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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
(x) Annual Report Under Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended June 30, 2000
or
( ) Transition Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission file number 000-27915
MOBILE P.E.T. SYSTEMS, INC.
A DELAWARE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 11-2787966
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
2240 SHELTER ISLAND DRIVE #205
SAN DIEGO, CALIFORNIA 92106
(Address of principal executive offices) (Zip Code)
(619) 226-6738
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class so registered: Name of each exchange on which
each class is registered:
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $0.0001
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. / X /
Revenues for fiscal year 2000 were $1,122,969.
The aggregate market value of voting stock held by non-affiliates of
the registrant was $9,253,323 as of September 27, 2000 (computed by reference
to the last sale price of a share of the registrant's Common Stock on that
date as reported by the OTC Bulletin Board).
There were 14,944,658 shares outstanding of the registrant's Common
Stock as of September 27, 2000.
Transitional small business disclosure format (check one): Yes No X
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PART I
ITEM 1. BUSINESS
GENERAL
Mobile P.E.T. Systems, Inc. is a medical service provider operating
mobile Positron Emission Tomography ("PET") imaging systems in selected
marketplaces in the United States and Europe. PET imaging systems produce images
of the body that represent the metabolic characteristics of tissues rather than
anatomical information, providing for the earliest detection of many
abnormalities that are undetected with conventional x-ray, Computerized Axial
Tomography ("CT"), or Magnetic Resonance Imaging ("MRI") imaging systems. PET
effectively detects many cancers, cardiac and neurological disorders at their
earliest stages which influences patients' treatment options and eliminates
redundant testing, hospitalization or non-beneficial treatment procedures.
We provide the PET imaging system housed in a mobile coach 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.
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.
ABOUT OUR INDUSTRY
The diagnostic imaging industry generates annual revenues in excess of
$50 billion in the United States, or approximately 5% to 6% of total health care
spending. There are at present approximately 160 PET systems in the United
States, including approximately 130 hospital-owned systems, 20 independent fixed
site systems and 10 mobile units. By comparison, in 1998 there were
approximately 4,000 MRI systems in the United States consisting of approximately
2,400 hospital owned systems, 1,000 independent fixed site systems and 600
mobile systems.
Recent studies by the Institute for Clinical PET (Positron Emission
Tomography, Biological Imaging for Medicine, A Proven Answer to Improve
Healthcare Quality and Lower Cost, May 1995, by Terry D. Douglass, PhD,
available by contacting the ICP at (703) 516-9255) concluded that PET is a
cost-effective diagnostic imaging procedure for a number of indications. In
cost-effectiveness studies conducted by the ICP, the use of PET in four
indications for the United States Medicare and non-Medicare populations
demonstrated significant cost savings. The four retrospective studies focused on
lung cancer, breast cancer, colorectal cancer recurrence, and myocardial
viability. In the studies of these four indications in the Medicare population,
ICP estimated the total Medicare savings from the use of PET diagnostic imaging
procedures would approximate $1.6 billion per year. In addition, ICP estimated
the
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number of invasive and other diagnostic procedures would be reduced by 189,162
procedures. Finally, ICP estimated the number of annual PET studies required for
the four indications in the Medicare population would be 388,951. ICP's cost
effectiveness studies for the non-Medicare population concluded the total cost
savings from the use of PET diagnostic imaging would approximate $4.1 billion
annually. In this population, ICP estimates the number of invasive and other
diagnostic procedures would be reduced by 182,520 procedures annually. In
addition, ICP indicated that the number of annual PET studies required in this
population would approximate 401,616 tests. It should be noted that ICP's
calculations examined only the savings related to the cost of the procedures
avoided, and did not include additional savings realized by avoiding the
complications of procedures rendered unnecessary by knowledge of PET results.
THE PET PROCEDURE
Commercial diagnostic PET imaging systems are comprised of high speed
computers, an examination table and a large imaging detector mechanism, which
are used to acquire and produce detailed PET images of the human body's
metabolic functions. Performing an actual PET procedure scan involves first
introducing a "radiotracer" into the patient's blood stream. A "radiotracer" is
a substance which when diffused into a patient's system allows the PET scanner
to create an image of the body's metabolic functions. After the radiotracer is
diffused into the patient's body (which takes approximately 45 minutes), the
patient is placed on an examination table which is moved into the center of the
PET imaging mechanism, which is cylindrical and has an opening (or "gantry")
with a diameter of approximately 60 centimeters. The wide gantry and relatively
short length of the imaging mechanism help minimize patient discomfort. The
scanning process takes approximately one hour to complete.
The PET imaging system detects signals emitted by the radiotracer as
it moves through the body. The radiotracer is attracted to any metabolic
activity. As an example, cancer cells (which are highly metabolic) are easily
detected by the PET imaging procedure. A high-speed computer reconstructs the
signals into three dimensional images that display normal or abnormal
metabolic function. 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;
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-- 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,
the Company believes that hospitals and other health care providers are
experiencing increased demand from their patients to provide PET technology and
related services. Increasingly, such health care providers are utilizing third
parties, like our company, to provide technology-driven patient services.
Approximately 7.4 million Americans have a history of cancer, and
1.3 million new U.S. cancer cases were diagnosed in 1999. PET is currently
recognized as one of the only metabolic medical tool powerful enough to
accurately image and measure with a single pass the metabolic function of
cancer. It can also provide information to determine whether a primary cancer
has metastasized to other parts of the body. PET has demonstrated its
usefulness in cost-effective, whole-body metastatic surveys; avoiding
biopsies for low-grade tumors; non-invasive differentiation of tumors from
radiation necrosis; early change in course of ineffective chemotherapy; and
avoiding unnecessary diagnostic and therapeutic surgeries.
In cardiology, a PET scan is one of the most accurate tests to detect
coronary artery disease. The PET images can display inadequate blood flow to the
heart during stress that is undetected by other non-invasive cardiac tests. PET
enables physicians to screen for coronary artery disease, to assess flow rates
and flow reserve, and to distinguish viable from nonviable myocardium for bypass
and transplant candidates. It is also fast becoming an 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.
According to two studies, Contribution of PET in the Diagnosis of
Recurrent Colorectal Cancer Comparison with Conventional Imaging, EUROPEAN
JOURNAL OF SURGICAL ONCOLOGY 1995, 21: 517-522; and Diagnostic Value of Positron
Emission Tomography for Detecting Breast Cancer, CT scanning is also less
effective than PET Scans as a tool for early detection and diagnosis. WORLD
JOURNAL OF SURGERY 1998, 22: 223-228.
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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 health care 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
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 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
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-Registered Trademark- EXACT-TM- PET systems
on order from CTI/Siemens Medical Systems, and we are ordering seven Registered
Trademark-ADVANCE-TM PET Imaging Systems from General Electric Medical Systems.
We have received four mobile Siemens PET systems to date, three of which are in
operation. We expect the balance of the Siemens PET Systems to be in operation
by calendar year end 2000. We received the first dedicated Non/Mobile GE System
in August 2000. We received the first Mobile GE Registered Trademark-ADVANCE-Tm
PET Imaging System in March 2000. The cost for a fully commissioned PET imaging
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system can range from $1.6 to $2.0 million inclusive of mobile coach or lease
hold 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 trailer or dedicated facility.
OUR OPERATIONS
CUSTOMER BASE. We believe that many hospitals and other health care
providers will seek access to PET imaging services to remain competitive in the
health care marketplace.
Regulatory and licensing requirements in many states may also limit
general access to PET imaging services. In addition, many health care providers
lack sufficient patient volumes or financial resources to justify the purchase
of a dedicated in-house PET system. As a result, providers will consider
contracting for mobile services to gain access to PET technology, build patient
flows and provide comprehensive PET services to their communities.
Many health care providers, regardless of whether their patient flow
levels and financial resources justify the purchase of a PET system, may prefer
to contract with us to (i) obtain the use of a PET system without significant
capital investment or financial risk; (ii) retain the ability to switch system
types and avoid technological risk; (iii) eliminate the need to recruit, train
and manage qualified technologists; or (iv) provide expanded imaging services
when patient demand exceeds their in-house capability.
MOBILE SERVICES AGREEMENTS. We provide our services to hospitals and
health care providers under a Positron Emission Tomography Mobile Services
Agreement that we enter into with these entities. These agreements have
standardized provisions which are subject to minor modifications based on the
needs of a particular customer. Under these agreements, we provide our mobile
PET System, along with a minimum of one trained operator, for a specified number
of days per week. Pricing is based on a per-patient basis, and is subject to
discounts based on the volume of patients examined per day. A minimum of four
PET exams per day is required. In some cases, we allow our customers to pay us a
flat fee per day for our services. We require our customers to pay us for our
services within thirty days after we bill them. The agreements require our
customers to perform various functions and supply various items, such as power,
medical supplies, physicians and patient screening. The agreements have a five
year term, which is subject to automatic renewal for another five year term. The
agreements may be terminated for certain causes described in the agreements,
including a customer's lack of economic justification for our services, or a
customer's installation of a fixed site PET system (however, in certain
agreements we have a right of first refusal to participate in any joint venture
created to install such a system). The agreements also require that all PET
services on our customers' sites be performed exclusively by us. To date, we
have entered into agreements with the following hospitals and health care
providers:
- Pomona Valley Hospital Medical Center
- Saint John's Health Center
- Community Hospital of Williams County
- Jewish Hospital Healthcare Services, Inc.
- Scripps Health dba Scripps Memorial Hospital- La Jolla
- St. Joseph Hospital of Orange
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- St. Joseph's Regional Medical Center
- Torrance Memorial Medical Center
- University of Louisville Hospital
- University Nuclear Medicine, Inc.
- Lutheran Hospital of Indiana
- State University of New York at Buffalo
- Desert PET, Palm Springs
- Tuality Health Care, Hillsborough, Oregon
- Salem Hospital, Oregon - St. Agnes, Fresno
- Modesto Imaging, California
- Sutter Lakeside, Lakeport, California
- Advenist, Portland, Oregon
- Providence, Portland, Oregon
- Redwood Radiology, Santa Rosa, California
- O.H.S.U., Portland, Oregon
- Trover Foundation
- O.H.S.U., Ohio
- OPUS Imaging
- RDI Owensborough, Kentucky
- Clark Co. (Jewish)
- Day 2 Jewish
- Lima, Ohio
- Mercy Cedar Rapids
- Covenant, Iowa
- Iowa Methodist
- Silver Cross, Illinois
- Cox Med, Springfield
- St. Johns, Springfield
- Austin, Radiological
- Mid Town
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 health care payors such as Medicare,
Medicaid, insurance companies or managed care companies. Instead, mobile
diagnostic imaging service companies contract directly with and are paid by the
hospital, which then bills the health care payors. All of our revenues will be
paid directly by the hospital. As a result, we should realize a higher level of
accounts receivable turnover and a lower allowance for uncollected debt. To
date, all of our customers have paid us on time. However, there can be no
assurance that we will always be paid in a timely manner.
Billing and reimbursement for diagnostic imaging services is divided
into a technical component and a professional component. Our business revenue is
based on providing the technical component, which includes the cost of the
equipment, labor and materials needed to perform the procedure by our company
and a hospital. The professional component is the cost of interpreting the image
by the nuclear medicine physician or radiologist.
We contract with a hospital to receive a negotiated rate for the
technical component of the imaging service. This wholesale rate pays us for
providing the technical component of the service and allows the hospital to
mark up the service to the healthcare payor 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.
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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 Health Care Financing Administration (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. Another APC 285 will be used to 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 - G0047 range from $1,600 - $2,000 for a combined cardiac rest
/ stress study inclusive of isotope. For G-Codes G0125 - G0126 and G0163 - 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 has at last become commercially feasible. For
nearly 20 years PET imaging has shown tremendous promise in the investigation
of pharmacologic agents and the management of cancer patients, cardiac
patients and certain neurologic indications, but has not been reimbursable.
This has prevented the dissemination of this technology to community
hospitals and restricted its use to major medical centers. It appears that
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, 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 health care 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 health care 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 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 operating 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, 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, health
care providers that have their own diagnostic imaging systems, and equipment
manufacturers that sell or lease imaging systems to health care 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 10-KSB.
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 will 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, trained PET technologists,
as well as marketing, logistical and education programs to accommodate the
growing needs of our customers.
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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 health care
providers, with the price for our services determined on a fee for service
basis. Our marketing focus is currently directed, but not limited to, four
key market segments in the U.S. They include California, New York, Texas and
Florida. We have initially targeted 40 hospitals in each market which we
believe require access to PET services. These targeted hospitals need to
remain competitive in their respective health care markets or may lack
sufficient patient volumes to justify the purchase of a dedicated PET system.
We have pursued securing long-term contracts with several high profile
university hospitals, which offer the potential of establishing market
presence and name recognition for our company. We have also developed a
"Total Solutions" strategy which will utilize our senior executives and our
Medical Advisory Board members to help our customers during the start-up
phases at their facilities. Our "Total Solutions" approach includes physician
education and a focused marketing effort to 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.
EXPERIENCED MANAGEMENT TEAM. Our senior management team has
considerable industry experience. Our senior and operating managers have
successfully developed and implemented marketing, operating and financial
strategies with previous health care companies.
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
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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 health care provider, including (i) developing
commercial and clinical marketing materials; (ii) sponsoring clinical lectures;
and (iii) offering educational over-read services. In addition, consulting
services for billing, collections, and third-party contracts are available on
request. We believe that these services play a key role in our ability to sign
up routes over competitors, retain accounts and build patient procedures.
SALES AND MARKETING
Our sales force consists of 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 referring physicians plays a primary role in our
ability to increase patient procedures. Our regional marketing specialists
focus on developing increased scan volumes by introducing our PET services to
referring physicians and keeping such physicians apprised of our PET service
capabilities. In addition, certain 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.
YEAR 2000 COMPLIANCE
To our knowledge, as of the date of filing of this Form 10-KSB, 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.
RISKS RELATED TO OUR BUSINESS
THERE ARE RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS MADE BY US AND ACTUAL
RESULTS MAY DIFFER.
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Some of the information in this Form 10-KSB 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 10-KSB, 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, EXPECT FUTURE LOSSES AND MAY NEVER BECOME
PROFITABLE.
Since inception, we have incurred significant losses, and as of June
30, 2000, we had an accumulated deficit of $8,415,771. We expect to continue to
incur net losses until sales generate sufficient revenues to fund our continuing
operations. We may fail to achieve significant revenues from sales or achieve or
sustain profitability. There can be no assurance of when, if ever, we will be
profitable or be able to maintain profitability.
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.
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
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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 changes 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 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.
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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 administrative, civil, and criminal penalties, loss
of state licensure and exclusion from federal reimbursement programs such as
Medicare, 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 health care services. However,
our failure or our customers' failure to comply with the anti-kickback laws
or the Stark Laws or the application of new laws or new interpretation of
existing laws could result in an adverse effect on our business.
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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 $2 million per
incident and medical professional liability insurance in the amount of $2
million per incident, but this insurance is expensive, subject to various
coverage exclusions and may not be obtainable in the future on terms acceptable
to us. We do not know whether claims against us arising from our use of the PET
system will be successfully defended or that our insurance will be sufficient to
cover liabilities arising from these claims. A successful claim against us in
excess of our insurance coverage could materially harm our business.
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THERE IS UNCERTAINTY RELATING TO THIRD PARTY REIMBURSEMENT WHICH IS CRITICAL TO
MARKET ACCEPTANCE OF OUR PRODUCTS.
PET services are generally purchased by hospitals which then bill
various third party payors, such as government programs and private insurance
plans, for the procedures conducted using the PET system. Third-party payors
carefully review and are increasingly challenging the prices charged for medical
products and services, and scrutinizing whether to cover new products and
evaluating the level of reimbursement for covered products. While we believe
that the hospitals using the PET system have generally been reimbursed, payors
may deny coverage and reimbursement for the PET system if they determine that
the device was not reasonable and necessary for the purpose for which it was
used, was investigational or not cost-effective. As a result, we cannot assure
you that reimbursement from third party payors for use of the PET system will be
available or if available, that reimbursement will not be limited. If third
party reimbursement of these procedures is not available, it will be more
difficult for us to offer our services on a profitable basis. Moreover, we are
unable to predict what legislation or regulation, if any, relating to the health
care industry or third-party coverage and reimbursement may be enacted in the
future, or what effect such legislation or regulation may have on us.
HEALTH CARE 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 health care delivery system and further
reduce and control health care spending. These reform efforts include proposals
to limit spending on health care items and services, limit coverage for new
technology and limit or control the price health care providers and drug and
device manufacturers may charge for their services and products. If adopted and
implemented, such reforms could have an adverse effect on our business,
financial condition and results of operations.
WE MAINTAIN CASH WITH VARIOUS BANKS IN EXCESS OF FEDERALLY INSURED LIMITS
The Federal Deposit Insurance Corporation (FDIC) insures deposits up to
$100,000 in virtually all United States banks and savings associations. In the
event an FDIC-insured bank fails and depositors lose their money, the FDIC pays
depositors up to $100,000 of the money lost. Although our funds are deposited in
accounts with FDIC-insured banks, the amounts of cash in these accounts exceed
federally insured limits. In the event of a failure of one of our banks where
our funds were lost, we could only recover from the FDIC up o $100,000 of the
funds lost. The loss of the excess funds could have a material adverse effect on
our business.
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EMPLOYEES
At June 30, 2000, the Company employed 43 people on a full-time basis
and total of 46 employees. None of these employees is subject to a collective
bargaining agreement and there is no union representation within the Company.
The Company maintains various employee benefit plans and believes its employee
relations are good.
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ITEM 2. PROPERTIES
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 period.
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 first year, $3,335 per month second year,
$3,600 per month third year, $3,885 per month fourth year and $4,195 per
month fifth year. This 5 year lease commenced on June 1, 2000 and runs
through May 31, 2004.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings involving the Company
or any of its property.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our Common Stock is currently traded on the OTC 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 P.E.T. SYSTEMS, INC.
----------------------------------------------------------------------------
CALENDAR YEAR 1999
FIRST QUARTER 3.6875 0.99
SECOND QUARTER 5.4375 2.5
THIRD QUARTER 5.1875 2.3125
FOURTH QUARTER 3.0 1.5
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 Calendar Year 1998 or the fourth
quarter of Calendar Year 1997 for our predecessor Colony International
Incorporated.
As of June 30, 2000, our shares were held by 268 shareholders of
record, not including the holders, that have their shares held in a depository
trust in "street name". The transfer agent of our common stock is OTC Corporate
Transfer Service Co., P.O. Box 591, Hicksville, NY 11802.
Pursuant to NASD Rule 6530, our common stock was delisted from the OTC
Bulletin Board on October 19, 1999 because on that date, we had not yet
satisfied the requirements to become an issuer required to make current filings
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. We
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 its business and does not anticipate paying any cash
dividends in the foreseeable future.
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ITEM 6. 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 ANNUAL REPORT ON FORM 10-KSB CONTAINS
FORWARD-LOOKING STATEMENTS BASED UPON CURRENT EXPECTATIONS THAT INVOLVE RISKS
AND UNCERTAINTIES, SUCH AS OUR PLANS, OBJECTIVES, EXPECTATIONS AND
INTENTIONS. FOR THIS PURPOSE, ANY STATEMENTS CONTAINED IN IT THAT ARE NOT
STATEMENTS OF HISTORICAL FACT SHOULD BE REGARDED AS FORWARD-LOOKING
STATEMENTS. FOR EXAMPLE, THE WORDS "BELIEVES," "ANTICIPATES," "PLANS," AND
"EXPECTS" ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS
OVERVIEW
Mobile P.E.T. Systems, Inc. and 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
health care 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 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 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 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 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.
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 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 during the year had our efforts 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 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.
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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 uncollectible 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 inception, we have incurred significant losses and for the
year ended June 30, 2000, we have incurred a net loss approximating
$6,591,900. We expect to experience operating losses and negative cash flow
from operations through the end of this calendar year. We anticipate reaching
and exceeding break even 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 $5.5 million dollars, net of issuance costs, of
new equity capital through the issuance of common and preferred stock in
domestic and international private placements. 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 cumulative convertible redeemable Series A preferred stock for
$3,000,000 and 120,000 warrants to purchase shares of common stock at an
exercise price of $5 per share. These shares have no voting rights, have a
liquidation value of $50,000 per share, and accrue dividends at a rate of 8% on
the liquidation value payable upon conversion. The investor of the preferred
stock agreed to purchase shares of common stock of the Company in tranches, for
an aggregate purchase price up to $10,000,000, approximating eighty five percent
of the average closing bid price of the five prior days.
We have a limited operating history on which to base an evaluation of
our business and prospects. You must consider our prospects in light of the
risks, expenses and difficulties frequently encountered by companies in their
early stage of development. To address these risks, we must establish, maintain
and expand our customer base, implement and successfully execute our 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
The net loss from operations was $6,591,900 and the net loss available
to common shareholders, after preferred stock dividend, was $7,797,600 or $0.56
per share for the year ended June 30, 2000, compared to the net loss
approximating $997,000 or $0.09 per share for the seven months ended June 30,
1999.
The 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 increase 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
consultanting 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, 15% Subordinated Equity
Participation Agreement 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 for $273,400,
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and made a deposit of $637,500 for our second mobile PET system. We sold it
to a leasing company in late December 1999, as part of a five year lease
agreement, resulting in a financing lease 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 third mobile PET system. We purchased the trailer for $273,100 and sold
it to the leasing company, resulting in a financing lease for the coach and a
capital lease for the imaging system. We invested approximately $273,400 in
computers and 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.
SUBSEQUENT EVENT
On September 21, 2000, the Company entered into a Securities Purchase
Agreement. As part of the Agreement, the Company will issue thirty shares of 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. During
September 2000, the Company received the first tranche in the amount of
$985,000, net of acquisition fees.
21
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
MOBILE P.E.T. SYSTEMS, INC. AND SUBSIDIARIES
(FORMERLY COLONY INTERNATIONAL INCORPORATED)
FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
22
<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 19 and 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)
23
<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.
24
<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.
25
<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.
26
<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.
27
<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.
28
<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
29
<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
30
<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.
31
<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.
32
<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.
33
<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.
34
<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>
35
<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>
36
<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>
37
<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.
38
<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.
39
<PAGE>
SUPPLEMENTAL SCHEDULES
40
<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>
41
<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>
42
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
We have not had any disagreements with Peterson & Co., our independent
outside auditors, since inception. Peterson & Co. was the auditor of Mobile
Nevada prior to its acquisition by Colony Delaware, and has continued as our
auditor since the acquisition.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF EXCHANGE ACT
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 health care industry. Mr. Crowe has
served in sales, marketing and senior management positions for Ritter/Sybron
Corporation, Philips Medical Systems, Rohe Ultrasound and Diasonics MRI. From
1987 to 1991, Mr. Crowe served as President and Chief Executive Officer of
Paul J. Crowe & Associates, Inc., a company which developed and operated
diagnostic MRI imaging facilities and mobile MRI routes. Mr. Crowe is
currently President and CEO of NeuroTechnologies International, Inc., 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 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. While at American Shared
Hospital Services, Mr. Corlett developed and implemented a strategic marketing
and sales plan which contributed to approximately $40 million of revenues.
BRENT NELSON has served as a director since December 1998. Mr. Nelson
is the founder and managing director of Northwest Capital
43
<PAGE>
Partners L.L.C., a Bellevue, Washington-based venture capital firm that provides
capital to private and public companies. Mr. Nelson has over 15 years of
experience in corporate and project financing.
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 ("First United") 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 stockholders
and until their successors are elected. Officers are elected to serve, subject
to the discretion of the Board of Directors, until their successors are
appointed.
ITEM 10. EXECUTIVE COMPENSATION
Executive compensation is designed to provide incentives for those
senior members of management who bear responsibility for our goals and
achievements. Our compensation philosophy is based on a base salary, with
opportunity for significant bonuses to reward outstanding performance, and a
stock option program.
EXECUTIVE OFFICER COMPENSATION
The following table sets forth compensation information for services
rendered to the Company 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.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
--------------------------
Annual Compensation Long Term Compensation
-------------------------------------------- -------------------------------
Other Restricted Securities
Annual Stock Underlying All Other
Name and Position Year Salary Bonus Compensation Awards Options/SARs Compensation
$ $ $ $ # $
----------------------- ------------ -------------- ------------ ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Paul J. Crowe, CEO 6/30/00 179,167 25,000 7,200 500,000
6/30/99 100,000 - 1,800
Thomas G. Brown, CFO 6/30/00 110,000 - - 650,000
6/30/99 15,000 - -
Jim Gleeson 6/30/00 77,404 - 32,160 50,000
Vice President 6/30/99 - - -
</TABLE>
Other Compensation includes auto allowance for Paul Crowe and for Jim Gleeson
($7,800) and Commission advance draws.
The following table sets forth the options granted, if any, to the persons
named in the "Summary Compensation Table" during the Company's fiscal year ended
June 30, 2000.
44
<PAGE>
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
(INCLUDES OPTIONS REPRICED IN LAST FISCAL YEAR)
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
Number of Percent of Total Potential Realizable Value at
Securities Options/SARs Assumed Annual Rates of Stock
Underlying Granted to Exercise or Price Appreciation for Option Term
Options/SARS Employees in Base Price Expiration ----------------------------------
Name Granted (#) Fiscal Year (%) ($/Sh) 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 the Company's stock at $3.375 on June 30,
2000 appreciating by 5% and 10%, respectively, compounded over the remaining 3
years of the option term, less the cost of exercise.
Options were granted to the above people at the respective dates following
herein: Paul J. Crowe 4/1/99 and 6/21/00; Thomas G. Brown 4/1/99, 4/1/99 and
2/15/00; and Jim Gleeson 6/22/99. All options are fully vested.
We did not issue any options to the persons named in the "Summary
Compensation Table" in the period July 1, 2000 through September 17, 2000.
The following table sets forth information concerning the exercise of stock
options by each person named in the "Summary Compensation Table" during the
Company's fiscal year ended June 30, 2000 and the value of all exercisable and
unexercisable options at June 30, 2000.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Shares
Acquired Number of Securities Underlying Value of Unexercised
On Value Unexercised Options at FY-end In-The-Money Options
Exercise Realized (#) at FY-end ($) (1)
------------------------------------ --------------------------------------
Name ($) ($) 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>
(1) Based on the closing price for the Company's Common Stock at the close of
market of June 30,2000. On June 30, 2000, the closing price of the Company's
common stock was $3.312. We discounted this closing price to 80% in calculating
the In-The-Money Values.
45
<PAGE>
We believe that the Company will only retain executives of caliber and
experience if they are offered competitive compensation packages. Because the
Company cannot afford to pay high cash salaries, the granting of options is a
critical component of the overall compensation paid to our officers. We believe
it is uncompetitive and a disincentive to set the exercise price of options at
unreasonable premiums over the market price of the shares on the date of grant.
Similarly, a decline in the price of the shares over a period when both the
Company's business operations and prospects are improving, and our executives
have made significant contributions, but which is not offset by a reduction in
the exercise price, is, we believe, unfair to those executives. A decline in our
share price results in an effective increase in the premium of the exercise
price over the market price which penalizes the executives, and is potentially
harmful to the Company if the executive then takes the view that their overall
compensation package is becoming uncompetitive. We will continue to review the
exercise prices and vesting dates of options granted to our employees and may
reprice and/or change vesting dates as we deem appropriate based on the
prevailing price of our shares and the Company's business operations and
prospects.
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 $200,000 per year, which
beginning in the calendar year 2000 is to be increased by 10% if the average
market price of our stock in December of the preceding year has increased by
at least 10% above the average market price of our stock in December of the
second preceding year. The Employment Agreement also provides that the Board
of Directors will review and evaluate Mr. Crowe's performance annually and
consider awarding him a discretionary bonus.
Thomas G. Brown is compensated for his service as our Chief
Financial Officer under a two-year non-exclusive Consulting Agreement dated
April 1, 1999. The Consulting Agreement requires that Mr. Brown devote as
much time to our company's affairs as is reasonably necessary, but he is not
required to spend more than two to three days per week on our premises. Under
the Consulting Agreement, Mr. Brown received a one-time grant of 100,000
shares of our Common Stock and an option to purchase 250,000 additional
shares of our Common Stock at an exercise price $2.50 per share. He also
receives a salary of $10,000 per month.
46
<PAGE>
On January 6, 1999, we entered into an Employment Agreement with Jim
Corlett, our Vice President for Mobile Operations. Upon executing the
Employment Agreement, Mr. Corlett received a signing bonus consisting of
100,000 shares of our Common Stock. The Employment Agreement also 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. The
exercise price of these options is $1.91 per share.
We entered into a Consulting Agreement dated January 29, 1999 with
Michael Baybak and Company, Inc., a California corporation ("Baybak"). The
Consulting Agreement provides that Baybak will provide major media consulting
services for us. The Consulting Agreement is for a period of fifteen (15)
months and provides for compensation in the form of an option to purchase
150,000 shares of our Common Stock at a exercise price of $2.50 per share.
The options expire on January 29, 2004.
We entered into a Consultancy Agreement with Dr. Piers Nicholas Plowman
dated September 9, 1999. The Consultancy Agreement provides that Dr. Plowman
will oversee our operations in London, England. The Consultancy Agreement ends
on December 31, 2000. Under the terms of the Consultancy Agreement, Dr. Plowman
may receive (i) 50,000 options to purchase our shares of Common Stock at an
exercise price of $3.00 per share; (ii) 25,000 options to purchase our shares of
Common Stock at an exercise price of $1.00 per share; (iii) the right to
subscribe for 10,000 shares of Common Stock at the trading price; (iv) the right
to subscribe for up to 130,000 shares of Common Stock at prices ranging from
$1.00 to $3.00 per share; and (v) a management fee equal to 5% of the net profit
of our operations in England.
DIRECTOR COMPENSATION
In April 1999, we granted each of our directors an option to purchase
100,000 shares of our Common Stock. In addition, our directors are reimbursed
for expenses actually incurred in connection with attending meetings of the
Board of Directors.
MEDICAL ADVISORY BOARD COMPENSATION
We compensate members of our Medical Advisory Board by granting them
options to acquire our Common Stock under our 1999 Stock Option Plan. Members of
the Medical Advisory Board typically receive 25,000 options to purchase our
Common Stock for their first year of service and 10,000 options to purchase our
Common Stock for each subsequent year of service. The exercise prices for
options issued to the Medical Advisory Board range between $2.76 to $3.50 per
share.
1999 STOCK OPTION PLAN
Our 1999 Stock Option Plan (the "1999 Plan") authorizes us to grant to
our directors, employees, consultants and advisors both incentive and
non-qualified stock options to purchase shares of our Common Stock. As of
September 30, 1999, our Board of Directors reserved 3,000,000 shares for
issuance under the 1999 Plan, of which 2,344,000 shares were subject to
outstanding options and 656,000 shares remained available for future grants. Our
Board of Directors or a committee appointed by the Board (the "Plan
Administrator") administers the 1999 Plan. The Plan Administrator selects the
recipients to whom options are granted and determines the number of shares to be
awarded. Options granted under the 1999 Plan are exercisable at a price
determined by the Plan Administrator at the time of the grant, but in no event
will the option price for any incentive stock option be lower than the fair
47
<PAGE>
market value for our Common Stock on the date of the grant. Options become
exercisable at such times and in such installments as the Plan Administrator
provides in the terms of each individual option agreement. In general, the Plan
Administrator is given broad discretion to issue options and to accept a wide
variety of consideration (including shares of Common Stock of the Company and
promissory notes) in payment for the exercise price of options. The 1999 Plan
was originally authorized by the Board of Directors and shareholders of Mobile
Nevada. Our Board of Directors adopted the 1999 Plan after the acquisition of
Mobile Nevada by Colony Delaware.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding
beneficial ownership of our Common Stock as of September 27, 2000, (a) by
each person who is known by us to own beneficially more than 5% of our Common
Stock, (b) by each of our directors, and (c) by all of our officers and
directors as a group. Each person's address is c/o Mobile P.E.T. Systems,
Inc., 2240 Shelter Island Drive, #205 San Diego, California 92106.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percentage of Class(1)
Beneficial Owner Beneficial Owner
<S> <C> <C>
Paul J. Crowe 5,900,000(2) 38.20
Brent Nelson 1,800,000(3) 11.96
Thomas G. Brown 650,000(4) 4.25
K. Ivan F. Gothner 396,000(5) 2.59
Jim Corlett 200,000(3) 1.33
Robert C. Bush 102,000(4) .68
All Executive Officers and 7,550,000(6) 45.89
Directors (6 persons)
</TABLE>
(1) Based on a total of 17,564,754 outstanding shares of Common Stock,
including 1,531,500 shares issuable upon the exercise of options and
warrants exercisable on or within 60 days of April 1, 2000, and
1,123,596 shares issuable upon the conversion of Series A Convertible
Preferred Stock.
(2) Includes 100,000 shares issuable upon the exercise of outstanding stock
options.
(3) Includes 650,000 shares issuable upon the exercise of outstanding stock
options.
(4) Includes 350,000 shares issuable upon the exercise of outstanding stock
options.
(5) Includes 356,000 shares issuable upon the conversion of outstanding
warrants.
(6) Includes 1,506,000 shares issuable upon the exercise of outstanding
options and the conversion of outstanding warrants.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Brent Nelson, a director of our company, is the President of Northwest
Capital Partners, LLC. On December 15, 1998, we entered into a Consulting
Agreement under which Northwest agreed to advise us financially and assist us in
arranging financing for our business operations. The Consulting Agreement has a
three-year term, and Northwest has a right of first refusal to consult with the
Company regarding financings throughout the duration of the Consulting
Agreement. The Consulting Agreement provides for payment of monthly consulting
fees to Northwest in the amount of $5,000 per month. Commencing in April of
1999, Northwest has waived payment of these monthly fees. The fee provision is
subject to extension for 36 months upon the closing of certain financing
transactions set forth in the Consulting Agreement. Pursuant to the Consulting
Agreement, in December 1998 Northwest was granted 1,200,000 shares of our Common
Stock in exchange for its services in arranging interim financing for us. These
shares were not assigned a specific value upon issuance because they were
considered a cost of raising capital, and were reported as a deduction from the
proceeds from the issuance of stock, rather than as an asset or expense. In
addition, Northwest will receive an additional
48
<PAGE>
1,000,000 shares of our common stock if our market capitalization reaches
$100,000,000 or more. These shares would be subject to registration concurrently
with our first public offering of stock after their issuance. Northwest's
obligations under the Consulting Agreement are subject to certain conditions to
be performed by us, including refraining from modifying our capital structure
without Northwest's prior written consent. In addition, the Consulting Agreement
provides that for three years after the date that our common stock commences
trading on the OTC Bulletin Board, if we desire to issue new shares of stock or
any of our officers or directors who hold 5% or more of our common stock
("Principal Stockholders") desire to transfer their shares of our stock to a
third party, we and the Principal Stockholders are required to first offer such
shares to us (if applicable), to Northwest, and then to the Principal
Stockholders. The Consulting Agreement also requires our officers and directors
and the Principal Stockholders to agree that for a period of twelve months after
our common stock commences trading on the OTC Bulletin Board, the Principal
Stockholders will not sell any of their shares of common stock without
Northwest's prior written consent, which will not be unreasonably withheld.
Finally, the Consulting Agreement provides that Northwest is entitled to
nominate a director for our board of directors for a period of five years.
In December of 1998, Northwest Capital Partners, LLC made a
non-interest bearing loan to us in the amount of $50,000. We repaid the loan in
January of 1999.
Paul J. Crowe, the CEO and a director of our company, is the Chairman,
a director and majority shareholder of the London Radiosurgical Centre Ltd.
Effective July 30, 1999, we loaned $137,319.09 to the London Radiosurgical
Centre pursuant to a Promissory Note dated September 1, 1999. The Promissory
Note provides that the unpaid principal balance on the loan bears interest at
the rate of 8% per year. The loan was due to be repaid on October 28, 1999. We
have extended the repayment date for the loan to March 31, 2001.
We have an 8% interest in a subordinated equity participation in London
Radiosurgical Centre Ltd. The subordinated equity participation is in the amount
of $200,000. The maximum investment of $2,500,000 will be returned to investors
from net income for distribution, after which investors will receive 60% of net
income for distribution. According to the terms of the participation agreement,
net income for distribution is equal to net income less equipment financing
payments, operating expenses, reserve capital and taxes.
Thomas G. Brown, the CFO and a director of our Company, is currently
employed as an investment banker by Wyndham Capital Corporation, which prepared
a Confidential Information Memorandum for our company in March 1999 at a cost to
us of $3,500. The purpose of the Confidential Information Memorandum was to
provide a broad range of information about our company and our industry. It was
not used in connection with the offer and sale of our securities to investors.
In May 1999, we issued 200,000 shares of our common stock to Northwest
Capital Partners, LLC as a result of the exercise of stock options granted to it
by Colony Delaware in December 1998. See "Recent Sales of Unregistered
Securities."
In December 1999, we entered into an oral agreement for a bridge loan
in the amount of $50,000 from Northwest Capital Partners, LLC. The loan is
non-interest bearing and is payable not later than six months from the date of
the agreement, December 20, 1999. We repaid the loan in April 2000.
49
<PAGE>
RELATED TRANSACTIONS
In November 1999, we entered into an agreement with Adirondack Capital,
LLC in connection with its role as a financial advisor to us. 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
shall expire on December 31, 2006 and shall have an exercise price of $2.00 per
share.
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, shall be issued a warrant to purchase 300,000 shares of our
Common Stock at a price of $3.00 per share.
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. The repayment date has been extended for 60 days.
50
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Listing of Exhibits
The following exhibits are included as part of this Form 10-KSB, except
those exhibits marked as having previously been filed with the Securities and
Exchange Commission and which are incorporated by reference to another
registration statement, report or document. References to the "Company" in this
Exhibit List mean Mobile PET Systems, Inc., a Delaware corporation.
<TABLE>
<CAPTION>
Exhibit No. Description Reference
----------- ----------- ---------
<S> <C> <C>
2.1 Acquisition Agreement between Colony International, Inc. and the Company (1)
2.2 Acquisition Agreement between American Coin and Stamp Ventures, Inc. and (1)
Colony International, Inc.
3.1 Certificate of Incorporation, as amended (2)
3.2 Amended and Restated Bylaws (1)
3.3 Certificate of Designation of Series A Convertible Preferred Stock (3)
3.4 Certificate of Designation of Series B Convertible Preferred Stock
10.1 Equipment Lease No. 4125 with Finova Capital Corporation; Addendum I to (1)
Equipment Lease No. 4125; Addendum Nos. One and Two to Lease Schedule No.
4125.01
10.2 Security Agreement with Finova Capital Corporation (1)
10.3 Common Stock Purchase Warrant with Finova Capital Corporation (1)
10.4 Continuing Personal Guaranty between Paul J. Crowe and Finova Capital (1)
Corporation
10.5 Collateral Assignment of Agreements by the Company to Finova Capital (1)
Corporation
10.6 Subordination Agreement with Finova Capital Corporation (1)
10.7 Office Space Lease Agreement between Shelter Cove Marina, Ltd./San Diego (1)
Unified Port District and the Company
10.8 Form of Positron Emission Tomography Mobile Services Agreement (1)
10.9 Promissory Note with The London Radiosurgical Centre, Ltd. (1)
10.10 Letter Agreement with The London Radiosurgical Centre, Ltd. (1)
10.11 Employment Agreement with Mr. Crowe (1)
10.12 Employment Agreement with Mr. Corlett, as amended (1)
10.13 Consulting Agreement with Mr. Brown (1)
10.14 Consulting Agreement with Northwest Capital Partners, LLC (1)
10.15 Consulting Agreement with Michael Baybak and Company, Inc. (1)
10.16 Consultancy Agreement with Dr. Piers Nicholas Plowman (1)
10.17 1999 Stock Option Plan (1)
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description Reference
----------- ----------- ---------
<S> <C> <C>
10.18 Securities Purchase Agreement with York LLC (4)
10.19 Sale/Leaseback Agreements with Finova Capital Corporation -- Lease Schedule (5)
No. 4125.01
10.20 Sale/Leaseback Agreements with Finova Capital Corporation -- Lease Schedule (4)
No. 4125.02; Addendum No. One to Lease Schedule No. 4125.02; Bill of Sale
for one Calumet Coach
10.21 Sale/Leaseback Agreements with Finova Capital Corporation -- Lease Schedule (5)
No. 4125.02A; Lease Schedule No. 4125.02B; Addendum No. One to Lease
Schedule No. 4125.02B
10.22 Sale/Leaseback Agreements with Finova Capital Corporation -- Amendment No. (6)
One to Lease Schedule No. 4125; 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
10.23 Sale/Leaseback Agreements with Finova Capital Corporation -- Addendum No. (7)
One to Lease Schedule No. 4125.03B
10.24 Master Hire Purchase Agreement between IGE Medical Services Limited and the (5)
Company
10.25 Office Space Lease Agreement between Shelter Cove Marina, Ltd. and the (7)
Company
10.26 Sales Office Sublease between Twenty-Five-Forty, LLC and the Company
10.27 Agreements between GE Healthcare Financial Services and the Company --
Master Masterline (coach); Master Leaseline (scanner)
10.28 Positron Emission Tomography Mobile Services Agreement between the Company
and Salem Hospital; First and Second Amendments
10.29 PET Imaging Services Agreement with Redwood Regional Medical Group;
Amendment
10.30 Purchase Agreement between York LLC and the Company dated September 21, 2000
10.31 Common Stock Purchase Warrant between York LLC and the Company dated
September 21, 2000
10.32 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 July 1, 2000
21 Subsidiaries of the Registrant (1)
27 Financial Data Schedule
</TABLE>
-----------------------------
(1) Previously filed as an Exhibit to the Company's Form 10SB filed
with the Securities and Exchange Commission on October 19, 1999.
(2) Previously filed as an Exhibit to the Company's Form 10SB,
Amendment No. 1, filed with the Securities and Exchange Commission
on February 9, 2000.
(3) Previously filed as an Exhibit to the Company's Form 10SB,
Amendment No. 2, filed with the Securities and Exchange Commission
on March 16, 2000.
(4) Previously filed as an Exhibit to the Company's Form 10-QSB,
Amendment No. 1, for the period ended December 31, 1999, filed
with the Securities and Exchange Commission on March 16, 2000.
52
<PAGE>
(5) Previously filed as an Exhibit to the Company's Form 10-QSB for
the period ended March 31, 2000, filed with the Securities and
Exchange Commission on May 22, 2000.
(6) Previously filed as an Exhibit to the Company's Form 10-QSB,
Amendment No. 3, for the period ended December 31, 1999, filed
with the Securities and Exchange Commission on May 31, 2000.
(7) Previously filed as an Exhibit to the Company's Form 10-QSB,
Amendment No. 1, for the period ended March 31, 2000, filed with
the Securities and Exchange Commission on May 31, 2000.
(b) REPORTS ON FORM 8-K
None.
53
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: October 11, 2000 MOBILE P.E.T. SYSTEMS, INC.
By: /s/ Paul J. Crowe
-------------------------
Paul J. Crowe, President
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Paul J. Crowe Chief Executive Officer and Director October 11, 2000
------------------------------------
Paul J. Crowe
/s/ Thomas G. Brown Chief Financial Officer and Director October 11, 2000
------------------------------------
Thomas G. Brown
/s/ Brent Nelson Director October 11, 2000
------------------------------------
Brent Nelson
/s/ Robert C. Bush Director October 11, 2000
------------------------------------
Robert C. Bush
/s/ K. Ivan F. Gothner Director October 11, 2000
------------------------------------
K. Ivan F. Gothner
</TABLE>
54
