, 2000
<PAGE> 27
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
------- -----------
27 - Financial Data Schedule
