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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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Form 10-QSB



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(Mark One)



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



For the quarterly period ended March 31, 2004



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



For the transition period from
 to



Commission file number 000-27915



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MOLECULAR IMAGING CORPORATION

A Delaware Corporation

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



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|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|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)



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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 55,866,801 shares outstanding of
the issuers Common Stock as of May 12, 2004.



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



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##### Table of Contents

Table of Contents



MOLECULAR
IMAGING CORPORATION AND SUBSIDIARIES



For the quarterly
period ended March 31, 2004



Table of Contents



|               |  |                       |  |                                                            |  |        
|-------------- |  | --------------------- |  | ---------------------------------------------------------- |  | -------
|               |  |                       |  |                                                            |  | PageNo.
|PART I.        |  | FINANCIAL INFORMATION |  |                                                           
|               |  |                       | 
|               |  | Item 1.               |  | Financial Statements (unaudited)                           |  |        
|               |  |                       | 
|               |  |                       |  | Consolidated Balance Sheets                                |  | 3      
|               |  |                       | 
|               |  |                       |  | Consolidated Statements of Operations                      |  | 4      
|               |  |                       | 
|               |  |                       |  | Consolidated Statements of Changes in Stockholders Equity |  | 5      
|               |  |                       | 
|               |  |                       |  | Consolidated Statements of Cash Flows                      |  | 6      
|               |  |                       | 
|               |  |                       |  | Notes to Consolidated Financial Statements                 |  | 7      
|               |  |                       | 
|               |  | Item 2.               |  | Managements Discussion and Analysis                       |  | 12     
|               |  |                       | 
|               |  | Item 3.               |  | Controls and Procedures                                    |  | 22     
|               |  |                      
|PART II.       |  | OTHER INFORMATION     |  |                                                           
|               |  |                       | 
|               |  | Item 1.               |  | Legal Proceedings                                          |  | 23     
|               |  |                       | 
|               |  | Item 2.               |  | Changes in Securities                                      |  | 23     
|               |  |                       | 
|               |  | Item 6.               |  | Exhibits and Reports on Form 8-K                           |  | 23     
|               | 
|SIGNATURES     |  | 23                   
|               | 
|CERTIFICATIONS |  |                      



2



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##### Table of Contents

MOLECULAR IMAGING CORPORATION

Formerly MOBILE PET SYSTEMS, INC.

Consolidated Balance Sheets



|                                                                                                                                                                        |  |                |             |   |               |   |             |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ----------- | - | ------------- | - | ----------- | -
|                                                                                                                                                                        |  | March 31, 2004 |             |   | June 30, 2003 |  
|                                                                                                                                                                        |  | (Unaudited)    |             |   | (Audited)     |  
|ASSETS                                                                                                                                                                  |  |                |             |   |               |   |             |  
|Current assets                                                                                                                                                          |  |                |             |   |               |   |             |  
|Cash                                                                                                                                                                    |  | $              | 172,777     |   |               | $ | 113,130     |  
|Accounts receivable, net of allowance for doubtful accounts of $238,775 and $100,000 respectively,                                                                      |  |                | 4,803,863   |   |               |   | 3,282,147   |  
|Prepaid expenses                                                                                                                                                        |  |                | 368,840     |   |               |   | 406,980     |  
|Deposits and other assets                                                                                                                                               |  |                | 125,292     |   |               |   | 3,341       |  
|                                                                                                                                                                        |  |                |             |   |               |   |             |  
|Total current assets                                                                                                                                                    |  |                | 5,470,772   |   |               |   | 3,805,598   |  
|Property and equipment, net                                                                                                                                             |  |                | 19,208,968  |   |               |   | 15,944,388  |  
|Other assets                                                                                                                                                            |  |                |             |   |               |   |             |  
|Accrued interest receivable                                                                                                                                             |  |                | 10,573      |   |               |   | 10,573      |  
|Due from London Radiosurgical Centre, Ltd                                                                                                                               |  |                | 127,123     |   |               |   | 127,123     |  
|Subordinated equity participation                                                                                                                                       |  |                | 200,000     |   |               |   | 200,000     |  
|Loan receivable                                                                                                                                                         |  |                |            |   |               |   | 500,000     |  
|Prepaid rent and financing costs                                                                                                                                        |  |                | 1,149,173   |   |               |   | 1,201,226   |  
|                                                                                                                                                                        |  |                |             |   |               |   |             |  
|Total assets                                                                                                                                                            |  | $              | 26,166,609  |   |               | $ | 21,788,908  |  
|                                                                                                                                                                        |  |                |             |   |               |   |             |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                    |  |                |             |   |               |   |             |  
|Current liabilities                                                                                                                                                     |  |                |             |   |               |   |             |  
|Accounts payable                                                                                                                                                        |  | $              | 3,781,322   |   |               | $ | 1,494,450   |  
|Asset backed financing facility                                                                                                                                         |  |                | 2,004,210   |   |               |   | 1,554,628   |  
|Current portion of note payable                                                                                                                                         |  |                | 30,413      |   |               |   | 28,481      |  
|Loan payable to related parties                                                                                                                                         |  |                | 82,829      |   |               |   | 122,692     |  
|Accrued and other liabilities                                                                                                                                           |  |                | 422,024     |   |               |   | 420,471     |  
|Obligations under capital lease - current                                                                                                                               |  |                | 12,419,221  |   |               |   | 4,813,471   |  
|                                                                                                                                                                        |  |                |             |   |               |   |             |  
|Total current liabilities                                                                                                                                               |  |                | 18,740,019  |   |               |   | 8,434,193   |  
|Noncurrent liabilities                                                                                                                                                  |  |                |             |   |               |   |             |  
|Obligations under capital lease                                                                                                                                         |  |                | 5,750,839   |   |               |   | 9,561,258   |  
|Long-term debt                                                                                                                                                          |  |                | 20,738      |   |               |   | 43,713      |  
|Deferred Gain                                                                                                                                                           |  |                | 97,368      |   |               |   |            |  
|                                                                                                                                                                        |  |                |             |   |               |   |             |  
|Total liabilities                                                                                                                                                       |  |                | 24,608,964  |   |               |   | 18,039,164  |  
|Minority interest                                                                                                                                                       |  |                | 96,230      |   |               |   |            |  
|Stockholders equity                                                                                                                                                    |  |                |             |   |               |   |             |  
|Common stock; $0.0001 par value; 90,000,000 shares authorized; 55,865,801 and 55,531,272 shares issued and outstanding at March 31, 2004 and
June 30,2003, respectively |  |                | 5,587       |   |               |   | 5,554       |  
|Additional paid in capital                                                                                                                                              |  |                | 29,928,643  |   |               |   | 29,511,164  |  
|Accumulated deficit                                                                                                                                                     |  |                | (28,472,815 | ) |               |   | (25,766,974 | )
|                                                                                                                                                                        |  |                |             |   |               |   |             |  
|Total stockholders equity                                                                                                                                              |  |                | 1,461,415   |   |               |   | 3,749,744   |  
|                                                                                                                                                                        |  |                |             |   |               |   |             |  
|Total liabilities and stockholders equity                                                                                                                              |  | $              | 26,166,609  |   |               | $ | 21,788,908  |  
|                                                                                                                                                                        |  |                |             |   |               |   |             |  



See accompanying notes.



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##### Table of Contents

MOLECULAR IMAGING CORPORATION

Formerly MOBILE PET SYSTEMS, INC.

Consolidated Statement of Operations

For the Three and Nine Months Ended March 31, 2004 and 2003

(Unaudited)



|                                                                                                                             |  |                              |           |   |                             |   |           |      |  |   |            |   |  |   |            |  
|---------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------- | --------- | - | --------------------------- | - | --------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                                                                                                                             |  | Three Months Ended March 31, |           |   | Nine Months Ended March 31, |  
|                                                                                                                             |  | 2004                         |           |   | 2003                        |   |           | 2004 |  |   | 2003       |  
|Service revenues                                                                                                             |  | $                            | 5,305,609 |   |                             | $ | 5,650,896 |      |  | $ | 16,520,661 |   |  | $ | 15,262,591 |  
|Cost of service revenues                                                                                                     |  |                              | 3,377,709 |   |                             |   | 3,141,296 |      |  |   | 10,340,878 |   |  |   | 9,262,883  |  
|                                                                                                                             |  |                              |           |   |                             |   |           |      |  |   |            |   |  |   |            |  
|Gross profit                                                                                                                 |  |                              | 1,927,900 |   |                             |   | 2,509,600 |      |  |   | 6,179,783  |   |  |   | 5,999,708  |  
|Expenses                                                                                                                     |  |                              |           |   |                             |   |           |      |  |   |            |   |  |   |            |  
|Selling and marketing                                                                                                        |  |                              | 408,161   |   |                             |   | 385,981   |      |  |   | 1,263,825  |   |  |   | 1,354,014  |  
|General and administrative                                                                                                   |  |                              | 1,775,328 |   |                             |   | 1,534,882 |      |  |   | 5,500,864  |   |  |   | 4,491,913  |  
|                                                                                                                             |  |                              |           |   |                             |   |           |      |  |   |            |   |  |   |            |  
|Total expenses                                                                                                               |  |                              | 2,183,489 |   |                             |   | 1,920,863 |      |  |   | 6,764,689  |   |  |   | 5,845,927  |  
|                                                                                                                             |  |                              |           |   |                             |   |           |      |  |   |            |   |  |   |            |  
|Income, (loss) from operations                                                                                               |  |                              | (255,589  | ) |                             |   | 588,737   |      |  |   | (584,906   | ) |  |   | 153,781    |  
|Other income (expense)                                                                                                       |  |                              |           |   |                             |   |           |      |  |   |            |   |  |   |            |  
|Other income (expense)                                                                                                       |  |                              | (5,696    | ) |                             |   | (20,165   | )    |  |   | (21,001    | ) |  |   | 82,780     |  
|Interest expense                                                                                                             |  |                              | (682,180  | ) |                             |   | (506,651  | )    |  |   | (2,253,704 | ) |  |   | (1,378,898 | )
|                                                                                                                             |  |                              |           |   |                             |   |           |      |  |   |            |   |  |   |            |  
|Total other income (expense)                                                                                                 |  |                              | (687,876  | ) |                             |   | (526,816  | )    |  |   | (2,274,705 | ) |  |   | (1,296,118 | )
|                                                                                                                             |  |                              |           |   |                             |   |           |      |  |   |            |   |  |   |            |  
|Loss from continuing operations before provision for income taxes and minority interest                                      |  |                              | (943,465  | ) |                             |   | 61,921    |      |  |   | (2,859,611 | ) |  |   | (1,142,337 | )
|Provision for income taxes                                                                                                   |  |                              |          |   |                             |   |          |      |  |   |           |   |  |   |           |  
|Minority interest                                                                                                            |  |                              | 76,814    |   |                             |   |           |      |  |   | 153,770    |   |  |   |            |  
|                                                                                                                             |  |                              |           |   |                             |   |           |      |  |   |            |   |  |   |            |  
|Loss from continuing operations                                                                                              |  |                              | (866,651  | ) |                             |   | 61,921    |      |  |   | (2,705,841 | ) |  |   | (1,142,337 | )
|Income(loss) from discontinued operations (including a $2,219,300 gain on the sale for the nine months ended March 31, 2003) |  |                              |          |   |                             |   |          |      |  |   |           |   |  |   | 2,224,644  |  
|                                                                                                                             |  |                              |           |   |                             |   |           |      |  |   |            |   |  |   |            |  
|Net Income (loss)                                                                                                            |  |                              | (866,651  | ) |                             |   | 61,921    |      |  |   | (2,705,841 | ) |  |   | 1,082,307  |  
|Preferred stock dividend                                                                                                     |  |                              |          |   |                             |   |          |      |  |   |           |   |  |   | 320,538    |  
|                                                                                                                             |  |                              |           |   |                             |   |           |      |  |   |            |   |  |   |            |  
|Net loss - available to common shareholders                                                                                  |  | $                            | (866,651  | ) |                             | $ | 61,921    |      |  | $ | (2,705,841 | ) |  | $ | 761,769    |  
|                                                                                                                             |  |                              |           |   |                             |   |           |      |  |   |            |   |  |   |            |  
|Loss per share from continuing operations - basic                                                                            |  | $                            | (0.02     | ) |                             | $ | 0.00      |      |  | $ | (0.05      | ) |  | $ | (0.02      | )
|                                                                                                                             |  |                              |           |   |                             |   |           |      |  |   |            |   |  |   |            |  
|Income per share from discontinued operations - basic                                                                        |  |                              |           |   |                             |   |           |      |  |   |            |   |  | $ | 0.04       |  
|                                                                                                                             |  |                              |           |   |                             |   |           |      |  |   |            |   |  |   |            |  
|Net income (loss) per share available to common shareholders - basic                                                         |  | $                            | (0.02     | ) |                             | $ | 0.00      |      |  | $ | (0.05      | ) |  | $ | 0.01       |  
|                                                                                                                             |  |                              |           |   |                             |   |           |      |  |   |            |   |  |   |            |  
|Loss per share from continuing operations - diluted                                                                          |  | $                            | (0.02     | ) |                             | $ | 0.00      |      |  | $ | (0.05      | ) |  | $ | (0.02      | )
|                                                                                                                             |  |                              |           |   |                             |   |           |      |  |   |            |   |  |   |            |  
|Income (loss) per share from discontinued operations - diluted                                                               |  |                              |           |   |                             |   |           |      |  |   |            |   |  | $ | 0.04       |  
|                                                                                                                             |  |                              |           |   |                             |   |           |      |  |   |            |   |  |   |            |  
|Net income (loss) per share available to common shareholders - diluted                                                       |  | $                            | (0.02     | ) |                             | $ | 0.00      |      |  | $ | (0.05      | ) |  | $ | 0.01       |  
|                                                                                                                             |  |                              |           |   |                             |   |           |      |  |   |            |   |  |   |            |  



See accompanying notes.



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##### Table of Contents

MOLECULAR IMAGING CORPORATION

Formerly MOBILE PET SYSTEMS, INC.

Consolidated Statements of Changes in Stockholders Equity

For the nine months ended March 31, 2004
(Unaudited) and the year ended June 30, 2003 (Audited)



|                                                                |  |              |   |  |                           |       |   |                     |   |            |                                       |  |   |                           |   |  |   |          |   |  |   |            |  
|--------------------------------------------------------------- |  | ------------ | - |  | ------------------------- | ----- | - | ------------------- | - | ---------- | ------------------------------------- |  | - | ------------------------- | - |  | - | -------- | - |  | - | ---------- | -
|                                                                |  | Common Stock |   |  | AdditionalPaid In Capital |       |   | Accumulated Deficit |   |            | ForeignCurrencyTranslation Adjustment |  |   | TotalStockholders Equity |  
|                                                                |  | Shares       |   |  | Amount                    |       |   |                     |   |           
|Balance - June 30, 2002                                         |  | 44,966,267   |   |  | $                         | 4,497 |   |                     | $ | 22,852,226 |                                       |  | $ | (26,410,567               | ) |  | $ | (312,661 | ) |  | $ | (3,866,505 | )
|Common Stock issued in private placement, net of offering costs |  | 9,821,429    |   |  |                           | 982   |   |                     |   | 6,184,424  |                                       |  |   |                           |   |  |   |          |   |  |   | 6,185,406  |  
|Preferred stock redemption - common stock surrendered           |  | (374,000     | ) |  |                           | (37   | ) |                     |   | 37         |                                       |  |   |                           |   |  |   |          |   |  |   |           |  
|Preferred stock redemption - dividend                           |  |              |   |  |                           |       |   |                     |   |            |                                       |  |   | (297,362                  | ) |  |   |          |   |  |   | (297,362   | )
|Repriced warrants                                               |  |              |   |  |                           |       |   |                     |   | 23,176     |                                       |  |   | (23,176                   | ) |  |   |          |   |  |   |           |  
|Common Stock issued for services                                |  | 930,076      |   |  |                           | 93    |   |                     |   | 344,907    |                                       |  |   |                           |   |  |   |          |   |  |   | 345,000    |  
|Common stock issued through the exercise of options             |  | 187,500      |   |  |                           | 19    |   |                     |   | (19        | )                                     |  |   |                           |   |  |   |          |   |  |   |           |  
|Options and warrants issued as compensation and for services    |  |              |   |  |                           |       |   |                     |   | 106,413    |                                       |  |   |                           |   |  |   |          |   |  |   | 106,413    |  
|Net Income                                                      |  |              |   |  |                           |       |   |                     |   |            |                                       |  |   | 964,131                   |   |  |   |          |   |  |   | 964,131    |  
|Foreign currency translation adjustment                         |  |              |   |  |                           |       |   |                     |   |            |                                       |  |   |                           |   |  |   | 312,661  |   |  |   | 312,661    |  
|                                                                |  |              |   |  |                           |       |   |                     |   |            |                                       |  |   |                           |   |  |   |          |   |  |   |            |  
|Balance June 30, 2003                                           |  | 55,531,272   |   |  |                           | 5,554 |   |                     |   | 29,511,164 |                                       |  |   | (25,766,974               | ) |  |   |         |   |  |   | 3,749,744  |  
|Common stock issued through the exercise of warrants            |  | 224,999      |   |  |                           | 22    |   |                     |   | 78,727     |                                       |  |   |                           |   |  |   |          |   |  |   | 78,749     |  
|Common stock issued for consulting fees                         |  | 109,530      |   |  |                           | 11    |   |                     |   | 49,989     |                                       |  |   |                           |   |  |   |          |   |  |   | 50,000     |  
|Section 16(b) Shareholder Short Swing Profits                   |  |              |   |  |                           |       |   |                     |   | 288,763    |                                       |  |   |                           |   |  |   |          |   |  |   | 288,763    |  
|Net loss                                                        |  |              |   |  |                           |       |   |                     |   |            |                                       |  |   | (2,705,841                | ) |  |   |          |   |  |   | (2,705,841 | )
|                                                                |  |              |   |  |                           |       |   |                     |   |            |                                       |  |   |                           |   |  |   |          |   |  |   |            |  
|Balance March 31, 2004                                          |  | 55,865,801   |   |  | $                         | 5,587 |   |                     | $ | 29,928,643 |                                       |  | $ | (28,472,815               | ) |  |   |         |   |  | $ | 1,461,415  |  
|                                                                |  |              |   |  |                           |       |   |                     |   |            |                                       |  |   |                           |   |  |   |          |   |  |   |            |  



See accompanying notes.



5



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##### Table of Contents

MOLECULAR IMAGING CORPORATION

Formerly MOBILE PET SYSTEMS, INC.

Consolidated Statements of Cash Flows

(Unaudited)



|                                                                                                  |  |                             |            |   |      |   |            |  
|------------------------------------------------------------------------------------------------- |  | --------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                                                                  |  | Nine Months Ended March 31, |           
|                                                                                                  |  | 2004                        |            |   | 2003 |  
|Cash flows from operating activities                                                              |  |                             |            |   |      |   |            |  
|Net (loss) income                                                                                 |  | $                           | (2,705,841 | ) |      | $ | 1,082,307  |  
|Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities |  |                             |            |   |      |   |            |  
|Depreciation and amortization                                                                     |  |                             | 3,317,140  |   |      |   | 2,260,975  |  
|Noncash stock options and warrants (credit) charge                                                |  |                             |           |   |      |   | 28,368     |  
|Common stock issued for services                                                                  |  |                             | 50,000     |   |      |   | 345,000    |  
|Gain on sale of discontinued subsidiaries                                                         |  |                             |           |   |      |   | (2,219,300 | )
|Gain on sale and lease back                                                                       |  |                             | 100,000    |   |      |   |           |  
|Minority interest in loss of subsidiary                                                           |  |                             | (153,770   | ) |      |   |           |  
|(Increase) decrease in operating assets                                                           |  |                             |            |   |      |   |            |  
|Accounts receivable                                                                               |  |                             | (1,521,716 | ) |      |   | (349,820   | )
|Due from London Radiosurgical Center, LTD                                                         |  |                             |           |   |      |   | 2,194      |  
|Prepaid expenses                                                                                  |  |                             | 38,140     |   |      |   | (210,049   | )
|Prepaid rent and financing costs                                                                  |  |                             | 52,053     |   |      |   |           |  
|Deposits and other assets                                                                         |  |                             | (121,951   | ) |      |   | 154,002    |  
|Restricted cash                                                                                   |  |                             |           |   |      |   | 5,392      |  
|Cash of discontinued subsidiaries                                                                 |  |                             |           |   |      |   | (37,574    | )
|Increase (decrease) in operating liabilities                                                      |  |                             |            |   |      |   |            |  
|Accounts payable                                                                                  |  |                             | 2,286,872  |   |      |   | (1,561,199 | )
|Accrued and other liabilities                                                                     |  |                             | 1,553      |   |      |   | (491,884   | )
|Deferred gain                                                                                     |  |                             | (2,632     | ) |      |   |           |  
|                                                                                                  |  |                             |            |   |      |   |            |  
|Net cash provided by (used in) operating activities                                               |  |                             | 1,339,848  |   |      |   | (991,588   | )
|Cash flows from investing activities                                                              |  |                             |            |   |      |   |            |  
|Capital expenditures                                                                              |  |                             | (1,258,862 | ) |      |   | (160,538   | )
|Proceeds from sale of capital assets                                                              |  |                             | 1,250,000  |   |      |   | (250,000   | )
|Proceeds from sale of discontinued subsidiaries                                                   |  |                             |           |   |      |   | 1,884,917  |  
|                                                                                                  |  |                             |            |   |      |   |            |  
|Net cash provided by (used in) investing activities                                               |  |                             | (8,862     | ) |      |   | 1,474,379  |  
|Cash flows from financing activities                                                              |  |                             |            |   |      |   |            |  
|Asset backed financing facility, net                                                              |  |                             | 449,582    |   |      |   |           |  
|Proceeds from loan                                                                                |  |                             | (60,906    | ) |      |   | (402,284   | )
|Payments on obligations under capital lease                                                       |  |                             | (2,277,527 | ) |      |   | (3,261,464 | )
|Preferred stock redeemed                                                                          |  |                             |           |   |      |   | (3,284,072 | )
|Common stock issued                                                                               |  |                             | 78,749     |   |      |   | 6,185,406  |  
|Short swing profits from shareholder                                                              |  |                             | 288,763    |   |      |   |           |  
|Investment in subsidiary                                                                          |  |                             | 250,000    |   |      |   |           |  
|                                                                                                  |  |                             |            |   |      |   |            |  
|Net cash provided by (used in) financing activities                                               |  |                             | (1,271,339 | ) |      |   | (762,414   | )
|                                                                                                  |  |                             |            |   |      |   |            |  
|Net increase (decrease) in cash                                                                   |  |                             | 59,647     |   |      |   | (279,623   | )
|Effect of exchange rate on changes in cash                                                        |  |                             |           |   |      |   | 312,661    |  
|Cash - beginning of period                                                                        |  |                             | 113,130    |   |      |   | 94,143     |  
|                                                                                                  |  |                             |            |   |      |   |            |  
|Cash - end of period                                                                              |  | $                           | 172,777    |   |      | $ | 127,181    |  
|                                                                                                  |  |                             |            |   |      |   |            |  
|Supplemental disclosures                                                                          |  |                             |            |   |      |   |            |  
|Interest paid                                                                                     |  | $                           | 2,072,169  |   |      | $ | 1,378,898  |  
|                                                                                                  |  |                             |            |   |      |   |            |  
|Noncash investing and financing activities                                                        |  |                             |            |   |      |   |            |  
|Equipment under capital lease                                                                     |  | $                           | 6,195,179  |   |      | $ | 4,057,414  |  
|                                                                                                  |  |                             |            |   |      |   |            |  
|Common stock issued under consulting agreement                                                    |  | $                           | 50,000     |   |      | $ | 345,000    |  
|                                                                                                  |  |                             |            |   |      |   |            |  
|Preferred stock dividend - warrants re-priced in redemption                                       |  | $                           |           |   |      | $ | 320,538    |  
|                                                                                                  |  |                             |            |   |      |   |            |  
|Conversion of note receivable to capital expenditure                                              |  | $                           | 500,000    |   |      | $ |           |  
|                                                                                                  |  |                             |            |   |      |   |            |  
|Capitalized interest                                                                              |  | $                           | 27,679     |   |      | $ |           |  
|                                                                                                  |  |                             |            |   |      |   |            |  
|Obligations under capital lease                                                                   |  | $                           | 6,195,179  |   |      | $ | 4,057,414  |  
|                                                                                                  |  |                             |            |   |      |   |            |  



See accompanying notes.



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##### Table of Contents

PART 1.



FINANCIAL INFORMATION (continued)



Notes to Consolidated Financial Statements  Molecular Imaging Corporation and Subsidiaries



Note 1The Company



Molecular Imaging Corporation (formerly Mobile PET Systems, Inc.) and subsidiaries (the Company) were organized to provide molecular imaging (MI) services to hospitals and other health care
providers on a fixed or mobile-shared user basis. The Companys MI 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
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 Regulation 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/A for the fiscal
year ended June 30, 2003.



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 and are subject to adjustment 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. Contractual
allowances are $300,000 at March 31, 2004 and June 30, 2003.



NOTE 3  ACCOUNTS RECEIVABLE



Accounts receivable consist of the following at March 31, 2004 and June 30, 2003:



|                                      |  |               |           |   |              |   |           |  
|------------------------------------- |  | ------------- | --------- | - | ------------ | - | --------- | -
|                                      |  | March 31,2004 |           |   | June 30,2003 |  
|Accounts receivable                   |  | $             | 5,342,638 |   |              | $ | 3,682,147 |  
|Less: Allowance for doubtful accounts |  |               | (238,775  | ) |              |   | (100,000  | )
|Contractual allowance                 |  |               | (300,000  | ) |              |   | (300,000  | )
|                                      |  |               |           |   |              |   |           |  
|Accounts receivable, net              |  | $             | 4,803,863 |   |              | $ | 3,282,147 |  
|                                      |  |               |           |   |              |   |           |  



NOTE 4 
ASSET BASED FINANCING



In May
2003 the Company entered into a $3,200,000 asset-based financing arrangement with a financial institution, which expires on May 12, 2006. The amounts borrowed by the Company under this financing arrangement are used to pay its general operating
expenses. Amounts available under the arrangement are limited to approximately 85% of qualified accounts receivable following an amendment dated May 1, 2004. The balance at March 31, 2004 and June 30, 2003 was $2,004,210 and $1,554,628,
respectively. The purchase fee percent is calculated at 0.032% per day.



In May
2003 the Company issued warrants to purchase 10,000 shares of common stock to the financial institution at an exercise price of $0.20 per share, expiring in three years.



Note 5  Purchase, Sale and Lease Back



On July 23, 2003 the Company entered into an Operating Agreement with two of its directors for the formation and operation of Molecular Imaging Cyclotron LLC, a
Delaware limited liability company (Cyclotron LLC). Under the terms of the Operating Agreement, the Company purchased 66 2/3 % of the equity of Cyclotron LLC through the assignment of a loan receivable in the amount of $500,000, due from
Vital Imaging LLC. The loan receivable carried interest at a rate of 9% per annum and was due on May 12, 2003. On August 15, 2003 Cyclotron LLC completed the purchase of a cyclotron located in San Diego, California from Vital Imaging, Inc. for cash
in the amount of $500,000 and offset of the loan receivable in the amount of $500,000 for a total of $1,000,000 and the assumption of an equipment lease in the amount of $2,123,800. The effective interest rate on this equipment lease is 7.79%.



On August 15, 2003 Cyclotron LLC entered into an Asset Purchase and Lease-Back
Agreement (the UCSD Agreement) with The Regents of the University of California (the Regents) pursuant to which Cyclotron LLC agreed to sell and leaseback the cyclotron and certain related assets to the Regents for a purchase
price of $750,000 and the Regents assumption of the equipment lease in the amount of $2,123,800. The Company reclassified to property and equipment, a deferred loss recorded on the consolidated balance sheet at September 30, 2003 in the amount
of $250,000 representing leasehold improvements purchased from Vital Imaging, Inc. on July 23, 2003 which was not sold to the Regents under the UCSD Agreement. This change had no impact on previously reported results of operations or
stockholders equity.



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##### Table of Contents

Under the terms of the UCSD Agreement, The Regents also has the right to contribute the cyclotron assets of Cyclotron LLC
in exchange for a membership interest in Cyclotron LLC. Cyclotron LLC intends to produce, market and sell FDG and other radiopharmaceuticals to third party providers and users of molecular imaging services, including the Company and its
subsidiaries.



On August 15, 2003 Molecular Imaging Sorrento Valley LLC (PET
LLC), a Delaware limited liability company and a wholly owned subsidiary of the Company, purchased a PET scanner from Vital Imaging, Inc. for cash in the amount of $400,000.



On August 15, 2003 PET LLC entered into an Asset Purchase and Lease-Back Agreement (the UCSD Agreement) with The Regents
pursuant to which PET LLC agreed to sell and leaseback the PET scanner and certain related assets to the Regents for a purchase price of $500,000 and the Regents assumption of the equipment lease in the amount of $1,976,200. Because the
Company consolidates the operations of PET LLC, the Company has a deferred gain on the sale and lease back in the amount of $100,000 and is recognizing the gain over the life of the lease. The effective interest rate on this transaction is 7.79%.



Note 6Prepaid Rent and Financing Costs



Prepaid rent and financing costs consist of the following at March 31, 2004 and June 30,
2003:



|                                 |  |               |           |              |   |          
|-------------------------------- |  | ------------- | --------- | ------------ | - | ---------
|                                 |  | March 31,2004 |           | June 30,2003
|Prepaid equipment rent           |  | $             | 1,073,986 |              | $ | 1,073,986
|Prepaid financing costs          |  |               | 75,187    |              |   | 127,240  
|                                 |  |               |           |              |   |          
|Prepaid rent and financing costs |  | $             | 1,149,173 |              | $ | 1,201,226
|                                 |  |               |           |              |   |          



Note 7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. There are no preferred shares issued and outstanding at March 31, 2004.



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 March 31, 2004 and June 30, 2003 the Company had 55,865,801
and 55,531,272 shares of common stock issued and outstanding, respectively.



During the nine months ended March 31, 2004 the Company issued 224,999 shares of common through the exercise of warrants for cash in the amount of $78,749 and issued 109,530 shares of common stock for payment of services valued at $50,000.



Stock Options



The Companys Board of Directors and stockholders adopted the 1999 Stock Option Plan
pursuant to which incentive stock options or non-statutory 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 April
10, 2013 and vest over service periods that range from zero to four years.



As
of March 31, 2004, the Company has granted options to purchase 3,463,740 shares of common stock, including options granted outside of the 1999 Stock Option Plan to purchase 200,000 shares of common stock, as follows:



|                    |  |                                  |              |                 |                                   |   |                |   |                 |  |            |  
|------------------- |  | -------------------------------- | ------------ | --------------- | --------------------------------- | - | -------------- | - | --------------- |  | ---------- | -
|                    |  | Nine Months Ended March 31, 2004 |              |                 | Twelve Months Ended June 30, 2003 |  
|                    |  | Exercise Price                   |              | Number ofShares |                                   |   | Exercise Price |   | Number ofShares | 
|Beginning of period |  | $                                | 0.17 - $4.63 |                 | 4,319,157                         |   |                | $ | 0.45 - $4.63    |  | 4,082,719  |  
|Granted             |  | $                                | 0.34         |                 | 200,000                           |   |                | $ | 0.17 - $0.74    |  | 2,343,480  |  
|Exercised           |  |                                  |             |                 |                                  |   |                | $ | 0.01            |  | (187,500   | )
|Cancelled           |  | $                                | 0.17 -$3.75  |                 | (1,055,417                        | ) |                | $ | 0.43 - $3.42    |  | (1,919,542 | )
|                    |  |                                  |              |                 |                                   |   |                |   |                 |  |            |  
|End of period       |  | $                                | 0.17 -$3.25  |                 | 3,463,740                         |   |                | $ | 0.17 - $4.63    |  | 4,319,157  |  
|                    |  |                                  |              |                 |                                   |   |                |   |                 |  |            |  
|Vested              |  |                                  |              |                 | 2,474,063                         |   |                |   |                 |  | 2,556,329  |  
|                    |  |                                  |              |                 |                                   |   |                |   |                 |  |            |  



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##### Table of Contents

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 issued to employees is recognized for the stock option awards granted at or above fair market value. Compensation expense
is recognized for stock option awards granted below fair market value with credits recorded from previously recognized expense for grants cancelled by termination of employment. However, during the nine months ended March 31, 2004 and 2003 the
Company recognized no compensation expense.



Had compensation expense for the
Companys 1999 Stock Option Plan been determined based on fair values at the grant dates for awards under the plan in accordance with SFAS No. 123, Accounting for Stock-Based Compensation, the Companys net income (loss) and
income (loss) per share would have been reduced to the following pro forma amounts:



|                                                             |  |                             |            |                           |      |   |            |  |   |            |   |  |   |           
|------------------------------------------------------------ |  | --------------------------- | ---------- | ------------------------- | ---- | - | ---------- |  | - | ---------- | - |  | - | ----------
|                                                             |  | Three Months EndedMarch 31, |            | Nine Month EndedMarch 31,
|                                                             |  | 2004                        |            |                           | 2003 |   | 2004       |  |   | 2003      
|Net (loss) income per share-available to common stockholders |  |                             |            |                           |      |   |            |  |   |            |   |  |   |           
|As reported                                                  |  | $                           | (866,651   | )                         |      | $ | 61,921     |  | $ | (2,705,841 | ) |  | $ | 761,769   
|Proforma                                                     |  | $                           | (921,960   | )                         |      | $ | 37,363     |  | $ | (2,885,526 | ) |  | $ | 639,473   
|Earnings per share - basic                                   |  |                             |            |                           |      |   |            |  |   |            |   |  |   |           
|As reported                                                  |  | $                           | (0.02      | )                         |      | $ | 0.00       |  | $ | (0.05      | ) |  | $ | 0.01      
|Proforma                                                     |  | $                           | (0.02      | )                         |      | $ | 0.00       |  | $ | (0.05      | ) |  | $ | 0.01      
|Earnings per share - diluted                                 |  |                             |            |                           |      |   |            |  |   |            |   |  |   |           
|As reported                                                  |  | $                           | (0.02      | )                         |      | $ | 0.00       |  | $ | (0.05      | ) |  | $ | 0.01      
|Proforma                                                     |  | $                           | (0.02      | )                         |      | $ | 0.00       |  | $ | (0.05      | ) |  | $ | 0.01      
|Weighted Average No. of Shares Outstanding                   |  |                             |            |                           |      |   |            |  |   |            |   |  |   |           
|Basic                                                        |  |                             | 55,865,801 |                           |      |   | 54,138,199 |  |   | 55,734,309 |   |  |   | 53,891,686
|Diluted                                                      |  |                             | 55,865,801 |                           |      |   | 73,636,220 |  |   | 55,734,309 |   |  |   | 71,968,209



|                        |  |                             |            |   |                            |   |      |      |  |   |            |   |  |   |      |  
|----------------------- |  | --------------------------- | ---------- | - | -------------------------- | - | ---- | ---- |  | - | ---------- | - |  | - | ---- | -
|                        |  | Three Months EndedMarch 31, |            |   | Nine Months EndedMarch 31, |  
|                        |  | 2004                        |            |   | 2003                       |   |      | 2004 |  |   | 2003       |  
|Risk free interest rate |  |                             | 1.98       | % |                            |   | 3.10 | %    |  |   | 1.98       | % |  |   | 3.10 | %
|Expected life           |  |                             | 2.56 years |   |                            |   |      |      |  |   | 2.56 years |   |  |   |      |  
|Expected volatility     |  |                             | 1.69       | % |                            |   | 1.45 | %    |  |   | 1.69       | % |  |   | 1.45 | %
|Expected dividend yield |  | $                           |           |   |                            | $ |     |      |  | $ |           |   |  | $ |     |  



Warrants



At March 31, 2004 warrants were outstanding to purchase 6,890,756 shares of common stock at
exercise prices between $0.20 to $7.00 per share, including warrants to purchase 340,006 shares of common stock which are subject to vesting through December 1, 2007 and the warrants re-priced in connection with the redemption of preferred stock.
These warrants expire between April 3, 2004 and December 1, 2008.



Note
8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 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 March 31, 2004 and June 30, 2003 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 stockholder 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 March 31, 2004 and June 30,
2003 the loan has a balance of $82,829 and $122,692, respectively



Molecular
Imaging Cyclotron LLC



On July 23, 2003 we entered into an Operating
Agreement with one of our directors, Paul Crowe, and one of our former directors, Jeffrey Rush, for the formation and operation of Cyclotron LLC. Under the terms of the Operating Agreement, the Company owns 66 2/3% of the equity of Cyclotron LLC,
and Mr. Crowe, Mr. Rush, and a third unaffiliated investor together own 33 1/3% of the equity of Cyclotron LLC. The Company has contributed $500,000 to Cyclotron LLC and Mr. Crowe and Mr. Rush, together with the unaffiliated third party investor
have contributed an aggregate of $250,000 to Cyclotron LLC. On August 15, 2003 Cyclotron LLC completed the purchase of the cyclotron located in San Diego, California from Vital Imaging, Inc. for $1,000,000 and the assumption of an equipment lease in
the amount of approximately $2,100,000. On August 15, 2003 Cyclotron LLC entered into the UCSD Agreement with the Regents pursuant to which Cyclotron LLC agreed to sell and leaseback the



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cyclotron and certain related assets to the Regents for a purchase price of $750,000 and the Regents assumption of the equipment lease in the amount of
approximately $2,100,000. Under the terms of the UCSD Agreement, the Regents also have the right to contribute the cyclotron assets to Cyclotron LLC in exchange for a membership interest in Cyclotron LLC. Cyclotron LLC intends to produce, market and
sell FDG and other radiopharmaceuticals to third party providers and users of MI services, including the Company and its subsidiaries.



Note 9Long Term Debt



Long-term debt at March 31, 2004 and June 30, 2003 consist of the following:



|                                                                                                                                                                                                  |  |               |         |   |              |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ------- | - | ------------ | - | ------- | -
|                                                                                                                                                                                                  |  | March 31,2004 |         |   | June 30,2003 |  
|Promissory Note with no interest, due in monthly installments of $500, with first payment beginning on February 1, 2002                                                                           |  | $             | 6,500   |   |              | $ | 11,000  |  
|Promissory Note with interest at a rate of 11% per annum, due in monthly installments of $2,343, with the first payment beginning on January
1, 2001, with a variable 5% to 1% prepayment penalty |  |               | 44,651  |   |              |   | 61,194  |  
|                                                                                                                                                                                                  |  |               |         |   |              |   |         |  
|                                                                                                                                                                                                  |  |               | 51,151  |   |              |   | 72,194  |  
|Less current portion                                                                                                                                                                              |  |               | (30,413 | ) |              |   | (28,481 | )
|                                                                                                                                                                                                  |  |               |         |   |              |   |         |  
|Long-term debt, net of current portion                                                                                                                                                            |  | $             | 20,738  |   |              | $ | 43,713  |  
|                                                                                                                                                                                                  |  |               |         |   |              |   |         |  



The maturities of long-term debt for
each of the succeeding four years subsequent to March 31, 2004, are as follows:



|          |  |   |       
|--------- |  | - | ------
|March 31, |  |  
|2005      |  | $ | 30,413
|2006      |  |   | 20,738
|          |  |   |       
|          |  | $ | 51,151
|          |  |   |       



Note 10Commitments



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



|                                  |  |               |             |   |              |   |            |  
|--------------------------------- |  | ------------- | ----------- | - | ------------ | - | ---------- | -
|                                  |  | March 31,2004 |             |   | June 30,2003 |  
|MI scanners and related equipment |  | $             | 27,091,902  |   |              | $ | 23,023,223 |  
|Cyclotron equipment               |  |               | 2,123,800   |   |              |   |           |  
|                                  |  |               |             |   |              |   |            |  
|                                  |  |               | 29,215,702  |   |              |   | 23,023,223 |  
|Less accumulated amortization     |  |               | (10,879,564 | ) |              |   | (8,648,494 | )
|                                  |  |               |             |   |              |   |            |  
|Net capital lease assets          |  | $             | 18,336,138  |   |              | $ | 14,374,729 |  
|                                  |  |               |             |   |              |   |            |  



The Company leases office space and
certain MI equipment under non-cancelable operating leases. The corporate office lease expired in March 2004, the facility lease for the UCSD Center for Molecular Imaging and cyclotron facility in San Diego expires in August 2008, and the equipment
leases expire through August 2006. Rent expense under these equipment operating leases was $453,515 and $1,480,753, respectively for the three months and nine months ended March 31, 2004, compared to $416,601 and $1,550,023 for the three months and
nine months ended March 31, 2003. The Company entered into a sublease dated April 12, 2004 with Verio, Inc. for corporate office space of approximately 6,000 square feet located in the University Town Center area of San Diego, California. The
Sublease will commence on June 1, 2004 for a period of twenty-four (24) months. The monthly rent under the sublease for the first month is $0, for months two to 12 is $6,000 per month, and for months 13 to 24 is $7,000 per month.



The Company leases certain other MI equipment and the Cyclotron under capital leases. The
equipment leases expire through January 2008. The molecular imaging scanning equipment and cyclotron secure the capital leases.



On January 13, 2004 the Company received a Default Letter from Siemens Financial Service, Inc. (SFS) and on January 16, 2004, a Final Demand for Payment from
GE Healthcare Financial Services (GE) for nonpayment of certain obligations under capital lease. As a consequence, long-term obligations under capital lease in the amount of $5,633,148 have been classified as current liabilities. The
Company received a waiver of the default from SFS in exchange for an agreement to negotiate a mutually agreeable refinance arrangement. In addition, the Company received a retraction of the final demand for payment from GE on February 10, 2004.



The following is a schedule of the future minimum lease payments as of March
31, 2004 for equipment under capital leases and operating leases; $9,063,841 of capital lease payments have been reclassified into 2005 until we restructure the Siemens and GE leases as described above:



|                                                                                   |  |              |            |   |                |   |          
|---------------------------------------------------------------------------------- |  | ------------ | ---------- | - | -------------- | - | ---------
|                                                                                   |  | CapitalLease |            |   | OperatingLease
|2005                                                                               |  |              | 16,868,897 |   |                |   | 1,605,332
|2006                                                                               |  |              | 2,225,628  |   |                |   | 829,062  
|2007                                                                               |  |              | 1,304,814  |   |                |   |         
|2008                                                                               |  |              | 822,372    |   |                |   |         
|2009                                                                               |  |              | 822,372    |   |                |   |         
|2010                                                                               |  |              | 479,717    |   |                |   |         
|                                                                                   |  |              |            |   |                |   |          
|Total                                                                              |  | $            | 22,523,800 |   |                | $ | 2,434,394
|                                                                                   |  |              |            |   |                |   |          
|Less amount representing interest                                                  |  |              | (4,353,740 | ) |                |   |          
|                                                                                   |  |              |            |   |                |   |          
|Present value of minimum lease payments (including current portion of $12,419,221) |  | $            | 18,170,060 |   |                |   |          
|                                                                                   |  |              |            |   |                |   |          



Note 11Concentrations of
Credit Risk



The Company may maintain 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.



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NOTE 12  SEGMENT INFORMATION



The Companys principal business is providing molecular imaging services to hospitals
and other health care providers on a fixed or mobile-shared user basis within the United States.



In August of 2003 a subsidiary of the Company acquired a cyclotron facility located in San Diego, California. A cyclotron is used to produce radiopharmaceuticals such as Fluorine-18, Nitrogen-13, Oxygen-15 and
Flurodeoxyglucose (FDG), which are some of the radiopharmaceuticals used for MI procedures. FDG is the primary radiopharmaceutical that is injected into a patient before a MI procedure. There were no sales of radiopharmaceuticals to
third parties during the three months and nine months ended March 31, 2004.



NOTE 13  GOING CONCERN



The accompanying financial statements have been prepared assuming the Company will continue as a going concern. The Companys continued existence is dependent upon its ability to resolve its liquidity problems,
principally by obtaining additional equity capital and by refinancing existing obligations under capital lease. While pursuing additional equity and refinancing existing obligations, the Company must continue to operate on limited cash flows
generated internally. The Company experienced a net loss for the nine months ended March 31, 2004 of $2,705,841 (unaudited) compared to a net loss from continuing operations for the nine months ended March 31, 2003 of $1,142,337 (unaudited) and has
an accumulated deficit of $28,472,815 (unaudited) that raise substantial doubt about its ability to continue as a going concern.



We have an immediate need to raise additional capital to sustain our operations. In addition, we will be required to raise additional capital to add or acquire additional
mobile units or stationary sites. We are actively exploring various financing alternatives. Management has recently met with and had discussions with numerous financing sources and investment banking companies that have expressed an interest in
investing or raising money for the Company. As a result of these discussions, the Company has been negotiating definitive documents to consummate an equity financing. The Company intends to continue to seek financing and consummate a financing
transaction. However, there can be no assurance as to whether, when, or upon what terms the Company will be able to consummate any financing.



The Company is overdue on payments to some of its suppliers. In January of 2004 Siemens Financial Services, Inc. (Siemens) notified the Company that is
was in default under its leasing contracts (the Siemens Leases) with Siemens as a result of overdue payments in the amount of $1,193,452. The Siemens Leases cover nine molecular imaging scanners and related equipment operated by
the Company. Also in January of 2004 GE Healthcare Financial Services, Inc. (GE) provided a final demand for payment to the Company for overdue payments in the amount of $839,691 under the leasing contracts (the GE
Leases) between GE and the Company. The GE Leases cover six molecular imaging scanners and related equipment operated by the Company.



The Company has separate ongoing discussions with both Siemens and GE to restructure the payment schedules. As a result of these discussions with Siemens and GE, Siemens
has withdrawn the default status on the Siemens Leases, and GE withdrew its final demand for payment. The Company has been working with both Siemens and GE to reach a mutually agreeable refinancing arrangement. The Company believes it will be able
to restructure the Siemens Leases and GE Leases to resolve the overdue amounts and allow the Company to meet its obligations going forward. However, there can be no assurance that the Company will be able to restructure the Siemens Leases or the GE
Leases. Should the Company be unable to restructure the Siemens Leases or GE Leases, the Company would likely become in default under such leases. In the event of such a default, Siemens and GE would have the right to terminate the Siemens Leases
and GE Leases, respectively; repossess the molecular imaging equipment operated by the Company under the leases; and demand payment for all costs and expenses related to repossessing and reselling the equipment. A default under the Siemens Leases
and GE Leases could also result in a default under the three molecular imaging equipment leases assigned to Ascendant PET Partners-I, LLC (PET Partners) in May of 2003. In the event of such a default, PET Partners would also be entitled
to repossess the equipment and demand payment for costs and expenses. The Company generates substantially all of its revenue from the operation of the molecular imaging equipment under these Leases. The repossession of all or a portion of this
molecular imaging equipment would result in the Companys inability to generate further revenues and, therefore, would have a material adverse affect on the Companys operations and its ability to continue as a going concern.



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PART I.



|Item 2. | MANAGEMENTS DISCUSSION AND ANALYSIS
|------- | ------------------------------------



Overview



Molecular Imaging Corporation is a leading national provider of molecular imaging (MI) services to the healthcare industry. MI is a powerful diagnostic imaging procedure used to diagnose, monitor and
assess disease severity for many cancers, cardiovascular disease and neurological disorders. MI procedures display metabolic and functional characteristics of disease, which typically are the first indications of disease. Unlike Computed Tomography
(CT) or Magnetic Resonance Imaging (MRI), which provide physicians with changes in anatomy, MI detects the altered metabolism typically before anatomical changes occur. MI can help physicians effectively detect disease at the
very earliest stages. We also provide the newer combined MI/CT systems. These combined imaging systems offer the physician un-paralleled diagnostic information, which includes both metabolic, and anatomical information in one co-registered image.
The new combined MI/CT technology improves the time to diagnosis, staging of many cancers, cardiovascular disease and neurological disorders and is also used to observe patient response to treatment.



We provide our services to hospitals, physician groups, diagnostic imaging centers and other
healthcare providers in selected marketplaces in the United States. Our shared service model provides mobile MI units or mobile MI/CT units, which we provide on a daily basis or per procedure basis to our clients. We also develop and operate
long-term permanent facilities with clients interested in full time MI or MI/CT services.



With our mobile imaging business, we integrate MI or MI/CT systems on mobile coaches and enter into multi-year contracts with our clients to provide mobile services for a specified number of days per week. We also
provide our customers with technical personnel to operate the equipment and implement the MI procedure under the direction of hospital physicians. In some cases, we also train hospital technical personnel to conduct the MI procedures. We bill our
clients for the technical component of the patient procedure and the client bills the insurer for the balance of patient services rendered. Our mobile services allow hospitals, physician groups, imaging center operators and other healthcare
providers to access this state-of-the art diagnostic imaging technology seamlessly and efficiently. Under this model we invoice the client for our services at a discounted rate and they invoice the insurer directly.



We also develop mobile and stationary MI imaging centers that we operate as Independent
Diagnostic Testing Facilities (IDTF). Under the IDTF model, the Company submits patient billings directly to public and private insurance carriers. We invoice our permanent MI services that are inclusive of all patient services, at
retail rates, rather than wholesale rates for our mobile services. In addition, insurance reimbursement rates are currently higher for MI services performed at an IDTF facility than for the same services performed at a hospital.



Under the mobile service economic model, a higher number of procedures are necessary to reach
break-even, and conversely under the IDTF economic model, fewer scans per day are typically necessary to reach break-even because of the higher amount of reimbursement.



We have a stationary MI imaging facility in San Diego, California that is owned by our subsidiary, Molecular Imaging Sorrento Valley, LLC
(Sorrento Valley LLC), and is managed by the Company. The center is operated with the University of California, San Diego (UCSD) as the University of California, San Diego Center For Molecular Imaging. The UCSD
School of Medicine radiology faculty provides all clinical patient support services at the center and the Company manages the business operations of the center. The facility is intended to serve the UCSD healthcare patient population and the greater
San Diego metropolitan area. We are also planning to transition the stationary MI imaging center in St. Petersburg, Florida which we operated with a third party to a MI/CT imaging center to be operated solely by a subsidiary of the company.



We also operate a cyclotron facility in San Diego, California. A cyclotron is
used to produce radiopharmaceuticals such as Fluorine-18, Nitrogen-13, Oxygen-15 and Flurodeoxyglucose (FDG), which are some of the radiopharmaceuticals used for MI procedures. FDG is the primary radiopharmaceutical that is injected into
a patient before a MI procedure. Abnormal concentrations of FDG can indicate areas of malignancies. In conjunction with UCSD, the Company plans to use the cyclotron in future research programs for the development of other radioisotopes that may be
useful in the fields of neuroscience and cardiology. We believe that the vertical integration of the cyclotron will offer significant commercial benefits for our existing physician and hospital customer base in Southern California and provide us
with a competitive advantage.



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 and with the instructions to Form 10-QSB and Regulation S-X. 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



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to be reasonable under the circumstances. Estimated amounts may differ under different assumptions or conditions, and actual results could differ from the
estimates. There are many critical accounting policies discussed in the notes to our financial statements including the following critical accounting policy that 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 March 31, 2004



Service revenues for the three months ended March 31, 2004 were $5,305,609 compared to service revenues for the three months ended March 31, 2003 of $5,650,896. Our cost
of service revenues for the three months ended March 31, 2004 were $3,377,709 compared to $3,141,296 for the three months ended March 31, 2003. This decrease in revenue is comprised of decreases in both scan revenue and FDG sales. The decrease in
scan revenue is the result in lower net revenue per scan and the lower FDG revenue is the result of one of our suppliers selling direct to our customers to provide FDG. The increase in the cost of service revenues represents increased cost
associated with the additional two systems in service during the three months ended March 31, 2004 versus the three months ended March 31, 2003.



The Company believes the lower net revenues per scan for the third quarter is the result of a growing trend of current and potential customers being able to negotiate
lower scan rates due to the wider availability of MI equipment from other service providers.



The gross profit percentage decreased from 44.4% for the three months ended March 31, 2003, to 36.3% for the three months ended March 31, 2004 primarily for the following reasons:



|                                                                  |  |      |  
|----------------------------------------------------------------- |  | ---- | -
|Gross profit percentage for the three months ended March 31, 2003 |  | 44.4 | %
|Personnel costs                                                   |  | 0.1  |  
|Depreciation expense                                              |  | (5.0 | )
|Capital equipment rental                                          |  | (1.0 | )
|Capital equipment service contracts and repairs                   |  | (2.0 | )
|FDG (glucose injection)                                           |  | 1.3  |  
|Other                                                             |  | (1.5 | )
|Gross profit percentage for the three months ended March 31, 2004 |  | 36.3 | %



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Our personnel costs decreased in the three months ended March 31, 2004 despite adding one additional mobile unit and one
additional fixed site facility, as we better managed this resource and moved some positions from full time to part time. Depreciation expense increased in the three months ended March 31, 2004 mainly due to the addition of the MI/CT unit, plus one
stationary facility. Equipment rental costs increased slightly due to increased rental of fusion software provided to our customers. Our cost of capital equipment service contracts and repairs increased as more units came off their one-year factory
warranty period during the three months ended March 31, 2004 over the three months ended March 31, 2003. Our FDG revenue and costs decreased in the three months ended March 31, 2004 as our west coast supplier of FDG began selling FDG directly to our
customers.



Selling and marketing expenses increased by $22,180 from $385,981
for the three months ended March 31, 2003 to $408,161 for the three months ended March 31, 2004. This increase was due mainly to trade shows and travel spending.



General and administrative expenses increased by $240,446 or 15.7% from $1,534,882 for the three months ended March 31, 2003 to $1,775,328
for the three months ended March 31, 2004. This increase was due mainly to costs of $193,027 associated with the cyclotron facility purchased in the first quarter that are classified as general and administrative expenses until the cyclotron is put
into full production and becomes a revenue generating facility, the general and administrative costs of $94,569 associated with the Sorrento Valley fixed site facility opened in the first quarter, and the increased costs of insurance. These
increases were partially offset by savings in accounting salaries and professional and consulting fees as well as an increase in the allowance for doubtful accounts that was expensed in the three months ended March 31, 2003 that wasnt
increased this quarter.



Our net income from operations decreased from $588,737
for the three months ended March 31, 2003 to a loss of $255,589 for the three months ended March 31, 2004. This decrease was mainly due to the decrease in gross profit of $581,700 and the $240,446 increased costs described in the general and
administration section above.



Interest expense increased from $506,651 for the
three months ended March 31, 2003 to $682,180 for the three months ended March 31, 2004. This increase was a result of increased equipment under capital leases and the additional borrowing on our line of credit with Meridian.



Nine Months Ended March 31, 2004



Service revenues for the nine months ended March 31, 2004 were $16,520,661 compared to
service revenues for the nine months ended March 31, 2003 of $15,262,591. Our cost of service revenues for the nine months ended March 31, 2004 were $10,340,878 compared to $9,262,883 for the nine months ended March 31, 2003. The difference in
service revenues is largely attributable to eighteen mobile units and two stationary facilities being deployed during the nine months ended March 31, 2004 compared to only eighteen mobile units being deployed during the nine months ended March 31,
2003. This difference in service revenues is also attributable to the addition of our MI/CT system, and better utilization of each existing unit. The cost of service revenues represents salaries paid to technologists and drivers, system maintenance,
transportation and insurance on our mobile and fixed site MI systems.



The
gross profit percentage decreased from 39.3% for the nine months ended March 31, 2003 to 37.4% for the nine months ended March 31, 2004 primarily for the following reasons:



|                                                                 |  |      |  
|---------------------------------------------------------------- |  | ---- | -
|Gross profit percentage for the nine months ended March 31, 2003 |  | 39.3 | %
|Personnel costs                                                  |  | 0.8  |  
|Depreciation expense                                             |  | (4.4 | )
|Capital equipment rental                                         |  | 1.9  |  
|Capital equipment service contracts and repairs                  |  | 1.3  |  
|FDG                                                              |  | (1.4 | )
|Other                                                            |  | (0.1 | )
|Gross profit percentage for the nine months ended March 31, 2004 |  | 37.4 | %



Our personnel costs decreased slightly
despite adding the Sorrento Valley site and the Mobile PET/CT unit during the year as we better managed this resource and moved some positions from full time to part time during the year. Depreciation expense increased in the nine months ended March
31, 2004 mainly due to the addition of the MI/CT unit, plus the stationary facility. Equipment rental costs decreased mainly due to the transfer of one rental unit to a leased vehicle in January 2003. Our cost of capital equipment



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service contracts and repairs decreased during the nine months ended March 31, 2004 over the nine months ended March 31, 2003 due to the termination of
certain maintenance contracts that were replaced with time and materials service. This savings was partially offset by increases in equipment no longer under the one year factory warranty period. Our FGD (glucose injections) costs increased as we
opened more IDTF sites and fixed sites.



Selling and marketing expenses
decreased by 6.7% from $1,354,014 for the nine months ended March 31, 2003 to $1,263,825 for the nine months ended March 31, 2004. This decrease was due mainly to a reduction in compensation partially offset by increased travel expense.



General and administrative expenses increased by $1,008,951 or 22.5% from $4,491,913 for
the nine months ended March 31, 2003 to $5,500,864 for the nine months ended March 31, 2004. $418,115 of this increase was due to costs associated with the cyclotron facility purchased in the first quarter that are classified as general and
administrative expenses until the cyclotron is put into full production, an increase of $168,903 is associated with the addition of Sorrento Valley, an increase of $115,000 in the allowance for doubtful accounts, the write off of a deposit made on
the Houston facility after the seller declared bankruptcy and the asset purchase agreement was terminated, and $163,234 in increased costs of insurance. These increases were partially offset by savings in accounting salaries.



Our net income from operations decreased from $153,781 for the nine months ended March 31,
2003 to a loss of $584,906 for the nine months ended March 31, 2003. The 8.2% increase in revenue was not sufficient to over come the 11.6% increase in cost of sales and the increased general and administrative expense as described above.



Interest expense increased from $1,378,898 for the nine months ended March 31,
2003 to $2,253,704 for the nine months ended March 31, 2004 as a result of increased equipment under capital leases and the additional borrowing on our line of credit with Meridian.



Net cash provided by operating activities for the nine months ended March 31, 2004 increased to $1,339,848 from a negative $991,588 for the
nine months ended March 31, 2003. This change was mainly attributable to the increase in accounts payable which was offset by the increase in accounts receivable.



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 MI/CT
systems. We may continue to incur additional losses as we pursue our development and expansion efforts. The majority of our costs are fixed and 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. As discussed above, we are also working with third parties and existing customers to develop stationary imaging centers that we will operate as Independent Diagnostic Testing
Facilities.



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, and we exclude Sundays from this calculation since none of our units are scheduled for Sunday service. For reasons described above, our average revenues per weekday for all units
decreased to approximately $79,058 for the three months ended March 31, 2004, and increased to approximately $82,633 for the nine months ended March 31, 2004, from the average revenues per weekday for all units of approximately $84,141 and $75,427,
for the three and nine months ended March 31, 2003, respectively. 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 historically had a satisfactory record of account collections. However, there can be no assurance that this trend will continue. 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.



Since our inception we have incurred significant losses. Through March 31, 2004 we have an
accumulated deficit of $28,472,815 which we have financed primarily through equity sales. For the nine months ended March 31, 2004 we recognized a loss from continuing operations of $2,705,841, compared to losses from continuing operations of
$1,142,337 for the nine months ended March 31, 2003. The loss from continuing operations of $2,705,841 for the nine months ended March 31, 2004 includes the following increased costs which were not incurred by the Company during the nine months
ended March 31, 2003: the amount of $303,250 of increased interest expense relating to our borrowing facility, $149,756 of increased expenses relating to the additional capital equipment lease for our new PET/CT unit added in July 2003, and $284,244
of cost associated with the cyclotron system, which will allow us to produce FDG for Southern California in the future.



Subject to obtaining additional financing, we are also seeking to deploy additional mobile units and stationary sites, and seeking to upgrade our existing equipment to
MI/CT scanners to meet the increased demand for this technology. Our one existing MI/CT scanner generates higher revenue for the Company than any of the Companys standard MI scanners. However, we can give no assurances that we will be able to
deploy such additional units or sites, or that we will be able to upgrade our existing equipment to MI/CT scanners.



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We are also striving to achieve profitability from operations. In order to achieve profitability from operations, we will need to continue to increase
revenues and effectively manage our operating overhead.



Liquidity and
Capital Resources



At March 31, 2004 our total assets were $26,166,609
compared to $21,788,908 at June 30, 2003. The increase was primarily the result of adding one mobile unit and adding a stationary facility and the cyclotron. Our current assets at March 31, 2004 totaled $5,470,772 and our current liabilities were
$18,740,019 compared to current assets of $3,805,598 and current liabilities of $8,434,193 at June 30, 2003. 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 a result of not meeting our payment requirements with GE and Siemens (as described in note 10 and 13) we have reclassified all the lease payments to GE and Siemens as
current. As discussed in Note 12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.



Stockholders equity decreased to $1,461,415 at March 31, 2004 from $3,749,744 at June 30, 2003 due primarily to the net loss of $2,705,841 for the nine months ended
March 31, 2004.



We have an immediate need to raise additional capital to
sustain our operations. In addition, we will be required to raise additional capital to add or acquire additional mobile units or stationary sites. We are actively exploring various financing alternatives. Management has recently met with and had
discussions with numerous financing sources and investment banking companies expressing an interest in investing in or raising money for, the Company. As a result of these discussions, the Company has been negotiating definitive documents to
consummate an equity financing. The Company intends to continue to seek financing and consummate a financing transaction. However, there can be no assurance as to whether, when, or upon what terms the Company will be able to consummate any
financing.



The Company is overdue on payments to some of its suppliers. In
January of 2004 Siemens Financial Services, Inc. (Siemens) notified the Company that is was in default under its leasing contracts (the Siemens Leases) with Siemens as a result of overdue payments in the amount
of $1,193,452. The Siemens Leases cover nine molecular imaging scanners and related equipment operated by the Company. Also in January of 2004 GE Healthcare Financial Services, Inc. (GE) provided a final demand for payment to the
Company for overdue payments in the amount of $839,691 under the leasing contracts (the GE Leases) between GE and the Company. The GE Leases cover six molecular imaging scanners and related equipment operated by the Company.



The Company has separate ongoing discussions with both Siemens and GE to
restructure the payment schedules. As a result of these discussions with Siemens and GE, Siemens has withdrawn the default status on the Siemens Leases, and GE withdrew its final demand for payment. The Company has been working with both Siemens and
GE to reach a mutually agreeable refinancing arrangement. The Company believes it will be able to restructure the Siemens Leases and GE Leases to resolve the overdue amounts and allow the Company to meet its obligations going forward. However, there
can be no assurance that the Company will be able to restructure the Siemens Leases or the GE Leases. Should the Company be unable to restructure the Siemens Leases or GE Leases, the Company would likely become in default under such leases. In the
event of such a default, Siemens and GE would have the right to terminate the Siemens Leases and GE Leases, respectively; repossess the molecular imaging equipment operated by the Company under the leases; and demand payment for all costs and
expenses related to repossessing and reselling the equipment. A default under the Siemens Leases and GE Leases could also result in a default under the three molecular imaging equipment leases assigned to Ascendant PET Partners-I, LLC (PET
Partners) in May of 2003. In the event of such a default, PET Partners would also be entitled to repossess the equipment and demand payment for costs and expenses. The Company generates substantially all of its revenue from the operation of
the molecular imaging equipment under these Leases. The repossession of all or a portion of this molecular imaging equipment would result in the Companys inability to generate further revenues and, therefore, would have a material adverse
affect on the Companys operations and its ability to continue as a going concern.



Risks Related to Our Business



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.



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



We have incurred significant losses since our formation. We may not be able to generate
sufficient revenues from sales to fund continuing operations or achieve sustained profitability.



We have a relatively limited operating history.



Our prospects must be considered in connection with the risks, uncertainty, expenses and difficulties frequently encountered by relatively new companies, particularly in new and rapidly evolving markets such as those for the services we
provide.



Our substantial indebtedness has restricted our operations and
made us more vulnerable to adverse economic conditions.



We are a highly
leveraged company and our substantial indebtedness has had important consequences. For example, our indebtedness:



| |  | makes it more difficult for us to satisfy our obligations to our creditors;
| | - | ---------------------------------------------------------------------------



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



| |  | increases our vulnerability to economic downturns and competitive pressures in our industry;
| | - | --------------------------------------------------------------------------------------------



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



| |  | limits 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s creditors foreclose as a result of the
Companys default under its debt obligations, the Company and its operations would 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 MI technology. We have a limited sales force and may need to hire additional technologists and sales and marketing personnel to
grow the acceptance of MI services. We believe MI 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.



Our ability to continue operations depends on our ability to achieve sustained
profitability.



Our future revenues and profitability depend in part on
our ability to demonstrate to hospitals the potential cost and performance advantages of the MI and MI/CT system over traditional diagnostic imaging systems. Our ability to achieve sustained profitability in the future will depend in part on our
ability to successfully market and sell MI services on a wide scale. If we are unable to do so, we will be unable to achieve sustained profitability from operations.



We will need to obtain additional financing.



Our capital requirements associated with our operations have been and will continue to be substantial. We will require additional financing
to execute our business plan. No assurance can be given that we will be able to obtain additional financing when needed, or that, if available, such financing will be on terms acceptable to us. In any such financing, the interests of our existing
security holders could be substantially diluted. If adequate funds are either not available or not available on acceptable terms, our business, revenues, financial condition and results of operations will 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. Also, our
ability to raise additional funds through the issuance of



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equity or convertible securities is restricted by our number of authorized shares and may be restricted by certain covenants contained in the July 2002
private placement agreements.



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



Our available short-term assets
and investment income are insufficient 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 MI services.



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 would adversely affect our business.



We obtain our MI and MI/CT systems from a limited group of qualified suppliers: CTI of Knoxville, TN, Siemens Medical Systems, Inc. of Iselin NJ and GE Medical Systems of
Milwaukee, WS. While we believe that alternative suppliers could be found for the MI 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 MI or MI/CT systems
could materially harm our ability to expand our revenues and thereby adversely affect our financial condition and results from operations.



The most commonly used radiotracer is fluorodeoxy glucose (FDG). We obtain FDG from multiple sources, however, FDG is highly perishable and we may not have multiple
sources for each of our operating sites or routes. Any interruption in the supply and/or delivery of FDG could materially harm our ability to expand out 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 MI system may become
technologically obsolete and our business could be harmed.



The markets in
which our MI services compete are subject to rapid technological change as well as the potential development of alternative diagnostic imaging techniques or products, or the combination of modalities such as MI/CT. These changes could render the MI
system technologically or economically obsolete, or cause a reduction in the value of, or reduce the need for, MI 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 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 MI systems and purchase or lease their own MI systems or MI/CT systems, use our competitors MI systems
or MI/CT systems, or rely on alternate imaging technologies. Approximately forty-four percent of our client contracts expire in 2004, twenty-eight percent in 2005, and twenty-eight percent in 2006/2007. Moreover, approximately



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one-third of our client contracts permit the client, upon typically 180 days notice, to terminate the contract without cause, and approximately
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 MI system. In addition, a portion of our contracts do not have minimum usage requirements.



The success of the IDTF business model depends on our ability to accurately
predict patient demand for our services; the maintenance of higher reimbursement rates for IDTF procedures; and our selection of quality business partners.



As of the end of the third quarter, we had four IDTFs, one of which is stationary and three of which are mobile. We are also scheduled to start two additional mobile
IDTFs in June of 2004. We are actively working with third parties to develop additional stationary and mobile imaging centers that we will operate as IDTFs. These imaging centers are identified and selected based on input from hospital
administrators, imaging center operators or physician groups who want to offer MI on their campus. We analyze the marketplace demographics, local competition, tumor board statistics, referring physician demographics and the availability of an
on-site MI champion to increase the vitality of the MI 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, as we have done with The
Regents of the University of California for our stationary imaging center in San Diego, California. We anticipate that these partnerships would be in the form of a limited liability company or similar legal entity in which we would have a majority
ownership, control and management rights.



While we will use our experience and
knowledge of the MI marketplace to select IDTF imaging centers that we believe will be successful, there can be no assurances that our selection process will result in an IDTF that is profitable. Also, the factors upon which we select the IDTF
imaging center may change after commencement of operations of the site that could result in reduced patient use and revenues and have an adverse impact on our business. There are no assurances that the current reimbursement rates for IDTF imaging
centers will remain higher than those for hospital based services. A reduction in such reimbursement rates could have an adverse impact on the operation of the IDTF model. The IDTF model may also result in a longer period of time between when we
perform the MI procedure and receive payment then under our typical mobile services model. This could have an adverse impact on our cash flow.



The success of our IDTF model will also depend on our ability to select quality partners who can assist in the development and operation of those imaging centers and our
ability to execute and implement agreements with such third parties that will protect our rights with respect to the management and operation of these imaging centers. While we will use our experience to select quality business partners, there can
be no assurance that such partners will act in our best interest, or that our agreements with such partners will adequately protect our rights in the event of a dispute with such partners. The federal and state laws and regulations described above
also impact our ability to partner with third parties for the development and operation of IDTF imaging centers, and any changes in such laws, or changes in the interpretations of such laws, could restrict our ability to enter into such
partnerships. Also, the failure by such partners to comply with the applicable state and federal laws and regulations described above could result in penalties, damages, fines or a curtailment in our operations which could adversely affect our
ability to operate our business.



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 terminate or fail to 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.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------



We may 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 patient 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 factors, 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.



The loss of any of our key
personnel could adversely affect our business, including our ability to develop and market our services and products.



We depend to a considerable degree on a limited number of key personnel. The loss of the services of key personnel could harm our business. Our success will also depend,
among other factors, on the successful recruitment and retention of qualified business development, education, marketing, and technological 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 MI technologists who are necessary to operate our systems. We may not be able to hire or retain a sufficient number of MI technologists,
and we may be required to pay higher salaries to our MI 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.



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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. We believe some of our competitors are offering MI services to our existing and potential customers at lower rates than we are charging or proposing to charge such customers. These lower rates could cause us to lose our existing
customers or fail to gain new customers that could have a material adverse impact on our business and results of operations. Furthermore, we expect that other companies will enter the mobile and stationary MI and MI/CT market, particularly as MI and
MI/CT 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 MI system obsolete or noncompetitive. Some of our
customers may be capable of providing the same services to their patients directly by purchasing or leasing their own imaging systems. In addition, the hospital industry has been experiencing a trend towards consolidation, which trend will reduce
our potential customer base and increase competition for available customers.



We have a very limited operating history with respect to the cyclotron.



We completed the purchase of the cyclotron in August of 2003 and have a very limited operating history with respect to the cyclotron. We have not yet produced any FDG for sale to any third partners, and have produced
only a limited amount of FDG for use by our subsidiary. Although our officers and employees have substantial business experience in the MI industry and the healthcare industry generally, and we plan to employ and retain skilled and qualified
employees consultants and/or pharmaceutical delivery companies to assist us with the day-to-day operation of the cyclotron and delivery of FDG, there can be no assurances that our cyclotron operations will be successful. The operation of the
cyclotron and delivery of FDG is also subject to local, state and federal licensing and permitting requirements. Although we have retained a consultant to assist us with this licensing and permitting, and anticipate contracting with a third party
for the delivery of the FDG, any failure to maintain these licenses and permits, or obtain such third party agreements upon terms favorable to the Company, or at all, could have a material adverse impact on our operations.



A successful liability claim asserted against us due to a defect in the MI system, MI/CT
system, or FDG, in excess of our insurance coverage, would harm our business.



Providing mobile MI and MI/CT shared services, and producing, selling and distributing FDG, involves the inherent risk of professional and product liability claims against us. We currently maintain insurance coverage in the types and
amounts which we deem adequate for our operations, 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 MI and MI/CT systems, or the production, delivery and sale of FDG, 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 MI service and
production of FDG requires the use of radioactive materials, which subjects us to regulation, related costs and delays and could subject us to potential liabilities for injuries or violations of environmental, health and safety laws.



Our MI service involves the controlled storage, use and disposal of material containing
radioactive isotopes. Our cyclotron business involves the production and delivery of 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 production, delivery, 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 or a defect in the FDG,
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.



Under the non-IDTF model, MI 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 MI 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 MI system have generally been reimbursed, payers may deny coverage and
reimbursement for the MI 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 MI 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.



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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. Any change in the rates of or conditions for reimbursement could also substantially reduce the number of
procedures that we perform under our IDTF model. 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.



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;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------



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



| |  | the federal Health Insurance Portability and Accountability Act (HIPAA) of 1996, which requires covered entities to comply with national standards for security and privacy of
protected health information and with standards for transactions and code sets.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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 MI system.



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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 a few of the states in which we operate require 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.



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 majority of
our operating costs are fixed, so 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 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 may maintain cash in excess of federally insured limits with various banks.



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 may 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
|------- | -----------------------



As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief
Executive Officer and our 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 our 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.



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PART II. OTHER INFORMATION



|ITEM 1. | LEGAL PROCEEDINGS
|------- | -----------------



In August of 2003 the Company was served with a summons and complaint, filed by CTI Molecular Imaging, Inc. (CTI) on August 1, 2003 in the Chancery Court for Knox County, Tennessee. This action by CTI
seeks to recover the amount of $389,166.79, plus pre-judgment interest at the rate of 10%, for the Companys alleged breach of eight service agreements entered into with CTI. The Company provided written notice to CTI on February 11, 2003 that
the eight service agreements were effectively terminated by CTI on January 30, 2003 due to CTIs refusal to provide services to the Company under the service agreements. CTI did not provide any services to the Company under the service
agreements during the period from January 30, 2003 to July 30, 2003, the period for which CTI is demanding payment. The Company filed an answer and counterclaim to CTIs complaint. In March of 2004 CTI and the Company entered into a settlement
agreement to settle this matter and the litigation was dismissed.



The Company
and its subsidiaries from time to time become involved in various claims and disputes arising in the course of business, seeking monetary damages and other relief, or in which the Company or its subsidiaries may seek to collect money for services
rendered or enforce the provisions of its service agreements. The amount of the liability, if any, from such claims cannot be determined with certainty.



|ITEM 2. | CHANGES IN SECURITIES
|------- | ---------------------



Changes in Securities



The Company entered into a Letter of Engagement dated April 16, 2004 with Trilogy Capital Partners (Trilogy) pursuant to which the Company has agreed to issue warrants to Trilogy to purchase 500,000
shares of the Companys common stock at an exercise price of $.01 per share, as consideration for Trilogy performing certain investor relations services for the Company. The 250,000 warrants will not be exercisable by Trilogy until such time as
the average closing price of the Companys common stock on the OTC.BB, based on the previous 20 trading days, reaches $.40 per share, and the remaining 250,000 warrants will not be exercisable by Trilogy until such time as the average closing
price of the Companys common stock reaches $.60 per share. These warrants were issued in reliance upon Section 4(2) of the Securities Act of 1933, as amended (the Act).



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



(a) Exhibits



Exhibit 31.1Certification of Paul J. Crowe, Chief Executive Officer



Exhibit 31.2Certification of Dennis M. Mulroy, Chief Financial Officer



Exhibit 32Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002



(b) Reports on Form 8-K



Form 8-K was filed with the SEC on February 18, 2004 regarding a press release dated February 18, 2004 announcing the unaudited revenues of the Company for the second
quarter ended December 31, 2003.



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.



MOLECULAR IMAGING CORPORATION a Delaware corporationBy:

/s/ DENNIS M. MULROYDennis M. Mulroy, Chief Financial Officer




Date: May 17, 2004



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