**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM10-QSB/A**

 

**ý****                                ****QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934**

 

**FORTHE QUARTERLY PERIOD ENDED JUNE 30, 2003**

 

**OR**

 

**o****                                ****TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934**

 

**FORTHE TRANSITION PERIOD FROM                 TO                 **

 

**Commission File Number 0-23553**

 

**PHOTOGENTECHNOLOGIES, INC.**

(Exact name of small business issuer asspecified in its charter)

 

| **NEVADA**                                                      |   | **62-1742885**                       |
|-----------------------------------------------------------------|--------|--------------------------------------|
| (State or other jurisdiction of  incorporation or organization) |   | (I.R.S. Employer Identification No.) |

 

**6175 Lusk Boulevard**

**San Diego, CA 92121**

(Address ofprincipal executive offices) (Zip Code)

 

**858/410-5601**

(Issuer’s telephone number, including areacode)

 

State the number of shares outstanding of each of the issuer’s classesof common equity, as of the latest practicable date: 19,553,314 shares ofcommon stock, $.001 par value per share, issued and outstanding at August 12,2003.

 

Transitional Small Business Disclosure Format (check one):

 

Yes  o                                  No  ý

 

 

----

 

**INDEX**

 
| PART I.  | FINANCIAL INFORMATION                                           |
|----------|-----------------------------------------------------------------|
| ITEM 1.  | FINANCIAL STATEMENTS                                            |
|     |                                                            |
| ITEM 2.  | MANAGEMENT’S DISCUSSION AND ANALYSIS OR  PLAN OF OPERATION |
|     |                                                            |
| ITEM 3.  | CONTROLS AND PROCEDURES                                         |
|     |                                                            |
| PART II. | OTHER INFORMATION                                               |
| ITEM 1.  | LEGAL PROCEEDINGS                                               |
|     |                                                            |
| ITEM 2.  | CHANGES IN SECURITIES                                           |
|     |                                                            |
| ITEM 3.  | DEFAULTS UPON SENIOR SECURITIES                                 |
|     |                                                            |
| ITEM 5.  | OTHER INFORMATION                                               |
|     |                                                            |
| ITEM 6.  | EXHIBITS AND REPORTS ON FORM 8-K                                |

 

----

 

**PART I. FINANCIAL INFORMATION**

 

## **ITEM 1.**     FINANCIAL STATEMENTS

 

Photogen Technologies, Inc.

(A Development Stage Company)

Consolidated Condensed Balance Sheets

All amounts in $

 
|                                                                                                                                             |   | **June 30,  2003** |       | **December 31,  2002** |       |
|--------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|------------|------------------------|------------|
|                                                                                                                                             |   | **(Unaudited)**    |       | **(Audited)**          |       |
| **Assets**                                                                                                                                       |   |               |       |                   |       |
| **Current Assets**                                                                                                                               |   |               | ** ** |                   | ** ** |
| Cash and cash equivalents                                                                                                                        |   | $                  | 1,053,640  |                   | $          | 6,090,904 |   |
| Deposits                                                                                                                                         |   | 108,721            |       | 98,721                 |       |
| Prepaid expenses                                                                                                                                 |   | 718,842            |       | 693,313                |       |
| **Total Current Assets**                                                                                                                         |   | **1,881,203**      | ** ** | **6,882,938**          | ** ** |
|                                                                                                                                             |   |               | ** ** |                   | ** ** |
| **Property, Plant and Equipment,**  less accumulated depreciation of $76,913 and $14,651, respectively                                           |   | 7,213,737          |       | 36,000                 |       |
|                                                                                                                                             |   |               | ** ** |                   | ** ** |
| **Patent Costs,** net  of amortization of $163,021 and $142,359, respectively                                                                    |   | 336,979            |       | 357,641                |       |
|                                                                                                                                             |   |               | ** ** |                   | ** ** |
| **Deposits**                                                                                                                                     |   | 14,383             |       | 14,383                 |       |
|                                                                                                                                             |   |               | ** ** |                   | ** ** |
| **Investment in Alliance**                                                                                                                       |   | —             |       | 1,255,000              | ** ** |
|                                                                                                                                             |   |               | ** ** |                   | ** ** |
| **Purchased  Technology**                                                                                                                        |   | 15,136,282         |       | —                 |       |
|                                                                                                                                             |   |               | ** ** |                   | ** ** |
| **Investment in and  Advances to Affiliate**                                                                                                     |   | 3,194,907          |       | 8,192,452              |       |
| Total Assets                                                                                                                                     |   | $                  | 27,777,491 |                   | $          | 16,738,414 |   |
|                                                                                                                                             |   |               | ** ** |                   | ** ** |
| **Liabilities and  Shareholders’ Equity**                                                                                                   |   |               | ** ** |                   | ** ** |
|                                                                                                                                             |   |               | ** ** |                   | ** ** |
| **Current Liabilities**                                                                                                                          |   |               | ** ** |                   | ** ** |
| Accounts payable                                                                                                                                 |   | $                  | 777,936    |                   | $          | 835,003 |   |
| Accrued expenses                                                                                                                                 |   | 4,023,539          |       | 34,132                 |       |
| Notes payable                                                                                                                                    |   | 2,500,000          | ** ** |                   | ** ** |
| Lines of Credit                                                                                                                                  |   | 4,682,093          | ** ** |                   | ** ** |
| Accrued equipment lease                                                                                                                          |   | 401,664            |       | 401,664                |       |
| **Total Current Liabilities**                                                                                                                    |   | **12,385,232**     | ** ** | **1,270,799**          | ** ** |
|                                                                                                                                             |   |               | ** ** |                   | ** ** |
| **Accrued Equipment  Lease**                                                                                                                     |   | 200,832            |       | 401,664                |       |
|                                                                                                                                             |   |               | ** ** |                   | ** ** |
| **Shares Subject to Rescission**                                                                                                                 |   |               | ** ** | 650,000                | ** ** |
|                                                                                                                                             |   |               |       |                   |       |
| **Puttable Shares**                                                                                                                              |   | 1,817,394          |       | —                 | ** ** |
|                                                                                                                                             |   |               |       |                   |       |
| **Shareholders’ Equity**                                                                                                                    |   |               | ** ** |                   | ** ** |
| 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                |       | 128                    |       |
| Common stock; par value $.001 per share;  150,000,000 shares authorized; 19,278,007 and 16,137,465 shares issued and  outstanding, respectively  |   | 19,278             |       | 16,137                 |       |
| Additional paid-in capital                                                                                                                       |   | 49,387,346         |       | 43,144,880             |       |
| Common stock to be issued upon shareholder  approval                                                                                             |   | 5,043,226          | ** ** |                   | ** ** |
| Deficit accumulated during the development  stage                                                                                                |   | (41,075,945        | )          | (28,745,194            | )          |
| **Total Shareholders’  Equity**                                                                                                             |   | 13,374,033         |       | 14,415,951             |       |
|                                                                                                                                             |   | $                  | 27,777,491 |                   | $          | 16,738,414 |   |

 

1

----

 

Photogen Technologies, Inc.

(A Development Stage Company)

Consolidated Condensed Statements ofOperations

(Unaudited)

All amounts in $

 
|                                                                               |   | **Three  Months  Ended  June 30,  2003** |       | **Three  Months  Ended  June 30,  2002** |       | **Six Months  Ended  June 30,  2003** |       | **Six Months  Ended  June 30,  2002** |        | **Cumulative  Amounts  From  November 3,  1996  (inception) to  June 30,  2003  (Unaudited)** |       |
|------------------------------------------------------------------------------------|--------|------------------------------------------|------------|------------------------------------------|------------|---------------------------------------|------------|---------------------------------------|-------------|-----------------------------------------------------------------------------------------------|------------|
|                                                                               |   |                                     | ** ** |                                     | ** ** |                                  | ** ** |                                  | ** **  |                                                                                          | ** ** |
| **Operating Expenses**                                                             |   |                                     |       |                                     |       |                                  |       |                                  |        |                                                                                          |       |
| Research and development                                                           |   | $                                        | 266,279    |                                     | $          | 152,873                               |       | $                                     | 820,442     |                                                                                          | $          | 339,537 |   | $ | 5,177,079 |   |
| Sales, general and administrative                                                  |   | 2,270,231                                |       | 754,084                                  |       | 6,465,589                             |       | 1,324,637                             |        | 23,113,111                                                                                    |       |
| Restructuring charges                                                              |   | —                                   |       | —                                   |       | —                                |       | 451,068                               |        | 1,404,508                                                                                     |       |
| Provision for future lease payments                                                |   | —                                   |       | —                                   |       | —                                |       | —                                |        | 1,264,208                                                                                     |       |
| **Total Operating  Expenses**                                                      |   | 2,536,510                                |       | 906,957                                  |       | 7,286,031                             |       | 2,115,242                             |        | 30,958,906                                                                                    |       |
|                                                                               |   |                                     |       |                                     |       |                                  |       |                                  |        |                                                                                          |       |
| **Loss from Joint  Venture**                                                       |   | (4,801,648                               | )          | (380,331                                 | )          | (4,997,545                            | )          | (940,445                              | )           | (11,912,561                                                                                   | )          |
|                                                                               |   |                                     |       |                                     |       |                                  |       |                                  |        |                                                                                          |       |
| **Investment Income**                                                              |   | 2,291                                    |       | 177                                      |       | 6,813                                 |       | 1,502                                 |        | 1,215,754                                                                                     |       |
|                                                                               |   |                                     |       |                                     |       |                                  |       |                                  |        |                                                                                          |       |
| **Interest Expense**                                                               |   | (53,988                                  | )          | (54,541                                  | )          | (53,988                               | )          | (100,713                              | )           | (520,883                                                                                      | )          |
|                                                                               |   |                                     |       |                                     |       |                                  |       |                                  |        |                                                                                          |       |
| Loss from continuing operations                                                    |   | (7,389,855                               | )          | (1,341,652                               | )          | (12,330,751                           | )          | (3,154,898                            | )           | (42,176,596                                                                                   | )          |
|                                                                               |   |                                     |       |                                     |       |                                  |       |                                  |        |                                                                                          |       |
| Discontinued Operations                                                            |   |                                     |       |                                     |       |                                  |       |                                  |        |                                                                                          |       |
| Loss from operations of discontinued  therapeutic business                         |   | —                                   |       | (544,657                                 | )          | —                                |       | (1,047,106                            | )           | (10,679,101                                                                                   | )          |
| Gain from split-off of therapeutic business                                        |   | —                                   |       | —                                   |       | —                                |       | —                                |        | 11,779,752                                                                                    |       |
|                                                                               |   |                                     |       |                                     |       |                                  |       |                                  |        |                                                                                          |       |
| Income (loss) from discontinued operations                                         |   | —                                   |       | (544,657                                 | )          | —                                |       | (1,047,106                            | )           | 1,100,651                                                                                     |       |
| **Net Loss**                                                                       |   | $                                        | (7,389,855 | )                                        | $          | (1,886,309                            | )          | $                                     | (12,330,751 | )                                                                                             | $          | (4,202,004 | ) | $ | (41,075,945 | ) |
|                                                                               |   |                                     |       |                                     |       |                                  |       |                                  |        |                                                                                          |       |
| **Dividends on  Preferred Stock**                                                  |   | (265,504                                 | )          | (344,215                                 | )          | (523,970                              | )          | (678,678                              | )           |                                                                                          |       |
|                                                                               |   |                                     |       |                                     |       |                                  |       |                                  |        |                                                                                          |       |
| **Net Loss Applicable  to Common Shareholders**                                    |   | $                                        | (7,655,359 | )                                        | $          | (2,230,524                            | )          | $                                     | (12,854,721 | )                                                                                             | $          | (4,880,682 | ) |   |   |
|                                                                               |   |                                     |       |                                     |       |                                  |       |                                  |        |                                                                                          |       |
| **Basic and Diluted  Loss per Common Share**                                       |   | $                                        | (.44       | )                                        | $          | (.23                                  | )          | $                                     | (.75        | )                                                                                             | $          | (.51 | ) |   |   |
|                                                                               |   |                                     | ** ** |                                     | ** ** |                                  | ** ** |                                  | ** **  |                                                                                          | ** ** |
| **Weighted Average  Number of Common Shares Outstanding – Basic and Diluted** |   | 17,532,111                               |       | 9,585,948                                |       | 17,105,467                            |       | 9,585,948                             |        |                                                                                          |       |

 

2

----

 

Photogen Technologies, Inc.

(A Development Stage Company)

Consolidated Condensed Statements ofShareholders’ Equity

(Unaudited)

 
|                                                                 |   | **Preferred  Stock** |   |         |   |              |       |       |       | **Common  Stock  To be  Issued** |   | **Additional  Paid in  Capital** |       | **Deficit  Accumulated  Development  Stage** |   | **Total**  |   |
|----------------------------------------------------------------------|--------|----------------------|--------|--------------|--------|-------------------|------------|------------|------------|----------------------------------|--------|----------------------------------|------------|----------------------------------------------|--------|------------|--------|
|                                                                 |   | **Series A**         |   | **Series B** |   | **Common  Stock** |       |       |       |                             |
|                                                                 |   | **Shares**           |   | **Amount**   |   | **Shares**        | ** ** | **Amount** | ** ** | **Shares**                       |   | **Amount**                       | ** ** | **Members’  Capital**                   |   | ** ** |
|                                                                 |   |                 |   |         |   |              |       |       |       |                             |   |                             |       |                                         |   |       |   |   |   |   |   |   |   |
| Contribution of capital                                              |   | —               |   | $            | — |              | —     |       | $          | —                           |   | —                           |       | $                                            | — |       | $      | 7,268 |   | — |   | $ | — |   | $ | — |   | $ | 7,268 |   |
| Net loss for the period ended December 31, 1996                      |   | —               |   | —       |   | —            |       | —     |       | —                           |   | —                           |       | (1,779                                       | )      | —     |   | — |   | — |   | (1,779 | ) |
|                                                                 |   |                 |   |         |   |              |       |       |       |                             |   |                             |       |                                         |   |       |   |   |   |   |   |   |   |
| **Balance,** at May 15, 1997                                         |   | —               |   | $            | — |              | —     |       | $          | —                           |   | —                           |       | $                                            | — |       | $      | 9,000 |   | — |   | $ | — |   | $ | (3,511 | ) | $ | 5,489 |   |
|                                                                 |   |                 |   |         |   |              |       |       |       |                             |   |                             |       |                                         |   |       |   |   |   |   |   |   |   |
| Issuance of common stock                                             |   | —               |   | —       |   | —            |       | —     |       | 1,578,208                        |   | 1,578                            |       | —                                       |   | —     |   | 1,801,872 |   | — |   | 1,803,450 |   |
| Effect of recapitalization and merger                                |   | —               |   | —       |   | —            |       | —     |       | 7,421,792                        |   | 7,422                            |       | (9,000                                       | )      | —     |   | 1,203,765 |   | 1,732 |   | 1,203,919 |   |
| Cost associated with recapitalization and merger                     |   | —               |   | —       |   | —            |       | —     |       | —                           |   | —                           |       | —                                       |   | —     |   | (371,111 | ) | — |   | (371,111 | ) |
| Net loss for the period May 16, 1997 to December  31, 1997           |   | —               |   | —       |   | —            |       | —     |       | —                           |   | —                           |       | —                                       |   | —     |   | — |   | (554,702 | ) | (554,702 | ) |
|                                                                 |   |                 |   |         |   |              |       |       |       |                             |   |                             |       |                                         |   |       |   |   |   |   |   |   |   |
| **Balance,** at December 31, 1997                                    |   | —               |   | —       |   | —            |       | —     |       | 9,000,000                        |   | 9,000                            |       | —                                       |   | —     |   | 2,634,526 |   | (556,481 | ) | 2,087,045 |   |
|                                                                 |   |                 |   |         |   |              |       |       |       |                             |   |                             |       |                                         |   |       |   |   |   |   |   |   |   |
| Issuance of common stock                                             |   | —               |   | —       |   | —            |       | —     |       | 218,755                          |   | 219                              |       | —                                       |   | —     |   | 6,999,781 |   | — |   | 7,000,000 |   |
| Costs associated with common stock issuance                          |   | —               |   | —       |   | —            |       | —     |       | —                           |   | —                           |       | —                                       |   | —     |   | (50,000 | ) | — |   | (50,000 | ) |
| Options issued to consultants                                        |   | —               |   | —       |   | —            |       | —     |       | —                           |   | —                           |       | —                                       |   | —     |   | 45,446 |   | — |   | 45,446 |   |
| Net loss for the year ended December 31, 1998                        |   | —               |   | —       |   | —            |       | —     |       | —                           |   | —                           |       | —                                       |   | —     |   | — |   | (1,973,913 | ) | (1,973,913 | ) |
|                                                                 |   |                 |   |         |   |              |       |       |       |                             |   |                             |       |                                         |   |       |   |   |   |   |   |   |   |
| **Balance,** at December 31, 1998                                    |   | —               |   | —       |   | —            |       | —     |       | 9,218,755                        |   | 9,219                            |       | —                                       |   | —     |   | 9,629,753 |   | (2,530,394 | ) | 7,108,578 |   |
|                                                                 |   |                 |   |         |   |              |       |       |       |                             |   |                             |       |                                         |   |       |   |   |   |   |   |   |   |
| Exercise of stock options                                            |   | —               |   | —       |   | —            |       | —     |       | 1,125                            |   | 1                                |       | —                                       |   | —     |   | 50,062 |   | — |   | 50,063 |   |
| Issuance of warrants and options                                     |   | —               |   | —       |   | —            |       | —     |       | —                           |   | —                           |       | —                                       |   | —     |   | 3,664,749 |   | — |   | 3,664,749 |   |
| Issuance of common stock                                             |   | —               |   | —       |   | —            |       | —     |       | 125,967                          |   | 126                              |       | —                                       |   | —     |   | 6,082,528 |   | — |   | 6,082,654 |   |
| Issuance of preferred stock                                          |   | 12,015               |   | 120          |   | —            |       | —     |       | —                           |   | —                           |       | —                                       |   | —     |   | 11,578,839 |   | — |   | 11,578,959 |   |
| Net loss for the year ended December 31, 1999                        |   | —               |   | —       |   | —            |       | —     |       | —                           |   | —                           |       | —                                       |   | —     |   | — |   | (6,052,841 | ) | (6,052,841 | ) |
|                                                                 |   |                 |   |         |   |              |       |       |       |                             |   |                             |       |                                         |   |       |   |   |   |   |   |   |   |
| **Balance,** at December 31, 1999                                    |   | 12,015               |   | 120          |   | —            |       | —     |       | 9,345,847                        |   | 9,346                            |       | —                                       |   | —     |   | 31,005,931 |   | (8,583,235 | ) | 22,432,162 |   |
|                                                                 |   |                 |   |         |   |              |       |       |       |                             |   |                             |       |                                         |   |       |   |   |   |   |   |   |   |
| Stock option compensation                                            |   | —               |   | —       |   | —            |       | —     |       | —                           |   | —                           |       | —                                       |   | —     |   | 125,020 |   | — |   | 125,020 |   |
| Issuance of warrants and options                                     |   | —               |   | —       |   | —            |       | —     |       | —                           |   | —                           |       | —                                       |   | —     |   | 1,366,050 |   | — |   | 1,366,050 |   |
| Issuance of preferred stock dividend                                 |   | 841                  |   | 8            |   | —            |       | —     |       | —                           |   | —                           |       | —                                       |   | —     |   | (8 | ) | — |   | — |   |
| Issuance of preferred stock                                          |   | —               |   | —       |   | 337,056           |       | 3,370      |       | —                           |   | —                           |       | —                                       |   | —     |   | 5,272,970 |   | — |   | 5,276,340 |   |
| Net loss for the year ended December 31, 2000                        |   | —               |   | —       |   | —            |       | —     |       | —                           |   | —                           |       | —                                       |   | —     |   | — |   | (10,787,062 | ) | (10,787,062 | ) |
|                                                                 |   |                 |   |         |   |              |       |       |       |                             |   |                             |       |                                         |   |       |   |   |   |   |   |   |   |
| **Balance,** at December 31, 2000                                    |   | 12,856               |   | 128          |   | 337,056           |       | 3,370      |       | 9,345,847                        |   | 9,346                            |       | —                                       |   | —     |   | 37,769,963 |   | (19,370,297 | ) | 18,412,510 |   |
|                                                                 |   |                 |   |         |   |              |       |       |       |                             |   |                             |       |                                         |   |       |   |   |   |   |   |   |   |
| Stock option compensation                                            |   | —               |   | —       |   | —            |       | —     |       | —                           |   | —                           |       | —                                       |   | —     |   | 64,729 |   | — |   | 64,729 |   |
| Issuance of common stock for cash                                    |   | —               |   | —       |   | —            |       | —     |       | 49,245                           |   | 49                               |       | —                                       |   | —     |   | 418,674 |   | — |   | 418,723 |   |
| Issuance of common stock in satisfaction Of anti-dilution  provision |   | —               |   | —       |   | —            |       | —     |       | 190,856                          |   | 191                              |       | —                                       |   | —     |   | (191 | ) | — |   | — |   |
| Issuance of preferred stock dividend                                 |   | —               |   | —       |   | 20,224            |       | 202        |       | —                           |   | —                           |       | —                                       |   | —     |   | (202 | ) | — |   | — |   |
| Net loss for the year ended December 31, 2001                        |   | —               |   | —       |   | —            |       | —     |       | —                           |   | —                           |       | —                                       |   | —     |   | — |   | (9,723,016 | ) | (9,723,016 | ) |
|                                                                 |   |                 |   |         |   |              |       |       |       |                             |   |                             |       |                                         |   |       |   |   |   |   |   |   |   |
| **Balance,** at December 31, 2001                                    |   | 12,856               |   | 128          |   | 357,280           |       | 3,572      |       | 9,585,948                        |   | 9,586                            |       | —                                       |   | —     |   | 38,252,973 |   | (29,093,313 | ) | 9,172,946 |   |

 

3

----

 
|                                                                                        |   | **Preferred  Stock** |       |         |       |              |       |       |       | **Common  Stock  To be  Issued** |       | **Additional  Paid in  Capital** |       | **Deficit  Accumulated  Development  Stage** |       | **Total**  |       |
|---------------------------------------------------------------------------------------------|--------|----------------------|------------|--------------|------------|-------------------|------------|------------|------------|----------------------------------|------------|----------------------------------|------------|----------------------------------------------|------------|------------|------------|
|                                                                                        |   | **Series A**         |       | **Series B** |       | **Common  Stock** |       |       |       |                             |
|                                                                                        |   | **Shares**           |       | **Amount**   |       | **Shares**        | ** ** | **Amount** | ** ** | **Shares**                       |       | **Amount**                       | ** ** | **Members’  Capital**                   |       | ** ** |
|                                                                                        |   |                 |       |         |       |              |       |       |       |                             |       |                             |       |                                         |       |       |       |   |   |   |   |   |   |
| **Balance,** at December 31, 2001                                                           |   | 12,856               |       | $            | 128        |              | 357,280    |       | $          | 3,572                            |       | 9,585,948                        |       | $                                            | 9,586      |       | $          | — |   | $ | — |   | $ | 38,252,973 |   | $ | (29,093,313 | ) | $ | 9,172,946 |   |
|                                                                                        |   |                 |       |         |       |              |       |       |       |                             |       |                             |       |                                         |       |       |       |   |   |   |   |   |   |
| Stock option compensation                                                                   |   | —               |       | —       |       | —            |       | —     |       | —                           |       | —                           |       | —                                       |       | —     |       | 73,870 |   | — |   | 73,870 |   |
| Issuance of warrants for service                                                            |   | —               |       | —       |       | —            |       | —     |       | —                           |       | —                           |       | —                                       |       | —     |       | 322,000 |   | — |   | 322,000 |   |
| Issuance of options in settlement of lawsuit                                                |   | —               |       | —       |       | —            |       | —     |       | —                           |       | —                           |       | —                                       |       | —     |       | 806,415 |   | — |   | 806,415 |   |
| Employee compensation from stock options                                                    |   | —               |       | —       |       | —            |       | —     |       | —                           |       | —                           |       | —                                       |       | —     |       | 988,184 |   | — |   | 988,184 |   |
| Issuance of preferred stock dividends                                                       |   | —               |       |         |       | 40,194            |       | 402        |       | —                           |       | —                           |       | —                                       |       | —     |       | (402 | ) | — |   | — |   |
| Conversion of Series B to common stock                                                      |   | —               |       |         |       | (397,474          | )          | (3,974     | )     | 422,316                          |       | 422                              |       | —                                       |       | —     |       | 3,552 |   | — |   | — |   |
| Beneficial inducement costs for convertible debt  converted                                 |   | —               |       |         |       | —            |       | —     |       | —                           |       | —                           |       | —                                       |       | —     |       | 206,348 |   | — |   | 206,348 |   |
| Conversion of line of credit with Élan to common  stock                                |   | —               |       |         |       | —            |       | —     |       | 128,437                          |       | 128                              |       | —                                       |       | —     |       | 3,082,359 |   | — |   | 3,082,487 |   |
| Conversion of line of credit with entity  controlled by director of company to common stock |   | —               |       |         |       | —            |       | —     |       | 2,314,815                        |       | 2,315                            |       | —                                       |       | —     |       | 2,497,685 |   | — |   | 2,500,000 |   |
| Retirement of common stock returned in shareholder  transaction (Note 6(f))                 |   | —               |       |         |       | —            |       | —     |       | (5,137,109                       | )          | (5,137                           | )          | —                                       |       | —     |       | (12,221,182 | ) | — |   | (12,226,319 | ) |
| Issuance of common stock for cash                                                           |   | —               |       |         |       | —            |       | —     |       | 8,823,058                        |       | 8,823                            |       | —                                       |       | —     |       | 9,133,078 |   | — |   | 9,141,901 |   |
| Net loss for the year ended December 31, 2002                                               |   | —               |       | —       |       | —            |       | —     |       | —                           |       | —                           |       | —                                       |       | —     |       | — |   | 348,119 |   | 348,119 |   |
|                                                                                        |   |                 |       |         |       |              |       |       |       |                             |       |                             |       |                                         |       |       |       |   |   |   |   |   |   |
| **Balance,** at December 31, 2002                                                           |   | 12,856               |       | $            | 128        |              | —     |       | $          | —                           |       | 16,137,465                       |       | $                                            | 16,137     |       | $          | — |   | $ | — |   | $ | 43,144,880 |   | $ | (28,745,194 | ) | $ | 14,415,951 |   |
|                                                                                        |   |                 | ** ** |         | ** ** |              | ** ** |       | ** ** |                             | ** ** |                             | ** ** |                                         | ** ** |       | ** ** |   | ** ** |   | ** ** |   | ** ** |
| Issuance of common stock for cash                                                           |   | —               |       | —       |       | —            |       | —     |       | 27,778                           |       | 28                               |       | —                                       |       | —     |       | 29,972 |   | — |   | 30,000 | ** ** |
| Issuance of common stock for standstill agreement                                           |   | —               |       | —       |       | —            |       | —     |       | 750,000                          |       | 750                              |       | —                                       |       | —     |       | 1,173,000 |   | — |   | 1,173,750 | ** ** |
| Options issued to consultants for services                                                  |   | —               |       | —       |       | —            |       | —     |       | —                           |       | —                           |       | —                                       |       | —     |       | 9,200 |   | — |   | 9,200 | ** ** |
| Shares issued to consultant for services                                                    |   | —               |       | —       |       | —            |       | —     |       | 18,750                           |       | 19                               |       | —                                       |       | —     |       | 62,294 |   | — |   | 62,313 | ** ** |
| Employee compensation from stock options                                                    |   | —               |       | —       |       | —            |       | —     |       | —                           |       | —                           |       | —                                       |       | —     |       | 529,270 |   | — |   | 529,270 | ** ** |
| Shares issued in Technology Purchase                                                        |   | —               |       | —       |       | —            |       | —     |       | 2,198,137                        |       | 2,198                            |       | —                                       |       | —     |       | 5,581,070 |   | — |   | 5,583,268 | ** ** |
| Shares to be issued in Technology Purchase                                                  |   | —               |       | —       |       | —            |       | —     |       | —                           |       | —                           |       | —                                       |       | 5,043,226  |       |   |   | — |   | 5,043,226 | ** ** |
| Shares previously subject to rescission                                                     |   | —               |       | —       |       | —            |       | —     |       | 124,627                          |       | 125                              |       | —                                       |       | —     |       | 649,875 |   | — |   | 650,000 | ** ** |
| Penalty shares to Xmark                                                                     |   | —               |       | —       |       | —            |       | —     |       | 11,250                           |       | 11                               |       | —                                       |       |       |       | 25,189 |   | — |   | 25,200 | ** ** |
| Options exercised through cashless exercise                                                 |   | —               |       | —       |       | —            |       | —     |       | 10,000                           |       | 10                               |       | —                                       |       | —     |       | (10 | ) | — |   | — | ** ** |
| Xmark puttable shares classified as mezzanine  equity                                       |   | —               |       | —       |       | —            |       | —     |       | —                           |       | —                           |       | —                                       |       | —     |       | (1,817,394 | ) | — |   | (1,817,394 | **)** |
| Net loss for the six months ended June 30, 2003                                             |   | —               |       | —       |       | —            |       | —     |       | —                           |       | —                           |       | —                                       |       | —     |       | — |   | (12,330,751 | ) | (12,330,751 | ) |
|                                                                                        |   |                 |       |         |       |              |       |       |       |                             |       |                             |       |                                         |       |       |       |   |   |   |   |   |   |
| **Balance,** at June 30, 2003                                                               |   | 12,856               |       | $            | 128        |              | —     |       | $          | —                           |       | 19,278,007                       |       | $                                            | 19,278     |       | $          | — |   | $ | 5,043,226 |   | $ | 49,387,346 |   | $ | (41,075,945 | ) | $ | 13,374,033 |   |

 

4

----

 

Photogen Technologies, Inc.

(A Development Stage Company)

Consolidated Condensed Statements of CashFlows

(Unaudited)

All amounts in $

 
|                                                                                                    |   | **Six Months  Ended  June 30, 2003** |        | **Six Months  Ended  June 30, 2002** |    | **Cumulative  Amounts  From  November 3,  1996  (Inception)** |   |
|---------------------------------------------------------------------------------------------------------|--------|--------------------------------------|-------------|--------------------------------------|---------|---------------------------------------------------------------|--------|
|                                                                                                    |   |                                 |        |                                 |    | **(Unaudited)**                                               |   |
| **Cash Flows From  Operating Activities**                                                               |   |                                 |        |                                 |    |                                                          |   |
| Net loss                                                                                                |   | $                                    | (12,330,751 | )                                    | $       | (4,202,004                                                    | )      | $ | (41,075,945 | ) |
| Loss from discontinued operations                                                                       |   | —                               |        | 1,047,106                            |    | 10,679,101                                                    |   |
| Depreciation and amortization                                                                           |   | 83,070                               |        | 211,684                              |    | 1,760,974                                                     |   |
| Loss on disposal of fixed assets                                                                        |   | —                               |        | —                               |    | 38,424                                                        |   |
| Gain on sale of marketable securities                                                                   |   | —                               |        | —                               |    | (18,503                                                       | )      |
| United States Treasury Notes Amortization                                                               |   | —                               |        | —                               |    | 12,586                                                        |   |
| Gain on sale of therapeutic business                                                                    |   |                                 |        |                                 |    | (11,779,752                                                   | )      |
| Allowance for notes receivable                                                                          |   | 1,491,500                            |        | —                               |    | 1,491,500                                                     |   |
| Stock option compensation                                                                               |   | 538,470                              |        | 29,134                               |    | 2,217,040                                                     |   |
| Issuance of stock for standstill agreement                                                              |   | 1,198,950                            |        | —                               |    | 1,198,950                                                     |   |
| Beneficial inducement costs for convertible  notes                                                      |   |                                 |        |                                 |    | 206,348                                                       |   |
| Issuance of warrants in exchange for  services rendered                                                 |   | —                               |        | —                               |    | 4,317,091                                                     |   |
| Issuance of stock options in settlement of  lawsuit                                                     |   |                                 |        |                                 |    | 806,415                                                       |   |
| Issuance of stock for services rendered                                                                 |   | 62,313                               |        |                                 |    | 62,313                                                        |   |
| Loss from investment in affiliate                                                                       |   | 4,997,545                            |        | 940,445                              |    | 11,912,561                                                    |   |
| Changes in operating assets and liabilities  (net of acquisition of *Imagent*  assets and liabilities): |   |                                 |        |                                 |    |                                                          |   |
| Prepaid expenses                                                                                        |   | (25,529                              | )           | 29,775                               |    | (718,842                                                      | )      |
| Accounts payable                                                                                        |   | (57,067                              | )           | 514,210                              |    | 847,936                                                       |   |
| Accrued expenses                                                                                        |   | 706,707                              |        | 412,824                              |    | 976,416                                                       |   |
| Accrued equipment lease                                                                                 |   | (200,832                             | )           | (107,719                             | )       | 933,145                                                       |   |
| Accrued restructuring                                                                                   |   |                                 |        | 301,068                              |    |                                                          |   |
| Net cash used in operating activities (continuing  operations)                                          |   | (3,535,624                           | )           | (823,477                             | )       | (16,132,242                                                   | )      |
| Net cash used in discontinued operations                                                                |   | —                               |        | (1,047,106                           | )  | (10,679,101                                                   | )      |
| **Cash Flows From  Investing Activities**                                                               |   |                                 |        |                                 |    |                                                          |   |
| Sale of marketable securities                                                                           |   | —                               |        | —                               |    | 2,164,464                                                     |   |
| Purchases of marketable securities                                                                      |   | —                               |        | —                               |    | (2,182,967                                                    | )      |
| Purchases of United States Treasury Notes                                                               |   | —                               |        | —                               |    | (38,656,973                                                   | )      |
| Sales of United States Treasury Notes                                                                   |   | —                               |        | —                               |    | 39,778,548                                                    |   |
| Purchase of capital assets                                                                              |   | —                               |        | —                               |    | (636,877                                                      | )      |
| Proceeds from sale of equipment                                                                         |   | —                               |        | —                               |    | 145,551                                                       |   |
| Costs to acquire patent                                                                                 |   | —                               |        | —                               |    | (237,335                                                      | )      |
| Investment in and advances to affiliate                                                                 |   | —                               |        | (531,053                             | )       | (15,107,468                                                   | )      |
| Decrease (increase) in deposit                                                                          |   | (10,000                              | )           | 298,850                              |    | (453,753                                                      | )      |
| Investment in Alliance Pharmaceutical Corp.                                                             |   | —                               |        |                                 |    | (1,255,000                                                    | )      |
| Purchase of *Imagent* business                                                                          |   | (6,181,640                           | )           |                                 |    | (6,181,640                                                    | )      |
| Net cash used in investing activities                                                                   |   | (6,191,640                           | )           | (232,203                             | )       | (22,623,450                                                   | )      |
| Net cash used in investing activities of  discontinued operations                                       |   | —                               |        | —                               |    | (1,306,676                                                    | )      |
| **Cash Flows From  Financing Activities**                                                               |   |                                 |        |                                 |    |                                                          |   |
| Principal payments on capital leases                                                                    |   | —                               |        | —                               |    | (291,704                                                      | )      |
| Net proceeds from issuance of equity                                                                    |   | 30,000                               |        | —                               |    | 40,539,340                                                    |   |
| Proceeds from capital contributions by  shareholders                                                    |   | —                               |        | —                               |    | 1,911,674                                                     |   |
| Proceeds from issuance of debt                                                                          |   | 4,660,000                            |        | 832,905                              |    | 10,006,910                                                    |   |
| Cost of recapitalization                                                                                |   | —                               |        | —                               |    | (371,111                                                      | )      |
| Net cash provided by financing activities                                                               |   | 4,690,000                            |        | 832,905                              |    | 51,795,109                                                    |   |
| *Increase  (decrease) in Cash and Cash Equivalents*                                                     |   | (5,037,264                           | )           | (1,269,881                           | )       | 1,053,640                                                     |   |
| **Cash and Cash Equivalents,**  at beginning of period                                                  |   | 6,090,904                            |        | 1,352,904                            |    | —                                                        |   |
| **Cash and Cash Equivalents,**  at end of period                                                        |   | $                                    | 1,053,640   |                                 | $       | 83,023                                                        |   | $ | 1,053,640 |   |

 

5

----

 

**SupplementalSchedule of Noncash Investing andFinancing Activities 2003**

**Acquisitionof the medical imaging business ofAlliance Pharmaceutical Corp.**

** **
| **Summary of Purchase Transaction**                        |   |       |       |
|------------------------------------------------------------|--------|------------|------------|
| Issuance  of common stock                                  |   | $          | 5,583,268  |   |
| Common  stock to be issued                                 |   | 5,043,226  |       |
| Cash  advances in prior year                               |   | 1,255,000  |       |
| Net  current cash advances prior to acquisition            |   | 2,584,383  |       |
| Cash paid  at closing                                      |   | 669,117    |       |
| Direct  payments to vendors on behalf of Alliance          |   | 182,435    |       |
| Acquisition Costs                                          |   | 1,254,205  |       |
| Purchase  Price                                            |   | $          | 16,571,634 |   |
|                                                       |   |       |       |
| **Fair Value of Assets Acquired and Liabilities  Assumed** |   |       |       |
| Property, Plant and Equipment                              |   | $          | 7,240,145  |   |
| Purchased  Technology                                      |   | 15,136,282 |       |
| Assumption  of debt to Xmark                               |   | (2,500,000 | )          |
| Assumption  of Alliance liabilities                        |   | (3,304,793 | )          |
| Fair Value  of Assets Acquired                             |   | $          | 16,571,634 |   |

 

**Reclassificationof common stock subject to rescission to equity of $650,000**

 

6

----

 

**1.****                                      Basisof Presentation**

 

The accompanying unaudited financial statements have been prepared inaccordance with generally accepted accounting principles for interim financialinformation pursuant to Regulation S-K. Accordingly, they do not include all of the information and footnotesrequired by generally accepted accounting principles for complete financialstatements.  In the opinion ofmanagement, all adjustments (consisting of normal recurring accruals andadjustments related to the acquisition of the medical imaging (“*Imagent*”) business (“Purchased Technology”or “Technology Purchase”) of Alliance Pharmaceutical Corp. (“Alliance”) considerednecessary for a fair presentation have been included.  Operating results for the six months ended June 30, 2003 are notnecessarily indicative of the results that may be expected for the year endingDecember 31, 2003.

 

**2.****                                      GoingConcern**

 

The accompanying financial statements are prepared assuming the Companyis a going concern.  The Companybelieves it lacks sufficient working capital to fund operations for the entirefiscal year ending December 31, 2003. Substantial additional capital resources will be required to fund theongoing operations related to the Company’s marketing, manufacturing, researchand business development activities. Management believes there are a number of potential alternatives availableto meet the continuing capital requirements such as public or privatefinancings or collaborative agreements. The Company is taking continuing actions to reduce its ongoingexpenses.  If adequate funds are not available,the Company will be required to significantly curtail its operating plans andmay have to sell or license out significant portions of the Company’stechnology or products.  The financialstatements do not include any adjustment to reflect the possible future effectson the recoverability and classification of assets or the amount andclassification of liabilities that may result from the outcome of thisuncertainty.

 

**3.****                                      Basicand Diluted Loss Per Common Share**

 

Basic and diluted loss per common share is computed based on theweighted average number of common shares outstanding.  Basic and diluted loss per share excludes the impact ofoutstanding options, warrants and convertible preferred stock, as they areantidilutive.  Potential common sharesexcluded from the calculation at June 30, 2003 are 6,441,231 options, 427,431warrants and 151,819 shares issuable upon the conversion of Series AConvertible Preferred Stock. Basic and diluted loss per common share includes1,985,522 shares to be issued following shareholder approval.

 

**4.****                                      StockOptions**

 

The Company has adopted the disclosure-only provisions of Statement ofFinancial Accounting Standards No. 123, “Accounting for Stock BasedCompensation” (SFAS No. 123), but applies the intrinsic value method set forthin Accounting Principles Board Opinion No. 25 for stock options granted toemployees and directors.  The Companyexpenses the fair value of stock options granted to nonemployees.  In 2002, the Company issued stock options toemployees with an exercise price less than the market price on the date ofgrant, which vest over four years.  In2003, the Company also issued stock options in connection with the TechnologyPurchase with an exercise price less than the market price on the date ofgrant, which vest over four years. Accordingly, compensation expense of$378,093 and $529,270 has been recorded in the second quarter and first half of2003, respectively.

 

7

----

 

For stock options granted to employees and directors during the firstsix months of 2003, the Company has estimated the fair value of each optiongranted using the Black-Scholes option-pricing model with the followingassumptions:

 
|                                             |   | **2003** |   |
|--------------------------------------------------|--------|----------|--------|
|                                             |   |     |   |
| Weighted average fair value per options  granted |   | $        | 2.05   |   |
|                                             |   |     |   |
| Significant assumptions(weighted average)        |   |     |   |
| Risk-free interest rate at grant date            |   | 3.0      | %      |
| Expected stock price volatility                  |   | 99       | %      |
| Expected option life (years)                     |   | 5        |   |
|                                                  |        |          |        |  |

 

If the Company had elected to recognize compensation expense based onthe fair value at the grant dates, consistent with the method prescribed bySFAS No. 123, net loss per share would have been changed to the pro formaamounts indicated below:

** **
|                                                                                                               |   | **Three  months**

**Ended**

**June 30,  2003** |       | **Six months**

**Ended**

** June 30, 2003** |   |
|--------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------|------------|----------------------------------------------------|--------|
|                                                                                                               |   |                                             |       |                                               |   |
| Net Loss Applicable to Common Shareholders,  as reported                                                           |   | $                                                | (7,655,359 | )                                                  | $      | (12,854,721 | ) |
|                                                                                                               |   |                                             |       |                                               |   |
| Add stock based employee compensation  expense included in reported net income                                     |   | 378,093                                          |       | 529,270                                            |   |
|                                                                                                               |   |                                             |       |                                               |   |
| Less total stock-based employee  compensation expense determined under the fair value based method for all  awards |   | (1,045,607                                       | )          | (1,604,829                                         | )      |
|                                                                                                               |   |                                             |       |                                               |   |
| Pro forma net loss                                                                                                 |   | $                                                | (8,322,873 | )                                                  | $      | (13,930,280 | ) |
|                                                                                                               |   |                                             |       |                                               |   |
| Basic and diluted loss per common share, as  reported                                                              |   | $                                                | (0.44      | )                                                  | $      | (0.75 | ) |
|                                                                                                               |   |                                             |       |                                               |   |   |
| Basis and diluted loss per common share,  pro forma                                                                |   | $                                                | (0.47      | )                                                  | $      | (0.81 | ) |

 

8

----

 

**5.****                                       ****JointVenture/Investment in Affiliate**

 

Following is summarized financial information for Sentigen at and as ofthe six months ended June 30, 2003 and 2002:

 
| **June  30,**                                                                                     |   | **2003**  |       | **2002**   |       |
|---------------------------------------------------------------------------------------------------|--------|-----------|------------|------------|------------|
|                                                                                              |   |      | ** ** |       | ** ** |
| Cash                                                                                              |   | $         | 410        |       | $          | **—** |   |
| License purchased from Élan, net of  amortization of $2,690,225 and $1,711,961, respectively |   | 4,059,775 |       | 13,288,039 |       |
|                                                                                              |   |      | ** ** |       | ** ** |
| Total assets                                                                                      |   | $         | 4,060,185  |       | $          | 13,288,039 |   |
|                                                                                              |   |      | ** ** |       | ** ** |
| Due to affiliates                                                                                 |   | $         | 378,099    |       | $          | 230,254 |   |
|                                                                                              |   |      | ** ** |       | ** ** |
| Total shareholders’ equity                                                                   |   | 3,682,086 |       | 13,057,785 |       |
|                                                                                              |   |      | ** ** |       | ** ** |
| Total liabilities and equity                                                                      |   | $         | 4,060,185  |       | $          | 13,288,039 |   |
|                                                                                              |   |      | ** ** |       | ** ** |
| Research and development Expense                                                                  |   | $         | —     |       | $          | 666,219 |   |
| General and administrative expense                                                                |   | —    |       | 18,739     |       |
| Amortization of license                                                                           |   | 489,132   |       | 489,132    |       |
| Impairment of license                                                                             |   | 5,750,000 |       | —     |       |
|                                                                                              |   |      | ** ** |       | ** ** |
| Net loss                                                                                          |   | $         | (6,239,132 | )          | $          | (1,174,090 | ) |

 

**6.****                                      PurchasedTechnology**

 

On June 18, 2003, the Company closed on theacquisition of the medical imaging business including *Imagent*â(perflexane lipid microspheres), an FDA-approved product, of AlliancePharmaceutical Corp. (the “Purchased Technology”).  Photogen’s financial statements include the results of operationsfor the Purchased Technology from the closing date of the transaction, June 18,2003, through the end of the reporting period.

 

Included in the purchase were an FDA-approved manufacturing facility,the marketing, manufacturing and supporting infrastructure for the product, andan intellectual property portfolio of approximately thirty patents in the areaof ultrasound imaging.  *Imagent*has been approved for marketing by the FDA for use in patients with suboptimalechocardiograms to opacify the left ventricle and thereby improve visualizationof the main pumping chamber of the heart, and to improve delineation of theendocardial borders of the heart.  As aresult, ultrasound with *Imagent* may better distinguish normal andabnormal heart structure and function - two critical indicators of cardiachealth.  Echocardiography is the mostwidely used imaging modality for the diagnosis of heart disease, the leadingcause of death in the U.S.  Theattractiveness of the market potential and the acquisition of an approvedproduct significantly change the profile of Photogen and were fundamental reasonsfor the acquisition and primary determinants of the purchase price.

 

9

----

 

A summary of the preliminaryPurchased Technology acquisition costs and allocation to the assets acquiredand liabilities assumed is as follows:

 
| Summary of  Purchase Transaction                       |   |       |       |
|--------------------------------------------------------|--------|------------|------------|
| Issuance  of common stock                              |   | $          | 5,583,268  |   |
| Common  stock to be issued                             |   | 5,043,226  |       |
| Cash  advances in prior year                           |   | 1,255,000  |       |
| Net  current cash advances prior to acquisition        |   | 2,584,383  |       |
| Cash paid  at closing                                  |   | 669,117    |       |
| Direct  payments to vendors on behalf of Alliance      |   | 182,435    |       |
| Acquisition Costs                                      |   | 1,254,205  |       |
| Purchase Price                                         |   | $          | 16,571,634 |   |
|                                                   |   |       |       |
| Fair Value  of Assets Acquired and Liabilities Assumed |   |       |       |
| Property, Plant and Equipment                          |   | $          | 7,240,145  |   |
| Purchased  Technology                                  |   | 15,136,282 |       |
| Assumption  of debt to Xmark                           |   | (2,500,000 | )          |
| Assumption  of Alliance liabilities                    |   | (3,304,793 | )          |
| Fair Value of Assets Acquired                          |   | $          | 16,571,634 |   |

 

 

At the closing, Photogen paid approximately $669,000 in cash anddelivered 2,198,137 shares of its common stock.  In addition to the bridge financing Photogen provided to Alliancebefore the closing, its purchase of a $1,250,000 interest in Alliance’sobligations to two of its creditors, Xmark Fund, Ltd. and Xmark Fund, L.P.(collectively “Xmark”), and its assumption of specified Alliance operatingliabilities related to *Imagent*,Photogen is obligated to pay, at various times between 90 and 365 days afterthe closing, (i) an aggregate of $2,500,000 to Xmark, (ii) subject to reachingsatisfactory agreements with certain Alliance secured and unsecured creditors,an aggregate amount of up to approximately $3,000,000 to creditors other thanXmark and (iii) subject to stockholder approval, deliver an aggregate ofapproximately 1,985,522 shares of its common stock.

 

In addition, after the closing and through 2010, Photogen must payAlliance further consideration in the form of an earn out based on *Imagent* revenue, subject to certainreductions.  This earn out equals, foreach year of the earn out:  7.5% of *Imagent* revenue up to $20,000,000; 10% of *Imagent* revenue between $20,000,000 and$30,000,000; 15% of *Imagent*revenue between $30,000,000 and $40,000,000; and 20% of *Imagent* revenue above $40,000,000.  The earn out will be reduced by amountsPhotogen pays pursuant to a license agreement with Schering Aktiengesellschaft(“Schering”), net of payments received from Schering under the license, andamounts of any indemnification claims Photogen has against Alliance.  The earn out is subject to three additionaloffsets (which are to be applied in the manner described in the Asset PurchaseAgreement dated as of June 10, 2003 with Alliance) that entitle Photogen toretain portions of the earn out otherwise payable to Alliance.

 

Intangible assets resulting from the acquisition of the *Imagent* business are estimated bymanagement based on the fair value of the assets received.  These intangible assets consist entirely ofpurchased technology.  PurchasedTechnology related to the *Imagent*business is amortized on a straight line basis over twelve years.  Purchased Technology is stated at cost, lessaccumulated amortization.

 

Following is summarizedstatements of revenues and direct expenses for the Purchased Technology for theyear ended December 31, 2002 and the approximate six-month period ended June18, 2003 (date of purchase):

 
|                              |   | **Year ended  12/31/02** |       | **Six-Month  period  ended  6/18/03** |       | **Total for  Periods** |       |
|-----------------------------------|--------|--------------------------|------------|---------------------------------------|------------|------------------------|------------|
| Expenses:                         |   |                     | ** ** |                                  | ** ** |                   | ** ** |
|                              |   |                     |       |                                  |       |                   |       |
| Research & development        |   | $                        | 12,775,041 |                                  | $          | 4,501,299              |       | $ | 17,276,341 |   |
| Sales, general and administrative |   | 5,080,021                |       | 1,363,973                             |       | 6,443,995              |       |
|                              |   |                     |       |                                  |       |                   |       |
| Total Expenses                    |   | $                        | 17,855,062 |                                  | $          | 5,865,272              |       | $ | 23,720,336 |   |

 

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Belowis supplemental pro forma information that discloses the results of operationsfor the technology purchase for the current three and six month periods endingJune 30, 2003, as well as the corresponding periods for the preceding yearending June 30, 2002.  The pro formainformation is as if the acquisition had been completed as of the beginning ofthe periods presented.  The pro formadata give effect to actual operating results prior to the acquisition, adjustedto include the pro forma effect of amortization of intangibles and weightedshares outstanding.

 

 
|                                                                            |   | **Three  Months ended June 30, 2003** |        | **Three  Months ended June 30, 2002** |       | **Six Months  ended June 30, 2003** |        | **Six Months  ended June 30, 2002** |        |
|---------------------------------------------------------------------------------|--------|---------------------------------------|-------------|---------------------------------------|------------|-------------------------------------|-------------|-------------------------------------|-------------|
| Expenses:                                                                       |   |                                  | ** **  |                                  | ** ** |                                | ** **  |                                | ** **  |
| Research & development                                                      |   | $                                     | 2,568,558   |                                  | $          | 3,314,769                           |        | $                                   | 5,321,741   |   | $ | 6,668,624 |   |
| Sales, general and administrative                                               |   | 2,900,300                             |        | 2,322,083                             |       | 8,460,240                           |        | 4,078,245                           |        |
| Restructuring charge                                                            |   | —                                |        | —                                |       | —                              |        | 451,068                             |        |
| Total Expenses                                                                  |   | 5,468,858                             |        | 5,636,852                             |       | 13,781,981                          |        | 11,197,937                          |        |
| Loss from joint venture                                                         |   | (4,801,648                            | )           | (380,331                              | )          | (4,997,545                          | )           | (940,445                            | )           |
| Investment income                                                               |   | 2,291                                 |        | 177                                   |       | 6,813                               |        | 1,502                               |        |
| Interest expense                                                                |   | (53,988                               | )           | (54,541                               | )          | (53,988                             | )           | (100,713                            | )           |
| Loss from continuing operations                                                 |   | (10,322,203                           | )           | (6,071,547                            | )          | (18,826,701                         | )           | (12,237,593                         | )      |
| Discontinued operations — net                                              |   | —                                |        | (544,657                              | )          | —                              |        | (1,047,106                          | )           |
| Net income (Loss)                                                               |   | $                                     | (10,322,203 | )                                     | $          | (6,616,204                          | )           | $                                   | (18,826,701 | ) | $ | (13,284,699 | ) |
| Dividends on Preferred Stock                                                    |   | (265,504                              | )           | (344,215                              | )          | (523,970                            | )           | (678,678                            | )           |
| Net loss applicable to common shareholder                                       |   | $                                     | (10,587,707 | )                                     | (6,690,419 | )                                   | (19,350,671 | )                                   | (13,963,377 | ) |
| Pro forma net loss per share                                                    |   | $                                     | (0.50       | )                                     | $          | (0.51                               | )           | $                                   | (0. 92      | ) | $ | (1.01 | ) |
| Weighted average number of common shares   outstanding — basic and diluted |   | 21,157,948                            |        | 13,769,607                            |       | 21,010,215                          |        | 13,769,607                          |        |

 

 

This pro forma information is not necessarilyindicative of the actual results that would have been achieved had thePurchased Technology been acquired the first day of the Company’s three- orsix-month periods, nor is it necessarily indicative of future results.

 

**7.****                                      EquityTransactions**

 

Pursuant to a Standstill and Make Whole Agreement with Xmark, securedcreditors of Alliance, the Company issued a total of 750,000 shares toXmark.  Xmark agreed to not exercise anyrights against Alliance as a creditor. The value of these shares was treated as an expense.

 

On May 2, 2003, the Company executed a Going Forward Agreement withXmark that provided, among other things, for the issuance of shares of theCompany’s common stock upon the acquisition of the Purchased Technology aspayment for interest owed by Alliance to Xmark.

 

On June 18, 2003, the Company issued 2,198,137 shares of its commonstock to certain creditors of Alliance, including Xmark, as partialconsideration for the Technology Purchase. Following approval by shareholders, the Company will issue an additional1,985,522 shares to certain other creditors as part of the PurchasedTechnology.  Shareholders representing61.1% of the outstanding stock of the Company have indicated their commitmentto vote in favor of the issuing of the additional shares in connection with theacquisition.

 

Total shares issued to Xmark as a result of the agreements noted abovewere 1,817,394.  Xmark has a put rightfor all these shares that would, under certain circumstances, require theCompany to purchase the shares from Xmark at a price of $1.00 per share.  As a result, $1,817,394 has been classifiedas mezzanine equity at June 30, 2003.

 

In the second quarter, the Company recognized the issuance of 124,627shares of common stock that previously had been subject to rescission.

 

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During the first half of 2003, the Company issued an aggregate of67,778 shares pursuant to several factors including cash, compensation forservice, penalties for failure to timely register certain shares and cashlessexercise of stock options.

 

**8.****                                      SecuredDebt**

 

Notes payable – Atthe closing of the Technology Purchase, the Company issued to Xmark promissorynotes in the total principal amount of $2,500,000.  The notes are payable in two equal installments on August 5 andNovember 3, 2003 or (if sooner) at the time the Company completes a financingof at least $18,000,000 of gross proceeds and bear interest at 3% over theprime rate.  Interest is payable inshares of common stock.

 

Obligations to Xmark (including obligations under the put right) aresecured by a first priority security interest on the *Imagent* related tangible and intangible assets.

 

Lines of Credit – Toobtain funds for operations and certain cash payments related to the TechnologyPurchase, the Company issued $4,660,000 in Notes, of which $4,160,000 areRevolving Convertible Senior Secured Promissory Notes and the balance arenon-convertible (collectively, the “Promissory Notes”) to three institutionalinvestors (“Investors”).  The notes aresecured by a first priority security interest on all the Company’s assets (butas to the lien on *Imagent* relatedassets, the lien is subordinate to the security interest held by Xmark), bearinterest at 7.25% per annum, compounded monthly, and are due on the earlier ofAugust 5, 2003 or upon the occurrence of an “acceleration event.”  All principal and interest under thePromissory Notes will convert into the Company’s common stock upon completionof a qualified financing that closes before August 5, 2003 at the same priceand on the same terms as are in effect for the other investors in the qualifiedfinancing; and the Investors will have the same rights, benefits andobligations as other investors in that financing.  The acceleration events include a breach of the Company’sobligations or representations under a security agreement in favor of theInvestors; if the Company files for bankruptcy protection or similar eventsoccur indicating insolvency; if the Company liquidates, or if the Companyincurs any debt senior or pari passu to the debt of the Investors.

 

**9.****                                      AccruedExpenses**

 

Accrued expenses consist of the following at June 30, 2003 and December31, 2002:

 
|                                           |   | **June 30,  2003** |      | **December  31, 2002** |   |
|------------------------------------------------|--------|--------------------|-----------|------------------------|--------|
| Alliance liabilities assumed from  acquisition |   | $                  | 3,304,793 |                   | $      | — |   |
| Legal                                          |   | 548,128            |      | —                 |   |
| Payroll liabilities                            |   | —             |      | 34,132                 |   |
| Other                                          |   | 170,618            |      | —                 |   |
| Total accrued expenses                         |   | $                  | 4,023,539 |                   | $      | 34,132 |   |

 

**10.****                               Propertyand Equipment**

 

Property and equipment isstated at cost and depreciated over the estimated useful lives of the assets(three to seven years) using the straight-line method.  Amortization of leasehold improvements iscomputed on the straight-line method over the shorter of the lease term or theestimated useful lives of the assets. Maintenance and repairs are charged to operations as incurred.  When assets are sold, or otherwise disposedof, the cost and related accumulated depreciation are removed from the accountsand any gain or loss is included in operations.

 

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Property and equipmentconsist of the following at June 30, 2003 and December 31, 2002:

 
|                                      |   | **June 30,  2003** |      | **December  31, 2002** |   |
|-------------------------------------------|--------|--------------------|-----------|------------------------|--------|
| Leasehold improvements                    |   | $                  | 5,560,869 |                   | $      | 33,131 |   |
| Furniture, fixtures and equipment         |   | 1,729,781          |      | 17,520                 |   |
|                                      |   | 7,290,650          |      | 50,651                 |   |
| Accumulated depreciation and amortization |   | (76,913            | )         | (14,651                | )      |
|                                      |   |               |      |                   |   |
|                                      |   | $                  | 7,213,737 |                   | $      | 36,000 |   |

 

**11.****                               Commitments**

 

***Leases***

 

The Company has leased its facilities andcertain equipment under non-cancelable operating leases, which expire atvarious times through 2008.  The leasesrequire the Company to pay for all maintenance, insurance and property taxes.

 

The Company also has an operating lease forlaboratory equipment expiring in 2004. During 2001, the Company determined that equipment leased by the Companyunder this operating lease would no longer be used by the Company in itsresearch.  As a result, in 2001, theCompany recorded a provision for all future lease payments of $1,264,208.  At June 30, 2003, $602,496 remains to bepaid.

 

Minimum future rental payments under theseleases are as follows:

 
| **Year ending December 31,**           |   | **Operating  Leases** |          |
|----------------------------------------|--------|-----------------------|---------------|
| Six months ending December 31, 2003    |   | $                     | 734,648       |   |
| Twelve months ending December 31, 2004 |   | 1,419,812             |          |
| Twelve months ending December 31, 2005 |   | 945,168               |          |
| Twelve months ending December 31, 2006 |   | 900,339               |          |
| Twelve months ending December 31, 2007 |   | 877,514               |          |
| Twelve months ending December 31, 2008 |   | 147,081               |          |
| **Total minimum lease payments**       |   | **$**                 | **5,024,562** | ** ** |

 

***License Agreements***

 

In September 1997, AlliancePharmaceutical Corp. (“Alliance”) entered into the Schering License Agreement,which provided Schering with worldwide exclusive marketing and manufacturingrights, drug compositions, and medical devices and systems related toperfluorocarbon ultrasound imaging products, including *Imagent*. In February 2002, the agreement with Schering was modified to giveAlliance exclusive rights to market the product in the U.S. for cardiologyindications for a five-year period, with Schering to be paid a nominal royaltyon such sales.  At the expiration of thefive-year period, Alliance has the option to acquire all of Schering’s rightsto the product on a worldwide basis or, alternatively, to allow Schering theopportunity to obtain co-promotion rights along with Alliance.  The rights Alliance had under

 

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the Schering LicenseAgreement were transferred to Photogen at the consummation of its acquisitionof the *Imagent* Business.

 

Concurrentwith the restructuring of the Schering agreement in 2002, Alliance entered intoa five-year exclusive agreement with Cardinal Health, Inc. (“Cardinal”) toassist the marketing of *Imagent*.  Under the agreement, Cardinal will performcertain packaging, distribution, and sales services for Alliance under afee-for-service arrangement.  Photogenassumed the Cardinal agreement from Alliance at the consummation of the *Imagent* acquisition.

 

**12.****                               SubsequentEvents**

 

The Company defaulted on the principal payment due to Xmark on August5, 2003 and Xmark delivered a notice stating that it was accelerating allamounts due under the notes.  On August18, 2003, the Company and Xmark executed a Letter Agreement pursuant to whichthe Company made an immediate payment of $1,250,000 and Xmark rescinded thedefault notice.  In addition, as part ofthe Letter Agreement:

 

•                  TheCompany has the right to extend the November 3, 2003 payment due date monthlyuntil April 3, 2004 for a fee (and not as a reduction of any amounts due andowing under the promissory notes) ranging from $50,000 to $100,000 per month.

 

•                  Thedemand registration rights held by Xmark became piggyback registration rights.

 

•                  Thedefinition of “Event of Default” was changed to be repayments of borrowed moneyindebtedness.

 

•                  Ifthe Company makes payments to certain institutions, it will make a pro-ratapayment to Xmark.

 

The Company defaulted on $4,160,000 of its Promissory Notes due to theInvestors.  The Investors have notasserted any of their rights under the default provisions of the PromissoryNotes and have continued to advance capital, payable upon demand, to theCompany.  All other terms and conditionsof these Promissory Notes remain unchanged.

 

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## **ITEM2.  MANAGEMENT’S DISCUSSION AND ANALYSISOR PLAN OF OPERATION**

 

Portions of the discussionin this Form 10-QSB/A contain forward-looking statements and are subject to theRisk Factors described below. References to the “Company,” “Photogen,” “we” or “our” are to PhotogenTechnologies, Inc. and its consolidated subsidiaries.  *Imagent*® is aregistered trademark owned by Photogen.

 

Theaccompanying financial statements have been prepared assuming we are a goingconcern.  The Company lacks sufficientworking capital to fund operations for the remainder of the fiscal year endingDecember 31, 2003 without additional debt or equity financing.  The financial statements for the six monthsended June 30, 2003 do not include any adjustment to reflect the possiblefuture effects on the recoverability and classification of assets or the amountand classification of liabilities that may result from this uncertainty.

 

OnNovember 12, 2002, we split off our therapeutic business to certain foundingshareholders in exchange for all of their 52.9% ownership interest inPhotogen.  Our therapeutic business hadbeen focused on the development of certain photodynamic therapy products.  Our remaining diagnostic business has beenfocused on the development of products for medical imaging, with particularemphasis on cardiovascular imaging.

 

On June 18, 2003, we closed on the acquisition of assets related to thediagnostic imaging business, including *Imagent*(perflexane lipid microspheres), an FDA-approved product, of AlliancePharmaceutical Corp. (“Alliance”).  Wealso entered into a number of agreements related to that acquisition.  The financial statements include theoperating impact of this acquisition from June 18, 2003 through June 30,2003.  We are currently seekingadditional capital to operate the *Imagent*business and to continue our development programs.

 

At the closing, we paid approximately $669,000 in cash and delivered2,198,137 shares of our common stock. At the direction of Alliance, we delivered the cash and stock tocreditors, employees and vendors of Alliance. In addition to the bridge financing we provided to Alliance before theclosing, our purchase of a $1,250,000 interest in Alliance’s obligations to twoof its creditors, Xmark Fund, Ltd. and Xmark Fund, L.P. (collectively “Xmark”),and our assumption of specified Alliance operating liabilities related to *Imagent*, we are obligated to payadditional amounts to Alliance secured and unsecured creditors after theclosing (including Xmark, discussed below, and others).  At various times between 90 and 365 daysafter the closing, we must pay, subject to reaching satisfactory agreementswith certain Alliance secured and unsecured creditors, an aggregate amount ofup to approximately $3,000,000 to creditors other than Xmark and (subject tostockholder approval, discussed below) deliver up to an aggregate ofapproximately 1,985,522 shares of our common stock.  The amount of consideration was determined through arms-lengthnegotiations.

 

In addition, after the closing and through 2010, we must pay Alliancefurther consideration in the form of an earn out based on *Imagent* revenue we invoice (subject tocertain reductions).  This earn outequals, for each year of the earn out: 7.5% of *Imagent* revenue upto $20,000,000; 10% of *Imagent*revenue between $20,000,000 and $30,000,000; 15% of *Imagent* revenue between $30,000,000 and $40,000,000; and 20%of *Imagent* revenue above$40,000,000.  The earn out will bereduced by amounts we pay pursuant to a license agreement with ScheringAktiengesellschaft (“Schering”), net of payments we receive from Schering underthe license, and amounts of any indemnification claims we have againstAlliance.  The earn out is subject tothree additional offsets (which are to be applied in the manner described inthe Asset Purchase Agreement dated as of June 10, 2003 with Alliance) that entitleus to retain portions of the earn out otherwise payable to Alliance:

 

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•                  Upto approximately $1,600,000 for a fixed price offset, depending on thesatisfaction of certain conditions;

 

•                  Theamount of any payments not committed to at closing that we make after theclosing to Alliance’s creditors plus up to $1,000,000 of litigation expensesfor certain patent and other litigation; and

 

•                  Between$4,000,000 and $5,000,000, which is the principal and accrued interest underour bridge loans to Alliance, depending on the satisfaction of certainconditions.

 

We also entered into a series of agreements with Xmark.  Pursuant to a Standstill and Make WholeAgreement dated as of December 30, 2002, we issued 750,000 shares of our commonstock to Xmark, who agreed to not exercise any rights against Alliance as acreditor for the period of the standstill. On May 2, 2003, we entered into a Going Forward Agreement pursuant to whichXmark agreed to extend the period during which Xmark had refrained fromexercising its rights as a creditor against Alliance to permit us to completethe acquisition.  On that date, we alsopurchased a $1,250,000 interest in Alliance’s obligations to Xmark.

 

At the closing of our acquisition of the *Imagent* assets, pursuant to the Going Forward Agreement, wedelivered to Xmark our promissory notes in the total principal amount of$2,500,000.  These notes are payable intwo equal installments on August 5, 2003 and November 3, 2003 or (if sooner) atthe time we complete a financing resulting in at least $18,000,000 of grossproceeds to us and bear interest at 3% over the prime rate (payable in sharesof our common stock). At the closing of the *Imagent*acquisition, we also issued Xmark an additional 1,056,000 shares thatrepresented payment of interest that was due to Xmark by Alliance through theclosing date of the acquisition.  Thevalue of these additional 1,056,000 shares has been treated as part of the purchaseprice of the *Imagent* business.

 

Our obligations to Xmark are secured by a first priority securityinterest on the *Imagent* relatedtangible and intangible assets.  Xmarkwould be entitled to foreclose on its lien covering these assets if we defaulton our obligations to Xmark, if we lose FDA approval for *Imagent*, if we fail to pay other debts, orif we file for bankruptcy protection or similar matters.

 

We defaulted on the principal payment due on August 5, 2003 and Xmarkdelivered a notice to us stating that it was accelerating all amounts due underthe notes.  We negotiated a newagreement with Xmark dated August 18, 2003 (the “Letter Agreement”) pursuant towhich we agreed to make an immediate payment of $1,250,000 and Xmark agreed torescind the default notice.  The otherkey terms of the Letter Agreement are as follows:

 

•                  Weremain obligated to make a second principal payment of $1,250,000 on theearlier to occur of (i) November 3, 2003 or (ii) the consummation of one ormore institutional financings resulting in aggregate gross proceeds to us of atleast $18,000,000.  We will have theright to extend the November 3rd due date monthly until April 3,2004 for a fee (and not as a reduction of any amounts due and owing under thepromissory notes) ranging from $50,000 to $100,000 per month.

 

•                  Withintwenty days of the execution of the Letter Agreement we will pay to Xmark, incash or in shares of our common stock (valued at $1.00 per share, subject tocertain adjustments), $26,248 for failure to timely register the shares of ourcommon stock issued to Xmark for resale.

 

•                  Ourobligation to register the shares of common stock issued to Xmark for resaleunder the terms of the Going Forward Agreement was terminated and no furtherpenalty payments or

 

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shares will be due to Xmark as a result ofour failure to register the shares of our common stock held by Xmark.  In lieu of the demand registration rightsXmark previously had, the Letter Agreement provides that Xmark will havepiggy-back registration rights.

 

•                  Thedefinition of “Event of Default” in the security agreements securing ourobligations to Xmark was amended.  Theprovision that an Event of Default included any default by us in the payment ofborrowed money indebtedness was eliminated. Instead, we agreed that it would be an Event of Default if we maderepayments of borrowed money indebtedness.

 

•                  Withregard to payments to certain specified institutions, we agreed we would alsomake a pro rata payment to Xmark.

 

Except as specifically amended by the Letter Agreement, the terms ofthe Going Forward Agreement and the other agreements governing our obligationsto Xmark remain in effect, including Xmark’s put right with respect to ourcommon stock that Xmark owns.

 

Xmark’s put right, as set forth in the Going Forward Agreement,requires us to repurchase at $1.00 per share up to 750,000 shares of commonstock we issued under a prior agreement with Xmark and all additional shares weissue to Xmark under the Going Forward Agreement.  The put right is fully exercisable beginning on the earlier of 13months after the closing of the acquisition of the *Imagent* assets or the date on which we close a financing for$20,000,000 or more.  Before that time,Xmark can exercise the put right in quarterly installments beginning 90 daysafter the closing of our acquisition of the *Imagent*assets.  In connection with thesequarterly installments, we can elect to defer repurchasing the shares if welack adequate cash to satisfy our operating and working capital requirementsfor the subsequent 18-month period based on an operating plan approved by ourBoard.  We agreed to use our reasonableefforts to have sufficient cash to meet our operating plan.  If we do not repurchase these shares, Xmarkis entitled to a payment of 1.5% of the value of the shares not repurchased forany 30-day period or pro rata portion thereof during which such failure iscontinuing.

 

We issued 82,977 shares of our common stock to Xmark as of August 1,2003 for interest and various penalties, including the failure to register theshares of our common stock held by Xmark by that date.

 

In connection with the closing of the acquisition of the *Imagent* assets, we issued approximately18% of our outstanding common stock. Nasdaq rules applicable under these circumstances require us to obtainprior stockholder approval before issuing more than 20% of our stock.  We intend to hold a meeting of stockholders,currently planned for the fourth quarter of 2003.  At the stockholder meeting, we will ask stockholders to considerapproving our issuing additional shares of common stock that may exceed 20% ofthe outstanding common stock, which will be utilized in connection with theacquisition.  Additional details about thesematters will be provided in our proxy materials to be filed with the Securitiesand Exchange Commission.

 

We expect that our quarterly and annual results of operations willfluctuate based on several factors including, the timing and amount of expensesinvolved in marketing and manufacturing *Imagent*,conducting our research programs, particularly the conduct of clinical trials,the cost of clinical material used in those trials and required for compliancewith FDA regulations and the amount, if any, of fees, milestone payments andresearch support payments received from potential strategic partners.

 

We consider the valuation of our investment in the purchased technologyof *Imagent* to be a significantestimate.  The carrying value of thistechnology is $15,136,282.  Theassumptions underlying the financial forecast have been based on currentlyavailable information including estimates of market

 

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size and penetration, pricing,competitive threats and general operating expenses.  These estimates may change and such changes may impact futureestimates of carrying value.

 

We also consider our investment in the joint venture with affiliates ofÉlan Corporation, plc (“Élan”) to be subject to a significant estimate.  The carrying value of our 80.1% equityinterest in Sentigen, Ltd., the joint venture entity, plus advances toSentigen, Ltd., at December 31, 2002 and June 30, 2003 totaled$8,192,452 and $3,194,907, respectively. Members of Sentigen’s management reviewed its financial projections andhas concluded that given delays in the development of N1177, resulting fromcapital constraints, the carrying value of the intangible assets in the jointventure should be reduced by $2,500,000. In addition, in the second quarter of 2003, based on the re-prioritizationof the development of N1177 and as the development plans are being furtherdelayed pending the acquisition of sufficient capital to allocate to thedevelopment of N1177, Sentigen recorded an additional impairment provision of$5,750,000.  The assumptions underlyingthe financial forecasts were based on currently available information,including estimates of development costs, pricing, operating expenses andmarket sizes and penetration.  Theseestimates may change and any such changes may impact future estimates ofappropriate carrying values.

 

**Results of Operations**

 

Prior to our acquisition of the *Imagent*assets in June, 2003, our efforts were focused on the development and clinicaltesting of diagnostic products, specifically PH-50, being developed as acardiovascular imaging agent, and N1177, being developed for lymphography, thediagnosis of cancer metastasizing to lymph nodes.  To date, we have not generated revenues from the sale of anyproposed diagnostic products or other operations.  Net loss applicable to common shareholders (after preferreddividends) was $4,880,682 and $12,854,721 for the six months ended June 30,2002 and 2003, respectively.  Ourcumulative losses since inception, including “in-kind” preferred stock andbeneficial conversion dividends totaling $8,170,199, are approximately$49,246,144.

 

With the acquisition of the *Imagent*business, we hired approximately 35 employees related to this business.  These employees were formerly associatedwith Alliance and bring capabilities in manufacturing, marketing and additionalcapabilities in research and related administrative infrastructure.  We also continue to contract with thirdparty consultants having expertise in clinical development and regulatorymatters to supplement our internal capabilities.  In addition, we contract with third party research laboratories,contract research organizations and manufacturers for clinical materialsupplies and the management of clinical trials, and with academic and otherinstitutions to conduct specified research projects.

 

Research and development expenses for the six months ended June 30,2002 and 2003 were $339,537 and $820,442, respectively.  These expenses include personnel costs, feesand other compensation paid to outside consultants, and costs associated withconducting preclinical studies and manufacturing product to be used in thesestudies.

 

Substantially all of the research expenses in the first six months of2003 were oriented to the preclinical development of PH-50, a product havinggreater market potential than N1177. Expenses associated with the development of PH-50 are borne completelyby us, whereas expenses associated with the development of N1177 are charged toSentigen, our joint venture.  Due tocapital constraints, we incurred minimal expenses in the joint venture, otherthan amortization of our investment in the joint venture, during the first halfof 2003.

 

Selling, general and administrative expenses from continuing operationswere $1,324,637 and $6,465,589****forthe six months ended June 30, 2002 and 2003, respectively.  These expenses include costs

 

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associated with our acquisitionof the *Imagent* business prior tofirmly committing to the acquisition, obtaining patent protection for ourintellectual property, costs associated with administrative personnel andcorporate management, the amortization of certain options granted to ouremployees, legal and related expenses and facilities expenses.

 

In the first six months of 2003, selling, general and administrativeexpenses increased by $5,140,952 to $6,465,589.  The primary reasons for the increase were related to ouracquisition of the *Imagent*business from Alliance including, (i) provisions we have taken againstadvances we had made to Alliance and shares of our common stock we had issuedto Xmark pursuant to a standstill agreement with Xmark, (ii) costs ofconducting due diligence and other activities related to the acquisition of the*Imagent* business and(iii) costs incurred by us to operate the *Imagent*business following its acquisition.  Aspart of the November, 2002 restructuring and financing, stock options weregranted to our remaining employees with an exercise price equal to the price atwhich common stock was sold to the new institutional investors.  In addition, as part of the acquisition ofthe *Imagent* business and therelated hiring of employees from Alliance, we granted these new employees anaggregate of 1,865,750 stock options with an exercise price of $1.25 pershare.  As the exercise prices werebelow the closing price of our common stock at the dates of grant, we recordedan expense of approximately $529,270 in the first six months of 2003 reflectingthe differentials between those respective two prices.

 

In the fourth quarter of 1999, we entered into a joint venture withaffiliates of Élan for the development of N1177, a potential product toidentify 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 Élan.  During the first six months of 2002 and 2003, we recorded lossesfrom the joint venture of $940,445 and $4,997,545, respectively.  In 2002, these losses resulted from ourshare of development expenses incurred in the joint venture by the twoparticipants, including personnel expenses and costs associated with developinga manufacturing process, and the purchase of drug substance and othermaterials.  In 2003, these losses weresubstantially the result of the amortization of the license purchased from Élanand a charge for further impairment of the license value as, due to the lowerpriority of the development of N1177 and capital constraints, limiteddevelopment work was being conducted.

 

Investment income for the six months ended June 30, 2002 and 2003 was$1,502 and $6,813, respectively. Investment income is generated by the amount of capital in ourinvestment portfolio prior to it being used to fund our operations and the rateof interest earned on that capital.  Weinvest funds in the investment portfolio in U.S. government obligations.  We expect investment income to continue tofluctuate both as the size of the investment portfolio decreases or increasesand as the rate of interest earned by the portfolio varies due to shifts inshort term interest rates.

 

Since inception, we had been developing products for both therapeuticand medical imaging applications.  Asone of a series of transactions on November 12, 2002, we split off ourtherapeutic business to certain founding shareholders in exchange for all oftheir 52.9% ownership interest in Photogen. Accordingly, the expenses associated with that business have beenreclassified as discontinued operations. Our therapeutic business had been focused on the development of certainphotodynamic therapy products, in particular a compound we called PH-10.  In the first half of 2002, we incurredlosses related to these operations of $1,047,106.

 

For the six months ended June 30, 2002 and 2003 we had no purchases ofequipment and leasehold improvements other than the acquisition of the****assets related to the *Imagent* business, including the lease of amanufacturing facility located in San Diego. During the next twelve months we expect capital expenditures forequipment to be less than $500,000.

 

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**Liquidity; Capital Resources**

 

Without additional financing we may not have sufficient cash resourcesfor our entire fiscal year ending December 31, 2003.  We are currently funding our operations through borrowings,evidenced by secured promissory notes, payable upon demand, from our principalinstitutional investor.  We will needsubstantial additional financing for our research, clinical testing, productdevelopment and marketing programs.  Wecannot accurately estimate the amount of additional financing required;however, the amount could be an additional****$30 millionor more over the next several years.  Inparticular, we are currently seeking to raise capital in one or moretransactions to fund our immediate and longer term capital needs through theprivate placement of securities to accredited investors.  See “Risk Factors—We must raise additionalfinancing in the future and our inability to do so will prevent us fromimplementing our business plan,” above.

 

At June 30, 2003, we had cash and cash equivalents totalingapproximately $1,053,640**. **Since that date, we have expendedall those funds and, as described above, are currently funding our operationsthrough borrowings from our principal institutional investor as cash isrequired for operations.  This investorhas continued to provide funding to us, but there can be no assurance that theinvestor will continue to provide funding to us.

 

On June 18, 2003, we closed the acquisition of the *Imagent* business from Alliance.  At the closing, we paid approximately$669,000 in cash and delivered 2,198,137 shares of our common stock.  At the direction of Alliance, we deliveredthe cash and stock to creditors, employees and vendors of Alliance.  In addition to the bridge financing weprovided to Alliance before the closing, our purchase of a $1,250,000 interestin Alliance’s obligations to Xmark and our assumption of specified Allianceoperating liabilities related to *Imagent*,we are obligated to pay additional amounts to Alliance secured and unsecuredcreditors at various times between 90 and 365 days after the closing, (i) anaggregate of $2,500,000 to Xmark, (ii) subject to reaching satisfactoryagreements with certain Alliance secured and unsecured creditors, (iii) anaggregate amount of up to approximately $3,000,000 to creditors other thanXmark, pay certain royalties based upon sales of *Imagent*, subject to certain offsets, and (iv) subject tostockholder approval deliver up to an aggregate of approximately 1,985,522shares of our common stock.

 

We also entered into a series of agreements with Xmark.  During the first six months, pursuant to anagreement with Xmark, we issued a total of 761,250 shares (including 11,250shares as a penalty for the failure to register those shares by April, 2003) ofour common stock to Xmark and Xmark agreed to not exercise any rights againstAlliance as a creditor.  On May 2, 2003,we entered into a Going Forward Agreement pursuant to which Xmark agreed toextend the period during which Xmark had refrained from exercising its rightsas a creditor against Alliance to permit us to complete the acquisition.

 

At the closing of the *Imagent*acquisition, we issued Xmark an additional 1,056,144 shares that representedpayment of interest that was due to Xmark by Alliance through the closing dateof the acquisition.  The value of theseadditional 1,056,144 shares has been treated as part of the purchase price ofthe *Imagent* business.

 

Also at the closing of our acquisition of the *Imagent* assets, pursuant to the GoingForward Agreement, we delivered to Xmark our promissory notes in the totalprincipal amount of $2,500,000.  Thesenotes are payable in two equal installments on August 5, 2003 and November 3,2003 or (if sooner) at the time we complete a financing resulting in at least$18,000,000 of gross proceeds to us and bear interest at 3% over the primerate.  The interest on the notes ispayable in shares of our common stock.

 

Three of our existing institutional investors have provided capital tous in exchange for our Promissory Notes in an aggregate principal amount of upto $4,660,000 (at June 30, 2003 and $5,160,000 as at July 31, 2003).  The notes bear interest at a rate of 7.25%per annum, compounded monthly.  A total

 

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of $4,160,000 of these notesare convertible into our common stock. Unless converted into common stock, amounts due under the notes werepayable on the earlier of August 5, 2003 or the date that we commitvarious defaults or become subject to bankruptcy or similar proceedings.  We defaulted on the payment of $4,160,000 ofthese notes on August 5, 2003; however, two of these investors loaned us anadditional $350,000 as evidenced by promissory notes dated August 12, 2003 and$1,484,000 as evidenced by promissory notes dated August 19, 2003 which bearinterest at the rate of 7.25% per annum, compounded monthly.

 

In the second quarter, we recognized the issuance of 124,627 shares ofour common stock that previously had been subject to rescission.  In the first six months of 2003, we alsoissued an aggregate of 67,778 shares of our common stock pursuant to severalfactors including cash, compensation for service, penalties for failure totimely register certain shares and the cashless exercise of stock options.

 

The entire principal and interest outstanding under our notes to theseinvestors automatically converts into shares of our common stock on the sameterms and at the same price as the shares issued in a financing for additionallong-term capital.  In no event,however, may these be converted into shares of our common stock prior tostockholder approval if and to the extent that conversion would violate Nasdaqrules applicable to us.  To secure theobligations under our notes to these investors, we granted them a securityinterest in all of our tangible and intangible assets, including intellectualproperty.  This lien covers our *Imagent*-related assets, but as to theseassets the investors’ lien is subordinate to the security interest held byXmark.

 

Wehave been financing our operations with the proceeds of the financing we closedin November and December 2002 and January 2003 and, currently, throughborrowings under our promissory notes from certain of our existinginstitutional investors.  Our ability toconduct operations is entirely dependent on our ability to obtain additionalcapital from these and potentially other investors.  If we raiseadditional funds by issuing equity securities, substantial dilution to existingstockholders may result.  However, therecan be no assurance that such capital will be available under acceptable terms,if at all.  See “Risk Factors — Wemust raise additional financing in the future and our inability to do so willprevent us from implementing our business development plan,” below.

 

Wehave used, and expect over the next 12 months to use the capital available fromsales of common stock and debt, for general corporate purposes, includingactivities related to the marketing and manufacture of *Imagent*, preparing for and conductingclinical trials, purchase and preparation of clinical material, conduct ofpreclinical studies, administrative expenses to support our research anddevelopment activities, capital expenditures and to meet working capital needs.

 

We are currently seeking to raise capital in one or more transactionsto fund our immediate and longer term capital needs through the privateplacement of securities to accredited investors.  Inaddition, we expect to evaluate from time to time the acquisition or license ofbusinesses, technologies or products. The purchase of any such licenses or technologies would be funded by aportion of any net proceeds of future offerings or the issuance of debt orequity securities specifically for that purpose.  We expect our use ofcapital to increase as we build the commercial presence of *Imagent* and conduct further clinicaltrials of our products in development.

 

Atthe time of the acquisition of the *Imagent*business, we entered into a lease agreement with a unit of Baxter Internationalfor certain equipment used for the manufacture of *Imagent*.  Our annualcost for this lease is approximately $126,000. Our other long-term commitments that are not recorded on our financialstatements are for our office space in Pennsylvania and in San Diego,California.  Annual rent for theCalifornia lease, which expires in 2008, is approximately $792,000 and for thePennsylvania lease, which expires in 2004, is approximately $173,000. Inaddition, we have provided for the remaining lease payments of certainlaboratory equipment that is no longer useful to our operations. The leaseexpires in 2004, and the remaining payments total approximately $602,000.

 

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**Plan of Operation**

 

Management believes it lacks sufficient working capital to fundoperations****for the entire fiscalyear ending December 31, 2003. Therefore, substantial additional capital resources will be required tofund the ongoing operations related to our marketing and manufacturing of *Imagent* and our research and businessdevelopment activities.  Our financialcondition raises substantial doubt about our ability to continue as a goingconcern.  We believe there are a numberof potential alternatives available to meet the continuing capital requirementssuch as public or private financings or collaborative agreements.  We are taking continuing actions to reduceour ongoing expenses.  If adequate fundsare not available, we will be required to significantly curtail our operatingplans and may have to sell or license out significant portions of ourtechnology or potential products.  The2002 and 2003 financial statements, including those contained in this Form10-QSB/A, do not include any adjustment to reflect the possible future effectson the recoverability and classification of assets or the amount andclassification of liabilities that may result from the outcome of thisuncertainty.

 

During the next twelve months, depending on the availability ofsufficient capital, we will focus our efforts primarily on thecommercialization of *Imagent* andthe development of PH-50 and N1177. Specifically, we will focus our operating efforts on the sales andmarketing of *Imagent*.  If additional capital becomes available, wealso expect to conduct preclinical and human clinical studies of our productsin development.  We expect to continueto incur increasing losses for at least the next three years as we intensifyresearch and development, preclinical and clinical testing and associatedregulatory approval activities and engage in or provide for the manufactureand/or sale of any products that we may develop.

 

Greater capital resources would enable us to quicken and expand ourmarketing and research and development activities, and our failure to raiseadditional capital will (absent a suitable collaborative agreement providingfor a third party to take over these functions) significantly impair or curtailour ability to conduct further activities. In any event, complete development and commercialization of ourtechnology will require substantial additional funds.  See “Risk Factors—We must raise additional financing in thefuture and our inability to do so will prevent us from implementing ourbusiness plan,” below.  We are seekingto raise capital through the sale of our common stock or other securities in aprivate placement to fund our immediate and longer term capital needs.

 

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## **ITEM3.  CONTROLSAND PROCEDURES**

 

Wemaintain a set of disclosure controls and procedures and internal controlsdesigned to ensure that information required to be disclosed in filings madepursuant to the Securities Exchange Act of 1934 is recorded, processed,summarized and reported within the time periods specified in the SEC’s rulesand forms. Our principal executive and financial officers have evaluated ourdisclosure controls and procedures within 90 days prior to the filing of thisQuarterly Report on Form 10-QSB/A and have determined that such disclosurecontrols and procedures are effective.

 

Our recent acquisition of the *Imagent* business from Alliance presents new challenges to our ability to maintain internal controls and procedures.  We have completed the certification of the Company’s internal controls and procedures in this Form 10-QSB/A on the basis that the financial information relating to the *Imagent* business was provided by Alliance’s financing organization, part of the other financial information was compiled by our employees who are experienced from their previous work for Alliance in performing such tasks for public companies, and other information was prepared in accordance with our normal disclosure procedures and controls.  As we continue to integrate the *Imagent* business into the Company and consolidate the financial function of this business with our previous operations, we intend to reevaluate the effectiveness of our internal controls so that they are appropriate to our new business.

 

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# **PARTII.  OTHERINFORMATION**

## **ITEM1.  LEGALPROCEEDINGS**

 

On June 18, 2003, we filed a complaintagainst Amersham Health, Inc. and two other Amersham affiliates alleging thatcertain Amersham products infringe on claims in our patents covering *Imagent*.  The case is captioned as PhotogenTechnologies, Inc. and Alliance Pharmaceutical Corp. v. Amersham Health Inc.et. al., Civil Action No. 03CV2853(SRC), in the United States DistrictCourt for the District of New Jersey. Our complaint alleges that principally through their Optison® product,Amersham Health Inc. and related Amersham entities infringe on seven patentsowned by us.  We are also seeking adeclaration that the claims of fourteen Amersham patents are invalid and arenot infringed by our *Imagent*product.  Alliance, the party from whomwe recently acquired the *Imagent*product, is also a plaintiff in the suit. We are seeking damages, an injunction against Amersham, a declaratoryjudgment and other relief.

 

Amersham filed an answer dated July 18, 2003 denying the materialallegations of our claims and asserting certain affirmative defenses andcounterclaims.  Amersham’s counterclaimsagainst us include claims of patent infringement, breach of contract, breach ofgood faith and fair dealing, and tortuous interference with contract.  We are studying Amersham’s answer, defensesand counterclaims in consultation with our counsel.

 

On July 29, 2003, the European Patent Office revoked Amersham’sEuropean Patent (EP) No. 620744 with claims directed to contrastagents.  We had brought the oppositionproceeding against the EP ‘744 patent in the European Patent Office.  The EP ‘744 is a counterpart to the patentsthat are the subject of our suit against Amersham in the United Statesdescribed above.

 

## **ITEM2.  CHANGESIN SECURITIES**

 

During the six-month period ending June 30, 2003, we have issuedsecurities in the transactions described below without registration under theSecurities Act.  These securities wereoffered and sold by us in reliance upon exemptions from the registrationrequirements provided by Section 4(2) of the Securities Act andRegulation D under the Securities Act relating to sales not involving anypublic offering, and/or Rule 701 under the Securities Act relating totransactions occurring under compensatory benefit plans.  We relied on representations and warrantiesfrom the purchasers of the securities that they were acquiring the securitiesfor their own account and not with a view to, or for sale in connection with,any distribution of the securities in violation of the Securities Act.

 

•                  Pursuantto the terms of the Standstill and Make Whole Agreement dated as of December30, 2002, in each of January, February and March 2003, we issued 250,000 shares(an aggregate of 750,000 shares) to Xmark in exchange for Xmark’s agreement toforbear from exercising its remedies as a creditor against Alliance.

 

•                  Pursuantto the terms of a Consulting Agreement dated as of January 30, 2003, weissued 75,000 shares of our common stock to a consultant, subject to certainforfeiture provisions, in exchange for consulting services. Forfeitureprovisions for 18,750 of these shares have expired through June 30, 2003.

 

•                  DuringJanuary and February 2003, we awarded 40,000 options to acquire common stockpursuant to our 2000 Long Term Incentive Compensation Plan (the “2000 Plan”).

 

•      InJanuary 2003 we issued 27,778 shares of our common stock for cash.

 

•                  OnJune 1, 2003, we issued an aggregate of 11,250 shares to Xmark as a penalty forfailing to register for resale the shares of common stock issued to Xmark.

 

•      InMay and June 2003, we issued an aggregate of 10,000 shares of our common stockpursuant to cashless exercise of options.

 

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•                  InMay and June, 2003, we issued revolving convertible senior secured promissorynotes to certain of our investors in an aggregate principal amount of$4,160,000 bearing interest at 7.25% annually, compounded monthly.

 

•                  Inconnection with the acquisition of the *Imagent*assets, we issued an aggregate of 2,198,137 shares of our common stock tovarious creditors of Alliance on June 18, 2003.

 

•                  In June 2003, we awarded options to acquire1,865,750 shares of our common stock at an exercise price of $1.25 per share tonew employees under our 2000 Plan.

 

Inaddition, in June 2003 we recorded the issuance of 124,627 shares of our commonstock that had previously been subject to rescission.

 

## **ITEM3.  DEFAULTS UPON SENIOR SECURITIES**

 

Under the terms of that certain Going Forward Agreement we entered intowith Xmark dated as of May 2, 2003, we had an obligation to pay Xmark$1,250,000 on August 5, 2003 and an additional $1,250,000 on November 3, 2003or (if sooner) at the time we complete a financing resulting in at least $18,000,000of gross proceeds to us.  On August 5,2003, we were unable to make our $1,250,000 payment to Xmark.  On August 6, 2003, we received a defaultnotice from Xmark regarding our failure to make the $1,250,000 payment.  On August 18, 2003, we entered into a LetterAgreement with Xmark pursuant to which we agreed to make an immediate paymentof $1,250,000 and Xmark agreed to rescind the default notice.  The other key terms of the Letter Agreementare as follows:

 

•                  Weremain obligated to make a second principal payment of $1,250,000 on theearlier to occur of (i) November 3, 2003 or (ii) the consummation of one ormore institutional financings resulting in aggregate gross proceeds to us of atleast $18,000,000.  We will have theright to extend the November 3rd due date monthly until April 3,2004 for a fee (and not as a reduction of any amounts due and owing under thepromissory notes) ranging from $50,000 to $100,000 per month.

 

•                  Withintwenty days of the execution of the Agreement we will pay to Xmark, in cash orin shares of our common stock (valued at $1.00 per share, subject to certainadjustments), $26,248 for failure to timely register the shares of our commonstock issued to Xmark for resale.

 

•                  Ourobligation to register the shares of common stock issued to Xmark for resaleunder the terms of the Going Forward Agreement was terminated and no furtherpenalty payments or shares will be due to Xmark as a result of our failure toregister the shares of our common stock held by Xmark.  In lieu of the demand registration rightsXmark previously had, the Letter Agreement provides that Xmark will havepiggy-back registration rights.

 

•                  Thedefinition of “Event of Default” in the security agreements securing ourobligations to Xmark was amended.  Theprovision that an Event of Default included any default by us in the payment ofborrowed money indebtedness was eliminated. Instead, we agreed that it would be an Event of Default if we maderepayments of borrowed money indebtedness; and with regard to certain specifiedinstitutions, we agreed that we would also make a pro rata payment to Xmark.

 

•                  Withregard to payments to certain specified institutions, we agreed we would alsomake a pro rata payment to Xmark.

 

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Except as specifically amended by the Agreement, the terms of the GoingForward Agreement and the other agreements governing our obligations to Xmarkremain in effect, including, but not limited to, Xmark’s put right with respectto our common stock that Xmark owns.

 

We were also obligated to repay our promissory notes in favor of threeof our investors for an aggregate principal amount of $4,160,000 as of August5, 2003.  We were unable to meet ourobligation under the terms of these notes at that time; however, two of thesenote holders loaned us an additional principal amount of $1,834,000, asevidenced by secured promissory notes bearing interest at 7.25% per annum,compounded monthly and are payable upon demand.  Our obligations to these note holders are secured by a secondpriority lien in favor of the note holders on our *Imagent*-related assets and a first priority lien in favor ofthe note holders on all of our other assets.

 

## **ITEM5.  OTHER INFORMATION**

 

**RISK FACTORS**

 

This Form 10-QSB/A contains (and press releases and other publicstatements we may issue from time to time may contain) a number offorward-looking statements regarding our business and operations.  Statements in this document that are nothistorical facts are forward-looking statements.  Such forward-looking statements include those relating to:

 

•                  our currentbusiness and product development plans,

 

•                  our futurebusiness and product development plans,

 

•                  the timing andresults of regulatory approval for proposed products, and

 

•                  projectedcapital needs, working capital, liquidity, revenues, interest costs and income.

 

Examples of forward-looking statements include predictive statements,statements that depend on or refer to future events or conditions, andstatements that may include words such as “expects,” “anticipates,” “intends,”“plans,” “believes,” “estimates,” “should,” “may,” or similar expressions, orstatements that imply uncertainty or involve hypothetical events.

 

Forward-looking statements involve known and unknown risks and uncertaintiesthat may cause our actual results in future periods to differ materially fromwhat is currently anticipated.  We makecautionary statements in certain sections of this Form 10-QSB/A, includingunder “Risk Factors.”  You should readthese cautionary statements as being applicable to all related forward-lookingstatements wherever they appear in this Form 10-QSB/A, in the materialsreferred to in this Form 10-QSB/A, in the materials incorporated by referenceinto this Form 10-QSB/A, or in our press releases or other publicstatements.  In light of these risks,uncertainties and assumptions, the forward-looking events discussed in thisForm 10-QSB/A or other documents incorporated by reference might not occur.  No forward-looking statement is a guaranteeof future performance and you should not place undue reliance on anyforward-looking statement.

 

The following are the key risk factors that may affect our futureresults:

 

**We must raise additional financing in the future and ourinability to do so will prevent us from continuing as a going concern andimplementing our business development plan.**

 

During 2002, we sold $12,028,902 of our common stock to certaininstitutional investors and a

 

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group of individual accreditedinvestors at a price per share of $1.08 ($2,500,000 of which was from theconversion of our outstanding note payable to Tannebaum, LLC).  Our cash and securities on hand at June 30,2003, was approximately $1,053,640.  Weare currently funding our operations through the issuance of secured promissorynotes to one or more of our principal institutional investors.  We will need substantial additionalfinancing for our marketing and product development programs.

 

We cannot accurately estimate the amount of additional financingrequired to develop our products.  Inparticular, we are currently seeking capital in one or more transactions tofund our immediate and longer term capital needs through a private placement toaccredited investors.  Additional fundsmay not be available on acceptable terms, if at all, and existing stockholdersmay be diluted as a result of those offerings. The pricing of our common stock, or other securities convertible intocommon stock, in any such transaction may also result in an increase in thenumber of shares of common stock issuable upon exercise of warrants inaccordance with the anti-dilution provisions in the instruments governing thosesecurities.

 

**Prior to our acquisition of the *Imagent* assets, we were a development stage company, we haveconducted only limited studies on our products in development and we do nothave any revenues from sales.**

 

Our company and our technologies, other than our recently acquired *Imagent* product, are in early stages ofdevelopment. We began our business as a biopharmaceutical company in 1997.  To date, we have not generated revenues fromsales or operations.  We expect togenerate revenue from sales of our newly acquired product, *Imagent*, but there can be no assurancethat we will be able to generate enough revenue from such sales to beprofitable for at least several years, if at all.

 

The drug products we currently contemplate developing will requirecostly and time-consuming research and development, preclinical and clinicaltesting and regulatory approval before they can be commercially sold.  We may not be able to develop our technologyinto marketable products or develop our technology so it is effective fordiagnosis or treatment of human diseases. As a result of changing economic considerations, market, clinical orregulatory conditions, or clinical trial results, we may shift our focus ordetermine not to continue one or more of the projects we are currentlypursuing.

 

**We have a history of losses and we may not achieve ormaintain profitability in the future or pay cash dividends.**

 

We have incurred losses since the beginning of our operations.  As of June 30, 2003, we have incurredcumulative net losses (before dividends on preferred stock) of approximately$41,075,945.  We expect our losses toincrease in the future as our financial resources are used for research anddevelopment, preclinical and clinical testing, regulatory activities,manufacturing, marketing and other related expenses.  We may not be able to achieve or maintain profitability in thefuture.  We have never declared or paidany cash dividends to stockholders and do not expect to do so in theforeseeable future.

 

**The market for imaging products is extremely competitive, andmany of our competitors have greater resources and have products that are inmore advanced stages of development than we do, which may give them acompetitive advantage over us.**

 

In addition to the *Imagent*product*,* there are currently twoFDA approved ultrasound contrast agents being marketed in the U.S. for certaincardiology applications by Amersham Health, Inc. and Bristol-Myers Squibb.  In addition, Bracco International has fileda New Drug Application with the FDA seeking approval to market itsproduct.  Three other companies (POINTBiomedical, Acusphere and Amersham Health) are in advanced clinical trials forthe use of ultrasound contrast agents for assessing

 

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certain organs and vascularstructures.  We expect that competitionin the ultrasound contrast imaging field will be based primarily on eachproduct’s safety profile, efficacy, stability, ease of administration, breadthof approved indications, and physician, healthcare payer and patientacceptance.  We are at the very earlystages of launching the *Imagent*product, and we cannot predict whether it will compete successfully with theseother products.

 

**We filed a suit against Amersham for patent infringementwhich, if resolved unfavorably, could impede our ability to utilize our patentsfor *Imagent*.**

 

We filed a complaint against Amersham Health, Inc. and two otherAmersham affiliates alleging that certain Amersham products infringe on claimsin our patents covering *Imagent*.  We also seek a declaration that our patentsdo not infringe on Amersham’s in this area, and other relief.  Alliance joined us as a plaintiff in thissuit.  Amersham filed an answer denyingthe material allegations of our claims and asserting certaincounterclaims.  If the suit is resolvedunfavorably to us, we may have difficulty utilizing the protections of ourpatents for *Imagent* and there maybe other complications that may make it difficult to implement ourcommercialization strategy for *Imagent*.

 

**Our common stock could be delisted from the NASDAQ SmallCapMarket, which would make trading in our common stock more difficult.**

 

Since November 1999, our common stock has been quoted in the NasdaqSmallCap Market.  We received a letterdated August 26, 2003 from Nasdaq notifying us that they had not received ourForm 10-Q for the period ended June 30, 2003 as required by MarketplaceRule 4310(c)(14) and that our securities will be delisted from The NasdaqStock Market on September 4, 2003 unless we request a hearing in accordancewith the Marketplace Rule 4800 Series. We have requested such a hearing, scheduled for September 18, 2003, andany delisting action will be stayed until then.  Our shares could be delisted if Nasdaq does not reverse itsposition or if we otherwise fail to meet the listing requirements of the NasdaqSmallCap Market, which would force us to list our shares on the OTC BulletinBoard or some other quotation medium, such as pink sheets, depending upon ourability to meet the specific listing requirements of those quotation systems.  As a result, an investor might find it moredifficult to dispose of, or to obtain accurate price quotations for, ourshares.  Delisting might also reduce thevisibility, liquidity and price of our common stock.

 

If our common stock were delisted from the Nasdaq SmallCap Market andwere not traded on another national securities exchange, we could becomesubject to penny stock regulations that impose additional sales practicedisclosure and market making requirements on broker/dealers who sell or make amarket in our stock.  The rules of theSEC generally define “penny stock” to be common stock that has a market priceof less than $5.00 per share and is not traded on a national exchange.  If our stock became subject to penny stockregulations, it could adversely affect the ability and willingness ofbroker/dealers who sell or make a market in our common stock and of investorsto purchase or sell our stock in the secondary market.

 

**Our proposed products are subject to extensive testing andgovernment approval, and we may not obtain or maintain the approvals necessaryto sell our proposed products.**

 

Other than *Imagent*, noneof our proposed imaging products has received the FDA’s approval.  An extensive series of clinical trials andother associated requirements must be completed before our proposed productscan be approved and sold in the U.S. or other countries.  Requirements for FDA approval of a productinclude preclinical and clinical testing for effective use and safety in animalsand humans, which can be extremely costly. The time frame necessary to perform these tasks for any individualproduct is long and uncertain, and we may encounter problems or delays that wecannot predict

 

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at this time.  Even if testing is successful, our proposedproducts may not demonstrate sufficient effectiveness or safety to warrantapproval by the FDA or other regulatory authorities.  Any regulatory approval may not cover the clinical symptoms or indicationsthat we may seek.  We must also obtainregulatory approvals comparable to those required in the U.S. to market ourproducts in other countries.

 

Our proposed technologies and products generally must completepreclinical tests in animals and three phases of tests (also called clinical trials)in humans before we can market them for use. Use of our technology has been limited primarily to laboratoryexperiments and animal testing, only N1177 has completed Phase 1 human clinicaltrials.  We have not yet conductedsubstantive studies on the effectiveness of our compounds on human subjects.

 

Our results from early clinical trials may not predict results that wewill obtain in large-scale clinical trials, as a number of companies havesuffered significant setbacks in advanced clinical trials, even after promisingresults in early trials.

 

We may not conduct additional Phase 2 or Phase 3 clinical trials forour products and such trials, if begun, may not demonstrate any efficacy or maynot be completed successfully in a timely manner, if at all.

 

The rate of completion of our clinical trials depends upon, among otherthings, the rate of patient enrollment. Patient enrollment is a function of many factors, including the size ofthe patient population for a particular indication, the nature of the clinicalprotocol under which our products will be studied, the proximity of the patientto a clinical site and the eligibility criteria for the study.  Delays in planned patient enrollment mayresult in increased costs, regulatory filing delays, or both.

 

Furthermore, we, the FDA or other regulatory authorities may alter,suspend or terminate clinical trials at any time.  If we do not successfully complete clinical trials and obtainregulatory approval for a product, we will not be able to market that product.

 

**Any products approved by the FDA are subject to postmarketrequirements of the FDA.**

 

Our FDA approved product, *Imagent*,is subject to numerous postmarket requirements by regulatory authorities.  We will be subject to inspection andmarketing surveillance by the FDA to determine our compliance with regulatoryrequirements with respect to any approved products.  If the FDA finds that we have failed to comply, it can institutea wide variety of enforcement actions, ranging from a public warning letter tomore severe sanctions such as:

 

•                  fines, injunctions and civil penalties;

 

•                  recall or seizure of our products;

 

•                  operating restrictions, partial suspension ortotal shutdown of production; and

 

•                  criminal prosecution.

 

Anyenforcement action by the FDA may also affect our ability to commerciallydistribute our products in the U.S.

 

29

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**Product liability claims could increase our costs andadversely affect our results of operations.**

 

The clinical testing, manufacturing and marketing of our productcandidates may expose us to product liability claims, and we may experiencematerial product liability losses in the future.  We maintain certain levels of product liability insurance for theuse of our product candidates in clinical research, but our coverage may notcontinue to be available on terms acceptable to us or adequate for liabilitieswe actually incur.  A successful claimbrought against us in excess of available insurance coverage, or any claim orproduct recall that results in significant adverse publicity against us, mayhave a material adverse effect on our business and results of operations.

 

**If we do not obtain and maintain patent or other protectionof our core technologies, we may have difficulty commercializing products usingthese technologies.**

 

Our success depends in part on our ability to obtain, assert and defendour patents, protect trade secrets and operate without infringing theintellectual property of others.  Amongthe important risks in this area are that:

 

**•**                  Ourpatent applications may not result in issued patents.  Moreover, any issued patents may not provide us with adequateprotection of our intellectual property or competitive advantages, and the lawon the scope of patent coverage is continually changing.

 

•                  Various countries limit the subject matterthat can be patented and limit the ability of a patent owner to enforce patentsin the medical field.  This may limitour ability to obtain or utilize those patents internationally.

 

•                  Existing or future patents or patentapplications (and the products or methods they cover) of our competitors (orothers, such as research institutions or universities) may interfere,invalidate, conflict with or infringe our patents or patent applications.  Similarly, the use of the methods ortechnologies contained in our patents, patent applications and otherintellectual property may conflict with or infringe the rights of others.

 

•                  If an advance is made that qualifies as ajoint invention, the joint inventor or his or her employer may have rights inthe invention.

 

We will be able to protect our proprietary rights from unauthorized useby third parties only to the extent that these rights are covered by valid andenforceable patents or effectively maintained as trade secrets.  We own two patents in the U.S., and certainother patents in foreign countries including Australia, Canada, Japan andGermany that relate to methods for performing lymphography.  We also acquired an extensive patentportfolio related to *Imagent* aspart of the acquisition of the *Imagent*business.

 

Other than the patents and patent applications we acquired through thepurchase of the *Imagent* Business,we have filed patent applications in the U.S. and under the Patent CooperationTreaty covering a number of foreign countries. These patent applications relate to the use of nanoparticulates,including PH-50, as cardiovascular imaging agents and to deliverpharmacologically active substances for treatment of various diseases.  We are also the exclusive licensee of agroup of patented proprietary compounds known as “nanoparticulates,” includingN1177 and PH-50 from Nycomed Imaging AS. We are the exclusive licensee of U.S. and foreign patent applicationsfrom Massachusetts General Hospital which relate to diagnostic imaging agentsand methods for using the diagnostic imaging agents for medical location,treatment and diagnosis of tumors and other diseased tissues.

 

30

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Additional patents may never be issued on any of the patentapplications we own or license from third parties.  Furthermore, even if such patents are issued, the validity of thepatents might successfully be challenged by a third party.  The patents might not provide protectionagainst competitive products or otherwise be commercially valuable, or theapplications filed by others might result in patents that would be infringed bythe manufacture, use or sale of our products.

 

The patent position of biopharmaceutical companies involves complexlegal and factual questions and therefore we cannot assure the enforceabilityof these patents.  Litigation overpatents and other intellectual property rights occurs frequently in ourindustry and there is a risk that we may not prevail in disputes over theownership of intellectual property. Further, an interference proceeding with the Patent and Trademark Officemay be instituted over the rights to certain inventions and there is a riskthat we may not prevail in such an interference proceeding.  Those disputes can be expensive and timeconsuming, even if we prevail. Intellectual property disputes are often settled through licensingarrangements that could be costly to us. In any intellectual property litigation, it is possible that licensesnecessary to settle the dispute would not be available on commerciallyreasonable terms or that we would not be able to redesign our technologies toavoid any claimed infringement.

 

Confidentiality agreements covering our intellectual property may beviolated and we may not have adequate remedies for any violation.  Third parties may challenge our existingpatents and seek to hold them invalid or unenforceable.  Also, our intellectual property may in otherways become known or be independently discovered by competitors.

 

To the extent we use intellectual property through licenses orsub-licenses (as is the case for some of our lymphography technology), ourrights are subject to us performing the terms of the license or sub-licenseagreement with third parties.  Ourrights are also subject to the actions of third parties we may not be able tocontrol, such as our sub-licensor complying with the terms of its license withthe patent owner and the patent owner maintaining the patent.

 

Where intellectual property results from a research project supportedby government funding, the government has limited rights to use theintellectual property without paying us a royalty.

 

**We are highly dependent upon a small number of employees andconsultants who provide management expertise, and it may be difficult toimplement our business operations and development plans without this expertise.**

 

These individuals have entered into employment or consultingagreements, confidentiality and/or non-competition agreements with us.  We could suffer competitive disadvantage,loss of intellectual property or other material adverse effects on our businessand results of operations if any employee or consultant violates or terminatesthese agreements or terminates his or her association with us.  Our growth and future success also dependsupon the continued involvement and contribution from these individuals, as wellas our ability to attract and retain highly qualified personnel now and in thefuture.

 

We currently employ two senior executive officers, includingDr. Williams (our Chief Executive Officer) and Mr. Boveroux (ourChief Financial Officer).  We also haveretained consultants to advise us in regulatory affairs and product developmentmatters.  If we lost the services of ourexecutive officers or outside consultants, we could experience a delay in theimplementation of our business plan until we arranged for another individual orfirm to fulfill the role.

 

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**The raw materials necessaryfor the manufacture of PH-50 and N1177 are supplied by one supplier.  The raw materials for *Imagent* are subject to a long-term supplycontract with one supplier.  Aninterruption in availability of those materials may impair our ability to testand market those products.**

 

We have assumed the rights and obligations of Alliance under the termsof the long-term supply agreement that Alliance has entered for the principalraw material for *Imagent. *Although some raw materials forthe *Imagent* product are currentlyqualified from only one source and we have some inventory, we will attempt toacquire additional inventory of these materials and to negotiate long-termsupply arrangements.  Raw materials usedin *Imagent*cannot be changedwithout equivalency testing of any new material by us and approval of the FDA.

 

We currently rely on Nanosystems, a division of Élan, as the solesupplier of the raw nanoparticulates used to manufacture PH-50 and N1177.  There can be no assurance that Nanosystemswill continue to supply us with the raw materials that we need in a timelymanner on conditions that are acceptable to us.

 

**We may encounterdifficulties starting or expanding our manufacturing operations.**

 

We are leasing a single manufacturing facility located in San Diego,California.  This facility is subject toa variety of quality systems regulations, international quality standards andother regulatory requirements, including requirements for good manufacturingpractices, or current good manufacturing procedures.  We may encounter difficulties expanding our manufacturingoperations in compliance with these regulations and standards, which also couldresult in a delay or termination of manufacturing or an inability to meet productdemand.

 

We will face risks inherent in operating a single facility for themanufacture of *Imagent.*  At this time, we do not have alternativeproduction plans in place or alternative facilities available should the SanDiego manufacturing facility cease to function.  These risks include unforeseen plant shutdowns due to personnel,equipment or other factors, and the resulting inability to meet customer orderson a timely basis.

 

**We have to rely on third parties and collaborativerelationships for the manufacture, clinical testing and marketing of *Imagent* and our proposed products, and itmay be difficult to implement our business development plans without thesecollaborations.**

 

We currently have an agreement for sales and marketing of *Imagent* by Cardinal Health, Inc. that isunder reevaluation to be more consistent with our current needs andresources.  We have had and expect tocontinue in the future to have a variety of research agreements withuniversities and other research institutions to investigate specificprotocols.  We also contract and expectto continue to contract with research organizations and other third parties tomanage clinical trials of our proposed products in development.  We must obtain and maintain collaborativerelationships with third parties for research and development, preclinical andclinical testing, marketing and distribution of our proposed products.

 

We are currently involved in a joint venture with affiliates of Élan,called Sentigen, Ltd., to develop and commercialize materials in the fieldof lymphography.  Collaborativerelationships may limit or restrict our operations or may not result in anadequate supply of necessary resources. Our collaborative partner could also pursue alternative technologies asa means of developing or marketing products for the diseases targeted by ourcollaborative program.  If a third partywe are collaborating with fails to perform under its agreement or fails to meetregulatory standards, this could delay or prematurely terminate clinicaltesting of our proposed products.

 

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**Our products may not be fully accepted by physicians,laboratories and health insurance providers, which would reduce our revenue andlimit our ability to raise capital.**

 

Our growth and success will depend upon market acceptance byphysicians, laboratories and health insurance providers of our products.  This requires acceptance of our products asclinically useful and cost-effective alternatives to other medical imagingmethods.  In addition, physicians may utilizeimaging techniques other than those for which our products are being developed(such as magnetic resonance imaging (MRI)) to image internal vasculature andorgans and therefore, our products may not be utilized.

 

**Changes in health care reimbursement policies or legislationmay make it difficult for patients to use or receive reimbursement for usingour products, which could reduce our revenues.**

 

Our success will depend, in part, on the extent to which healthinsurers, managed care entities and similar organizations provide coverage orreimbursement for using the medical procedures and devices we plan todevelop.  These third-party payers areincreasingly challenging the price of medical procedures and services andestablishing guidelines that may limit physicians’ selections of innovativeproducts and procedures.  We also cannotpredict the effect of any current or future legislation or regulations relatingto third-party coverage or reimbursement on our business.  We may not be able to achieve marketacceptance of our proposed products or maintain price levels sufficient toachieve or maintain any profits on our proposed products if adequatereimbursement coverage is not available. Failure by physicians, hospitals and other users of our products to obtainsufficient reimbursement from third-party payers for the procedures in whichour products would be used or adverse changes in governmental and privatethird-party payers’ policies toward reimbursement for such procedures wouldhave a material adverse effect on our business.

 

**A small group of stockholders control Photogen, which maymake it difficult for stockholders who are not in that group to influencemanagement.**

 

As of June 30, 2003, a small group of stockholders controlapproximately 64.7% of our outstanding common stock.  Several of our principal stockholders are also parties to aVoting, Drag-Along and Right of First Refusal Agreement (the “VotingAgreement”) concerning the election of certain designees to the Board ofDirectors.  The Voting Agreementrequires these stockholders to vote their shares for the election of certainindividuals nominated by parties to the Voting Agreement.  This concentration of ownership and controlmay delay or prevent a change in control of Photogen, and may also result in asmall supply of shares available for purchase in the public securities markets.These factors may affect the market and the market price for our common stockin ways that do not reflect the intrinsic value of our common stock.

 

**The price and trading volume of our common stock fluctuatessignificantly, like that of many biopharmaceutical companies, which may make itdifficult for us or a stockholder to sell our common stock at a suitable priceand may cause dilution for existing stockholders when we issue additionalshares.**

 

During the period from January 1, 2003 through June 30, 2003 theclosing trade price of our common stock ranged from $2.73 to $0.90****per share.  Daily trading volume ranged from zero shares to approximately29,950 shares during that period.

 

The market prices for securities of biopharmaceutical companies ingeneral have been highly volatile and may continue to be highly volatile in thefuture.  The following factors may havean impact on the price of our common stock:

 

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•                  Announcements by us or others regardingscientific discoveries, technological innovations, commercial products, patentsor proprietary rights;

 

•                  Announcements by us concerning the licensingor other transactions of our products or technologies;

 

•                  Private sale of a significant block of ourcommon stock at a price below the then current market price of our common stockand the subsequent registration and sale of those shares;

 

•                  The progress of preclinical or clinicaltesting;

 

•                  Developments or outcome of litigationconcerning proprietary rights, including patents;

 

•                  Changes in government regulation;

 

•                  Public concern about the safety of devices ordrugs;

 

•                  Limited coverage by securities analysts;

 

•                  The occurrence of any of the risk factorsdescribed in this section;

 

•                  Sales of large blocks of stock by anindividual or institution;

 

•                  Changes in our financial performance fromperiod to period, securities analysts’ reports, and general market conditions;and

 

•                  Economic and other external factors or adisaster or crisis.

 

**If stockholders holding substantial amounts of our commonstock should sell their stock in the public market, the price of our stockcould fall and it may be more costly for us to raise capital.**

 

Wehave reserved shares of common stock for future issuance upon grants ofoptions, or exercise or conversion of outstanding options and warrants andconvertible securities.  In addition,some of our shares are eligible for sale in the public market free ofrestriction under Rule 144 of the Securities Act.  Others shares of our common stock aresubject to agreements requiring us to permit the holders of the shares, undercertain circumstances, to join in a public offering of our stock or to demandthat we register their shares for resale.

 

Ifour options and warrants are all issued and exercised, investors may experiencesignificant dilution in the voting power of their common stock.  The sale of these shares could placedownward pressure on the overall market price of our common stock.

 

## **ITEM 6.**                                                     EXHIBITS AND REPORTS ON FORM 8-K

 

(a)                                  Exhibits.

 

Thefollowing is a list of exhibits filed as part of this Form 10-QSB/A.  Exhibits that were previously filed areincorporated by reference.  For exhibitsincorporated by reference, the location of the exhibit in the previous filingis indicated in parenthesis.

 

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| **EXHIBIT  NO.** |   | **DESCRIPTION**                                                                                                                                                                                                                                                                                              |
|------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|             |   |                                                                                                                                                                                                                                                                                                         |
| 2.1              |   | Asset Purchase Agreement  dated as of June 10, 2003 by and between Photogen Technologies, Inc. and  Alliance Pharmaceutical Corp. (Filed as Exhibit 2.1 to the company’s Form 8-K  dated June 20, 2003 and incorporated herein by reference.)                                                           |
|             |   |                                                                                                                                                                                                                                                                                                         |
| 3.1              |   | Articles  of Incorporation of Photogen Technologies, Inc., as amended  (Filed as  Exhibit E to the company’s Proxy Statement on Form DEFM 14A dated September  12, 2002 and incorporated herein by reference.)                                                                                     |
|             |   |                                                                                                                                                                                                                                                                                                         |
| 3.2              |   | Amended  and Restated Certificate of Designations, Preferences and Rights of Series A  Preferred Stock.  (Filed as Exhibit 3.5 to the company’s Quarterly  Report on Form 10-QSB for the quarter ended September 30, 1999 and  incorporated herein by reference.)                                  |
|             |   |                                                                                                                                                                                                                                                                                                         |
| 3.4              |   | Amended  and Restated Bylaws of Photogen Technologies, Inc. (Filed as Exhibit C  to the company’s Information Statement on Form DEF 14C dated December 23,  2002 and incorporated herein by reference.)                                                                                            |
|             |   |                                                                                                                                                                                                                                                                                                         |
| 10.1             |   | Going Forward Agreement  dated as of May 2, 2003 by and among Photogen Technologies, Inc., Xmark Fund,  L.P., and Xmark Fund, Ltd. (Filed as Exhibit 10.1 to the Company’s 8-K filed  on June 20, 2003 and incorporated herein by reference.)                                                           |
|             |   |                                                                                                                                                                                                                                                                                                         |
| 10.2             |   | Security Agreement dated  as of June 18, 2003 by and among Photogen Technologies, Inc., Xmark Fund,  L.P. and Xmark Fund, Ltd.  (Filed as  Exhibit 10.2 to the Company’s 8-K filed on June 20, 2003 and incorporated  herein by reference.)                                                        |
|             |   |                                                                                                                                                                                                                                                                                                         |
| 10.3             |   | Patent and Trademark  Security Agreement dated as of June 18, 2003 by and among Photogen  Technologies, Inc., Xmark Fund, L.P., and Xmark Fund, Ltd.  (Filed as Exhibit 10.3 to the Company’s  8-K filed on June 20, 2003 and incorporated herein by reference.)                                   |
|             |   |                                                                                                                                                                                                                                                                                                         |
| 10.4             |   | Form of Secured  Promissory Note dated June 18, 2003.   (Filed as Exhibit 10.4 to the Company’s 8-K filed on June 20, 2003 and  incorporated herein by reference.)                                                                                                                                 |
|             |   |                                                                                                                                                                                                                                                                                                         |
| 10.5             |   | Security Agreement dated  as of June 18, 2003 by and among Photogen Technologies, Inc., Oxford  Bioscience Partners IV L.P., MRNA Fund II L.P. and Mi3 LP.  (Filed as Exhibit 10.5 to the Company’s  8-K filed on June 20, 2003 and incorporated herein by reference.)                        |
|             |   |                                                                                                                                                                                                                                                                                                         |
| 10.6             |   | Patent and Trademark  Security Agreement dated as of as of June 18, 2003 by and among Photogen  Technologies, Inc., Oxford Bioscience Partners IV L.P., MRNA Fund II L.P. and  Mi3 LP.  (Filed as Exhibit 10.6 to the  Company’s 8-K filed on June 20, 2003 and incorporated herein by reference.) |
|             |   |                                                                                                                                                                                                                                                                                                         |
| 10.7             |   | Form of Revolving  Convertible Senior Secured Promissory Note dated June                                                                                                                                                                                                                                     |

 

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|   |   | 18, 2003.  (Filed as Exhibit 10.7 to the Company’s  8-K filed on June 20, 2003 and incorporated herein by reference.)                                                                                                                    |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                               |
| 10.8   |   | Equipment Lease dated as  of June 18, 2003 by and between Photogen Technologies, Inc. and Baxter  Healthcare Corporation.  (Filed as  Exhibit 10.8 to the Company’s 8-K filed on June 20, 2003 and incorporated herein  by reference.)   |
|   |   |                                                                                                                                                                                                                                               |
| 10.9   |   | Letter Agreement dated  as of August 18, 2003 by and between Photogen Technologies, Inc., Xmark Fund,  Ltd., and Xmark Fund L.P. (Filed as Exhibit 10.1 to the Company’s 8-K filed  on August 19, 2003 and incorporated herein by reference.) |
|   |   |                                                                                                                                                                                                                                               |
| 31.1   |   | Certification  of Chief Executive Officer pursuant to Rule 13a-14(a).                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                               |
| 31.2   |   | Certification  of Chief Financial Officer pursuant to Rule 13a-14(a).                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                               |
| 32.1   |   | Certification  of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                          |
|   |   |                                                                                                                                                                                                                                               |
| 32.2   |   | Certification  of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                          |

 

(b)                                 Reports on Form8-K.

 

The followingreports on Form 8-K were filed during the three-month period ending June 30,2003:

 

1.                                       Reporton Form 8-K dated May 1, 2003 disclosing certain transactions with AlliancePharmaceuticals Corp., Xmark Fund, L.P. and Xmark Fund, Ltd.

 

2.                                     Reporton Form 8-K dated June 10, 2003 disclosing the execution of an Asset PurchaseAgreement with Alliance Pharmaceutical Corp.

 

3.                                       Reporton Form 8-K dated June 18, 2003 disclosing the closing of the acquisition ofcertain assets from Alliance Pharmaceutical Corp.

 

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**Signatures**

 

In accordance with the requirements of the Exchange Act, the registranthas caused this report to be signed on its behalf by the undersigned, thereuntoduly authorized.

 
| Date:  October 20, 2003 | Photogen Technologies, Inc.                                                                                                            |
|------------------------------|----------------------------------------------------------------------------------------------------------------------------------------|
|                         |                                                                                                                                   |
|                         |                                                                                                                                   |
|                         |  /s/ Taffy J. Williams                                                                                                            |
|                         | Taffy J. Williams, Ph.D., President  and Chief Executive Officer                                                                       |
|                         |                                                                                                                                   |
|                         |                                                                                                                                   |
|                         |  /s/ Brooks Boveroux                                                                                                              |
|                         | Brooks Boveroux, Senior Vice President – Finance and  Chief Financial Officer (Principal Financial and Chief  Accounting Officer) |
|                              |                                                                                                                                        |  |

 

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**Exhibit Index**

 
| **EXHIBIT  NO.** |   | **DESCRIPTION**                                                                                                                                                                                                                                                                                             |
|------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|             |   |                                                                                                                                                                                                                                                                                                        |
| +2.1             |   | Asset Purchase Agreement  dated as of June 10, 2003 by and between Photogen Technologies, Inc. and  Alliance Pharmaceutical Corp. (Filed as Exhibit 2.1 to the company’s Form 8-K  dated June 20, 2003 and incorporated herein by reference.)                                                          |
|             |   |                                                                                                                                                                                                                                                                                                        |
| +3.1             |   | Articles  of Incorporation of Photogen Technologies, Inc., as amended  (Filed as  Exhibit E to the company’s Proxy Statement on Form DEFM 14A dated September  12, 2002 and incorporated herein by reference.)                                                                                    |
|             |   |                                                                                                                                                                                                                                                                                                        |
| +3.2             |   | Amended  and Restated Certificate of Designations, Preferences and Rights of Series A  Preferred Stock.  (Filed as Exhibit 3.5 to the company’s Quarterly  Report on Form 10-QSB for the quarter ended September 30, 1999 and  incorporated herein by reference.)                                 |
|             |   |                                                                                                                                                                                                                                                                                                        |
| +3.4             |   | Amended  and Restated Bylaws of Photogen Technologies, Inc. (Filed as Exhibit C  to the company’s Information Statement on Form DEF 14C dated December 23,  2002 and incorporated herein by reference.)                                                                                           |
|             |   |                                                                                                                                                                                                                                                                                                        |
| +10.1            |   | Going Forward Agreement  dated as of May 2, 2003 by and among Photogen Technologies, Inc., Xmark Fund,  L.P., and Xmark Fund, Ltd.  (Filed as  Exhibit 10.1 to the Company’s 8-K filed on June 20, 2003 and incorporated  herein by reference.)                                                   |
|             |   |                                                                                                                                                                                                                                                                                                        |
| +10.2            |   | Security Agreement dated  as of June 18, 2003 by and among Photogen Technologies, Inc., Xmark Fund,  L.P. and Xmark Fund, Ltd.  (Filed as  Exhibit 10.2 to the Company’s 8-K filed on June 20, 2003 and incorporated  herein by reference.)                                                       |
|             |   |                                                                                                                                                                                                                                                                                                        |
| +10.3            |   | Patent and Trademark  Security Agreement dated as of June 18, 2003 by and among Photogen  Technologies, Inc., Xmark Fund, L.P., and Xmark Fund, Ltd.  (Filed as Exhibit 10.3 to the Company’s  8-K filed on June 20, 2003 and incorporated herein by reference.)                                  |
|             |   |                                                                                                                                                                                                                                                                                                        |
| +10.4            |   | Form of Secured  Promissory Note dated June 18, 2003.   (Filed as Exhibit 10.4 to the Company’s 8-K filed on June 20, 2003 and  incorporated herein by reference.)                                                                                                                                |
|             |   |                                                                                                                                                                                                                                                                                                        |
| +10.5            |   | Security Agreement dated  as of June 18, 2003 by and among Photogen Technologies, Inc., Oxford  Bioscience Partners IV L.P., MRNA Fund II L.P. and Mi3 LP.  (Filed as Exhibit 10.5 to the Company’s  8-K filed on June 20, 2003 and incorporated herein by reference.)                            |
|             |   |                                                                                                                                                                                                                                                                                                        |
| +10.6            |   | Patent and Trademark  Security Agreement dated as of as of June 18, 2003 by and among Photogen  Technologies, Inc., Oxford Bioscience Partners IV L.P., MRNA Fund II L.P. and  Mi3 LP  (Filed as Exhibit 10.6 to the  Company’s 8-K filed on June 20, 2003 and incorporated herein by reference.) |

 

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|   |   |                                                                                                                                                                                                                                               |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| +10.7  |   | Form of Revolving  Convertible Senior Secured Promissory Note dated June 18, 2003.  (Filed as Exhibit 10.7 to the Company’s  8-K filed on June 20, 2003 and incorporated herein by reference.)                                           |
|   |   |                                                                                                                                                                                                                                               |
| +10.8  |   | Equipment Lease dated as  of June 18, 2003 by and between Photogen Technologies, Inc. and Baxter  Healthcare Corporation.  (Filed as  Exhibit 10.8 to the Company’s 8-K filed on June 20, 2003 and incorporated  herein by reference.)   |
|   |   |                                                                                                                                                                                                                                               |
| +10.9  |   | Letter Agreement dated  as of August 18, 2003 by and between Photogen Technologies, Inc., Xmark Fund,  Ltd., and Xmark Fund L.P. (Filed as Exhibit 10.1 to the Company’s 8-K filed  on August 19, 2003 and incorporated herein by reference.) |
|   |   |                                                                                                                                                                                                                                               |
| *31.1  |   | Certification  of Chief Executive Officer pursuant to Rule 13a-14(a).                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                               |
| *31.2  |   | Certification  of Chief Financial Officer pursuant to Rule 13a-14(a).                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                               |
| *32.1  |   | Certification  of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                          |
|   |   |                                                                                                                                                                                                                                               |
| *32.2  |   | Certification  of Chief Financial Officer 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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*Filed herewith

+ Incorporated herein by reference

 

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