<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from............... to ...............
Commission file number 1-10546
MOLECULAR BIOSYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 36-3078632
(State of Incorporation) (I.R.S. Identification No.)
10030 Barnes Canyon Road
San Diego, California 92121
(858) 625-3900
(Address, including zip code, and telephone number,
including area code, of principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
X Yes No
--- ---
The number of shares outstanding of the issuer's common stock, $.01 par value,
as of October 31, 2000 was 18,766,413 shares.
<PAGE>
INDEX
MOLECULAR BIOSYSTEMS, INC.
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets
-September 30, 2000 and March 31, 2000
Consolidated Statements of Operations
-Three and six months ended September 30, 1999 and 2000
Consolidated Statements of Cash Flows
-Six months ended September 30, 1999 and 2000
Notes to Financial Statements
-September 30, 2000
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3. Quantitative and Qualitative Disclosure of Market Risk
Part II. Other Information
Item 1. Legal Proceedings
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K
Signatures
<PAGE>
MOLECULAR BIOSYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
2000 2000
---------------- ----------------
ASSETS (UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,756 $ 2,930
Marketable securities, available-for-sale (Note 3) 10,287 6,904
Accounts and notes receivable 1,820 664
Inventories 203 -
Prepaid expenses and other assets 204 15
---------------- ----------------
Total current assets 14,270 10,513
---------------- ----------------
Property and equipment, at cost: (Note 2)
Building and improvements 11,226 -
Equipment, furniture and fixtures 2,930 -
---------------- ----------------
14,156 -
Less: Accumulated depreciation and amortization 7,572 -
---------------- ----------------
Total property and equipment 6,584 -
---------------- ----------------
Other assets, net (Note 4) 1,790 1,634
---------------- ----------------
$ 22,644 $ 12,147
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,285 $ 600
Accounts payable and accrued liabilities (Note 2) 7,218 2,613
Compensation accruals 1,943 769
---------------- ----------------
Total current liabilities 10,446 3,982
---------------- ----------------
Long-term debt, net of current portion 3,529 -
---------------- ----------------
Commitments and contingencies (Note 2)
Stockholders' equity:
Common stock, $.01 par value, 40,000,000 shares
authorized, 18,858,789 and 18,766,413 shares
issued and outstanding, respectively (Note 5) 186 186
Additional paid-in capital 134,388 134,667
Accumulated deficit (125,537) (126,321)
Other comprehensive income 11 12
Less 42,298 shares of treasury stock, at cost (379) (379)
---------------- ----------------
Total stockholders' equity 8,669 8,165
---------------- ----------------
$ 22,644 $ 12,147
================ ================
</TABLE>
See Accompanying Notes.
1
<PAGE>
MOLECULAR BIOSYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 2000 1999 2000
--------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues:
Revenues under collaborative agreements $ 1,500 $ - $ 3,000 $ -
Product and royalty revenues 357 323 517 630
License fees - 15 - 41
--------------- -------------- -------------- --------------
1,857 338 3,517 671
--------------- -------------- -------------- --------------
Operating expenses:
Research and development costs 1,036 - 2,448 368
Costs of products sold 116 - (529) -
Selling, general and administrative expenses 1,705 931 4,098 1,787
Other nonrecurring charges - - - 2,220
--------------- -------------- -------------- --------------
2,857 931 6,017 4,375
--------------- -------------- -------------- --------------
Loss from operations (1,000) (593) (2,500) (3,704)
--------------- -------------- -------------- --------------
Interest expense (114) (26) (234) (124)
Interest income 184 117 402 244
Other income (Note 3) - - - 2,800
--------------- -------------- -------------- --------------
Other income, net 70 91 168 2,920
--------------- -------------- -------------- --------------
Net loss $ (930) $ (502) $ (2,332) $ (784)
=============== ============== ============== ==============
Loss per common share - basic and diluted (Note 6) $ (0.05) $ (0.03) $ (0.12) $ (0.04)
=============== ============== ============== ==============
Weighted average common shares outstanding 18,727 18,766 18,729 18,797
=============== ============== ============== ==============
</TABLE>
See Accompanying Notes.
2
<PAGE>
MOLECULAR BIOSYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30,
1999 2000
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,332) $ (784)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 641 193
Non-cash gain on license of intellectual property - (2,400)
Other nonrecurring charges - 2,220
Loss on disposals of property and equipment 124 -
Loss on sale of marketable securities - 186
Changes in operating assets and liabilities:
Accounts and notes receivable (901) 1,156
Inventories 178 203
Prepaid expenses and other assets 282 189
Other assets 117 156
Accounts payable and accrued liabilities (106) (817)
Compensation accruals (781) (1,174)
Legal settlement payment to Mallinckrodt - (3,000)
--------------- ---------------
Cash used in operating activities (2,778) (3,872)
--------------- ---------------
Cash flows from investing activities:
Purchases of property and equipment (57) -
Proceeds from sales of property and equipment 12 134
Purchase of license rights from Shionogi (1,500) -
Purchase of marketable securities - (1,800)
Proceeds from sales of marketable securities 6,306 7,397
--------------- ---------------
Cash provided by investing activities 4,761 5,731
--------------- ---------------
Cash flows from financing activities:
Purchase of treasury stock (16) -
Principal payments on long-term debt (639) (685)
--------------- ---------------
Cash used in financing activities (655) (685)
--------------- ---------------
Increase in cash and cash equivalents 1,328 1,174
Cash and cash equivalents, beginning of period 1,056 1,756
--------------- ---------------
Cash and cash equivalents, end of period $ 2,384 $ 2,930
=============== ===============
Supplemental cash flow disclosures:
Interest paid $ 234 $ 124
=============== ===============
Non-cash transactions:
Issurance of stock to employees $ - $ 279
=============== ===============
Receipt of stock for licensing agreement $ - $ 2,400
=============== ===============
Transfer of property and legal settlement payment to Mallinckrodt $ - $ 3,000
=============== ===============
</TABLE>
See Accompanying Notes.
3
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
These interim consolidated financial statements of Molecular
Biosystems, Inc. and Subsidiaries (the "Company") should be read in conjunction
with the consolidated financial statements of the Company and related notes
filed with the Company's Annual Report on Form 10-K for the year ended March 31,
2000.
These interim consolidated financial statements of the Company have not
been audited by independent public accountants. However, in the opinion of the
Company, all adjustments, consisting of normal recurring accruals required for a
fair presentation of the financial position of the Company as of September 30,
2000, and the results of its operations for the three and six months ended
September 30, 1999 and 2000, and its cash flows for the six months ended
September 30, 1999 and 2000, have been made. The results of operations for these
interim periods are not necessarily indicative of operating results for the full
year.
Certain reclassifications have been made to conform prior period data
to the current presentation. These reclassifications had no effect on reported
losses.
(2) COMMITMENTS AND CONTINGENCIES
In May 2000, the Company and Mallinckrodt, Inc. ("Mallinckrodt") agreed
to restructure their relationship to allow Mallinckrodt to assume full control
of the OPTISON business, including responsibility for all related intellectual
property disputes, clinical development, manufacturing and real estate. The
restructuring of the Company's relationship with Mallinckrodt is a result of the
settlement of patent litigation with certain competitors claiming patent rights
in various ultrasound contrast agent technologies. Under the terms of the
restructured agreement, the Company paid Mallinckrodt $3 million in cash and
transferred certain real and other property to Mallinckrodt, which is expected
to be sold for a net gain of approximately $3 million. The transfer of property
has been reflected in the accompanying consolidated balance sheet as a reduction
of "property and equipment" and as a reduction of "long-term debt." The sale of
the property by Mallinckrodt must result in the receipt of $3 million to
Mallinckrodt otherwise the Company is required to fund the difference. The
Company is required to make an additional $1 million payment to Mallinckrodt
upon the Company's receipt of a milestone payment from Chugai Pharmaceutical
Co., Ltd.
In August 2000, the Company completed the transfer of certain real and
other property to Mallinckrodt as required under the terms of the restructuring
agreement with Mallinckrodt. In August 2000, the Company and Mallinckrodt also
amended their restructuring agreement to clarify that Mallinckrodt would
continue to pay a 3% royalty to the Company on sales of OPTISON in the United
States until sales reach a cumulative aggregate of $66,667,000. The amendment
also clarifies that Mallinckrodt will reimburse the Company for a $450,000
credit available to the Company from Schering AG if Mallinckrodt utilizes this
credit in the event that Mallinkrodt enters into a license agreement with
Schering AG.
(3) OTHER INCOME
Other income for the six months ended September 30, 2000 includes $2.8
million for the licensing of a portfolio of patents and technology to Genta,
Inc. relating to antisense technology for therapeutic and diagnostic
applications. This license agreement includes grants of exclusive
4
<PAGE>
and non-exclusive rights to Genta on a royalty-free basis in return for $400,000
in cash and 376,471 shares of Genta common stock. The Company sold 372,787
shares of Genta common stock in August 2000, realizing net proceeds of
$2,189,949. The remaining 3,684 Genta common shares are reflected as marketable
securities in the accompanying consolidated balance sheet.
(4) OTHER ASSETS
A portion of the balance included in "other assets" represents the
Company's interest in the residence (the "Property") of the President and CEO
(the "Employee"), equal to $300,000. In the event of termination of the
Employee, the Company's $300,000 interest in the Property will be converted to a
non-interest bearing note receivable, the balance of which is to be paid over a
period of two years from termination according to the employment agreement
amended on September 22, 2000.
(5) COMMON STOCK OUTSTANDING
Common stock issued to the Company's employees during the fourth
quarter of fiscal year 2000, in lieu of a cash bonus, was canceled and then
reissued during fiscal year 2001 for a lower number of shares in order to
reflect the bonus as net of tax liabilities. As a result, the amount of the
Company's outstanding common stock decreased from 18,858,789 at March 31, 2000
to 18,766,413 at September 30, 2000, a decrease of 92,376 shares.
(6) EARNINGS PER SHARE
Basic earnings per share were computed by dividing net loss by the
weighted average number of common shares outstanding during the period. Diluted
earnings per share reflects the potential dilution that could occur if net
income were divided by the weighted-average number of common shares and
potential common shares from outstanding stock options for the period. Potential
common shares were calculated using the treasury stock method and represent
incremental shares issuable upon exercise of the Company's outstanding options
and warrants. For the three and six months ended September 30, 1999 and 2000,
the diluted loss per share calculation excludes effects of outstanding stock
options as such inclusion would be anti-dilutive.
(7) RECENT ACCOUNTING PRONOUNCEMENTS
In April 2000, the Financial Accounting Standards Board ("FASB") issued
FASB Interpretations No. ("FIN") 44, "Accounting for Certain Transactions
involving Stock Compensation: an interpretation of FASB Opinion No. 25." FIN 44
affects awards and modifications made after December 15, 1998. Management
believes that their accounting policies comply with the applicable provisions of
FIN 44.
(8) SUBSEQUENT EVENTS
On October 11, 2000, the Company, Alliance Pharmaceutical Corp.
("Alliance") and Alliance Merger Subsidiary, Inc. ("Merger Sub"), a wholly-owned
subsidiary of Alliance, entered into an agreement and plan of merger pursuant to
which Merger Sub will be merged into the Company and the Company will become a
wholly-owned subsidiary of Alliance. Under the merger agreement, stockholders of
the Company will receive 770,000 shares of Alliance
5
<PAGE>
common stock in exchange for their shares of the Company's common stock (subject
to a downward adjustment in certain circumstances). Closing of the merger is
subject to the approval of the merger by the Company's stockholders and to the
satisfaction of other conditions precedent described in the merger agreement. As
a result of the proposed merger with Alliance, the Company's bank facilities
require payment of all outstanding balance as well as the Company has agreed to
certain other restrictions during the period prior to closing. The Company
estimates the outstanding balance at the time of the expected merger to be
approximately $300,000, which is classified as current portion of long-term
debt.
On October 16, 2000 the Company entered into an agreement to provide
consulting services to Alliance in contemplation of the proposed merger. Under
the agreement, which has a 120-day term, Alliance will pay the Company a fee of
approximately $8,450 per week for the services of 2 employees of the Company.
On October 17, 2000, Isis Pharmaceuticals, Inc. ("Isis") filed suit
against the Company in the Superior Court of the State of California seeking to
reform the license agreement entered into between the Company and Isis in
September 1992 to reduce the royalty payable to the Company to the rate payable
to the Company in a license agreement entered into in May 2000 between the
Company and Genta, Inc. The Company disputes Isis's claim that the Company is
obligated to conform the Isis license to the Genta license.
On October 24, 2000, the Company received an unsolicited merger offer
from CEL-SCI Corporation. The Company's Board of Directors voted unanimously to
reject this offer.
6
<PAGE>
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following management's discussion and analysis should be read in
conjunction with (1) the current consolidated financial statements and (2) the
Company's consolidated financial statements and related notes and Management's
Discussion and Analysis of Financial Condition and Results of Operations in its
Annual Report on Form 10-K for the year ended March 31, 2000.
From time to time, the Company may publish forward-looking statements
relating to such matters as anticipated financial performance, business
prospects, technological developments, new products, regulatory approval,
research and development activities and similar matters. A variety of factors
could cause the Company's actual results and experience to differ materially
from the Company's anticipated results or other expectations. The risks and
uncertainties that may affect the operations, performance, development and
results of the Company's business include the failure of OPTISON(R) to gain wide
market acceptance, the failure of OPTISON to gain regulatory approvals for new
indications, and other factors reported from time to time in the Company's
reports filed with the Securities and Exchange Commission.
RECENT EVENTS
On October 17, 2000, Isis Pharmaceuticals, Inc. ("Isis") filed suit
against the Company in the Superior Court of the State of California seeking to
reform the license agreement entered into between the Company and Isis in
September 1992 to reduce the royalty payable to the Company to the rate payable
to the Company in a license agreement entered into in May 2000 between the
Company and Genta, Inc. The Company disputes Isis's claim that the Company is
obligated to conform the Isis license to the Genta license.
On October 11, 2000, the Company, Alliance Pharmaceutical Corp.
("Alliance") and Alliance Merger Subsidiary, Inc. ("Merger Sub"), a wholly-owned
subsidiary of Alliance, entered into an agreement and plan of merger pursuant to
which Merger Sub will be merged into the Company and the Company will become a
wholly-owned subsidiary of Alliance. Under the merger agreement, stockholders of
the Company will receive 770,000 shares of Alliance common stock in exchange for
their shares of the Company's common stock (subject to a downward adjustment in
certain circumstances). Closing of the merger is subject to the approval of the
merger by the Company's stockholders and to the satisfaction of other conditions
precedent described in the merger agreement.
In May 2000, the Company reached a settlement in various patent
disputes with Nycomed, Mallinckrodt and Sonus. In addition, Mallinckrodt assumed
responsibility for any future intellectual property disputes relating to the
Company's ultrasound contrast patents.
In May 2000, the Company and Mallinckrodt also agreed to restructure
their relationship to allow Mallinckrodt to assume full control of the OPTISON
business, including responsibility for all related intellectual property
disputes, clinical development, manufacturing and real estate. The restructured
relationship is contained in the OPTISON Product Rights Agreement ("OPRA").
Under OPRA, the Company will receive an ongoing royalty of 5% on sales of
ultrasound agents in the Mallinckrodt territory, which is worldwide, excluding
Japan, South Korea and Taiwan. Under the terms of the restructured agreement,
the Company paid Mallinckrodt $3 million in cash and transferred certain real
and other property to Mallinckrodt, which is expected to be sold for a net gain
of approximately $3 million. The transfer of property
7
<PAGE>
has been reflected in the accompanying consolidated balance sheet as a reduction
of "property and equipment" and as a reduction of "long-term debt." The sale of
the property by Mallinckrodt must result in the receipt of $3 million to
Mallinckrodt otherwise the Company is required to fund the difference. The
Company is required to make an additional $1 million payment to Mallinckrodt
upon the Company's receipt of a milestone payment from Chugai Pharmaceutical
Co., Ltd.
The implementation of OPTISON Product Rights Agreement ("OPRA")
involves the Company's transfer to Mallinckrodt of all property, plant,
equipment and inventory used in the manufacture of OPTISON to Mallinckrodt. In
May 2000, 20 employees involved in the manufacturing process were transferred to
Mallinckrodt leaving the Company with three employees. In August 2000, the
Company completed the transfer of the OPTISON property, plant, equipment and
inventory to Mallinckrodt.
In August 2000, the Company and Mallinckrodt amended OPRA to clarify
that Mallinckrodt would continue to pay a 3% royalty to the Company on sales of
OPTISON in the United States until sales reach a cumulative aggregate of
$66,667,000, at which time Mallinckrodt would pay this 3% royalty directly to
the licensor, an outside party. The amendment also clarifies that Mallinckrodt
will reimburse the Company for a $450,000 credit available to the Company
Schering AG if Mallinckrodt utilizes this credit in the event that Mallinkrodt
enters into a license agreement with Schering AG.
On October 24, 2000, the Company received an unsolicited merger offer
from CEL-SCI Corporation. The Company's Board of Directors voted unanimously to
reject this offer.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, the Company had net working capital of $6.5
million compared to $3.8 million at March 31, 2000. Cash, cash equivalents and
marketable securities were $9.8 million at September 30, 2000 compared to $12.0
million at March 31, 2000.
In conjunction with the bank facilities, the Company is required to pay
all of the outstanding debt balances upon a merger.
RESULTS OF OPERATIONS
REVENUES UNDER COLLABORATIVE AGREEMENTS. There were no revenues from
collaborative agreements for the six month period ended September 30, 2000.
Revenues under collaborative agreements were $3.0 million for the same period in
1999. These revenues consisted solely of quarterly payments to support clinical
trials, regulatory submissions and product development received from
Mallinckrodt under ARDA.
PRODUCT AND ROYALTY REVENUES. Revenues from product royalties were
$323,000 and $630,000 for the three month and six month periods ended September
30, 2000 compared to $357,000 and $517,000 for the same periods in the prior
year.
RESEARCH AND DEVELOPMENT COSTS. The Company incurred no research and
development costs for the three month period ended September 30, 2000. For the
six month period ended September 30, 2000, the Company's research and
development costs totaled $368,000 as compared to $2.4 million for the same
period in 1999. The decrease is due to the Company's decision to discontinue
further research and development activities.
8
<PAGE>
COSTS OF PRODUCTS SOLD. There were no costs of product sold for the
three and six month period ended September 30, 2000. Cost of products sold
totaled $116,000 and ($529,000) for the three month and six month periods ended
September 30, 1999. Under the terms of the Company's prior agreement with
Mallinckrodt, which were retroactive to March 1, 1999, Mallinckrodt agreed to
reimburse the Company for all fully allocated manufacturing expenses, including
incremental costs related to the technology transfer. The Company accrued a
receivable from Mallinckrodt for manufacturing expenses incurred during the
period March 1, 1999 through June 30, 1999. The manufacturing expenses from
March 1999 were included in the prior fiscal year. As a result, the recoupment
of these expenses was reflected as a negative expense during the six month
period ended September 30, 1999.
OTHER INCOME. Other income for the six months ended September 30, 2000
includes $2.8 million for the licensing of a portfolio of patents and technology
to Genta Inc. relating to antisense technology for therapeutic and diagnostic
applications. This license agreement includes grants of exclusive and
non-exclusive rights to Genta on a royalty-free basis in return for $400,000 in
cash and 376,471 shares of Genta common stock. The Company sold 372,787 shares
to Genta common stock in August 2000, realizing net proceeds of $2,189,949. The
remaining 3,684 Genta common shares are reflected in marketable securities in
the accompanying consolidated balance sheet.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. For the three month and
six month periods ended September 30, 2000, the Company's selling, general and
administrative costs totaled $931,000 and $1.8 million, as compared to $1.7
million and $4.1 million for the same periods in the prior year.
The decrease in the current year is due to realization of the benefits of
previously announced cost reduction measures as well as additional expense
reductions as a result of OPRA.
COST REDUCTION MEASURES. On November 10, 1998, as a result of the
slower than planned ramp up of OPTISON sales, the Company announced the
initiation of a multi-phase program to reduce expenses and preserve capital. The
initial phase of cost reduction occurred in November 1998 and affected
approximately 40 employees of the Company's 140-person workforce. The second
reduction in force occurred in April 1999 and affected an additional 26
employees. On March 30, 2000, the Company announced plans to restructure and
further reduce its workforce by 33 employees.
Effective May 8, 2000, an additional 20 employees involved with the
manufacture of OPTISON were transferred to Mallinckrodt as part of its takeover
of OPTISON manufacturing pursuant to OPRA. As of September 30, 2000, the Company
has three employees. The impact of the cost reduction measures on the Company's
financial statements for the three month and six month periods ended September
30, 2000 was $522,000. There was no impact on the three month and six month
periods ended September 30, 1999.
9
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A summary of the six months ended September 30, 2000 activity related to the
accrual for cost reduction measures is provided below.
<TABLE>
<S> <C>
Accrued at March 31, 2000 $1,659,000
Severance paid 1,638,000
Additional severance accrued 522,000
----------
Accrued at September 30, 2000 $ 543,000
===========
</TABLE>
The $543,000 cost reduction accrual is included in compensation accruals in the
accompanying balance sheet as of September 30, 2000.
OTHER NONRECURRING CHARGES. For the six month period ended September
30, 2000, other nonrecurring charges reflect the net effect of restructuring the
agreement between the Company and Mallinckrodt. See Note 2, "Commitments and
Contingencies" to the consolidated financial statements.
INTEREST EXPENSE AND INTEREST INCOME. Interest expense for the three
month and six month periods ended September 30, 2000 amounted to $26,000 and
$124,000, compared to $114,000 and $234,000 for the same periods in the prior
year, and consisted of mortgage interest on the Company's manufacturing building
and interest on a note payable which was secured by the tangible assets of the
Company. The mortgage on the building was transferred to Mallinckrodt in
connection with the implementation of OPRA and the transfer to Mallinckrodt of
all property, plant and equipment used in the manufacture of OPTISON. The note
payable bears interest at the prime rate and is payable in monthly installments
of principal plus interest over five years. The note payable was renegotiated in
September 1998 lowering the interest rate from prime plus one to the prime rate
and releasing a compensating balance requirement.
Interest income for the three month and six month periods ended
September 30, 2000 amounted to $117,000 and $244,000, compared to $184,000 and
$402,000 for the same periods in the prior year. The decrease in interest income
in the current year is due to lower average cash and marketable securities
balances. The Company's cash is invested primarily in short-term, fixed
principal investments, such as U.S. Government agency issues, corporate bonds,
certificates of deposit and commercial paper.
PROSPECTIVE INFORMATION
See Note 2 in Notes to the Financial Statements under Item 1 above.
Item 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
The information called for by this item is provided under the caption
"Interest Expense and Interest Income" under Item 2 above.
10
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PART II - OTHER INFORMATION
Item 1 - LEGAL PROCEEDINGS
On October 17, 2000, Isis Pharmaceuticals, Inc. ("Isis") filed suit
against the Company in the Superior Court of the State of California seeking to
reform the license agreement entered into between the Company and Isis in
September 1992 to reduce the royalty payable to the Company to the rate payable
to the Company in a license agreement entered into in May 2000 between the
Company and Genta, Inc. The Company disputes Isis's claim that the Company is
obligated to conform the Isis license to the Genta license.
Item 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders was held on September 22, 2000. As
of July 24, 2000, the record date, 18,766,413 shares were entitled to vote at
the meeting. Of these shares, 3,337,891 were not voted.
The following directors were re-elected for the upcoming year by the
rates set forth as follows:
<TABLE>
<CAPTION>
DIRECTOR FOR WITHHELD
<S> <C> <C>
David W. Barry, M.D. 14,608,560 819,962
Robert W. Brighfelt 14,595,605 832,917
Charles C. Edwards, M.D. 10,987,107 4,441,415
Jerry T. Jackson 14,613,095 815,427
Gordon C. Luce 14,590,072 838,450
David Rubinfien 14,581,182 847,340
Bobba Venkatadri 14,482,719 945,803
</TABLE>
The selection of Arthur Andersen LLP as the Company's independent
auditor was ratified. 15,108,264 shares were voted in favor of the proposal,
297,361 shares were voted against the proposal, 22,897 shares abstained and no
shares were not voted (includes broker non-votes).
11
<PAGE>
Item 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Amendment to Employment Agreement between the Company and
Howard C. Dittrich, M.D. dated September 22, 2000.
10.2 Amendment to Employment Agreement between the Company and
Bobba Venkatadri dated September 22, 2000.
(b) Reports on Form 8-K
A Current Report on Form 8-K dated October 2000 was filed on October
27, 2000, reporting that on October 11, 2000, the Company, Alliance
Pharmaceutical Corp. ("Alliance") and Alliance merger subsidiary, Inc. ("Merger
Sub"), a wholly-owned subsidiary of Alliance, entered into an agreement and plan
of merger pursuant to which Merger Sub will be merged into the Company and the
Company will become a wholly-owned subsidiary of Alliance.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MOLECULAR BIOSYSTEMS, INC.
/s/ BOBBA VENKATADRI
------------------------------------------
Bobba Venkatadri
President and Chief Executive Officer
(Principal Executive Officer and Principal
Financial and Accounting Officer)
NOVEMBER 7, 2000
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Date
12
