SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-QSB
(MARK ONE)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
    Securities Exchange Act of 1934.

                  For the quarterly period ended March 31, 2001
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
    Securities Exchange Act of 1934.

                 For the transition period from ______ to _____

                         Commission File Number: 1097181

                            MOBILE PET SYSTEMS, INC.
        (Exact name of small business issuer as specified in its charter)


            Delaware                                    11-2787966
 (State or other jurisdiction of           (I.R.S. Employer Identification No.)
 Incorporation or Organization)


                     2150 WEST WASHINGTON STREET, SUITE 110
                           SAN DIEGO, CALIFORNIA 92110
               (Address of principal executive offices) (Zip Code)

                                 (619) 226-6738
              (Registrant's telephone number, including area code)

     Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
                                                                 Yes [X] No [ ]

     On May 11, 2001, there were 18,516,284 shares outstanding of the issuer's
common stock, par value $.0001 per share. Transitional Small Business Disclosure
Format (check one):                                              Yes [ ] No [X]





                            Exhibit Index on page 42

                                        1


<PAGE>



                    MOBILE PET SYSTEMS, INC. AND SUBSIDIARIES

                  For the quarterly period ended March 31, 2001

                                TABLE OF CONTENTS
                                                                        PAGE NO.

PART I  FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS (UNAUDITED)............................     3

           Accountant's Review Report..................................     3

           Consolidated Balance Sheets as of March 31, 2001 and 2000...     4

           Consolidated Statements of Operations for the three months
           and nine months ended March 31, 2001 and 2000...............     5

           Statement of Changes in Shareholders' Equity ...............     6

           Statements of Cash Flows for the three months and nine
           months ended March 31, 2001 and 2000........................     8

           Notes to Consolidated Financial Statements..................    10

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
        AND RESULTS OF OPERATION......................................     26


PART II  OTHER INFORMATION

ITEM 1     LEGAL PROCEEDINGS...........................................    38

ITEM 2.    CHANGES IN SECURITIES.......................................    38

ITEM 3     DEFAULTS UPON SENIOR SECURITIES.............................    38

ITEM 4     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.........    38

ITEM 5     OTHER INFORMATION...........................................    40

ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K............................    40

SIGNATURES.............................................................    41


                                        2


<PAGE>



                    MOBILE PET SYSTEMS, INC. AND SUBSIDIARIES
                  For the quarterly period ended March 31, 2001

                                     PART I
                              FINANCIAL INFORMATION

ITEM 1.   FINANCIAL STATEMENTS (UNAUDITED)

                           ACCOUNTANTS' REVIEW REPORT


TO THE BOARD OF DIRECTORS OF
Mobile PET Systems, Inc.

We have  reviewed the  accompanying  consolidated  balance  sheets of Mobile PET
Systems,  Inc. and  subsidiaries  as of March 31, 2001 and 2000, and the related
consolidated  statements of  operations  and cash flows for the three months and
nine  months  then  ended,  in  accordance  with  Statements  on  Standards  for
Accounting  and Review  Services  issued by the American  Institute of Certified
Public  Accountants.  All information  included in these consolidated  financial
statements is the  representation of the management of Mobile PET Systems,  Inc.
and subsidiaries.

A review consists  principally of inquiries of Company  personnel and analytical
procedures  applied to financial data. It is substantially less in scope than an
audit in accordance with generally accepted auditing standards, the objective of
which is the  expression  of an opinion  regarding  the  consolidated  financial
statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material  modifications that should
be made to the accompanying  consolidated financial statements in order for them
to be in conformity with generally accepted accounting principles.


                                              /s/ PETERSON & CO.
                                             -----------------------------------
                                              PETERSON & CO.

San Diego, California
May 8, 2001, except for note 15,
as to which the date is May 21, 2001

                                        3



<PAGE>
                     MOBILE PET SYSTEMS, INC. AND SUBSIDIARIES
                              Consolidated Balance Sheets
                                March 31, 2001 and 2000
<TABLE>
<CAPTION>
                                                                                            2001           2000
                                                                                          ----------      ---------
                                        ASSETS
<S>                                                                                      <C>            <C>
Current assets
 Cash                                                                                    $     2,091    $ 2,854,795
 Accounts receivable, net of allowance for doubtful accounts
   of $129,320 and $54,400 at March 31, 2001 and 2000, respectively                        2,225,351        386,725
 Due from London Radiosurgical Centre, Ltd.                                                        -        328,654
 Other receivables                                                                            43,437              -
 Prepaid expenses                                                                            191,329         84,420
 Deposits and other assets                                                                   842,616      1,354,274
                                                                                          ----------      ---------
   Total current assets                                                                    3,304,824      5,008,868

Property and equipment, net                                                               18,033,487      4,438,397

Other assets
 Accrued interest receivable                                                                  10,573         35,559
 Due from London Radiosurgical Centre, Ltd.                                                  422,991              -
 Subordinated equity participation                                                           200,000        200,000
 Restricted cash                                                                             341,780        217,860
                                                                                          ----------      ---------
   Total assets                                                                          $22,313,655    $ 9,900,684
                                                                                         ===========    ===========
                 LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY
Current liabilities
 Bank overdraft                                                                             $ 34,440    $         -
 Accounts payable                                                                          3,157,056        314,901
 Current portion of long term debt                                                            22,711              -
 Income taxes payable                                                                            800            800
 Accrued liabilities                                                                         216,457         34,298
 Due to London Radiosurgical Centre, Ltd.                                                    170,622              -
 Other liabilities                                                                           250,000              -
 Notes payable - related party                                                             1,225,000         50,000
 Obligations under capital lease - current                                                 3,693,640        625,166
                                                                                          ----------      ---------
   Total current liabilities                                                               8,770,726      1,025,165

Noncurrent liabilities
 Obligations under capital lease                                                          14,861,981      3,548,390
 Long term debt, net of current portion                                                       86,042              -
 Deferred revenue                                                                                  -         13,420
                                                                                          ----------      ---------
   Total liabilities                                                                      23,718,749      4,586,975

Shareholders' equity
 Preferred stock; $0.001 par value; 10,000,000 shares authorized:
   Preferred stock;  Series A; 39 and 0 shares issued and
     outstanding at March 31, 2001 and 2000, respectively                                  1,975,000      3,000,000
   Preferred stock; Series B; 30 and 0 shares issued and
     outstanding at March 31, 2001 and 2000, respectively                                  1,500,000              -
 Common stock; $0.0001 par value; 90,000,000 shares
   authorized; 17,716,284 and 14,909,658 shares issued and
     outstanding at March 31, 2001 and 2000, respectively                                      1,772          1,491
 Additional paid in capital                                                               11,015,202      7,195,075
 Accumulated deficit                                                                     (15,855,384)    (4,885,213)
 Foreign currency translation adjustment                                                     (41,684)         2,356
                                                                                          ----------      ---------
   Total shareholders' (deficit) equity                                                   (1,405,094)     5,313,709
                                                                                          ----------      ---------
     Total liabilities and shareholders' equity                                          $22,313,655    $ 9,900,684
                                                                                         ===========    ===========
</TABLE>
             See accompanying notes and accountants' review report.

                                  4
<PAGE>

                 MOBILE PET SYSTEMS, INC. AND SUBSIDIARIES
                      Consolidated Statements of Operations
<TABLE>
<CAPTION>
                                                                      Three Months Ended             Nine Months Ended
                                                                           March 31,                     March 31,
                                                                     2001            2000           2001           2000
<S>                                                                <C>            <C>            <C>            <C>
Service revenues                                                   $ 2,308,196    $   326,850    $ 4,267,864    $   623,770
  Cost of service revenues                                             849,179        351,765      3,197,830        584,337
                                                                   -----------    -----------    -----------    -----------
     Gross profit (loss)                                             1,459,017        (24,915)     1,070,034         39,433

Expenses
  General and administrative                                         2,549,216      1,456,506      7,201,594      2,892,569
                                                                   -----------    -----------    -----------    -----------

        Total expenses                                               2,549,216      1,456,506      7,201,594      2,892,569
                                                                   -----------    -----------    -----------    -----------

Loss from operations                                                (1,090,199)    (1,481,421)    (6,131,560)    (2,853,136)

Other income (expense)
  Interest income                                                        4,058         46,165         29,047         55,493
  Other income (expense)                                                20,199              -         15,437              -
  Interest expense                                                    (891,274)      (138,951)    (1,326,541)      (262,106)
                                                                   -----------    -----------    -----------    -----------
     Total other income (expense)                                     (867,017)       (92,786)    (1,282,057)      (206,613)
                                                                   -----------    -----------    -----------    -----------

Loss before provision for income taxes                              (1,957,216)    (1,574,207)    (7,413,617)    (3,059,749)

Provision for income taxes                                               5,897              -          5,897          1,600
                                                                   -----------    -----------    -----------    -----------
Net loss                                                            (1,963,113)    (1,574,207)    (7,419,514)    (3,061,349)

Preferred stock dividend                                                29,000      1,205,647        683,481      1,205,647
                                                                   -----------    -----------    -----------    -----------
Net loss - available to common shareholders                        $(1,992,113)   $(2,779,854)   $(8,102,995)   $(4,266,996)
                                                                   ===========    ===========    ===========    ===========

Loss per share - basic                                             $     (0.12)   $     (0.20)   $     (0.52)   $     (0.31)
                                                                   ===========    ===========    ===========    ===========
Loss per share - diluted                                           $     (0.12)   $     (0.20)   $     (0.52)   $     (0.31)
                                                                   ===========    ===========    ===========    ===========
</TABLE>
             See accompanying notes and accountants' review report.






                                  5

<PAGE>
                 MOBILE PET SYSTEMS, INC. AND SUBSIDIARIES
          Consolidated Statements of Changes in Shareholders' Equity
<TABLE>
<CAPTION>                                                                                                    Foreign
                                    Preferred Stock         Common Stock         Additional                  Currency     Total
                                 ------------------- --------------------------    Paid In     Accumulated Translation Shareholders'
                                 Shares    Amount       Shares        Amount       Capital       Deficit    Adjustment    Equity
                                 ------  ----------- ------------   -----------  ------------  ----------- -----------  ------------
<S>                                  <C> <C>          <C>           <C>         <C>           <C>           <C>        <C>
Balance - June 30, 1999               -  $         -  12,844,658    $   1,285   $ 4,545,99    $ (1,823,864) $       -  $  2,723,419

  Common stock issued from
    subscriptions paid, net
    of offering costs                                    515,000           51      284,949                                  285,000
  Net loss - July 1, 1999 to
    December 31, 1999                                                                           (1,487,142)         -    (1,487,142)
  Foreign currency translation
    adjustment                                                                                                 (3,450)       (3,450)
                                 ------  ----------- ------------   -----------  ------------  ----------- -----------  ------------
Balance - December 31, 1999,
  as originally reported              -            -  13,359,658        1,336     4,830,947     (3,311,006)    (3,450)    1,517,827

  Common stock issued in
    private placement,
    net of offering costs                              1,550,000          155     2,664,128                               2,664,283
  Preferred stock issued in
    private placement,
    net of offering costs            60    3,000,000                               (300,000)                              2,700,000
  Net loss - January 1, 2000
    to March 31, 2000                                                                           (1,574,207)         -    (1,574,207)
  Foreign currency translation
    adjustment                                                                                                  5,806         5,806
                                 ------  ----------- ------------   -----------  ------------  ----------- -----------  ------------
Balance - March 31, 2000             60    3,000,000  14,909,658        1,491     7,195,075     (4,885,213)     2,356     5,313,709

  Common stock issued for
    services                                              35,000            4       109,371                                 109,375
  Options issued as compensation                                                  1,276,442              -                1,276,442
  Net loss - April 1, 2000 to
    June 30, 2000                                                                               (3,530,558)         -    (3,530,558)
  Foreign currency translation
    adjustment                                                                                                (44,754)      (44,754)
                                 ------  ----------- ------------   -----------  ------------  ----------- -----------  ------------
Balance - June 30, 2000              60    3,000,000  14,944,658        1,495     8,580,888     (8,415,771)   (42,398)    3,124,214
</TABLE>











                                  6


<PAGE>
                 MOBILE PET SYSTEMS, INC. AND SUBSIDIARIES
     Consolidated Statements of Changes in Shareholders' Equity (Continued)
<TABLE>
<CAPTION>                                                                                                    Foreign
                                    Preferred Stock         Common Stock         Additional                  Currency     Total
                                 ------------------- --------------------------    Paid In     Accumulated Translation Shareholders'
                                 Shares    Amount       Shares        Amount       Capital       Deficit    Adjustment    Equity
                                 ------  ----------- ------------   -----------  ------------  ----------- -----------  ------------
<S>                                  <C> <C>          <C>           <C>         <C>           <C>           <C>        <C>

  Preferred stock issued in
    private placement,
    net of offering costs            30    1,500,000                               (115,000)                              1,385,000
  Common stock issued through
    conversion of
    preferred stock                 (18)    (875,000)    719,736           72       874,928                                       -
  Common stock issued through
    conversion of
    preferred stock dividend                              47,778            4        20,095        (20,099)                       -
  Common stock issued from
    subscriptions paid,
    net of offering costs                                 25,000            3       547,497                                 547,500
  Options issued as compensation                                                    184,662              -                  184,662
  Net loss - July 1, 2000 to
    December 31, 2000                                                                           (5,456,401)         -    (5,456,401)
  Foreign currency translation
    adjustment                                                                                                103,671       103,671
                                 ------  ----------- ------------   -----------  ------------  ----------- -----------  ------------
Balance - December 31, 2000           72   3,625,000  15,737,172        1,574     10,093,070   (13,892,271)    61,273      (111,354)

  Common stock issued from
    subscriptions paid,
    net of offering costs                              1,590,584          159        324,841                                325,000
  Common stock issued through
    conversion of
    preferred stock dividend         (3)    (150,000)    388,528           39        149,961                                      -
  Options issued as compensation                                                     439,530                                439,530
  Convertible debt intrinsic
    beneficial conversion feature                                                      7,800                                  7,800
  Net loss - January 1, 2000 to
    March 31, 2001                                                                              (1,963,113)              (1,963,113)
  Foreign currency translation
    adjustment                                                                                               (102,957)     (102,957)
                                 ------  ----------- ------------   -----------  ------------  ----------- -----------  ------------
Balance - March 31, 2001             69  $ 3,475,000  17,716,284    $   1,712   $ 11,015,202  $(15,855,384) $ (41,684) $ (1,405,094)
                                 ======  =========== ============   ===========  ============  =========== =========== =============
</TABLE>










             See accompanying notes and accountants' review report.

                                  7


<PAGE>
                  MOBILE PET SYSTEMS, INC. AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
                                                              Three Months Ended          Nine Months Ended
                                                                   March 31,                  March 31,
                                                              2001          2000         2001          2000
                                                           -----------   -----------  -----------   -----------
<S>                                                        <C>           <C>          <C>           <C>
Cash flows from operating activities
  Net loss                                                 $(1,963,113)  $(1,574,207) $(7,419,514)  $(3,061,349)
  Adjustments to reconcile net loss to net
  cash provided by (used in) operating activities
     Prior period adjustment                                         -       (40,311)           -             -
     Depreciation                                              741,586        72,043    1,583,108       230,487
     Interest                                                    7,800             -        7,800             -
     Options issued for compensation                           439,530             -      624,192             -
  (Increase) decrease in operating assets
     Accounts receivable                                    (1,417,224)     (140,500)  (1,752,618)     (386,725)
     Due from London Radiosurgical Center, Ltd.                 63,332       (72,630)     182,731      (298,683)
     Other receivables                                          (7,824)            -      264,725             -
     Prepaid expenses                                         (166,526)       13,330       50,433       (66,430)
     Deposits and other assets                                 (23,008)     (917,843)     474,348      (802,982)
     Restricted cash                                            (4,057)     (112,634)     (12,300)       34,512
     Deferred assets                                                 -             -      (12,714)            -
     Accrued interest receivable                                             (35,559)      32,384       (35,559)
Increase (decrease) in operating liabilities
     Accounts payable                                        1,271,016        89,570    2,518,557       233,033
     Other liabilities                                         250,000             -            -             -
     Deferred revenue                                                -          (707)           -        13,420
     Accrued liabilities                                       (38,629)      (49,353)    (259,396)      (54,452)
                                                           ------------  ------------ ------------  ------------

        Net cash used in operating activities                 (847,117)   (2,768,801)  (3,718,264)   (4,194,728)

Cash flows from investing activities
  Capital expenditures                                          (5,915)     (229,573)    (162,966)     (897,924)
  Proceeds from sale of equipment                                    -       273,148            -       552,539
                                                           ------------  ------------ ------------  ------------

        Net cash provided by (used in) investing activities     (5,915)       43,575     (162,966)     (345,385)

Cash flows from financing activities
  Cash overdraft                                                 9,506             -       34,440             -
  Proceeds from (repayment on) loan                            925,000       (56,834)   1,333,753        50,000
  Payments on obligations under capital lease                 (304,125)      (71,213)    (583,106)      (83,078)
  Preferred stock issued                                             -     2,700,000    1,385,000     2,700,000
  Common stock issued                                          325,000     2,664,283    1,122,500     2,949,283
                                                           ------------  ------------ ------------  ------------

        Net cash provided by financing activities              955,381     5,236,236    3,292,587     5,616,205

Effect of exchange rate changes in cash                       (102,957)        5,691       69,701        (5,687)
                                                           ------------  ------------ ------------  ------------

Net increase (decrease) in cash                                   (608)    2,516,701     (518,942)    1,070,405

Cash - beginning of period                                       2,699       338,094      521,033     1,784,390
                                                           ------------  ------------ ------------  ------------

Cash - end of period                                       $     2,091   $ 2,854,795  $     2,091   $ 2,854,795
                                                          ============  ============ ============  ============

</TABLE>
                                  8


<PAGE>

                  MOBILE PET SYSTEMS, INC. AND SUBSIDIARIES
                Consolidated Statements of Cash Flows (Continued)

<TABLE>
<CAPTION>

                                                              Three Months Ended          Nine Months Ended
                                                                   March 31,                  March 31,
                                                              2001          2000         2001          2000
                                                           -----------   -----------  -----------   -----------
<S>                                                        <C>           <C>          <C>           <C>
Supplemental disclosures
  Interest paid                                            $   872,104   $    84,344  $ 1,299,963   $   211,302
                                                           ============  ============ ============  ============
  Income taxes paid                                        $     5,897   $         -  $     5,897   $     1,600
                                                           ============  ============ ============  ============

Noncash investing and financing activities
  Equipment under capital lease                            $         -   $ 3,206,539  $13,330,927   $ 4,835,929
                                                           ============  ============ ============  ============
  Preferred stock dividend - beneficial conversion feature $         -   $ 1,205,647  $         -   $ 1,205,647
                                                           ============  ============ ============  ============
  Obligations under capital lease                          $         -   $ 3,206,539  $13,330,927   $ 4,835,929
                                                           ============  ============ ============  ============
</TABLE>






























             See accompanying notes and accountants' review report.

                                  9


<PAGE>



                   MOBILE PET SYSTEMS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - THE COMPANY
--------------------

      Mobile PET Systems,  Inc. and subsidiaries  (the "Company") were organized
      to provide Positron  Emission  Tomography  ("PET") systems and services to
      hospitals and other health care providers on a mobile,  shared user basis.
      The  Company's  PET  services  include the  provision  of high  technology
      imaging  systems,  technologists  to  operate  the  imaging  systems,  the
      management of day-to-day operations and educational and marketing support.
      The Company has operations in the United States and the United Kingdom.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      Basis of Presentation

      The consolidated  financial statements include the accounts of the Company
      and  its  wholly  owned   subsidiaries.   All   significant   intercompany
      transactions have been eliminated in consolidation.

      Cash and Cash

      Equivalents  The Company  considers  all highly  liquid  debt  instruments
      purchased  with a  maturity  of three  months  or less to be cash and cash
      equivalents.

      Property, Equipment and Leasehold Improvements

      Property  and  equipment  are  recorded  at  cost  less  depreciation  and
      amortization.  Depreciation  and  amortization  are  accounted  for on the
      straight-line  method based on estimated useful lives. The amortization of
      leasehold  improvements  is based on the  shorter of the lease term or the
      life of the improvement.  Betterments and large renewals, which extend the
      life of an asset,  are capitalized;  whereas,  maintenance and repairs and
      small renewals are expensed as incurred.

      Foreign Currency Translation

      The  financial  statements  of all foreign  subsidiaries  were prepared in
      their  respective  local currencies and translated into U.S. dollars based
      on the  current  exchange  rate at the end of the period  for the  balance
      sheet  and a  weighted-average  rate for the  period on the  statement  of
      operations.  Translation  adjustments  are  reflected as foreign  currency
      translation  adjustments in  shareholders'  equity and accordingly have no
      effect on net loss.  Transaction  adjustments for all foreign subsidiaries
      are included in the statements of operation.

                                        10


<PAGE>



NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
----------------------------------------------------
      Estimates

      The  preparation  of financial  statements  in conformity  with  generally
      accepted  accounting  principles requires management to make estimates and
      assumptions  that affect the reported  amounts of assets and  liabilities,
      and  disclosure of contingent  assets and  liabilities  at the date of the
      financial  statements,  and the  reported  amounts of revenue and expenses
      during the  reporting  period.  Actual  results  could  differ  from those
      estimates.

      Income Taxes

      The  Company  accounts  for income  taxes  under  Statement  of  Financial
      Accounting   Standards  No.  109,  "Accounting  for  Income  Taxes."  This
      statement  requires an asset and liability  approach to account for income
      taxes.   The  Company   provides   deferred  income  taxes  for  temporary
      differences  that will result in taxable or  deductible  amounts in future
      years based on the  reporting of certain  costs in  different  periods for
      financial and income tax purposes.

      Stock Option Plans

      The  Company  has  adopted  SFAS  No.  123,  "Accounting  for  Stock-Based
      Compensation,"  which  permits  entities to  recognize as expense over the
      vesting  period  the fair value of all  stock-based  awards on the date of
      grant.  Alternatively,  SFAS No. 123 also  allows  entities to continue to
      apply the provisions of APB Opinion No. 25,  "Accounting  for Stock Issued
      to Employees," and provide pro forma net income and pro forma earnings per
      share   disclosures   for  employee   stock   option   grants  as  if  the
      fair-value-based  method  defined  in SFAS No. 123 has been  applied.  The
      Company  has  elected to apply the  provisions  of APB  Opinion No. 25 and
      provide the pro forma disclosure provisions of SFAS No. 123.

NOTE 3 - ACQUISITIONS
---------------------

      Colony International Incorporated (formerly American Coin and Stamp, Inc.)
      was  incorporated  in the State of  Delaware  on August  21,  1985 and its
      wholly  owned   subsidiary,   Colony   International   Incorporated,   was
      incorporated in the State of Nevada on April 25, 1995. Mobile PET Systems,
      Inc.  was  incorporated  in the State of Nevada on  December  1, 1998.  On
      December 22, 1998, Mobile PET 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.  This  exchange of
      shares was accounted for as a reverse merger, under the purchase method of
      accounting.  Accordingly,  the combination of the Mobile PET Systems, Inc.
      and Colony  International  Incorporated  and  subsidiary was recorded as a
      recapitalization  of  the  shareholders'   equity.   Colony  International
      Incorporated subsequently changed its name to Mobile PET Systems, Inc.


                                       11

<PAGE>



NOTE 3 - ACQUISITIONS  (CONTINUED)
---------------------

      On December 10, 1999, the Company  incorporated a wholly owned subsidiary,
      The London PET Centre Limited  ("LPC"),  a United Kingdom  private limited
      company.  LPC was organized to provide PET services in the United Kingdom.
      On  December  17,  1999,  the  Company   incorporated   two  wholly  owned
      subsidiaries, Mobile PET Leasing Limited, a United Kingdom private limited
      company and Mobile PET Systems  (UK)  Limited,  a United  Kingdom  private
      limited company. Mobile PET Leasing Limited was organized to provide lease
      financing to LPC. Mobile PET Systems (UK) Limited is currently inactive.

      On March 15, 2001,  the Company  incorporated  a wholly owned  subsidiary,
      Radiodiagnostics  Corporation,  a  Nevada  corporation.   Radiodiagnostics
      Corporation is currently inactive.

NOTE 4 - PROPERTY AND EQUIPMENT
-------------------------------

      Property  and  equipment  at  March  31,  2001  and  2000  consist  of the
      following:

                                                           March 31,
                                               ----------------------------
                                                     2001           2000
                                               --------------- ------------

          Automobile                           $         --    $     8,026
          Computer equipment                        462,467        152,885
          Office furniture and fixtures              43,572         18,092
          Office equipment                           41,113          7,092
          Equipment                              19,531,880      4,468,360
                                               ------------    -----------
                                                 20,079,032      4,654,455
           Less accumulated depreciation         (2,045,545)      (216,058)
                                               ------------    -----------
                                               $ 18,033,487    $ 4,438,397
                                               ============    ===========

      Depreciation  expense for the three and nine  months  ended March 31, 2001
      was  $741,586  and  $1,583,108,  respectively  and for the  three and nine
      months ended March 31, 2000 was $72,043 and $230,487, respectively.

NOTE 5 - CAPITALIZATION
-----------------------

      Preferred Stock and Warrants

      On January 8, 2000,  the Company  authorized  the  issuance of ten million
      (10,000,000) shares of preferred stock having $0.0001 par value per share.
      On March 3, 2000,  the  Company  designated  sixty (60) shares of Series A
      Convertible  Preferred Stock ("Series A Stock"). On such date, pursuant to
      a Security Purchase Agreement with York, LLC ("York"),  the Company issued
      all  sixty  (60)  shares  of  Series  A Stock  for cash in the  amount  of
      $2,700,000,  net of  acquisition  fees.  In addition,  under this Security
      Purchase  Agreement the Company issued warrants to purchase 120,000 shares
      of common stock at an exercise  price of $5.00 per share,  which expire in
      March 2003. York is an affiliate of Southridge Capital  Management,  Inc.,
      the Company's financial advisor.

                                       12


<PAGE>



NOTE 5 - CAPITALIZATION (CONTINUED)
-----------------------

      The shares of 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  holders  of the  Series  A Stock do not  participate  in
      dividends  paid on the common stock.  The total  liquidation  value of the
      Series A Stock  outstanding  at March 31, 2001 and 2000 is $1,975,000  and
      $3,000,000, respectively, and is classified on the Company's balance sheet
      as  preferred  stock.  Cumulative  preferred  dividends  are payable  upon
      conversion, and at March 31, 2001 there are cumulative preferred dividends
      in arrears in the amount of $210,901 or $5,339 per share.  In the event of
      any liquidation,  dissolution or winding up of the affairs of the Company,
      holders of the Series A Stock shall be paid the liquidation value plus all
      accrued  dividends at that date before any payment to other  shareholders,
      but do not  participate in liquidations  payable on the common shares.  At
      the option of the holders, the Series A Stock and the cumulative preferred
      dividends  in  arrears  are  convertible   into  shares  of  common  stock
      determined by dividing $50,000 by the conversion price then in effect. The
      conversion price is subject to adjustment for certain dilutive events. The
      initial  conversion price is 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. To the extent the Company does
      not convert or is unable to issue shares of common  stock,  the holder may
      redeem the Series A Stock for cash in an amount equal to the fair value of
      the shares of common stock that would have been converted.  The sixty (60)
      shares of  Preferred  Stock that were  issued have an  intrinsic  value of
      beneficial conversion feature of approximately  $1,206,000. On October 30,
      2000, November 14, 2000, December 7, 2000, and March 19, 2001, the holders
      converted  seven (7)  shares,  four and one half (4 1/2)  shares,  six (6)
      shares,  and three (3)  shares,  respectively,  of  Preferred  Stock  into
      1,108,264 shares of common stock.

      On September 21, 2000, the Company designated thirty (30) shares of Series
      B Convertible  Preferred Stock ("Series B Stock").  On such date, pursuant
      to a Security  Purchase  Agreement  with York,  LLC ("York"),  the Company
      issued all thirty (30) shares for cash in the amount of $1,385,000, net of
      acquisition fees. In addition,  under this Security Purchase Agreement the
      Company  issued  warrants to purchase  50,000 shares of common stock at an
      exercise  price of $3 per share and warrants to purchase  29,851 shares of
      common  stock at an  exercise  price of $2.5125  per share.  The  warrants
      expire on September 30, 2005.

      The shares of Series B Stock  have no voting  rights,  have a  liquidation
      value of  $50,000  per  share,  and  accrue  dividends  at a rate of eight
      percent  (8%) per annum per share on the  liquidation  value  payable upon
      conversion.  The  holders  of the  Series  B Stock do not  participate  in
      dividends  paid on the common stock.  The total  liquidation  value of the
      Series  B  Stock  outstanding  at  March  31,  2001 is  $1,500,000  and is
      classified on the Company's  balance sheet as preferred stock.  Cumulative
      preferred  dividends  are payable  upon  conversion  and at March 31, 2001
      there are  cumulative  preferred  dividends  in  arrears  in the amount of
      $55,000 or $1,833 per share. In the event of any liquidation,  dissolution

                                       13


<PAGE>



NOTE 5 - CAPITALIZATION (CONTINUED)
------------------------

      or winding up of the affairs of the Company, holders of the Series B Stock
      shall be  paid,  pari  passu  with  holders  of the  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, but do not participate in liquidations payable on the common
      shares.  At the  option  of the  holders,  the  Series  B  Stock  and  the
      cumulative  preferred  dividends in arrears are convertible into shares of
      common stock  determined by dividing  $50,000 by the conversion price then
      in effect.  The  conversion  price is subject to  adjustment  for  certain
      dilutive events.  The initial  conversion price is 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. To the extent
      the Company does not convert or is unable to issue shares of common stock,
      the holder  may  redeem the Series B Stock for cash in an amount  equal to
      the fair  value of the  shares  of  common  stock  that  would  have  been
      converted.  The thirty  (30)  shares of  Preferred  Stock  issued  have an
      intrinsic  value  of  beneficial   conversion   feature  of  approximately
      $414,580.

      Common Stock

      The Company has  authorized  the issuance of ninety  million  (90,000,000)
      shares of common stock, having $0.0001 par value per share. On December 1,
      1998,  the  Company  had  10,328,395  shares of common  stock  issued  and
      outstanding.  Prior to December 22, 1998,  the Company  effected a 50 to 1
      reverse  stock  split,   leaving  206,759  shares  (after  adjustment  for
      fractional shares). Immediately after the reverse stock split, the Company
      issued 3,937,899 shares for cash in the amount of $98,446. On December 22,
      1998, the Company entered into a reverse  merger,  which was recorded as a
      recapitalization  of  shareholders'  equity and issued 7,000,000 shares of
      the Company's  common stock in exchange for 7,000,000 shares of the common
      stock of Mobile PET Systems, Inc., a Nevada corporation,  and subsequently
      changed its name to Mobile PET Systems,  Inc.  Subsequent  to December 22,
      1998, the Company  issued common stock in non-cash and cash  transactions.
      Shares of common stock  issued in non-cash  transactions  include  200,000
      shares in connection with employment valued at $250,000;  35,000 shares in
      connection with services valued at $109,375;  1,108,264  shares  converted
      from  shares of Series A Stock  valued at  $1,025,000;  and 47,778  shares
      converted from cumulative preferred dividends valued at $20,099. Shares of
      common stock issued in cash transactions include 1,525,000 shares from the
      exercise  of stock  options  for cash in the  amount  of  $1,847,500;  and
      3,655,584 shares for cash in the amount of $4,846,284.

      Stock Options

      In December 1998, the Board of Directors  authorized the issuance of stock
      options to purchase 1,500,000 shares of common stock at a price from $1.00
      to $1.50 per share.  The options were  exercised  prior to March 31, 2000.
      The Company did not recognize any compensation expense on these options.

      The Company and  subsidiaries'  Boards of Directors adopted the 1999 Stock
      Option Plan  pursuant to which  incentive  stock  options or  nonstatutory
      stock  options to purchase up to  8,000,000  shares of common stock may be
      granted to employees, directors and consultants. During the three and nine
      months ended March 31, 2001 the Company recognized  $439,530 and $624,192,
      respectively, as compensation expense from the issuance of options. During
      the three and nine  months  ended  March 31,  2000,  the  Company  did not
      recognize any compensation expense.

                                       14


<PAGE>



NOTE 5 - CAPITALIZATION (CONTINUED)
-----------------------

      As of March 31, 2001, options to purchase 5,193,750 shares of common stock
      are outstanding.  Such options expire between June 2002 and 2004, and vest
      over  service  periods that range from zero to four years.  The  following
      table summarizes the grant, exercise and cancellation of options under the
      1999 Stock Option Plan.  Additional stock option awards are anticipated in
      future years:

<TABLE>
<CAPTION>
                               Exercise Price
                                  of Options              Number of             Vested
                                   Granted                   Shares              Shares
                              ------------------      ------------------      ------------
<S>                                 <C>                      <C>                 <C>
            Outstanding,
                  March 31, 2000    $1.00 - $5.31            3,668,500           1,599,000
                  Granted           $2.00 - $3.31
                                                             2,319,500           1,048,000
                  Exercised                                         --                  --
                  Cancelled                                         --                  --
                                                              --------           ---------
            Outstanding, June 30, 2000                       5,988,000           2,647,000
                  Granted           $2.50 - $3.25
                                                               400,000               7,500
                  Exercised                                         --                  --
                  Cancelled         $1.00 - $5.31           (1,530,000)            (55,000)
                                                            ----------             -------
            Outstanding, September 30, 2000                  4,858,000           2,599,500
                  Granted           $1.26 - $2.99
                                                               354,500             365,000
                  Exercised                                         --                  --
                  Cancelled         $1.00 - $5.31             (220,000)                 --
                                                              --------             --------
            Outstanding, December 31, 2000                   4,992,500           2,964,500
                  Granted           $1.26 - $2.99
                                                               201,250             311,501
                  Exercised                                         --                  --
                  Cancelled                                         --                  --
                                                              --------            --------
            Outstanding, March 31, 2000                      5,193,750           3,276,001
                                                             =========           =========
</TABLE>

                                       15


<PAGE>



NOTE 5 - CAPITALIZATION (CONTINUED)
-----------------------

      The Company  accounts for  stock-based  compensation  using the  intrinsic
      value method  prescribed  by Accounting  Principles  Board Opinion No. 25,
      "Accounting  for Stock Issued to Employees,"  under which no  compensation
      cost for stock options is recognized  for the stock option awards  granted
      at or above fair market value. Had compensation  expense for the Company's
      1999 Stock Option Plan been determined based upon fair values at the grant
      dates  for  awards  under  the  plan in  accordance  with  SFAS  No.  123,
      "Accounting for Stock-Based Compensation," the Company's net loss and loss
      per share would have been  increased  to the pro forma  amounts  indicated
      below. Additional stock option awards are anticipated in future years.

<TABLE>
<CAPTION>
                                                                      March 31,
                                                       --------------------------------
                                                          2001                 2000
                                                       -------------      -------------
<S>                                                     <C>                <C>
            Net loss
                  As reported                           $(7,419,514)       $(3,061,349)
                  Pro forma                              (8,862,546)        (4,867,277)
            Net loss - available to common shareholders
                  As reported                           $(8,102,995)       $(4,266,996)
                  Pro forma                              (9,456,027)        (6,072,924)
            Loss per share
                  As reported                           $     (0.52)       $     (0.31)
                  Pro forma                                   (0.61)             (0.45)
</TABLE>

      Warrants

      At March 31, 2001 warrants were outstanding for 2,181,351 shares of common
      stock at exercise  prices between (A) $0.50 to $5.00 per share and (B) the
      average of the last  reported  sale price of the common stock for the five
      trading days  preceding  the issue date.  These  warrants  expire  between
      January 2001 and September 2005.

NOTE 6 - RELATED PARTY TRANSACTIONS
-----------------------------------

      Subordinated Equity Participation

      During the nine months  ended March 31, 2001,  the Company  entered into a
      Memorandum of Agreement and retroactive to June 1, 1999 restructured 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  original  agreement  provided  for
      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  was to  receive  distributions  of 60% of net  income.
      According  to  the  terms  of  the  participation  agreement,  net  income
      available for distribution is equal to net income less equipment financing
      payments, operating expenses, reserve capital and taxes.

                                       16


<PAGE>



NOTE 6 - RELATED PARTY TRANSACTIONS (CONTINUED)
-----------------------------------

      The Memorandum of Agreement  provides for a distribution to the Company of
      8.42% of LRC's net distributable  cash flow, until a total of $210,573 has
      been distributed and then the  distribution of 5.05% of net  distributable
      cash flow, subject to future dilution. The Memorandum of Agreement stopped
      the accrual of interest at June 1, 1999. At the date of the  Memorandum of
      Agreement,  the  Company  canceled  $47,447 of accrued  interest  from the
      original investment. The balance of accrued interest on the investment was
      $10,573 at March 31, 2001. The related  shareholder,  officer and director
      personally guarantee the investment.

      Due from London Radiosurgical Centre

      Ltd The Company advanced to LRC without interest $708 during the three and
      nine month  periods  ended  March 31,  2001,  and  $72,631  and  $298,683,
      respectively,  during the three and  nine-month  periods  ended  March 31,
      2000.  At March 31, 2001 and 2000,  the balance due from LRC was  $422,991
      and  $328,654,  respectively.  A  shareholder  and  officer of the Company
      personally guarantee the advance.

      In addition,  LRC provides office space under normal  commercial  terms to
      the Company's  subsidiaries.  During the three and nine months ended March
      31, 2001, the Company charged LRC  approximately  $125,300 and $223,900 in
      administrative expenses and LRC made cash payments of $1,100 and $225,000.
      At March 31, 2001, there is a balance due to LRC of $170,622.

      Loan

      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.

      On August 23, 2000, the Company received an eight percent (8%) bridge loan
      from a shareholder in the amount of $200,000. On October 11, 2000 the loan
      was  renewed  with an eight  percent  (8%)  bridge  loan in the  amount of
      $200,000, due on or before December 11, 2000. The loan's due date has been
      extended to June 1, 2001. At March 31, 2001, there is a balance of accrued
      interest on this loan in the amount of $9,600.

      On October 24 2000, the Company received an eight percent (8%) bridge loan
      from an officer and  shareholder in the amount of $100,000,  which was due
      on or before  November 30, 2000. This loan's due date has been extended to
      June 1, 2001. At March 31, 2001, there is a balance of accrued interest on
      this loan in the amount of $3,463.

      On January 12,  2001,  the Company  received an eight  percent (8%) bridge
      loan from an officer and  shareholder  in the amount of $25,000.  The note
      had an original expiration date of March 12, 2001 and has been extended to
      June 1, 2001. At March 31, 2001, there is a balance of accrued interest on
      this loan in the amount of $427.

                                       17


<PAGE>



NOTE 6 - RELATED PARTY TRANSACTIONS (CONTINUED)
-----------------------------------

      On January 17,  2001,  the Company  received an eight  percent (8%) bridge
      loan from an officer and  shareholder in the amount of $150,000.  The note
      had an original expiration date of March 17, 2001 and has been extended to
      June 1, 2001. At March 31, 2001, there is a balance of accrued interest on
      this loan in the amount of $2,400.

      On February 5, 2001,  the Company  received an eight and one-half  percent
      (8.5%)  bridge loan from a shareholder  in the amount of $500,000.  At the
      option of the holder,  the principal and accrued  interest was convertible
      into shares of common  stock at a  conversion  price of $1 per share.  The
      option had a beneficial  conversion  feature in the amount of $7,800 which
      was recorded as debt  discount and amortized as interest  expense  through
      the date the option  expired.  The option  expired on March 22,  2001.  On
      March 20,  2001,  the Company  received an  additional  bridge loan in the
      amount of  $250,000,  cancelled  the note  dated  February  5, 2001 in the
      amount of $500,000, and issued a new convertible ten percent (10%) note in
      the amount of $750,000.  At the option of the holder,  the  principal  and
      accrued  interest  is  convertible  into  shares  of  common  stock  at  a
      conversion  price of $1.00 per share. The option did not have a beneficial
      conversion feature and expired on May 4, 2001. At March 31, 2001, there is
      a balance of accrued interest on this loan in the amount of $7,267.

NOTE 7 - SECURITIES PURCHASE AGREEMENT
--------------------------------------

      On  March  3,  2000,  the  Company  entered  into  a  Securities  Purchase
      Agreement, pursuant to which 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 warrants to purchase  120,000
      shares of common  stock at an  exercise  price of $5.00 per  share,  which
      expire in March 2003. The buyer of the preferred  stock 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.
      On December 7, 2000, the Company  received cash in the amount of $500,000,
      net of offering,  costs for the first tranche and on January 31, 2001, the
      Company  received cash in the amount of $325,000,  net of offering  costs,
      for the second  tranche  and issued  1,590,584  shares of common  stock on
      January 31, 2001 for the cash received from the first and second tranches.
      On March 13, 2001, the Company received cash in the amount of $250,000 for
      a third  tranche  notice;  however,  no shares of common  stock  have been
      issued and because of a suit filed in the  Superior  Court of the State of
      California on March 27, 2001,  the Company  recorded the $250,000 in other
      liabilities.

      On September  21,  2000,  the Company  entered into a Securities  Purchase
      Agreement,  pursuant to which the Company  issued thirty (30) shares of 8%
      Cumulative  Convertible  Redeemable  Preferred,  Series  B  Stock  in  two
      tranches for an aggregate  purchase  price of  $1,500,000  and warrants to
      purchase  50,000  shares of common  stock at an  exercise  price of $3 per
      share on the first  tranche  and  warrants to  purchase  29,851  shares of
      common  stock at an  exercise  price of  $2.5125  per share on the  second
      tranche. The warrants expire on September 30, 2005.

                                       18


<PAGE>



NOTE 7 - SECURITIES PURCHASE AGREEMENT (CONTINUED)
---------------------------------------

      On March 27, 2001,  the Company filed a suit in the Superior  Court of the
      State of  California  against  York,  LLC, an affiliate  of the  Company's
      investment advisor,  charging stock manipulation,  unfair trade practices,
      and  fraud  in the  inducement  to  enter  into  the  Securities  Purchase
      Agreements in connection with short selling of the Company's stock for the
      dual  purpose of pushing  stock  prices  down and  locking in profits  and
      converting  stock at a  favorable  price.  The  lawsuit was filed after an
      extensive  investigation,  which uncovered  similar lawsuits filed against
      the  defendant  In  response,  on April 13, 2001,  the  defendant  filed a
      complaint in Federal  Court  claiming  breach of the  Securities  Purchase
      Agreement.  On April 16, 2001,  the Company  received a notice to exercise
      the rights of redemption under the Security Purchase Agreements, demanding
      $4,996,160 in full redemption of the outstanding 8% Cumulative Convertible
      Redeemable  Preferred,  Series  A and  Series B Stock.  In  addition,  the
      Company received a demand for late registration penalties in the amount of
      $1,069,500, pursuant to the terms of the registration rights provisions of
      the March 3, 2000 Securities Purchase Agreement. Management of the Company
      believes the Security Purchase Agreement claimed to have been breached was
      the vehicle used to defraud the Company and shareholders. No liability has
      been  recorded  because  the  eventual  outcome  of  the  suit  cannot  be
      reasonably determined.

NOTE 8 - EMPLOYMENT AGREEMENTS
------------------------------

      The Company has employment and  compensation  agreements with key officers
      and  employees of the Company.  The  agreements  vary in terms and provide
      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 March 31, 2001, the Company has a net operating loss  carryforward  for
      tax purposes of approximately  $15,500,000  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.

                                       19


<PAGE>



NOTE 9 - INCOME TAXES (CONTINUED)
---------------------

      The components of the provision for income taxes for the nine months ended
      March 31, 2001 and 2000 are as follows:

                                                        March 31,
                                               -------------------------
                                                  2001              2000
                                               ------------ ------------
         Current
            Foreign                            $         -- $         --
            Federal                                      --           --
            State                                     5,897        1,600
                                               ------------ ------------
                                                      5,897        1,600
            Deferred
            Foreign                                      --           --
            Federal                                      --           --
            State                                        --           --
                                               ------------ ------------
                                                         --           --
                                               ------------ ------------
            Provision for income taxes         $      5,897 $      1,600
                                               ============ ============

The components of the net deferred tax assets were as follows:

                                                        March 31,
                                               ---------------------------
                                                     2001         2000
                                               ------------   ------------
         Deferred tax assets
            Start-up costs                     $    155,900   $   155,949

            Net operating loss carryforward       6,503,000       978,985
                                               ------------   ------------
                                                  6,658,900     1,134,934
                  Less valuation allowance       (6,658,900)   (1,134,934)
                                               ------------   ------------
         Net deferred tax assets               $         --   $        --
                                               ============   ============


                                       20


<PAGE>


NOTE 10 - LONG TERM DEBT
------------------------

      Long term debt at March 31, 2001 and 2000 consists of the following:

                                                     2001             2000
                                                -------------      ---------

      Promissory Note with interest at
      a rate of 11% per annum, due in
      monthly installments of $2,343,
      with the first payment beginning
      on January 1, 2001, with a
      variable 5% to 1% prepayment
      penalty.                                  $     108,753      $     --

      Less current portion                            (22,711)           --
                                                -------------      ---------


      Long term debt, net of current portion    $      86,042      $     --
                                                =============      =========

      No payments were made during the period January 1, 2001 to March 31, 2001.

      The  maturities  of long term debt for each of the  succeeding  five years
      subsequent to March 31, 2001, are as follows:

       Twelve Months Ending
             March 31,
      ---------------------
              2002                               $     22,711
              2003                                     19,613
              2004                                     21,869
              2005                                     24,413
              2006                                     20,147
                                                 ------------
                                                 $    108,753
                                                 =============

NOTE 11 - COMMITMENTS
---------------------

      Equipment  under  capital  lease is included in property and  equipment as
      follows:

                                                          March 31,
                                               ------------------------------
                                                    2001          2000
                                               ------------- ----------------

      Equipment                                $ 19,277,737   $  4,255,617

      Less accumulated amortization              (1,611,101)      (199,859)
                                               ------------    ------------

      Net capital lease assets                 $ 17,666,636   $  4,055,758
                                               ============   ============

                                       21


<PAGE>



NOTE 11 - COMMITMENTS (CONTINUED)
---------------------

      The Company leases office space under a  non-cancelable  operating  lease.
      The office lease expires in April 2005.  The Company  leases certain other
      Positron Emission Tomography equipment under capital leases. The equipment
      leases expire through January 2006.

      Rent expense for the three and nine months ended March 31, 2001 was $9,099
      and $56,708,  respectively,  and for the three and nine months ended March
      31, 2000 was $13,400 and $18,476, respectively.

      The following is a schedule by year of the future  minimum lease  payments
      at March 31, 2001:

      Twelve Months Ending            Capital     Operating
          March 31,                   Lease       Leases
      ------------------------------------------------------------
            2002                    $  5,890,061  $   39,530
            2003                       5,893,151      42,670
            2004                       5,893,151      46,050
            2005                       5,501,195      49,720
            2006                       2,530,376       4,195
            2007                         327,421          --
                                    ------------  ----------
                                      26,035,355  $  182,165
                                                  ==========
      Less amount representing

        interest at 12.07%            (7,479,734)
                                    ------------

      Present value of minimum lease
        payments (including current
        portion of $3,693,640)      $ 18,555,621
                                    ============

      The Company  entered into a Strategic  Partnership  Agreement  with the GE
      Medical Systems division of General Electric Company. Under its terms, the
      Company is  required  to lease over the next five years a minimum of 40 GE
      Advance PET NXi  Scanners  and a minimum of 5 PET Trace  Cyclotrons.  Each
      lease has a five-year  term. The present value of the total lease payments
      for each scanner over the term of the lease is $1,525,000, with a required
      annual  service  fee of  $135,000.  The  present  value of the total lease
      payments for each cyclotron over the term of the lease is $1,353,000, with
      a required annual service fee of $100,000. On March 5, 2001, GE Healthcare
      Financial Services, a division of General Electric Company, and GE Capital
      submitted a non-binding  commitment for financing up to $50 million of PET
      Scanners.  There are no  assurances  that the  Company  will  obtain  this
      financing.

NOTE 11 - CONCENTRATION OF CREDIT RISK
--------------------------------------

      The Company  maintains cash with various major  financial  institutions in
      excess of the Federal Deposit Insurance Corporation limits.

                                       22


<PAGE>



NOTE 12 - EARNINGS (LOSS) PER SHARE
-----------------------------------

      The  computations of basic and diluted  earnings per share from continuing
      operations  for the nine  months  ended  March  31,  2001 and 2000 were as
      follows:

                                                         March 31,
                                               --------------------------
                                                  2001              2000
                                               ----------       ----------
            Loss per share - basic

            Numerator:
                  Net loss - available to
                        common shareholders     $ (8,102,995)  $   (4,266,996)
            Denominator:
                  Weighted-average shares         15,693,489       13,568,694
                                                  ----------       ----------
            Loss per share - basic              $       (.52)  $         (.31)
                                                  ==========       ==========

            Loss per share - diluted

            Numerator:
                  Net loss - available to
                        common shareholders     $ (8,102,995)   $  (4,266,996)
             Denominator:
                  Weighted-average shares         15,693,489       13,568,694
                                                  ----------       ----------
            Loss per share - diluted            $       (.52)   $        (.31)
                                                  ==========       ==========

      The average  shares listed below were not included in the  computation  of
      diluted loss per share because to do so would have been  antidilutive  for
      the three and nine months ended March 31, 2001 and 2000:

                                                         March 31,
                                               --------------------------
                                                  2001              2000
                                               ----------       ----------


            Cumulative convertible
                  redeemable preferred stock
                  common stock equivalent        755,900            76,007
            Employee stock options             4,869,385         2,157,791
            Warrants                           1,156,547            97,038


                                       23


<PAGE>



NOTE 13 - DEPOSITS AND OTHER ASSETS
-----------------------------------

      Deposits and other assets  consist of the  following at March 31, 2001 and
      2000:

                                                  2001           2000
                                               ------------ ------------
         Equipment deposits -
            mobile PET units                   $    688,891 $  1,073,875
         Equipment rental deposits -
            other                                    49,000       49,000
         Lease deposits                              13,955      179,249
         Commitment fees and retainers               75,344
         Advance - Neuromed
            Medical Systems and
            Support, GmB                                 --       25,000
         Other                                       15,426       27,150
                                               ------------ ------------

                                               $    842,616 $  1,354,274
                                               ============ ============

      Equipment  deposits - Mobile  PET Units are  refundable  upon the  Company
      securing  lease  financing  or  carried  forward to  subsequent  equipment
      orders.

NOTE 14 - PRIOR QUARTER ADJUSTMENTS
-----------------------------------

      The March 31, 2000 financial  statements  have been restated to correct an
      error in the  application  of generally  accepted  accounting  principles.
      Certain leases previously  reported as operating leases have been recorded
      as capital leases in accordance with Financial  Accounting Standards Board
      Statement No. 13 - Accounting for Leases. The effect of the restatement is
      as follows:

               As of and
        for the nine months
      ended March 31, 2000                As previously reported     As restated
     ---------------------------------------------------------------------------

      Property and equipment, net               $     925,200     $   4,438,397
      Obligations under capital lease                 552,309         4,173,556
      Accumulated deficit                           4,777,163         4,885,213

      Net loss                                     (2,953,299)       (3,061,349)
      Net loss - available to
        common shareholders'                       (4,158,946)       (4,266,996)

      Loss per share - basic                             (.31)             (.31)
      Loss per share - diluted                           (.31)             (.31)


                                       24


<PAGE>



NOTE 15 - SUBSEQUENT EVENTS
---------------------------

      Common Stock and Warrants

      In April and May 2001,  the Company  issued 800,000 shares of common stock
      and warrants to purchase  160,000  shares of common stock with an exercise
      price of $0.50 per share, for cash in the amount of $400,000. The warrants
      expire in April and May 2003.  In  addition,  the  Company  received  paid
      subscriptions  in the amount of $810,000 to issue an additional  1,620,000
      shares of common stock and warrants to purchase  324,000  shares of common
      stock with an  exercise  price of $0.50 per  share.  The  warrants  are to
      expire in April and May, 2001.










































                                       25


<PAGE>



ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                        RESULTS OF OPERATIONS

OVERVIEW

      We are a provider and operator of Positron  Emission  Tomography,  or PET,
molecular  imaging  systems for hospitals  and other health care  providers on a
mobile,  shared user basis in selected  marketplaces  in the United  States.  We
provide  the PET  imaging  system  housed  in a mobile  coach or in a  dedicated
facility.  We also provide the technical personnel who operate the equipment and
implement the PET procedure under the direction of hospital physicians.  Our PET
services include the management of day-to-day  operations of the PET systems and
educational and marketing  support.  Our services enable leading  hospitals,  as
well as small to  mid-size  hospitals,  to gain  access to  advanced  diagnostic
imaging technology and related value-added services without making a substantial
investment in equipment and personal.

      We currently  provide our services to approximately 90 hospitals and other
health care providers in the United States, and our wholly-owned subsidiary, The
London PET Centre  Limited,  a United Kingdom  private  limited  company,  has a
dedicated  PET  facility  in  the  United  Kingdom.  We  believe  there  may  be
opportunities  for shared mobile PET services in the United  Kingdom and certain
European markets.

      We have measured the  financial  position and results of operations of our
United Kingdom subsidiaries using local currency as the functional currency.  We
have  translated our assets and  liabilities  into U.S.  dollars at the rates of
exchange as of the balance  sheet date.  We have  translated  our  statements of
operations  items using the average  exchange  rates  prevailing  throughout the
reporting  period. We have accumulated the translation gains or losses resulting
from the changes in the  exchange  rates from  quarter-to-quarter  in a separate
component of shareholders'  equity.  We have reflected the transaction gains and
losses in the cash flow as the effect of exchange rate changes on cash.

      Our  consolidated  revenues  for the three  months and nine months  ending
March 31, 2001 were  $2,308,196 and  $4,267,864,  respectively,  compared to the
three and nine  months of  operations  ended  March  31,  2000,  in which we had
revenues of $326,850 and  $623,770,  respectively.  During the nine months ended
March 31,  2001,  we emerged  from our  development  stage  period in the United
States  establishing the management and operating  infrastructure to provide PET
systems and services to hospitals  and other health care  providers on a mobile,
shared  user  basis.  The London PET Centre  Limited,  our wholly  owned  United
Kingdom  subsidiary,  emerged  from the  development  stage  late in the  fourth
quarter ended June 30, 2000.  Prior to that date,  our efforts were  principally
devoted to  organizational  activities,  marketing efforts and placing the first
fixed site PET system into service in London.

      We are  continuing  our efforts to develop and expand our  infrastructure,
capital and marketing,  and to put into service additional mobile and fixed site
PET systems.  We anticipate we will  continue to incur  additional  losses as we
pursue our development efforts.  Assuming we continue our unit deployment growth
and achieve  targeted unit revenues,  we believe cash flow will be sufficient to
cover our cost of services on a monthly basis in fiscal 2002.



                                       26
<PAGE>


      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 our relationships 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 an allowance for
uncollectable accounts receivable.

      The  principal  component of our  operating  costs  includes  salaries and
benefits paid to technologists and drivers, marketing, equipment leasing, system
maintenance, insurance and transportation costs. Because a majority of these are
fixed,  increased  revenues as a result of higher scan volumes may significantly
improve our future profitability potential,  while lower scan volumes may result
in lower profitability. There can be no assurance we will be able to maintain or
increase scan volumes.

      Since our inception, we have incurred significant losses and through March
31, 2001, we have incurred a consolidated net loss of $15,855,384. For the three
months and nine months ended March 31, 2001, we experienced a  consolidated  net
loss from operations of $1,963,113 and $7,419,514,  respectively,  compared to a
consolidated  net loss of  $1,574,207  and  $3,061,349  for the  three  and nine
months, respectively, ended March 31, 2000. We anticipate our losses during this
next quarter should decrease from current levels as we incorporate cost savings,
principally  through  reductions  in our  administrative  and  travel  expenses.
However,  we can give no  assurances  that our  efforts  will  have the  desired
effects.  As a result, in order to achieve and maintain  profitability,  we will
need to continue  to increase  revenues,  as well as continue  our cost  savings
plans.

      During the nine months ending March 31, 2001, we raised approximately $1.5
million  dollars of new equity capital  through the issuance of preferred  stock
and warrants to purchase common stock, as described in Note 7 above.

      FACTORS THAT MAY EFFECT FUTURE RESULTS

      The  discussion  and analysis of our  financial  condition  and results of
operations  should be read in conjunction with the financial  statements and the
related notes.  This quarterly  report of Form 10-QSB  contains  forward-looking
statements based upon current expectations that involve risks and uncertainties,
including those identified below. For this purpose,  any statements contained in
it  that  are  not   statements  of  historical   fact  should  be  regarded  as
forward-looking  statements  within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. For example,
the words  "believes,"  "anticipates,"  "plans,"  "intends,"  "will,"  "may" and
"expects,"  or any  variation  of these words  including  the  negative of these
words,  are  intended  to  identify  forward-looking  statements.   Readers  are
cautioned not to place undue reliance on any forward-looking statement contained
herein,  which speak only as of the date hereof.  We undertake no  obligation to
publicly release the result of any revisions to these forward-looking statements
that may be made to reflect events or circumstances  after the date hereof or to
reflect the occurrence of unexpected events.



                                       27
<PAGE>

We have lost money since  inception,  expect  future losses and may never become
profitable.

      Since  inception,  we have  incurred  significant  losses.  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  substantial  indebtedness  could  restrict our  operations and make us more
vulnerable to adverse economic conditions.

      We are a highly leveraged company and our substantial  indebtedness  could
have important consequences. For example, it could:

      - make  it  more  difficult  for  us to  satisfy  our  obligations  to our
        creditors;

      - require  us to  dedicate  a  substantial  portion  of our cash flow from
        operations  to  payments  on  our  indebtedness,  thereby  reducing  the
        availability  of  our  cash  flow  to  fund  working  capital,   capital
        expenditures and acquisitions and for other general corporate purposes;

      - increase  our  vulnerability  to  economic   downturns  and  competitive
        pressures in our industry;

      - increase our vulnerability to interest rate fluctuations because much of
        our debt is at variable interest rates;

      - place us at a competitive  disadvantage compared to our competitors that
        have less debt in relation to cash flow; and

      - limit our  flexibility  in planning for, or reacting to,  changes in our
        business and our industry.

We may be unable to generate or borrow  sufficient  cash to make payments on our
indebtedness or to refinance our indebtedness on acceptable terms.

      Our  ability  to make  payments  on our  indebtedness  will  depend on our
ability to  generate  cash flow in the future  which,  to a certain  extent,  is
subject to general economic, financial, competitive, legislative, regulatory and
other factors that are beyond our control.  In addition,  future  borrowings may
not  be  available  to us in an  amount  sufficient  to  enable  us to  pay  our
indebtedness  or to fund our  other  cash  needs.  We may not be able to  timely
service all of our indebtedness.

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
technologists  and  sales  and  marketing  personnel  to  increase  the  general
acceptance of PET services. Of all the factors affecting our profitability,  the
failure of PET services to achieve broad market  acceptance  may likely have the
greatest  negative  impact on our business,  financial  condition and results of
operations and our profitability.

                                       28
<PAGE>


If we do not become profitable, we may not be able to continue our operations.

      Our future  revenues  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 successfully market and sell PET services on a wide scale.

The issuance of shares under outstanding convertible preferred stock may depress
our stock.

Our Series A and B Convertible  Preferred Stock (the "Series A and B Stock ") is
convertible  into  shares of our  common  stock at  floating  rates  based  upon
formulas  tied to the market price of our common stock.  As such,  the lower our
stock price is at the time the shares of Series A and B Stock convert,  the more
shares of our common stock will have to be issued as a result of the conversion.
For  example,  if the market  price of our common stock were to fall by 50% from
present levels, the holders of Series A and B Stock would be entitled to convert
such stock for twice as many shares of our common stock as they would at today's
level.  The  conversion  of such stock when our  common  stock  price is low may
greatly increase the number of outstanding shares of our common stock, which may
cause our stock price to fall further. That, in turn, would allow the holders of
the Series A and B Stock to convert  their  remaining  shares into even  greater
amounts of our common stock.  The sale of such shares could yet further  depress
our stock price.  In addition,  downward  price  pressure  caused by the sale of
shares of our common stock issued on the  conversion of the Series A and B Stock
could  encourage  short  sales by the  holders  of the  Series A and B Stock and
others, placing yet more downward pressure on the price of our common stock.

We will need to obtain additional financing in the near future.

         Our capital requirements  associated with our expanding operations have
been and will continue to be substantial.  We will require additional  financing
to execute our business  plan. No assurance can be given that we will be able to
obtain additional  financing when needed, or that, if available,  such financing
will be on terms  acceptable to us. In any such financing,  the interests of our
existing security holders could be substantially  diluted. If adequate funds are
either not  available  or not  available  on  acceptable  terms,  our  business,
revenues,  financial  condition  and results of operations  would suffer.  If we
raise additional funds through the issuance of equity or convertible securities,
the percentage  ownership of our stockholders will be reduced.  Moreover,  these
securities may have powers,  preferences  and rights that are senior to those of
the rights of our common stock.

The litigation we are involved in could have a materially adverse affect on us.

      As described in Item 1 of Part II below,  we are  currently  being sued in
two lawsuits. While we are in the process of attempting to settle these actions,
there can be no assurance that we will reach a favorable  settlement.  Should we
not reach a favorable  settlement or should a judgment be entered  against us in
any of these  lawsuits,  we could  experience a material  adverse  affect on our
financial condition and operations.


                                       29
<PAGE>


We depend on a small  number of  suppliers,  the loss of which  could  adversely
affect our business.

      We purchase the PET system from a limited  group of  qualified  suppliers.
Siemens Medical Systems,  Inc. has approximately 75% of the market share for PET
systems worldwide.  In 2000, GE Medical Systems introduced its first PET scanner
that  can  be  operated  on  a  mobile  configuration.  While  we  believe  that
alternative  suppliers  could  be  found  for the PET  system,  there  can be no
assurance  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 expand  our  revenues  and,  thereby  adversely  affect 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 affect 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  affect 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  technologically  or economically  obsolete,  or cause a reduction in the
value of, or reduce the need for, PET systems.  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.


                                       30
<PAGE>


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.

If our client  contracts are not renewed or are terminated  early,  our business
and financial results would be harmed.

      Upon expiration of our clients contracts,  we are subject to the risk that
clients  will cease using our PET  systems  and  purchase or lease their own PET
systems,  use  our  competitors'  PET  systems  or  rely  on  alternate  imaging
technologies.  Approximately six percent of our client contracts expire in 2001,
seven percent in 2002,  twenty-two  percent in 2003,  seventeen percent in 2004,
thirty-eight percent in 2005 and ten percent in 2006. Moreover, one-third of our
client contracts permit the client, upon typically 180 days notice, to terminate
the contract  "without cause," and two-thirds of our client contracts permit the
client,  upon typically 180 days notice, to terminate the contract if the client
obtains a fixed site for a PET system.  In addition,  a portion of our contracts
do not have minimum usage requirements.

Complying with federal and state regulations is an expensive and  time-consuming
process, and any failure to comply could result in substantial penalties.

      We are, directly or indirectly  through our clients,  subject to extensive
regulation by both the federal government and the states in which we conduct our
business. The laws that directly or indirectly affect our ability to operate our
business include the following:

      - the federal  Medicare and Medicaid  Anti-Kickback  Law, which  prohibits
        persons from soliciting,  receiving or providing remuneration,  directly
        or  indirectly,  to induce  either the  referral  of an  individual,  or
        furnishing or arranging for a good or service,  for which payment may be
        made under federal healthcare programs such as the Medicare and Medicaid
        programs;

      - the federal False Claims Act, which imposes civil and criminal liability
        on  individuals  and entities who submit false or fraudulent  claims for
        payment to the government;

      - the federal Health Insurance Portability and Accountability Act of 1996,
        which  prohibits  executing a scheme to defraud any  healthcare  benefit
        program, including private payors;

      - the federal False  Statements  Statute,  which  prohibits  knowingly and
        willfully  falsifying,  concealing  or  covering  up a material  fact or
        making any materially false statement in connection with the delivery of
        or payment for healthcare benefits, items or services;


                                       31
<PAGE>


      - the federal physician  self-referral  prohibition  commonly known as the
        Stark Law which, in the absence of a statutory or regulatory  exception,
        prohibits the referral of Medicare  patients by a physician to an entity
        for the provision of certain  designated health services,  including MRI
        and  other  imaging  services,  if  the  physician  or a  member  of the
        physician's  immediate  family  has  an  ownership  interest  in,  or  a
        compensation arrangement with, the entity;

      - state law equivalents of the foregoing;

      - state laws that prohibit the practice of medicine by non-physicians  and
        fee-splitting arrangements between physicians and non-physicians; and

      - federal and state laws governing the diagnostic imaging equipment we use
        in  our  business   concerning  patient  safety,   equipment   operating
        specifications and radiation exposure levels.

      If our  operations  are  found  to be in  violation  of  any  of the  laws
described in this risk factor or the other governmental  regulations to which we
or our  clients  are  subject,  we  may be  subject  to the  applicable  penalty
associated with the violation,  including civil and criminal penalties, damages,
fines and the curtailment of our operations.  Any penalties,  damages,  fines or
curtailment of our operations  would adversely affect our ability to operate our
business and our financial results.  The risk of our being found in violation of
these  laws is  increased  by the fact  that  many of them  have not been  fully
interpreted by the regulatory authorities or the courts and their provisions are
open to a variety of  interpretations.  Any action  against us for  violation of
these laws, even if we  successfully  defend against it, could cause us to incur
significant  legal  expenses  and divert  our  management's  attention  from the
operation of our business.

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 sales persons,  technologists  and other
personnel.  It is  impossible  to predict the  availability  of qualified  sales
persons and  technologists or the  compensation  levels that will be required to
hire  them.  In   particular,   there  is  a  very  high  demand  for  qualified
technologists  who are  necessary to operate our systems.  We may not be able to
hire and retain a sufficient number of technologists,  and we may be required to
pay bonuses and higher salaries to our  technologists,  which would increase our
expenses. The loss of the services of any member of our senior management or our
inability  to  hire  qualified  sales  persons  and  skilled   technologists  at
economically  reasonable  compensation levels could adversely affect our ability
to operate and grow our business.

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


                                       32
<PAGE>


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.  In addition,  the  hospital  industry  has been  experiencing  a trend
towards  consolidation,  which trend will reduce our potential customer base and
increase competition for available customers.

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.

Our PET service requires the use of radioactive  materials,  which could subject
us to  regulation,  related  costs and  delays  and  potential  liabilities  for
injuries or violations of environmental, health and safety laws.

      Our PET service  involves  the  controlled  storage,  use and  disposal of
material  containing  radioactive  isotopes.  While  this  material  has a short
half-life,  meaning  it  quickly  breaks  down into  inert,  or  non-radioactive
substances,  using these materials presents the risk of accidental environmental
contamination  and physical injury.  We are subject to federal,  state and local
regulations  governing the use, storage,  handling and disposal of materials and
waste products.  Although we believe that our safety procedures for handling and
disposing of these hazardous  materials comply with the standards  prescribed by
law and  regulation,  we  cannot  completely  eliminate  the risk of  accidental
contamination  or injury  from  those  hazardous  materials.  In the event of an
accident, we could be held liable for any damages that result, and any liability
could exceed the limits or fall outside the  coverage of our  insurance.  We may
not be able to maintain insurance on acceptable terms, or at all. We could incur
significant  costs and the diversion of our  management's  attention in order to
comply  with  current  or  future  environmental,  health  and  safety  laws and
regulations.

There is uncertainty  relating to third party reimbursement which is critical to
market acceptance of our services.

      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


                                       33
<PAGE>


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
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,  in the
past,  initiatives have been proposed which, if implemented,  would have had the
effect of substantially  decreasing  reimbursement  rates for diagnostic imaging
services.  We cannot guarantee that similar  initiatives will not be proposed or
adopted  in  the  future.   Any  change  in  the  rates  of  or  conditions  for
reimbursement  could  substantially  reduce the number of  procedures  for which
these healthcare providers can obtain reimbursement or the amounts reimbursed to
our  clients for  services  provided by us.  Because  unfavorable  reimbursement
policies have constricted,  and may continue to constrict, the profit margins of
the hospitals and clinics we bill directly, we have lowered, and may continue to
need to lower,  our fees to retain existing  clients and attract new ones. These
reductions could have a significant adverse effect on our revenues and financial
results by  decreasing  demand for our  services  or creating  downward  pricing
pressure.

The impact of recently  promulgated  federal  regulations  could have a negative
impact on the attractiveness of our services to our clients.

      Recently  promulgated federal regulations affect the ability of a Medicare
provider  such as a hospital to include a service or facility as  provider-based
for purposes of Medicare reimbursement.  Historically, provider-based status has
allowed a provider to obtain more favorable Medicare  reimbursement for services
like the ones we provide.  While the Medicare,  Medicaid and SCHIP  Benefits and
Improvement  Act of  2000  offers  some  relief  for  facilities  recognized  as
provider-based  on October 1, 2000,  under  these new  regulations,  some of our
clients may have difficulty  qualifying our services for provider-based  status.
If a client  cannot  obtain  provider-based  status for our  services,  then the
provider  might  decide not to contract  or to  continue to contract  with us or
might acquire a fixed base PET system.

The application or repeal of state  certificate of need  regulations  could harm
our business and financial results.

      Some states require a certificate of need or similar  regulatory  approval
prior to the  acquisition  of  high-cost  capital  items,  including  diagnostic
imaging  systems,  or  provision  of  diagnostic  imaging  services by us or our
clients.  While  currently  only one of the thirteen  states in which we operate
require  a  certificate  of  need,  more  states  may  adopt  similar  licensing
requirements  in  the  future.   In  many  cases,  a  limited  number  of  these
certificates  are  available  in a given  state.  If we are unable to obtain the
applicable  certificate  or approval or  additional  certificates  or  approvals
necessary to expand our operations,  these regulations may limit or preclude our
operations in the relevant  jurisdictions.  Conversely,  states in which we have
obtained or will obtain a certificate of need may repeal existing certificate of
need regulations or liberalize  exemptions from the  regulations.  The repeal of
certificate  of  need  regulations  in  states  in  which  we  have  obtained  a
certificate of need or a certificate  of need exemption  would lower barriers to
entry for competition in those states and could adversely affect our business.


                                       34
<PAGE>


If we fail to comply with various  licensing,  certification  and  accreditation
standards,   we  may  be  subject  to  loss  of  licensing,   certification   or
accreditation which would adversely affect our operations.

      All  of  the  states  in  which  we  operate   require  that  the  imaging
technologists  that  operate  our  systems  be  licensed  or  certified.  In the
healthcare  industry,  various  types of  organizations  are  accredited to meet
certain Medicare certification  requirements,  expedite third-party payment, and
fulfill state  licensure  requirements.  Some managed care  providers  prefer to
contract with accredited organizations.  There can be no assurances that we will
be able to obtain accreditation with the applicable organizations.  Any lapse in
our licenses,  certifications or accreditations,  or those of our technologists,
could  increase our costs and  adversely  affect our  operations  and  financial
results.

Our revenues may fluctuate or be  unpredictable  and this may harm our financial
results.

      The amount and timing of  revenues  that we may derive  from our  business
will fluctuate based on, among other variables:

      - variations in the rate at which clients renew their contracts; and

      - changes in the number of days of service we can offer with  respect to a
        given  system due to  equipment  malfunctions  or the  seasonal  factors
        discussed below.

      In addition,  we experience  seasonality in the sale of our services.  For
example, our sales typically decline from our third fiscal quarter to our fourth
fiscal quarter. First and fourth quarter revenues are typically lower than those
from the second and third quarters.  First quarter revenue is affected primarily
by fewer  calendar  days and inclement  weather,  the results of which are fewer
patient scans during the period. Fourth quarter revenue is affected primarily by
holiday and client and patient  vacation  schedules and inclement  weather,  the
results of which are fewer patient  scans during the period.  We may not be able
to reduce our expenses,  including our debt service obligations,  quickly enough
to respond to these declines in revenue, which would make our business difficult
to operate and would harm our financial results.  In addition,  we may be unable
to adjust our  expenditures if revenues in a particular  period fail to meet our
expectations, which would harm our operating results for that period.

Managed  care  organizations  may prevent  healthcare  providers  from using our
services which would cause us to lose current and prospective clients.

      Healthcare  providers  participating as providers under managed care plans
may be required to refer  diagnostic  imaging tests to specific  imaging service
providers depending on the plan in which each covered patient is enrolled. These
requirements  currently inhibit  healthcare  providers from using our diagnostic
imaging services in some cases. The proliferation of managed care may prevent an
increasing number of healthcare  providers from using our services in the future
which would cause our revenues to decline.


                                       35
<PAGE>


We may be unable to  effectively  maintain our systems or generate  revenue when
our systems are not working.

      Timely,  effective  service is essential to maintaining our reputation and
high utilization rates on our systems. Repairs to one of our systems can take up
to two weeks and result in a loss of revenue.  Our  warranties  and  maintenance
contracts  do not fully  compensate  us for loss of revenue when our systems are
not  working.   The  principal   components  of  our  operating   costs  include
depreciation,   salaries  paid  to  technologists  and  drivers,  annual  system
maintenance costs,  insurance and transportation  costs. Because the majority of
these  expenses are fixed,  a reduction in the number of scans  performed due to
out-of-service  equipment will result in lower revenues and margins.  Repairs of
our equipment are  performed  for us by the equipment  manufacturers.  We cannot
guarantee  that these  manufacturers  will be able to perform  repairs or supply
needed parts in a timely manner. Thus, if we experience greater than anticipated
system malfunctions or if we are unable to promptly obtain the service necessary
to keep our systems functioning effectively,  our revenues could decline and our
ability to provide services would be harmed.

We have a limited operating history.

      We have a limited operating  history.  Our prospects must be considered in
light  of  the  risks,   uncertainty,   expenses  and  difficulties   frequently
encountered by new companies,  particularly in new and rapidly  evolving markets
such as those for the services we provide.

We maintain cash with various banks in excess of federally insured limits.

      The Federal Deposit Insurance  Corporation ("FDIC") insures deposits up to
$100,000 in virtually all United States banks and savings  associations.  In the
event an FDIC-insured  bank fails and depositors lose their money, the FDIC pays
depositors up to $100,000 of the money lost. Although our funds are deposited in
accounts with  FDIC-insured  banks, the amounts of cash in these accounts exceed
federally  insured  limits.  In the event of a failure of one of our banks where
our funds were lost,  we could only  recover from the FDIC up to $100,000 of the
funds lost. The loss of the excess funds could have a material adverse effect on
our business.

RESULTS OF OPERATIONS

       During the period ended  December  31,  1999,  we placed our first mobile
unit into operation,  which generated  revenues and incurred  operating costs in
addition to those related to establishing  the initial  management and operating
infrastructure  to provide PET systems and services for health care providers on
a mobile, shared user basis.

      For the three months and nine months  ended March 31,  2001,  our net loss
from operations was $1,090,199 and $6,131,560, respectively, compared to our net
loss from operations of $1,481,421 and $2,853,136,  respectively,  for the three
and nine  months  ended  March  31,  2000.  Our net  loss  available  to  common
shareholders,  after  preferred stock  dividend,  was  $1,992,113,  or $0.12 per
share,  for the three months and  $8,102,995,  or $0.52 per share,  for the nine
months ended March 31, 2001,  compared to the net loss of  $2,779,854,  or $0.20
per share,  for the three  months and the net loss of  $4,266,996,  or $0.31 per
share, for the nine months ended March 31, 2000.


                                       36
<PAGE>


      We took  delivery  on our first  PET unit in July 1999 and began  accruing
revenues in August  1999.  For the three  months and nine months ended March 31,
2001, we had twelve units accepted and placed into service,  generating revenues
of $2,308,196 and  $4,267,864,  respectively,  and incurring cost of services of
$849,179  and  $3,197,830,  respectively,  compared to $326,850  and $623,770 in
revenues  and  $351,765  and $584,337 in cost of services for the three and nine
months,  respectively,  ended March 31, 2000.  This  substantial  difference  in
revenues and costs is largely  attributable to the number of units which were in
service during the applicable periods. As a result of these activities, accounts
receivables increased to $2,225,351, net of allowances for doubtful accounts, as
of March 31,  2001,  as compared to accounts  receivables  of  $386,725,  net of
allowances  for doubtful  accounts,  as of March 31, 2000.  The costs of service
revenues   represent   salaries  paid  to  technologists  and  drivers,   system
maintenance, transportation and insurance on our mobile PET systems.

      General and  administrative  expenses for the three months and nine months
ended March 31, 2001 were $2,549,216 and $7,201,594,  respectively,  as compared
to  $1,456,506  for the three  months and  $2,892,569  for the nine months ended
March 31, 2000. We incurred  increased general and  administrative  expenses due
primarily to the growth in staff as payroll expenses increased from $304,635 and
$932,870 for the three and nine months ended March 30,  2000,  respectively,  to
$790,609 and $2,572,477, respectively, for the three and nine months ended March
31,  2001.   Depreciation   expense   increased   from  $72,043  and   $230,487,
respectively, for the three and nine months ended March 31, 2000 to $741,586 and
$1,583,108,  respectively,  for the three and nine  months  ended March 31, 2001
mainly due to the  increase in mobile PET units  employed to twelve at March 31,
2001  compared to our one unit at March 31, 2000.  In  addition,  we continue to
incur costs in building our  infrastructure  and incur costs in connection  with
advertising and marketing our mobile PET services.

      Our interest  income was $4,058 and $29,047,  respectively,  for the three
and nine months  ended  March 31,  2001,  as  compared  to $46,165 and  $55,493,
respectively,  for the three and nine months ended March 31, 2000. The reduction
in interest  was caused by the  reduction of cash in money market and other bank
accounts  from  $2,854,795  to $2,091.  Our  interest  expense of  $891,274  and
$1,326,541, respectively, for the three and nine months ended March 31, 2001, as
compared to the interest expense of $138,951 and $262,106, respectively, for the
three  and  nine  months  ended  March  31,  2000,  was  principally  due to the
capitalization  of our equipment leases of image scanners,  coaches and computer
equipment.

LIQUIDITY AND CAPITAL RESOURCES

      At March  31,  2001,  our  total  assets  were  $22,313,655,  compared  to
$9,900,684  at March 31,  2000.  Our current  assets at March 31,  2001  totaled
$3,304,824 and our current liabilities were $8,770,726, as compared to March 31,
2000,  that reflected  current  assets of $5,008,868 and current  liabilities of
$1,025,165.  Shareholders'  equity at March 31, 2001  decreased to  $(1,405,094)
from  $5,313,709,  due  primarily  to the  issuance  of 20  shares  of  Series B
Convertible  Preferred  Stock and warrants for $885,000,  net of issuance costs,
stock  subscriptions  of $547,500 and a net loss of  $1,963,113  and  $7,419,514
incurred in the three and nine months,  respectively,  ended March 31, 2001.  In
the comparable three and nine months ended March 31, 2000,  shareholders' equity
was primarily the result of 51 shares of common stock issued from  subscriptions
paid in the amount of  $285,000,  net of  offering  costs,  and a three and nine
months net loss of $1,574,207 and $3,061,349, respectively.


                                       37
<PAGE>


      Our  foreign  currency  translation  adjustment  in  shareholders'  equity
amounted to $(41,684) at March 31, 2001 compared to $2,356 at March 31, 2000. We
have reflected the  transaction  gains and losses in the cash flow as the effect
of exchange  rate  changes on cash of  $(102,957)  and $69,701 for the three and
nine months ended March 31, 2001,  compared to $5,691 and $(5,687) for the 3 and
9 months ended March 31, 2000.

      Our net cash used in  investing  activities  for the three and nine months
ended March 31, 2001 was  $(5,915)  and  $(162,966),  as compared to $43,575 and
$(345,385) in the three and nine months ended March 31, 2000. This difference is
primarily  a result  of the  $162,966  we  invested  in  computers  and  related
equipment for our business and personnel growth.

       In July 1999,  we  purchased a coach for  $273,400  and made a deposit of
$637,500 for our second mobile PET system.  We sold them to a leasing company in
late  December  1999,  as part of a five year lease  agreement,  resulting  in a
financing  lease for the  coach  and the  imaging  system,  consistent  with the
capitalization  of our  mobile  system  equipment  leases.  In August  2000,  we
accepted and entered into two financing leases, approximating $3 million for the
coach and the imaging  system,  as part of a five-year  lease  agreement  with a
leasing company for our fourth and fifth mobile PET systems.

      On December 19, 2000, we entered into a three-year  Strategic  Partnership
Agreement  with the GE Medical  Systems  division of General  Electric  Company.
Under its terms,  we are  required  to lease a minimum of 40 GE Advance  PET NXi
Scanners  and a minimum of 5 PET trace  Cyclotrons.  Each lease has a  five-year
term.  The total lease  payments  for each scanner over the term of the lease is
$1,525,000,  with a required  annual  service fee of  $135,000.  The total lease
payments for each  cyclotron  over the term of the lease is  $1,353,000,  with a
required  annual  service  fee of  $100,000.  On March 5,  2001,  GE  Healthcare
Financial  Services,  a division  of General  Electric  Company,  and GE Capital
submitted to us a non-binding  commitment for financing up to $50 million of PET
Scanners. We can give no assurances that we will obtain this financing.

      The net cash provided by our financing  activities  for the three and nine
months  ended  March 31,  2001 was  $955,381  and  $3,292,587,  a result of: the
private  placement and issuance of 20 shares of Series B  Convertible  Preferred
Stock and warrants for  $885,000,  net of issuance  costs;  the proceeds  from a
$300,000 bridge financing;  an equipment loan of $108,753;  payments of $304,125
and $583,106 on  obligations  under capital leases for the three and nine months
ended  March 31,  2001,  compared  to $71,213 and $83,078 for the three and nine
months ended March 31, 2000; and the issuance of 515,000 shares of common stock,
net of issuing costs.

PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

      On March 27, 2001,  we filed suit in the  Superior  Court for the State of
California   (San   Diego)   charging   Southridge   Capital   Management,   LLC
("Southridge"),  Thomson Kernaghan and other defendants with stock manipulation,
unfair trade  practices and fraud in the  inducement  in  connection  with short
selling of our common  stock for the dual  purpose  of pushing  the stock  price


                                       38
<PAGE>


down,  locking  in  profits  and  converting  the  stock at a  favorable  price.
Southridge has served as our financial advisor and investment  facilitator.  The
suit was filed after an extensive  investigation  that  uncovered  similar suits
filed against the defendants.  In response to our suit, on April 13, 2001, York,
LLC ("York"),  an off-shore  Southridge  entity,  filed a complaint on April 13,
2001, in the United States District Court,  Central District of California,  for
breach of contract,  conversion,  money had and received,  unjust enrichment and
breach of the covenant of good faith and fair dealing.

      On February 27, 2001, Twenty-Five-Forty,  LLC filed suit against us in the
Superior Court for the State of California (San Diego) for damages for breach of
contract,  alleging that we abandoned a sub-lease  that we had entered into with
the plaintiff.  We have filed a cross-complaint in which we allege,  among other
things,  that the plaintiff  fraudulently  induced us to enter into the contract
and that accordingly the lease contract is void.  Plaintiff has not yet answered
the cross-complaint.

ITEM 2. CHANGES IN SECURITIES

      In April and May 2001, we raised approximately $1,150,000,  net of issuing
costs, from the private  placement of 2,420,000 of our common shares,  including
484,000 two year warrants issued to purchase our common shares at $.50 per share
(subject to anti-dilution  provisions),  to several  institutions and accredited
investors.  Proceeds from these private placements were used for working capital
purposes.  These issuances were made in reliance on the  registration  exemption
provided  by  Section  506  promulgated  under the  Securities  Act of 1933,  as
amended.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

      None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      At the annual meeting of stockholders held on April 6, 2001, the following
proposals were adopted by the margins indicated:

      1. To elect a Board of Directors to hold office until their successors are
elected and qualified:

                                            Number of Shares
                                ------------------------------------
                                   For            Withhold Authority
                                ----------        ------------------
         Paul J. Crowe          13,198,163                9,700
         Thomas G. Brown        11,425,310            1,796,200
         Brent Nelson           13,198,163                9,700
         Robert C. Bush         13,198,153                9,700
         K. Ivan F. Gothner     11,466,663             1,754,847

      2. To approve an amendment of our 1999 Stock Option Plan  increasing  from
6,000,000  to  8,000,000  the number of shares of our common  stock which may be
subject to award pursuant thereto:

                        For:          6,995,118
                        Against:        371,430
                        Abstain:         28,598



                                       39
<PAGE>


      3. To  ratify  the  appointment  of  Peterson  & Co.  as  our  independent
accountants for the fiscal year ending June 30, 2001:

                        For:         11,412,161
                        Against:          3,202
                        Abstain:         74,694

ITEM 5. OTHER INFORMATION

      None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)   Exhibits

          Exhibit 10     Strategic Partnership Agreement dated December 19, 2000
                         between  GE  Medical  Systems,  a  division  of General
                         Electric Company, and Mobile PET Systems, Inc.

          Exhibit 15     Letter from Peterson & Co. dated May 14, 2001.

(b)   Reports on Form 8-K

      We filed a report on Form 8-K on January 29, 2001, disclosing an amendment
to the Securities  Purchase  Agreement  dated March 3, 2000 between us and York,
LLC.



























                                       40
<PAGE>






                                 SIGNATURE

In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                    MOBILE PET SYSTEMS, INC.


Date:  May 21, 2001                 By: /s/ Paul J. Crowe
                                        _______________________________
                                        Paul J. Crowe
                                        President and Chief Executive Officer


Date:  May 21, 2001                 By: /s/ Anthony R. Turnbull
                                        ________________________________
                                        Anthony R. Turnbull
                                        Vice President of Finance

                                       (Chief Accounting Officer)






























                                       41
<PAGE>




                               Exhibit Index


Exhibit No                         Description                         Page No.
-------------------------------------------------------------------------------
10    Strategic  Partnership Agreement dated December 19, 2000 between     43
      GE Medical Systems, a division of General Electric Company,  and
      Mobile PET Systems, Inc.

15    Letter from Peterson & Co. dated May 14, 2001                        49













































                                       42
<PAGE>



                                                                      Exhibit 10
                                                                      ----------

[GE Letterhead}

[Logo]                                                        GE Medical Systems
--------------------------------------------------------------------------------
                                     General Electric Company
                                            Milwaukee, WI




GE Medical Systems
STRATEGIC PARTNERSHIP AGREEMENT



This Strategic Partnership Agreement ("Agreement") is entered into as of this
19th day of December 2000 ("Effective Date"), by and between General Electric
Company, a New York corporation, by and through its GE Medical Systems division
("GE") located in Waukesha, WI and Mobile PET Systems, Inc., a Delaware
corporation ("Customer") located in San Diego, CA.

WHEREAS, GE and Customer have entered into this Agreement for the purpose of
enhancing the parties' vendor/customer relationship;

WHEREAS, Customer desires GE to be its preferred vendor for PET and cyclotron
equipment, including service and financing for such equipment; and

WHEREAS, GE is willing to offer Customer attractive pricing and financing terms
for PET and cyclotron equipment and the servicing of such equipment;

NOW THEREFORE, in consideration of the terms and conditions contained in this
Agreement, GE and Customer agree as follows:

1.  Term and Termination. The term of this Agreement shall be 36 months from the
    Effective Date set forth above. Expiration or termination of this Agreement
    shall have no effect on orders for equipment, service or financing. which
    have been accepted by GE prior to the date this Agreement expires or is
    terminated.

2   Purchase and Sale Commitments.

A.  During the term of this Agreement, Customer will order from GE for delivery
    in the United States or Canada, and GE will provide to Customer, a minimum
    of 40 GE Advance PET NXi Scanners and a minimum of 5 PETtrace Cyclotrons in
    each case with the equipment configured as specified in Exhibit A to this
    Agreement. Customer commits to finalize an order for each scanner (including
    designation of whether scanner is to be fixed or mobile) by no later than
    120 days before, and to accept actual delivery by no later than, the
    scheduled month of delivery set forth in Section 2.B, below. Customer
    commits to finalize an order for each cyclotron by no later than 6 months
    before, and to accept actual delivery by no later than, the scheduled month
    of delivery set forth in Section 2.B, below.

                                      -1-                  Rev. Date:  12/19/00

                                       43
<PAGE>


B.  GE and Customer agree to the following delivery schedules:

    PET scanner delivery schedule;

    Calendar year 2001: February 2001 = 4 scanners
                        May 2001      = 4 scanners
                        August 2001   = 4 scanners
                        November 2001 = 3 scanners
                        ---------------------------
                        2001 units     15 scanners

    Calendar year 2002: February 2002 = 4 scanners
                        May 2002      = 4 scanners
                        August 2002   = 4 scanners
                        November 2002 = 3 scanners
                        ---------------------------
                        2002 units     15 scanners

    Calendar year 2003: February 2003 = 4 scanners
                        May 2003      = 4 scanners
                        August 2003   = 2 scanners
                        ---------------------------
                        2003 units     10 scanners

    Cyclotron delivery schedule:

    Calendar year 2001: July 2001     = 1 cyclotron
                        October 2001  = 1 cyclotron
                        ---------------------------
                        2001 units    = 2 cyclotrons

    Calendar year 2002: February 2002 = 1 cyclotron
                        May 2002      = 1 cyclotron
                        October 2002  = 1 cyclotron
                        ---------------------------
                        2002 units    = 3 cyclotrons

C.  Customer also agrees to acquire for each scanner and cyclotron covered by
    this Agreement, service and financing from GE. In each instance1 the scanner
    or cyclotron will be leased by GE to Customer and service provided by GE to
    Customer under the form of MaxiService Agreement attached to this Agreement
    as Exhibit 8, for a 5-year term beginning on the date installation is
    completed. Pricing for each scanner Will be based on a fixed equipment price
    of $1,525,000 00, with pricing for service based on $135,000 per year.
    Pricing for each cyclotron will be based on a fixed equipment price of
    $1,353,000, with pricing for service based on $110,000 per year for single
    beam coverage.

D.  The terms of the MaxiService Agreement set forth in Exhibit B to this
    Agreement will be modified by GE to the extent necessary to reflect standard
    commercial terms offered by GE for deliveries in Canada or to comply with
    applicable Canadian laws or regulations.


                                      -2-                  Rev. Date:  12/19/00

                                       44
<PAGE>


E.  In the event that Customer takes delivery of any scanner or cyclotron later
    than the month of delivery set forth in Section 2.8 above. Customer shall
    pay to GE an additional amount equal to 1% of the fixed equipment price set
    forth in Section 2.D, above.

F.  Changes in the configurations set forth in Exhibit A to this Agreement made
    prior to acceptance of the order by GE may result in changes in the fixed
    equipment price set forth in Section 2.D, above. Any changes in
    configuration or price must be agreed to by GE and Customer prior to order
    acceptance by GE. Any further requests for changes in equipment
    configuration by Customer must by provided in writing to GE by no later than
    120 days prior to the scheduled delivery date, and may result in changes in
    the fixed equipment price Set forth in Section 2.D, above.

G.  On occasion GE may elect to substitute equal or better equipment for one or
    more items contained in the configurations set forth at Exhibit A due to
    product availability or changes in GE's product offerings. GE Will promptly
    notify the Customer of any substitutions and such substitutions are not to
    be construed as a breath or modification of this Agreement, or a commitment
    by GE to make any other such offer or product substitution to Customer.

H.  Only Customer may submit an order to GE under this Agreement.

I.  Equipment will be acquired by Customer solely for use in connection with the
    provision of healthcare to human beings by licensed healthcare providers.

J.  Every order will reference this Agreement and will, except as described in
    Section 3, below, contain no term, condition or price therein that conflicts
    with, adds to, or diminishes any term, condition or price set forth in this
    Agreement. Any additional or different term, condition or price contained in
    such an order is objected to by the parties unless specifically agreed to in
    writing by an authorized representative of each party. GE's acceptance of an
    Order shall occur upon the deletion of any additional or different term,
    condition or price therefrom, GE's receipt of any applicable down payment,
    and Customer's receipt of the written credit approval of the Manager of
    Credit and Collections of GE or his credit designate.

3.  Special Offers.

    Special promotional equipment leases and service terms offered by GE, if
    such occur during the Term of this Agreement, will be available to Customer
    on a preferred customer basis, provided Customer leases the minimum volume
    of scanners and cyclotrons provided for in this Agreement and meets GE's
    credit or other applicable customer qualification standards as of the time
    of such special offer. The terms, conditions and prices set forth in this
    Agreement shall apply to each such offering to the extent that they do not
    conflict with the terms, conditions and prices of the special offering. In
    the event of conflict, the term, condition or price of such special offering
    shall supersede the conflicting term, condition of price of this Agreement.




                                      -3-                  Rev. Date:  12/19/00

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<PAGE>


4.  Added Value Programs. During the term of this Agreement, GE may offer
    productivity and for added value programs to Customer which may include
    potential cost savings programs with respect to Customer's on-going
    operations such as innovative training methods and management best practices
    sharing. If the parties agree to enter into these additional arrangements,
    they will be subject to terms and conditions under a separate agreement.

5.  Notices. Notices and other communications shall be in writing and shall be
    deemed to have been duly given and delivered if they have been sent by fax
    or by United States certified mail (return receipt requested), addressed as
    follows:

    If to GE:            GE Medical Systems
                         Attn: General Manager, PET Sales
                         3000 N. Grandview Blvd.
                         Waukesha, WI 53188
                         Fax:

                         With a copy to:
                         GE Medical Systems
                         Attn: General Counsel Americas
                         3000 N. Grandview Blvd., W-400
                         Waukesha, WI 53188
                         Fax: 262/544-3573

    If to Customer:      Mobil PET Systems, Inc.
                         Attn: Mr. Paul Crowe, President/CEO
                         2240 Shelter Island Drive
                         San Diego, CA 92106
                         Fax:

    or to such other person or such other address as may be subsequently
    designated by written notice from either GE or Customer.

6.  General Matters.

    A.  Any assignment of this Agreement will be void without the other party's
        written consent, which will not be unreasonably withheld.

    B.  The law of the State of New York will govern any dispute between the
        parties arising from this Agreement.

    C.  Except as explicitly stated herein, this Agreement does not create, and
        shall not be construed as creating, any rights enforceable by any person
        not a party to this Agreement.

    D.  The headings in this Agreement are solely for convenience of reference
        and shall be given no effect in the construction or interpretation of
        this Agreement.




                                      -4-                  Rev. Date:  12/19/00

                                       46
<PAGE>


    E.  This Agreement may be executed in any number of counterparts, each of
        which shall be deemed an original, but all of which together shall
        constitute on and the same instrument.

    F.  Nothing contained in this Agreement is intended nor shall it be
        construed as creating a partnership or joint venture between GE and
        Customer nor is anything contained in this Agreement intended to be
        construed as creating or requiring any ongoing or continuing
        relationship or commitment between GE and Customer, except as
        specifically set forth in this Agreement.

    G.  The total liability of GE and Customer, and their respective exclusive
        remedy under this Agreement, is limited to the price of the Order of
        Equipment, Service or Financing which is the basis of the claim. GE and
        Customer will have no liability to each other for punitive, incidental
        or consequential damages such as lost profits or revenue. This is a
        commercial transaction. Any action related to the Agreement shall be
        based solely on commercial law principles.

    H.  In the event of a direct and irreconcilable conflict between any term of
        this Agreement and any other document provided by either party, the term
        of this Agreement shall control to the extent necessary to eliminate the
        conflict.

9.  Entire Agreement. This Agreement and the Exhibits hereto constitute the
    entire Agreement between the parties respecting the subject matter. No prior
    proposals, statements, course of dealings or usage of the trade will be part
    of this Agreement.

IN WITNESS WHEREOF, GE and Customer have executed this Agreement effective as of
the Effective Date first written above.

AGREED

GENERAL ELECTRIC COMPANY                MOBILE PET SYSTEMS, INC.


By: /s/ M.B. Klein                      By:  /s/ Paul Crowe
   --------------------------              ----------------------------

Name:  M.B. Klein                       Name:  Paul Crowe
     ------------------------                --------------------------

Title: VP Gen. Manager                  Title: CEO
      -----------------------                 -------------------------

Date:  12-19-00                         Date:  12-19-00
     ------------------------                --------------------------


***  Exhibits   ***

Exhibit A: Equipment Configurations
Exhibit B: Form of MaxiService Agreement

                                      -5-                  Rev. Date:  12/19/00

                                       47
<PAGE>


                                   EXHIBIT A

                            Equipment Configurations


PET Scanner Configuration
-------------------------

GE Catalog #
S9110NM        Mobile Advance PET NXi Imaging System
includes:      Mercury G3 4 node array processor, ACEM boards, Sun Operator'
               Workstation, 18 Gbyte Raw Data Disk, 100 Mbyte Ehternet, 2D
               Software Reconstruction, 3D Reconstruction Software, Segmented
               Attenuation Correction Software, Iterative Reconstruction
               Software, two operators' chairs, Pre-installation Kit, Mobile
               Hardening Kit, Media Storage drawers.
PS050KB        DAT & Optical Drive
PSO9OME        Enhanced Performance Mercury G3 8 Node Array Processor Option
P5O9OMF        Ultra Performance Mercury G3 12 Node Array Processor Option
E8690AA        Transmission sources (qty 2)
E8690AB        Normalization sources (qty 1)
E7014LA        Codonics 1660m Color Printer
WO400NM        Applications training (qty 2)
P5005TP        Physician's Training - PET Masters' Series (qty 4)
R4503JK        UPS



Cyclotron Configuration (unshielded)
-----------------------

GE Catalog #
S9120KC        PETtrace Cyclotron (includes one F-18 target system)

P5230JL        Additional F-18 High Yield Target System

P522OJC        Dual Target Irradiation

WO400NM        Applications (qty 2)



















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<PAGE>





                                                                     Exhibit 15
                                                                     ----------


                       CONSENT OF INDEPENDENT ACCOUNTANTS'

The Board of Directors
Mobile PET Systems, Inc.
2150 West Washington Street, Suite 110
San Diego, California  92110

As the independent public accountants' for Mobile PET Systems, Inc. we hereby
consent to the incorporation in this Quarterly Report on Form 10-QSB of Mobile
PET Systems, Inc., our report dated May 8, 2001, regarding the March 31, 2001
and 2000, consolidated financial statements. We also consent to all other
references to our company included in this Quarterly Report on Form 10-QSB.


                                        /s/ PETERSON & CO.
                                    ----------------------------------------
                                    PETERSON & CO.

Peterson & Co.
3655 Nobel Drive, Suite 500
San Diego, California  92122-1089
May 21, 2001


























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