-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, bg+gblEpbxTnYK0WObxpfIPVt4CsItufsSqjOeGXDWEji7MXoIuonK59fvA598kX kK28+w/M5xR3Lksew6Fsyw== 0000719598-95-000005.txt : 19950501 0000719598-95-000005.hdr.sgml : 19950501 ACCESSION NUMBER: 0000719598-95-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19950213 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MOLECULAR BIOSYSTEMS INC CENTRAL INDEX KEY: 0000719598 STANDARD INDUSTRIAL CLASSIFICATION: 2835 IRS NUMBER: 363078632 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-12648 FILM NUMBER: 95509349 BUSINESS ADDRESS: STREET 1: 10030 BARNES CANYON RD CITY: SAN DIEGO STATE: CA ZIP: 92121-2789 BUSINESS PHONE: 6194520681 MAIL ADDRESS: STREET 1: 10030 BARNES CANYON ROAD CITY: SAN DIEGO STATE: CA ZIP: 92121 10-Q 1 10-Q 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 December 31, 1994 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 0-12648 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 (619) 452-0681 (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 February 3, 1995 was 11,999,561 shares. PART I - FINANCIAL INFORMATION Item 1 - Financial Statements 1. Consolidated Balance Sheets December 31, 1994 March 31, 1994 2. Consolidated Statements of Operations Three Months Ended December 31, 1994 and 1993 Nine Months Ended December 31, 1994 and 1993 3. Consolidated Statements of Cash Flows Nine Months Ended December 31, 1994 and 1993 4. Notes to Financial Statements Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations PART II - OTHER INFORMATION Item 1 - Legal Proceedings Item 2 - Changes in Securities Item 3 - Defaults Upon Senior Securities Item 4 - Submission of Matters to a Vote of Securities Holders Item 5 - Other Information Item 6 - Exhibits and Reports on Form 8-K (a) Exhibits (b) Reports on Form 8-K Signatures MOLECULAR BIOSYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS (Dollars in thousands)
December 31, 1994 March 31, (Unaudited) 1994 ___________ _________ CURRENT ASSETS: Cash and cash equivalents $ 896 $ 1,557 Marketable securities - available for sale 21,093 27,943 Inventories 1,120 1,169 Accounts and notes receivable 11,250 901 Accrued interest receivable 162 295 Prepaid expenses and other assets 952 710 _______ _______ Total current assets 35,473 32,575 PROPERTY AND EQUIPMENT, at cost: Building and improvements 18,079 18,022 Equipment, furniture and fixtures 5,119 5,296 Construction in progress 784 114 _______ _______ 23,982 23,432 Less Accumulated depreciation and amortization 5,633 4,872 _______ _______ 18,349 18,560 OTHER ASSETS: Patents and license rights, net of amortization 1,731 1,556 Other assets, net 2,722 3,760 _______ _______ 4,453 5,316 _______ _______ $58,275 $56,451 See accompanying notes.
MOLECULAR BIOSYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS LIABILITIES AND SHAREHOLDERS' EQUITY (Dollars in thousands)
December 31, 1994 March 31, (Unaudited) 1994 __________ ________ CURRENT LIABILITIES: Accounts payable and accrued liabilities $ 7,386 $ 4,201 Current portion of long-term debt 303 53 Compensation accruals 254 204 _______ _______ Total current liabilities 7,943 4,458 _______ _______ LONG TERM DEBT, net of current portion 8,487 3,917 _______ _______ COMMITMENTS AND CONTINGENCIES (Note 2) SHAREHOLDERS' EQUITY: Common stock, $.01 par value, 20,000,000 shares authorized, 11,999,561 and 11,989,361 shares issued and outstanding, respectively 120 120 Additional paid-in capital 78,421 78,259 Retained deficit (35,355) (29,290) Unrealized loss on available-for-sale securities (348) - Less notes receivable from sale of common stock (934) (954) Less treasury stock, at cost (59) (59) ________ ________ 41,845 48,076 ________ ________ $58,275 $56,451 ________ ________ See accompanying notes.
MOLECULAR BIOSYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited; in thousands, except per share amounts)
THREE MONTHS ENDED NINE MONTHS ENDED DECEMBER 31, DECEMBER 31, 1994 1993 1994 1993 REVENUES Revenues under collaborative agreements $ 6,188 $ 5,000 $14,921 $ 5,713 Product Revenues 720 532 1,267 532 License fees - - 40 2,015 ______ ______ ______ ______ 6,908 5,532 16,228 8,260 RESEARCH AND DEVELOPMENT COSTS: Compensation 1,519 1,998 5,404 5,971 Equipment and supplies 1,384 672 3,312 2,908 Outside research, preclinical and clinical trials 345 620 1,512 1,338 Legal, professional and consulting 275 501 1,093 1,177 Occupancy costs 237 336 1,011 1,113 Other 492 473 1,779 1,261 _____ ______ ______ ______ 4,252 4,600 14,111 13,768 COST OF PRODUCTS SOLD 643 295 988 295 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 4,338 2,078 7,628 5,232 _____ ______ _____ ______ Total operating costs and expenses 9,233 6,973 22,727 19,295 _____ _____ _______ ______ Loss from operations (2,325) (1,441) (6,499) (11,035) INTEREST EXPENSE (193) (83) (496) (252) INTEREST INCOME 283 401 930 1,582 ______ ______ ______ ______ NET LOSS $(2,235) $(1,123) $ (6,065) $(9,705) NET LOSS PER COMMON SHARE $ (0.19) $ (0.09) $ (0.51) $ (0.82) WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 12,000 11,917 11,999 11,884 See accompanying notes.
MOLECULAR BIOSYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED DECEMBER 31, 1994 AND 1993 (Unaudited; in thousands)
1994 1993 CASH FLOWS FROM OPERATING ACTIVITIES: Net Loss ($6,065) ($9,705) Adjustments to reconcile net loss to cash provided by operating activities: Depreciation and amortization 2,455 1,654 Changes in operating assets and liabilities: Receivables (10,216) 182 Inventories 49 (291) Prepaid expenses and other assets (242) (241) Accounts payable and accrued liabilities 3,185 (128) Income taxes - 475 Compensation accruals 50 49 Deferred contract revenue - (713) ______ ______ Cash used in operating activities (10,784) (8,718) ______ ______ CASH FLOWS FROM INVESTING ACTIVITIES: Net additions to property and equipment (882) (7,942) Additions to patents and license rights (500) (715) Decrease in marketable securities 6,502 18,765 _______ ______ Cash provided by investing activities 5,120 10,108 _______ ______ CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from issuance of common shares 183 1,217 Long-term debt proceeds 5,000 - Principal payments on long-term debt (180) (27) _______ ______ Cash provided by financing activities 5,003 1,190 _______ ______ INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (661) 2,580 CASH AND CASH EQUIVALENTS, beginning of period 1,557 2,764 _______ ______ CASH AND CASH EQUIVALENTS, end of period $896 $5,344 _______ ______ SUPPLEMENTAL CASH FLOW DISCLOSURES: Interest income received $1,063 $2,125 Income tax refunds received $ - $ 475 See accompanying notes.
NOTES TO FINANCIAL STATEMENTS (1)Basis of Presentation- The Notes to the Consolidated Financial Statements of Molecular Biosystems, Inc. (the "Company") which were submitted with the Company's Form 10-K for the year ended March 31, 1994 are incorporated herein by reference. 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 required for a fair presentation of the financial position of the Company as of December 31, 1994, and the results of its operations for the three- and nine-month periods ended December 31, 1994 and 1993, and its cash flows for the nine-month periods ended December 31, 1994 and 1993, have been made. The results of operations for these interim periods are not necessarily indicative of the operating results for the full year. In April 1994, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities." SFAS 115 requires that the Company classify its marketable securities as available- for-sale and record unrealized holding gains or losses as a separate component of stockholders' equity and against the related asset. Management intends to manage the Company's investments in order to minimize losses and maximize investment value. The Company's marketable securities consist of U.S. Government obligations and corporate and municipal bonds. (2) Contingencies- In January 1995 the Company was notified that Bracco S.p.A. of Milan, Italy, its former licensee for its proprietary oral ultrasound agent for gastrointestinal imaging, had filed for arbitration of its dispute with the Company. The dispute arose over Bracco's notice of rescission of the license and its demand for return of the $2 million license fee, claiming that the Company had failed to inform it of developmental and patent problems with the product. Bracco's demand for arbitration requests a refund of the license fee and other relief. The Company has filed an answer denying Bracco's entitlement to relief and claiming that Bracco acted in bad faith, seeking to rescind the license only when it determined to acquire the licensee of a potentially competing oral contrast agent. The Company counterclaimed for breach of contract for $5.5 million in unpaid license fees, lost profits and other damages. The arbitration will take place in Los Angeles. The Company expects to prevail in the proceeding but cautions that the results of litigation are unpredictable. The Company does not believe an unfavorable ruling in an arbitration would have a material adverse impact on its financial condition. PART I - FINANCIAL INFORMATION Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following management discussion and analysis should be read in conjunction with the consolidated financial statements. RESULTS OF CONTINUING OPERATIONS REVENUES. In December 1987, December 1988 and March 1989, the Company entered into collaborative agreements with Nycomed A.S. of Oslo, Norway, Mallinckrodt Medical, Inc. of St. Louis, Missouri and Shionogi & Co., Ltd. of Osaka, Japan, respectively, under which the Company granted each of these parties certain license rights with respect to its ultrasound imaging contrast agent, ALBUNEX(R). The agreements provide for payments to the Company conditioned upon the achievement of certain product development milestones. In August 1994, the Company received approval from the U.S. Food and Drug Administration ("FDA") to market ALBUNEX(R) in the United States. As a result, the Company recognized as revenue during the quarter ended September 30, 1994 milestone payments totalling $8.7 million ($8 million from Mallinckrodt and $733,000 from Nycomed). As of December 31, 1994 the Company had received payments of $4.7 million. The remaining $4 million will be received over the next six months in two quarterly installments of $2 million each. During the quarter ended December 31, 1994, an additional $6.1 million in milestone payments became due from Mallinckrodt with the release of ALBUNEX(R) to Mallinckrodt's sales force. The Mallinckrodt agreement provides that $3.1 million of this amount is to be distributed "to such employees of MBI as shall be mutually agreed" by MBI and Mallinckrodt. To date, no such determination has been made. The Company expects that the parties will agree that the MBI Board of Directors shall determine the disposition of this amount. An offsetting expense of $3 million has been accrued under selling, general and administrative expenses in the quarter ended December 31, 1994 and the liability is included in accrued liabilities. This milestone payment which is also included in accounts receivable at December 31, 1994, was received in January 1995. The first $750,000 quarterly installment of the remaining $3 million was received in November 1994. The remaining $2.25 million will be paid in three quarterly installments. Under its collaborative agreement with Mallinckrodt, the Company will receive, in addition to its standard transfer price for ALBUNEX(R) (40% of net sales price), an amount equal to 100% of the net product sales of ALBUNEX(R) in the U.S. during the twelve months following Mallinckrodt's release of ALBUNEX(R) to its sales force, up to a maximum payment of $30 million. This amount will be earned as sales occur, but will be payable at the end of the twelve month period. For the quarter ended December 31, 1994, the Company recognized $138,000 of such revenue which is included in revenues under collaborative agreements. Total revenues were $6.9 million and $16.2 million for the three- month and nine-month periods ended December 31, 1994, compared to $5.5 million and $8.3 million for the same periods in the prior year. Current year revenues for the nine-month period ended December 31, 1994, consist primarily of the $14.9 million in milestone payments discussed above. Prior year revenues for the same nine-month period consisted primarily of $2 million in license fee revenues received from Bracco S.p.A. ("Bracco") of Milan, Italy in connection with an exclusive license agreement for the Company's oral ultrasound agent (see note 2) and of $5.7 million in research milestone revenues from Shionogi. RESEARCH AND DEVELOPMENT COSTS. For the three-month and nine-month periods ended December 31, 1994, the Company's research and development costs totaled $4.3 million and $14.1 million, or approximately 46% and 62%, respectively, of total operating costs and expenses, as compared to $4.6 million and $13.7 million, or approximately 66% and 71%, respectively, for the same periods in 1993. The dollar increase in 1994 over 1993 was primarily due to an increase of $404,000 in equipment and supplies expense and an increase in the amortization of deferred costs of $550,000 which is included in other costs. These increased costs were offset by a decrease of $567,000 in compensation expense, primarily due to the reclassification of the manufacturing labor to cost of products sold. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses were $4.3 million and $7.6 million for the three- and nine-month periods ended December 31, 1994, or approximately 47% and 34%, respectively, of total operating costs and expenses, as compared to $2.1 million and $5.2 million or approximately 30% and 27%, respectively, for the corresponding periods in 1993. Selling, general and administra- tive expenses for the three and nine months ended December 31, 1994 increased primarily due to the accrual of the payment to key employees as discussed above under Revenues. INTEREST EXPENSE AND INTEREST INCOME. Interest expense for the three- and nine-month periods ended December 31, 1994 and 1993 consists of mortgage interest on the Company's buildings. In May 1994, the Company entered into a new credit agreement with a bank to finance the purchase of two unimproved buildings which the Company had acquired in December 1993 and planned modifications of the two buildings. The terms of the agreement provide for two separate loans of $5 million each which initially accrued interest at the bank's prime rate plus two percent. In August 1994, the rate declined to prime plus one percent as a result of the U.S. approval of ALBUNEX(R). The increase in interest expense during the current period is due entirely to the funding of the initial $5 million loan in May 1994. The decrease in interest income in the current year was primarily due to lower average cash and marketable securities balances in the current period. Also contributing to this decline was a general decline in market interest rates as compared to the rates at the time of the original investments. The Company's cash is invested primarily in short-term, fixed principal investments, such as U.S. Government agency issues, corporate and municipal bonds, certificates of deposit and commercial paper. PROSPECTIVE INFORMATION REVENUE RECOGNITION AND OPERATING EXPENSES. Revenues may fluctuate significantly from quarter to quarter based on the level of ALBUNEX(R) product sales. As mentioned above under Revenue, under its collaborative agreement with Mallinckrodt, the Company will receive, in addition to its standard transfer price for ALBUNEX(R), an amount equal to 100% of the net product sales of ALBUNEX(R) in the U.S. during the twelve months following Mallinckrodt's release of ALBUNEX(R) to its sales force, up to a maximum payment of $30 million. Operating results for the foreseeable future are expected to result in operating losses at least until after a significant product revenue stream from ALBUNEX(R) sales has been established. Operating costs may decrease as the Company improves its manufacturing efficiencies and focuses its product development efforts in ultrasound imaging. SALES OF ALBUNEX(R) IN JAPAN. Although sales in Japan have been below the Company's expectations, Shionogi, the Company's distributor in Japan, and the Company have engaged in an intensive cooperative study of the situation in Japan. They believe that the lower-than-expected sales are the result of the unique nature of the Japanese market. Among the possible reasons for the slow Japanese launch are Shionogi's expectation that U.S. launch would precede their own, giving them a model for their own launch. Additionally, the relative unfamiliarity of Japanese clinicians with the intended uses for the product may have also contributed to the lower-than-expected sales. Finally, the packaging and transport of the product for Japan may have adversely affected the early shipments. With respect to this last factor, changes in vial and packaging configuration and transportation practices appear to have corrected the issue. None of these factors is expected to apply to the U.S. launch of ALBUNEX(R). The Company is working closely with Shionogi to resolve any and all issues that the Japanese launch has raised. To increase the likelihood of improved sales performance in future quarters, Shionogi has, with the Company's concurrence, decided to curtail current promotional efforts and limit current Japanese sales to selected accounts until these issues have been resolved. While the Company expects ALBUNEX(R) to be successful in Japan, it is unlikely that the Company will be making any signif- icant shipments to Japan through the remainder of the fiscal year as Shionogi has sufficient inventory at the current time. TECHNOLOGICAL DEVELOPMENT. On July 11, 1994, the Company filed an Investigational New Drug (IND) application with the FDA to initiate human clinical trials of its proprietary abdominal ultrasound imaging agent, ORALEX(TM). The FDA approved the IND in September 1994 and clinical trials began in October 1994. The Phase I clinical trials, which are being sponsored by the Company and are being conducted at a major university center, were approximately half complete as of December 31, 1994. With the exception of ALBUNEX(R), the Company's technologies must be regarded as being at a very early stage of development. Like all new technologies, their respective prospects are subject to many uncertainties. Early test results may prove to have been in error; new competitive products may obviate the need for the Company's product; unexpected patent problems may appear; the Company's strategy or financial condition may dictate changes in the mix and number of pipeline products; large-scale manufacturing may prove to be unfeasible; later studies may reveal safety or efficacy concerns not apparent earlier on; the Company's marketing partner(s) may change its strategic focus; the technology may fall prey to regulatory difficulties; and other unpredictable difficulties may arise. While the Company believes that each of its emerging early-stage technologies has the potential to evolve into safe and useful medical products, the Company continually evaluates each of them for commercializability, and at this point cannot accurately predict the likelihood or extent of successful product development. LIQUIDITY AND CAPITAL RESOURCES Since the Company's founding, funds for its operations have been provided primarily by private and public equity financing, research and licensing revenues and interest income. Product revenues from sales of ALBUNEX(R) are expected to be an increasing source of funds for Company operations in the future. At December 31, 1994, the Company had cash and current marketable securities aggregating $22 million, as compared to $29.5 million at March 31, 1994. Additionally, the Company has included in accounts receivable $9.3 million related to milestones achieved which will be received over the next three quarters. The Company expects to make additional modifications and improvements to its current manufacturing facility during fiscal 1995 to support the development programs of its new contrast agents. As a result, in December 1994, the Company notified the lessor of one of their facilities that the Company intends to exercise their option to expand the square footage which the Company is leasing in that facility. This will allow for the relocation of some of the Company's research and development facilities and administrative offices. In addition, the Company is currently exploring its options with regards to the sale of two unimproved buildings and the underlying land in San Diego, California. As discussed under "Results of Continuing Operations - - - Interest Expense and Interest Income," in May 1994, the Company entered into a credit agreement with a bank to finance the purchase of the two buildings referred to above. An initial $5 million loan was funded in May 1994. The Company may draw on the second $5 million loan in $500,000 increments for a period of 18 months from the funding of the initial loan. The loans will be due in April 2000 and are collateralized by certain assets of the Company. For the near future, product revenues from the sale of ALBUNEX(R) and milestone payments derived from the Company's re- search contract with Mallinckrodt will support a portion of the Company's operating costs and expenses. The Company will also continue to utilize its existing cash and marketable securities resources and the interest earned thereon to fund its operations and capital spending needs. The Company may seek financing from additional sources, such as borrowings, technology licenses, lease arrangements or additional equity financing, as anticipated capital requirements change as a result of strategic, competitive, technological and regulatory factors. PART II - OTHER INFORMATION Items 1-5 - The Company has nothing to report with respect to these items during the quarter ended December 31, 1994. Item 6 - EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits - None (b) No reports on Form 8-K were filed by the Company during the quarter ended December 31, 1994. 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/GERARD A. WILLS Gerard A. Wills Chief Financial Officer DATE: February 13, 1995 EX-27 2
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF MOLECULAR BIOSYSTEMS, INC. DATED DECEMBER 31, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS MAR-31-1995 DEC-31-1994 896 21,093 10,330 37 1,120 35,473 23,982 5,633 58,275 7,943 0 120 0 0 (41,725) 58,275 1,267 16,228 988 15,099 0 0 496 (6,065) 0 (6,065) 0 0 0 (6,065) (.19) (.19)
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