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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Year Ended December 31, 2000
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From ____________ to _____________
Commission File No. 0-23553
PHOTOGEN TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its Charter)
NEVADA 36-4010347
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
140 UNION SQUARE DRIVE
NEW HOPE, PA 18938
(Address of principal executive offices) (Zip Code)
(215) 862-6860
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001 per share
Indicate by checkmark 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 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 |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. |_|
The approximate aggregate market value of voting and non-voting common stock
held by non-affiliates computed as of March 23, 2001, based upon the last sale
price of the common stock reported on the Nasdaq SmallCap Market was
approximately $18,130,435. For purposes of this calculation only, the registrant
has assumed that its directors and executive officers, and any person known to
the issuer to hold 10% or more of the outstanding common stock, are affiliates.
The number of shares outstanding of each of the registrant's classes of common
stock, as of March 23, 2001: 37,575,421
Documents Incorporated By Reference: Portions of the registrant's definitive
proxy statement for its 2001 annual meeting of stockholders are incorporated by
reference into Part III.
PART I.
Photogen Technologies, Inc., its wholly-owned subsidiary Photogen,
Inc., and its 80.1% owned affiliate Sentigen Ltd., are collectively referred to
as "Photogen," the "company," "we," or "us." Portions of the discussion in this
Form 10-K contain forward-looking statements and are subject to the Risk Factors
described below in Item 1.
ITEM 1. BUSINESS.
INTRODUCTION
We are an emerging, development-stage biotechnology company focused on
developing minimally invasive products for the treatment and diagnosis of
cancer, pre-cancerous conditions and other diseases. We have assembled a
platform of core technologies that we believe will support multiple products and
applications.
We are developing compounds that react with energy all for the
purpose of destroying diseased cells, removing tissue or identifying and
diagnosing disease. Compounds that react with light energy are called
"photoactive agents," those that react with ionizing radiation (which we
generically refer to as X-rays) are called "radiosensitizers." We are also
developing agents that are radiopaque (ie, not penetrated by x-rays) and that
can be used to locate lymphnodes and diagnosis the presence or absence of
cancer metastases. We have discovered and are conducting research on new
methods and apparatus for using energy from lasers, X-rays or other sources
to activate energy-sensitive compounds within tissue to produce a range of
beneficial therapeutic and diagnostic outcomes.
We are pursuing development of products in three core areas:
o Photodynamic Therapy - We are developing compounds and
technologies to treat tumors confined to specific areas within
the body (solid tumors) and to treat diseased tissue on the
surface of the body. One of these compounds, named PH-10, is
both a photoactive agent and radiosensitizer that accumulates
in diseased tissue and absorbs light energy and X-rays. When
energy is applied, PH-10 becomes activated, thereby destroying
the tissue.
o Diagnostic Imaging - We are the exclusive licensee to a
special group of proprietary materials, the lead compound of
which is named N-1177, that precisely locate and diagnose the
spread of cancer (micro-metastases) when the materials are
administered into the area of the tumor. These materials are
very small particles designed to travel through the lymphatic
system and are called "nanoparticulates." Evaluating lymph
nodes and the lymph system by using devices that create an
image of the lymph nodes is called "lymphography."
o Multi-photon Technology - Our proprietary laser technology
uses ultrashort, pulsed bursts of long wavelength light to
activate photoactive agents and other compounds that react
with light to destroy diseased tissue. This technology can
also be used to create images of tissue for diagnostic
purposes.
Our proposed products have the potential to replace numerous
surgical and similar invasive treatments, reduce side effects (such as those
resulting from chemotherapy), improve treatment efficacy, enhance a
physician's ability to diagnosis the spread of cancer in the lymphatic system
and lower the overall cost of care for oncology and other applications.
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We have no approved therapeutic or diagnostic products or operating
revenues at this time. However, our business model for developing, producing
and selling our proposed products accounts for the high capital needs and
long development times inherent in new drug development and the existing
resources available for both manufacturing and product distribution. During
the last three years, we have spent approximately $8,555,469 on research and
development activities. Our goal is to leverage our cash, technology and
human resources in a manner that accelerates product development and sales
revenues, and minimizes equity dilution.
We have fourteen employees, twelve of whom are full-time and two who
are part-time. A majority of our employees hold Ph.D.'s or other advanced
degrees. Our scientific research team is located in Knoxville, Tennessee,
with the senior executive and clinical development team working in our
corporate headquarters in New Hope, Pennsylvania, a suburb of Philadelphia.
Our team of scientists includes specialists in molecular biology, non-linear
laser physics, interventional radiology, spectroscopy, bioengineering and
photochemistry. We have recently hired additional personnel with expertise in
clinical development, clinical trial design and regulatory approval
processes. We also work closely with consultants experienced in drug
development and regulatory requirements.
Photogen Technologies, Inc. is a Nevada corporation that is the
successor by merger to Bemax Corporation, a California corporation incorporated
in 1984 to develop and market dot matrix computer printer products. In March
1995, Bemax completed a merger with its wholly-owned Nevada subsidiary named M T
Financial Group, Inc. (organized in 1994). M T Financial was the surviving
corporation and Bemax Corporation thereby changed its state of incorporation
from California to Nevada. On May 16, 1997, M T Financial, through its wholly
owned subsidiary, effected a reverse merger with Photogen, Inc. (successor to
Photogen, L.L.C.) and changed its name to Photogen Technologies, Inc. Photogen,
L.L.C. was organized September 10, 1996 to develop proprietary laser-based
technologies related to photodynamic therapy. Photogen, Inc. is now a wholly
owned subsidiary of Photogen Technologies, Inc.
CORE TECHNOLOGIES
Over the last three years, as a result of our research into new
technologies, and acquisitions or licensing from third parties, we have
developed a platform of core technologies that we believe will support multiple
products and applications. Our technology portfolio now includes the following:
Photodynamic Therapy
We have identified a promising compound PH-10 that offers a wide
variety of potential uses. We discovered that PH-10 selectively accumulates
in diseased tissue (such as tumors) for many days, whereas PH-10 in normal
tissue clears rapidly from the body. When activated with low-dosage X-ray, or
with green light, PH-10 reacts to effectively destroy those diseased cells.
Our preclinical studies to date lead us to believe that PH-10, when combined
with particular light or radiation sources, has the potential to treat a
variety of cancers and certain dermatological conditions. PH-10 has a long
history of safe use as an FDA approved compound for other medical
applications. This prior human experience with PH-10 gives us confidence that
the risk of the drug being unsafe is small.
When PH-10 is used with ionizing radiation (such as X-rays or gamma
rays) it enhances the killing effect of the radiation, allowing the destruction
of cancerous tissue deep within the body (using markedly lower levels of
radiation energy than required in conventional therapy). Treatment at these
reduced radiation dosages means that the results of the interaction between
energy and PH-10, which in this case is cell destruction, will tend to be
limited to the diseased tissue with less damage to the healthy tissue. This
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feature alone holds the potential to significantly improve current methods and
apparatus for radiation therapy.
PH-10, when used with green light, may be effective in the treatment of
topical diseases on the skin. Green light is strongly absorbed by skin and thus
only penetrates the body to a depth of 3-5 millimeters. This feature is
especially important and useful for surface applications where serious damage
can result from deeper treatment. We are exploring this capability for treatment
of psoriasis and other surface conditions such as actinic keratosis. We have
patent applications for the use of PH-10 in combination with visible light and
with ionizing radiation to treat and diagnose diseased tissue.
Our initial focus in dermatology is to treat psoriasis. Psoriasis is
a common chronic disorder of the skin characterized by dry scaling patches,
for which current treatments are few and those that are available have
potentially serious side effects. Of the approximately five million people in
the United States who suffer from psoriasis (there are estimated to be
between 160,000 and 250,000 new psoriasis cases each year in the United
States), more than 65% are treated with topical steroids that can have
unpleasant side effects. None of the other treatments for moderate cases of
psoriasis have proven completely effective and there is no cure for the
disease at this time. The 25-30% of patients who suffer from more severe
cases are candidates for PUVA (Psoralen with ultraviolet A light) and more
intensive drug therapies. While PUVA treatment is one of the more effective
treatments, it increases a patient's risk of skin cancer.
We are sponsoring a human pilot study in Denmark on the safety of
activating PH-10 with green light (delivered by a laser) to treat psoriasis. In
this study, PH-10 is applied topically to the psoriatic plaque and illuminated
with green light. If the results of this study are favorable, we plan to prepare
and file an IND (investigative new drug application) with the FDA to conduct a
Phase 1 study in the U.S. for the treatment of psoriasis. We believe this
treatment process will be superior to other light-based procedures because our
combination of the drug and light source are expected to result in selective
control of psoriasis with minimal damage to healthy tissue. Other potential
advantages may include that the treatment could be completed in a small number
of patient visits, and with reduced pain and less post-treatment sensitivity to
light.
Diagnostic Imaging
Lymphography is a procedure used to determine if a patient's cancer has
spread to the lymph nodes. The presence or absence of cancer in the sentinel
lymph node (the first lymph node to receive lymphatic drainage from a tumor) is
an important indication of whether the disease has spread from the original
tumor and the seriousness of the disease. It also provides oncologists with
critical information to help determine the course of treatment.
It is generally accepted that breast cancer and melanoma are spread by
way of the lymph system. Effective and successful treatment of these cancers is
aided by an early assessment of the presence or absence of disease
(micro-metastases) in the lymph nodes. In addition, cancers of the lung,
prostate and many other cancers spread through the local lymph system. Current
lymphography procedures are costly due to the time it takes to locate the
sentinel node and have the pathologist analyze a sample. If the node contains
cancer, then surgical removal of all the regional lymph nodes may be performed.
In some of these diseases, locating the sentinel node is not possible because
its location is difficult to access.
Patients believed to have cancer are currently subjected to injections
of blue dye or radioactive particles that track the materials to the general
area of the sentinel node. In the case of breast cancer, oncologists may remove
15-30 underarm lymph nodes for biopsy. Additional treatment will be required if
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cancer is discovered. Unfortunately, approximately 80% of the patients diagnosed
with breast cancer or melanoma who undergo these painful procedures are found to
have no sign of disease in their nodes.
Preparing to meet this market need, we are in the process of developing
an advanced lymphography technology through a joint venture with affiliates of
Elan Corporation, plc. Our goal is to demonstrate that the use of N-1177 will
enable physicians to precisely locate sentinel nodes following injection of the
material in the vicinity of the tumor and then taking an image (picture) using a
computed tomography ("CT") device. The particular properties of N-1177 enable it
to travel through the lymph system to the lymph nodes most likely to be affected
if the cancer has spread. As N-1177 is radiopaque (i.e., X-rays do not penetrate
it), it is seen on a CT scan as white spots. The difference in contrast created
by the presence or absence of the imaging agent serves as the basis to determine
the presence or absence of disease. We expect that N-1177 would remain in the
node to allow for an effective imaging procedure with a good safety profile and
acceptable clearance times. In most cases, we expect that the image may provide
enough information to determine the position of nodes and the presence of
cancer. A further benefit of these minimally invasive procedures is that they
could be used multiple times and therefore provide a means to monitor the
results of cancer treatment and detect recurrence.
In 1999, we entered into an exclusive license for a special group of
proprietary imaging agents, including N-1177, a product that has completed
Phase 1 clinical trials. These materials are covered by patent applications
filed in the U.S. and elsewhere. We also acquired patented methods for
performing minimally invasive lymphography using X-ray, CT or magnetic
resonance imaging ("MRI").
We also have technology for the use of a laser system, coupled with
fluorescent diagnostic agents which target and concentrate in diseased tissue
and signal processing technology, to cause diseased tissue to emit light that
can be converted into images. This could supplement current X-ray,
mammography and MRI techniques to detect suspicious masses. We have one
issued patent and other pending patent applications regarding this technology.
Multi-Photon Excitation
We have developed a method of activating photosensitive drugs and other
compounds using an ultrafast, pulsed laser based on our proprietary simultaneous
two-photon and multi-photon excitation technologies. (We refer to simultaneous
two-photon and multi-photon excitation collectively as "multi-photon excitation"
to distinguish them from traditional single-photon activation as used to
activate PH-10.) Our multi-photon excitation technologies are covered by four
issued U.S. patents (three for therapy and another for diagnostics) and are
subject to additional pending patent applications in the U.S. and other foreign
jurisdictions. This technology provides us with the following capabilities:
o Spatial control of an activation area to more selectively
deliver a therapeutic effect: Multi-photon activation limits
the field of activation to the focus of the laser beam. This
focus can be made exceedingly small, providing fine control
over where the photodynamic effect is produced.
o Use of many photoactive agents: Our multi-photon technology
uses a broader range of energy levels that we may use to
activate photoactive agents that otherwise could not be used.
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o Deeper penetration: Multi-photon activation uses longer
wavelength light that delivers activating energy more deeply
within tissue.
o Delivery of large amounts of energy while minimizing damaging
photothermal effects.
RESEARCH PIPELINE
In addition to the programs described above in "Core Technologies" we
are conducting research for the following potential applications of PH-10,
N-1177, or other products based on our technology:
ACTINIC KERATOSIS. Actinic keratosis (also called solar keratosis or
senile keratosis) is the most common pre-cancerous skin lesion among
fair-skinned people. We are researching possible use of PH-10 with green light
activation for treatment of these early stages, and for potential treatment of
more advanced stages of the disease.
SQUAMOUS AND BASAL CELL CARCINOMA. More than one million new cases
of squamous and basal cell carcinoma -- common surface cancers that appear on
the skin, lips, inside the mouth, throat or esophagus -- are expected to be
diagnosed in 2001 and their occurrence is increasing in the fair-skinned
population of the United States, Europe and Australia. We are currently
researching use of PH-10 combined with green light activation for potential
treatment of these cancers.
BARRETTS ESOPHAGUS. Barretts esophagus is a pre-cancerous condition in
which the lining of the esophagus changes tissue type as a result of
long-standing acid reflux. It has been estimated that there is a 10% chance that
the Barretts tissue will advance to esophageal cancer if not properly treated.
We are researching whether PH-10, when topically applied to esophageal tissue
and treated with the proper light source, could selectively target and treat
diseased tissue. The research may lead to a new treatment that is less expensive
and safer than current methods of treating Barretts esophagus.
HAIR REMOVAL. We are investigating the application of our MPE
technology to remove blond and red hair, using a melanin precursor present in
the hair follicle as the photoactive agent to destroy the hair follicle. Our
approach, if successful, may yield an improvement over current hair removal
technologies by removing light colored hair and by removing hair without
generating heat or requiring cooling for the skin. It has been estimated that
there were approximately 1.5 million hair removal procedures in 2000 and
projections of three million procedures in 2003.
TWO-PHOTON MICROSCOPY. We have evaluated a portion of this technology
by incorporating our designs into a conventional two-photon microscope. Our
technology for signal processing can potentially improve contrast of the
diagnostic signal over background noise, which should improve image clarity and
diagnostic sensitivity.
DEVELOPMENT AND COMMERCIALIZATION STRATEGY
Our overall strategy is to leverage our proprietary technologies
through contractual collaborations with third parties. In particular, we plan
to:
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o Address product development by demonstrating basic technical
feasibility in test tube and animal models internally and then,
using third party laboratories and/or clinicians experienced in the
specific indication, conduct highly focused, formal preclinical
trials. We intend to use the expertise of the third party clinicians
to collect data necessary to obtain IND's (an Investigational New
Drug Application with the FDA) or IDE's (an Investigational Device
Exemption from the FDA) required to begin human trials.
o Utilize our clinical development team and contractual collaborative
arrangements with third parties to access the skills and resources
required to design, test, obtain regulatory approval, and
manufacture photoactive agents, treatment regimens, diagnostic
products and therapeutic and diagnostic devices.
o Market potential products through strategic or distribution
collaborations as determined by the specific characteristics of each
product application. If appropriate, we would consider developing an
internal U.S. sales and marketing division to market certain
products directly.
o Consider opportunities in related fields for technological licensing
when those opportunities could lead to faster development of
products and FDA approval. This includes obtaining technology
through licenses from others and licensing our own technology to
third-parties.
We do not expect to generate material revenues from operations in the
near future. If we develop a saleable therapeutic or diagnostic method, device
or drug, we expect to generate revenues from product sales or licensing fees.
Currently, we have not developed any therapeutic or diagnostic products that are
available to manufacture or sell to the public nor do we have a pricing
structure for any potential products.
Our ability to develop and manufacture any product successfully is
subject to numerous contingencies and uncertainties, including certain Risk
Factors described below. Our objectives, business strategy and product
development efforts are subject to change based on numerous factors, including
the results of preclinical and clinical testing, the availability of suitable
collaborative relationships, the nature of competition, regulatory requirements
and the availability of capital. The description of our business and business
strategy contains forward-looking statements that should be read in conjunction
with the Risk Factors, described below.
Some of our research agreements provide generally that inventions
developed during the course of research by the institution's investigators,
alone or jointly with us, will be owned by the institution and subject to a
right of first refusal that we can exercise for a stated period allowing us to
enter into an exclusive license for that invention. Our agreements with Tufts
University School of Veterinary Medicine, Massachusetts Eye and Ear Infirmary,
Massachusetts General Hospital's Center for Imaging and Pharmaceutical Research
and other research institutions each contain provisions of this type. In some
cases the key terms of the license are stated in the research agreement, with
other terms to be negotiated at the time we exercise the right of first refusal
(if we choose to exercise it).
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Sentigen Ltd. - Joint Venture with Elan Corporation
We implemented a major component of our business strategy in October of
1999 when we entered into a joint venture with affiliates of Elan Corporation,
plc (collectively, "Elan"), a multi-national, billion dollar pharmaceutical
company. The joint venture company, Sentigen Ltd., is developing and
commercializing N-1177, a nanoparticulate agent used to image lymph nodes to
detect cancer. We licensed to Sentigen certain methods and other proprietary
technology for use in lymphography, and we sub-licensed to Sentigen proprietary
compounds we licensed from Massachusetts General Hospital and Nycomed Imaging
AS. Elan, through its drug delivery division, Elan Pharmaceutical Technologies,
licensed to Sentigen its NanoCrystal(TM) stabilized nanoparticulate formulation
technology to develop the diagnostic imaging agents.
As part of the joint venture agreement, Elan provided us with a $4.8
million credit facility we can draw on to fund our share of the anticipated
development costs of the joint venture. In 2001, we expect to begin drawing down
on this credit facility to fund certain of Sentigen's development expenses.
Borrowings under the credit facility would be due in 2005 or be converted into
our common stock at Elan's option at a price of $18.15 per share.
Our agreement with Elan provides that Elan has the right to nominate a
member to our Board of Directors until October 2004 or as long as Elan owns 10%
of our common stock (Elan currently owns less than 10% of our common stock). The
Elan Board nominee is Aidan King, Vice President of Business Development for
Elan. Elan also has a preemptive right to participate in our future equity
offerings to maintain its pro rata interest in Photogen. Since we have begun to
issue common stock in our most recent shelf registration on Form S-3 declared
effective February 9, 2001 at less than $13 per share, we must issue additional
shares of common stock to Elan so that the average price per share paid by Elan
for its aggregate ownership of our common stock will equal the effective price
in that offering. Based on the per share sale price in our first transaction
under the shelf registration (in which we sold 15,312 shares at $4.8981 per
share), we would issue 763,427 additional shares of our common stock to Elan at
no additional cost representing approximately two percent of our outstanding
common stock. However, we are in negotiations with Elan regarding the precise
terms of its anti-dilution rights with respect to our shelf registration, which
may result in greater or less dilution of our common stock. The pricing of our
common stock in the shelf registration will also result in an increase in the
number of shares of common stock issuable upon conversion of Series A Preferred
and Series B Preferred stock in accordance with the anti-dilution provisions in
the respective Certificates of Designation for those series.
PATENTS
We are continuing to pursue patent protection for our proprietary
technologies with the U. S. Patent and Trademark Office, and in various foreign
jurisdictions. We plan to prosecute, assert and defend our patent rights
whenever appropriate. However, securing patent protection does not necessarily
assure us of competitive success. See "Risk Factors - If we do not obtain and
maintain patent or other protection of our core technologies (namely PH-10, our
lymphography materials and methods, and our laser technologies), we may have
difficulty developing or commercializing product using these technologies,"
below. We are currently the owner of six patents issued by the U.S. Patent and
Trademark Office of which two are set to expire in 2010 and four in 2016; and we
own 10 patents issued in various foreign jurisdictions.
In November 1998, we were issued a United States patent with claims
directed to methods for the treatment of plant or animal tissue with
simultaneous two-photon excitation of at least one photoactive
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molecular agent. In December 1999, we were issued a divisional patent of this
patent relating to methods for producing at least one photo-activated molecular
agent in a particular volume of material using simultaneous two photon
excitation or promoting two photon excitation at a confocal region including
those substantially below a material surface. In March 2000, we were issued
another divisional patent relating to two photon excitation. In November 1998,
we were issued a United States patent directed towards our methods for improving
selectivity in photoactivation and detecting molecular diagnostic agents and the
imaging of tissue containing photoactive molecular agents using simultaneous two
photon excitation. This process causes the photoactive agent to emit energy that
can be detected to produce a signal or alternatively, image deep tissue.
We have also filed patent applications, corresponding to patents issued
in the United States and relating to two-photon excitation, under the Patent
Cooperation Treaty ("PCT") covering a number of foreign countries. A preliminary
examination report has been received at the international level, indicating the
novelty, inventive step and industrial applicability of the claims of each PCT
application. The European Patent Office regional phases of the PCT applications
have been entered into along with the national phases for applications in
Australia, Brazil, Canada, China, Iceland, India, Israel, Japan, Korea, Mexico,
New Zealand, Norway, Russia, Singapore, and certain other countries, including
Taiwan and Argentina. We have now received two patents in Australia, New Zealand
and Singapore for our two photon excitation and imaging technologies. We have
also received two patents in Taiwan for multi-photon excitation and targeted
topical treatment of disease.
We acquired from Alliance Pharmaceutical Corp. certain patented
technology that describes methods for using certain particulate contrast
materials in lymphography, and we have sub-licensed another group of
nanoparticulate contrast materials through Massachusetts General Hospital,
including N-1177. Together, these lymphography methods and compounds involve
four U.S. patents with additional patents in certain foreign jurisdictions and a
U.S. patent application and corresponding foreign applications.
We are continuing to pursue patent protection for our other proprietary
technologies with the U.S. Patent and Trademark Office, the PCT and in various
foreign jurisdictions. In addition to our six issued patents in the United
States and patent applications discussed above, we have filed another 21 U.S.
patent applications (along with corresponding PCT applications) relating to
inventions in the following areas:
o Multi-photon excitation technology
o Methods and apparatus for imaging and treating tissue using
photodynamic therapies
o Additional photodynamic therapy methods and apparatus for
topical treatment of disease
o Methods and apparatus for treatment of tissue containing an
endogenous pigment (for example, melanoma destruction)
o Radiation contrast agents and methods for treating tissue
using those agents
o Radiation sensitizer agents and methods for treating tissue
using those agents
o Methods for enhanced production of cell lines
o Topical medicaments for photodynamic treatment of disease
o Intracarpeneal medicaments for photodynamic treatment of
disease
o Methods and apparatus for optical imaging
Some of our patented or licensed technology arose from research that
was partially funded by the United States Government. As with other entities
whose research is sponsored in any manner by the United States Government,
certain patents that we own or license are subject to Confirmatory Licenses in
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favor of the United States Government, as required by applicable federal
regulations. These regulations require us or the patent owner to agree to convey
to the Government, upon the Government's request, rights in the technology if we
decide not to continue prosecution of the patent applications or if the patent
owner does not wish to retain title to the inventions covered in the patents.
The Government also retains certain "march-in rights" that permit the Government
to use the technology under certain circumstances, including if that action is
necessary because we or the patent owner have not taken or are not expected to
take effective steps to achieve practical application of the inventions; it is
necessary to alleviate health or safety needs not being met by us or the patent
owner; or to meet the requirements for public use specified in certain federal
regulations and those requirements are not being met by us or the patent owner.
We intend to prosecute patent applications and in other respects develop patents
we own so that the Government will not exercise its rights under these
Confirmatory Licenses.
"Photogen," the "ray of light" logo and "PulseView" are trademarks of
Photogen. All other trademarks or trade names used in this Form 10-K are
trademarks or trade names of their respective owners.
GOVERNMENT REGULATIONS
All of the therapeutic and diagnostic products we currently contemplate
developing will require approval by the United States Food and Drug
Administration ("FDA") prior to sales being made within the United States and by
comparable foreign agencies prior to sales being made outside the United States.
The FDA and comparable regulatory agencies impose substantial requirements on
the manufacturing and marketing of pharmaceutical products and medical devices.
These agencies and other entities extensively regulate, among other things,
research and development activities and the testing, manufacturing, quality
control, safety, effectiveness, labeling, storage, record keeping, approval,
advertising and promotion of our proposed products. See "Risk Factors -- Our
proposed products are subject to extensive testing and government approval, and
we may not obtain the approvals necessary to sell our proposed products," below.
The regulatory process required by the FDA through which our drug or
device products must successfully pass before they may be marketed in the U.S.
generally involves the following:
o Preclinical laboratory and animal testing;
o Submission of an application that must become effective before
clinical trials may begin;
o Adequate and well-controlled human clinical trials to
establish the safety and efficacy of the product for its
intended indication; and
o FDA approval of the application to market a given product for
a given indication.
For pharmaceutical products, preclinical tests include laboratory
evaluation of the product, its chemistry, formulation and stability, as well as
animal studies to assess the potential safety and efficacy of the product. Where
appropriate (for example, for human disease indications for which there exist
inadequate animal models), we will attempt to obtain preliminary data concerning
safety and efficacy of proposed products using carefully designed human pilot
studies. We will require sponsored work to be conducted in compliance with
pertinent local and international regulatory requirements, including those
providing for Institutional Review Board approval, national governing agency
approval and patient informed consent, using protocols consistent with ethical
principles stated in the Declaration of Helsinki and other internationally
recognized standards. We expect any pilot studies to be conducted outside the
United States; but if any are conducted in the United States, they will comply
with applicable FDA
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regulations. Data obtained through pilot studies will allow us to make more
informed decisions concerning possible expansion into traditional FDA-regulated
clinical trials.
If the FDA is satisfied with the results and data from preclinical
tests, it will authorize human clinical trials. Human clinical trials are
typically conducted in three sequential phases which may overlap. Each of the
three phases involves testing and study of specific aspects of the effects of
the pharmaceutical on human subjects, including testing for safety, dosage
tolerance, side effects, absorption, metabolism, distribution, excretion and
clinical efficacy.
We have established a core clinical development team and have been
working with outside FDA consultants to assist us in developing
product-specific development and approval strategies, preparing the required
submittals, guiding us through the regulatory process, and providing input to
the design and site selection of human clinical studies. Historically,
obtaining FDA approval for photodynamic therapies has been a significant
challenge. Not only must the photoactive agent be approved as a drug, but the
laser activation system must also be approved as a medical device. Wherever
possible, we intend to utilize lasers or other activating systems that have
been previously approved by the FDA to mitigate this risk. The FDA is gaining
experience with lasers by virtue of having reviewed and acted upon many
510(k) and premarket approval filings submitted to it for non-photodynamic
therapy laser applications. Applicable medical devices can be cleared for
commercial distribution through a notification to the FDA under Section
510(k) of the applicable statute. The 510(k) notification must demonstrate to
the FDA that the device is as safe and effective and substantially equivalent
to a legally marketed or classified device that is currently in interstate
commerce. Such devices may not require detailed testing. Certain high-risk
devices that sustain human life, are of substantial importance in preventing
impairment of human health, or that present a potential unreasonable risk of
illness or injury, are subject to an FDA approval process initiated by filing
a premarket approval ("PMA") application (for devices) or accelerated
approval (for drugs).
The testing and approval process requires substantial time, effort, and
financial resources, and we may not obtain FDA approval on a timely basis, if at
all. Success in preclinical or early-stage clinical trials does not assure
success in later stage clinical trials. The FDA or the research institution
sponsoring the trials may suspend clinical trials or may not permit trials to
advance from one phase to another at any time on various grounds, including a
finding that the subjects or patients are being exposed to an unacceptable
health risk. Once issued, the FDA may withdraw a product approval if we do not
comply with pertinent regulatory requirements and standards or if problems occur
after the product reaches the market. If the FDA grants approval of a product,
the approval may impose limitations, including limits on the indicated uses for
which we may market a product. In addition, the FDA may require additional
testing and surveillance programs to monitor the safety and/or effectiveness of
approved products that have been commercialized, and the agency has the power to
prevent or limit further marketing of a product based on the results of these
post-marketing programs. Further, later discovery of previously unknown problems
with a product may result in restrictions on the product, including its
withdrawal from the market. Marketing our products abroad will require similar
regulatory approvals by equivalent national authorities and is subject to
similar risks.
In the ordinary course of business, we must also comply with a variety
of other federal and state governmental regulations. These regulations impose,
among other things, standards of conduct, recordkeeping, labeling and reporting.
Specific regulations affecting our current and proposed operations
10
include: environmental-type discharge requirements, good laboratory practices
governing animal testing, good manufacturing practices regarding the manufacture
of drugs and other FDA-regulated products, animal care and use regulations, laws
and regulations relating to labor and the use of lasers, and required general
business practices. We do not currently anticipate that the cost of compliance
in these areas, other than obtaining FDA approval, will present a major obstacle
to achieving our goals.
Another area of regulation that will impact our business is the recent
developments in health care reimbursement and delivery practices as a means to
better control health care costs. See "Risk Factors -- Changes in health care
reimbursement policies or legislation may make it difficult for patients to use
or receive reimbursement for using our products, which could reduce our
revenues," below.
COMPETITION
The industry in which we operate is intensely competitive, and there is
rapid change with respect to technology for the diagnosis and treatment of
disease. Existing or future pharmaceutical and device companies, government
entities and universities may create developments that accomplish similar
functions to our technologies in ways that are less expensive, receive faster
regulatory approval, or receive greater market acceptance than our potential
products. See "Risk Factors -- Our potential markets are extremely competitive,
and many of our competitors have greater resources and have products that are in
more advanced stages of development" below.
Our competitors have, in general, been in existence for considerably
longer than we have, and thus generally have greater capital resources and
access to capital; greater internal resources for activities in research and
development, clinical testing and trials, production and distribution; existing
collaborative relationships with third parties; and have made greater progress
in the preclinical and clinical testing of their products. In addition, our
competitors may be disinclined to form collaborative relationships with us
directly, or to permit their collaborative partners to work with us. See "Risk
Factors -- We have to rely on third parties and collaborative relationships for
the manufacturing, clinical testing and marketing for our proposed products, and
it may be difficult to implement our business development plans without these
collaborations," below.
We are aware of one competitor, QLT PhotoTherapeutics, Inc. that has
already received FDA approval for use of its proprietary photoactive agent,
Photofrin," in the treatment of esophageal cancer and non-small cell lung
cancer. In conjunction with CIBA Vision, QLT PhotoTherapeutics, Inc. has a
second product, "Visudyne," approved for photodynamic treatment of certain forms
of macular degeneration. Another competitor, Dusa Pharmaceuticals, has received
FDA approval for use of its proprietary photodynamic product, Levulan(R)
Kerastik(TM), for treatment of actinic keratosis. Other competitors, namely
Miravant Medical Technologies, Inc. and Pharmacyclics, Inc., have advanced their
proprietary photoactive agents to Phase 2/3 clinical trials. Laser manufacturers
are also making progress in using laser technologies to treat certain
indications. For example, Ethicon Endo-Surgery, Inc., a subsidiary of Johnson &
Johnson, uses a laser to treat prostate cancer. In addition, there have been
many dramatic developments in treatments for cancer and other diseases that do
not involve photodynamic therapy. These treatments include new chemotherapy
agents or other drugs, vaccines, hyperthermic treatments, and ultrasound. All of
these alternatives potentially compete with products we may offer because they
provide alternative methods and treatments for certain indications.
RISK FACTORS
11
This Form 10-K contains "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995. Forward-looking
statements involve risks, uncertainties and other factors that may cause our
actual results or performance to differ materially from any results or
performance expressed or implied by those statements. Examples of
forward-looking statements include predictive statements, statements that depend
on or refer to future events or conditions, and which may include words such as
"expects," "anticipates," "intends," "plans," "believes," "estimates," "should,"
"may," or similar expressions, or statements that involve hypothetical events.
The following are some of the key risk factors that may affect our
future results:
WE ARE A DEVELOPMENT STAGE COMPANY, WE HAVE CONDUCTED ONLY LIMITED STUDIES ON
OUR TECHNOLOGIES AND WE DO NOT HAVE ANY PRODUCTS OR REVENUES FROM SALES.
Our company and our technologies are in early stages of development. We
began our business as a biotechnology company in 1997. We have not generated
revenues from sales or operations, and we do not expect to generate sufficient
revenues to enable us to be profitable for at least several years.
Our proposed technologies and products generally must complete
preclinical tests in animals and three phases of tests (also called clinical
trials) in humans before we can market them for use. Use of our technology has
been limited primarily to laboratory experiments, animal testing or human pilot
studies and only one compound has completed Phase 1 clinical trials in humans.
We have therefore not yet conducted substantive studies on the effectiveness of
our compounds or devices on human subjects. The drug and device products we
currently contemplate developing will require costly and time-consuming research
and development, preclinical and clinical testing and regulatory approval before
they can be manufactured and sold. We may not be able to develop our technology
into marketable products or develop our technology so it is effective for
diagnosis or treatment of human diseases. As a result of changing economic
considerations, market, clinical or regulatory conditions, or clinical trial
results, we may shift our focus or determine not to continue one or more of the
projects we are currently pursuing.
WE HAVE A HISTORY OF LOSSES AND WE MAY NOT ACHIEVE OR MAINTAIN PROFITABILITY IN
THE FUTURE OR PAY CASH DIVIDENDS.
We have incurred losses since the beginning of our operations. As of
December 31, 2000, we incurred total losses of approximately $19,370,297. We
expect our losses to increase in the future as our financial resources are used
for research and development, preclinical and clinical testing, regulatory
activities, manufacturing, marketing and other related expenses. We may not be
able to achieve or maintain profitability in the future. We have never declared
or paid any cash dividends to stockholders, and do not expect to do so in the
foreseeable future.
12
WE MUST RAISE ADDITIONAL FINANCING IN THE FUTURE AND OUR INABILITY TO DO SO
COULD PREVENT US FROM IMPLEMENTING OUR BUSINESS PLAN.
Under the present circumstances, we have sufficient capital to conduct
operations for the next twelve months (depending on the pace of our spending for
preclinical and clinical testing and other commitments, which, to an extent, we
can adjust to preserve cash). We will need substantial additional financing for
our research, clinical testing, product development and marketing programs. We
cannot accurately estimate the amount of additional financing required; however,
the amount could be an additional $30 - 50 million or more. Depending on market
conditions, we will attempt to raise additional capital through stock and debt
offerings, collaborative relationships and other available sources. Additional
funds may not be available on acceptable terms, if at all, and existing
stockholders may be diluted as a result of those offerings. The pricing of our
common stock in our recent shelf registration will also result in an increase in
the number of shares of common stock issuable upon conversion of Series A and
Series B preferred stock in accordance with the anti-dilution provisions in the
respective Certificates of Designation for those series.
WE WILL HAVE TO ISSUE ADDITIONAL SHARES OF OUR COMMON STOCK TO ELAN WHICH
WILL DILUTE SHAREHOLDERS' OWNERSHIP.
We are required to issue additional shares to an affiliate of Elan
Corporation plc, with whom we are engaged in a joint venture, so that the
weighted average price for common stock Elan purchased (at $13 per share) equals
the effective price in our first offering after Elan's purchase. Since we have
begun to issue common stock in our most recent shelf registration on Form S-3
declared effective February 9, 2001 at less than $13 per share, we must issue
additional shares of common stock to Elan so that the average price per share
paid by Elan for its aggregate ownership of our common stock will equal the
effective price in that offering. Based on the per share sale price in our first
transaction under the shelf registration (in which we sold 15,312 shares at
$4.8981 per share), we would issue 763,427 additional shares of our common stock
to Elan at no additional cost representing approximately two percent of our
outstanding common stock. However, we are in negotiations with Elan regarding
the precise terms of its anti-dilution rights with respect to our shelf
registration, which may result in greater or less dilution of our common stock.
The pricing of our common stock in the shelf registration will also result in an
increase in the number of shares of common stock issuable upon conversion of
Series A Preferred and Series B Preferred stock in accordance with the
anti-dilution provisions in the respective Certificates of Designation for those
series.
OUR PROPOSED PRODUCTS ARE SUBJECT TO EXTENSIVE TESTING AND GOVERNMENT APPROVAL,
AND WE MAY NOT OBTAIN THE APPROVALS NECESSARY TO SELL OUR PROPOSED PRODUCTS.
Most of our proposed drug and device products have not begun, and none
has completed, the Food and Drug Administration's extensive approval process.
This must be completed before our proposed products can be sold in the United
States. Requirements for FDA approval of a product include preclinical and
clinical testing for effective use and safety in animals and humans, and that
testing can be extremely costly. The time frame necessary to perform these tasks
for any individual product is long and uncertain, and we may encounter problems
or delays that we cannot predict at this time. Even if testing is successful,
our proposed products may not demonstrate sufficient effectiveness or safety to
warrant approval by the FDA or other regulatory authorities. Any regulatory
approval may not cover the clinical symptoms or indications that we may seek.
Marketing our products in other countries will require seeking and obtaining
regulatory approvals comparable to those required in the United States.
IF WE DO NOT OBTAIN AND MAINTAIN PATENT OR OTHER PROTECTION OF OUR CORE
TECHNOLOGIES (NAMELY PH-10,
13
OUR LYMPHOGRAPHY MATERIALS AND METHODS, AND OUR LASER TECHNOLOGIES), WE MAY HAVE
DIFFICULTY DEVELOPING OR COMMERCIALIZING PRODUCTS USING THESE TECHNOLOGIES.
Our success depends in part on our ability to obtain, assert and defend
our patents, protect trade secrets and operate without infringing the
intellectual property of others. Among the important risks in this area are
that:
o Our patent applications may not result in issued patents.
Moreover, any issued patents may not provide us with adequate
protection of our intellectual property or competitive
advantages, and the law on the scope of patents is continually
changing.
o Various countries limit the subject matter that can be
patented and limit the ability of a patent owner to enforce
patents in the medical field. This may limit our ability to
obtain or utilize those patents.
o Existing or future patents or patent applications (and the
products or methods they cover) of our competitors (or others,
such as research institutions or universities) may interfere,
invalidate, conflict with or infringe our patents or patent
applications. Similarly, the use of the methods or
technologies contained in our patents, patent applications and
other intellectual property may conflict with or infringe the
rights of others.
o If an advance is made that qualifies as a joint invention, the
joint inventor or his or her employer may have rights in the
invention. We are currently in litigation with our former
Medical Director concerning his claims of joint inventorship
of some of our PH-10 inventions.
We will be able to protect our proprietary rights from unauthorized use
by third parties only to the extent that these rights are covered by valid and
enforceable patents or effectively maintained as trade secrets. We own six
patents in the U.S., and ten other patents in foreign countries including
Taiwan, Australia, Singapore, Japan and New Zealand. We have filed patent
applications under the Patent Cooperation Treaty covering a number of foreign
countries. These patents and the patent applications relate to laser and
ionizing radiation technology, photoactive agents and methods, methods for
enhanced cell production and methods for performing lymphography. We are also
the exclusive licensee to a group of patented proprietary compounds known as
nanoparticulates from Massachusetts General Hospital and Nycomed Imaging AS.
The patent position of biotechnology companies involves complex legal
and factual questions, and therefore we cannot assure the enforceability of
these patents. Litigation over patents and other intellectual property rights
occurs frequently in our industry, and there is a risk that we may not prevail
in disputes over the ownership of intellectual property. Further, interference
may occur over the rights to certain inventions, and there is a risk that we may
not prevail in an interference. Those disputes can be expensive and time
consuming, even if we win. Intellectual property disputes are often settled
through licensing arrangements that could be costly to us. In any intellectual
property litigation, it is possible that licenses necessary to settle the
dispute would not be available, or that we would not be able to redesign our
technologies to avoid any claimed infringement.
Confidentiality agreements covering our intellectual property may be
violated and we may not have adequate remedies for any violation. Third parties
may challenge our existing patents and seek to hold them invalid or
unenforceable. Also, our intellectual property may in other ways become known or
be independently discovered by competitors.
14
To the extent we use intellectual property through licenses or
sub-licenses (as is the case for some of our lymphography technology), our
rights are subject to us performing the terms of the license or sub-license
agreement with third parties. Our rights are also subject to the actions of
third parties we may not be able to control, such as our sub-licensor complying
with the terms of its license with the patent owner and the patent owner
maintaining the patent.
Where intellectual property results from a research project supported
by U.S. Government funding, the Government has limited rights to use the
intellectual property without paying us a royalty.
WE ARE HIGHLY DEPENDENT UPON A SMALL NUMBER OF EMPLOYEES AND CONSULTANTS WHO
PROVIDE SCIENTIFIC AND MANAGEMENT EXPERTISE, AND IT MAY BE DIFFICULT TO
IMPLEMENT OUR BUSINESS DEVELOPMENT PLANS WITHOUT THIS EXPERTISE.
These individuals have entered into employment or consulting
agreements, confidentiality and/or non-competition agreements with us. We could
suffer competitive disadvantage, loss of intellectual property or other material
adverse effects on our business and results of operations if any employee or
consultant violates or terminates these agreements or terminates their
association with us. Our growth and future success also depends upon the
continued involvement and contribution from these individuals, as well as our
ability to attract and retain highly qualified personnel now and in the future.
We currently employ four senior scientists (Drs. Dees, Fisher, Scott
and Wachter) and three senior executive officers, including Dr. Williams (our
CEO), Mr. Boveroux (our CFO) and Dr. Reinhard Koenig (Senior Vice President of
Medical and Regulatory Affairs). We also have retained consultants to advise us
in regulatory affairs and product development matters. If we lost the services
of our executive officers or outside consultants, we would experience a delay in
the implementation of our business plan until we arranged for another individual
or firm to fulfill the role. The loss of one of our scientists could cause delay
in implementing our business plan and also jeopardize development of new
technologies. Because our scientists' talents are in some ways unique, it is
impossible to predict whether a suitable replacement could be obtained.
WE HAVE TO RELY ON THIRD PARTIES AND COLLABORATIVE RELATIONSHIPS FOR THE
MANUFACTURING, CLINICAL TESTING AND MARKETING FOR OUR PROPOSED PRODUCTS, AND IT
MAY BE DIFFICULT TO IMPLEMENT OUR BUSINESS DEVELOPMENT PLANS WITHOUT THESE
COLLABORATIONS.
We are currently involved in a joint venture with affiliates of Elan
Corporation, plc. called Sentigen Ltd., is working to develop and
commercialize lymphography materials. We have had and expect to continue in
the future to have a variety of research agreements with universities and
other research institutions to investigate specific protocols.
We must also continue to enter into collaborative relationships with
third parties for additional research and development, preclinical and
clinical testing, manufacturing, marketing and distribution of our proposed
products.
We are also dependent on third parties for the supply of lasers and
radiotherapy devices and similar hardware, and for supplies of photoactive
agents and nanoparticulates. We have several research and supply agreements with
third parties. However, we may not be able to negotiate other acceptable
15
collaborative and supply arrangements in the future.
Collaborative relationships may limit or restrict our operations or may
not result in an adequate supply of necessary resources. Our collaborative
partners could also pursue alternative technologies as a means of developing or
marketing products for the diseases targeted by our collaborative programs. If a
third party we are collaborating with fails to perform under its agreement or
fails to meet regulatory standards, this could delay or prematurely terminate
clinical testing of our proposed products.
OUR POTENTIAL MARKETS ARE EXTREMELY COMPETITIVE, AND MANY OF OUR COMPETITORS
HAVE GREATER RESOURCES AND HAVE PRODUCTS THAT ARE IN MORE ADVANCED STAGES OF
DEVELOPMENT.
We face substantial competition from competitors with greater
financial, technical and human resources and with greater experience in
developing products, conducting preclinical or clinical testing, obtaining
regulatory approvals, manufacturing and marketing. Our competitors include the
following firms in the field of using light energy to treat and diagnose
disease: Miravant Medical Technologies, Inc., Pharmacyclics, Inc., QLT
PhotoTherapeutics, Inc. and Dusa Pharmaceuticals. There are also numerous other
companies developing other technologies to treat and diagnose cancer and other
diseases. Examples of the technologies from those other companies are drug or
genetic treatments, procedures that use sound waves and procedures that destroy
diseased tissue using heat. Some of these firms have drugs or devices that have
completed or are in advanced stages of clinical trials and regulatory approvals.
Others may develop technologies and obtain patent protection that could
render our technologies or products obsolete or less competitive or our patents
invalid or unenforceable. Due to the inherent risk of failure associated with
the testing, development and production of new and innovative technologies, our
technologies and products may be found to be ineffective, have unanticipated
limitations or otherwise be unsuccessful in the marketplace. Also, although we
believe our estimates of the possible size of markets for our potential products
are based on information we consider reliable (including data from the American
Cancer Society and similar sources in the public domain), that data or our
analysis of the data could prove incorrect.
CHANGES IN HEALTH CARE REIMBURSEMENT POLICIES OR LEGISLATION MAY MAKE IT
DIFFICULT FOR PATIENTS TO USE OR RECEIVE REIMBURSEMENT FOR USING OUR PRODUCTS,
WHICH COULD REDUCE OUR REVENUES.
Our success will depend, in part, on the extent to which health
insurers, managed care entities and similar organizations provide coverage or
reimbursement for using the medical procedures and devices we plan to develop.
These third-party payors are increasingly challenging the price of medical
procedures and services and establishing guidelines that may limit physicians'
selections of innovative products and procedures. We also cannot predict the
effect of any current or future legislation or regulations relating to
third-party coverage or reimbursement on our business. We may not be able to
achieve market acceptance of our proposed products or maintain price levels
sufficient to achieve or maintain any profits on our proposed products if
adequate reimbursement coverage is not available.
A SMALL GROUP OF STOCKHOLDERS CONTROLS PHOTOGEN, WHICH MAY MAKE IT DIFFICULT FOR
STOCKHOLDERS WHO ARE NOT IN THAT GROUP TO INFLUENCE MANAGEMENT.
A small group of our officers, directors and others control
approximately 75% of our outstanding common stock. Several of our principal
stockholders are also parties to a Voting Agreement concerning the election of
certain designees to the Board of Directors of Photogen Technologies, Inc. and
Photogen, Inc. This group of stockholders can significantly influence Photogen
and the direction of our business and affairs. This concentration of ownership
may delay or prevent a change in control of Photogen, and may also result in a
small supply of shares available for purchase in the public securities markets.
These factors
16
may affect the market and the market price for our common stock in ways that do
not reflect the intrinsic value of the stock.
THE PRICE AND TRADING VOLUME OF OUR COMMON STOCK FLUCTUATES SIGNIFICANTLY, WHICH
MAY MAKE IT DIFFICULT FOR US OR A STOCKHOLDER TO SELL OUR COMMON STOCK AT A
SUITABLE PRICE AND MAY CAUSE DILUTION FOR EXISTING STOCKHOLDERS WHEN WE ISSUE
ADDITIONAL SHARES.
During the period from January 1, 2000 through December 31, 2000, our
stock price ranged from $1.125 to $19.50 per share. Daily trading volume ranged
from 100 shares to 300,623 shares during that period.
The following factors may have an impact on the price of our stock:
o Announcements by us or others regarding scientific
discoveries, technological innovations, commercial products,
patents or proprietary rights;
o The progress of preclinical or clinical testing;
o Changes in government regulation;
o Public concern about the safety of devices or drugs;
o Limited coverage by securities analysts;
o The occurrence of any of the risk factors described in this
section;
o Sales of large blocks of stock by an individual or
institution;
o Changes in our financial performance from period to period;
securities analysts' reports; and general market conditions.
OUR COMMON STOCK COULD BE DELISTED FROM THE NASDAQ SMALLCAP MARKET WHICH WOULD
MAKE TRADING IN OUR STOCK MORE DIFFICULT.
Since November 1999, our common stock has been quoted in the Nasdaq
SmallCap Market. Our shares could be delisted if we fail to meet the listing
requirements of the Nasdaq SmallCap Market, which would force us to list our
shares on the OTC Bulletin Board or some other quotation medium, such as pink
sheets, depending upon our ability to meet the specific listing requirements of
those quotation systems. As a result, an investor might find it more difficult
to dispose of, or to obtain accurate price quotations for, our shares. Delisting
might also reduce the visibility, liquidity, and price of our common stock. If
our common stock were delisted from the Nasdaq SmallCap Market and were not
traded on another national securities exchange, we could become subject to penny
stock regulations that impose additional sales practice disclosure and market
making requirements on broker/dealers who sell or make a market in our stock.
The rules of the SEC generally define "penny stock" to be common stock that has
a market price of less than $5.00 per share which is not traded on a national
exchange. If our stock became subject to penny stock regulations, it would
adversely affect the ability and willingness of broker/dealers who sell or make
a market in our common stock and of investors to purchase or sell our stock in
the secondary market.
IF INSIDERS SELL SUBSTANTIAL AMOUNTS OF OUR COMMON STOCK IN THE MARKET, THE
PRICE COULD FALL OR MAKE IT MORE COSTLY FOR US TO RAISE CAPITAL.
17
As of March 23, 2001 we had 37,954,157 shares of common stock and
preferred stock convertible into our common stock outstanding. Of theses shares,
approximately 8,799,278 shares were eligible for sale in the public market free
of restrictions under the Securities Act of 1933, as amended, including
restrictions under Rule 144. As of December 31, 2001, approximately 2,204,174
shares were subject to agreements requiring us to permit the holders of the
shares, under certain circumstances, to join a public offering of our stock
or to demand that we register their shares. Approximately 22,558,435 shares
held by Photogen's five founders are subject to a lock-up agreement with
Theodore Tannebaum (Chairman of the Board), prohibiting sale of those shares
without Mr. Tannebaum's consent until August 9, 2001.
As of December 31, 2000 we had reserved 10,486,780 shares of common
stock for future issuance upon grants of options, or exercise or conversion of
outstanding options and warrants and convertible securities. If these options
and warrants are all issued and exercised, investors may experience significant
dilution in the book value and earnings per share of their common stock.
ITEM 2. PROPERTIES.
We are occupying approximately 4,000 square feet of office and
laboratory space in Knoxville, Tennessee. We negotiated an extension to this
lease agreement with a term expiring May, 2002. We have one more option to renew
this lease agreement for an additional term of three years and an option to
purchase the facility at any time during the term of the lease or any renewal.
We have signed a three-year lease agreement for approximately 6,164
square feet of office space located in New Hope, Pennsylvania. The lease also
permits us to extend the lease for two additional three-year terms. This will be
used for our executive officer headquarters and for our clinical development
group.
To our knowledge, the property and equipment in our Knoxville and New
Hope locations are in good condition. In the opinion of management, our interest
in these facilities is adequately covered by insurance.
ITEM 3. LEGAL PROCEEDINGS.
In conjunction with the restructuring of our clinical development
office in Westborough, Massachusetts, we filed a lawsuit captioned Photogen,
Inc. v. Gerald L. Wolf (Case No. 00C 5841), in the United States District Court
for the Northern District of Illinois. In that litigation, we allege that Dr.
Wolf, our former Medical Director, breached his employment agreement and other
obligations to us. We also seek a declaration from the Court that Dr. Wolf is
not a co-inventor of certain of our discoveries relating to PH-10. We have filed
a number of patent applications for multiple inventions involving PH-10. Dr.
Wolf has asserted that he is a co-inventor of certain of those inventions
described in certain of the patent applications, apparently claiming he
conceived them outside the scope of his role as Principal Investigator under our
Research Agreement with Massachusetts General Hospital (which gives us the right
to an exclusive license to all jointly invented technology) or his Employment
Agreement (which vests in us title to all inventions he develops). We intend to
vigorously defend our proprietary and other rights against Dr. Wolf's claims.
However, if Dr. Wolf's assertion that he co-invented certain of our PH-10
inventions is correct, he (or his assignee) may be considered a joint owner of
the invention. If Dr. Wolf conceived of the invention outside the scope of the
Research Agreement or his Employment Agreement and we were unable to obtain an
exclusive license to Dr. Wolf's interest in any allegedly co-invented
technology, we could
18
nonetheless use the co-invented technology as a joint owner (but we might face
possible competition for any products resulting from that technology if it is
not covered by any other patent of which we are the exclusive owner or
licensee), and our other inventions involving PH-10 should not be affected. It
is not currently possible for us to determine whether or how this would affect
our revenues, financial condition or prospects.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to our common stockholders or Series A
convertible preferred stockholders for a vote during the fourth quarter of the
2000 fiscal year.
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Our common stock is traded from time to time on the Nasdaq SmallCap
Market under the symbol "PHGN."
Common Stock
As of March 23, 2001 there were 37,525,421 shares of our common
stock outstanding and held by approximately 525 stockholders. Holders of our
Common Stock are entitled to receive such dividends as may be declared by the
Board of Directors. We have not declared or paid dividends on our common
stock, and we do not anticipate paying any dividends in the foreseeable
future.
The high and low trading prices for our common stock during each
quarter of the last two fiscal years are set forth below.
Year Ended Year Ended
December 31, 1999 December 31, 2000
----------------- -----------------
(Amounts in $)
High Low High Low
---- --- ---- ---
1st Quarter 13.50 8.00 19.50 14.00
2nd Quarter 10.75 8.50 17.875 6.656
3rd Quarter 14.50 8.50 11.50 4.25
4th Quarter 18.75 12.25 6.00 1.125
For the period January 1, 2000 through March 23, 2001, the high and low
trading prices for our common stock were $7.00 and $1.50 respectively. Aggregate
trading volume for the period January 1, 2000 through March 23, 2001 was
approximately 1,133,100 shares. The foregoing information was obtained from the
National Association of Securities Dealers as reported on the over-the-counter
bulletin board and on the Nasdaq SmallCap Market. The quotations generally
reflect inter-dealer prices, without
19
retail mark-up, mark-down or commission and may not represent actual
transactions. The foregoing information for 1999 and 2000, however, reflects
trade prices, and not bid or ask prices. See "Risk Factors -- A small group of
stockholders control Photogen, which may make it difficult for stockholders who
are not in that group to influence management," and "The price and trading
volume of our common stock fluctuates significantly, which may make it difficult
for us or a stockholder to sell our common stock at a suitable price and may
cause dilution for existing stockholders when we issue additional shares,"
above, regarding the possible effects of the concentrated ownership of our stock
on the market and price of the stock.
In 2000, we granted qualified and non-qualified stock options pursuant
to our 1998 Long Term Incentive Plan to purchase an aggregate of 1,546,000
shares of common stock, and 4,000,000 qualified stock options pursuant to our
Senior Executive Long Term Incentive Compensation Plan. The options have vesting
requirements ranging from three to five years from the date of the grant and
some were immediately exercisable with no vesting requirements. Exercise prices
range from $2.75 to $15.00.
We also issued warrants in 2000 to purchase 500,000 shares of common
stock at $9.45 per share and 15,000 shares at $15.625 to consultants, and 32,724
shares of our common stock at $16.88 per share to the placement agent for
services rendered in connection with our Series B Preferred offering.
We are subject to six sets of registration rights agreements. All of
the agreements contain piggyback registration rights and three contain demand
registration rights upon the occurrence of certain events and subject to various
terms and conditions.
o Under the first two agreements, we granted certain piggyback
registration rights to the holders of warrants covering an
aggregate of 260,000 shares of our common stock owned by two
shareholders; which warrants are exercisable before May 15,
2002.
o Under a third agreement, the holder of warrants covering
1,000,000 shares of our common stock may demand registration
for those shares in the event that holders of 50% or more of
those warrants make a request covered by at least 100,000
shares (in addition to certain piggyback registration rights).
Demand registration, however, is subject to Board approval.
o Under the fourth agreement, we granted demand and piggyback
registration rights with respect to common stock resulting
from conversion of our Series A Preferred, 461,538 shares of
our common stock held by Elan, warrants covering 100,000
shares of our common stock, and common stock converted under a
convertible promissory note (as of December 31, 2000, there
was not any amount outstanding under the note).
o Under the fifth and sixth agreements, we granted demand and
piggyback registration rights to the holders of Series B
Preferred, covering common stock issued and common stock
resulting from conversions of Series B Preferred and
piggyback registration rights to the holder of warrants
covering 32,724 shares of our common stock. These agreements
provide that "initiating holders" who collectively
purchased a minimum of $1 million worth of Series B Preferred
may demand two registrations of common stock issued upon
conversion of Series B Preferred if the registration is for an
aggregate price to the public, net of underwriting discounts
and commissions, of at least $2 million. Holders of Series B
Preferred who own a minimum of $250,000 worth of Series B
Preferred are considered "eligible holders" and may
participate in those two demand registrations.
20
Mr. Smolik and Drs. Dees, Fisher, Scott and Wachter, who as of March
23, 2001, collectively hold approximately 22,558,435 shares of our common stock,
have agreed not to sell or otherwise dispose of those shares for a period ending
August 9, 2001, without the prior consent of Theodore Tannebaum.
Approximately 29,154,879 shares of our common stock and preferred stock
convertible into common stock are "restricted stock" or are beneficially owned
by persons who as of December 31, 2000 were affiliates of the Company as defined
in Rule 144 under the Securities Act. A portion of those shares would be
eligible for resale by Company affiliates and others who have satisfied the
requisite holding periods, subject to the volume limitations and other
provisions of Rule 144 and applicable law. As of March 13, 2000, 875,000 shares
of common stock that we sold in our March 13, 1998 Private Placement are no
longer restricted stock or subject to Rule 144 because two years have now
passed.
Series A Convertible Preferred Stock
On October 20, 1999, we issued 12,015 shares of Series A Preferred
Stock to Elan International Services, Ltd. ("EIS"), an affiliate of Elan, in
conjunction with the formation of Sentigen Ltd., our joint venture with Elan.
Under the Amended and Restated Certificate of Designations, Preferences and
Rights of Series A Preferred Stock, the holder of Series A Preferred has a
liquidation preference entitling it to the first $12,015,000 of funds available
for distribution to stockholders upon liquidation of the Company and has the
right to convert shares of Series A Preferred into common stock at any time
after October 20, 2001 at a conversion price of $21.17 per share. Alternatively,
the holder of Series A Preferred may exchange shares of Series A Preferred for
common shares of Sentigen so that the holder of Series A Preferred owns 50% of
the equity of Sentigen. Each share of Series A Preferred will be paid a
mandatory payment-in-kind dividend equal to 7% (i.e., 0.07 additional shares of
Series A Preferred). The payment-in-kind dividend is cumulative, compounds on a
semi-annual basis and is payable twice a year, beginning April 2000. Pursuant to
this dividend requirement, we issued 841 shares of Series A Preferred in 2000
and as of December 31, 2000, there were approximately 12,856 shares of Series A
Preferred outstanding. The holder of Series A Preferred is only entitled to vote
on matters that adversely affect or change the rights of holders of Series A
Preferred Stock. The holder of Series A Preferred does not have the right to
vote on the election of directors of the Company.
Series B Convertible Preferred Stock
In February, 2000, we issued 327,240 shares of Series B Convertible
Preferred Stock ("Series B Preferred") to 32 accredited investors in a private
placement, for a purchase price of $16.88 per share and 9,816 shares to the
placement agent in connection with services rendered in our private placement of
Series B Preferred.
Each share of Series B Preferred is entitled to a payment-in-kind
dividend payable in additional shares of Series B Preferred, at a rate of 6%
(i.e., 0.06 additional shares of Series B Preferred). Dividends will be payable
on January 15 of each year, beginning January 15, 2001 and will accrue from the
date of such share's issuance. As of December 31, 2000 there were 337,056 shares
of Series B Preferred outstanding. On January 15, 2001, we issued
approximately 20,224 shares of Series B Preferred to Series B Preferred
Stockholders pursuant to the payment-in-kind dividend. As of March 23, 2001,
there are 357,280 shares of Series B Preferred outstanding which is
convertible into 428,736 shares of our common stock. We may not make
dividends or distributions on common stock unless we also pay a dividend on
the Series B Preferred equal to the amount a holder of Series B Preferred
would have received on conversion of Series B Preferred into common stock.
21
Each share of Series B Preferred is entitled to a liquidation
preference equal to $16.88 per share, before any amounts are paid on the common
stock on liquidation, but subject to the senior preference of our Series A
Preferred and the liquidation preference of any senior or pari passu securities
we create in the future with the requisite consent of the holders of Series B
Preferred. After payment of the Series B Preferred liquidation preference, we
will distribute our remaining assets pro rata among the holders of the common
stock and Series A Preferred and Series B Preferred (subject to the rights of
any senior securities). If we are acquired by another entity or sell all or
substantially all of our assets, and if we pay an amount equal to the
liquidation preference of the Series A Preferred and any other senior security,
holders of Series B Preferred will be entitled to receive the liquidation
preference unless our stockholders prior to the transaction hold at least 50% of
the voting power of the surviving or acquiring entity or if the holders of a
majority of Series B Preferred agree by vote or written consent to exclude the
acquisition or sale from this provision.
Each share of Series B Preferred has the number of votes equal to the
number of shares of common stock into which the share of Series B Preferred
would be convertible (as of March 23, 2001, 1.2 shares of common stock for each
share of Series B Preferred), and will be entitled to vote together with the
common stock. Certain matters, such as an amendment to the terms of the Series B
Preferred Certificate of Designation or a change in the preferences or any
relative or other rights of the Series B Preferred, may have to be approved by a
majority of the holders of Series B Preferred voting as a separate class.
A holder of Series B Preferred may convert shares of Series B Preferred
into common stock at any time, according the following formula:
- --------------------------------------------------------------------------------
If the conversion takes place: Each share of Series B Preferred converts into:
- --------------------------------------------------------------------------------
On or before 12/31/00 1.0 shares of common stock
- --------------------------------------------------------------------------------
1/1/01 - 12/31/01 1.2 shares of common stock
- --------------------------------------------------------------------------------
1/1/02 and thereafter 1.4 shares of common stock
- --------------------------------------------------------------------------------
The conversion ratio is subject to adjustment for certain dilutive events,
including issuance of common stock or equivalent securities at less than $16.88
per share. We have issued common stock in our recent shelf registration
at less than $16.88 and will be required to increase the number of shares of
common stock issuable upon conversion of our Series B Preferred. We may
require holders of Series B Preferred to convert their shares into common
stock (at the same ratios that would apply for a voluntary conversion, except
as described in the second and third bullet points below) in connection with
any of the following events:
o If the holders of a majority of the Series B Preferred approve
a mandatory conversion;
o Immediately prior to a firm commitment, underwritten public
offering of our common stock in which we receive $20 million
or more in gross proceeds;
o If the holders of a majority of Series B Preferred do not
approve any transaction to issue a security senior or pari
passu to the Series B Preferred in a transaction involving any
vendor, licensor or joint venturer or other commercial
transaction (a "special senior security"), the purpose of
which is not solely to provide financing, and which the Board
has approved and recommended; or
o At any time after January 1, 2005.
22
We must obtain the approval of a majority of the then outstanding
shares of Series B Preferred if we seek to amend our Restated Articles of
Incorporation in a way that adversely affects the shares of Series B Preferred
(except for issuance of a special senior security), create certain senior or
pari passu securities, or if we change the rights of Series B Preferred in the
Certificate of Designation in any other material respect. This right is subject
to our ability to require mandatory conversion of Series B Preferred if a
"special senior security" is not approved.
Recent Sales of Unregistered Securities
During 2000, we made the following sales of stock without registration
under the Securities Act of 1933 (the "Securities Act"):
o On January 24, 2000, we issued warrants covering 15,000 shares
of our common stock to a consultant. The warrants are
exerciasable at any time before January 24, 2010 for an
exercise price of $15.625.
o On February 18, 2000 we issued 327,240 shares of Series B
Preferred to 32 accredited investors in a private placement,
for a purchase price of $16.88 per share and 9,816 shares of
Series B Preferred and warrants to acquire 32,724 shares of
our common stock at an exercise price of $16.88 per share to
the placement agent in connection with services rendered in
our private placement of Series B Preferred
o On August 9, 2000, we issued warrants to acquire a total of
500,000 shares of common stock to Farcap Group, LLC as
consideration for consulting services Farcap agreed to perform
for us. The warrants are exercisable at any time before August
9, 2004 for an exercise price of $9.45 per share.
In each of the transactions described above:
o We did not use any underwriters or brokers and we paid no
commissions or underwriting discounts, except for a commission
of 9,816 shares of Series B Preferred, warrants in the amount
of 32,724 shares of our common stock and $25,000 expense
reimbursement we paid to the placement agent for our Series B
Preferred.
o Wherever we received cash consideration, we used the proceeds
for working capital and other general corporate purposes.
o These transactions were exempt from registration under the
Securities Act pursuant to Section 4(2) of that Act, on the
basis of one or more of the following factors: we made the
offers and sales to a limited number of "accredited investors"
within the meaning of Rule 501 of Regulation D under the
Securities Act, without public advertising or solicitation;
each investor had access to material information about the
Company and the opportunity to obtain further information;
each investor acquired the securities for investment and not
with a view to resale or distribution thereof; and the
certificates representing the shares bear a legend restricting
their transfer except in compliance with applicable securities
laws.
During 2000, we also awarded 1,546,000 options to acquire our common stock
pursuant to our 1998 Long Term Incentive Compensation Plan and 4,000,000 options
to acquire common stock pursuant
23
to our Senior Executive Long Term Incentive Compensation Plan. Those options are
exercisable at prices ranging from $2.75 to $15.00 and are subject to various
vesting criteria.
ITEM 6. SELECTED FINANCIAL DATA.
The following information is qualified by reference to and should be
read in conjunction with our Consolidated Financial Statements and the Notes
thereto and Management's Discussion and Analysis of Financial Condition and
Results of Operations included below. The selected financial data presented
below for the years ended December 31, 1996, 1997, 1998, 1999 and 2000 have been
derived from our audited financial statements.
1996 1997 1998 1999 2000
- -----------------------------------------------------------------------------------------------------
Net loss from continuing $ (1,779) $ (554,702) $ (1,973,913) $ (6,052,841) $(10,787,062)
operations
- -----------------------------------------------------------------------------------------------------
Basic and diluted loss
per common share $ -- $ (0.02) $ (0.05) $ (0.17) $ (0.36)
- -----------------------------------------------------------------------------------------------------
Total assets 5,489 2,284,373 8,060,585 23,304,829 19,652,037
- -----------------------------------------------------------------------------------------------------
Total liabilities -- 197,328 952,007 872,667 1,239,527
- -----------------------------------------------------------------------------------------------------
Total long-term -- 60,469 35,990 18,356 1,554
obligations
- -----------------------------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Photogen is an emerging development-stage biotechnology company focused
on developing minimally invasive products for the treatment and diagnosis of
cancer, pre-cancerous conditions and other diseases. We have not completed
development of any diagnostic or therapeutic product or process at this time and
have no revenue from operations. Portions of the discussion in this item contain
forward -looking statements and are subject to the Risk Factors described above.
RESULTS OF OPERATIONS
Our efforts have been focused on the development and clinical testing of
diagnostic and therapeutic products. To date, we have not generated revenues
from the sale of any proposed diagnostic or therapeutic products or other
operations. Net loss applicable to common shareholders (in 1999 and 2000 after
preferred dividends) was $1,973,913, $6,273,518 and $13,491,813 for the years
ended December 31, 1998, 1999 and 2000, respectively.
Research and development expenses for the years ended December 31,
1998, 1999 and 2000 were $1,357,941, $2,889,215 and $4,308,313, respectively.
Expenses in 1998 were attributable to personnel costs, facilities expenses and
supplies to support our research operation in Knoxville, Tennessee as well as
for the costs of research contracts we established with outside academic
organizations. Expense increases in 1999 were due to costs incurred as we
expanded our development activities for PH-10, a company
24
developed product, and for N-1177, a product licensed by Photogen during 1999.
In addition, we established a clinical development group in Westborough,
Massachusetts during the fourth quarter of 1999 to support development of
products approaching the stages of human clinical testing. Research expenses
increased in 2000 resulting from the Westborough, Massachusetts operations
through September, 2000 and costs associated with consultants we retained having
expertise in the development of cancer therapeutics and diagnostics as well as
dermatological products. This increased expense was partially offset by a
reduction in research contract expense as a result of contracts with certain
academic institutions reaching their conclusion.
General and administrative expenses were $1,008,571, $3,037,392 and
$5,095,442 for the years ended December 31, 1998, 1999 and 2000, respectively.
In 1998, these expenses were attributable to costs associated with obtaining
patent protection for our intellectual property, costs associated with
administrative personnel and corporate management, legal and related expenses
and facilities expenses. In 1999, the expense increase was due primarily to the
amortization of warrants granted to a service provider and consultants, and
increased legal expenses. Expense increases in 2000 resulted primarily from
additional warrants granted to a service provider, costs of hiring and
compensating our new senior management and legal expenses incurred in connection
with the reorganization of the clinical development group.
On September 26, 2000, we initiated a restructuring of our clinical
development operations. We closed our Westborough, Massachusetts office and
delivered notices of material breaches and/or dissatisfaction pursuant to the
employment agreements with the three employees who worked there at that time.
Clinical development activities formerly carried on in Westborough were assumed
by outside consultants and other company employees. We have taken a charge
against earnings of $597,025 for termination of our office lease and associated
expenses and termination costs associated with certain employees at that
location. We cannot estimate at this time additional costs or obligations (if
any) related to any litigation arising from that closing.
In the fourth quarter of 1999, we entered into a joint venture
relationship with affiliates of Elan Corporation for the development of N-1177,
a potential product to identify and diagnose lymph nodes for the presence of
cancer. We own 80.1% of the joint venture entity, Sentigen, Ltd, with the
balance owned by Elan. During 1999 and 2000, we recorded losses from the joint
venture of $306,029 and $1,203,392, respectively. These losses resulted from our
share of development expenses incurred in the joint venture by the two
participants, including personnel expenses and costs associated with developing
a manufacturing process, including the purchase of drug substance and other
materials.
In accordance with the joint venture agreement between Photogen and
Elan, we charged research and development work performed at the Westborough
facility to Sentigen. As part of the restructuring of our clinical development
operations, we conducted an internal review of the year-to-date activities
conducted at Westborough and concluded that the joint venture should not be
charged for those activities. Accordingly, in the third quarter, we reversed the
billings previously made to Sentigen and recorded the entire amount of research
and development costs on our financial statements. The effect on us was an
increase in research and development costs of $810,000 less a decrease in the
loss from Sentigen of $649,000.
Investment income for the years ended December 31, 1998, 1999 and 2000
was $392,599, $179,795 and $417,110, respectively. Investment income results
entirely from the amount of capital in our investment portfolio prior to it
being used to fund our operations and the rate of interest earned on that
capital. We invest funds in the investment portfolio in United States Government
obligations. The 1998 investment income resulted primarily from interest earned
on the proceeds of a common stock offering in
25
March 1998 and on capital remaining from common stock issued at the time of the
company's recapitalization in 1997. Investment income declined in 1999 as we
used this capital to support our research activities. In the fourth quarter of
1999 and the first quarter of 2000, the company raised a total of $11,276,340
from the issuance of common stock and Series B Preferred. The increase in
investment income in 2000 resulted primarily from investment of those proceeds.
We expect investment income to continue to fluctuate both as the size of the
investment portfolio decreases or increases and as the rate of interest earned
by the portfolio varies due to shifts in short term interest rates.
Purchases of equipment and leasehold improvements for the years ended
December 31, 1998, 1999 and 2000 were $877,459, $374,741 and $516,186,
respectively. These purchases were primarily for the acquisition of laboratory
and other equipment necessary to conduct pre-clinical and clinical studies and
leasehold improvements in the Knoxville and Westborough offices. During the next
twelve months we expect capital expenditures for equipment to be less than
$100,000.
The holder of Series A Preferred is entitled to a mandatory, cumulative,
semi-annual payment-in-kind dividend of 7% (i.e., 0.07 additional shares of
Series A Preferred). Similarly, the holders of Series B Preferred are entitled
to a cumulative, annual payment-in-kind dividend equal to 6% (i.e., 0.06
additional shares of Series B Preferred). Additionally, the terms of both the
Series A Preferred and the Series B Preferred create additional preferred
returns for the holders. The Series A Preferred was issued with detachable
warrants. The value allocated to those warrants caused the preferred
shareholders to receive an additional return. That additional return is being
amortized over the period until the stock is first convertible. The preferred
return related to the Series A Preferred recorded in 2000 was $436,041. The
terms of the Series B Preferred include beneficial conversion rates if the stock
is converted to common stock after specified dates. The value of the beneficial
conversion also creates an additional return to the Series B holders. The value
of the beneficial conversion feature is being amortized over the period from
issuance until January 1, 2002, the date the most beneficial conversion rate
becomes effective. The preferred return related to the Series B Preferred
recorded in 2000 was $1,059,097. As a result of the above, we recorded
preferred stock dividends of $220,677 and $2,704,751 in 1999 and 2000 for
Series A Preferred stock issued in October, 1999 and Series B Preferred stock
issued in February, 2000.
As a result of the above factors, the net loss applicable to common
shareholders (in 1999 and 2000 after preferred dividends) was $1,973,913,
$6,273,518 and $13,491,813 for the years ended December 31, 1998, 1999 and 2000,
respectively. Basic and diluted loss per common share was $0.05, $0.17 and
$0.36, respectively, for these periods.
LIQUIDITY; CAPITAL RESOURCES
We have used, and expect over the next 12 months to use, the capital
available in our investment portfolio as well as proceeds and expected proceeds
from sales of common stock under the registration statement declared effective
in February, 2001 for up to $40 million of common stock, for general corporate
purposes, including activities related to preparing for and conducting clinical
trials, purchase and preparation of clinical material, conduct of preclinical
studies, administrative expenses to support our research and development
activities, capital expenditures and to meet working capital needs. We expect to
evaluate from time to time the acquisition or license of businesses,
technologies or products for which a portion of the net proceeds may be used;
however we have no present plan or commitments for any acquisition or license.
We expect our use of capital to increase as we move toward initiating clinical
trials.
26
We have a $4.8 million credit facility from Elan to fund a portion of the
operations of the Sentigen joint venture. Our borrowings under this facility
would bear interest at 8% per annum, be repayable in 2005 or be convertible at
Elan's election into our common stock at a conversion price of $18.15 per share.
We have also received a binding commitment from our Chairman of the Board and
5.6% stockholder, Theodore Tannebaum, to make a $1 million credit facility
available to us. Borrowings under this credit facility will bear interest at 6%
per year and interest only will be paid annually with the principal due in five
years. The loan would be secured by a lien on all of our assets.
On September 22, 2000, we filed a shelf registration statement with the
SEC to enable us to issue up to $40 million of our common stock. This shelf
registration was declared effective by the SEC in February, 2001 and will permit
us to issue common stock from time to time at our option. Through March 23,
2001, we sold 142,035 shares of common stock pursuant to this registration
statement to an institutional investor for gross proceeds of $375,000.
As of December 31, 2000 we had U.S. Treasury notes available for sale,
cash and interest receivable totaling approximately $5,660,000. Maturity dates
of these securities range from January 1, 2001 to April 30, 2001. Yields range
from 4.5% to 6.375%. At the current rate of spending, we will exhaust these
securities by approximately October 31, 2001. We have access to additional
capital through borrowing funds from our credit line with Elan for development
costs of N-1177 and from the line of credit from Mr. Tannebaum. In addition, at
our option, our registration statement gives us the ability to sell from time to
time up to $40 million of additional common stock. We believe that through the
use of our cash, U.S. Treasury notes and lines of credit we will have sufficient
cash resources for our current commitments through the next twelve months. If
necessary we can adjust our use of cash and capital by modifying the timing of
and related financial commitments for our development programs for PH-10, N-1177
and other programs. See "Risk Factors -- We must raise additional financing in
the future and our ability to do so could prevent us from implementing our
business plan," above.
PLAN OF OPERATION
During the next twelve months, we will focus our efforts on completing
preclinical studies, preparing required filings to the FDA and foreign
regulatory bodies, acquiring quantities of clinical grade drug formulations of
our proposed products, conducting human clinical studies on selected
indications, and preparing for the design and assembly of laser and other
treatment devices. We expect to continue to incur increasing losses for at least
the next several years as we intensify research and development, preclinical and
clinical testing and associated regulatory approval activities and engage in or
provide for the manufacture and/or sale of any products that we may develop.
We expect that our technologies will be useful in several therapeutic and
diagnostic applications. Over the next twelve months, we intend to devote a
significant majority of our financial and other resources to preparing for and
initiating clinical development of PH-10 for the treatment of psoriasis and the
treatment of focal tumors (a tumor that is confined to a specific area of the
body), and continuing the clinical development of N-1177. With respect to PH-10,
our goal is to file an Investigational New Drug (IND) application for one or
more indications with the FDA, which if approved would enable us to begin human
clinical trials. In 2001, we also plan to begin Phase 2 clinical trials of
N-1177.
As we progress toward and into human clinical trials, our use of
capital will increase and will continue to do so at an accelerating pace.
Greater capital resources would enable us to quicken and expand our research and
development activities, and our failure to raise additional capital will (absent
a suitable
27
collaborative agreement providing for a third party to take over these
functions) significantly impair our ability to conduct further research and
development activities beyond those currently contracted for and our ability to
seek regulatory approval for any possible product resulting from that research.
In any event, complete development and commercialization of our technology will
require substantial additional funds. See "Risk Factors -- We must raise
additional financing in the future and our inability to do so could prevent
us from implementing our business plan," above. Accordingly, we are
continuously evaluating capital formation activities and opportunities,
either as part of collaborative arrangements with third parties or through
other offerings of equity or debt.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement of Financial Accounting
Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities," which establishes accounting and reporting standards for derivative
instruments and hedging activities. SFAS 133 is effective for years beginning
after June 15, 2000. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. The Company, to date, has not engaged in
derivative or hedging activities.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44 ("FIN 44"), "Accounting for Certain Transactions Involving
Stock Compensation - an Interpretation of Accounting Principles Board ("APB")
Opinion No. 25." FIN 44 clarifies the following: the definition of an employee
for purposes of applying APB Opinion No. 25; the criteria for determining
whether a plan qualifies as a noncompensatory plan; the accounting consequence
of various modifications to the terms of the previous fixed stock options or
awards; and the accounting for an exchange of stock compensation awards in a
business combination. FIN 44 was effective July 1, 2000, but certain conclusions
in FIN 44 cover specific events that occurred after December 15, 1998 or January
12, 2000. We believe our existing stock-based compensation policies and
procedures are in compliance with FIN 44 and, therefore, the adoption of FIN 44
had no material impact on our financial condition, results of operations or cash
flows.
During the year, we adopted certain provisions of EITF 00-27,
"Application of EITF Issue No. 98-5, `Accounting for Convertible Securities with
Beneficial Conversion Features or Contingently Adjustable Conversion Ratios,' to
Certain Convertible Securities." EITF 00-27 changed the approach of calculating
the conversion price used in determining the value of the beneficial conversion
feature from using the conversion price stated in the preferred stock
certificate to using the accounting conversion price. We did not treat the
adoption of EITF 00-27 as a cumulative change in accounting principles because
the cumulative effect was minimal.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The primary market risk which could impact us is the fluctuation in
interest rates related to our investments in Government bonds. As our
investments all have short-term maturities, the investment
28
return will reflect the current market rates. To date, we have not engaged in
any derivative or hedging activities.
29
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Independent Auditors' Report
Board of Directors
Photogen Technologies, Inc.
Knoxville, Tennessee
We have audited the accompanying consolidated balance sheets of Photogen
Technologies, Inc., a development stage company, as of December 31, 1999 and
2000, and the related consolidated statements of operations, shareholders'
equity and cash flows for the period from November 3, 1996 (inception) to
December 31, 2000 and for each of the three years in the period ended December
31, 2000. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Photogen
Technologies, Inc. at December 31, 1999 and 2000, and the results of its
operations and its cash flows for the period from November 3, 1996 (inception)
to December 31, 2000 and for each of the three years in the period ended
December 31, 2000, in conformity with accounting principles generally accepted
in the United States.
/s/ BDO Seidman, LLP
Chicago, Illinois
February 20, 2001
30
CONSOLIDATED BALANCE SHEETS
==================================================================
December 31, 1999 2000
- --------------------------------------------------------------------------------------------------------------
Assets
Current Assets
Cash and cash equivalents $ 1,681,773 $ 622,795
Restricted cash (Note 5(b)) 100,000 -
United States Treasury Notes, total face value $5,470,000 and
$4,945,000, respectively 5,472,564 4,943,971
Interest receivable 84,327 93,219
Prepaid consulting expense (Note 5(a)) 1,585,575 760,363
Prepaid expenses 590,710 182,115
Deposit (Note 7) - 100,000
- --------------------------------------------------------------------------------------------------------------
Total Current Assets 9,514,949 6,702,463
Equipment and Leasehold Improvements, less accumulated
depreciation of $393,692 and $761,425, respectively (Note 4(a)) 1,279,441 1,377,741
Patent Costs, net of amortization of $17,361 and $59,027, respectively 482,639 440,973
Deposit (Note 7) 29,370 429,370
Investment in and Advances to Affiliate (Note 3) 11,998,430 10,701,490
- --------------------------------------------------------------------------------------------------------------
$ 23,304,829 $ 19,652,037
==============================================================================================================
31
CONSOLIDATED BALANCE SHEETS
================================================================================
December 31, 1999 2000
- -----------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable $ 833,163 $ 891,171
Accrued restructuring (Note 8) - 330,000
Current portion of obligation under capital leases (Note 4(a)) 21,148 16,802
- --------------------------------------------------------------------------------------------------------------
Total Current Liabilities 854,311 1,237,973
- --------------------------------------------------------------------------------------------------------------
Obligation Under Capital Leases (Note 4(a)) 18,356 1,554
- --------------------------------------------------------------------------------------------------------------
Commitments (Notes 4 and 9)
Shareholders' Equity (Notes 2, 3, 5 and 6)
Preferred stock; par value $.01 per share; 5,000,000 shares authorized
including: Series A Preferred Stock; 12,015 and 12,856 shares
authorized,
issued and outstanding, respectively, liquidation preference
$1,000 per share (in aggregate $12,015,000 and
$12,856,000, respectively) 120 128
Series B Preferred Stock; 402,000 shares authorized; 337,056
issued and outstanding at December 31, 2000, liquidation
preference $16.88 per share (in aggregate $5,689,505) - 3,370
Common stock; par value $.001 per share; 150,000,000 shares
authorized; 37,383,386 shares issued and outstanding 37,384 37,384
Additional paid-in capital 30,977,893 37,741,925
Deficit accumulated during the development stage (8,583,235) (19,370,297)
- --------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 22,432,162 18,412,510
- --------------------------------------------------------------------------------------------------------------
$23,304,829 $ 19,652,037
==============================================================================================================
See accompanying notes to consolidated financial statements.
32
CONSOLIDATED STATEMENTS OF OPERATIONS
================================================================================
Cumulative
Amounts
From
November 3,
1996
Year Ended Year Ended Year Ended (Inception) to
December 31, December 31, December 31, December 31,
1998 1999 2000 2000
- ------------------------------------------------------------------------------------------------------------------------------
Operating Expenses (Notes 4, 5 and 8)
Research and development $ 1,357,941 $ 2,889,215 $ 4,308,313 $ 8,963,633
General and administrative 1,008,571 3,037,392 5,095,442 9,396,855
Restructuring charges - - 597,025 597,025
- ------------------------------------------------------------------------------------------------------------------------------
Total operating expenses 2,366,512 5,926,607 10,000,780 18,957,513
Loss From Joint Venture (Note 3) - (306,029) (1,203,392) (1,509,421)
Investment Income 392,599 179,795 417,110 1,096,637
- ------------------------------------------------------------------------------------------------------------------------------
Net Loss (1,973,913) (6,052,841) (10,787,062) $ (19,370,297)
==================
Dividends on Preferred Stock (Notes 3 and 5) - (220,677) (2,704,751)
- -----------------------------------------------------------------------------------------------------------
Net Loss Applicable to Common Shareholders $ (1,973,913) $ (6,273,518) $ (13,491,813)
===========================================================================================================
Basic and Diluted Loss Per Common Share $ (.05) $ (.17) $ (.36)
===========================================================================================================
Weighted Average Number of Common
Shares Outstanding - Basic and Diluted 36,692,708 36,983,707 37,383,386
===========================================================================================================
See accompanying notes to consolidated financial statements.
33
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
================================================================================
Preferred Stock Preferred Stock
Series A Series B Common Stock Additional
--------------- -------------- ----------------------- Members' Paid-in
Shares Amount Shares Amount Shares Amount Capital Capital
- -------------------------------------------------------------------------------------------------------------------------------
Contribution of capital ................ - $ -- - $ -- -- $ -- $ 7,268 $ --
Net loss for the period ended
December 31, 1996 .................... - -- - -- -- -- (1,779) --
- -------------------------------------------------------------------------------------------------------------------------------
Balance, at December 31, 1996 .......... - -- - -- -- -- 5,489 --
Net loss for the period
January 1, 1997 to May 15,
1997 ............................ - -- - -- -- -- -- --
Capital contribution .............. - -- - -- -- -- 3,511 --
- -------------------------------------------------------------------------------------------------------------------------------
Balance, at May 15, 1997 ............... - -- - -- -- -- 9,000 --
Issuance of common stock .......... - -- - -- 6,312,833 6,313 -- 1,797,137
Effect of recapitalization and
merger .......................... - -- - -- 29,687,167 29,687 (9,000) 1,181,500
Cost associated with
recapitalization and merger ..... - -- - -- -- -- -- (371,111)
Net loss for the period May 16,
1997 to December 31, 1997 ...... - -- - -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Balance, at December 31, 1997 .......... - -- - -- 36,000,000 36,000 -- 2,607,526
Issuance of common stock .......... - -- - -- 875,020 875 -- 6,999,125
Costs associated with common stock
issuance ........................ - -- - -- -- -- -- (50,000)
Options issued to consultants ..... - -- - -- -- -- -- 45,446
Net loss for the year ended
December 31, 1998 ............... - -- - -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Deficit
Accumulated
During the
Development
Stage Total
- ----------------------------------------------------------------------
Contribution of capital ................ $ -- $ 7,268
Net loss for the period ended
December 31, 1996 .................... -- (1,779)
- ----------------------------------------------------------------------
Balance, at December 31, 1996 .......... -- 5,489
Net loss for the period January 1, 1997
to May 15, 1997 .................. (3,511) (3,511)
Capital contribution .............. -- 3,511
- ----------------------------------------------------------------------
Balance, at May 15, 1997 ............... (3,511) 5,489
Issuance of common stock .......... -- 1,803,450
Effect of recapitalization and
merger .......................... 1,732 1,203,919
Cost associated with
recapitalization and merger ..... -- (371,111)
Net loss for the period May 16,
1997 to December 31, 1997 ...... (554,702) (554,702)
- ----------------------------------------------------------------------
Balance, at December 31, 1997 .......... (556,481) 2,087,045
Issuance of common stock .......... -- 7,000,000
Costs associated with common stock
issuance ........................ -- (50,000)
Options issued to consultants ..... -- 45,446
Net loss for the year ended
December 31, 1998 ............... (1,973,913) (1,973,913)
- ----------------------------------------------------------------------
34
Preferred Stock Preferred Stock
Series A Series B Common Stock
----------------------- -------------------------- --------------------------
Shares Amount Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, at December 31, 1998 ....... -- $ -- -- $ -- 36,875,020 $ 36,875
Exercise of stock options ...... -- -- -- -- 4,500 5
Issuance of warrants and options -- -- -- -- -- --
Issuance of common stock ....... -- -- -- -- 503,866 504
Issuance of preferred stock .... 12,015 120 -- -- -- --
Net loss for the year ended
December 31, 1999 ............ -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, at December 31, 1999 ....... 12,015 120 -- -- 37,383,386 37,384
Stock option compensation ...... -- -- -- -- -- --
Issuance of warrants and options -- -- -- -- -- --
Issuance of preferred stock
dividend ..................... 841 8 -- -- -- --
Issuance of preferred stock .... -- -- 337,056 3,370 -- --
Net loss for the year ended
December 31, 2000 ............ -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, at December 31, 2000 ....... 12,856 $ 128 337,056 $ 3,370 37,383,386 $ 37,384
=================================================================================================================================
Deficit
Accumulated
Additional During the
Members' Paid-in Development
Capital Capital Stage Total
- -----------------------------------------------------------------------------------------------------
Balance, at December 31, 1998 ....... $ -- $ 9,602,097 $ (2,530,394) $ 7,108,578
Exercise of stock options ...... -- 50,058 -- 50,063
Issuance of warrants and options -- 3,664,749 -- 3,664,749
Issuance of common stock ....... -- 6,082,150 -- 6,082,654
Issuance of preferred stock .... -- 11,578,839 -- 11,578,959
Net loss for the year ended
December 31, 1999 ............ -- -- (6,052,841) (6,052,841)
- -----------------------------------------------------------------------------------------------------
Balance, at December 31, 1999 ....... -- 30,977,893 (8,583,235) 22,432,162
Stock option compensation ...... -- 125,020 -- 125,020
Issuance of warrants and options -- 1,366,050 -- 1,366,050
Issuance of preferred stock
dividend ..................... -- (8) -- --
Issuance of preferred stock .... -- 5,272,970 -- 5,276,340
Net loss for the year ended
December 31, 2000 ............ -- -- (10,787,062) (10,787,062)
- -----------------------------------------------------------------------------------------------------
Balance, at December 31, 2000 ....... $ -- $ 37,741,925 $(19,370,297) $ 18,412,510
======================================================================================================
See accompanying notes to consolidated financial statements.
35
CONSOLIDATED STATEMENTS OF CASH FLOWS
================================================================================
Cumulative
Amounts
From
November 3,
1996
Year Ended Year Ended Year Ended (Inception) to
December 31, December 31, December 31, December 31,
1998 1999 2000 2000
- ------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Operating Activities
Net loss $ (1,973,913) $ (6,052,841) $ (10,787,062) $ (19,370,297)
Depreciation and amortization 148,761 282,049 416,511 864,394
Loss on disposal of equipment and
leasehold improvements - - 43,041 43,041
Loss (gain) on sale of marketable securities 9,238 - - (18,503)
United States Treasury Notes
amortization 22,364 24,914 (41,437) 13,615
Stock option compensation 45,446 381,321 125,020 551,787
Issuance of warrants in exchange for
services rendered - 1,043,466 2,191,262 3,234,728
Loss from investment in affiliate - 306,029 1,203,392 1,509,421
Changes in operating assets and
liabilities
Prepaid expenses (427,231) (155,315) 408,595 (182,115)
Interest receivable (100,069) 37,144 (8,892) (93,219)
Accounts payable 686,015 (21,085) 108,008 891,171
Accrued restructuring - - 330,000 330,000
- ------------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (1,589,389) (4,154,318) (6,011,562) (12,225,977)
- ------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities
Sale of marketable securities 400,000 - - 2,164,464
Purchases of marketable securities - - - (2,182,967)
Purchases of United States Treasury
Notes (14,516,754) (5,475,373) (11,749,970) (33,786,973)
Sales of United States Treasury Notes 10,343,698 5,660,000 12,320,000 29,963,548
Purchase of equipment and leasehold
improvements (877,459) (374,741) (516,186) (1,897,615)
Costs to acquire patent - (150,000) (50,000) (237,335)
Investment in and advances to affiliate - (12,304,459) 93,548 (12,210,911)
(Increase) decrease in restricted cash - (100,000) 100,000 -
Increase in deposit - (29,370) (500,000) (529,370)
- ------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (4,650,515) (12,773,943) (302,608) (18,717,159)
- ------------------------------------------------------------------------------------------------------------------------------
36
CONSOLIDATED STATEMENTS OF CASH FLOWS
================================================================================
Cumulative
Amounts
From
November 3,
1996
Year Ended Year Ended Year Ended (Inception) to
December 31, December 31, December 31, December 31,
1998 1999 2000 2000
- -------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities
Principal payments on capital leases $ (140,501) $ (108,255) $ (21,148) $ (273,348)
Net proceeds from issuance of equity 6,950,000 18,066,063 5,276,340 30,298,716
Proceeds from capital contributions by
shareholders - - - 1,911,674
Cost of recapitalization - - - (371,111)
- -------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 6,809,499 17,957,808 5,255,192 31,565,931
- -------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash
Equivalents 569,595 1,029,547 (1,058,978) 622,795
Cash and Cash Equivalents, at beginning
of year 82,631 652,226 1,681,773 -
- -------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, at end of year $ 652,226 $ 1,681,773 $ 622,795 $ 622,795
===============================================================================================================================
Supplemental Schedule of Noncash Investing and Financing Activities
2000
Warrants issued in exchange for consulting services of $1,366,050.
1999
$300,000 of patent costs were paid through the issuance of common stock.
Warrants issued in exchange for consulting services of $2,629,041.
1998
Equipment purchased under capital leases amounted to $209,165.
See accompanying notes to consolidated financial statements.
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
1. Organization and
Significant Accounting
Policies
Nature of Operations Photogen Technologies, Inc. (the "Company"),
through its subsidiary Photogen, Inc.,
successor to Photogen, L.L.C., is a
development stage biotechnology company that
is focusing on developing minimally invasive
products for treatment and diagnosis of
cancer, pre-cancerous conditions and other
diseases. The Company's technologies involve
methods, materials and devices that are
intended to destroy diseased cells or
identify and diagnose disease. The Company
also has an investment in a joint venture
(Note 3).
Principles of Intercompany balances and transactions have
Consolidation been eliminated in consolidation.
Estimates The financial statements include estimated
amounts and disclosures based on management's
assumptions about future events. Actual
results may differ from those estimates.
Cash Equivalents Highly liquid investments with a maturity of
three months or less when purchased are
classified as cash equivalents.
Marketable Securities Marketable securities consisting of
marketable debt securities are classified as
held-to-maturity securities and all
investments mature within one year.
Held-to-maturity securities are stated at
amortized cost which approximates market.
Equipment and Leasehold Equipment and leasehold improvements are
Improvements stated at cost. Depreciation and amortization
of equipment are provided for using the
straight-line method over the estimated
useful lives of the assets. Computers and
laboratory equipment are being depreciated
over five years, furniture and fixtures are
being depreciated over seven years and
leasehold improvements are being amortized
over five years. Leasehold improvements are
being amortized on a straight-line basis over
the lives of the respective leases or the
service lives of the improvements, whichever
is shorter. Depreciation expense was
$148,761, $264,688 and $374,845 for 1998,
1999 and 2000, respectively.
The Company reviews the carrying values of
its other long-lived assets for possible
impairment whenever an event or change in
circumstances indicates that the carrying
amount of the assets may not be recoverable.
Any long-lived assets held for disposal are
reported at the lower of their carrying
amounts or fair value less cost to sell.
Patent Costs Internal patent costs are expensed in the
period incurred. Patents
38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
purchased are capitalized and amortized over
the life of the patent.
Research and Development Research and development costs are charged to
expense when incurred.
Income Taxes The Company recognizes deferred tax assets
and liabilities for the expected future tax
consequences of temporary differences between
the tax basis and financial reporting basis
of certain assets and liabilities based upon
currently enacted tax rates expected to be in
effect when such amounts are realized or
settled.
The Company has not recorded an income tax
benefit for losses incurred of approximately
$15,882,000 primarily expiring in 2018
through 2020. The Company is in the
development stage and realization of the
losses is not considered more likely than
not. An income tax valuation allowance has
been provided for the losses realized to
date.
Basic and Diluted Loss Per Basic and diluted loss per common share is
Common Share computed based on the weighted average number
of common shares outstanding. Loss per share
excludes the impact of outstanding options
and warrants and preferred stock as they are
antidilutive. Potential common shares
excluded from the calculation at December 31,
2000 are 5,644,000 options, 1,149,724
warrants and 1,011,741 shares issuable upon
the conversion of Series A and B Preferred
Stock.
In June 1998, the FASB issued Statement of
Recent Accounting Financial Accounting Standards ("SFAS") No.
Pronouncements 133, "Accounting for Derivative Instruments
and Hedging Activities," which establishes
accounting and reporting standards for
derivative instruments and hedging
activities. SFAS 133 is effective for years
beginning after June 15, 2000. It requires
that an entity recognize all derivatives as
either assets or liabilities in the statement
of financial position and measure those
instruments at fair value. The Company, to
date, has not engaged in derivative or
hedging activities.
In March 2000, the Financial Accounting
Standards Board issued FASB Interpretation
No. 44 ("FIN 44"), "Accounting for Certain
Transactions Involving Stock Compensation -
an Interpretation of Accounting Principles
Board ("APB") Opinion No. 25." FIN 44
clarifies the following: the definition of an
employee for purposes of applying APB Opinion
No. 25; the criteria for determining whether
a plan qualifies as a noncompensatory plan;
the accounting consequence of various
modifications to the terms of the previous
fixed stock options or awards; and the
accounting for an exchange of stock
compensation awards in a business
combination. FIN 44 was effective July 1,
2000, but certain conclusions in FIN 44 cover
specific events that occurred after December
39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
15, 1998 or January 12, 2000. The Company
believes its existing stock-based
compensation policies and procedures are in
compliance with FIN 44 and, therefore, the
adoption of FIN 44 had no material impact on
the Company's financial condition, results of
operations or cash flows.
During the year, the Company adopted certain
provisions of EITF 00-27, "Application of
EITF Issue No. 98-5, `Accounting for
Convertible Securities with Beneficial
Conversion Features or Contingently
Adjustable Conversion Ratios,' to Certain
Convertible Securities." EITF 00-27 changed
the approach of calculating the conversion
price used in determining the value of the
beneficial conversion feature from using the
conversion price stated in the preferred
stock certificate to using the accounting
conversion price. The Company did not treat
the adoption of EITF 00-27 as a cumulative
change in accounting principles because the
cumulative effect was de minimis.
Reclassifications Certain 1999 amounts have been reclassified
to conform with the 2000 presentation.
2. Recapitalization and Merger On May 16, 1997, MT Financial Group, Inc. (an
inactive public company), through its wholly
owned subsidiary, effected a reverse merger
with Photogen, Inc. ("Photogen"), successor
to Photogen, L.L.C. Photogen, L.L.C. was
incorporated on September 10, 1996 and
commenced operations November 3, 1996.
Photogen, L.L.C. was formed to develop
proprietary laser-based technologies related
to photodynamic therapy. Legally, Photogen is
a wholly owned subsidiary of Photogen
Technologies, Inc. (formerly known as MT
Financial Group, Inc.).
For financial reporting purposes, Photogen
was deemed to be the acquiring entity. The
transaction has been reflected in the
accompanying financial statements as (1) a
recapitalization of Photogen (consisting of a
48,000-for-one stock split and change in par
value) and (2) an issuance of shares by
Photogen in exchange for all of the
outstanding shares of MT Financial Group,
Inc.
As part of the recapitalization, the Company
sold 6,312,833 shares of common stock for a
total purchase price of approximately
$1,803,456. Further, as consideration for the
acquisition of Photogen, 24,000,000 shares of
common stock were issued. Five founding
shareholders have agreed not to sell these
shares until August 2001 without the prior
consent of an investor. These shareholders
currently hold approximately 22,600,000
shares.
Legal and brokerage fees of approximately
$371,000 were charged to additional paid-in
capital as costs of the recapitalization and
merger. Included in the paid-in capital is
the net cash of approximately $109,000
40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
from MT Financial Group, Inc.
3. Joint Venture/ On October 12, 1999, the Company formed a
Investmentin Affiliate joint venture with Elan International
Services, Ltd. ("Elan") to develop and
commercialize nanoparticulate diagnostic
imaging agents for the detection and
treatment of cancer through lymphography.
Sentigen Ltd. ("Sentigen") was formed to hold
the operations, assets and liabilities of the
joint venture. Elan purchased 2,980 shares of
Sentigen nonvoting convertible preferred
stock for $2,985,000 representing a 19.9%
ownership interest. Elan also purchased
12,015 shares of the Company's Series A
convertible exchangeable preferred stock for
$12,015,000. In connection with the issuance
of the preferred stock to Elan, the Company
granted warrants to Elan to purchase 100,000
shares of the Company's common stock at
$21.17 per share which was valued at
$678,000. As a result, a preferred stock
dividend of $436,041 is being recorded for
the accretion of the preferred stock to its
face value of $12,015,000 over the period
until it is first convertible. Beginning in
2000, in accordance with EITF 00-27, the
Company recorded an additional preferred
stock dividend to represent the beneficial
conversion feature associated with the
intrinsic value of the Series A Preferred
conversion option. As a result, an additional
preferred stock dividend of $436,041 is being
recorded over the period until it is first
convertible. During 2000, $490,540 was
recorded as preferred stock dividends for the
accretion of the preferred stock and the
related intrinsic value of the conversion
option.
The Company purchased 12,000 shares of
Sentigen's common stock for $12,015,000
representing an 80.1% ownership interest.
Sentigen used the $15,000,000 received from
the Company and Elan to purchase from Elan a
worldwide license to certain Elan technology
related to the joint venture. Expenses
incurred by the Company and Elan, which
relate to the development of the diagnostic
imaging agents, are charged to Sentigen.
Elan granted the Company a line of credit of
$4,806,000 to be used by the Company to fund
their portion of Sentigen's research and
development. Principal and interest under the
line of credit, if any, become due and
payable in 2005 or, at the option of Elan,
can be converted into the Company's common
stock at $18.15 per share. Any borrowings
under the line of credit would bear interest
at 8%. There were no borrowings on this line
of credit at December 31, 1999 and 2000.
In connection with the joint venture
agreement, Elan also purchased 461,538 shares
of the Company's common stock for $6,000,000.
If in the
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
Company's next third-party offering after the
issuance of the Series A Preferred, it sells
common stock at a price less than $13 per
share, the Company must issue additional
shares to Elan so that Elan's overall price
for its common stock equals the effective
price in that third-party offering.
The total cash proceeds from the equity
issuance to Elan of $18,015,000 were
allocated to the common stock, preferred
stock and the warrants.
Elan has substantive participating rights in
Sentigen, including the requirement for
approval of the business plan and budgets and
equal representation on the management
committee which decides all day-to-day
functions. As a result, the Company's
investment in Sentigen is recorded under the
equity method.
Following is summarized financial information
for Sentigen at December 31, 1999 and 2000:
1999 2000
------------------------------------------------------------------------
License purchased from Elan,
net of amortization of
$244,565 in 2000 $ 15,000,000 $ 14,755,435
------------------------------------------------------------------------
Total assets $ 15,000,000 $ 14,755,435
========================================================================
Due to affiliates $ 382,040 $ 1,639,855
Total shareholders' equity 14,617,960 13,115,580
------------------------------------------------------------------------
Total liabilities and equity $ 15,000,000 $ 14,755,435
========================================================================
Research and development
expense $ 382,040 $ 1,502,380
------------------------------------------------------------------------
Net loss $ 382,040 $ 1,502,380
========================================================================
42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
4. Commitments (a) At December 31, 2000, the Company has a
lease for office and laboratory space in
Knoxville, Tennessee, expiring in May
2001. Subsequent to year end, the
Company amended the lease by extending
the lease term through May 2002. At
December 31, 2000, the Company also has
an operating lease for laboratory
equipment expiring in 2004. In addition,
subsequent to year end, the Company
entered into a lease for office space in
New Hope, Pennsylvania, expiring in
March 2004. Total rental expense charged
to operations for the years ended
December 31, 1998, 1999 and 2000
aggregated approximately $28,000,
$44,000 and $352,000, respectively.
Additionally, the Company leases
laboratory equipment under capital
leases. Minimum future rental payments
under all of these leases are as
follows:
Capitalized Operating
Year ending December 31, Leases Leases
----------------------------------------------------------------
2001 $ 18,553 $ 552,000
2002 1,574 561,000
2003 - 547,000
2004 - 403,000
----------------------------------------------------------------
Total minimum lease
payments 20,127 $2,063,000
================
Less amount representing
interest (1,771)
-------------------------------------------------
Present value of net minimum
lease
payments $ 18,356
==================================================
Equipment, leased under the
capitalized lease agreements and
classified as equipment, has cost
and accumulated amortization as
follows. Lease amortization is
included in depreciation and
amortization expense.
December 31, 1999 2000
----------------------------------------------------------------
Cost $ 82,539 $ 82,539
Accumulated amortization 35,767 52,275
----------------------------------------------------------------
$ 46,772 $ 30,264
================================================================
(b) The Company has entered into employment
agreements with
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
certain officers and employees for
initial terms ranging between three and
five years expiring in 2002 and 2003.
Under the terms of these agreements, the
officers and employees are each entitled
to initial annual salaries ranging
between $100,000 and $265,000 plus
fringe benefits (subject to
adjustments).
5. Equity Transactions (a) The Company applies the recognition
provisions of SFAS No. 123, "Accounting
for Stock-Based Compensation," in
accounting for stock options issued to
nonemployees. During 1999, the Company
issued 10,000 options and 502,000
warrants and during 2000, the Company
issued 21,000 options and 515,000
warrants for common stock in exchange
for consulting services rendered. As the
fair market value of these services was
not readily determinable, these services
were valued based on the fair market
value, determined using the
Black-Scholes option pricing model, for
the options issued which ranged from
$5.22 to $9.52 in 1999 and $1.34 to
$9.51 in 2000. Consulting costs charged
to operations were $45,446 in 1998,
$1,199,787 in 1999 and $2,316,282 in
2000. At December 31, 1999 and 2000,
$1,585,575 and $760,363, respectively,
has been classified as prepaid
consulting expense as this amount
represents payment for services to be
provided in the future.
(b) In August 1999, the Company purchased
patents for $500,000 which were
satisfied by the issuance of 42,328
shares of the Company's common stock
valued at $300,000 and cash of $200,000.
$150,000 of the cash was paid in 1999
and $50,000 was paid in March 2000. In
1999, the Company placed $100,000 of
cash in escrow as collateral for future
payments, which were made in 2000. This
cash was recorded as restricted cash at
December 31, 1999.
(c) In 1999, the Company issued 740,000
variable stock options to employees
which would vest upon completion of
performance milestones, including filing
for a new drug application and
acquisition of a patent FDA approval
act. Exercise prices ranged from $9.38
to $18.13 and expired in 10 years. As of
December 31, 1999, 75,000 of these
shares had vested. Compensation charged
to operations was $225,000 in 1999. In
2000, all of these variable stock
options were cancelled.
44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
(d) Series A Preferred Stock - The Company
originally designated 12,015 shares of
preferred stock as Series A Preferred
Stock ("Series A Preferred"). For the
first six years from issuance, the
preferred stock has a mandatory dividend
of 7%. Such dividends are cumulative and
compound on a semiannual basis and are
payable semiannually solely by the
issuance of additional preferred Series
A stock. The Company has a deficit and,
as a result, the dividends have been
recorded against paid-in capital. In
accordance with the provisions of the
agreement, the Company issued 841
additional preferred shares in
settlement of dividend requirements.
Therefore, at December 31, 2000, there
were 12,856 shares of Series A Preferred
outstanding. The Series A Preferred
shall rank senior to any future series
of preferred stock unless the majority
of the Series A shareholders agree to
rank pari passu with any future
issuances. The liquidation preference is
$1,000 per share. The Series A Preferred
is convertible, after two years but
before six years from issuance, into
common stock of the Company with an
initial conversion price of $21.17. The
conversion price is subject to
adjustment for certain dilutive events.
Alternatively, the holder of the Series
A Preferred can elect to exchange the
Series A preferred shares for the number
of shares in Sentigen which would allow
the Series A holder to then own a total
of 50% of Sentigen. The Series A holder
is currently the minority shareholder in
Sentigen. The exchange right is not
available for any shares which have been
converted to common stock. The exchange
right terminates six years from the
issuance of the Series A Preferred. The
Series A Preferred was issued in October
1999.
The holder of Series A Preferred also
has demand and piggyback registration
rights with respect to common stock
issuable to it upon conversion of its
Series A Preferred. The holder of Series
A Preferred is only entitled to vote on
matters that adversely affect or change
the rights of holders of Series A
Preferred and does not have the right to
vote on the election of directors of the
Company. The holder of Series A
Preferred also has a preemptive right
until October 2003 to participate in any
offering of the Company. If in the
Company's next third-party offering
after the issuance of the Series A
Preferred, it sells common stock at a
price less than $13 per share, the
Company must issue additional shares to
the holder so that the holder's overall
price for its common stock equals the
effective price in that other
third-party offering.
(e) Series B Preferred Stock - In February
2000, the Company completed a private
placement of its Series B Convertible
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
Preferred Stock ("Series B Preferred").
The Company received cash proceeds, net
of related expenses, of $5,276,340 in
exchange for 337,056 shares of the
Series B Preferred. The Series B
Preferred has an annual dividend rate of
6%. Such dividends are to be cumulative,
shall compound on an annual basis and
are payable annually by the issuance of
additional preferred Series B stock. The
Company has a deficit and, as a result,
the dividends will be recorded against
paid-in capital. The Series B Preferred
is subordinate to the Series A
Preferred.
Subject to the senior liquidation
preference of the Series A Preferred
stockholder, and the liquidation
preference of any senior or pari passu
securities created by the Company in the
future with the requisite consent of the
holders of Series B Preferred, each
share of Series B Preferred is entitled
to a liquidation preference equal to
$16.88 per share, before any amounts are
paid on the common stock on liquidation.
If the Company is acquired by another
entity or sells all or substantially all
of its assets, and if it pays an amount
equal to the liquidation preference of
the Series A Preferred and any other
senior security, holders of Series B
Preferred will be entitled to receive
the liquidation preference unless the
stockholders prior to the transaction
hold at least 50% of the voting power of
the surviving or acquiring entity or if
the holders of a majority of Series B
Preferred agree by vote or written
consent to exclude the acquisition or
sale from this provision.
Each share of Series B Preferred has the
number of votes equal to the number of
shares of common stock into which the
share of Series B Preferred would be
convertible, and is entitled to vote
together with the common stock. Certain
matters, such as an amendment to the
terms of the Series B Preferred
Certificate of Designation or a change
in the preferences or any relative or
other rights of the Series B Preferred
(except for issuance of a special senior
security), may have to be approved by a
majority of the holders of Series B
Preferred voting as a separate class.
This right is subject to the Company's
ability to require mandatory conversion
of Series B Preferred if a special
senior security (discussed below) is not
approved.
Holders of Series B Preferred may
convert shares of Series B Preferred
into common stock at any time, according
to the following formula:
Each share of Series B Preferred
If the conversion takes place: converts into:
------------------------------------------------------------------------
46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
On or before December 31, 2000 1.0 shares of common stock
January 1, 2001 - December 31, 2001 1.2 shares of common stock
January 1, 2002 and thereafter 1.4 shares of common stock
The Series B Preferred contains
beneficial conversion features. Emerging
Issues Task Force Issue 98-5,
"Accounting for Convertible Securities
with Beneficial Conversion Features or
Contingently Adjustable Conversion
Ratios," requires the issuer to assume
that the holder will not convert the
instrument until the time of the most
beneficial conversion. As indicated in
the above table, the most beneficial
conversion would occur after January 1,
2002. Using the conversion ratio at
January 1, 2002 and the stock price at
the date of issuance, the maximum
beneficial conversion amount is
$2,275,795. This amount will be recorded
as additional preferred stock dividends
over the period from issuance until
January 1, 2002. Through December 31,
2000, $1,059,097 has been recorded as
additional dividends.
The conversion ratio is subject to
adjustment for certain dilutive events,
including issuance of common stock or
equivalent securities at less than
$16.88 per share.
The Company may require holders of
Series B Preferred to convert their
shares into common stock (at the same
ratios that would apply for a voluntary
conversion, except as described in the
second and third bullet points below) in
connection with any of the following
events:
- If the holders of a majority of the
Series B Preferred approve a
mandatory conversion;
- Immediately prior to a firm
commitment, underwritten public
offering of the Company's common
stock in which they receive $20
million or more in gross proceeds;
- If the holders of a majority of
Series B Preferred do not approve
any transaction to issue a security
senior or pari passu to the Series
B Preferred in a transaction
involving any vendor, licensor or
joint venturer or other commercial
transaction (a "special senior
security"), the purpose of which is
not solely to provide financing,
and which the Board has approved
and recommended; or
- At any time after January 1, 2005.
(f) Common Stock - The Company is subject to
six sets of registration rights
agreements covering an aggregate of
2,204,174
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
shares of the Company's common stock,
warrants that have vested covering the
Company's common stock and common stock
issuable upon conversion of the
Company's Series A and B Preferred. All
of the agreements contain piggyback
registration rights and two contain
demand registration rights upon the
occurrence of certain events and subject
to various terms and conditions. Of the
2,204,174 shares, 629,780 shares are
entitled to piggyback registration only
and 1,574,394 are entitled to both
demand and piggyback registration.
Warrants that have vested covering
1,149,724 shares of the Company's common
stock have weighted average
anti-dilution rights.
On March 13, 1998, the Company completed
a private placement of 875,020 shares of
common stock for $8.00 per share to a
number of accredited investors. The
Company received $7,000,000 in gross
proceeds from this offering.
6. Stock Incentive Plans The Company maintains three long-term
and Warrants incentive compensation plans, which are
described as follows:
- The 1998 Long-Term Incentive
Compensation Plan, which provides for
the granting of up to 2,000,000 stock
options to key employees, directors and
consultants;
- The 2000 Long-Term Incentive
Compensation Plan, which provides for
the granting of up to 2,000,000 stock
options to key employees, directors and
consultants;
- The 2000 Senior Executive Long-Term
Incentive Compensation Plan, which
provides for the granting of up to
5,000,000 stock options to senior
executives.
Options granted under these plans may be
either "incentive stock options" within the
meaning of Section 422A of the Internal
Revenue Code, or nonqualified options.
The stock options are exercisable over a
period determined by the Board of Directors
(through its Compensation Committee), but
generally no longer than 10 years after the
date they are granted.
Information with respect to the plans
follows:
Year ended December 31, 1998 1999 2000
------------------------------------------------------------------------
Options outstanding at beginning
of Year - 92,500 1,205,500
Options granted 92,500 1,117,500 5,546,000
48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
Options forfeited - - (1,107,500)
Options exercised - (4,500) -
---------------------------------------------------------------------------------
Options outstanding at end of year 92,500 1,205,500 5,644,000
=================================================================================
Option prices per share granted $11.13-15.06 $9.38-19.38 $2.75 - 15.00
=================================================================================
Weighted average exercise price
Options granted $ 12.24 $ 11.83 $ 10.38
Options exercised - 11.13 -
Options forfeited - - 11.82
Options outstanding at end of
year 12.24 11.94 10.47
Options exercisable at end of
year - 9.88 6.37
Options Outstanding Options Exercisable
------------------------------------------------------------------------------------
Weighted Weighted
Average Average
Number Remaining Number Remaining
Range of Outstanding at Contractual Range of Outstanding at Contractual
Exercise December 31, Life Exercise December 31, Life
Price 2000 (Years) Price 2000 (Years)
------------------------------------------------------------------------------------
$2.75 1,528,000 9.9 $2.75 60,000 9.9
$6.875-8.25 1,018,000 9.6 $6.875 18,000 9.6
$11.125-13.250 88,000 7.66 $11.125-13.250 30,500 7.66
$15.00-15.06 3,010,000 9.4 $15.06 4,000 7.8
The Company applies APB Opinion 25 and
related interpretations in accounting for
stock options granted to employees and
directors. Accordingly, no compensation cost
has been recognized for the Plan.
The weighted-average, grant date fair value
of stock options granted to employees and
directors during the year, and the
significant assumptions used to determine
those fair values, using a modified
Black-Scholes option pricing model, and the
pro forma effect on earnings of the fair
value accounting for stock options under SFAS
No. 123, are as follows:
1998 1999 2000
----------------------------------------------------------------------------
Weighted average fair value per
options granted $ 7.89 $ 10.76 $ 4.67
Significant assumptions
(weighted average)
Risk-free interest rate at
grant date 5.1% 6.2% 6.2%
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
Expected stock price
volatility 60.0% 88.0% 94.3%
Expected option life (years) 7 7 5
Net loss
As reported $(1,973,913) $ (6,052,841) $(10,787,062)
Pro forma $(2,042,238) $ (6,511,604) $(19,143,596)
1998 1999 2000
------------------------------------------------------------------------------------
Net loss applicable to common
shares
As reported $ (1,973,913) $ (6,273,518) $(13,491,813)
Pro forma $ (2,042,238) $ (6,732,281) $(21,848,347)
Net loss per share - basic and
diluted
As reported $ (.05) $ (.17) $ (.36)
Pro forma $ (.06) $ (.18) $ (.58)
Information with respect to warrants follows:
Year ended December 31, 1999 2000
-----------------------------------------------------------------------------
Warrants outstanding at beginning of
year - 602,000
Warrants granted 602,000 547,724
-----------------------------------------------------------------------------
Warrants outstanding at end of year 602,000 1,149,724
=============================================================================
Warrant prices per share
outstanding $ 9.45-21.17 $ 9.45-16.88
=============================================================================
Weighted average exercise price
Warrants granted $ 11.42 $ 10.06
Warrants outstanding $ 11.42 $ 10.77
7. Deposit The Company entered into an operating lease
for laboratory equipment beginning January 1,
2000. The Company was required to provide
cash collateral of $500,000 for future lease
payments. The $500,000 will be invested in
United States treasury notes and will be
under the control of the lessor. The deposit
will be refunded over the term of the lease.
Per the agreement, $100,000 will be refunded
to the Company in 2001. Accordingly, this
amount has been classified as a current asset
at December 31, 2000. The remaining deposit
has been recorded as a long-term deposit at
December 31, 2000.
50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
8. Restructuring In 2000, the Company recorded a restructuring
charge of $597,025, included in operating
expenses, relating to the closure of its
operations in Westborough, Massachusetts. The
restructuring charge includes accruals
related to estimated lease termination costs
and accruals related to employee severance
and related expenses in connection with their
termination. All employees at the Westborough
facility were terminated. The activities
previously performed at the Westborough
facility will continue at other company
locations or with outside consultants. The
restructuring charge is summarized as
follows:
Charge in Utilized in To be
2000 2000 Utilized
-----------------------------------------------------------------
Employee costs $ 395,223 $ 65,223 $ 330,000
Lease costs 201,802 201,802 -
-----------------------------------------------------------------
Total $ 597,025 $ 267,025 $ 330,000
=================================================================
9. Related Party In November 1999, a director agreed to
Transactions provide a credit facility of up to
$1,000,000. Any borrowings under this
facility will bear interest at 6%. Payments
of interest only will be due annually, with
the principal due in five years. The loan
would be secured by a lien on all of the
Company's assets. No borrowings have been
made under this credit facility.
51
10. Selected Quarterly
Financial Data
(Unaudited)
1999 2000
-------------------------------------------------------------------------------------------------------------------------------
Net Loss Net Loss
Per Share Per Share
Operating Net (Basic and Operating Net (Basic and
Expenses Loss Diluted) Expenses Loss Diluted)
-------------------------------------------------------------------------------------------------------------------------------
Quarters
Fourth $ 2,307,621 $ (2,590,995) $ (0.08) $ 2,652,046 $ (3,103,418) $ (0.11)
Third 1,647,541 (1,609,708) (0.04) 3,186,890 (2,696,499) (0.09)
Second 1,070,675 (1,023,388) (0.03) 2,089,098 (2,557,181) (0.09)
First 900,770 (828,750) (0.02) 2,072,746 (2,429,964) (0.07)
-------------------------------------------------------------------------------------------------------------------------------
$ 5,926,607 $ (6,052,841) $ (0.17) $ 10,000,780 $ (10,787,062) $ (0.36)
===============================================================================================================================
52
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by Item 10 is incorporated by reference to
the information under the captions "Directors, Executive Officers, Promoters
and Control Persons; and Compliance with Section 16(a) of the Exchange Act"
in our definitive proxy statement for the 2001 annual meeting of stockholders.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by Item 11 is incorporated by reference to the
information under the caption "Executive Compensation" in our definitive proxy
statement for the 2001 annual meeting of stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by Item 12 is incorporated by reference to the
information under the caption "Security Ownership of Certain Beneficial Owners
and Management" in our definitive proxy statement for the 2001 annual meeting of
stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by Item 13 is incorporated by reference to the
information under the caption "Certain Relationships and Related Transactions"
in our definitive proxy statement for the 2001 annual meeting of stockholders.
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K.
EXHIBITS. The following is a list of exhibits filed as part of this
Form 10-K. Exhibits that were previously filed are incorporated by reference.
For exhibits incorporated by reference, the location of the exhibit in the
previous filings is indicated in parentheses.
EXHIBIT NO. DESCRIPTION
3.1 Restated Articles of Incorporation of Photogen
Technologies, Inc. (Filed as Exhibit 3.1 to the
Company's Current Report on Form 8-K dated May 17,
2000 and incorporated herein by reference.)
53
EXHIBIT NO. DESCRIPTION
3.2 Amended and Restated Certificate of Designations,
Preferences and Rights of Series A Preferred Stock.
(Filed as Exhibit 3.5 to the Company's Quarterly
Report on Form 10-QSB for the quarter ended September
30, 1999 and incorporated herein by reference.)
3.3 Certificate of Designation, Preferences and Rights of
Series B Convertible Preferred Stock. (Filed as
Exhibit 3 to the Company's Current Report on Form 8-K
dated February 18, 2000 and incorporated herein by
reference.)
3.4 Bylaws of Photogen Technologies, Inc. (Amended and
Restated as of May 17, 2000) (Filed as Exhibit 3.2 to
the Company's Current Report on Form 8-K dated May 17,
2000 and incorporated herein by reference.)
3.5 Charter of Photogen, Inc. (Filed as Exhibit 3.3 to the
Company's Registration Statement on Form 10-SB dated
December 24, 1997 and incorporated herein by
reference.)
3.6 Amended and Restated Bylaws of Photogen, Inc. (Filed
as Exhibit 3.3 to the Company's Current Report on Form
8-K dated May 17, 2000 and incorporated herein by
reference.)
9.1 Amended and Restated Voting Agreement dated as of June
17, 1998 entered into by Eric A. Wachter, Ph.D., Craig
Dees, Ph.D., Walter G. Fisher, Ph.D., Tim Scott,
Ph.D., John Smolik, and Robert J. Weinstein, M.D., and
joined into by the Company. (Filed as Exhibit 9 to the
Company's Annual Report on Form 10-KSB for the year
ended December 31, 1998 and incorporated herein by
reference.)
10.1 1998 Long Term Incentive Compensation Plan. (Filed as
Exhibit A to the Company's definitive proxy statement
filed under Schedule 14A dated April 30, 1998 and
incorporated herein by reference.)
10.2 2000 Long Term Incentive Compensation Plan. (Filed as
Exhibit 10.1 to the Company's Current Report on Form
8-K dated May 17, 2002 and incorporated herein by
reference.)
10.3 Senior Executive Long Term Incentive Compensation
Plan. (Filed as Exhibit 10.2 to the Company's Current
Report on Form 8-K dated May 17, 2000 and incorporated
herein by reference.)
10.4 Lease entered into by the Company, P.C. Powell and
Wilma Powell dated July 1, 1999. (Filed as Exhibit
10.2 to the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1999).
10.5 Office Lease dated February 19, 2001 by and between
Photogen, inc. and Union Square, Limited Partnership.
54
EXHIBIT NO. DESCRIPTION
10.6 Confirmatory License in favor of the U.S. Department
of Energy relating to the Company's Method for
Improved Selectivity in Photo-Activation and Detection
of Molecular Diagnostic Agents (Serial No. 08/741,370)
dated February 4, 1997. (Filed as Exhibit 10.4 to the
Company's Registration Statement on Form 10-SB dated
December 24, 1997 and incorporated herein by
reference.)
10.7 Confirmatory License in favor of the U.S. Department
of Energy relating to the Company's Method for
Improved Selectivity in Photo-Activation of Molecular
Agents (Serial No. 08/739,801) dated February 4, 1997.
(Filed as Exhibit 10.5 to the Company's Registration
Statement on Form 10-SB dated December 24, 1997 and
incorporated herein by reference.)
10.8 Form of Employment Agreements entered into by the
Company and each of John Smolik, Eric A. Wachter,
Ph.D., Walter G. Fisher, Ph.D., and Craig Dees, Ph.D.
dated May 16, 1997 and with Timothy C. Scott dated
November 1, 1997. (Filed as Exhibit 10.6 to the
Company's Registration Statement on Form 10-SB dated
December 24, 1997 and incorporated herein by
reference.)
10.9 Form of Non-competition/Non-disclosure Agreements
entered into by the Company and each of John Smolik,
Eric A. Wachter, Ph.D., Walter G. Fisher, Ph.D., Craig
Dees, Ph.D. and Timothy C. Scott dated May 16, 1997.
(Filed as Exhibit 10.7 to the Company's Registration
Statement on Form 10-SB dated December 24, 1997 and
incorporated herein by reference.)
10.10 Employment Agreement entered into by the Company and
Taffy J. Williams, Ph.D., dated May 17, 2000. (Filed
as Exhibit 10.3 to the Company's Current Report on
Form 8-K dated May 17, 2000 and incorporated herein
by reference.)
10.11 Incentive Stock Option Award entered into by and
between the Company and Taffy J. Williams, Ph.D.
dated May 17, 2000 (Filed as Exhibit 10.4 to the
Company's Current Report on Form 8-K dated May 17,
2001 and incorporated herein by reference).
10.12 Employment Agreement entered into by the Company and
Brooks Boveroux, dated August 1, 2000.
10.13 Incentive Stock Option Award Agreement entered into by
the Company and Brooks Boveroux dated August 1, 2000.
10.14 Form of Indemnification Agreement entered into by and
between the Company and each Director of the Company
(Filed as Exhibit 10.5 to the Company's Current Report
on Form 8-K dated May 17, 2000 and incorporated herein
by reference.)
10.15 Tufts University Sponsored Research Agreement dated
August 1, 1999 by and between Photogen, Inc. and Tufts
University, a/k/a Trustees of Tufts College.
55
EXHIBIT NO. DESCRIPTION
(Filed as Exhibit 10.3 to the Company's Quarterly
Report on Form 10-QSB for the quarter ended September
30, 1999 and incorporated herein by reference.)
Confidential portions of this exhibit were redacted.
10.16 Consulting Agreement by and between Photogen
Technologies, Inc. and Farcap Group LLC effective
August 9, 1999. (Filed as Exhibit 10.4 to the
Company's Quarterly Report on Form 10-QSB for the
quarter ended September 30, 1999 and incorporated
herein by reference.)
10.17 Warrant Agreement by and between Photogen
Technologies, Inc. and Farcap Group LLC effective
August 9, 1999. (Filed as Exhibit 10.5 to the
Company's Quarterly Report on Form 10-QSB for the
quarter ended September 30, 1999 and incorporated
herein by reference.)
10.18 Agreement effective August 9, 1999 by and among
Alliance Pharmaceutical Corp., Photogen Technologies,
Inc. and Gerald Wolf, Ph.D., M.D. (Filed as Exhibit
10.6 to the Company's Quarterly Report on Form 10-QSB
for the quarter ended September 30, 1999 and
incorporated herein by reference.) Confidential
portions of this exhibit were redacted.
10.19 License Agreement effective as of September 30, 1999
between The General Hospital Corporation and Photogen,
Inc. (Filed as Exhibit 10.7 to the Company's Quarterly
Report on Form 10-QSB for the quarter ended September
30, 1999 and incorporated herein by reference.)
Confidential portions of this exhibit were redacted.
10.20 Securities Purchase Agreement dated as of October 20,
1999, among Photogen Technologies, Inc. and Elan
International Services, Ltd. (Filed as Exhibit 10.8 to
the Company's Quarterly Report on Form 10-QSB for the
quarter ended September 30, 1999 and incorporated
herein by reference.) Confidential portions of this
exhibit were redacted.
10.21 Warrant to Purchase Shares of Common Stock dated
October 20, 1999 between Photogen Technologies, Inc.
and Elan International Services, Ltd. (Filed as
Exhibit 10.9 to the Company's Quarterly Report on Form
10-QSB for the quarter ended September 30, 1999 and
incorporated herein by reference.)
10.22 Convertible Promissory Note dated October 20, 1999
from Photogen Technologies, Inc. to Elan International
Services, Ltd. (Filed as Exhibit 10.10 to the
Company's Quarterly Report on Form 10-QSB for the
quarter ended September 30, 1999 and incorporated
herein by reference.)
10.23 Registration Rights Agreement dated October 20, 1999
by and among Photogen Technologies, Inc. and Elan
International Services, Ltd. (Filed as Exhibit 10.11
to the Company's Quarterly Report on Form 10-QSB for
the quarter ended September 30, 1999 and incorporated
herein by reference.)
56
EXHIBIT NO. DESCRIPTION
10.24 Funding Agreement dated October 20, 1999 among Elan
Pharma International Limited and Photogen
Technologies, Inc. (Filed as Exhibit 10.12 to the
Company's Quarterly Report on Form 10-QSB for the
quarter ended September 30, 1999 and incorporated
herein by reference.)
10.25 License Agreement dated October 20, 1999 between
Photogen Technologies, Inc, Photogen Newco Ltd. and
Elan Pharma International Limited. (Filed as Exhibit
10.13 to the Company's Quarterly Report on Form 10-QSB
for the quarter ended September 30, 1999 and
incorporated herein by reference.) Confidential
portions of this exhibit were redacted.
10.26 License Agreement dated October 20, 1999 between Elan
Pharma International Limited, Photogen Newco Ltd. and
Photogen Technologies, Inc. (Filed as Exhibit 10.14 to
the Company's Quarterly Report on Form 10-QSB for the
quarter ended September 30, 1999 and incorporated
herein by reference.) Confidential portions of this
exhibit were redacted.
10.27 Subscription, Joint Development and Operating
Agreement dated October 20, 1999 between Elan Pharma
International Limited, Elan International Services,
Ltd., Photogen Technologies, Inc. and Photogen Newco
Ltd. (Filed as Exhibit 10.15 to the Company's
Quarterly Report on Form 10-QSB for the quarter ended
September 30, 1999 and incorporated herein by
reference.) Confidential portions of this exhibit were
redacted.
10.28 Amended and Restated Standby Agreement dated November
9, 1999 among Theodore Tannebaum, John T. Smolik,
Craig Dees, Walter G. Fisher, Timothy Scott and Eric
A. Wachter. (Filed as Exhibit 10.34 to the Company's
Annual Report on Form 10-KSB for the year ended
December 31, 1999 and incorporated herein by
reference.)
10.29 Form of Registration Rights Agreement between the
Company and holders of Series B Convertible Preferred
Stock. (Filed as Exhibit 10.35 to the Company's Annual
Report on Form 10-KSB for the year ended December 31,
1999 and incorporated herein by reference.)
10.30 Equipment Lease between Picker Financial Group, L.L.C.
and Photogen, Inc. dated October 25, 1999. (Filed as
Exhibit 10.37 to the Company's Annual Report on Form
10-KSB for the year ended December 31, 1999 and
incorporated herein by reference.)
21 Subsidiaries of the registrant. (Filed as Exhibit 21
to the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1999 and incorporated herein
by reference.)
23 Consent of BDO Seidman, LLP, Independent Auditors
57
REPORTS ON FORM 8-K. During the quarter ended December 31, 2000, we did
not file any reports on Form 8-K.
58
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: March 26, 2001 Photogen Technologies, Inc.
By: Taffy J. Willaims, Ph.D.
-----------------------------------
Taffy J. Williams, Ph.D., President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Taffy J. Williams President, Chief Executive Officer and March 26, 2001
- --------------------- Director
Taffy J. Williams, Ph.D.
/s/ Brooks Boveroux Chief Financial Officer and Treasurer March 26, 2001
- ------------------- (principal financial and accounting officer)
Brooks Boveroux
/s/ Theodore Tannebaum Chairman of the Board March 26, 2001
- ----------------------
Theodore Tannebaum
/s/ Eric A. Wachter Director, Vice President and Secretary March 26, 2001
- -------------------
Eric A. Wachter, Ph.D.
/s/ Robert J. Weinstein Director March 26, 2001
- -----------------------
Robert J. Weinstein, M.D.
/s/ Lester H. McKeever, Jr. Director March 26, 2001
- ---------------------------
Lester H. McKeever, Jr.
/s/ Gene Golub Director March 26, 2001
- --------------
Gene Golub
/s/ Aidan King Director March 26, 2001
- --------------
Aidan King
59
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
+3.1 Restated Articles of Incorporation of Photogen
Technologies, Inc. (Filed as Exhibit 3.1 to the
Company's Current Report on Form 8-K dated May 17,
2000)
+3.2 Amended and Restated Certificate of Designations,
Preferences and Rights of Series A Preferred Stock.
(Filed as Exhibit 3.5 to the Company's Quarterly
Report on Form 10-QSB for the quarter ended September
30, 1999.)
+3.3 Certificate of Designation, Preferences and Rights of
Series B Convertible Preferred Stock. (Filed as
Exhibit 3 to the Company's Current Report on Form 8-K
dated February 18, 2000.)
+3.4 Bylaws of Photogen Technologies, Inc. (Amended and
Restated as of May 17, 2000) (Filed as Exhibit 3.2 to
the Company's Current Report on Form 8-K dated May 17,
2000.)
+3.5 Charter of Photogen, Inc. (Filed as Exhibit 3.3 to the
Company's Registration Statement on Form 10-SB dated
December 24, 1997.)
+3.6 Amended and Restated Bylaws of Photogen, Inc. (Filed
as Exhibit 3.3 to the Company's Current Report on Form
8-K dated May 17, 2000.)
+9.1 Amended and Restated Voting Agreement dated as of June
17, 1998 entered into by Eric A. Wachter, Ph.D., Craig
Dees, Ph.D., Walter G. Fisher, Ph.D., Tim Scott,
Ph.D., John Smolik, and Robert J. Weinstein, M.D., and
joined into by the Company. (Filed as Exhibit 9 to the
Company's Annual Report on Form 10-KSB for the year
ended December 31, 1998.)
+10.1 1998 Long Term Incentive Compensation Plan. (Filed as
Exhibit A to the Company's definitive proxy statement
filed under Schedule 14A dated April 30, 1998.)
+10.2 2000 Long Term Incentive Compensation Plan. (Filed as
Exhibit 10.1 to the Company's Current Report on Form
8-K dated May 17, 2002.)
+10.3 Senior Executive Long Term Incentive Compensation
Plan. (Filed as Exhibit 10.2 to the Company's Current
Report on Form 8-K dated May 17, 2000.)
+10.4 Lease entered into by the Company, P.C. Powell and
Wilma Powell dated July 1, 1999. (Filed as Exhibit
10.2 to the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1999).
*10.5 Office Lease dated February 19, 2001 by and between
Photogen, inc. and Union Square, Limited Partnership.
60
EXHIBIT NO. DESCRIPTION
+10.6 Confirmatory License in favor of the U.S. Department
of Energy relating to the Company's Method for
Improved Selectivity in Photo-Activation and Detection
of Molecular Diagnostic Agents (Serial No. 08/741,370)
dated February 4, 1997. (Filed as Exhibit 10.4 to the
Company's Registration Statement on Form 10-SB dated
December 24, 1997.)
+10.7 Confirmatory License in favor of the U.S. Department
of Energy relating to the Company's Method for
Improved Selectivity in Photo-Activation of Molecular
Agents (Serial No. 08/739,801) dated February 4, 1997.
(Filed as Exhibit 10.5 to the Company's Registration
Statement on Form 10-SB dated December 24, 1997.)
+10.8 Form of Employment Agreements entered into by the
Company and each of John Smolik, Eric A. Wachter,
Ph.D., Walter G. Fisher, Ph.D., and Craig Dees, Ph.D.
dated May 16, 1997 and with Timothy C. Scott dated
November 1, 1997. (Filed as Exhibit 10.6 to the
Company's Registration Statement on Form 10-SB dated
December 24, 1997.)
+10.9 Form of Non-competition/Non-disclosure Agreements
entered into by the Company and each of John Smolik,
Eric A. Wachter, Ph.D., Walter G. Fisher, Ph.D., Craig
Dees, Ph.D. and Timothy C. Scott dated May 16, 1997.
(Filed as Exhibit 10.7 to the Company's Registration
Statement on Form 10-SB dated December 24, 1997.)
+10.10 Employment Agreement entered into by the Company and
Taffy J. Williams, Ph.D., dated May 17, 2000. (Filed
as Exhibit 10.3 to the Company's Current Report on
Form 8-K dated May 17, 2000.)
+10.11 Incentive Stock Option Award entered into by and
between the Company and Taffy J. Williams, Ph.D.
dated May 17, 2000 (Filed as Exhibit 10.4 to the
Company's Current Report on Form 8-K dated May 17,
2000).
*10.12 Employment Agreement entered into by the Company and
Brooks Boveroux, dated August 1, 2000.
*10.13 Incentive Stock Option Award Agreement entered into by
the Company and Brooks Boveroux dated August 1, 2000.
+10.14 Form of Indemnification Agreement entered into by and
between the Company and each Director of the Company
(Filed as Exhibit 10.5 to the Company's Current Report
on Form 8-K dated May 17, 2000.)
+10.15 Tufts University Sponsored Research Agreement dated
August 1, 1999 by and between Photogen, Inc. and Tufts
University, a/k/a Trustees of Tufts College. (Filed as
Exhibit 10.3 to the Company's Quarterly Report on Form
10-QSB for the quarter ended September 30, 1999.)
Confidential portions of this exhibit were redacted.
61
EXHIBIT NO. DESCRIPTION
+10.16 Consulting Agreement by and between Photogen
Technologies, Inc. and Farcap Group LLC effective
August 9, 1999. (Filed as Exhibit 10.4 to the
Company's Quarterly Report on Form 10-QSB for the
quarter ended September 30, 1999.)
+10.17 Warrant Agreement by and between Photogen
Technologies, Inc. and Farcap Group LLC effective
August 9, 1999. (Filed as Exhibit 10.5 to the
Company's Quarterly Report on Form 10-QSB for the
quarter ended September 30, 1999.)
+10.18 Agreement effective August 9, 1999 by and among
Alliance Pharmaceutical Corp., Photogen Technologies,
Inc. and Gerald Wolf, Ph.D., M.D. (Filed as Exhibit
10.6 to the Company's Quarterly Report on Form 10-QSB
for the quarter ended September 30, 1999.)
Confidential portions of this exhibit were redacted.
+10.19 License Agreement effective as of September 30, 1999
between The General Hospital Corporation and Photogen,
Inc. (Filed as Exhibit 10.7 to the Company's Quarterly
Report on Form 10-QSB for the quarter ended September
30, 1999.) Confidential portions of this exhibit were
redacted.
+10.20 Securities Purchase Agreement dated as of October 20,
1999, among Photogen Technologies, Inc. and Elan
International Services, Ltd. (Filed as Exhibit 10.8 to
the Company's Quarterly Report on Form 10-QSB for the
quarter ended September 30, 1999.) Confidential
portions of this exhibit were redacted.
+10.21 Warrant to Purchase Shares of Common Stock dated
October 20, 1999 between Photogen Technologies, Inc.
and Elan International Services, Ltd. (Filed as
Exhibit 10.9 to the Company's Quarterly Report on Form
10-QSB for the quarter ended September 30, 1999.)
+10.22 Convertible Promissory Note dated October 20, 1999
from Photogen Technologies, Inc. to Elan International
Services, Ltd. (Filed as Exhibit 10.10 to the
Company's Quarterly Report on Form 10-QSB for the
quarter ended September 30, 1999.)
+10.23 Registration Rights Agreement dated October 20, 1999
by and among Photogen Technologies, Inc. and Elan
International Services, Ltd. (Filed as Exhibit 10.11
to the Company's Quarterly Report on Form 10-QSB for
the quarter ended September 30, 1999.)
+10.24 Funding Agreement dated October 20, 1999 among Elan
Pharma International Limited and Photogen
Technologies, Inc. (Filed as Exhibit 10.12 to the
Company's Quarterly Report on Form 10-QSB for the
quarter ended September 30, 1999.)
+10.25 License Agreement dated October 20, 1999 between
Photogen Technologies, Inc,
62
EXHIBIT NO. DESCRIPTION
Photogen Newco Ltd. and Elan Pharma International
Limited. (Filed as Exhibit 10.13 to the Company's
Quarterly Report on Form 10-QSB for the quarter ended
September 30, 1999.) Confidential portions of this
Exhibit were redacted.
+10.26 License Agreement dated October 20, 1999 between Elan
Pharma International Limited, Photogen Newco Ltd. and
Photogen Technologies, Inc. (Filed as Exhibit 10.14 to
the Company's Quarterly Report on Form 10-QSB for the
quarter ended September 30, 1999.) Confidential
portions of this exhibit were redacted.
+10.27 Subscription, Joint Development and Operating
Agreement dated October 20, 1999 between Elan Pharma
International Limited, Elan International Services,
Ltd., Photogen Technologies, Inc. and Photogen Newco
Ltd. (Filed as Exhibit 10.15 to the Company's
Quarterly Report on Form 10-QSB for the quarter ended
September 30, 1999.) Confidential portions of this
exhibit were redacted.
+10.28 Amended and Restated Standby Agreement dated November
9, 1999 among Theodore Tannebaum, John T. Smolik,
Craig Dees, Walter G. Fisher, Timothy Scott and Eric
A. Wachter. (Filed as Exhibit 10.34 to the Company's
Annual Report on Form 10-KSB for the year ended
December 31, 1999.)
+10.29 Form of Registration Rights Agreement between the
Company and holders of Series B Convertible Preferred
Stock. (Filed as Exhibit 10.35 to the Company's Annual
Report on Form 10-KSB for the year ended December 31,
1999.)
+10.30 Equipment Lease between Picker Financial Group, L.L.C.
and Photogen, Inc. dated October 25, 1999. (Filed as
Exhibit 10.37 to the Company's Annual Report on Form
10-KSB for the year ended December 31, 1999.)
+21 Subsidiaries of the registrant. (Filed as Exhibit 21
to the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1999.)
*23 Consent of BDO Seidman, LLP, Independent Auditors
*Filed herewith
+Incorporated herein by reference
63