##### Table of Contents

---



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



---



Amendment No. 1 to



Form 10-QSB



(Mark One)

|x |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- |  | ---------------------------------------------------------------------------------------



| |  | For the quarterly period ended September 30, 2002
| |  | -------------------------------------------------



| ̈ |  | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
|- |  | --------------------------------------------------------------------------



| |  | For the transition period from  to
| |  | ----------------------------------



Commission file number 000-27915



---



MOLECULAR IMAGING CORPORATION

A Delaware Corporation

(Exact
name of small business issuer as specified in its charter)



|DELAWARE                                                       |  | 11-2787966                       
|-------------------------------------------------------------- |  | ---------------------------------
|(State or other jurisdiction of incorporation or organization) |  | (IRS Employer Identification No.)



2150 West Washington
Street, Suite 110

San Diego, California 92110

(Address of principal executive offices)



(619) 226-6738

(Issuers telephone number)



---



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 ̈



There were 55,027,982 shares outstanding of the issuers Common Stock as of November 8, 2002.



Transitional Small Business Disclosure Format (Check one):  Yes ̈No  x



---



---

##### Table of Contents

MOBILE PET SYSTEMS, INC. AND SUBSIDIARIES



For the quarterly period ended September 30, 2002



Table of Contents



|                                                                                                                 |  | Page No.
|---------------------------------------------------------------------------------------------------------------- |  | --------
|PART I. FINANCIAL INFORMATION                                                                                    |  | 1       
|Item 1. Financial Statements (unaudited)                                                                         |  | 1       
|Consolidated Balance Sheets as of September 30, 2002 and 2001                                                    |  | 1       
|Consolidated Statements of Operations for the three months ended September 30, 2002 and 2001                     |  | 2       
|Consolidated Statement of Changes in Shareholders Equity for the three months ended September 30, 2002 and 2001 |  | 3       
|Consolidated Statements of Cash Flows for the three months ended September 30, 2002 and 2001                     |  | 4       
|Notes to Consolidated Financial Statements                                                                       |  | 5       
|Item 2. Managements Discussion and Analysis                                                                     |  | 14      
|                                                                                                                 | 
|Signatures                                                                                                       |  | 24      
|Certifications                                                                                                   |  | 25      



---

##### Table of Contents

MOBILE PET SYSTEMS, INC. AND SUBSIDIARIES



For the quarterly period ended September 30, 2002



PART 1.



FINANCIAL INFORMATION



Consolidated Balance
Sheets  Mobile PET Systems, Inc. and Subsidiaries (Unaudited)



MOBILE PET SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

September 30, 2002 and 2001 (Unaudited)



|                                                                                                                                                                    |  | 2002 |             |   | 2001 |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ----------- | - | ---- | -
|ASSETS                                                                                                                                                              |  |      |             |   |      |  
|Current assets                                                                                                                                                      |  |      |             |   |      |  
|Cash                                                                                                                                                                |  | $    | 489,268     |   |      | $
|Accounts receivable, net of allowance for doubtful accounts of $116,000 and $116,000 at September 30, 2002 and 2001,
respectively                                   |  |      | 3,124,232   |   |      |  
|Prepaid expenses                                                                                                                                                    |  |      | 770,149     |   |      |  
|Deposits and other assets                                                                                                                                           |  |      | 358,197     |   |      |  
|                                                                                                                                                                    |  |      |             |   |      |  
|Total current assets                                                                                                                                                |  |      | 4,741,846   |   |      |  
|Property and equipment, net                                                                                                                                         |  |      | 13,295,036  |   |      |  
|Other assets                                                                                                                                                        |  |      |             |   |      |  
|Accrued interest receivable                                                                                                                                         |  |      | 10,573      |   |      |  
|Due from London Radiosurgical Centre, Ltd                                                                                                                           |  |      | 127,123     |   |      |  
|Subordinated equity participation                                                                                                                                   |  |      | 200,000     |   |      |  
|Restricted cash                                                                                                                                                     |  |      | 353,804     |   |      |  
|                                                                                                                                                                    |  |      |             |   |      |  
|Total assets                                                                                                                                                        |  | $    | 18,728,382  |   |      | $
|                                                                                                                                                                    |  |      |             |   |      |  
|LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)                                                                                                                      |  |      |             |   |      |  
|Current liabilities                                                                                                                                                 |  |      |             |   |      |  
|Accounts Payable                                                                                                                                                    |  | $    | 1,215,918   |   |      | $
|Current portion of long-term debt                                                                                                                                   |  |      | 26,726      |   |      |  
|Loans payable to related parties                                                                                                                                    |  |      | 296,550     |   |      |  
|Accrued and other liabilities                                                                                                                                       |  |      | 331,464     |   |      |  
|Obligations under capital lease - current                                                                                                                           |  |      | 5,258,022   |   |      |  
|                                                                                                                                                                    |  |      |             |   |      |  
|Total Current Liabilities                                                                                                                                           |  |      | 7,128,680   |   |      |  
|Noncurrent Liabilities                                                                                                                                              |  |      |             |   |      |  
|Obligations under capital lease                                                                                                                                     |  |      | 7,501,401   |   |      |  
|Other liabilities                                                                                                                                                   |  |      |            |   |      |  
|Long-term debt                                                                                                                                                      |  |      | 65,311      |   |      |  
|                                                                                                                                                                    |  |      |             |   |      |  
|Total liabilities                                                                                                                                                   |  |      | 14,695,392  |   |      |  
|Mandatorily redeemable preferred stock; 10,000,000 shares authorized                                                                                                |  |      |             |   |      |  
|Preferred stock series A; 0 and 34.5 shares issued and outstanding at September 30, 2002 and September 30, 2001,
respectively                                       |  |      |            |   |      |  
|Preferred stock series B; 0 and 30 shares issued and outstanding at September 30, 2002 and September 30, 2001,
respectively                                         |  |      |            |   |      |  
|Shareholders Equity(deficit)                                                                                                                                       |  |      |             |   |      |  
|Common stock; $0.0001 par value; 90,000,000 shares authorized; 55,027,982 and 36,624,338 shares issued and outstanding at
September 30, 2002 and 2001, respectively |  |      | 5,503       |   |      |  
|Additional paid in capital                                                                                                                                          |  |      | 29,355,922  |   |      |  
|Accumulated deficit                                                                                                                                                 |  |      | (25,328,435 | ) |      |  
|Foreign currency translation adjustment                                                                                                                             |  |      |            |   |      |  
|                                                                                                                                                                    |  |      |             |   |      |  
|Total shareholders equity                                                                                                                                          |  |      | 4,032,990   |   |      |  
|                                                                                                                                                                    |  |      |             |   |      |  
|Total liabilities and shareholders equity                                                                                                                          |  | $    | 18,728,382  |   |      | $
|                                                                                                                                                                    |  |      |             |   |      |  



The accompanying notes
are an integral part of these financial statements.





---

##### Table of Contents

PART 1.



FINANCIAL INFORMATION (continued)



Consolidated Statements of Operations  Mobile PET Systems, Inc. and Subsidiaries  (Unaudited)



MOBILE PET SYSTEME, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three Months Ended September 30, 2002 and 2001 (unaudited)



|                                                                                                 |  | 2002 |           |   | 2001 |  
|------------------------------------------------------------------------------------------------ |  | ---- | --------- | - | ---- | -
|Service revenues                                                                                 |  | $    | 4,552,329 |   |      | $
|Cost of service revenues                                                                         |  |      | 3,059,278 |   |      |  
|                                                                                                 |  |      |           |   |      |  
|Gross profit                                                                                     |  |      | 1,493,051 |   |      |  
|Selling and marketing                                                                            |  |      | 502,341   |   |      |  
|General and administrative                                                                       |  |      | 1,482,227 |   |      |  
|                                                                                                 |  |      |           |   |      |  
|Total expenses                                                                                   |  |      | 1,984,568 |   |      |  
|                                                                                                 |  |      |           |   |      |  
|Loss from operations                                                                             |  |      | (491,517  | ) |      |  
|Other Income (Expense)                                                                           |  |      |           |   |      |  
|Interest income                                                                                  |  |      | 1,526     |   |      |  
|Other income (expense)                                                                           |  |      | 105,476   |   |      |  
|Interest expense                                                                                 |  |      | (437,459  | ) |      |  
|                                                                                                 |  |      |           |   |      |  
|Total other income (expense)                                                                     |  |      | (330,457  | ) |      |  
|Loss before provision for income taxes                                                           |  |      | (821,974  | ) |      |  
|Provision for income taxes                                                                       |  |      |          |   |      |  
|                                                                                                 |  |      |           |   |      |  
|Net loss                                                                                         |  |      | (821,974  | ) |      |  
|Income (loss) from operations of discontinued subsidiaries (including a $2,219,300 gain on sale) |  |      | 2,224,644 |   |      |  
|                                                                                                 |  |      |           |   |      |  
|Net income (loss)                                                                                |  |      | 1,402,670 |   |      |  
|Preferred stock dividend                                                                         |  |      | 320,538   |   |      |  
|                                                                                                 |  |      |           |   |      |  
|Net income (loss) - available to common shareholders                                             |  | $    | 1,082,132 |   |      | $
|                                                                                                 |  |      |           |   |      |  
|Loss per share from continuing operations - basic                                                |  | $    | (0.02     | ) |      | $
|Income (loss) per share from discontinued operations - basic                                     |  | $    | 0.04      |   |      | $
|Net income (loss) per share available to common shareholders - basic                             |  | $    | 0.02      |   |      | $
|Loss per share from continuing operations - diluted                                              |  | $    | (0.02     | ) |      | $
|Income (loss) per share from discontinued operations - diluted                                   |  | $    | 0.03      |   |      | $
|Net income (loss) per share available to common shareholders - diluted                           |  | $    | 0.02      |   |      | $



The accompanying notes
are an integral part of these financial statements.





2



---

##### Table of Contents

PART 1.



FINANCIAL INFORMATION (continued)



Consolidated Statements of Changes in Shareholders Equity  Mobile PET Systems, Inc. and Subsidiaries  (Unaudited)



MOBILE PET SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY

For the Three Months Ended September 30, 2002 and 2001
(Unaudited)



|                                                                |  | Common Stock  |   |  | Additional |       |   | Accumulated     |   |            | ForeignExchange |  |   |             |  
|--------------------------------------------------------------- |  | ------------- | - |  | ---------- | ----- | - | --------------- | - | ---------- | --------------- |  | - | ----------- | -
|                                                                |  | No. of Shares |   |  | Amount     |       |   | Paid in Capital |   |            | Deficit         |  |   | Adjustment  |  
|Balance as originally reported - June 30, 2001                  |  | 25,484,086    |   |  | $          | 2,549 |   |                 | $ | 14,495,683 |                 |  | $ | (18,367,797 | )
|Prior period adjustment - reverse service credits               |  |               |   |  |            |       |   |                 |   | 598,701    |                 |  |   | (598,701    | )
|Reclassify mandatorily redeemable preferred stock liability     |  |               |   |  |            |       |   |                 |   | (803,858   | )               |  |   |             |  
|Preferred stock dividend - beneficial conversion feature        |  |               |   |  |            |       |   |                 |   | 1,620,580  |                 |  |   | (1,620,580  | )
|                                                                |  |               |   |  |            |       |   |                 |   |            |                 |  |   |             |  
|Balance as restated - June 30, 2001                             |  | 25,484,086    |   |  |            | 2,549 |   |                 |   | 15,911,106 |                 |  |   | (20,587,078 | )
|Common stock issued in private placement, net of offering costs |  | 6,614,285     |   |  |            | 661   |   |                 |   | 1,404,339  |                 |  |   |             |  
|Common stock issued as finders fee                              |  | 100,000       |   |  |            | 10    |   |                 |   | (10        | )               |  |   |             |  
|Common stock issued for services                                |  | 325,967       |   |  |            | 33    |   |                 |   | 125,218    |                 |  |   |             |  
|Common stock issued for compensation                            |  | 100,000       |   |  |            | 10    |   |                 |   | 42,990     |                 |  |   |             |  
|Options and warrants issued as compensation and for services    |  |               |   |  |            |       |   |                 |   | 30,993     |                 |  |   |             |  
|Net loss                                                        |  |               |   |  |            |       |   |                 |   |            |                 |  |   | (1,143,247  | )
|Foreign currency translation adjustment                         |  |               |   |  |            |       |   |                 |   |            |                 |  |   |             |  
|                                                                |  |               |   |  |            |       |   |                 |   |            |                 |  |   |             |  
|Balance - September 30, 2001                                    |  | 32,624,338    |   |  |            | 3,263 |   |                 |   | 17,514,636 |                 |  |   | (21,730,325 | )
|Common stock issued in private placement, net of offering costs |  | 2,728,571     |   |  |            | 273   |   |                 |   | 1,119,727  |                 |  |   |             |  
|Common stock issued through conversion of preferred stock       |  | 221,328       |   |  |            | 22    |   |                 |   | 154,263    |                 |  |   |             |  
|Common stock issued as finders fee                              |  | 61,714        |   |  |            | 6     |   |                 |   | (6         | )               |  |   |             |  
|Common stock issued for services                                |  | 2,600,000     |   |  |            | 260   |   |                 |   | 874,740    |                 |  |   |             |  
|Options and warrants issued as compensation and for services    |  |               |   |  |            |       |   |                 |   | 211,873    |                 |  |   |             |  
|Net loss                                                        |  |               |   |  |            |       |   |                 |   |            |                 |  |   | (1,817,246  | )
|Foreign currency translation adjustment                         |  |               |   |  |            |       |   |                 |   |            |                 |  |   |             |  
|                                                                |  |               |   |  |            |       |   |                 |   |            |                 |  |   |             |  
|Balance - December 31, 2001                                     |  | 38,235,951    |   |  |            | 3,824 |   |                 |   | 19,875,233 |                 |  |   | (23,547,571 | )
|Common stock issued in private placement, net of offering costs |  | 1,928,571     |   |  |            | 193   |   |                 |   | 1,249,807  |                 |  |   |             |  
|Common stock issued through conversion of preferred stock       |  | 1,521,876     |   |  |            | 152   |   |                 |   | 738,610    |                 |  |   |             |  
|Common stock issued for services                                |  | 136,364       |   |  |            | 14    |   |                 |   | 59,986     |                 |  |   |             |  
|Options and warrants issued as compensation and for services    |  |               |   |  |            |       |   |                 |   | 143,873    |                 |  |   |             |  
|Net loss                                                        |  |               |   |  |            |       |   |                 |   |            |                 |  |   | (1,210,080  | )
|Foreign currency translation adjustment                         |  |               |   |  |            |       |   |                 |   |            |                 |  |   |             |  
|                                                                |  |               |   |  |            |       |   |                 |   |            |                 |  |   |             |  
|Balance - March 31, 2002                                        |  | 41,822,762    |   |  |            | 4,183 |   |                 |   | 22,067,509 |                 |  |   | (24,757,651 | )
|Common stock issued in private placement, net of offering costs |  | 2,728,571     |   |  |            | 273   |   |                 |   | 454,727    |                 |  |   |             |  
|Common stock issued through conversion of preferred stock       |  | 414,934       |   |  |            | 41    |   |                 |   | 225,481    |                 |  |   |             |  
|Options and warrants issued as compensation and for services    |  |               |   |  |            |       |   |                 |   | 104,509    |                 |  |   |             |  
|Net loss                                                        |  |               |   |  |            |       |   |                 |   |            |                 |  |   | (1,652,916  | )
|Foreign currency translation adjustment                         |  |               |   |  |            |       |   |                 |   |            |                 |  |   |             |  
|                                                                |  |               |   |  |            |       |   |                 |   |            |                 |  |   |             |  
|Balance - June 30, 2002                                         |  | 44,966,267    |   |  |            | 4,497 |   |                 |   | 22,852,226 |                 |  |   | (26,410,567 | )
|Common stock issued in private placement, net of offering costs |  | 9,821,429     |   |  |            | 982   |   |                 |   | 6,184,424  |                 |  |   |             |  
|Preferred stock redemption - common stock surrendered           |  | (374,000      | ) |  |            | (37   | ) |                 |   | 37         |                 |  |   |             |  
|Preferred stock redemption - dividend                           |  |               |   |  |            |       |   |                 |   |            |                 |  |   | (297,362    | )
|Preferred stock redemption - repriced warrant                   |  |               |   |  |            |       |   |                 |   | 23,176     |                 |  |   | (23,176     | )
|Common stock issued for services                                |  | 614,286       |   |  |            | 61    |   |                 |   | 284,939    |                 |  |   |             |  
|Options and warrants issued as compensation and for services    |  |               |   |  |            |       |   |                 |   | 11,120     |                 |  |   |             |  
|Net income                                                      |  |               |   |  |            |       |   |                 |   |            |                 |  |   | 1,402,670   |  
|Foreign currency translation adjustment                         |  |               |   |  |            |       |   |                 |   |            |                 |  |   |             |  
|                                                                |  |               |   |  |            |       |   |                 |   |            |                 |  |   |             |  
|Balance - September 30, 2002                                    |  | 55,027,982    |   |  | $          | 5,503 |   |                 | $ | 29,355,922 |                 |  | $ | (25,328,435 | )
|                                                                |  |               |   |  |            |       |   |                 |   |            |                 |  |   |             |  



The accompanying notes
are an integral part of these financial statements.



3



---

##### Table of Contents

PART 1.



FINANCIAL INFORMATION (continued)



Consolidated Statements of Cash Flows  Mobile PET Systems, Inc. and Subsidiaries  (Unaudited)



MOBILE PET SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Three Months Ended September 30, 2002 and 2001 (Unaudited)



|                                                                                    |  | 2002 |            |   | 2001 |  
|----------------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | -
|Cash flows from operating activities                                                |  |      |            |   |      |  
|Net income (loss)                                                                   |  | $    | 1,402,670  |   |      | $
|Adjustments to reconcile net income (loss) to net cash used in operating activities |  |      |            |   |      |  
|Depreciation and amortization                                                       |  |      | 696,689    |   |      |  
|Noncash stock option and warrant charges                                            |  |      | 11,120     |   |      |  
|Common stock issued for compensation                                                |  |      |           |   |      |  
|Common stock issued for services                                                    |  |      | 60,000     |   |      |  
|Gain on sale of discontinued operations                                             |  |      | (2,219,300 | ) |      |  
|(Increase) decrease in operating assets                                             |  |      |            |   |      |  
|Accounts receivable                                                                 |  |      | 120,728    |   |      |  
|Due from London Radiosurgical Centre, Ltd                                           |  |      | 2,194      |   |      |  
|Prepaid expenses                                                                    |  |      | 32,032     |   |      |  
|Deposits and other assets                                                           |  |      | 173,847    |   |      |  
|Restricted cash                                                                     |  |      | (1,314     | ) |      |  
|Cash from discontinued operations                                                   |  |      | (37,574    | ) |      |  
|Increase (decrease) in operating liabilities                                        |  |      |            |   |      |  
|Accounts payable                                                                    |  |      | (2,701,698 | ) |      |  
|Accrued and other liabilities                                                       |  |      | (884,354   | ) |      |  
|                                                                                    |  |      |            |   |      |  
|Net cash used in operating activities                                               |  |      | (3,344,960 | ) |      |  
|                                                                                    |  |      |            |   |      |  
|Cash flows from investing activities                                                |  |      |            |   |      |  
|Capital expenditures                                                                |  |      | (88,831    | ) |      |  
|Proceeds from sale of discontinued operations                                       |  |      | 1,884,917  |   |      |  
|                                                                                    |  |      |            |   |      |  
|Net cash provided by (used in) investing activities                                 |  |      | 1,796,086  |   |      |  
|                                                                                    |  |      |            |   |      |  
|Cash flows from financing activities                                                |  |      |            |   |      |  
|Repayment of loans                                                                  |  |      | (220,487   | ) |      |  
|Payments on obligations under capital lease                                         |  |      | (1,049,509 | ) |      |  
|Common stock issued                                                                 |  |      | 6,185,406  |   |      |  
|Preferred stock redeemed                                                            |  |      | (3,284,072 | ) |      |  
|                                                                                    |  |      |            |   |      |  
|Net cash provided by financing activities                                           |  |      | 1,631,338  |   |      |  
|                                                                                    |  |      |            |   |      |  
|Net increase in cash                                                                |  |      | 82,464     |   |      |  
|Effect of exchange rate on changes in cash                                          |  |      | 312,661    |   |      |  
|Cash - beginning of period                                                          |  |      | 94,143     |   |      |  
|                                                                                    |  |      |            |   |      |  
|Cash - end of period                                                                |  | $    | 489,268    |   |      | $
|                                                                                    |  |      |            |   |      |  
|SUPLEMENTAL DISCLOSURES                                                             |  |      |            |   |      |  
|Interest paid                                                                       |  | $    | 437,459    |   |      | $
|Income taxes paid                                                                   |  | $    |           |   |      | $
|NONCASH INVESTING AND FINANCING ACTIVITIES                                          |  |      |            |   |      |  
|Preferred stock dividend-redemption and repriced warrants                           |  | $    | 320,538    |   |      | $
|Common stock issued under consulting agreement                                      |  | $    | 225,000    |   |      | $



The accompanying notes
are an integral part of these financial statements.



4



---

##### Table of Contents

PART 1.



FINANCIAL INFORMATION (continued)



Notes to Consolidated Financial Statements  Mobile PET Systems, Inc. and Subsidiaries



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 providing high technology imaging systems, technologists to operate the imaging systems, the management of day-to-day operations and educational and marketing support.



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.



Unaudited Financial
Statements



The accompanying unaudited financial statements have been
prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-QSB and Article S-X. Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted in the United States for complete financial statements and should be read in conjunction with the Form 10-KSB for the fiscal year ended June 30, 2002.



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.



Revenue Recognition



Service revenues from health care organizations are recognized when
services are rendered.



Service revenues from third party payors are reported
at net realizable amounts. Revenue under third party payor agreements is subject to adjustment. Provisions for estimated third party payor settlements are provided in the period the related services are rendered. Differences between estimated
amounts and accrued and interim and final settlements are reported in operations in the year of settlement.



Reclassifications



Reclassifications of
revenues and expenses from operations of discontinued subsidiaries in addition to certain other reclassifications have been made in the September 30, 2001 financial statements to conform to September 30, 2002 presentation.



Note 3Discontinued Operations



On July 12, 2002, the Company discontinued operations of The London PET Centre, LTD and
Mobile PET Leasing Limited, a stationary PET facility in the United Kingdom. The Company recognized a gain on the disposal of $2,219,300. No income tax effect was recognized due to net operating loss carry forwards.



Sales from the operations of discontinued subsidiaries for the period July 1, 2002 to July
12, 2002 and for three months ended September 30, 2001 were $80,059 and $281,820, respectively and expenses for the period July 1, 2002 to July 12, 2002 and for three months ended September 30, 2001 were $74,715 and $314,234, respectively.



5



---

##### Table of Contents

PART 1.



FINANCIAL INFORMATION (continued)



Notes to Consolidated Financial Statements  Mobile PET Systems, Inc. and Subsidiaries



Note 4Deposits and Other Assets



Deposits and assets consist of the following at September 30, 2002 and 2001:



|                                    |  | 2002 |         | 2001
|----------------------------------- |  | ---- | ------- | ----
|Equipment depositsMobile PET Units |  | $    | 132,500 |     
|Other                               |  |      | 225,697 |     
|                                    |  | $    | 358,197 |     



Equipment depositsMobile PET
Units are refundable upon the Company securing lease financing or may be applied to subsequent equipment orders.



Note 5Capitalization



Preferred Stock



On January 20, 2000, the Company authorized for issuance ten million (10,000,000) shares of preferred stock having one hundredth of a cent ($0.0001) par value per share. On March 3, 2000 the Company designated and
issued sixty (60) shares 8% Cumulative Convertible Redeemable Preferred, Series A Stock (Series A) for cash in the amount of $2,700,000, net of acquisition fees. The sixty (60) shares of Series A Stock provided an intrinsic value of
beneficial conversion feature of approximately $1,206,000, which was recognized as a preferred stock dividend and the Series A Stock was recorded at a fair value of $3,906,000. Under this Securities Purchase Agreement the Company issued 120,000
warrants to purchase shares of common stock at an exercise price of $5 per share, which expire in March 2003. In addition, the buyer of the preferred stock agreed to purchase shares of common stock in the Company in tranches, subject to certain
limitations, for an aggregate purchase price up to $10,000,000, at a price equal to eighty-five percent (85%) of the average closing bid price five (5) consecutive days immediately prior to the Company providing a tranche notice to the buyer. The
Company has received an aggregate $1,075,000, net of offering costs, and issued 2,703,093 shares of common stock under this facility. This facility has not been utilized subsequent to June 30, 2001.



On May 30, 2001 the liquidation value was increased $50,000 to $58,937 per share when the
Company entered into a Settlement Agreement and Conditional Release of a lawsuit surrounding the Securities Purchase Agreement, increasing the fair value of the Series A Stock an additional $376,238. The holders converted cumulative preferred
dividends in the amount of $66,274 and converted 37 shares of Series A into 3,459,361 shares of common stock at various dates through June 30, 2002.



On September 21, 2000, the Company designated and subsequently issued thirty (30) shares of 8% Cumulative Convertible Redeemable Preferred Series B Stock (Series
B) for cash in the amount of $1,385,000, net of



6



---

##### Table of Contents

Notes to Consolidated Financial Statements  Mobile PET Systems, Inc. and Subsidiaries



NOTE 5CAPITALIZATION (Continued)



Preferred Stock (Continued)



acquisition fees. The thirty (30) shares of Series B Stock issued provided an intrinsic
value of beneficial conversion feature of approximately $414,580, which was recognized as a preferred stock dividend and the Series B Stock was recorded at fair value in the amount of $1,799,580.



In addition, under this Securities Purchase Agreement the Company issued 50,000 warrants to
purchase shares of common stock at an exercise price of $3 per share and 29,851 warrants to purchase shares of common stock at an exercise price of $2.5125 per share. The warrants expire on September 30, 2005.



On May 30, 2001 the liquidation value was increased from $50,000 to $58,937 per share when
the Company entered into a Settlement Agreement and Conditional Release of a lawsuit surrounding the Securities Purchase Agreement, increasing the fair value of the Series B Stock an additional $376,238.



On July 31, 2002 the Company entered into a Redemption Agreement to redeem all of the
outstanding Series A and Series B Stock. The Company redeemed 23 shares of Series A and 27 shares of Series B stock outstanding for $3,784,072. The excess of the carrying amount of the Series A and Series B stock over the redemption amount was
recorded as a preferred dividend in the amount of $297,362. In addition, the Company agreed to re-price certain existing warrants. Accordingly, warrants to purchase 199,581 shares of common stock at a price between $5.00 and $2.5125 per shares and
expiring between September and November 2005 were re-priced and may now be exercised at a price of $1.00 per share, resulting in a preferred stock dividend in the amount of $23,176.



Common Stock



The Company has authorized for issuance ninety million (90,000,000) shares of common stock, having one hundredth of a cent ($0.0001) par value per share. On September 30,
2002 and 2001 the Company had 55,027,982 and 32,624,338 shares of common stock issued and outstanding, respectively.



During the three months ended September 30, 2002 the Company issued shares of common stock in cash transactions: 11,250,000 shares issued for cash in the amount of
$6,185,406, with 1,428,571 shares cancelled. The Company issued for services 614,286 shares of common stock in non-cash transactions. Also during the three months ended September 30, 2002 the Company cancelled 400,000 shares and issued 26,000 shares
as an agreement in connection with the redemption of Preferred Series A and Series B, according to the terms of a May 31, 2001 Settlement Agreement and Conditional Release of a lawsuit.



7



---

##### Table of Contents

PART 1.



FINANCIAL INFORMATION (continued)



Notes to Consolidated Financial Statements  Mobile PET Systems, Inc. and Subsidiaries



Note 5Capitalization (Continued)



Stock Options



The Companys Board of Directors and shareholders 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. Stock options generally expire on various dates extending to June 14, 2006 and vest over service periods that range from zero to four years.



As of September 30, 2002, the Company has granted options to purchase 4,082,709 shares of
common stock as follows:



|                                |  | Exercise Price |  | Number of Shares |   |  | Vested Shares |  
|------------------------------- |  | -------------- |  | ---------------- | - |  | ------------- | -
|Outstanding, June 30, 2000      |  | $1.00$4.63    |  | 5,988,000        |   |  | 2,662,000     |  
|Granted                         |  | $  .45$3.25   |  | 1,282,250        |   |  | 1,504,170     |  
|Exercised                       |  |                |  | (25,000          | ) |  | (25,000       | )
|Cancelled                       |  | $1.00$5.31    |  | (2,364,000       | ) |  | (295,000      | )
|Outstanding, June 30, 2001      |  | $  .45$4.63   |  | 4,880,750        |   |  | 3,846,170     |  
|Granted                         |  | $  .50$3.00   |  | 2,096,043        |   |  | 1,662,792     |  
|Exercised                       |  |                |  |                 |   |  |              |  
|Cancelled                       |  | $1.00$4.63    |  | (2,894,084       | ) |  | (2,240,917    | )
|Outstanding, June 30, 2002      |  | $  .45$4.63   |  | 4,082,709        |   |  | 3,268,045     |  
|Granted                         |  |                |  |                 |   |  | 94,166        |  
|Exercised                       |  |                |  |                 |   |  |              |  
|Cancelled                       |  | $0.56$3.25    |  | (220,415         | ) |  | (153,916      | )
|Outstanding, September 30, 2002 |  | $  .45$4.63   |  | 3,862,294        |   |  | 3,208,295     |  



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. However, during the three months ended September 30, 2002 and 2001 the Company recognized compensation expense of $11,120 and ($75,604), respectively.



Warrants



At September 30, 2002 warrants were outstanding to purchase 14,225,041 shares of common stock at exercise prices between $0.35 to $7.00 per
share, including warrants to purchase 966,666 shares of common stock which are subject to vesting through July 1, 2007 and the warrants re-priced in connection with the redemption of preferred stock. These warrants expire between December 31, 2002
and July 31, 2007.



Note 6Related Party Transactions



Subordinated Equity Participation



During the year ended June 30, 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 market value of the
subordinated equity participation is not readily determinable, and is recorded at cost in the amount of $200,000, which management believes approximates fair value. The original



8



---

##### Table of Contents

PART 1.



FINANCIAL INFORMATION (continued)



Notes to Consolidated Financial Statements  Mobile PET Systems, Inc. and Subsidiaries



Note 6Related Party Transactions (Continued)



Subordinated Equity Participation (Continued)



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 its proportionate share of 60% of net distributable 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.



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 and at September 30, 2002 and
2001 accrued interest on the investment was $10,573. The related shareholder, officer and director personally guarantee the investment.



Loans



On August 23, 2000, the Company received an eight percent (8%) bridge loan from a director and shareholder in the amount of $200,000, with an original due date of October 11, 2000. The loans due date has been
extended several times and the Company has agreed to make monthly payments of $10,000 per month beginning on January 8, 2002, until paid in full. At September 30, 2002 and 2001, the loan has a balance of $120,000 and $200,000, respectively.



On October 24 2000, the Company received an eight percent (8%) bridge loan
from an officer, director and shareholder in the amount of $100,000, which was due on or before November 30, 2000. The loan was extended to June 1, 2001. In October 2000, an eight percent (8%) promissory note was issued in the amount of $100,000 in
exchange for the loan. Principal, plus accrued interest is payable in installments: $20,000, plus accrued interest on October 8, 2001 and $10,000 plus accrued interest on the first day of each successive month. At September 30, 2002 and 2001, the
loan has a balance of $0 and $100,000, respectively.



On January 12, 2001, the
Company received an eight percent (8%) bridge loan from an officer; director and shareholder in the amount of $25,000, with an original due date of March 12, 2001, and extended to December 1, 2001. At September 30, 2002 and 2001, the loan has a
balance of $0 and $25,000, respectively.



On January 17, 2001, the Company
received an eight percent (8%) bridge loan from an officer, director and shareholder in the amount of $150,000, with an original due date of March 12, 2001. The note has been extended several times and is now due on September 1, 2002. At September
30, 2002 and 2001, the loan has a balance of $91,500 and $150,000, respectively.



On October 12, 2001, the Company converted $253,050 due to an individual and director of the Company into a promissory note without interest and payable in monthly installments of $14,000 per month beginning on October 15, 2001, until paid
in full. At September 30, 2002, the individual is no longer a director and the loan has a balance of $85,050.



On June 6, 2002, the Company received an eight percent (8%) bridge loan from an officer, director and shareholder in the amount of $77,600, due on demand. At September 30, 2002, the loan has a balance of $0 and
accrued interest is $371.



Note 7Long Term Debt



Long-term debt at September 30, 2002 and 2001 consists of the following:



|                                                                                                                                                                                                  |  | 2002 |         |   | 2001 |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | -
|Promissory Note with no interest, due in monthly installments of $500, with first payment beginning on February 1,
2002                                                                           |  | $    | 15,500  |   |      | $
|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, 2002, with a variable 5% to 1% prepayment penalty |  |      | 76,537  |   |      |  
|Less current portion                                                                                                                                                                              |  |      | (26,726 | ) |      |  
|Long term debt, net of current portion                                                                                                                                                            |  | $    | 65,311  |   |      | $



9



---

##### Table of Contents

PART 1.



FINANCIAL INFORMATION (continued)



Notes to Consolidated Financial Statements  Mobile PET Systems, Inc. and Subsidiaries



Note 7Long Term Debt (Continued)



The maturities of long-term debt for each of the succeeding four years subsequent to September 30, 2002, are as follows:



|September 30, |  |  
|------------- |  | -
|2003          |  | $
|2004          |  |  
|2005          |  |  
|2006          |  |  
|              |  | $



Note 8Commitments



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



|                              |  | September 30, |           
|----------------------------- |  | ------------- | ----------
|                              |  | 2002          |           
|Equipment                     |  | $             | 18,014,272
|Less accumulated amortization |  |               | (5,487,333
|Net capital lease assets      |  | $             | 12,526,939



The Company leases office space and
certain PET equipment under non-cancelable operating leases. The office lease expires in April 2005 and the equipment leases expire through May 2006.



Rent expense for the three months ended September 30, 2002 and 2001 was $39,583 and $309,192, respectively.



The Company leases certain other PET equipment under capital leases. The equipment leases expire through March 2006. The Companys
assets secure the capital leases. The chief executive officer of the Company has personally guaranteed certain leases. Certain leases contain covenants that restrict the use of cash and require the Company to maintain financial ratios. The Company
has been advised of its failure to maintain a debt service coverage ratio of not less than 1.25 to 1.00, placing three leases in default. Obligations under capital lease  current include $2,418,259 of lease obligations currently in default.



The following is a schedule by year of the future minimum lease payments at
September 30, 2002:



|September 30,                                                                     |  | Capital Lease |             |   | Operating Leases
|--------------------------------------------------------------------------------- |  | ------------- | ----------- | - | ----------------
|2003                                                                              |  | $             | 7,383,929   |   |                 
|2004                                                                              |  |               | 3,955,421   |   |                 
|2005                                                                              |  |               | 3,878,500   |   |                 
|2006                                                                              |  |               | 505,996     |   |                 
|                                                                                  |  |               | 15,723,846  |   |                 
|Less amount representing interest at 12.07%                                       |  |               | (2,964,4213 | ) |                 
|Present value of minimum lease payments (including current portion of $5,258,022) |  | $             | 12,759,423  |   |                 



Note 9Retirement Plan



On August 1, 2001 the Company established a defined contribution plan
covering substantially all of its employees. Participation is limited to all regular employees who meet specific age and service requirements. The Company made no contributions during the three months ended September 30, 2002.



10



---

##### Table of Contents

PART 1.



FINANCIAL INFORMATION (continued)



Notes to Consolidated Financial Statements  Mobile PET Systems, Inc. and Subsidiaries



Note 10Concentrations of Credit Risk



The Company maintains cash with various major financial institutions in excess of the Federal Deposit Insurance Corporation limits. The Company continually monitors
its position with the financial institutions and management believes the risk of incurring losses related to this credit risk is remote.



Note 11Earnings (Loss) Per Share



The computations of basic and diluted earnings per share from continuing operations for the three months ended September 30, 2002 and 2001 were as follows:



|                                                   |  | September 30, |           
|-------------------------------------------------- |  | ------------- | ----------
|                                                   |  | 2002          |           
|Income (loss) per sharebasic                      |  |               |           
|Numerator:                                         |  |               |           
|Net income (loss)available to Common shareholders |  | $             | 1,082,132 
|Denominator:                                       |  |               |           
|Weighted-average shares                            |  |               | 51,535,780
|Net income (loss) per sharebasic                  |  | $             | 0.02      
|Income (loss) per sharediluted                    |  |               |           
|Numerator:                                         |  |               |           
|Net income (loss)available to Common shareholders |  | $             | 1,082,132 
|Denominator:                                       |  |               |           
|Weighted-average shares                            |  |               | 68,726,222
|Net income (loss) per sharediluted                |  | $             | 0.02      



The weighted average shares listed
below were not included in the computation of diluted loss per share because to do so would have been antidilutive for the three months ended September 30, 2001:



|Cumulative convertible redeemable preferred stock common stock equivalent |  | 760,285  
|------------------------------------------------------------------------- |  | ---------
|Employee stock options                                                    |  | 5,163,576
|Warrants                                                                  |  | 3,709,070



11



---

##### Table of Contents

PART 1.



FINANCIAL INFORMATION (continued)



Notes to Consolidated Financial Statements  Mobile PET Systems, Inc. and Subsidiaries



NOTE 12: RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS



In response to technical comments from the Securities & Exchange Commission (SEC), and in consultation with SEC
staff, the Company has restated its previously issued financial statements for the years ended June 30, 2002 and 2001. Unaudited quarterly financial information for the first three quarters of the years ended June 30, 2003 and 2002 is also being
restated in this filing. Set forth below is a comparison of the previously reported and restated consolidated balance sheets and statements of operations for the first three months ended September 30, 2002 and 2001.



|                                       |  | September 30,         |           
|-------------------------------------- |  | --------------------- | ----------
|                                       |  | 2002                  |           
|                                       |  | As OriginallyReported |           
|Assets                                 |  | $                     | 18,728,382
|Liabilities                            |  | $                     | 14,695,392
|Mandatorily redeemable preferred stock |  | $                     |          
|Shareholders Equity                   |  | $                     | 4,032,990 



|                                                             |  | Three months ended September 30 |          
|------------------------------------------------------------ |  | ------------------------------- | ---------
|                                                             |  | 2002                            |          
|                                                             |  | As OriginallyReported           |          
|Revenues                                                     |  | $                               | 4,552,329
|Expenses                                                     |  | $                               | 3,149,659
|Income (loss) from operations                                |  | $                               | 1,402,670
|Preferred stock dividend                                     |  | $                               | 23,176   
|Net income (loss)  available to common shareholders         |  | $                               | 1,379,494
|Net income (loss)  available to common shareholders-basic   |  | $                               | 0.03     
|Net income (loss)  available to common shareholders-diluted |  | $                               | 0.02     



In July of 2002 the Company redeemed
all of the outstanding shares of 8% Cumulative Convertible Redeemable Preferred, Series A Stock and Series B Stock (the Redeemable Preferred Stock) of the Company. The Securities Purchase Agreements under which the holders of
Redeemable Preferred Stock purchased the shares provided that the Redeemable Preferred Stock was to be redeemable at the Companys option, or at the option of the purchaser, if upon the purchasers notice of conversion to the Company the
number of conversion shares of common stock exceed the number of shares of common stock authorized by the Company. In its previous public filings with the SEC, the Company classified the Redeemable Preferred Stock within stockholders equity
pursuant to the requirements of Rule 5-02, caption 28(a) of Regulation S-X.



12



---

##### Table of Contents

PART 1.



FINANCIAL INFORMATION (continued)



Notes to Consolidated Financial Statements  Mobile PET Systems, Inc. and Subsidiaries



NOTE 12: RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS



Preferred Stock, SEC staff has advised the Company that because the price of the Companys common stock could have fallen to a point
such that the number of shares of common stock into which the Redeemable Preferred Stock could have been converted could have caused the Company to request its stockholders increase the number of authorized shares, that this event was outside the
control of the Company, and the Redeemable Preferred Stock should therefore be classified outside stockholders equity. Accordingly, the Company has reclassified the Redeemable Preferred Stock outside stockholders equity as mandatory
redeemable preferred stock.



The Company previously recorded compensation
expense for issued and outstanding options granted to employees who terminated employment in the year ended June 30, 2002, thus forfeiting their unexercised options. The SEC staff has advised the Company that vested options that are returned to the
Company as a result of the termination of employment should not result in a decrease in compensation expense. Accordingly, the Company has reversed the compensation expense for forfeited unexercised options.



13



---

##### Table of Contents

PART I. Item 2.



MANAGEMENTS DISCUSSION
AND ANALYSIS



Overview



Molecular Imaging Corporation (formerly Mobile PET Systems, Inc.) is a national service
provider of Positron Emission Tomography (PET) imaging services. PET is a molecular imaging procedure used to diagnose and stage cancer, heart disease and neurological deficits. Our medical service business enables hospitals and other healthcare
professionals the ability to access this advanced diagnostic imaging patient service.



Under a service agreement, we provide hospitals and physicians access to our state-of-the-art PET imaging systems, which can be integrated on mobile coaches or in stationary facilities. We can also provide licensed technical personnel who
operate the equipment and perform the technical PET imaging procedure; daily operations and logistical support; marketing, education and billing and collections; and third-party contracting services. Patient imaging procedures are typically
implemented under the direction of a licensed staff physician provided by the medical institution.



As of September 30, 2002, we had sixteen mobile units deployed providing our services to approximately 75 healthcare facilities in the United States. We believe there are and will be significant opportunities to
develop and operate additional mobile and stationary PET facilities.



We owned
and operated the only private sector stationary PET facility in the United Kingdom (London PET Centre). We sold this facility in July 2002. The results of operations of the London PET Centre for the three-month periods ended September 30, 2002 and
2001 have been reclassified as income (loss) from operations of discontinued operations.



Critical Accounting Policies



Our
discussion and analysis of our financial condition and results of operations is based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. These
principles require us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on
various other assumptions that are believed to be reasonable under the circumstances. Estimated amounts may differ under different assumptions or conditions, and actual results could differ from the estimates. The following critical accounting
policy, among others, affects the judgments and estimates used in the preparation of our financial statements.



Revenue Recognition



Service
revenues from health care organizations are recognized when services are rendered.



Service revenues from third party payors are reported at net realizable amounts. Revenue under third party payor agreements is subject to adjustment. Provisions for estimated third party payor settlements are provided in the period the
related services are rendered and are based on final settlement history. Differences between estimated amounts and accrued and interim and final settlements are reported in operations in the period of settlement.



Results of Operations



Three Months Ended September 30, 2002



Service revenues for the three months ended September 30, 2002 were $4,552,329, compared to service revenues for the three months ended September 30, 2001 of $3,398,905.
Our cost of service revenues for the three months ended September 30, 2002 were $3,059,278, compared to $2,042,553 for the three months ended September 30, 2001. These results exclude the operations of the London PET Centre. The substantial
difference in service revenues is largely attributable to better utilization of each existing unit plus one additional unit employed during this quarter ended September 30, 2002. The cost of service revenues represents salaries paid to technologists
and drivers, system maintenance, transportation and insurance on our mobile PET systems.



The gross profit percentage decreased from 39.9% for the three months ended September 30, 2001 to 32.8% for the three months ended September 30, 2001 primarily for the following reasons:



14



---

##### Table of Contents

PART I. Item 2.



MANAGEMENTS DISCUSSION AND ANALYSIS



Overview (Continued)



|Gross profit percentage for the three months ended Sep 30, 2001       |  | 39.9 | %
|--------------------------------------------------------------------- |  | ---- | -
|Transportation services                                               |  | 0.7  |  
|Depreciation expense                                                  |  | 5.8  |  
|Equipment rental                                                      |  | (4.6 | )
|Service contracts and repairs                                         |  | (6.7 | )
|Medical supplies                                                      |  | 0.7  |  
|Other                                                                 |  | (3.0 | )
|Gross profit percentage for the three months ended September 30, 2002 |  | 32.8 | %



Our cost of transportation services
decreased because we hired more of our own drivers and used fewer outside transportation services in the three months ended September 30, 2002. While our depreciation expense decreased slightly in absolute dollars in the three months ended September
30, 2002, it decreased much more as a percentage of service revenues because of the substantial increase in service revenues. Equipment rental increased due to the addition of another rental unit plus the remaining three rental units were now
utilized for the full period. Our cost of service contracts and repairs increased over the three months ended September 30, 2002 since more of our units are no longer covered by warranty and require maintenance contracts or the use of other repair
sources. Our cost of medical supplies increased as a percent of service revenues as less of our customers now provide their own medical supplies.



Expanding Our Business



We continue our efforts to develop and expand our service business by increasing utilization of our existing units, and deploying additional mobile and stationary PET systems. We may continue to incur additional
losses as we pursue our development and expansion efforts. The majority of our costs are fixed; so increased revenues as a result of increased utilization may increase our gross profit and income, while lower utilization may result in lower gross
profit and income.



One measure that management uses to evaluate our progress
is average revenues per weekday for all units. We calculate average revenues per weekday for all units by dividing total weekday revenues by the number of weekdays in the relevant period, excluding holidays. We exclude Saturdays from this
calculation since not all of our units are scheduled for Saturday service. For reasons described above, for the three months ended September 30, 2002, our average revenues per weekday for all units increased to approximately $72,259, from average
revenues per weekday for all units of approximately $53,951 for the three months ended September 30, 2001. Our future revenues will principally be a function of the number of operating units in service, the volume of patient procedures and the fees
earned per procedure. We generate substantially all our revenues from our service agreements with hospitals and other health care providers. We have a satisfactory record of account collections, however there can be no assurance that this trend will
continue and, accordingly, we have established an allowance for uncollectable accounts receivable. Lower reimbursement by public and private insurers may also impact the revenues we can generate from our operations. There can be no assurance that we
will be able to maintain or increase the number of patient procedures or that our allowances for doubtful accounts receivable will be sufficient.



We are working with third parties to develop stationary imaging centers that we will operate as Independent Diagnostic Testing Facilities (IDTF). Under the
IDTF model, patient billings will be submitted directly to Medicare or insurance carriers at higher rates than billings for mobile services to hospitals or clinics. In addition, Medicare and insurance reimbursement rates are currently higher for PET
services performed at an IDTF than for the same services performed as a hospital based service. Under the IDTF model, lower scans per day are typically necessary to reach break-even because of the higher amount of reimbursement. Because patient
billings are submitted directly to Medicare and insurance carriers under the IDTF model, we may experience a longer period of time between billing and collection than we experience from our traditional mobile services.



These stationary imaging centers are identified and selected based on input from hospital
administrators, imaging center operators or physician groups who want to offer molecular imaging on their campus. We analyze the marketplace demographics, local competition, tumor board statistics, referring physician demographics and the
availability of an on-site physician champion to increase the vitality of the PET service. As permitted under state and federal laws, we may also partner with third party investors in the development and operation of these stationary imaging
centers.



15



---

##### Table of Contents

PART I. Item 2.



MANAGEMENTS DISCUSSION AND ANALYSIS



Overview (Continued)



Since our inception we have incurred significant losses. Through September 30, 2002, we have an accumulated deficit of $25,328,435, which we have financed primarily through equity sales. For the three months ended
September 30, 2002, we incurred a loss from continuing operations of $821,974, compared to losses from continuing operations of $1,110,833 for the three months ended September 30, 2001, respectively. Because of the sale of the London PET Centre,
there was net income available to common shareholders of $1,082,132 for the three months ended September 30, 2002, compared to a net loss available to common shareholders of $1,143,247 for the three months ended September 30, 2001.



Subject to obtaining additional financing, we are also seeking to deploy additional mobile
units or stationary sites, which will reduce per unit operating costs. However, we can give no assurances that we will be able to deploy such additional units or sites, or that the deployment of such additional units or sites would reduce our per
unit operating costs. As a result, in order to maintain profitability, we will need to continue to increase revenues and effectively manage our operating overhead.



16



---

##### Table of Contents

PART I. ITEM 2.



MANAGEMENTS DISCUSSION AND ANALYSIS (continued)



Liquidity and Capital Resources



At September 30, 2002, our total assets were $18,728,382, compared to $21,453,464 at September 30, 2002. The decrease was primarily the result of the sale of assets from
the London PET Centre Ltd. Our current assets at September 30, 2002 totaled $4,741,846, and our current liabilities were $7,128,680, as compared to current assets of $3,685,955 and current liabilities of $8,022,763 at September 30, 2001. Our current
liabilities exceed current assets because, under Generally Accepted Accounting Principles, we are required to record as a current liability our capital lease obligations due within the next twelve months. As discussed in Note 9 - Commitments,
several of our units are also financed under non-cancelable operating leases that are not recorded as liabilities until the monthly payment is due. Our current assets, on the other hand, include only those accounts receivable that are outstanding
from service revenues recognized and typically represent 30 to 60 days of service revenues. Shareholders equity increased to $4,032,990 at September 30, 2002, from ($4,545,435) at September 30, 2001, due primarily to the gain on the sale of
the London PET Centre of $2,219,300 and private placements of common stock of $6,185,406, net of offering costs less the loss from continuing operations of $821,974. We used the net proceeds from these transactions to make payments of accounts
payable and certain other obligations.



While we believe that our available
cash, short-term assets, and other resources will be sufficient to fund our operations and capital expenditures through the current fiscal year, our results of operations will have an impact on our cash needs beyond that time. We are currently
pursuing several financing opportunities as well as working to achieve sustained profitability from operations. If we are unable to generate service revenues to fund continuing operations or achieve sustained profitability, or if we are unable to
successfully complete any of the proposed financing activities, our operations will need to be significantly reduced or will otherwise suffer. In addition, we may be required to raise additional capital to add or acquire additional mobile units or
stationary sites, or for other operating purposes. We are continually exploring various financing alternatives, but there can be no assurance that any additional debt or equity financing will be available on commercially reasonable terms or at all.



Seasonality



We experience seasonality in the sale of our services. For example, first quarter client and
patient vacation schedules may affect revenues. Second quarter revenues may be affected by client and patient holiday and vacation schedules and inclement weather, the results of which may be fewer patients scans during the period. Third quarter
revenues may be affected by fewer calendar days and inclement weather, the results of which may be 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.



Factors That May Affect
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 on 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 the Act and the Exchange Act. 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.



We have lost money in the past and may lose money in the future.



We have incurred significant losses since our formation. In the past we have been successful in generating sufficient revenues to fund our continuing operations. In the
future we may not be able to generate sufficient revenues from sales to fund continuing operations or sustain profitability.



17



---

##### Table of Contents

PART I. ITEM 2.



MANAGEMENTS DISCUSSION AND ANALYSIS (continued)



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.
|- | ------------------------------------------------------------------------------------------------



Equipment and other assets of the Company secure certain of our indebtedness. If the Company defaults and the creditors foreclose, the
Company and its operations could be materially and adversely affected.



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.



Acceptance of our services by the medical community or by patients may not grow, which may impair our future sales and profitability.



High cost, concerns by patients and physicians relating to safety and efficacy, and the substantial acceptance of other diagnostic tools such as MRIs or CT scans may
interfere with the growing acceptance of PET technology. We have a limited sales force and may need to hire additional technologists and sales and marketing personnel to grow the acceptance of PET services. We believe PET technology is now accepted
as a valid diagnostic and staging tool for certain conditions, but we cannot promise this acceptance will continue to expand to other conditions.



If we do not remain 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. Our ability to experience profitability in the future will depend in part on our ability to successfully market and sell PET services on a wide scale.



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 were 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.



18



---

##### Table of Contents

PART I. ITEM 2.



MANAGEMENTS DISCUSSION AND ANALYSIS (continued)



We have a significant number of shares that are eligible for future sale.



Virtually all of the Companys outstanding stock was issued and sold pursuant to exemptions from registration with the Securities and Exchange Commission and
state securities agencies. These shares and shares held by our affiliates are considered restricted securities and may be resold pursuant to an effective registration statement or in compliance with SEC Rule 144. Rule 144 generally
provides that a person holding restricted securities for one year from the date the securities were purchased from the issuer, or from an affiliate of the issuer, and fully paid, may sell limited quantities of the securities to the public without
registration, provided certain public information with respect to the issuer is available. Pursuant to Rule 144, securities held by non-affiliates for more than two years may generally be sold without reference to the current public information or
broker transaction requirements, or the volume limitations. A significant number of shares are currently available for resale pursuant to Rule 144 and more shares will become so in the future.



In addition, the Company has granted registration rights in connection with the sale of a
significant number of its shares. The exercise of such rights would require the Company to prepare and file one or more registration statements for the resale of the Companys shares.



The resale of formerly restricted shares, whether pursuant to Rule 144 or a registration
statement, could have a material negative impact upon the market price for the common shares.



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



We purchase our PET systems from a limited group of qualified suppliers: CTI of Knoxville Tenn., Siemens Medical Systems, Inc. of Iselin N.J. and GE Medical Systems of
Milwaukee, Wisc. 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 from 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, prevents us from gaining new customers, and adversely affects our business, financial condition or results of operations.



The PET system may become technologically obsolete and our business could be harmed.



The markets in which our PET services compete 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 could be no assurance that we will be able to acquire the new or improved systems, which may be required to service our customers.



If we are unable to obtain additional funding our business operations will be harmed.



We believe that our available short-term assets and investment income
will be sufficient to meet our operating expenses and capital expenditures through the current fiscal year. We do not know if additional financing will be available when needed, or if it is available, if it will be available on acceptable terms.
Insufficient funds may prevent us from implementing our business strategy or may require us to delay, scale back or eliminate certain contracts for the provision of PET services.



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 seven percent of our client contracts expire in 2002, twenty-two percent in 2003,
seventeen percent in 2004, thirty-eight percent in 2005, ten percent in 2006 and six percent in 2007. 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 does not have minimum usage
requirements.



19



---

##### Table of Contents

PART I. ITEM 2.



MANAGEMENTS DISCUSSION AND ANALYSIS (continued)



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 payers;
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 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;
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 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 our clients or we 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 or 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 or retain qualified sales persons and skilled technologists at economically reasonable compensation levels could adverse 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
and marketing resources and experience than us. Furthermore, we expect that other companies will enter the mobile and stationary PET market, particularly as PET systems gain increasing market acceptance. Our competitors may be able to develop
technologies, procedures or products that are more effective or economical than ours, or that would render the PET system obsolete or noncompetitive. Some of our customers may be capable of providing the same services to their patients directly by
purchasing or leasing their own imaging systems. In addition, the hospital industry has been



20



---

##### Table of Contents

PART I. ITEM 2.



MANAGEMENTS DISCUSSION AND ANALYSIS (continued)



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 payers, such as government programs, and private insurance plans, for the procedures conducted using the PET system. Third-party payers 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, payers
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 payers 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 initiatives are periodically proposed which, if implemented, would have the effect of substantially decreasing reimbursement rates for diagnostic imaging services. We cannot guarantee that these or
similar initiatives will not be 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 some of 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.



21



---

##### Table of Contents

PART I. ITEM 2.



MANAGEMENTS DISCUSSION AND ANALYSIS (continued)



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 seventeen states in which we operate requires a certificate of need, more
states are adopting similar licensing requirements. 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.



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, first
quarter client and patient vacation schedules may affect revenues. Second quarter revenues may be affected by client and patient holiday and vacation schedules and inclement weather, the results of which may be fewer patients scans during the
period. Third quarter revenues may be affected by fewer calendar days and inclement weather, the results of which may be fewer patients 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.



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. The equipment manufacturers perform repairs of our equipment for us. We cannot guarantee that these manufacturers will be able to perform repairs or supply needed parts



22



---

##### Table of Contents

PART I. ITEM 2.



MANAGEMENTS DISCUSSION AND ANALYSIS (continued)



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.



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.



|ITEM 3. |  | CONTROLS AND PROCEDURES
|------- |  | -----------------------



Within 90 days prior to the filing date of this report, we carried out an evaluation, under the supervision and with the participation of our management, including our
Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as amended. Based
on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that as of the date of that evaluation our disclosure controls and procedures are effective in timely alerting them to material information required to be included
in our periodic SEC reports. It should be noted that the design of any systems of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its
stated goals under all potential future conditions, regardless of how remote.



There have been no significant changes in our internal controls or in other factors that could significantly affect internal controls subsequent to the date we carried out this evaluation.



23



---

##### Table of Contents

SIGNATURES



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,
|-----------------------
|                       
|a Delaware corporation 
|                       
|By:                    
|                       
|                       



Date:
July 10, 2003



24



---

##### Table of Contents

CERTIFICATIONS



|1. |  | Chief Executive Officer
|-- |  | -----------------------



I, Paul J. Crowe, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-QSB of Mobile PET Systems, Inc.;
|-- |  | ---------------------------------------------------------------------------------



|2. |  | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|3. |  | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4. |  | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14
and 15d-14) for the registrant and have:
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|a) |  | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this quarterly report is being prepared;
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|b) |  | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the
Evaluation Date); and
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|c) |  | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



|5. |  | The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of
registrants board of directors (or persons performing the equivalent functions):
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|a) |  | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize and report
financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|b) |  | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



|6. |  | The registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|    | 
|--- | 
|By: | 
|    | 
|    | 



Date:
July 10, 2003



25



---

##### Table of Contents

|2. |  | Senior Vice President, Finance
|-- |  | ------------------------------



I, Anthony R. Turnbull, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-QSB of Mobile PET Systems, Inc.;
|-- |  | ---------------------------------------------------------------------------------



|2. |  | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|3. |  | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4. |  | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14
and 15d-14) for the registrant and have:
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|a) |  | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this quarterly report is being prepared;
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|b) |  | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the
Evaluation Date); and
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|c) |  | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



|5. |  | The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of
registrants board of directors (or persons performing the equivalent functions):
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|a) |  | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize and report
financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|b) |  | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



|6. |  | The registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|    | 
|--- | 
|By: | 
|    | 
|    | 



Date:
July 10, 2003





26