RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses for the six months ended June 30, 2001 were $11.7 million as compared to $10.5 million for the six months ended June 30, 2000. The increased research and development expenses, approximately $1.2 million, were primarily due to the additional personnel and other related expenses associated with the Company’s Thrombus imaging development program. Also contributing to the increase were higher costs associated with advancing MS-325 through clinical trials.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses for the six months ended June 30, 2001 were $2.9 million as compared to $2.5 million for the corresponding period of 2000. The increase was primarily due to higher costs related to corporate communications and marketing activities.

INTEREST INCOME AND EXPENSE. Net interest income increased approximately $388,000 in 2001 as compared to 2000 mainly due to higher average levels of invested cash during the six months ended June 30, 2001.

LIQUIDITY AND CAPITAL RESOURCES
Our principal sources of liquidity consist of cash, cash equivalents and marketable securities, which totaled $23.5 million at June 30, 2001, as compared to $24.7 million at December 31, 2000.

During the quarter ended June 30, 2001, we used approximately $5.4 million of cash for operating activities.  We expect that our cash needs for operations will increase significantly in future periods due to planned clinical trials and other expenses associated with the development of MS-325, continued research and development activities of our Thrombus imaging development program and other new research and development programs.

In September 2000, we entered into an agreement for an equity line financing facility covering the sale of up to $45 million of our common stock over a 28 month period.  These shares may be sold at our discretion at a small discount to the market price of our shares at the time of the sale.  The total amount of the investment is dependent, in part, on our stock price, with us controlling the amount and timing of the stock sold.  We have received approximately $9.5 million to date in net proceeds under this equity line financing facility and issued approximately 981,000 shares of common stock. During the second quarter of 2001, the Securities and Exchange Commission (the “SEC”) issued guidance regarding equity line financing facilities that preclude a company from issuing more than ten percent, on the date the agreement is signed, of its outstanding non-affiliate shares, in a single equity line financing facility.  The impact of this guidance on our current equity line financing facility is to reduce such equity line from $45.0 million, approximately 3,000,000 shares of common stock, to $16.8 million, approximately 1,086,000 shares of common stock.  The Company has issued substantially all of the common stock allowable under the equity line financing facility. We intend to utilize our current effective shelf registration statement, which has remaining approximately 2,019,000 shares of common stock, to continue to finance our operations as needed, consistent with SEC guidance and, as a result, we do not expect the new SEC guidance to have a material impact on our ability to continue to finance our operations.

We estimate that existing cash, cash equivalents and marketable securities, as well as the potential use of our effective shelf registration statement, will be sufficient to fund our operations through the mid-part of 2003. We will need to raise additional funds for research, development and other expenses through equity or debt financing, strategic alliances or otherwise, prior to commercialization of any of our product candidates. There can be no assurance that additional financing will be available on terms acceptable to us, or at all. Our future liquidity and capital requirements will depend on numerous factors, including the following: the progress and scope of clinical trials; the timing and costs of filing future regulatory submissions; the timing and costs required to receive both United States and foreign governmental approvals; the cost of filing, prosecuting, defending and enforcing patent claims and other intellectual property rights; the extent to which our products gain market acceptance; the timing and costs of product introductions; the extent of our ongoing research and development programs; the costs of training physicians to become proficient with the use of our products; and, if necessary, once regulatory approvals are received, the costs of developing marketing and distribution capabilities.