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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-K/A

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

For the Year Ended December 31, 2001

or

|o | 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

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PHOTOGEN TECHNOLOGIES, INC.(Exact name of Registrant as specified in its Charter)

NEVADA(State or other jurisdiction of
incorporation or organization)

36-4010347(I.R.S. Employer Identification No.)140 UNION SQUARE DRIVE
NEW HOPE, PA(Address of principal executive offices)

18938(Zip Code)


(215) 862-6860(Registrant's telephone number, including area code)

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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 ý    No o

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. o

The
approximate aggregate market value of voting and non-voting common stock held by non-affiliates computed as of March 15, 2002, based upon the last sale
price of the common stock reported on the Nasdaq SmallCap Market was approximately $11,460,506. 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 15, 2002: 38,842,298.

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Photogen Technologies, Inc. ("we," "us," or the "Company") amends Items 6, 7 and 8 of Part II, Item 14 of Part III and the Exhibit Index of its
Form 10-K/A for the fiscal year ended December 31, 2001. The amended Items are set forth below.

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, 1997, 1998,
1999, 2000 and 2001 have been derived from our audited financial statements.

|                                        |  | 1997 |           | 1998 |   | 1999       |   | 2000 |            | 2001 |  
|--------------------------------------- |  | ---- | --------- | ---- | - | ---------- | - | ---- | ---------- | ---- | -
|Net loss from continuing operations     |  | $    | (554,702  | )    | $ | (1,973,913 | ) | $    | (6,052,841 | )    | $
|                                        |  |      |           |      |   |            |   |      |            |      |  
|Basic and diluted loss per common share |  | $    | (0.02     | )    | $ | (0.05      | ) | $    | (0.17      | )    | $
|                                        |  |      |           |      |   |            |   |      |            |      |  
|Total assets                            |  | $    | 2,284,373 |      | $ | 8,060,585  |   | $    | 23,304,829 |      | $
|                                        |  |      |           |      |   |            |   |      |            |      |  
|Total liabilities                       |  | $    | 197,328   |      | $ | 952,007    |   | $    | 872,667    |      | $
|                                        |  |      |           |      |   |            |   |      |            |      |  
|Total long-term obligations             |  | $    | 60,469    |      | $ | 35,990     |   | $    | 18,356     |      | $
|                                        |  |      |           |      |   |            |   |      |            |      |  
|Shares subject to rescission            |  | $    |          |      | $ |           |   | $    |           |      | $
|                                        |  |      |           |      |   |            |   |      |            |      |  

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Portions of the discussion in this item contain forward-looking statements and are subject to the Risk Factors described above.

We
are an emerging, development-stage biopharmaceutical company focused on developing a novel contrast agent with potential applications in the imaging of the cardiovascular system and
cancer metastasizing into the lymphatic system. We also have in development products to treat psoriasis and other topical diseases and cancer. Our principal product is an X-ray contrast
agent we call PH-50, when referring to cardiovascular applications, and N1177 when referring to lymphography. The lymphography application is being developed in a joint venture with units
of Elan Corporation plc. We have or own the rights for all other applications. In December 2001, we announced positive preclinical results of PH-50. Based on these studies, the
extensive preclinical toxicology and other study work, including the product's use in over 120 patients for lymphography, we shifted the strategic direction of Photogen to focus on the cardiovascular
and lymphography applications. We plan to focus our efforts on these high value opportunities and to license or co-develop our other products. We have not completed development of any
diagnostic or therapeutic product or process at this time and have no revenue from operations.

As
of April 8, 2002, we entered into a credit facility that will provide us with a $2,500,000 revolving line of credit, bearing interest at 4.65%, for a period of five years. The
loan is secured by a lien on all of our assets. Absent additional funding from the sale of debt or equity securities or the sale or licensing of any of our products in development, we expect to
sustain operations through December 2002. Our ability to conduct operations beyond that date is entirely dependent on our ability to obtain additional capital, and we are aggressively seeking
such capital. 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.

We
operate with a small staff of researchers and senior level managers to conduct basic research, oversee and direct third party contractors and perform administrative functions. We
contract with third party consultants having expertise in clinical development and regulatory matters to supplement our

1

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internal capabilities. We also contract with third party research laboratories, contract research organizations and manufacturers for clinical material supplies and the management of clinical trials.
We also contract with academic and other institutions to conduct specified research projects.

We
expect that our quarterly and annual results of operations will fluctuate based on several factors including, the timing and amount of expenses involved in conducting our research
programs, particularly the conduct of clinical trials, the cost of clinical material used in those trials and required for compliance with FDA regulations and the amount, if any, of fees, milestone
payments and research support payments received from potential strategic partners.

We
consider our investment in the joint venture with affiliates of Elan to be our only asset subject to a significant estimate. The carrying value of our 80.1% equity interest in
Sentigen, Ltd., the joint venture entity, at December 31, 2001 was $10,994,680. We have reviewed the financial projections of Sentigen and the underlying assumptions and have concluded
that there has been no degradation to the carrying value of our investment. The assumptions underlying the financial forecasts were based on currently available information, including estimates of
development costs, pricing, operating expenses and market sizes and penetration. These estimates may change and any such changes may impact our future estimates of appropriate carrying values.

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 (after preferred dividends) was $6,273,518, $13,491,813 and $12,666,771 for the
years ended December 31, 1999, 2000 and 2001, respectively, and our cumulative losses since inception, including "in kind" preferred stock dividends totaling $5,869,183, are approximately
$34,962,496.

Research
and development expenses for the years ended December 31, 1999, 2000 and 2001 were $2,889,215, $4,308,313 and $3,347,778, respectively.

Research
expenses in 1999 were due to costs incurred as we expanded our development activities for PH-10 and for initiating research spending for N1177. During the fourth
quarter of 1999 we in-licensed N1177 for all diagnostic and therapeutic applications and subsequently granted a license to N1177 in the field of lymphography to Sentigen, Ltd. the
joint venture between Photogen and units of Elan Corporation plc. 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. Substantially all research expenses incurred by Photogen on N1177 are charged to the
joint venture. See additional information on this subject discussing the joint venture and the restructuring, in 2000, of our clinical development operations in the paragraphs below.

Research
expenses increased in 2000 resulting from costs associated with 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. In addition, we reversed approximately $810,000 in billings to the Sentigen
joint venture as we concluded, following the restructuring of our clinical development operations, that the joint venture should not be charged for certain work previously conducted in Westborough.
The increase in research expense was partially offset by a reduction in research contract expense as contracts with certain academic institutions reached their conclusion.

Research
expenses in 2001 decreased by $960,535 to $3,347,778. The reduction was due principally to lower expense levels following the closing of our Westborough, Massachusetts facility
in October 2000, including a one-time credit in 2000 of $810,000 to Sentigen, our joint venture with Elan, partially offset by clinical trial expenses and other costs incurred as
our products undergo human clinical testing.

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General
and administrative expenses were $3,037,392, $5,095,442 and $3,269,013 for the years ended December 31, 1999, 2000 and 2001, respectively. These expenses include costs
associated with obtaining patent protection for our intellectual property, costs associated with administrative personnel and corporate management, the amortization of warrants granted to a service
provider, legal and related expenses and facilities expenses. Expense increases in 2000 resulted primarily from the full year impact of warrants issued during 1999 and additional warrants granted to a
service provider in 2000, costs of hiring and compensating our new senior management and legal expenses incurred in connection with the reorganization of the clinical development group. In 2001,
general and administrative expenses were reduced by $1,826,429 primarily due to the completion of the amortization of warrants granted to a service provider.

In
September 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 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 took a charge against earnings of $597,025 for termination of our office lease and associated expenses and termination costs associated with certain
of the employees at that location. We have reached termination agreements with two of these employees. At December 31, 2001, approximately $173,932 of this charge was remaining. We cannot
estimate at this time additional costs or obligations (if any) related to any litigation arising from the office closing. See Item 3 "Legal Proceedings" of this Form 10-K for
additional information concerning this restructuring.

In
the fourth quarter of 1999, we entered into a joint venture with affiliates of Elan Corporation for the development of N1177, 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, 2000 and 2001, we recorded losses from the joint venture of
$306,029, $1,203,392 and $1,952,758, 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 certain 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 activities conducted at Westborough during 2000 and concluded that the joint venture should not be
charged for those activities. Accordingly, in the third quarter of 2000, 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 for 2000 of $810,000 less a decrease in the loss from Sentigen of $649,000.

Investment
income for the years ended December 31, 1999, 2000 and 2001 was $179,795, $417,110 and $110,741, respectively. Investment income is generated by 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 1999 investment income resulted primarily from interest earned on the proceeds of a common stock offering in March 1998 and on approximately $6,000,000 of capital received from
Elan through their purchase of our common stock at the time of the creation of the joint venture. In the first quarter of 2000, we raised a total of $5,276,340 from the issuance of Series B
Preferred to qualified investors. The increase in investment income in 2000 resulted primarily from investment of those proceeds. In the first half of 2001, we received a total of $1,068,723 in net
proceeds of common stock sold under our shelf registration statement that was declared effective in February 2001.

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From April 26, 2001 through June 21, 2001, Photogen sold a total of 498,508 shares of common stock in a series of five transactions to Ballsbridge Finance Limited of
London, England at prices varying from $1.13 to $1.55 per share for an aggregate cash purchase price of $650,000. In each of the sales, Rochelle, SA of London, England, acted as Photogen's placement
agent and may be deemed an underwriter. Rochelle received a 5% commission on such sales for a total of $32,500. Although these shares were sold pursuant to Registration Statement
No. 333-46394 (effective February 9, 2001), the prospectus at the time of the sales to Ballsbridge Finance Limited did not meet the requirements of Section 10(a)(3) of
the Securities Act causing the sale of such shares to be subject to rescission and resulting in a contingent liability to the Company of $650,000.

Photogen's
use of proceeds of each sale under the Registration Statement was for general corporate purposes, including activities related to preparing for and conducting clinical trials,
purchase and preparation of clinical materials, conduct of pre-clinical studies, administrative expenses to support Photogen's research and development activities, capital expenditures and
to meet working capital needs.

Investment
income declined in 2001 due primarily to the decline in the average balances of our investment portfolio as funds were used to support operations and, to a lesser extent, the
general decline in short term interest rates. 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, 1999, 2000 and 2001 were $374,741, $516,186 and $45,938, 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, New Hope and Westborough
offices. During the next twelve months we expect capital expenditures for equipment to be less than $100,000.

During
2001, as a result of the closing of the Westborough facility and the shift in the research priorities, we determined that certain equipment we were leasing would no longer be
useful in our research. Accordingly, we recorded provisions for future lease payments totaling $1,264,208 representing the remaining lease obligations. While we will pursue opportunities to sublease
or otherwise mitigate these obligations, there can be no assurance of any success in this regard.

We
have two series of convertible preferred stock outstanding: Series A, issued in October 1999 and Series B, issued in February 2000. 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 has been amortized over the period from issuance through October 2001, when the stock was first convertible. The additional return related to the Series A Preferred
recorded was $480,928 in 2000 and $391,154 in 2001. 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 was amortized over the period from
issuance until January 1, 2002, the date the most beneficial conversion rate became effective. The preferred return related to the Series B Preferred recorded in 2000 was $1,059,097 and
in 2001 was $1,263,219. As a result of the combination of the mandatory dividends and the preferential value amortization, we recorded preferred stock dividends of $220,677, $2,704,751 and $2,943,755
in 1999, 2000 and 2001 for Series A Preferred stock and Series B Preferred stock.

As
a result of the above factors, the net loss applicable to common shareholders (after preferred dividends) was $6,273,518, $13,491,813 and $12,666,771 for the years ended
December 31, 1999, 2000 and 2001, respectively. Basic and diluted loss per common share was $0.17, $0.36 and $0.33, respectively, for these periods.

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LIQUIDITY; CAPITAL RESOURCES

At December 31, 2001 we had cash and cash equivalents totaling approximately $1,352,904. We have a $4.8 million credit line available from Elan
under which we may borrow to fund our portion of the losses incurred by the joint venture. At December 31,2001 we had borrowed $2,314,005 under this credit line. On April 8, 2002, we
entered into a credit facility that will provide us with a $2,500,000 revolving line of credit, bearing interest at 4.65%, for a period of five years. The loan is secured by a lien on all of our
assets.

Absent
additional funding from the sale of debt or equity securities or the sale or licensing of any of our products in development, we expect to sustain operations through
December 2002. Our ability to conduct operations beyond that date is entirely dependent on our ability to obtain additional capital, and we are aggressively seeking such capital. We have and
continue to take actions to minimize our spending until we raise additional capital through the sale of securities or the sale/licensing of certain assets. However, there can be no assurance that such
capital will be available under acceptable terms, if at all. We have access to certain additional capital through borrowings under our credit line with Elan to reimburse our development costs of N1177
and borrowings under our revolving line of credit. 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.

We
have used, and if additional capital is secured, expect over the next 12 months to use the capital available in our lines of credit or from other issuances of debt or other
equity securities, 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. If our financial condition permits, we expect to evaluate from time to time the acquisition or license
of businesses, technologies or products. The purchase of any such licenses or technologies would be funded by a portion of any net proceeds of future offerings or the issuance of debt or equity
securities specifically for that purpose; at this we have no plan or commitments for any acquisition or license. We expect our use of capital to increase as we conduct further clinical trials.

We
have a $4.8 million credit facility from Elan to fund a portion of the operations of the Sentigen joint venture. Borrowings under this facility bear interest at 8% per annum,
are repayable in 2005 or at Elan's election, may be converted into our common stock at a conversion price of $18.15 per share. At December 31, 2001, we had borrowed $2,314,005 under this credit
facility.

In
February 2001, our shelf registration statement to enable us to issue up to $40 million of our common stock was declared effective by the SEC. This shelf registration
permitted us to issue common stock from time to time at our option. During 2001, we sold 695,486 shares of common stock pursuant to this registration statement to institutional investors for proceeds,
net of related expenses, of $1,068,723. However, as of April 2, 2001, the Company no longer met the $75 million public float test and was no longer eligible to use its shelf registration
statement in its current form. The Company made a series of five sales from April 26, 2001 through June 21, 2001 to one institutional investor in England of 498,508 shares of common
stock for an aggregate of $650,000 prior to realizing its current Form S-3 no longer met the requirements of Section 10(a)(3) of the Securities Act causing such shares to be
subject to rescission. The amount of the shares sold during this period of $650,000 has been reclassified from permanent equity to mezzanine equity as the Company could be required to repay this
amount to the purchaser.

Pursuant
to certain anti-dilution provisions granted to Elan as part of their purchase in 1999 of our common stock, we were required to issue additional shares to Elan so
that the weighted average price for the common stock would equal the effective price of our first offering after Elan's purchase. In the third quarter we issued 763,426 additional shares of common
stock to Elan in full satisfaction of this right.

PLAN OF OPERATION

During the next twelve months we will focus our efforts primarily on the development of PH-50 and N1177 reflecting the strategic shift in the
direction of the company. Specifically we expect to conduct preclinical and human clinical studies, prepare required filings to the FDA, and as required to

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foreign regulatory bodies and acquire quantities of clinical grade drug formulations of these products. If we obtain sufficient funds to finance further development of our dermatology and cancer
therapy products (PH-10), we will conduct similar development activities for those indications. Alternatively, we may license, co-develop or sell our therapeutic technologies
(see "Recent Developments" above). We expect to continue to incur increasing losses for at least the next three 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.

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 collaborative
agreement providing for a third party to take over these functions) significantly impair or curtail our ability to conduct further research and development activities 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 aggressively
pursuing capital formation opportunities, either through offerings of equity or debt or as part of collaborative arrangements with third parties.

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
June 2001, the Financial Accounting Standards Board finalized FASB Statements No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 142
requires, among other things, that companies no longer amortize goodwill, but instead test goodwill for impairment at least annually. In addition, SFAS 142 requires that the Company identify
reporting units for the purposes of assessing potential future impairments of goodwill, reassess the useful lives of other existing recognized intangible assets, and cease amortization of intangible
assets with an indefinite useful life. An intangible asset with an indefinite useful life should be tested for impairment in accordance with the guidance in SFAS 142. SFAS 142 is
required to be applied in fiscal years beginning after December 15, 2001 to all goodwill and other intangible assets recognized at that date, regardless of when those assets were initially
recognized. SFAS 142 requires the Company to complete a transitional goodwill impairment test six months from the date of adoption. The Company is also required to reassess the useful lives of
other intangible assets within the first interim quarter after adoption of SFAS 142. The Company is currently assessing but has not yet determined how the adoption of SFAS 142 will
impact its financial position and results of operations.

In
October 2001, the Financial Accounting Standards Board issued SFAS 144 "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144").
This Statement addresses financial accounting and reporting for the impairment or disposal of long-lived assets. This Statement supersedes FASB Statement No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", and the accounting and reporting provisions of APB Opinion No. 30, "Reporting the
Results of OperationsReporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions", for the disposal of a
segment of a business. The provisions of SFAS 144 will be effective for fiscal years beginning after December 15, 2001. The Company is currently evaluating the implications of adoption
of SFAS 144 and anticipates adopting its provisions in fiscal year 2002.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEPENDENT
AUDITORS' REPORT

Board
of Directors
Photogen Technologies, Inc.
New Hope, Pennsylvania

We
have audited the accompanying consolidated balance sheets of Photogen Technologies, Inc., a development stage company, as of December 31, 2000 and 2001, and the related consolidated
statements of operations, shareholders' equity and cash flows for the period from November 3, 1996 (inception) to December 31, 2001 and for each of the three years in the period ended
December 31, 2001. 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 audit 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,
2000 and 2001, and the results of its operations and its cash flows for the period from November 3, 1996 (inception) to December 31, 2001 and for each of the three years in the period
ended December 31, 2001, in conformity with accounting principles generally accepted in the United States.

/s/
BDO Seidman, LLP

Chicago,
Illinois
March 22, 2002, except for Note 11
        which is as of April 8, 2002 and
        note 6(f) which is as of July 2, 2002

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CONSOLIDATED BALANCE SHEETS

|December 31,                                                                                                            |                                                                                | 2000 |            | 2001     
|----------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------ | ---- | ---------- | ---------
|Assets                                                                                                                  |                                                                                |      |            |          
|Current Assets                                                                                                          |                                                                                |      |            |          
|                                                                                                                        | Cash and cash equivalents                                                      |      | $          | 622,795  
|                                                                                                                        | United States Treasury Notes, total face value $4,945,000 and $0, respectively |      |            | 4,943,971
|                                                                                                                        | Interest receivable                                                            |      |            | 93,219   
|                                                                                                                        | Prepaid consulting expense (Note 6(a))                                         |      |            | 760,363  
|                                                                                                                        | Prepaid expenses                                                               |      |            | 182,115  
|                                                                                                                        | Deposit (Note 5(a))                                                            |      |            | 100,000  
|                                                                                                                        |                                                                                |      |            |          
|                                                                                                                        | Total Current Assets                                                           |      |            | 6,702,463
|Equipment and Leasehold Improvements,less accumulated depreciation of $761,425 and $1,059,997, respectively (Note 5(a)) |                                                                                |      | 1,377,741  |          
|Patent Costs,net of amortization of $59,027 and $100,693, respectively                                                  |                                                                                |      | 440,973    |          
|Deposit(Note 5(a))                                                                                                      |                                                                                |      | 429,370    |          
|Investment in and Advances to Affiliate(Note 3)                                                                         |                                                                                |      | 10,701,490 |          
|                                                                                                                        |                                                                                |      |            |          
|                                                                                                                        |                                                                                | $    | 19,652,037 |          
|                                                                                                                        |                                                                                |      |            |          

See
accompanying notes to consolidated financial statements.

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CONSOLIDATED BALANCE SHEETS (Continued)

|December 31,                              |                                                                                                                                               | 2000                                                                                                                                                                                                 |            | 2001        |      
|----------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------- | ----------- | -----
|Liabilities and Shareholders' Equity      |                                                                                                                                               |                                                                                                                                                                                                      |            |             |      
|Current Liabilities                       |                                                                                                                                               |                                                                                                                                                                                                      |            |             |      
|                                          | Accounts payable                                                                                                                              |                                                                                                                                                                                                      | $          | 641,719     |      
|                                          | Accrued expenses (Note 4)                                                                                                                     |                                                                                                                                                                                                      |            | 579,452     |      
|                                          | Current portion of obligation under capital leases                                                                                            |                                                                                                                                                                                                      |            | 16,802      |      
|                                          |                                                                                                                                               |                                                                                                                                                                                                      |            |             |      
|Total Current Liabilities                 |                                                                                                                                               |                                                                                                                                                                                                      | 1,237,973  |             |      
|                                          |                                                                                                                                               |                                                                                                                                                                                                      |            |             |      
|Obligation Under Capital Leases           |                                                                                                                                               |                                                                                                                                                                                                      | 1,554      |             |      
|                                          |                                                                                                                                               |                                                                                                                                                                                                      |            |             |      
|Accrued Equipment Lease(Note 5(a))        |                                                                                                                                               |                                                                                                                                                                                                      |           |             |      
|                                          |                                                                                                                                               |                                                                                                                                                                                                      |            |             |      
|Long-Term Debt (Note 3)                   |                                                                                                                                               |                                                                                                                                                                                                      |           |             |      
|                                          |                                                                                                                                               |                                                                                                                                                                                                      |            |             |      
|Shares Subject to Rescission(Note 6(f))   |                                                                                                                                               |                                                                                                                                                                                                      |           |             |      
|                                          |                                                                                                                                               |                                                                                                                                                                                                      |            |             |      
|Commitments(Note 5)                       |                                                                                                                                               |                                                                                                                                                                                                      |            |             |      
|Shareholders' Equity(Notes 2, 3, 6 and 7) |                                                                                                                                               |                                                                                                                                                                                                      |            |             |      
|                                          | Preferred stock; par value $.01 per share; 5,000,000 shares authorized including:                                                             |                                                                                                                                                                                                      |            |             |      
|                                          |                                                                                                                                               | Series A Preferred Stock; 12,856 shares authorized, issued and outstanding, liquidation preference $1,000 per share (in aggregate $12,856,000)                                                       |            |             | 128  
|                                          |                                                                                                                                               | Series B Preferred Stock shares authorized; 337,056 and 357,280 issued and outstanding, respectively, liquidation preference $16.88 per share (in aggregate $5,689,505 and $6,030,886, respectively) |            |             | 3,370
|                                          | Common stock; par value $.001 per share; 150,000,000 shares authorized; 37,383,386 and 38,343,790 shares issued and outstanding, respectively |                                                                                                                                                                                                      |            | 37,384      |      
|                                          | Additional paid-in capital                                                                                                                    |                                                                                                                                                                                                      |            | 37,741,925  |      
|                                          | Deficit accumulated during the development stage                                                                                              |                                                                                                                                                                                                      |            | (19,370,297 | )    
|                                          |                                                                                                                                               |                                                                                                                                                                                                      |            |             |      
|Total Shareholders' Equity                |                                                                                                                                               |                                                                                                                                                                                                      | 18,412,510 |             |      
|                                          |                                                                                                                                               |                                                                                                                                                                                                      |            |             |      
|                                          |                                                                                                                                               | $                                                                                                                                                                                                    | 19,652,037 |             | $    
|                                          |                                                                                                                                               |                                                                                                                                                                                                      |            |             |      

See
accompanying notes to consolidated financial statements.

9

---

CONSOLIDATED STATEMENT OF OPERATIONS

|                                               |                                         | Year Ended
December 31,
1999                                           |            | Year Ended
December 31,
2000 |            | Year Ended
December 31,
2001 |           | Cumulative
Amounts
From
November 3,
1996
(Inception) to
December 31,
2001 |            
|---------------------------------------------- | --------------------------------------- | ---------------------------------------------------------------------- | ---------- | ---------------------------- | ---------- | ---------------------------- | --------- | ------------------------------------------------------------------------- | -----------
|                                               | Operating Expenses(Notes 5, 6 and 7)    |                                                                        |            |                              |            |                              |           |                                                                           |            
|                                               | Research and development                |                                                                        | $          | 2,889,215                    |            | $                            | 4,308,313 |                                                                           | $          
|                                               | General and administrative              |                                                                        |            | 3,037,392                    |            |                              | 5,095,442 |                                                                           |            
|                                               | Restructuring charges                   |                                                                        |            |                             |            |                              | 597,025   |                                                                           |            
|                                               | Provision for future lease payments     |                                                                        |            |                             |            |                              |          |                                                                           |            
|                                               |                                         |                                                                        |            |                              |            |                              |           |                                                                           |            
|Total operating expenses                       |                                         |                                                                        | 5,926,607  |                              |            | 10,000,780                   |           |                                                                           | 7,880,999  
|                                               |                                         | Loss From Joint Venture(Note 3)                                        |            |                              | (306,029   | )                            |           | (1,203,392                                                                | )          
|                                               |                                         |                                                                        |            | Investment Income            |            |                              | 179,795   |                                                                           |            
|                                               |                                         |                                                                        |            |                              |            |                              |           |                                                                           |            
|                                               |                                         |                                                                        |            |                              |            | Net Loss                     |           |                                                                           | (6,052,841 
|                                               |                                         |                                                                        |            |                              |            |                              |           |                                                                           |            
|Dividends on Preferred Stock(Notes 3, 6 and 8) |                                         |                                                                        | (220,677   | )                            |            | (2,704,751                   | )         |                                                                           | (2,943,755 
|                                               |                                         |                                                                        |            |                              |            |                              |           |                                                                           |            
|Net Loss Applicable to Common Shareholders     |                                         | $                                                                      | (6,273,518 | )                            | $          | (13,491,813                  | )         | $                                                                         | (12,666,771
|                                               |                                         |                                                                        |            |                              |            |                              |           |                                                                           |            
|                                               | Basic and Diluted Loss Per Common Share |                                                                        | $          | (.17                         | )          | $                            | (.36      | )                                                                         | $          
|                                               |                                         |                                                                        |            |                              |            |                              |           |                                                                           |            
|                                               |                                         | Weighted Average Number of Common Shares OutstandingBasic and Diluted |            |                              | 36,983,707 |                              |           | 37,383,386                                                                |            
|                                               |                                         |                                                                        |            |                              |            |                              |           |                                                                           |            

See
accompanying notes to consolidated financial statements.

10

---

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

|                                                |                                                                     | Preferred Stock
Series A |        | Preferred Stock
Series B |     |     |         |         |   |       |       |            |            | Deficit
Accumulated
During the
Development
Stage |        |        |  
|----------------------------------------------- | ------------------------------------------------------------------- | ------------------------ | ------ | ------------------------ | --- | --- | ------- | ------- | - | ----- | ----- | ---------- | ---------- | ------------------------------------------------ | ------ | ------ | -
|
|
|
|Contribution of capital                         |                                                                     |                         |        | $                        |    |     |        |         | $ |      |       |           |            | $                                                |       |        | $
|Net loss for the period ended December 31, 1996 |                                                                     |                         |        |                          |    |     |        |         |   |      |       |           |            |                                                  |       |        |  
|                                                |                                                                     |                          |        |                          |     |     |         |         |   |       |       |            |            |                                                  |        |        |  
|Balance,at December 31, 1996                    |                                                                     |                         |        |                          |    |     |        |         |   |      |       |           |            |                                                  |       |        |  
|                                                | Net loss for the period January 1, 1997 to May 15, 1997             |                          |       |                          |     |    |         |        |   |       |      |            |           |                                                  |        |       |  
|                                                | Capital contribution                                                |                          |       |                          |     |    |         |        |   |       |      |            |           |                                                  |        |       |  
|                                                |                                                                     |                          |        |                          |     |     |         |         |   |       |       |            |            |                                                  |        |        |  
|Balance,at May 15, 1997                         |                                                                     |                         |        |                          |    |     |        |         |   |      |       |           |            |                                                  |       |        |  
|                                                | Issuance of common stock                                            |                          |       |                          |     |    |         |        |   |       |      |            | 6,312,833  |                                                  |        | 6,313  |  
|                                                | Effect of recapitalization and merger                               |                          |       |                          |     |    |         |        |   |       |      |            | 29,687,167 |                                                  |        | 29,687 |  
|                                                | Cost associated with recapitalization and merger                    |                          |       |                          |     |    |         |        |   |       |      |            |           |                                                  |        |       |  
|                                                | Net loss for the period May 16, 1997 to
December 31, 1997           |                          |       |                          |     |    |         |        |   |       |      |            |           |                                                  |        |       |  
|                                                |                                                                     |                          |        |                          |     |     |         |         |   |       |       |            |            |                                                  |        |        |  
|Balance,at December 31, 1997                    |                                                                     |                         |        |                          |    |     |        |         |   |      |       | 36,000,000 |            |                                                  | 36,000 |        |  
|                                                | Issuance of common stock                                            |                          |       |                          |     |    |         |        |   |       |      |            | 875,020    |                                                  |        | 875    |  
|                                                | Costs associated with common stock issuance                         |                          |       |                          |     |    |         |        |   |       |      |            |           |                                                  |        |       |  
|                                                | Options issued to consultants                                       |                          |       |                          |     |    |         |        |   |       |      |            |           |                                                  |        |       |  
|                                                | Net loss for the year ended December 31, 1998                       |                          |       |                          |     |    |         |        |   |       |      |            |           |                                                  |        |       |  
|                                                |                                                                     |                          |        |                          |     |     |         |         |   |       |       |            |            |                                                  |        |        |  
|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 |        |  
|                                                |                                                                     |                          |        |                          |     |     |         |         |   |       |       |            |            |                                                  |        |        |  
|Balance,at December 31, 2000                    |                                                                     | 12,856                   |        | $                        | 128 |     | 337,056 |         | $ | 3,370 |       | 37,383,386 |            | $                                                | 37,384 |        | $
|                                                | Stock option compensation                                           |                          |       |                          |     |    |         |        |   |       |      |            |           |                                                  |        |       |  
|                                                | Issuance of common stock for cash                                   |                          |       |                          |     |    |         |        |   |       |      |            | 196,978    |                                                  |        | 197    |  
|                                                | Issuance of common stock in satisfaction of anti-dilution provision |                          |       |                          |     |    |         |        |   |       |      |            | 763,426    |                                                  |        | 763    |  
|                                                | Issuance of preferred stock dividend                                |                          |       |                          |     |    |         | 20,224  |   |       | 202   |            |           |                                                  |        |       |  
|                                                | Net loss for the year ended December 31, 2001                       |                          |       |                          |     |    |         |        |   |       |      |            |           |                                                  |        |       |  
|                                                |                                                                     |                          |        |                          |     |     |         |         |   |       |       |            |            |                                                  |        |        |  
|Balance,at December 31, 2001                    |                                                                     | 12,856                   |        | $                        | 128 |     | 357,280 |         | $ | 3,572 |       | 38,343,790 |            | $                                                | 38,344 |        | $
|                                                |                                                                     |                          |        |                          |     |     |         |         |   |       |       |            |            |                                                  |        |        |  

See accompanying notes to consolidated financial statements.

11

---

CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                    |                                                                 | Year Ended
December 31,
1999 |             | Year Ended
December 31,
2000 |          | Year Ended
December 31,
2001 |             | Cumulative
Amounts
From
November 3,
1996
(Inception) to
December 31,
2001 |           
|--------------------------------------------------- | --------------------------------------------------------------- | ---------------------------- | ----------- | ---------------------------- | -------- | ---------------------------- | ----------- | ------------------------------------------------------------------------- | ----------
|Cash Flows From Operating Activities                |                                                                 |                              |             |                              |          |                              |             |                                                                           |           
|                                                    | Net loss                                                        |                              | $           | (6,052,841                   | )        | $                            | (10,787,062 | )                                                                         | $         
|                                                    | Depreciation and amortization                                   |                              |             | 282,049                      |          |                              | 416,511     |                                                                           |           
|                                                    | Loss (gain) on disposal of equipment and leasehold improvements |                              |             |                             |          |                              | 43,041      |                                                                           |           
|                                                    | Gain on sale of marketable securities                           |                              |             |                             |          |                              |            |                                                                           |           
|                                                    | United States Treasury Notes amortization                       |                              |             | 24,914                       |          |                              | (41,437     | )                                                                         |           
|                                                    | Stock option compensation                                       |                              |             | 381,321                      |          |                              | 125,020     |                                                                           |           
|                                                    | Issuance of warrants in exchange for services rendered          |                              |             | 1,043,466                    |          |                              | 2,191,262   |                                                                           |           
|                                                    | Loss from investment in affiliate                               |                              |             | 306,029                      |          |                              | 1,203,392   |                                                                           |           
|                                                    | Changes in operating assets and liabilities                     |                              |             |                              |          |                              |             |                                                                           |           
|                                                    |                                                                 | Prepaid expenses             |             |                              | (155,315 | )                            |             | 408,595                                                                   |           
|                                                    |                                                                 | Interest receivable          |             |                              | 37,144   |                              |             | (8,892                                                                    | )         
|                                                    |                                                                 | Accounts payable             |             |                              | (21,085  | )                            |             | (141,444                                                                  | )         
|                                                    |                                                                 | Accrued expenses             |             |                              |         |                              |             | 579,452                                                                   |           
|                                                    |                                                                 | Accrued equipment lease      |             |                              |         |                              |             |                                                                          |           
|                                                    |                                                                 |                              |             |                              |          |                              |             |                                                                           |           
|Net cash used in operating activities               |                                                                 |                              | (4,154,318  | )                            |          | (6,011,562                   | )           |                                                                           | (5,418,545
|                                                    |                                                                 |                              |             |                              |          |                              |             |                                                                           |           
|Cash Flows From Investing Activities                |                                                                 |                              |             |                              |          |                              |             |                                                                           |           
|                                                    | Sale of marketable securities                                   |                              |             |                             |          |                              |            |                                                                           |           
|                                                    | Purchases of marketable securities                              |                              |             |                             |          |                              |            |                                                                           |           
|                                                    | Purchases of United States Treasury Notes                       |                              |             | (5,475,373                   | )        |                              | (11,749,970 | )                                                                         |           
|                                                    | Sales of United States Treasury Notes                           |                              |             | 5,660,000                    |          |                              | 12,320,000  |                                                                           |           
|                                                    | Purchase of equipment and leasehold improvements                |                              |             | (374,741                     | )        |                              | (516,186    | )                                                                         |           
|                                                    | Proceeds from sale of equipment                                 |                              |             |                             |          |                              |            |                                                                           |           
|                                                    | Costs to acquire patent                                         |                              |             | (150,000                     | )        |                              | (50,000     | )                                                                         |           
|                                                    | Investment in and advances to affiliate                         |                              |             | (12,304,459                  | )        |                              | 93,548      |                                                                           |           
|                                                    | (Increase) decrease in restricted cash                          |                              |             | (100,000                     | )        |                              | 100,000     |                                                                           |           
|                                                    | Increase in deposit                                             |                              |             | (29,370                      | )        |                              | (500,000    | )                                                                         |           
|                                                    |                                                                 |                              |             |                              |          |                              |             |                                                                           |           
|Net cash (used in) provided by investing activities |                                                                 |                              | (12,773,943 | )                            |          | (302,608                     | )           |                                                                           | 2,784,282 
|                                                    |                                                                 |                              |             |                              |          |                              |             |                                                                           |           
|Cash Flows From Financing Activities                |                                                                 |                              |             |                              |          |                              |             |                                                                           |           
|                                                    | Principal payments on capital leases                            |                              | $           | (108,255                     | )        | $                            | (21,148     | )                                                                         | $         
|                                                    | Net proceeds from issuance of equity                            |                              |             | 18,066,063                   |          |                              | 5,276,340   |                                                                           |           
|                                                    | Proceeds from capital contributions by shareholders             |                              |             |                             |          |                              |            |                                                                           |           
|                                                    | Proceeds from issuance of debt                                  |                              |             |                             |          |                              |            |                                                                           |           
|                                                    | Cost of recapitalization                                        |                              |             |                             |          |                              |            |                                                                           |           
|                                                    |                                                                 |                              |             |                              |          |                              |             |                                                                           |           
|Net cash provided by financing activities           |                                                                 |                              | 17,957,808  |                              |          | 5,255,192                    |             |                                                                           | 3,364,372 
|                                                    |                                                                 |                              |             |                              |          |                              |             |                                                                           |           
|                                                    | Net Increase (Decrease) in Cash and Cash Equivalents            |                              |             | 1,029,547                    |          |                              | (1,058,978  | )                                                                         |           
|Cash and Cash Equivalents,at beginning of year      |                                                                 |                              | 652,226     |                              |          | 1,681,773                    |             |                                                                           | 622,795   
|                                                    |                                                                 |                              |             |                              |          |                              |             |                                                                           |           
|Cash and Cash Equivalents,at end of year            |                                                                 | $                            | 1,681,773   |                              | $        | 622,795                      |             | $                                                                         | 1,352,904 
|                                                    |                                                                 |                              |             |                              |          |                              |             |                                                                           |           

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.

See
accompanying notes to consolidated financial statements.

12

---

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 biopharmaceutical
company that is focusing on developing a novel contrast agent with potential applications (1) as a blood pool agent to diagnose diseased tissue in the cardiovascular system and other organs and (2) to
diagnose cancer metastasizing into the lymphatic system. The Company also has in development certain minimally invasive products for the treatment of psoriasis and other topical diseases and cancer
and certain laser device technology. The Company also has an investment in a joint venture (Note 3).

Principles of Consolidation

Intercompany balances and transactions have 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.

United States Treasury Notes

United States Treasury notes 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 Improvements

Equipment and leasehold improvements are 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 $264,688, $374,845 and $400,525 for 1999, 2000 and 2001, 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 purchased are capitalized and amortized over the life of the patent.

13

---

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 net operations losses incurred of approximately $20,510,000 primarily expiring in 2018 through 2021, or for equity losses in
affiliate of approximately $3,462,000. 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 Common Share

Basic and diluted loss per common share is computed based on the weighted average number of common shares outstanding. Loss per share excludes the impact of
outstanding options, warrants, convertible preferred stock and convertible debt as they are antidilutive. Potential common shares excluded from the calculation at December 31, 2001 are 6,519,000
options, 1,149,724 warrants, 1,124,268 shares issuable upon the conversion of Series A and B Preferred Stock and 130,162 shares issuable upon conversion of long-term debt. Basic and diluted loss per
common share includes 498,508 shares of common stock subject to rescission (Note 6(f)).

Financial Instruments

The carrying amounts reported in the consolidated balance sheets for cash, treasury notes, accounts payable and accrued expenses approximate fair value because of
the short-term nature of these amounts. The Company believes the fair value of its fixed-rate borrowings approximates the market value.

Reclassification

Certain 2000 amounts have been reclassified to conform with the 2001 presentation.

Recent Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board 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
June 2001, the Financial Accounting Standards Board finalized SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS 142 requires, among other things, that companies no longer
amortize goodwill, but instead test goodwill for impairment at least annually. In addition, SFAS 142 requires that the Company identify reporting units for the purposes of assessing potential future
impairments of goodwill, reassess the useful lives of other existing recognized intangible assets, and cease amortization of intangible assets with an indefinite useful life. An intangible asset with
an indefinite useful life should be tested for impairment in accordance with the guidance in SFAS 142. SFAS 142 is required to be applied in fiscal years beginning after December 15, 2001 to all
goodwill and other intangible assets

14

---

recognized at that date, regardless of when those assets were initially recognized. SFAS 142 requires the Company to complete a transitional goodwill impairment test six months from the date of
adoption. The Company is also required to reassess the useful lives of other intangible assets within the first interim quarter after adoption of SFAS 142. The Company is currently assessing but has
not yet determined how the adoption of SFAS 142 will impact its financial position and results of operations.

In
October 2001, the Financial Accounting Standards Board issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." This statement addresses financial
accounting and reporting for the impairment or disposal of long-lived assets. This statement supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed of," and the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations, Reporting the Effects of Disposal of a Segment of a Business and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions," for the disposal of a segment of a business. The provisions of SFAS 144 will be effective for fiscal years beginning after
December 15, 2001. The Company is currently evaluating the implications of adoption of SFAS 144 and anticipates adopting its provisions in fiscal year 2002.

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 $1,803,450. 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 May 2004 without the prior consent of an investor. These shareholders
currently hold approximately 20,548,000 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 from MT Financial Group, Inc.

3.    Joint Venture/ Investment in Affiliate

On October 7, 1999, the Company formed a 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

15

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$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. As of December 31, 2001, the beneficial conversion feature had been fully recorded.

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 patented 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, 2000. At December 31, 2001, borrowings on this line of credit were $2,314,005 and accrued interest was $48,429.

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 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. During 2001, the Company issued 763,426 shares of common stock to satisfy this requirement.

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.

16

---

Following is summarized financial information for Sentigen at December 31, 2000 and 2001:

|                                                                                          |  | 2000 |            | 2001
|----------------------------------------------------------------------------------------- |  | ---- | ---------- | ----
|Cash                                                                                      |  | $    |           |     
|License purchased from Elan, net of amortization of $244,565 and $1,222,829, respectively |  |      | 14,755,435 |     
|                                                                                          |  |      |            |     
|Total assets                                                                              |  | $    | 14,755,435 |     
|                                                                                          |  |      |            |     
|Due to affiliates                                                                         |  | $    | 1,639,855  |     
|Total shareholders' equity                                                                |  |      | 13,115,580 |     
|                                                                                          |  |      |            |     
|Total liabilities and equity                                                              |  | $    | 14,755,435 |     
|                                                                                          |  |      |            |     
|Research and development expense                                                          |  | $    | 1,257,815  |     
|Amortization of license                                                                   |  |      | 244,565    |     
|                                                                                          |  |      |            |     
|Net loss                                                                                  |  | $    | 1,502,380  |     
|                                                                                          |  |      |            |     

4.    Accruals

Accrued expenses consist of the following:

|December 31,                   |  | 2000 |         | 2001
|------------------------------ |  | ---- | ------- | ----
|Accrued salaries               |  | $    | 195,345 |     
|Accrued bonuses                |  |      | 54,107  |     
|Accrued interest (Note 3)      |  |      |        |     
|Accrued restructuring (Note 9) |  |      | 330,000 |     
|                               |  |      |         |     
|                               |  | $    | 579,452 |     
|                               |  |      |         |     

5.    Commitments

(a) At December 31, 2001, the Company has a lease for office and laboratory space in Knoxville, Tennessee, expiring in May 2002 and a lease for office space in
New Hope, Pennsylvania, expiring in August 2004.

The
Company also has an operating lease for laboratory equipment expiring in 2004. During 2001, the Company determined that equipment leased by the Company under this operating lease
would no longer be used by the Company in its research. As a result, in 2001, the Company recorded a provision for all future lease payments of $1,264,208. $568,138 of this provision was recorded in
the fourth quarter. At December 31, 2001, $1,123,740 remains to be paid. In conjunction with this operating lease, the Company provided $500,000 as cash collateral to be refunded over the term of the
lease. In 2002, $100,000 was refunded and, accordingly, this amount has been recorded as a current deposit at December 31, 2001. The Company and the lessor have agreed to offset certain future lease
payments with the remaining $400,000 deposit. As a result, an amount representing 2002 lease payments of $374,580 has been classified as a current deposit at December 31, 2001.

Total
rental expense charged to operations for the years ended December 31, 1999, 2000 and 2001 aggregated approximately $44,000, $352,000 and $358,000, respectively.

17

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Minimum
future rental payments under these leases are as follows:

Year ending December 31,

Operating Leases2002

$
561,0002003


547,0002004


475,000Total

$
1,583,000


(b)
The Company has entered into employment agreements with 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).

6.    Equity Transactions

(a) Company applies the recognition provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," in accounting for stock options issued to nonemployees.
The Company has issued options and warrants in exchange for consulting services rendered. The Company issued 10,000 options and 502,000 warrants in 1999, 21,000 options and 515,000 warrants in 2000
and 30,000 options in 2001. 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, $1.34 to $9.51 in 2000 and $1.70 in 2001. Consulting costs charged to operations were $1,199,787 in 1999,
$2,316,282 in 2000 and $825,092 in
2001. At December 31, 2000, $760,363 was classified as prepaid consulting expense as this amount represented payment in fully vested nonforfeitable warrants for services to be provided in the future.
There was no prepaid consulting at December 31, 2001.

(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.

(c)
In 1999, the Company issued 740,000 variable stock options to employees which would vest upon completion of performance milestones. 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.

(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 2000 in settlement of dividend requirements. Therefore, at December 31, 2001, there were 12,856 shares of Series A Preferred outstanding. The Company has accrued and
will issue 932 preferred shares in fulfillment of the 2001 dividend requirement. 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

18

---

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 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.

(e)
Series B Preferred StockIn February 2000, the Company completed a private placement of its Series B Convertible 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
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. In
accordance with the provisions of the agreement, the Company issued 20,224 additional preferred shares in settlement of dividend requirements. Therefore, at December 31, 2001, there were 357,280
shares of Series B Preferred outstanding. The Company has accrued and will issue 21,437 preferred shares in fulfillment of the 2001 dividend requirement. 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 1.4 shares of common stock at any time.

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, which would occur after
January 1, 2002. Using the conversion ratio at January 1, 2002 of 1.4 shares of common stock and the stock price at the date of issuance, the maximum beneficial conversion amount is $2,322,316. This
amount will be recorded as additional preferred stock dividends over the period from issuance until January 1, 2002. Through December 31, 2001, this full amount 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. In 2001, the Company
issued

19

---

common stock at less than $16.88. As a result, the revised conversion ratio for the number of shares of common stock issuable upon conversion of Series B Preferred is 1.44703 at December 31, 2001.

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:



(f)
Common StockThe Company is subject to six sets of registration rights agreements covering an aggregate of 5,490,162 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 5,490,162 shares, 4,260,000 shares are entitled to piggyback registration
only and 1,230,162 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.

On
February 9, 2001, the Company's shelf registration on Form S-3 was declared effective. Under the shelf registration, the Company could have issued up to $40,000,000 of common stock.
As of December
31, 2001, 695,486 shares have been issued under the shelf registration for cash proceeds of $1,068,723, net of related expenses of $56,252.

As
of April 2, 2001, the Company no longer met the eligibility requirements to continue selling shares under the S-3. Prior to realizing it was ineligible to continue using the S-3, the
Company sold 498,508 shares of common stock for $650,000. This amount has been reclassified from permanent equity to mezzanine equity as the Company could be required to repay a portion of this amount
to the purchaser.

7.    Stock Incentive Plans and Warrants

The Company maintains three long-term incentive compensation plans, which are described as follows:



20

---



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,                  |                   | 1999 |            | 2000  |   | 2001      
|---------------------------------------- | ----------------- | ---- | ---------- | ----- | - | ----------
|Options outstanding at beginning of year |                   |      | 92,500     |       |   | 1,205,500 
|Options granted                          |                   |      | 1,117,500  |       |   | 5,546,000 
|Options forfeited                        |                   |      |           |       |   | (1,107,500
|Options exercised                        |                   |      | (4,500     | )     |   |          
|                                         |                   |      |            |       |   |           
|Options outstanding at end of year       |                   |      | 1,205,500  |       |   | 5,644,000 
|                                         |                   |      |            |       |   |           
|Option prices per share granted          |                   | $    | 9.3819.38 |       | $ | 2.7515.00
|                                         |                   |      |            |       |   |           
|Weighted average exercise price          |                   |      |            |       |   |           
|                                         | Options granted   |      | $          | 11.83 |   | $         
|                                         | Options exercised |      |            | 11.13 |   |           
|                                         | Options forfeited |      |            |      |   |           
|Options outstanding at end of year       |                   |      | 11.94      |       |   | 10.47     
|Options exercisable at end of year       |                   |      | 9.88       |       |   | 6.37      
|Number of shares exercisable             |                   |      | 18,500     |       |   | 112,500   

|Options Outstanding |               | Options Exercisable
|------------------- | ------------- | -------------------
|
|$                   | 1.14-1.70     |                    
|$                   | 1.91-2.13     |                    
|$                   | 2.75          |                    
|$                   | 5.31          |                    
|$                   | 6.875-8.25    |                    
|$                   | 11.125-13.250 |                    
|$                   | 15.00-15.06   |                    

The
Company applies APB Opinion 25 and related interpretations in accounting for stock options granted to employees and directors. Under APB Opinion 25, no compensation cost is recorded
if the exercise price is equal to the market price on the date of grant and the number of shares is fixed at that date.

21

---

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:

|                                                |                                       | 1999 |       | 2000       |   | 2001 |            
|----------------------------------------------- | ------------------------------------- | ---- | ----- | ---------- | - | ---- | -----------
|Weighted average fair value per options granted |                                       | $    | 10.76 |            | $ | 4.67 |            
|Significant assumptions (weighted average)      |                                       |      |       |            |   |      |            
|                                                | Risk-free interest rate at grant date |      |       | 6.2        | % |      | 6.2        
|                                                | Expected stock price volatility       |      |       | 88.0       | % |      | 94.3       
|                                                | Expected option life (years)          |      |       | 7          |   |      | 5          
|Net loss                                        |                                       |      |       |            |   |      |            
|                                                | As reported                           |      | $     | (6,052,841 | ) | $    | (10,787,062
|                                                | Pro forma                             |      | $     | (6,511,604 | ) | $    | (19,143,596

|                                           |             | 1999 |   | 2000       |   | 2001 |            
|------------------------------------------ | ----------- | ---- | - | ---------- | - | ---- | -----------
|Net loss applicable to common shareholders |             |      |   |            |   |      |            
|                                           | As reported |      | $ | (6,273,518 | ) | $    | (13,491,813
|                                           | Pro forma   |      | $ | (6,732,281 | ) | $    | (21,848,347
|Net loss per sharebasic and diluted       |             |      |   |            |   |      |            
|                                           | As reported |      | $ | (.17       | ) | $    | (.36       
|                                           | Pro forma   |      | $ | (.18       | ) | $    | (.58       

Information
with respect to warrants follows:

|Year ended December 31,                   |                      | 1999 |            | 2000  |   | 2001      
|----------------------------------------- | -------------------- | ---- | ---------- | ----- | - | ----------
|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 |   | $         
|                                          | Warrants outstanding |      | $          | 11.42 |   | $         

Exercise
dates of warrants range from August 2004 to January 2010.

8.    Dividends

Dividends are comprised of the following:

|Year ended December 31,                                                                         |  | 1999 |         | 2000 |   | 2001     
|----------------------------------------------------------------------------------------------- |  | ---- | ------- | ---- | - | ---------
|Accrual of dividend on Series A Convertible Preferred                                           |  | $    | 220,677 |      | $ | 868,248  
|Deemed dividend associated with beneficial conversion feature of Series A Convertible Preferred |  |      |        |      |   | 480,928  
|Accrual of dividend on Series B Convertible Preferred                                           |  |      |        |      |   | 296,478  
|Deemed dividend associated with beneficial conversion feature of Series B Convertible Preferred |  |      |        |      |   | 1,059,097
|                                                                                                |  |      |         |      |   |          
|Total                                                                                           |  | $    | 220,677 |      | $ | 2,704,751
|                                                                                                |  |      |         |      |   |          

22

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9.    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
2000 |         | Utilized in
2000 |   | Balance
at
December 31,
2000 |  | Utilized in
2001 |         | Balance
at
December 31,
2001
|-------------- |  | -------------- | ------- | ---------------- | - | ---------------------------- |  | ---------------- | ------- | ----------------------------
|Employee costs |  | $              | 395,223 |                  | $ | 65,223                       |  | $                | 330,000 |                             
|Lease costs    |  |                | 201,802 |                  |   | 201,802                      |  |                  |        |                             
|               |  |                |         |                  |   |                              |  |                  |         |                             
|Total          |  | $              | 597,025 |                  | $ | 267,025                      |  | $                | 330,000 |                             
|               |  |                |         |                  |   |                              |  |                  |         |                             

10.  Selected Quarterly Financial Data (Unaudited)

|         |        |   |            |           |   | 2000        |            |   |       |       |   | 2000      |          
|-------- | ------ | - | ---------- | --------- | - | ----------- | ---------- | - | ----- | ----- | - | --------- | ---------
|
|Quarters |        |   |            |           |   |             |            |   |       |       |   |           |          
|         | Fourth |   | $          | 2,652,046 |   | $           | (3,103,418 | ) | $     | (0.11 | ) | $         | 2,187,969
|         | Third  |   |            | 3,186,890 |   |             | (2,696,499 | ) |       | (0.09 | ) |           | 1,669,850
|         | Second |   |            | 2,089,098 |   |             | (2,557,181 | ) |       | (0.09 | ) |           | 1,412,420
|         | First  |   |            | 2,072,746 |   |             | (2,429,964 | ) |       | (0.07 | ) |           | 2,610,760
|         |        |   |            |           |   |             |            |   |       |       |   |           |          
|         |        | $ | 10,000,780 |           | $ | (10,787,062 | )          | $ | (0.36 | )     | $ | 7,880,999 |          
|         |        |   |            |           |   |             |            |   |       |       |   |           |          

11.  Subsequent Events

(a)  On
April 8, 2002, the Company entered into a credit facility that will provide the Company with a $2,500,000 revolving line of credit, bearing interest at 4.65%, for a
period of five years. The loan is secured by a lien on all of the Company's assets. The lender is an entity which is controlled by a director of the Company.

(b)  The
Company has been in discussions with the founders of Photogen, L.L.C. about the possibility of transferring to an entity they control certain of the Company's
therapeutic technologies (primarily PH-10 and laser technologies) in exchange for the Company's stock beneficially owned by the founders (approximately 20,548,435 shares of common stock). The Company
has not progressed beyond preliminary discussions concerning the possible transaction at this time. The consummation of such a transaction would depend upon the resolution of numerous contingencies,
including negotiating a structure for the transaction, resolution of any potential tax and accounting issues, execution of definitive agreements, receipt of appropriate fairness and other opinions,
and board and stockholder approval. There can be no assurance that such a transaction can ultimately be consummated.

23

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Independent Auditors' Report

To
the Board of Directors and Shareholders of Sentigen Ltd.

We
have audited the accompanying balance sheets of Sentigen Ltd., a development stage company, as of December 31, 2001 and 2000, and the related statements of operations, shareholders'
equity and cash flows for the period from October 7, 1999 (inception) to December 31, 2001 and for the years ended December 31, 2001 and 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 of America. Those standards require that we plan and perform the audit 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 financial statements referred to above present fairly, in all material respects, the financial position of Sentigen Ltd. at December 31, 2001 and 2000, and the
results of its operations and its cash flows for the period from October 7, 1999 (inception) to December 31, 2001 and the years ended December 31, 2001 and 2000, in conformity
with accounting principles generally accepted in the United States of America.

/s/
BDO International

Hamilton,
Bermuda
April 5, 2002

24

---

SENTIGEN LTD.
BALANCE SHEETS

|DECEMBER 31,                                                                             |                                                                                             | 2001 |            | 2000       |  
|---------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------- | ---- | ---------- | ---------- | -
|ASSETS                                                                                   |                                                                                             |      |            |            |  
|CURRENT ASSETS                                                                           |                                                                                             |      |            |            |  
|                                                                                         | Cash                                                                                        |      | $          | 9,345      |  
|                                                                                         |                                                                                             |      |            |            |  
|LICENSE OF ELAN TECHNOLOGY, net of amortization of $1,222,829 and $244,565, respectively |                                                                                             |      | 13,777,171 |            |  
|                                                                                         |                                                                                             |      |            |            |  
|                                                                                         |                                                                                             | $    | 13,786,516 |            | $
|                                                                                         |                                                                                             |      |            |            |  
|LIABILITIES AND SHAREHOLDERS' EQUITY                                                     |                                                                                             |      |            |            |  
|CURRENT LIABILITIES                                                                      |                                                                                             |      |            |            |  
|                                                                                         | Due to shareholders                                                                         |      | $          | 210,596    |  
|                                                                                         |                                                                                             |      |            |            |  
|SHAREHOLDERS' EQUITY                                                                     |                                                                                             |      |            |            |  
|                                                                                         | Preferred stock; par value $1.00 per share; 2,980 shares authorized, issued and outstanding |      |            | 2,980      |  
|                                                                                         | Common stock; par value $1.00 per share; 12,000 shares authorized, issued and outstanding   |      |            | 12,000     |  
|                                                                                         | Additional paid-in capital                                                                  |      |            | 17,873,915 |  
|                                                                                         | Deficit accumulated during the development stage                                            |      |            | (4,312,975 | )
|                                                                                         |                                                                                             |      |            |            |  
|TOTAL SHAREHOLDERS' EQUITY                                                               |                                                                                             |      | 13,575,920 |            |  
|                                                                                         |                                                                                             |      |            |            |  
|                                                                                         |                                                                                             | $    | 13,786,516 |            | $
|                                                                                         |                                                                                             |      |            |            |  

See
accompanying notes to financial statements.

25

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SENTIGEN LTD.
STATEMENTS OF OPERATIONS

|                   |                          | YEAR ENDED
DECEMBER 31,
2001 |            | YEAR ENDED
DECEMBER 31,
2000 |   | CUMULATIVE
AMOUNTS FROM
OCTOBER 7,
1999
(INCEPTION) TO
DECEMBER 31,
2001 |          
|------------------ | ------------------------ | ---------------------------- | ---------- | ---------------------------- | - | ------------------------------------------------------------------------ | ---------
|OPERATING EXPENSES |                          |                              |            |                              |   |                                                                          |          
|                   | Research and development |                              | $          | 1,450,291                    |   | $                                                                        | 1,257,815
|                   | Amortization of license  |                              |            | 978,264                      |   |                                                                          | 244,565  
|                   |                          |                              |            |                              |   |                                                                          |          
|NET LOSS           |                          | $                            | (2,428,555 | )                            | $ | (1,502,380                                                               | )        
|                   |                          |                              |            |                              |   |                                                                          |          

See
accompanying notes to financial statements.

26

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SENTIGEN LTD.
STATEMENTS OF SHAREHOLDERS' EQUITY

|                                                             |  |       |  |   |       |  |        |  |   |        |  | Deficit
Accumulated
During the
Development
Stage |            |  |  
|------------------------------------------------------------ |  | ----- |  | - | ----- |  | ------ |  | - | ------ |  | ------------------------------------------------ | ---------- |  | -
|
|
|
|Issuance of common stock                                     |  |      |  | $ |      |  | 12,000 |  | $ | 12,000 |  | $                                                | 12,003,000 |  | $
|Issuance of preferred stock                                  |  | 2,980 |  |   | 2,980 |  |       |  |   |       |  |                                                  | 2,982,020  |  |  
|Net loss for the period October 7, 1999 to December 31, 1999 |  |      |  |   |      |  |       |  |   |       |  |                                                  |           |  |  
|                                                             |  |       |  |   |       |  |        |  |   |        |  |                                                  |            |  |  
|Balance at December 31, 1999                                 |  | 2,980 |  |   | 2,980 |  | 12,000 |  |   | 12,000 |  |                                                  | 14,985,020 |  |  
|Net loss for the year ended December 31, 2000                |  |      |  |   |      |  |       |  |   |       |  |                                                  |           |  |  
|                                                             |  |       |  |   |       |  |        |  |   |        |  |                                                  |            |  |  
|Balance, at December 31, 2000                                |  | 2,980 |  |   | 2,980 |  | 12,000 |  |   | 12,000 |  |                                                  | 14,985,020 |  |  
|Contribution of Capital                                      |  |      |  |   |      |  |       |  |   |       |  |                                                  | 2,888,895  |  |  
|                                                             |  |       |  |   |       |  |        |  |   |        |  |                                                  |            |  |  
|Net loss for the year ended December 31, 2001                |  |      |  |   |      |  |       |  |   |       |  |                                                  |           |  |  
|                                                             |  |       |  |   |       |  |        |  |   |        |  |                                                  |            |  |  
|BALANCE, at December 31, 2001                                |  | 2,980 |  | $ | 2,980 |  | 12,000 |  | $ | 12,000 |  | $                                                | 17,873,915 |  | $

See
accompanying financial statements.

27

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SENTIGEN LTD.
STATEMENTS OF CASH FLOWS

|                                          |                                                                 | YEAR ENDED
DECEMBER 31,
2001 |            | Year ended
December 31,
2000 |   | CUMULATIVE
AMOUNTS FROM
OCTOBER 7,
1999
(INCEPTION) TO
DECEMBER 31,
2001 |           
|----------------------------------------- | --------------------------------------------------------------- | ---------------------------- | ---------- | ---------------------------- | - | ------------------------------------------------------------------------ | ----------
|CASH FLOWS FROM OPERATING ACTIVITIES      |                                                                 |                              |            |                              |   |                                                                          |           
|                                          | Net loss                                                        |                              | $          | (2,428,555                   | ) | $                                                                        | (1,502,380
|                                          | Amortization                                                    |                              |            | 978,264                      |   |                                                                          | 244,565   
|                                          | Changes in operating assets and liabilities
Due to shareholders |                              |            | (1,429,259                   | ) |                                                                          | 1,257,815 
|                                          |                                                                 |                              |            |                              |   |                                                                          |           
|Net cash used in operating activities     |                                                                 |                              | (2,879,550 | )                            |   |                                                                         |           
|                                          |                                                                 |                              |            |                              |   |                                                                          |           
|CASH FLOWS FROM INVESTING ACTIVITIES      |                                                                 |                              |            |                              |   |                                                                          |           
|                                          | Cost to acquire license                                         |                              |            |                             |   |                                                                          |          
|                                          |                                                                 |                              |            |                              |   |                                                                          |           
|Net cash used in investing activities     |                                                                 |                              |           |                              |   |                                                                         |           
|                                          |                                                                 |                              |            |                              |   |                                                                          |           
|CASH FLOWS FROM FINANCING ACTIVITIES      |                                                                 |                              |            |                              |   |                                                                          |           
|                                          | Proceeds from issuance of equity                                |                              |            |                             |   |                                                                          |          
|                                          | Contribution of capital                                         |                              |            | 2,888,895                    |   |                                                                          |          
|                                          |                                                                 |                              |            |                              |   |                                                                          |           
|Net cash provided by financing activities |                                                                 |                              | 2,888,895  |                              |   |                                                                         |           
|                                          |                                                                 |                              |            |                              |   |                                                                          |           
|NET INCREASE IN CASH                      |                                                                 |                              | 9,345      |                              |   |                                                                         |           
|CASH, at beginning of period              |                                                                 |                              |           |                              |   |                                                                         |           
|                                          |                                                                 |                              |            |                              |   |                                                                          |           
|CASH, at end of period                    |                                                                 | $                            | 9,345      |                              | $ |                                                                          |           
|                                          |                                                                 |                              |            |                              |   |                                                                          |           

See
accompanying notes to financial statements.

28

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SENTIGEN LTD.
NOTES TO FINANCIAL STATEMENTS

1.    ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS

Sentigen
Ltd. (the "Company") was incorporated on October 7, 1999 in Bermuda. The Company is owned jointly by Photogen Technologies, Inc. ("Photogen") and Elan
International Services, Ltd. ("EIS"), a wholly owned subsidiary of Elan Corporation plc ("Elan"), holding 80.1% and 19.9% (nonvoting shares) of the shares, respectively. The primary objective of the
Company is to develop and commercialize nanoparticulate diagnostic imaging agents for the detection and treatment of cancer through lymphography.

BASIS OF PRESENTATION

The
Company's ability to continue as a going concern is entirely dependent upon the funds it receives from its shareholders per the Subscription, Joint Development and Operating
Agreement.

ESTIMATES

The
financial statements include estimated amounts and disclosures based on management's assumptions about future events. Actual results may differ from those estimates.

RESEARCH AND DEVELOPMENT

Research
and development costs are charged to expense when incurred.

INCOME TAXES

Under
current Bermuda law, the Company is not required to pay any taxes in Bermuda on either income or capital gains.

RECENT ACCOUNTING PRONOUNCEMENTS

In
October 2001, the Financial Accounting Standards Board issued SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). This statement addresses
financial accounting and reporting for the impairment or disposal of long-lived assets. This statement supersedes FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of," and the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations, Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," for the disposal of a segment of a business. The provisions of SFAS 144 will be effective for fiscal years
beginning after December 15, 2001. The Company is currently evaluating the implications of adoption of SFAS 144 and anticipates adopting its provisions in fiscal year 2002.

The
amount due to shareholders represents costs for research and development that are subcontracted to Photogen and Elan. The amount due to shareholders is unsecured, and interest free
with no set terms of repayment. Research and development expense represents costs under the subcontract agreements with Photogen and Elan. These transactions are in the normal course of operations and
are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties.

29

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In
1999, the Company paid a license fee to Elan in the amount of $15,000,000 to acquire rights to certain Elan intellectual property. This license is being amortized on a straight-line
basis over 184 months, which is the end of the life of the latest licensed patent.

The
Company reviews the carrying values of its license for possible impairment whenever an event or change in circumstances indicates that the carrying amount of the asset may not be
recoverable.

PREFERRED STOCK

In
October 1999, the Company issued 2,980 shares of nonvoting convertible preferred stock to EIS for $2,985,000 with a par value of $1.00 per share. At any time after
October 2002, the holder of the preferred stock has the right to convert the preferred stock on a one-to-one basis into common shares. Additionally, there exists an exchange right which upon
exercise, could increase EIS's ownership to 50% of Sentigen Ltd.

COMMON STOCK

In
October 1999, the Company issued 12,000 voting common shares to Photogen for $12,015,000 with a par value of $1.00 per share.

ITEM 14.    EXHIBITS AND REPORTS ON FORM 8-K.

Exhibits.

The
following exhibits are added to this Form 10-K/A.

|EXHIBIT NO. |  | DESCRIPTION                                                                                                            
|----------- |  | -----------------------------------------------------------------------------------------------------------------------
|99.1        |  | Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|99.2        |  | Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

30

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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:    August 7, 2002 |  | Photogen Technologies, Inc.
|----------------------- |  | ---------------------------
|                        |  | By:                        

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
|--------- | ------------------------------------------------- | ----- | -------------------------------------------------------------------------------------------------------------------- | ----
|          |                                                   |       |                                                                                                                      |     
|By:       | /s/TAFFY J. WILLIAMSTaffy J. Williams, Ph.D.      |       | President, Chief Executive Officer and Director, Chairman of the Board                                               |     
|By:       | /s/BROOKS BOVEROUXBrooks Boveroux                 |       | Senior Vice PresidentFinance and Chief Financial Officer and Treasurer (principal financial and accounting officer) |     
|By:       | /s/ERIC A. WACHTEREric A. Wachter, Ph.D.          |       | Director, Vice President and Secretary                                                                               |     
|By:       | /s/ROBERT J. WEINSTEINRobert J. Weinstein, M.D.   |       | Director                                                                                                             |     
|By:       | /s/LESTER H. MCKEEVER, JR.Lester H. McKeever, Jr. |       | Director                                                                                                             |     
|By:       | /s/GENE GOLUBGene Golub                           |       | Director                                                                                                             |     
|By:       | /s/AIDAN KINGAidan King                           |       | Director                                                                                                             |     

31

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EXHIBIT INDEX

The following exhibits are added to the Exhibit Index.

|EXHIBIT NO. |  | DESCRIPTION                                                                                                            
|----------- |  | -----------------------------------------------------------------------------------------------------------------------
|*99.1       |  | Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|*99.2       |  | Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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